Niti v. Assistant Commissioner Of Income Tax, Central Circle, Having Office At First Floor, Pundalik Niwas, Rua De Ourem, Panaji-Goa

Niti IN THE HIGH COURT OF BOMBAY AT GOA WRIT PETITION NOS.500 OF 2014 & 72 OF 2015 WRIT PETITION NO.500 OF 2014 Shri Dinar Tarcar,of major age, Indian National, resident of 'Mangesh', Fr. Agnelo Road, Altinho, Panaji-Goa.…Petitioner Versus 1. Assistant Commissioner of Income Tax, Central Circle, having office at First floor, Pundalik Niwas, Rua de Ourem, Panaji-Goa. 2. Joint Commissioner of Income Tax,Central Range, First Floor, Pundalik Niwas, Rua de Ourem, Panaji-Goa. 3. Commissioner of Income Tax, Karnataka (Central), Central Revenue Building Queen's Road, Bangalore – 560 001. 4. Union of India, represented by its Secretary, Ministry of Revenue, Central Secretariat, North Block, New Delhi – 110 001. …Respondents ANDWRIT PETITION NO.72 OF 2015 Mrs. Manisha Tarcar,wife of Mr. Dinar Tarcar,of major age, Indian National, resident of 'Mangesh', Fr. Agnelo Road, Altinho, Panaji-Goa. …Petitioner Versus Assistant Commissioner of Income Tax, Central Circle – 1(1), having office at Room No.207, First Floor, Aayakar Bhavan, Panaji-Goa. …Respondents Mr. Devidas Pangam with Mr. Nikhil Vaze, Mr. Amogh.Arlekar and Mr. Ajay Borkar, Advocates for the Petitioner Ms. Susan Linhares, Standing Counsel for the Respondents. CORAM:M. S. SONAK & R.N. LADDHA, JJ.Reserved on :23[rd] MARCH 2022Pronounced on :4[th] APRIL 2022 JUDGMENT: (Per M.S. Sonak, J.) 1.Heard learned Counsel for the parties. 2.The rule was issued in both these petitions on 23.04.2015and interim relief was granted in terms of prayer clause 'd'. Theorder made in Writ Petition No.500/2014, which is identical to the order made in connected Writ Petition No.72/2015, reads asfollows : “Heard Shri Pangam, learned Counsel appearingfor the Petitioner and Ms. Desai, learned Counselappearing for the Respondents. 2. Rule. 3. Ms. Desai, learned Counsel, waives service onbehalf of the Respondents. 4. The Petition challenges the notice dated25.03.2014 issued under Section 148 of the IncomeTax Act seeking to reopen the assessment forAssessment Year 2010-11. The reasons in support ofthe impugned notice do not indicate any directionsfrom CIT (Appeals) to issue the re-opening notice.However, the Order dated 23.07.2014 disposing ofthe objections relies upon the directions of the CIT(Appeals) to make Section 150 of the Income Tax Actapplicable to reject the objections. Thus, prima facie,the reasons in support not referring to the directionsof the CIT (Appeals), cannot support the impugned notice. Therefore, interim relief in terms of prayer (d).” 3.Though Ms. Linhares, the learned Counsel for therespondents, tried to urge that the issues involved in both thesepetitions may not be the same, after extensively hearing thelearned Counsel for the parties, we are satisfied that there is nosubstantial difference between the two matters. Therefore, wepropose to dispose of both these petitions by this commonjudgment and order, no doubt, bearing in mind the points ofdistinction urged by Ms. Linhares. Writ Petition No.500/2014will, however, be treated as the lead petition. 3. 4.The petitioners' challenge notices under Section 148 of theIncome Tax Act, 1961 (IT Act) dated 25.03.2014 and10.03.2014 which seek to reopen the completed assessment forthe assessment year 2010-2011 on the alleged ground that theincome chargeable to tax for the said assessment year has escapedassessment within the meaning of Section 147 of the IT Act.The petitioner in Writ Petition No.72/2015 is the wife of thepetitioner in Writ Petition No.500/2014. Both the petitioners areentitled to the benefit of the provisions of Section 5A of the ITAct concerning the apportionment of income between spousesgoverned by the Portuguese Civil Code about which, there is nodispute. 3. 4.The petitioners' challenge notices under Section 148 of theIncome Tax Act, 1961 (IT Act) dated 25.03.2014 and10.03.2014 which seek to reopen the completed assessment forthe assessment year 2010-2011 on the alleged ground that theincome chargeable to tax for the said assessment year has escapedassessment within the meaning of Section 147 of the IT Act.The petitioner in Writ Petition No.72/2015 is the wife of thepetitioner in Writ Petition No.500/2014. Both the petitioners areentitled to the benefit of the provisions of Section 5A of the ITAct concerning the apportionment of income between spousesgoverned by the Portuguese Civil Code about which, there is nodispute. 5.On 30.07.2010, the petitioner filed income tax returns forthe assessment year 2010-2011. The same was processed underSection 143(1) and notices under Sections 143(2) and 142(1)dated 22.06.2011 were served on the petitioners. The assessmentwas completed as evidenced by the assessment order dated26.12.2011 made by the Assessing Officer (AO). 6.On 27.12.2011, the AO made another assessment orderconcerning the assessee company - Dinar Tarcar Resources (India)Private Ltd. (DTRPL) of which both the petitioners areDirectors/shareholders. In this assessment order, an amount of₹23,76,49,580/- that was advanced to the assessee company byM/s. Minescape Minerals Pvt. Ltd. (MMPL) was treated asdeemed dividend under Section 2(22)(e) to the extent of₹17,19,30,000/-. 7.Aggrieved by the assessment order dated 27.12.2011,DTRPL appealed to CIT (Appeals) on 24.01.2012. The CIT(Appeals) vide order dated 16.01.2013, allowed this appeal andheld that deemed dividends could not have been brought to tax inthe hands of DTRPL but that the same could have been broughtto tax in the hands of the shareholders of DTRPL, that is, thepetitioners in these two petitions. The CIT (Appeals) left it to the AO to make such an assessment of deemed dividendsopenin the hands of the two petitioners. Admittedly, neither of thepetitioners were notified nor granted any opportunity of hearingin the appeal before the CIT (Appeals). 8.Based upon the appeal order dated 16.01.2013, the AO, on22.07.2013 forwarded proposals to the Commissioner of IncomeTax urging the exercise of revisional powers in respect of theassessment order dated 26.12.2011 concerning the petitioner'sassessment for the assessment year 2010-2011. By order dated10.03.2014, however, the Deputy Commissioner of Income Taxrefused to exercise revisional jurisdiction by pointing out that theAO had a remedy under Section 148 read with Section 150 of the IT Act to reassess the petitioners. 9.Based on the order of the Deputy Commissioner of IncomeTax, the AO issued the impugned notices to the petitionersseeking to reopen the assessment for the assessment year 2010-2011. 10.The petitioners, upon service of the impugned notice,requested the AO for furnish of reasons on 24.04.2014. Suchreasons were furnished to the petitioner. The petitioner filed objections which were rejected by the AO on 10.06.2014. Thispetition was instituted on 06.08.2014 and ad-interim relief wasgranted on 29.01.2015. This ad-interim relief was confirmed on23.04.2015. IT Act to reassess the petitioners. 9.Based on the order of the Deputy Commissioner of IncomeTax, the AO issued the impugned notices to the petitionersseeking to reopen the assessment for the assessment year 2010-2011. 10.The petitioners, upon service of the impugned notice,requested the AO for furnish of reasons on 24.04.2014. Suchreasons were furnished to the petitioner. The petitioner filed objections which were rejected by the AO on 10.06.2014. Thispetition was instituted on 06.08.2014 and ad-interim relief wasgranted on 29.01.2015. This ad-interim relief was confirmed on23.04.2015. 11.Mr. Pangam, the learned Counsel for the petitioners,submits that the impugned notice stands vitiated because thesame was issued at the dictates of the Deputy Commissioner ofIncome Tax and there was no independent application of mind bythe AO. He submits that, in any case, the AO has incorrectlyinvoked the provisions of Section 150 of the IT Act because indirection tothis case there was neither any nor any findingreassess the returns filed by the petitioners. He submitted thatneither of the petitioners was noticed nor heard by CIT (Appeals)and, therefore, findings, if any, could not have been made thebasis for reopening the assessment. He submitted that anyreliance upon such alleged finding would not only contravene theprinciples of natural justice and fair play but would amount to anexpress breach of explanation 3 of Section 153(3) of the IT Act.For all these reasons, Mr. Pangam submitted that the impugnednotices are without jurisdiction and warrant interference. 12.Mr. Pangam submitted that, in any case, the entire materialconsidering the transactions of advance and so-called deemeddividends were before the AO, who made the assessment orderdated 26.12.2011, just a day before he made the assessment orderdated 27.12.2011, in respect of DTRPL. He submits that thiswas not a case of any suppression of facts or material and no suchcase is even allowed against the petitioners. He, therefore,submitted that the AO, based on the very same material could not have simply changed his opinion and based upon such a changed opinion seek to reopen the completed assessment. Hesubmitted that this is an additional reason to interfere with theimpugned notice. 13.Mr. Pangam relied on Income Tax Officer, A Ward,1Sitapur V/s. Murlidhar Bhagwand Das, Rajinder Nath &Ors. V/s. C.I.T. Delhi2, Raj Kishore Prasad V/s. Income-taxOfficer3 and Commissioner of Income Tax, Shimla V/s.Greenworld Corporation Parwanoo[4] in support of the abovecontentions. 14.Ms. Linhares, at the outset, pointed out that in theimpugned notice dated 10.03.2014, issued to the petitioner inWrit Petition No.72/2015, there was no reference to invoking theprovisions of Section 150 of the IT Act. She submitted that inthat matter, information was received from Central Circle, Panajiby the AO based upon which the powers under Section 147 and Writ Petition No.72/2015, there was no reference to invoking the that matter, information was received from Central Circle, Panaji 148 of the IT Act were invoked. She, therefore, submitted that there is a material difference in the facts involved in the twopetitions. Based on this, Ms. Linhares submitted that thecontentions about the applicability and invocation of Section 150of the IT Act will not apply in Writ Petition No.72/2015. 15.Ms. Linhares, without prejudice to the aforesaid, submittedthat both the petitioners were admittedly the only shareholders 1 AIR 1965 SC 342 2 (1979) 4 SCC 282 3 (1992) 195 ITR 438 (Allahabad) 4 2009 7 SCC 69 Writ Petition No.72/2015, there was no reference to invoking the that matter, information was received from Central Circle, Panaji 148 of the IT Act were invoked. She, therefore, submitted that there is a material difference in the facts involved in the twopetitions. Based on this, Ms. Linhares submitted that thecontentions about the applicability and invocation of Section 150of the IT Act will not apply in Writ Petition No.72/2015. 15.Ms. Linhares, without prejudice to the aforesaid, submittedthat both the petitioners were admittedly the only shareholders 1 AIR 1965 SC 342 2 (1979) 4 SCC 282 3 (1992) 195 ITR 438 (Allahabad) 4 2009 7 SCC 69 and Directors of the companies DTRPL and MMPL. Shesubmitted that being such, neither could claim ignorance aboutthe proceedings before CIT (Appeals) that culminated with theorder dated 16.01.2013. She submitted that DTRPL was granteda full opportunity of hearing before CIT (Appeals) and thepetitioners who are the only Directors and shareholders of thiscompany should also be deemed to have been granted suchopportunity by CIT (Appeals). She submits that the directionsand findings recorded by CIT (Appeals), in its order dated16.01.2013, therefore bind the petitioners, and based thereon theAO was fully competent to issue the impugned notices seeking toreassess the petitioners' returns for the assessment year 2010-2011. She relies on Hungerford Investment Trust Ltd. V/s.Income Tax Officers & Ors.5 in support of her contentions. Shealso pointed out that the decision in MurlidharBhagwan Das(supra), relied upon by Mr. Pangam, was considered, explained,and distinguished in HungerfordInvestment Trust Ltd. (supra)and, therefore, it is this latter decision that should prevail. 16.Based on the aforesaid, Ms. Linhares submitted that boththese petitions may be dismissed. 17.The rival contentions now fall for our determination. 18.As far as Ms. Linhares's contentions about the distinctionin the facts in the two petitions are concerned, we find ourselvesunable to accept the same. True, in the impugned notice dated10.03.2014 or in the reasons furnished to the petitioner in WritPetition No.72/2015, there is no express reference to the5 (1998) 3 SCC 168 provisions of Section 150 of the IT Act. However, if the reasonsare perused then it is quite apparent that the impugned notice isentirely based on an order dated 16.01.2013 issued by CIT(Appeals). The material on record also establishes that the AO,based upon this very order dated 16.01.2013, had applied to theCommissioner for invocation of the revisional jurisdiction.However, the Deputy Commissioner had refused to invoke therevisional jurisdiction on the ground that the AO had remedies toreopen the assessment even in the case of the petitioner in WritPetition No.72/2015 by resorting to the provisions of Section 150of the IT Act. 19.Therefore, the mere absence of specific reference to theprovisions of Section 150 of the IT Act in the notice impugned inWrit Petition No.72/2015, or the reasons supplied to thepetitioner in the said petition, does not mean that the facts in thetwo petitions are substantially different or that the issues involvedin the two petitions are materially different. There is also nodispute that the petitioners in the two petitions are spouses andthe provisions of Section 5A of the IT Act concerning theapportionment of income between spouses governed by thePortuguese Civil Code apply to them. For all these reasons, weare unable to accept Ms. Linhares's first contention about thedistinction between the facts in the two petitions. 20.Now, the impugned notice in Writ Petition No.500/2014specifically refers to Section 150 of the IT Act and the impugnednotice in Writ Petition No.72 /2015, based on the material onrecord, can also be said to have been issued in terms of Section150 of the IT Act. In both the petitions, it is quite clear that the impugned notices, seeking to reopen the assessment of theassessment year 2010-2011, are based on the order dated16.01.2013 made by CIT (Appeals). 20.Now, the impugned notice in Writ Petition No.500/2014specifically refers to Section 150 of the IT Act and the impugnednotice in Writ Petition No.72 /2015, based on the material onrecord, can also be said to have been issued in terms of Section150 of the IT Act. In both the petitions, it is quite clear that the impugned notices, seeking to reopen the assessment of theassessment year 2010-2011, are based on the order dated16.01.2013 made by CIT (Appeals). 21.Section 150 of the IT Act is concerned with provision forcases where assessment is in pursuance of an order on appeal, etc.Section 150 of the IT Act as it was then obtained, reads asfollows:- “150. (1) Notwithstanding anything contained insection 149, the notice under section 148 may beissued at any time for the purpose of making anassessment or reassessment or recomputation inconsequence of or to give effect to anyfinding ordirection contained in an order passed by anyauthority in any proceeding under this Act by way ofappeal, reference or revision [or by a Court in anyproceeding under any other law]. (2) The provisions of sub-section (1) shall not apply inany case where any such assessment, reassessment orrecomputation as is referred to in that sub-sectionrelates to an assessment year in respect of which anassessment, reassessment or recomputation could nothave been made at the time the order which was thesubject-matter of the appeal, reference or revision, asthe case may be, was made by reason of any otherprovision limiting the time within which any actionfor assessment, reassessment or recomputation may betaken.” 22.Section 150 will have to be read along with Section 153 ofthe IT Act which is concerned with the time limit for completionof assessments and reassessments. Explanation 3 to this Sectionprovides that : Where, by an order [referred to in clause (ii) ofsub-section (3)] any income is excluded from the totalincome of one person and held to be the income ofanother person, then, an assessment of such incomeon such other person shall, for the purposes of section150 and this section, be deemed to be one made inconsequence of or to give effect to any finding ordirection contained in the said order, provided suchother person was given an opportunity of being. heard before the said order was passed Emphasis supplied. 23.Therefore, the conjoint reading of Section 150 andexplanation 3 to Section 153 would mean that to sustain areassessment in terms of Section 150 of the IT Act, therespondent needs to satisfy two conditions amongst others:- (a)The assessment or reassessment or recomputation must be inconsequence of or to give effect to any finding or directioncontained in an order passed by any authority in any proceedingsunder this Act by way of appeal, reference or revision or by aCourt in any proceeding under any other law; and (b) Thefinding or direction contained in the order referred to above musthave been rendered after the person whose return is now soughtto be reassessed was given an opportunity of being heard beforethe said order was passed. 24.Since the impugned notices are based on an order dated16.01.2013, made by CIT (Appeals), it is necessary to find outwhether, in the said orders, the CIT (Appeals) had indeed issueddirectionany for a reassessment of the returns filed by thepetitioner for the assessment year 2010-2011 or recorded anyfinding affecting the petitioners after the petitioners were given anopportunity of being heard before the order containing suchfinding was passed. 25.In the aforesaid regard, it is necessary to transcribe belowparagraphs 20 to 24 of the order dated 16.01.2013 made by CIT(Appeals), because it is the case of the respondent that thefindings and directions are to be found in these paragraphs. 24.Since the impugned notices are based on an order dated16.01.2013, made by CIT (Appeals), it is necessary to find outwhether, in the said orders, the CIT (Appeals) had indeed issueddirectionany for a reassessment of the returns filed by thepetitioner for the assessment year 2010-2011 or recorded anyfinding affecting the petitioners after the petitioners were given anopportunity of being heard before the order containing suchfinding was passed. 25.In the aforesaid regard, it is necessary to transcribe belowparagraphs 20 to 24 of the order dated 16.01.2013 made by CIT(Appeals), because it is the case of the respondent that thefindings and directions are to be found in these paragraphs. “20. The provisions of section 2(22)(e) whichbrought in a new category of payment which was to beconsidered as dividend as introduced by the FinanceAct, 1987 with effect from 1.4.1988 viz., payment bya company ‘to any concern in which such shareholderis a member or a partner and in which he has asubstantial interest’ do not say as to in whose handsthe dividend has to be brought to tax, whether in thehands of the ‘concern’ or the ‘shareholder’. However, this confusion has been clarified by theBoard in the CBDT circular no.495 dated 22ndSeptember 1987. That is the year when the new limbof section 2(22)(e) was introduced. The circular statesthat the ‘further, deemed dividend would be taxed in the hands of the concern receiving where all thefollowing conditions are satisfied....” The Assessing Officer has discussed in detail inassessment order that in the present case of theappellant, the conditions mentioned in section 2(22)(e) of the Act are fulfilled to hold that the advancesreceived by the assessment company constitutes to bedeemed dividend to the extent of 17,09,30,012/-.₹ Therefore, hold that the entire advance made byM/s Minescape Minerals Pvt. Ltd. to the extent of itsaccumulated profit fits into the definition of advancewhich qualifies to be a deemed dividend as per sec.2(22)(e). 21. This view has been upheld by Delhi HighCourt in the decisions of National Travel Services(2011)(202 Taxman 327) and Bharti Overseas TradingCo. (2012) (249 CTR 554). However, In view of the decision, In the case ofCIT vs Universal Medicare (P) Ltd (2010) 190Taxman 144 (Bom) by the Bombay High Court,which is the Jurisdictional High Court In respect ofcases of Panaji Goa, this issue needs to be re-examined.The High Court of Bombay in coming to aconclusion has relied on the decision of Special Benchof ITAT in the case of and Bhaumik Color Pvt Ltd(217 SOT 270 (Mum SB)], which has been upheld by the High Court of Mumbai and also Hon'bleRajasthan High Court in the case of Hotel Hilltop(313 ITR 116) and Ankitech P. Ltd (340 ITR 14(Del)holding that deemed dividend can be assessed only Inthe hands of a person who is a shareholder of thelender company and not in the hands of a personother than a shareholder and also that the expression‘shareholder’ referred to in section 2(22)(e) refers toboth a registered shareholder and a beneficialshareholder. 22. This has also been followed by the Hon'bleITAT, Panaji (which is the jurisdictional Tribunal inrespect of cases pertaining to Panaji) in the case of M/sBritto Amusements Pvt Ltd (supra). Accordingly, itwas held that deemed dividends cannot be taxed in thehands of a concern who is not a shareholder but is tobe taxed in the hands of the shareholder. 23. Respectfully, following the said decision inrespect of this case which lies in Panaji jurisdiction, inthe present case also it is clear that though deemeddividend u/s 2(22)(e) arises with respect to advances ofRs.23,76,49,580/- made to the appellant by M/sMinescape Minerals Pvt Ltd to an extent of itsaccumulated profits of Rs,17,09,30,012/- as held bythe Assessing Officer in this case, it has to be broughtto tax in the hands of the shareholders i.e. Sri DinarTarcar and Mrs. Manisha Tarcar and not in the handsof the appellant company receiving the advance who is 23. Respectfully, following the said decision inrespect of this case which lies in Panaji jurisdiction, inthe present case also it is clear that though deemeddividend u/s 2(22)(e) arises with respect to advances ofRs.23,76,49,580/- made to the appellant by M/sMinescape Minerals Pvt Ltd to an extent of itsaccumulated profits of Rs,17,09,30,012/- as held bythe Assessing Officer in this case, it has to be broughtto tax in the hands of the shareholders i.e. Sri DinarTarcar and Mrs. Manisha Tarcar and not in the handsof the appellant company receiving the advance who is not a shareholder in the Company making theadvance. Therefore, the addition of deemed dividendin hands of the appellant Company, is deleted. Thisdecision leaves it open for the Assessing Officer tomake an assessment of such deemed dividend in thehands of the shareholders as held by Hon’ble BombayHigh Court in the case of CIT vs Universal Medicare(P) Ltd (2010) 190 Taxman 144 (Bom) (supra). 24. In the result, the appeal is treated as allowed. Sd/- (Preeti Garg) Commissioner of Income Tax (Appeals)-VI, Bangalore.” 26.The ambit and scope of the expression finding ordirectionhave been discussed and explained by the Hon’ble Supreme Courtin Murlidhar Bhagwan Das (Supra) and RajinderNath (Supra). 27.In Murlidhar Bhagwan Das (supra), the ConstitutionBench of the Hon'ble Supreme Court has interpreted theexpression finding or direction in Section 34(1) of the IncomeTax Act, 1908. This provision was more or less similar to theprovision now contained in Section 150 of the IT Act. TheCourt approved the decision of the Division Bench of theAllahabad High Court in Pt. Hazari Lal V/s. Income TaxOfficer, Kanpur6 in which it was held that the word finding will6 (1960) 39 ITR 265 only cover material questions which arise in a particular case fordecision by the authority hearing the case or the appeal which,being necessary for passing the final order or giving the finaldecision in the appeal, has been the subject of controversybetween the interested parties or on which the parties concernedhave been given a hearing. 28.The Court further held that a finding, therefore, can beonly that which is necessary for the disposal of an appeal inrespect of the assessment of a particular year. The Court gave aninstance where the Appellate Assistant Commissioner may hold,on the evidence, that the income shown by the assessee is not theincome for the relevant year and thereby exclude that incomefrom the assessment of the year under appeal. The finding in thatcontext is that income does not belong to the relevant year. Hemay incidentally find that the income belongs to another year,but that is not a finding necessary for the disposal of an appeal inrespect of the year of assessment in question. 29.The Court in the context of the expression direction heldthat the same cannot be construed in a vacuum, but must becollated to the directions that the Appellate AssistantCommissioner can give under Section 31. Under that Section, hecan give directions, inter alia, under Section 31(3)(b),(c), or (e) orSection 31(4). The expression direction in the proviso can onlyrefer to the directions that the Appellate Assistant Commissioneror other Tribunals can issue under the powers conferred on himor them under the respective sections. 30.Therefore, the expression finding as well as the expressiondirection can be given full meaning, namely, that the finding is afinding necessary for giving relief in respect of the assessment ofthe year in question and the direction is a direction which theappellate or revisional authority, as the case may be, is empoweredto give under the sections mentioned therein. Even theexpression “in consequence of or to give effect to" does not createany difficulty, for they have to be collated with, and cannotenlarge, the scope of the finding or direction under the proviso.If the scope is limited as aforesaid, the said words also must be related to the scope of the findings and directions. 30.Therefore, the expression finding as well as the expressiondirection can be given full meaning, namely, that the finding is afinding necessary for giving relief in respect of the assessment ofthe year in question and the direction is a direction which theappellate or revisional authority, as the case may be, is empoweredto give under the sections mentioned therein. Even theexpression “in consequence of or to give effect to" does not createany difficulty, for they have to be collated with, and cannotenlarge, the scope of the finding or direction under the proviso.If the scope is limited as aforesaid, the said words also must be related to the scope of the findings and directions. 31.In Rajinder Nath (supra), the Hon'ble Supreme Court heldthat theexpressions finding and direction are limited in meaning.A finding given in an appeal, revision, or reference arising out ofan assessment must be a finding necessary for the disposal of theparticular case, that is to say, in respect of the particular assesseeand in relation to the particular assessment year. To be a necessaryfinding it must be directly involved in the disposal of the case. Itis possible in certain cases that in order to render a finding inrespect of A, a finding in respect of B may be called for, which isintimately involved as a step in the process of reaching theultimate finding respecting A. If, however, the finding as to A’sliability can be directly arrived at without necessitating a findingin respect of B, then a finding made in respect of B is anincidental finding only. The same principles seem to apply whenthe question is whether the income under enquiry is taxable inthe assessment year under consideration or any other assessmentyear. 32.In the context of the expression direction, the Court heldthat a direction in Section 153(3)(ii) must be an express directionnecessary for the disposal of the case before the authority or court,and must be one which the authority or court is empowered togive while deciding the case before it. A direction by a statutoryauthority is in the nature of an order requiring positivecompliance. When it is left to the option and discretion of theITOwhether or not to take action, it cannot be described as adirection. 33.In Rajinder Nath (supra), the Hon'ble Supreme Court alsoheld that the AAC's observation that the ITO was “free to takeaction” to assess the excess in the hands of the co-owners cannotbe described as a direction. The discussion on this issue is to befound in paragraph 13 which reads as follows: - “13. It is also not possible to say that the orderof the Appellate Assistant Commissioner contains adirection that the excess should be assessed in thehands of the co-owners. What is a direction for thepurposes of Section 153(3)(ii) of the Act has alreadybeen discussed. In any event, whatever else it mayamount to, on its very terms the observation that theIncome Tax Officer “is free to take action” to assess theexcess in the hands of the co-owners cannot bedescribed as a direction. A direction by a statutoryauthority is in the nature of an order requiring positivecompliance. When it is left to the option anddiscretion of the Income Tax Officer whether or not to take action it cannot, in our opinion, bedescribed as a direction.” 34.The Court also found that the finding in the AAC's orderbased upon which the assessee's returns were sought to be re-assessed was recorded without giving the assessee an opportunityof being heard. The contention that the assessees were nothingbut the partners in the partnership firm in whose case the AAChad made the order and, therefore, the assessees were deemed tohave been heard by the AAC was also rejected by the Court. TheCourt relied upon Murlidhar Bhagwan Das (supra) and held: not to take action it cannot, in our opinion, bedescribed as a direction.” 34.The Court also found that the finding in the AAC's orderbased upon which the assessee's returns were sought to be re-assessed was recorded without giving the assessee an opportunityof being heard. The contention that the assessees were nothingbut the partners in the partnership firm in whose case the AAChad made the order and, therefore, the assessees were deemed tohave been heard by the AAC was also rejected by the Court. TheCourt relied upon Murlidhar Bhagwan Das (supra) and held: “It is one thing for the partners of a firm to be requiredto explain the source of a receipt by the firm, it is quiteanother for them in their individual status to be askedto explain the source of amounts received by them asseparate individuals. On such opportunity beingprovided it would have been open to the assessees toshow that the excess alleged over the disclosed cost ofconstruction did not constitute any taxable income.” 35.Applying the aforesaid principles to the facts of the presentcases, it is quite clear that CIT (Appeals) in his order dated16.01.2013 cannot be said to have issued any direction ascontemplated by Section 150 read with Explanation 3 of Section153 of the IT Act. This is because the CIT (Appeals) afterdeleting the addition of deemed dividends in the hands ofDTRPL, only made the following observations: - “This decision leaves it open for the Assessing Officerto make an assessment of such deemed dividend in thehands of the shareholders as held by Hon’ble BombayHigh Court in the case of CIT vs Universal Medicare(P) Ltd (2010) 190 Taxman 144 (Bom) (supra).” 36.Following the law laid down in Murlidhar Bhagwan Das(supra) and Rajinder Nath (supra), the aforesaid observationscannot be called a direction based upon which the impugnednotices can be sustained. 37.Now, the next question is whether there is any finding inthe order dated 16.01.2013 made by CIT (Appeals) based uponwhich issuance of the impugned notices could be sustained. 38.Even if we proceed based on the premise that there arefindings in the said order to the effect that the deemed dividendsthat arose could be taxed in the hands of the petitioners, whowere the shareholders and directors of DTRPL, the real questionis whether such findings were recorded by CIT (Appeals) after thepetitioners were given an opportunity of being heard before theCIT (Appeals) made its order dated 16.01.2013 in terms ofExplanation 3 to Section 153 of the IT Act. As noted earlier, thisexplanation makes a specific reference to Section 150 of the ITAct. 39.There can be no dispute that the petitioners were notgranted an opportunity of being heard before the aforesaidfindings were recorded by the CIT (Appeals) in the order dated16.01.2013. Ms. Linhares, however, contended that since the petitioners were nothing but the directors and shareholders inDTRPL, the opportunity of hearing granted to DTRPL shouldbe deemed to include the opportunity of hearing to thepetitioners herein as well. In support of this contention, sherelied on Hungerford Investment Trust Ltd. (supra). 39.There can be no dispute that the petitioners were notgranted an opportunity of being heard before the aforesaidfindings were recorded by the CIT (Appeals) in the order dated16.01.2013. Ms. Linhares, however, contended that since the petitioners were nothing but the directors and shareholders inDTRPL, the opportunity of hearing granted to DTRPL shouldbe deemed to include the opportunity of hearing to thepetitioners herein as well. In support of this contention, sherelied on Hungerford Investment Trust Ltd. (supra). 40.According to us, an almost identical contention was raisedon behalf of the Revenue in Rajinder Nath (supra) and the samewas turned down by the Hon'ble Supreme Court. There, anorder was made by the AAC in a matter concerning thepartnership firm. The AAC finally concluded that the incomeought to have been taxed in the hands of the individual partners.Based on such findings, the Revenue sought to reopen theassessment of returns filed by the individual partners. Theindividual partners resisted, inter alia, by pointing out that thefinding recorded by the AAC was without granting them anopportunity of being heard. This resistance was ultimatelyupheld by the Court by holding that it is one thing for thepartners of a firm to be required to explain the source of receiptby the firm and it is quite another for them in their individualcapacities to be asked to explain the source of amounts receivedby them as separate individuals. This was in the context of a firmand its partners. In the present matters, the petitioners are on afirmer wicket because even in law a company like DTRPL has itsseparate identity independent of the shareholders that mightcomprise it. 41.Hungerford Investment Trust Ltd. (supra) is distinguishableon facts because there are clear and repeated findings therein thatM/s. Turner Morrison and Company Ltd. was nothing but the agent for Hungerford Investment Trust Ltd. The Hon'bleSupreme Court noted that notice to this agent was nothing butnotice to Hungerford Investment Trust Ltd. And, therefore,Hungerford Investment Trust Ltd. could not have claimed that itwas not provided an opportunity of being heard before the orderpassed on which its income was sought to be re-assessed wasmade. Such a factual position does not arise in the present caseand, therefore, based upon some stray observations inHungerford Investment Trust Ltd. (supra), the respondent cannotseek to distinguish either Murlidhar Bhagwan Das (supra) orRajinder Nath (supra). Rajinder Nath (supra) was not evennoticed in Hungerford Investment Trust Ltd. (supra) entirely onaccount of the factual circumstance that notices were issued toM/s. Turner Morrison and Company Ltd. as agents inHungerford Investment Trust Ltd. (supra) and therefore, such anissue did not even arise. 42.Thus, in the present cases, it is apparent that therespondent has invoked the provisions of Section 150 of the ITAct for issuing the impugned notices. This invocation was inturn based on an order dated 16.01.2013 made by CIT(Appeals). This order dated 16.01.2013 contains no direction ascontemplated by Section 150 of the IT Act. Even assuming thatthis order dated 16.01.2013 contains a finding affecting thepetitioners, it is apparent that such a finding came to be recordedwithout granting the petitioners any opportunity of being heard.Such finding, therefore, was not only in breach of principles ofnatural justice and fair play, but also contrary to Explanation 3 toSection 153 of the IT Act and could not have formed the basis forinvoking the provisions of Section 150 of the IT Act. 43.For all the aforesaid reasons, the impugned notices are liableto be set aside and are hereby set aside. 44.The Rule is made absolute in both these petitions in termsof prayer clauses (A) and (B) thereof. There shall be no order forcosts. R.N. LADDHA, J. NITI K Digitally signed by NITI K HALDANKAR HALDANKARDate: 2022.04.04 16:32:47 +05'30' M. S. SONAK, J.