ANMOL HIMANSHU PATEL LEGAL HEIR OF LATE HIMANSHU RAOJIBHAI PATEL,VADODARA V. THE ITO, WARD-1(1)(4) NOW PRESENT JURISDICTION THE DY.CIT, CIRCLE-1(1)(1), VADODARA

ITA 1479/AHD/2025

AI Insights

The case involves Anmol Himanshu Patel, the legal heir of Late Himanshu Raojibhai Patel, who appealed against the order of the Commissioner of Income Tax (Appeals) confirming the addition of Rs. 1,95,00,000 as deemed dividend under section 2(22)(e) of the Income Tax Act, 1961. The assessee's case was initially selected for limited scrutiny focusing on sales turnover mismatch and increase in capital. However, the Assessing Officer expanded the scope to include deemed dividend without the necessary approval. The Tribunal found this expansion unauthorized and ruled that the addition made was beyond the jurisdiction of the Assessing Officer. Furthermore, it was established that the transactions did not amount to a deemed dividend as per the definitions and requirements under the Act.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 791995 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2015-2016
• Appeal Filed On: 23-07-2025
• Other Referred Cases: Sagalaxmi Agriseeds Pvt.Ltd. vs. ACIT, Vudatha Vani Rao vs. Income Tax Officer, Dev Milk Foods Pvt. Ltd. v. Addl. CIT, Suresh Jugraj Mutha v. Addl CIT, Principal Commissioner of Income Tax-vs.- Weilburger Coatings (India) (P.) Limited
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B.P. SRIVASTAVA
• Assessee Lawyers: BIREN SHAH
• Keywords: Depreciation; Deemed dividend; Assessment record; Competent authority
• Section: 56; 32; 68; 2(22)(e)

Judgement Text

" आयकर अपीलीय अिधकरण, अहमदाबाद \u0011ायपीठ “ए“,अहमदाबाद । IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, AHMEDABAD \u0016ी संजय गग\u001b, \u0011ाियक सद एवं \u0016ी नरे !साद िस\"ा, लेखा सद क े सम%। ] ] Before Shri Sanjay Garg, Judicial Member And Shri Narendra Prasad Sinha, Accountant Member आयकर अपील सं /ITA No.1479/Ahd/2025 िनधा \u000fरण वष\u000f /Assessment Year : 2015-16 Anmol Himanshu Patel (Legal Heir of Late Himanshu Raojibhai Patel) Bs/B-7, Indraprasth Complex Nr. Inox Race Course Circle Vadodara – 390 007 बनाम/ v/s. The ITO Ward-1(1)(4) Now Present Jurisdiction The Dy.CIT, Circle-1(1)(1) Vadodara – 390 007 \u0013थायी लेखा सं./PAN: ACQPP 6460 P (अपीलाथ'/ Appellant) (!( यथ'/ Respondent) Assessee by : Shri Biren Shah, AR Revenue by : Shri B.P. Srivastava, Sr.DR सुनवाई की तारीख/Date of Hearing : 18/09/2025 घोषणा की तारीख /Date of Pronouncement: 09/12/2025 आदेश/O R D E R Per Sanjay Garg, Judicial Member: The present appeal has been preferred by the assessee against the order of the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘CIT(A)’] dated 10/06/2025 passed u/s.250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for the Assessment Year (AY) 2015-2016. 2. The assessee, in this appeal, has raised the following grounds of appeal: Printed from counselvise.com ITA No.1479/Ahd/2025 Anmol Himanshu Patel (Legal Heir of Late Himanshu Raojibhai Patel) vs. DCIT Asst.Year 2015-16. 2 “1. In law and in the facts and circumstances of the case of the appellant, the order passed by the CIT(A) u/s 250 of the Act is bad in law and deserves to be quashed. 2. In law and in the facts and circumstances of the case of the appellant, the assessment order, having been passed pursuant to the action of the AO expanding the scope of limited scrutiny without following the due procedure is bad in law and deserves to be quashed. 3. In law and in the facts and circumstances of the case of the appellant, the CIT(A) has grossly erred in confirming the addition of Deemed Dividend u/s 2(22)(e) of the Act of Rs. 1,95,00,000/- when no such addition is called for. 4. In law and in the facts and circumstances of the case of the appellant, the AO has grossly erred in making the addition of Rs. 1,95,00,000/- u/s 2(22)(e) of the Act as 'Deemed Dividend' in the hands of the appellant even when the no benefit has been received by the appellant. 5. The appellant craves leave to add, alter or amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal.” 3. The brief facts of the case are that the case of the assessee was selected for limited scrutiny on following two issues: (i) Sales turnover mismatch. (ii) Increase in Capital 3.1. The Assessing Officer (AO), however, during the assessment proceedings, noted that the assessee was one of the Directors of a company, namely, Briyosis Soft Caps Pvt.Ltd. He further noted that the assessee’s shareholding in the said company was substantial, i.e. 32.54%. He further noted that the assessee had received amounts from Briyosis Soft Caps Pvt.Ltd. on 30/09/2014 of Rs.70 lakhs, on 31/12/2014 of Rs.65 lakhs and on 31/03/20215 of Rs.60 lakhs, totalling to Rs.1,95,00,000/-. On being asked as to why the said amount be not treated as deemed dividend in the hands of Printed from counselvise.com ITA No.1479/Ahd/2025 Anmol Himanshu Patel (Legal Heir of Late Himanshu Raojibhai Patel) vs. DCIT Asst.Year 2015-16. 3 the assessee u/s.2(22)(e) of the Act, the assessee explained that the assessee did not receive the aforesaid amount from the aforesaid company as alleged. It was explained that, in fact, the company had a cash credit limit account with the Bank. The Bank insisted at each quarter to withdraw the money from cash credit account, to show the debit balance. Hence, on the direction of the bank and for running properly for the cash credit account, on the last date of the quarter, the amounts in question were transferred from the company’s account to the assessee’s account and the entry was reversed on the same day or the very next day without using the amount at all. It was explained that the aforesaid transaction was done by the Bank for its technical requirements and to show its targets and that it was not a case of any deemed dividend. 4. The Assessing Officer (AO), however, did not agree with the aforesaid contention of the assessee and made the impugned addition of Rs.1,95,00,000/- as deemed dividend u/s.2(22)(e) of the Act into the income of the assessee. The Ld. CIT(A) confirmed the addition so made by the AO. 5. Being aggrieved, the assessee is in appeal before us. 6. The Ld. Counsel for the assessee has made two-fold submissions before us. Firstly, the case of the assessee was selected for limited scrutiny on two issues, i.e. (i) sales turnover mismatch and (ii) increase in capital. He has submitted that the issue of deemed dividend was not listed for the purpose of scrutiny assessment. Therefore, the AO was not justified in making the impugned addition u/s.2(22)(e) of the Act by converting the limited assessment into full scrutiny assessment without the permission of the Printed from counselvise.com ITA No.1479/Ahd/2025 Anmol Himanshu Patel (Legal Heir of Late Himanshu Raojibhai Patel) vs. DCIT Asst.Year 2015-16. 4 competent authority and making the addition on the issue of deemed dividend u/s.2(22)(e) of the Act. He, in this respect, has relied upon the decision of the Co-ordinate Bench of the Tribunal in the case of Sagalaxmi Agriseeds Pvt.Ltd. vs. ACIT in ITA No.1918/Ahd/2024 for AY 2017-18, decided on 05/08/2025. The Ld. Counsel for the assessee has further invited our attention to Page No.15 of the impugned order of the Ld. CIT(A) to submit that a Certificate from the Bank was duly furnished before the Ld. CIT(A), wherein, the Bank has certified that the aforesaid amounts were erroneously debited by the Bank from the account of the company to the assessee’s account and that the same was reversed on the same day. The Ld. CIT(A), however, did not appreciate the aforesaid certificate and observed that the said mistakes cannot be inadvertently repeated time and again and, therefore, confirmed the impugned addition. The Ld. Counsel for the assessee, however, submitted that since the bank has duly certified that the amounts were debited from the company’s account and credited to the assessee’s bank account by inadvertent mistake and that the same entries were made by bank on the same day, hence, it was not a case of deemed dividend u/s.2(22)(e) of the Act. 7. The Ld. DR, however, has relied upon the findings of the lower authorities. 8. We have considered the rival submissions and gone through the record. We find that the issue of deemed dividend u/s.2(22)(e) of the Act was not covered in the limited scrutiny assessment in the case of the assessee. The AO did not take permission from the competent authority to cover the said issue or to convert the limited scrutiny into full scrutiny assessment, Printed from counselvise.com ITA No.1479/Ahd/2025 Anmol Himanshu Patel (Legal Heir of Late Himanshu Raojibhai Patel) vs. DCIT Asst.Year 2015-16. 5 therefore this legal issue is squarely covered in favour of assessee by the decision of the Co-ordinate Bench of the Tribunal in the case of Sagarlaxmi Agriseeds Pvt.Ltd. vs. ACIT (supra). The relevant portion of the order of the Tribunal, on this issue, is reproduced as under: “8. We have heard the rival contentions of the Ld. Representatives of the parties and gone through the record. In this case, the return of the assessee was, admittedly, selected for limited scrutiny on the issue of increase in share capital. The credit in form of share capital can be examined in terms of provision of S. 68 of the Act. The issue price of such shares can also be examined u/s 56 of the Act, whereby the addition can be made into the income of an assessee if such an assessee has received higher consideration for sale of shares than the market price. The issue was, accordingly examined by the AO and it was found that increase in share capital was not on account of any introduction of cash on sale of shares, rather, it was on account of acquisition of assets including Goodwill in lieu of transfer of shares of the assessee company. Thus, it was not a case of addition of income on account of introduction of unjustified share capital, hence no addition on this issue was warranted. Rather, it was the case of the AO that the values of the assets in particular \"the Goodwill\" purchased from erstwhile proprietorship concern, in actual, was not of such high amount as was valued by the valuer and claimed by the assessee in its books of accounts. Thus, at the most, it was a case of capital loss not of any introduction of cash which could have been added as introduction of the own income of the assessee, the source of which was not explained. The AO, having noted that it was not a case of increase in share capital by way of sale of shares by assessee company at exorbitant price or at a premium which was not justified and that it was not a fit case for making addition on account of increase in share capital, the Jurisdiction of the AO had ceased at that point. The issue of depreciation on goodwill was altogether different which was to be considered in terms of s. 32 of the Act. If the AO wanted to further examine the issue of claim of depreciation of Goodwill, in our view, he should have taken the permission to enlarge the scope of limited scrutiny from the Jurisdictional Commissioner as per the law. Merely because the issue of claim of depreciation was germane to the issue of purchase of assets/Goodwill, that itself, in our view, will not confer jurisdiction upon the AO to suo moto to enlarge his jurisdiction from limited scrutiny to full scrutiny and entitle him to make the addition by disallowing depreciation on goodwill, which issue was neither the subject nor within the scope of the limited scrutiny issue of increase in share capital. The scope of limited scrutiny on any issue cannot be enlarged in the absence of previous approval of the administrative Commissioner as directed by the CBDT's (Central Board of Direct Taxes) instructions dated 26.09.2014, 29.12.2014 and 14.07.2016 in respect of \"CASS\" assessment. The Ld. CIT(A) himself, has referred to CBDT's Instruction No. 5/2016 dated 14.07.2016, the contents of which are reproduced as under: Printed from counselvise.com ITA No.1479/Ahd/2025 Anmol Himanshu Patel (Legal Heir of Late Himanshu Raojibhai Patel) vs. DCIT Asst.Year 2015-16. 6 \"Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes North Block, New Delhi, the 14th of July, 2016 Subject: Direction regarding scope of enquiry in cases under Limited Scrutiny' selected through CASS 2015 & 2016-regd.- Vide Instruction No.20/2015 dated 29.12.2015 in File of even number, Board has laid down Standard Operating Procedure for handling of cases under 'Limited Scrutiny' which were selected through Computer Aided Scrutiny Selection in CASS Cycle 2015. In these cases, it was stated that the general scope of enquiry in scrutiny proceedings should be restricted to the relevant parameters which formed the basis for selecting the case for scrutiny However, in revenue potential cases, it was further provided that Complete Scrutiny could be conducted, if there was potential escapement of income above a prescribed monetary limit, subject to the approval of administrative Pr. CIT/CIT/Pr. DIT/DIT. 2.In order to ensure that maximum objectivity is maintained in converting a case falling under Limited Scrutiny' into a Complete Scrutiny case, the matter has been further examined and in partial modification to Para 3(d) of the earlier order dated 29.12.2015, Board hereby lays down that while proposing to take up Complete Scrutiny' in a case which was originally earmarked for 'Limited Scrutiny', the Assessing Officer (AO) shall be required to form a reasonable view that there is possibility of under assessment of income if the case is not examined under Complete Scrutiny. In this regard, the monetary limits and requirement of administrative approval from Pr. CIT/CIT/Pr. DIT/DIT, as prescribed in Para 3(d) of earlier Instruction dated 29.12.2015, shall continue to remain applicable 3. Further, while forming the reasonable view, the Assessing Officer would ensure that: (a)there exists credible material or information available on record for forming such view, (b)this reasonable view should not be based on mere suspicion, conjecture or unreliable source; and (c)there must be a direct nexus between the available material and formation of such view. 4. It is further clarified that in cases under Limited Scrutiny', the scrutiny assessment proceedings would initially be confined only to issues under Limited Scrutiny and questionnaires, enquiry, investigation etc. would be restricted to such issues. Only upon conversion of case to 'Complete Scrutiny after following the procedure outlined above, the AO may examine the additional issues besides the issue(s) involved in Limited Scrutiny\". The AO shall also expeditiously intimate the taxpayer concerned regarding conducting Complete Scrutiny' in such cases. 5. It is also clarified that once a case has been converted to 'Complete Scrutiny, the AO can deal with any issue emerging from ongoing scrutiny proceedings notwithstanding the fact that the reason for such issue have not been included in the Note. 6. To ensure proper monitoring in cases which have been converted from Limited Scrutiny to 'Complete Scrutiny, it is suggested that provisions of section 144A of the Act may be invoked in suitable cases. To prevent possibility of fishing and roving enquiries in such cases, Printed from counselvise.com ITA No.1479/Ahd/2025 Anmol Himanshu Patel (Legal Heir of Late Himanshu Raojibhai Patel) vs. DCIT Asst.Year 2015-16. 7 it is desirable that these cases should invariably be picked up while conducting Review or Inspection by the administrative authorities. 7. The above Instruction shall be applicable from the date of its issue and would cover the cases selected under CASS 2015 which are pending scrutiny cases as well as cases selected/being selected under the CASS 2016. 8. The contents of this Instruction may be brought to the notice of all for necessary compliance. 9. Hindi version to follow Sd/- (Rohit Garg) Deputy Secretary to the Government of India 9. Further, the CBDT vide its instructions dated 30. 11. 2017 has taken serious note of the instances of Assessing Officers travelling beyond their jurisdiction while making assessment in Limited Scrutiny cases by initiating enquires on new issues without complying with mandatory CBDT instructions dated 26.09.2014,29.12.2015 and 14.07.2016 and even one Assessing Officer who had not followed the above said instructions was placed under suspension. The relevant part of the said instruction is reproduced as under. \"F. No. DGIT(Vig.)/HQ/S/2017-18 Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes New Delhi-110 001 Dated: 30th November, 2017 Subject: Unauthorized expansion of the scope of limited scrutiny- instructions-reg. 3. Instances have come to notice of CBDT where some Assessing Officers are travelling beyond their jurisdiction while making assessments in Limited Scrutiny cases by initiating inquiries on new issues without complying with mandatory requirements of the relevant CBDT Instructions dated 26.09.2014, 29.12.2015 and 14.07.2016. These instances have been viewed very seriously by the CBDT and in one case the Central Inspection Team of the CBDT was tasked with examination of assessment records on receipt of allegations of several irregularities. Amongst other irregularities it was found that no reasons had been recorded for expanding the scope of limited scrutiny, no approval was taken from the PCIT for conversion of the limited scrutiny case to a complete scrutiny case and the order sheet was maintained very perfunctorily. This gave rise to a very strong suspicion of mala fide intentions. The Officer concerned has been placed under suspension. Printed from counselvise.com ITA No.1479/Ahd/2025 Anmol Himanshu Patel (Legal Heir of Late Himanshu Raojibhai Patel) vs. DCIT Asst.Year 2015-16. 8 In view of discussion in the preceding paragraphs is once again reiterated that the Assessing Officers should abide by the instructions of CBDT while completing limited scrutiny assessments and should be scrupulous about maintenance of note sheets in assessment folders. (Rakesh Gupta) ADG (V) HQ-I New Delhi” 10. Admittedly, in this case the Id. AO did not seek any permission of the competent authority for converting the limited scrutiny to a full scrutiny. As observed above, neither the AO nor the Ld. CIT(A) had jurisdiction to go into the said issue of depreciation on Goodwill as it was a case of limited scrutiny on the issue of increase in share capital, the scope of which could not have been enlarged to a new issue of claim of depreciation that too by further going into the issue of correctness of the valuation amount of the assets of the Proprietorship Concern and that too without joining or summoning the said proprietorship concern in the proceedings, therefore, assessment order is not sustainable. The Hon'ble Calcutta High Court in the case of Principal Commissioner of Income Tax-vs.- Weilburger Coatings (India) (P.) Limited reported in 155 taxman.com 580, 296 ITR 205, [2024] 463 ITR 89, wherein the hon’ble High Court upheld the order of the Tribunal holding that the Assessing Officer exceeded his jurisdiction in enquiring into those issues which were beyond the scope of limited scrutiny. Similar view has been taken by the co-ordinate Visakhapatnam Bench in the case of \"Vudatha Vani Rao vs. Income Tax Officer\" reported in 2024 159 taxmann.com 1394 (Visakhapatnam) and by the Delhi Bench of the Tribunal in the case of Dev Milk Foods Pvt. Ltd. v. Addl. CIT IT Appeal No. 6767 (Delhi) of 2019, dated 12.06.2020 and by the Pune Bench of the TRIBUNAL in ITA no. 05/Pun/2016 dt. 04.05.2018 in the case of Suresh Jugraj Mutha v. Addl CIT wherein it has been categorically held that assessment order passed in violation of Board’s instructions, which are binding upon the A.O. is bad in law. This issue is accordingly decided in favour of the assessee. The impugned assessment order is therefore quashed on this score.” 8.1. The above observations of the Tribunal are squarely applicable in this case. Therefore, the addition made by the AO on the issue of deemed dividend u/s.2(22)(e) of the Act is bad in law as the said issue was not covered under the limited scrutiny assessment. 8.2. Even on merits, it is not a case of deemed dividend at all. Though the assessee had explained before the Ld. CIT(A) that the Bank insisted at each quarter to withdraw money from cash credit account to show their targets and thereby made credit entries into the account of the assessee from Printed from counselvise.com ITA No.1479/Ahd/2025 Anmol Himanshu Patel (Legal Heir of Late Himanshu Raojibhai Patel) vs. DCIT Asst.Year 2015-16. 9 company’s account, so that the company’s cash credit account is kept running smoothly, however, the entry was reversed by bank on the same day. Even the bank has given a certificate stating that they had erroneously made the aforesaid entries and immediately, the same were reversed. Though it may not have been erroneous entries or unintentional entries made by the bank into the account of the assessee, but some intentional act to pass same formal entry of credit & debit to show its targets, however, the fact is clear that it is not a case of any deemed dividend. Neither the said amounts were credited to the account of the assessee at the instance of the assessee nor the same were ever used by the assessee, nor it is a case of any loan by the company to the assessee. Therefore, it is not at all a case of any addition to the income of the assessee as deemed dividend. The impugned additions are not sustainable at all, the same are, accordingly ordered to be deleted on both the counts, i.e. on legal issue as well as on merits. 9. In the result, the appeal of the assessee stands allowed. Order pronounced in the Open Court on 09/12/2025. Sd/- Sd/- ( Narendra Prasad Sinha ) Accountant Member ( Sanjay Garg ) Judicial Member अहमदाबाद/Ahmedabad, िदनांक/Dated 09/12/2025 टी.सी.नायर, व.िन.स./T.C. NAIR, Sr. PS Printed from counselvise.com ITA No.1479/Ahd/2025 Anmol Himanshu Patel (Legal Heir of Late Himanshu Raojibhai Patel) vs. DCIT Asst.Year 2015-16. 10 आदेश की #ितिलिप अ$ेिषत/Copy of the Order forwarded to : 1. अपीलाथ% / The Appellant 2. #&थ% / The Respondent. 3. संबंिधत आयकर आयु' / Concerned CIT 4. आयकर आयु' ) अपील ( / The CIT(A)- (NFAC), Delhi 5. िवभागीय #ितिनिध , अिधकरण अपीलीय आयकर , अहमदाबाद /DR,ITAT, Ahmedabad. 6. गाड\u000f फाईल / Guard file. आदेशानुसार/ BY ORDER, स&ािपत #ित //True Copy// सहायक पंजीकार (Asstt. Registrar) आयकर अपीलीय अिधकरण, ITAT, Ahmedabad 1. Date of dictation (dictation pad is attached with the file)) : 1.12.2025 2. Date on which the typed draft is placed before the Dictating Member. : 2.12.2025/5.12.25 3. Date on which the approved draft comes to the Sr.P.S./P.S : 4. Date on which the fair order is placed before the Dictating Member for pronouncement. : 5. Date on which fair order placed before Other Member : 6. Date on which the fair order comes back to the Sr.P.S./P.S. : 09/12/25 7. Date on which the file goes to the Bench Clerk. : 09/12/25 8. Date on which the file goes to the Head Clerk. : 9. The date on which the file goes to the Assistant Registrar for signature on the order. : 10. Date of Despatch of the Order : Printed from counselvise.com "