Dy.CIT,Cir.6, Pune, Pune V. Superpos Credits & Capital Pvt.Ltd., Pune

ITA 1059/PUN/2008

• Counselvise Citation: 105924514 RSA 2008
• Duration Of Justice: 2 year(s) 11 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 25-05-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 08-08-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: M P MAHAJANI
• Assessee Lawyers: V ANANDARAJAN
• Keywords: Reopening of assessment; Deemed dividend; Reason to believe
• Section: 143(3); 148; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI I C SUDHIR, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER I.T.A. NO. 1059/PN/08 (ASSTT. YEAR: 2002-03) DY. COMMISSIONER OF INCOME-TAX, .. APPELLANT CIR. 6, PUNE VS. SUPERPOSE CREDITS & CAPITALS P LTD. .. RES PONDENT 304, 3 RD FLOOR CASAGRANDE CHS LTD., CORNER OF EIGHTH LANES, KOREGAON PARK, PUNE PAN AAE CS 1834C APPELLANT BY: SHRI V ANANDARAJAN RESPONDENT BY: SHRI M P MAHAJANI ORDER PER G.S. PANNU, AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-II, PUNE D ATED 13.3.2008 WHICH, IN TURN, HAS ARISEN FROM AN ORDER DATED 31.1 2.2007 PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3) R.W.S 14 7 OF THE INCOME- TAX ACT, 1961 (IN SHORT THE ACT), PERTAINING TO T HE ASSESSMENT YEAR 2002-03. 2. IN THIS APPEAL, REVENUE HAS RAISED MULTIPLE GROUNDS OF APPEAL, BUT ESSENTIALLY THE GRIEVANCE OF THE REVENUE IS ON TWO COUNT S. FIRSTLY, REVENUE IS AGGRIEVED WITH THE STAND OF THE COMMISSIONER OF INCO ME-TAX (APPEALS) THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN REOPENING THE ASSESSMENT UNDER 2 SECTION 148 OF THE ACT. SECONDLY, REVENUE IS AGGRIEVED WITH THE STAND OF THE COMMISSIONER OF INCOME-TAX (APPEALS) THAT AN ADDITI ON OF RS 2,25,13,524/- MADE BY THE ASSESSING OFFICER AS DEEMED D IVIDEND UNDER SECTION 2(22)(E) OF THE ACT WAS NOT MAINTAINABLE. 3. BRIEFLY PUT THE RELEVANT FACTS ARE THAT ASSESSEE IS A P RIVATE LIMITED COMPANY DERIVING INCOME FROM RENT, INTEREST AND DIVIDE NDS. FOR THE YEAR UNDER CONSIDERATION, ASSESSEE FILED RETURN OF INCOME DECLARING A N INCOME OF RS 20,59,290/- WHICH WAS PROCESSED UNDER SECTION 143(1) OF T HE ACT ACCEPTING THE RETURN OF INCOME. HOWEVER, IN THE COURSE OF ASSESSMENT PR OCEEDINGS FOR THE ASSESSMENT YEAR 2003-04, THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAD RECEIVED A SUM OF RS 3 CRORES IN ASSESSMENT YEAR 2002-03 FROM M/S PROLIFIC CREDITS & CAPITAL P. LTD. (IN SHORT PROLIFIC) IN WHI CH THE DIRECTORS OF THE ASSESSEE COMPANY WERE INTERESTED. THE ASSESSING OFFICER REOPENED THE ASSESSMENT FOR THE ASSESSMENT YEAR 2002-03 UNDER SECTION 148 OF THE ACT AFTER RECORDING REASONS AS FOLLOWS: DURING THE COURSE OF SCRUTINY FOR THE AY 2003-04 I T WAS NOTICED, IN THIS CASE, THAT THE ASSESSEE HAD RECEIVED A SUM OF RS 3 CRORES FROM ITS SISTER CONCERN WHERE THE DIRECTORS OF THE ASSESSEE COMPANY ARE INTERESTED THE PAYMENT RECEIVED BY THE ASSESSEE THUS ATTRACTS THE PROVISIONS OF SECTION 2(22)(E) OF THE INCOME-TAX ACT, 1961 AS DEEMED DIVIDEND. THE THEN AO IN HIS ORDER FOR AY 2003-04 H AD GIVEN A CLEAR FINDING TO THIS EFFECT. THE CIT(A)-II WHILE DISPOSING OFF THE ASSESSEES AP PEAL FOR AY 2003-04 HAD ALSO CONFIRMED THE STAND OF THE AO SUBJECT TO VERIFICATI ON OF EXACT AMOUNT WHICH SHOULD BE BROUGHT UNDER THE PURVIEW OF THE PROVISIONS OF SECT ION 2(22)(E). ON VERIFICATION IT WAS NOTICED THAT THE ASSESSEE COMPANY HAS RECEIVED RS 3 CRORES DURING F.Y 2001-02 RELEVANT TO AY 2002-03. I THEREFORE HAVE REASON TO BELIEVE THAT SUBSTANTIAL AMOUNT HAS ESCAPED ASSESSMENT DURING THE AY 2002-03 AND I ACCO RDINGLY REOPEN THE ASSESSMENT U/S 147 BY ISSUE OF NOTICE U/S 148 OF INCOME-TAX AC T, 1961. IN THE CONSEQUENT ASSESSMENT PROCEEDINGS, THE ASSESSING OFF ICER HELD THAT THE SAID RECEIPT OF RS 3 CRORES WAS AN ADDITIONAL ADVANCE OR L OAN FROM PROLIFIC AND ACCORDINGLY ATTRACTED THE PROVISIONS OF SECTION 2(22)(E) O F THE ACT. IN ORDER TO DETERMINE THE YEAR IN WHICH THE SAID SUM WAS ASSESSABLE AS DEEMED DIVIDEND, THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO FURNISH THE ACCOUNTS OF PROLIFIC FOR THE LAST SIX YEARS. THE ASSESSEE ACCORDINGLY SUBMITTED THE L EDGER OF PROLIFIC FOR THE FINANCIAL YEARS 1996-97 TO 2003-04 AND CLAIMED THA T IT WAS A SECURITY DEPOSIT 3 TRANSACTION TO WHICH THE PROVISIONS OF SECTION 2(22)(E) WE RE NOT APPLICABLE. THE PERTINENT FACTS RELATING TO THE RECEIPT OF RS 3 CRORES FR OM PROLIFIC ARE THAT DURING THE FINANCIAL YEAR 1996-97, ASSESSEE COMPANY HAD TAKEN 4 7000 SQ.FT. OF IMMOVABLE COMMERCIAL PROPERTY ON LEASE IN THE PRIME AR EA OF SHASTRI PARK, OPP. GOLF COURSE, YERWADA, PUNE AND STARTED PAYING RENT T O THE OWNERS OF THE PREMISES. THEY WERE SUB-LEASED TO PROLIFIC, WHICH IN TU RN, SUB-LEASED THE SAME TO A MULTINATIONAL SOFTWARE COMPANY. THIS EXPOSED THE OWNE RS AND THE EARLIER LICENSEES TO ADDITIONAL RISK OF NOT BEING ABLE TO OBTAIN VACANT POSSESSION OF THE PROPERTY AND/OR THE DUE PAYMENT OF SUB-LEASE CONSIDERA TION IN TIME. TO SAFE- GUARD THESE CONTINGENCIES, THE ASSESSEE COMPANY TOOK A SUM OF RS 5 CRORES ON 1.11.1996 FROM PROLIFIC AS INTEREST FREE REFUNDABLE S ECURITY DEPOSIT, WHICH IN TURN, TOOK A SIMILAR DEPOSIT OF RS 3.10 CRORES (ON ENHANCED REN T) FROM THE SAID OUTSIDE MULTINATIONAL SOFTWARE COMPANY. IT APPEARS THAT AFTER 4 YEARS OF THE SECURITY DEPOSIT CONTINUING WITH THE ASSESSEE COMPANY, IN MARCH 200 1, PROLIFIC NEEDED SOME MONEY URGENTLY FOR A SHORT PERIOD AND REQUESTED TH E ASSESSEE COMPANY TO RETURN PART OF THE SECURITY DEPOSIT ON A PURELY TEMPO RARY BASIS ON THE UNDERSTANDING THAT PROLIFIC WILL REPLENISH THE SECURITY DEPOSIT AS SOON AS ITS TEMPORARY REQUIREMENT WAS MET. A SUM OF RS 3.40 CRORES W AS RETURNED ON 30.3.2001 OUT OF WHICH, RS 3 CRORES WAS RECEIVED BACK BY TH E ASSESSEE COMPANY WITHIN LESS THAN 2 MONTHS DURING 11 TH TO 15 TH MAY, 2001 BY THREE CHEQUES OF RS 1 CRORE EACH. THE SAID TRANSACTION WAS MADE IN THE SAME ACCOUNT OF PROLIFIC IN THE ACCOUNT BOOKS OF THE ASSESSEE COMPANY. I T IS STATED THAT THE ENTIRE AMOUNT WAS RETURNED TO PROLIFIC IN MAY, 2003 O N THE ASSESSEE COMPANY CEASING TO BE THE LICENSOR OF THE SUB-LICENSED PREMISES. 4. THE ASSESSING OFFICER HELD THAT DURING THE YEAR UNDE R CONSIDERATION, ASSESSEE HAD RECEIVED RS 3 CRORES AS LOAN OR ADVANCE FROM PR OLIFIC AND SINCE THE EXAMINATION OF THE ACCOUNTS OF PROLIFIC SHOWED THAT IT SATISFIED THE CONDITIONS PRESCRIBED 2(22)(E), THE AMOUNT OF RS 3 CRORES RECEIVED DURING THE YEAR WAS 4 ASSESSABLE AS DEEMED DIVIDEND WITHIN THE MEANING OF SECTI ON 2(22)(E) OF THE ACT. 5. EVEN WITH REGARD TO THE PLEA OF THE ASSESSEE THAT T HE IMPUGNED SUM WAS NOT IN THE NATURE OF A LOAN OR ADVANCE, BUT A SECURITY DEPOSIT AGAINST SUB-LETTING OF PROPERTY, THE ASSESSING OFFICER HELD THAT IT WAS A WE LL PLANNED DEVICE AND, THEREFORE, THE SAME WAS NOT ACCEPTED. 6. IN THE APPEAL BEFORE THE COMMISSIONER OF INCOME- TAX (APPEALS) ASSESSEE CHALLENGED THE ADDITION BOTH ON FACTS AND IN LAW. THE ASSESSEE ALSO CHALLENGED THE INVOKING OF SECTION 147/148 OF THE ACT O N VARIOUS GROUNDS, INTER ALIA , CONTENDING THAT THERE WAS NO ESCAPEMENT OF INCOME WIT HIN THE MEANING OF SECTION 147 OF THE ACT AND, THUS, THE REOPENING OF THE ASSESSMENT WAS BAD IN LAW. ADDITIONALLY, ON MERITS OF THE ADDITION, IT WAS CONTENDED THAT THE AMOUNT IN QUESTION WAS NOT IN THE NATURE OF A LOAN OR ADVANCE AS PER SECTION 2(22)(E) OF THE ACT AND, THEREFORE, THE SAID ADDITION WAS NOT MAINTAIN ABLE. THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS ACCEPTED THE PLEA OF THE A SSESSEE ON BOTH THE COUNTS. FIRSTLY, ACCORDING TO THE COMMISSIONER OF INCO ME-TAX (APPEALS), THE REASONS RECORDED CONTAINED INCORRECT FACTS AND, THEREF ORE, THERE WAS NO ESCAPEMENT WITHIN THE MEANING OF SECTION 147/148 OF TH E ACT. ON MERITS ALSO, IT HAS BEEN HELD THAT THE AMOUNT OF RS 3 CRORES RECEIVED BY THE ASSESSEE DURING THE YEAR WAS WRONGLY TREATED BY THE ASSESSING OFFICER A S A LOAN OR ADVANCE WITHIN THE MEANING OF SECTION 2(22)(E) OF THE ACT, WHE REAS FACTUALLY THE SAID AMOUNT WAS A SECURITY DEPOSIT AGAINST LEASED PREMISES PAID TO THE ASSESSEE. ON BOTH THESE COUNTS, THE ACTION OF THE ASSESSING OFFICER HAS BEEN NEGATED AGAINST WHICH THE REVENUE IS IN APPEAL BEFORE US. 7. BEFORE US, THE LEARNED DEPARTMENTAL REPRESENTATIVE , APPEARING FOR THE REVENUE, HAS SUPPORTED THE ORDER OF THE ASSESSING OFFICE R BY PLACING RELIANCE ON THE SAME. WITH REGARD TO THE INITIATION OF PROCEEDI NGS UNDER SECTION 147/148 OF 5 THE ACT, IT WAS CONTENDED THAT THE ASSESSING OFFICER HAD J USTIFIABLE REASONS WHICH HAD A NEXUS WITH FORMATION OF BELIEF THAT CERTAIN INCO ME HAD ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTION 147 OF THE ACT. T HE LEARNED DEPARTMENTAL REPRESENTATIVE POINTED OUT THAT THE BE LIEF FOR ESCAPEMENT OF INCOME WAS BASED ON THE OBSERVATIONS OF THE ASSESSING OFFI CER IN THE COURSE OF THE ASSESSMENT PROCEEDINGS FOR ANOTHER ASSESSMENT YEAR, I.E . 2003-04 AND ALSO THE FACT THAT THE COMMISSIONER OF INCOME-TAX (APPEAL S) WHILE DISPOSING OF THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2003-04 HAD OBSERVED THAT THE TRANSACTION IN QUESTION FELL WITHIN THE PURVIEW OF SECTION 2(22)(E) OF THE ACT. THEREFORE, IN THE INSTANT YEARS THE COMMISSIONER OF INCOME-TAX (APPEALS) WAS NOT JUSTIFIED IN CONCLUDING THAT THE FORMATION OF BELIEF FOR ESCAPEMENT OF INCOME WAS BASED ON INCORRECT FACTS. EVEN WITH REGARD TO T HE MERITS OF THE ADDITION, RELIANCE HAS BEEN PLACED ON THE REASONING EX TENDED BY THE ASSESSING OFFICER. 8. ON THE OTHER HAND, THE LD COUNSEL FOR THE RESPOND ENT-ASSESSEE HAS POINTED OUT THAT THE COMMISSIONER OF INCOME-TAX (AP PEALS) MADE NO MISTAKE IN HOLDING THAT THE INITIATION OF PROCEEDINGS U NDER SECTION 147/148 OF THE ACT WERE BASED ON IRRELEVANT REASONS AND THEREFORE THE SAME WAS NOT CORRECT WITHIN THE MEANING OF SECTIONS 147/148 OF THE ACT. PRI MARILY, IT WAS SUBMITTED THAT ON THE BASIS OF THE REASONS RECORDED NO ESCAPEMENT WI THIN THE MEANING OF SECTION 147/148 OF THE ACT WAS ESTABLISHED AND THEREFORE THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS CORRECTLY QUASHED THE JURISDICTI ON. EVEN WITH REGARD TO THE MERITS OF THE ADDITION, THE LEARNED COUNSEL HA S SUBMITTED THAT THE ASSESSING OFFICER CLEARLY ERRED IN OVERLOOKING THE DIFFERE NCE BETWEEN A LOAN OR ADVANCE AND A SECURITY DEPOSIT AGAINST LEASED PREMISES SO AS TO JUSTIFY INVOKING OF SECTION 2(22)(E) OF THE ACT. IT WAS POINTED OUT THAT THE IMPUGNED AMOUNT WAS RECEIVED FROM PROLIFIC AS A SECURITY DEPOSIT AGAINST LEASE D PREMISES AND THE SAME COULD NOT BE CONSTRUED AS A LOAN OR ADVANCE AS UNDE RSTOOD FOR THE PURPOSES OF SECTION 2(22)(E) OF THE ACT. IT HAS BEEN PO INTED OUT THAT THERE IS A 6 LEGAL AS WELL AS COMMERCIAL DISTINCTION BETWEEN A LOAN AN D A SECURITY DEPOSIT AND IT IS ONLY THE FORMER WHICH FALLS FOR CONSIDERATION UNDE R SECTION 2(22)(E) OF THE ACT. IN THE PRESENT CASE, THE AMOUNT OF SECURITY DEPOSIT AGA INST THE LEASING OF PREMISES IS NOT IN THE NATURE OF LOAN OR ADVANCE. IT WA S ALSO POINTED OUT THAT THE ASSESSING OFFICER INCORRECTLY HELD THAT PROLIFIC SATISFIES TH E CONDITIONS PRESCRIBED UNDER SECTION 2(22)(E) OF THE ACT. ACCORDING TO THE ASSE SSEE, THE PROVISIONS OF SECTION 2(22)(E) DO NOT APPLY IN THE PRESENT SITUATION, INASMUCH AS PROLIFIC IS ENGAGED IN MONEY LENDING BUSINESS. IN SUM AND SUBSTANCE , THE LEARNED COUNSEL DEFENDED THE CONCLUSIONS DRAWN BY THE COMMISSIONER OF IN COME-TAX (APPEALS). 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. IN THIS CASE, THE FIRST DISPUTE RELATES TO THE VALIDITY OF THE PROCEEDINGS INIT IATED BY THE ASSESSING OFFICER BY INVOKING THE PROVISIONS OF SECTION 147/148 OF THE ACT. SECTION 147 OF THE ACT EMPOWERS AN ASSESSING OFFICER TO ASSESS OR RE-ASSESS ANY INCOME CHA RGEABLE TO TAX WHICH HAD ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR, SUBJECT TO THE PROVISIONS OF SECTION 148 TO 153 OF THE ACT, SO HOWEVER, SUCH A POWER IS CIRCUMSCRIBED BY THE FACT THAT THE ASSESSING OFFICER MUST HAV E A REASON TO BELIEVE. THE CRUCIAL EXPRESSION IN SECTION 147 IS THAT TH E ASSESSING OFFICER MUST HAVE REASONS TO ENTERTAIN THE BELIEF THAT CERTAIN IN COME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. IT IS A MANDATORY REQUIREMENT THAT BE FORE INITIATING PROCEEDINGS UNDER SECTION 148, THE ASSESSING OFFICER SHALL RE CORD HIS REASONS FOR DOING SO. THE EXPRESSION REASON TO BELIEVE HAS BEEN A SUBJECT-MATTER OF JUDICIAL REVIEW BY VARIOUS COURTS OF THE LAND ON NUMEROUS OCCASIO NS. IT IS FAIRLY WELL- UNDERSTOOD THAT THE REASONS MUST HAVE A NEXUS OR A LIVE- LINK WITH THE FORMATION OF BELIEF THAT CERTAIN INCOME CHARGEABLE TO TAX HAS ESCA PED ASSESSMENT. IN THE CONTEXT OF THE REQUIREMENTS OF RECORDING OF REASONS BY THE ASSESSING OFFICER IT HAS ALSO BEEN WELL UNDERSTOOD THAT THE REASONS RECORDED SH OULD BE SELF EXPLANATORY AND SHOULD PROVIDE A LINK BETWEEN THE FOR MATION OF BELIEF AND THE MATERIAL OR EVIDENCE AVAILABLE WITH THE ASSESSING OFF ICER IN THAT REGARD. NEEDLESS TO SAY THE POWER OF THE ASSESSING OFFICER MANIFESTED IN SECT ION 147 OF THE ACT IS 7 NOT ARBITRARY AND THEREFORE, THE QUESTION AS TO WHET HER THERE EXISTS REASON TO BELIEVE THAT INCOME HAD ESCAPED ASSESSMENT WITHIN THE ME ANING OF SECTION 147 HAS TO BE DETERMINED WITH REFERENCE TO THE REASONS RECOR DED BY THE ASSESSING OFFICER. IN THIS CONNECTION, IT WOULD SUFFICE TO REFER TO THE FOLLOWING OBSERVATIONS OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF N. D. BHATT, IAC V. I.B.M. WORLD TRADING CORPORATION 216 ITR 811 (BOM): IT IS ALSO WELL-SETTLED THAT THE REASONS FOR REOPEN ING ARE REQUIRED TO BE RECORDED BY THE ASSESSING AUTHORITY BEFORE ISSUING ANY NOTICE UNDER SECTION 148 BY VIRTUE OF THE PROVISIONS OF SECTION 148(2) AT THE RELEVANT TIME. ONLY THE REASONS SO RECORDED CAN BE LOOKED AT FOR SUSTAINING OR SETTING ASIDE A NOTICE ISSUED UNDER SECTION 148. IN THE CASE OF EQUITABLE INVESTMENT CO. (P) LTD. V ITO (1988) 174 ITR 714, A DIVISION BENCH OF THE CALCUTTA HIGH COURT HAS HELD THAT WHERE A NOTICE IS SUED UNDER SECTION 148 OF THE INCOME- TAX ACT, 1961, AFTER OBTAINING THE SANCTION OF THE COMMISSIONER OF INCOME-TAX IS CHALLENGED, THE ONLY DOCUMENT TO BE LOOKED INTO FOR DETERMINING THE VALIDITY OF THE NOTICE IS THE REPORT ON THE BASIS OF WHICH THE SANCTION OF THE COMMISSIONER OF INCOME-TAX HAS BEEN OBTAINED. THE INCOME-TAX DEPARTMENT CANNOT REL Y ON ANY OTHER MATERIAL APART FROM THE REPORT. 10. THE AFORESAID PARITY OF REASONING HAVE BEEN KEPT I N MIND BY US WHILE EXAMINING THE CONCLUSION DRAWN BY THE COMMISSIONER OF I NCOME-TAX (APPEALS) TO THE EFFECT THAT THE REASONS RECORDED BY THE ASSESSING OF FICER UNDER SECTION 147 IN THIS CASE DOES NOT JUSTIFY FORMATION OF BELIEF TH AT ANY INCOME CHARGEABLE TO TAX WITHIN THE MEANING OF SECTION 147 HAD ESCAPED ASS ESSMENT. 11. IN PARA 7.7 OF THE IMPUGNED ORDER, THE COMMISSION ER OF INCOME-TAX (APPEALS) HAS OBSERVED AN INCORRECT FINDING OF FACT IN T HE REASONS RECORDED. THE FOLLOWING DISCUSSION BY THE COMMISSIONER OF INCOME-TAX (A PPEALS) IS WORTHY OF NOTICE. 7.7 IN THE REASONS RECORDED BEFORE ISSUANCE OF NOT ICE U/S 148 OF THE ACT, THE AO HAD NOTED THAT DURING THE COURSE OF SCRUTINY FOR THE AS SESSMENT YEAR 2003-04 THE ASSESSEE HAD RECEIVED A SUM OF RS 3 CRORES FROM ITS SISTER C ONCERN WHERE THE DIRECTORS OF THE ASSESSEE COMPANY WERE INTERESTED. THE MERE FACT THA T AN AMOUNT OF RS 3 CRORES WAS RECEIVED FROM THE SISTER CONCERN WHERE THE DIRECTOR S WERE INTERESTED WOULD NOT ATTRACT THE PROVISIONS OF SECTION 2(22)(E) OF THE INCOME-TAX AC T UNLESS IT IS NARRATED THAT THE DIRECTORS OF THE ASSESSEE COMPANY WERE SUBSTANTIALLY INTERES TED. IT IS TRITE LAW THAT NOTHING COULD BE READ OR ADDED IN THE REASONS RECORDED WHICH ARE HELD TO BE OF PARAMOUNT IMPORTANCE. THE MENTIONING OF AN INCORRECT FINDING OF FACT IN T HE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2003-04 BY THE AO AND ITS ALLEGED CONFIRMATION BY THE CIT(A), VITIATED THE RECORDING OF REASONS AS THE BASIC FACTS ON THE BASIS OF WHICH THE AO HAD COME TO THE CONCLUSION THAT CASE OF THE ASSESSEE WAS COVERED U/S 147 OF TH E INCOME-TAX ACT DID NOT HAVE A DIRECT NEXUS WITH THE INCOME SOUGHT TO BE ASSESSED. THEREAFTER, THE FOLLOWING DISCUSSION IN THE ORDER OF TH E COMMISSIONER OF INCOME- TAX (APPEALS) IS ALSO RELEVANT: 8 IN VIEW OF THE ABOVE DISCUSSION, THE REASONS RECOR DED ARE HELD TO SUFFER ON TWO COUNTS. THE FACT THAT DURING THE COURSE OF SCRUTINY FOR ASS ESSMENT YEAR 2003-04, THE ASSESSEE HAD RECEIVED RS 3 CRORES FROM ITS SISTER CONCERN WH ERE THE DIRECTORS OF THE ASSESSEE COMPANY WERE INTERESTED DO NOT IPSO FACTO GIVEN ANY REASON TO BELIEVE TO THE ASSESSING OFFICER THAT THE PAYMENT RECEIVED BY THE ASSESSEE T HUS ATTRACTS THE PROVISIONS OF SECTION 2(22)(E) OF THE INCOME-TAX ACT AS DEEMED DIVIDEND. FURTHER, THE ASSESSING OFFICER IN THE ASSESSMENT PROCEEDINGS FOR ASSESSMENT YEAR 2003-04 COMPARED THE RENT AND DEPOSIT RECEIVED BY PROLIFIC FROM PARAMETRIC BEING 2.2 CRORES AND 3.09 CRORES WITH THE RENT AND DEPOSIT RECEIVED BY THE ASSESSEE COMPANY FROM PROL IFIC BEING 1.97 CRORES AND 5 CRORES TO COME TO THE CONCLUSION THAT PROLIFIC HAD GIVEN AN ADDITIONAL LOAN OR ADVANCE OF RS 1.91 CRORES IN THE FORM OF DEPOSIT TO A GROUP COMPA NY IN WHICH ONE OF THE SHAREHOLDERS HAD SUBSTANTIAL INTEREST. THEREFORE, ACCORDING TO T HE ASSESSING OFFICER, AN AMOUNT OF RS 1.91 CRORES WAS TAXABLE IN THE HANDS OF THE ASSESSE E AS DEEMED DIVIDEND. WHILE RECORDING THE REASONS, HOWEVER, IT WAS STATED THAT THE ASSESSEE HAD RECEIVED RS 3 CRORES FROM THE SISTER CONCERN WHICH WAS HIT BY SEC TION 2(22)(E) FOR WHICH THE ASSESSING OFFICER HAD GIVEN A CLEAR FINDING OF FACT IN THE AS SESSMENT ORDER. THE CIT(A) NEVER CONFIRMED THE STAND OF THE ASSESSING OFFICER IN APP ELLATE PROCEEDINGS AS ALREADY NOTED ABOVE. THE FINDING OF FACT IN THE REASONS RECORDED IS, THEREFORE, HELD TO BE NOT CORRECT. IN VIEW OF THE ABOVE, GROUND OF APPEAL NO. 2 IS ALLOWE D. 12. FROM THE AFORESAID, IT IS QUITE EVIDENT THAT THE REASO NS RECORDED BY THE ASSESSING OFFICER, WHICH HAS BEEN EXTRACTED BY US IN EARLIER PART OF THIS ORDER, CONTAIN AN INCORRECT FINDING AND CONCLUSION OF THE COMMISSI ONER OF INCOME-TAX (APPEALS) TO THE AFORESAID EFFECT HAS NOT BEEN CONTROVE RTED BY THE REVENUE BEFORE US ON THE BASIS OF ANY COGENT MATERIAL OR EVIDEN CE. IN THE REASONS RECORDED, IT IS NOTED BY THE ASSESSING OFFICER THAT DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE ASSESSMENT YEAR 2003-04 THE A SSESSEE WAS FOUND TO HAVE RECEIVED IN THE INSTANT YEAR, A SUM OF RS 3 CRORES FROM ITS SISTER CONCERN WHERE THE DIRECTORS OF THE ASSESSEE COMPANY WERE INT ERESTED, AND THUS SUCH PAYMENT ATTRACTED THE PROVISIONS OF SECTION 2(22)(E ) OF THE ACT. IF ONE WERE TO EXAMINE THE INVOKING OF SECTION 2(22)(E) IN THE CO NTEXT OF THE AFORESAID, IT IS QUITE CLEAR THAT SECTION 2(22)(E) CANNOT BE INVOKED MER ELY BECAUSE AN AMOUNT HAS BEEN RECEIVED FROM A CONCERN WHERE THE DIRECTORS OF THE ASSESSEE COMPANY ARE INTERESTED, WHEREAS IT IS REQUIRED TO BE SHOWN THA T THE DIRECTORS ARE SUBSTANTIALLY INTERESTED IN THE OTHER CONCERN. THERE I S NO SUCH ASSERTION BY THE ASSESSING OFFICER IN THE REASONS RECORDED. SECONDLY, IT IS A LSO OBSERVED IN THE REASONS RECORDED THAT IN THE COURSE OF ASSESSMENT PROCEEDIN GS FOR ASSESSMENT YEAR 2003-04 A CLEAR FINDING HAS BEEN ARRIVED AT BY T HE ASSESSING OFFICER ABOUT THE APPLICABILITY OF SECTION 2(22)(E), WHICH STOOD CON FIRMED BY THE COMMISSIONER OF INCOME-TAX (APPEALS). ON THIS ASSERTION, THE FIRST APP ELLATE AUTHORITY HAS 9 BROUGHT OUT THE VARIATION IN THE FACTUAL APPRECIATION BY THE ASSESSING OFFICER AND, THEREFORE, IT HAS BEEN REFERRED IN THE IMPUGNED ORD ER THAT THE REASONS ARE RECORDED ON INCORRECT FACTS. IN THIS VIEW OF THE MATTER, WE FIND THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) WAS JUSTIFIED IN HOL DING THAT THE REOPENING OF ASSESSMENT U/S 148 WAS BAD IN LAW. THUS, ON THIS ASPECT , THE REVENUE HAS TO FAIL. 13. EVEN WITH REGARD TO THE MERITS OF THE ADDITION, THE COMMISSIONER OF INCOME-TAX (APPEALS) HAD DEEMED IT FIT AND PROPER TO DELETE THE ADDITION. ON THIS ASPECT, THE LEARNED COUNSEL FOR THE RESPONDENT-ASSESSEE HA S TAKEN AN ALTERNATIVE SUBMISSION JUSTIFYING THE CONCLUSION DRAWN BY T HE COMMISSIONER OF INCOME-TAX (APPEALS), ON THE BASIS OF THE JUDGMENT O F THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF UNIVERSAL MEDI CARE P. LTD. 324 ITR 263 (BOM). IT HAS BEEN CONTENDED THAT AN ON ACCOUNT OF DE EMED DIVIDEND UNDER SECTION 2(22)(E) IS PERMISSIBLE ONLY IN THE HANDS OF THE SHAREHOLDER; WHEREAS IN THE PRESENT CASE ADMITTEDLY, THE ASSESSEE COMPANY IS NOT A SH AREHOLDER OF PROLIFIC. WE HAVE EXAMINED THE AFORESAID PLEA SET UP BY THE ASSESSEE AND FIND THAT THE ASSERTION MADE OUT IS CORRECT. THE SHAREHOLDING PATTERN OF M/S PROLIFIC AS WELL AS THE ASSESSEE COMPANY HAS BEEN SUCCINCTLY NOTED BY THE ASSESSING OFFICER IN PARA 5 OF THE ASSESSMENT ORDER. QUITE CLEARL Y, ASSESSEE IS NOT A SHAREHOLDER IN PROLIFIC, AND THUS IN TERMS OF THE INTER PRETATION OF SECTION 2(22)(E) FORMULATED BY THE HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF UNIVERSAL MEDICARE P. LTD. (SUPRA), THE DIVIDEND HAS TO BE TAXED ONLY IN THE HANDS OF THE SHAREHOLDER, AND NOT THE ASSESSEE COMPANY. IN THE INSTANT CASE, EVEN IF THE PAYMENT TO THE ASSESSEE COMPANY IS ACCEPTED AS DIVIDEND FOR THE PURPOSES OF SECTION 2(22)(E), YET THE SAME IS NOT TAXABLE IN THE HA NDS OF THE ASSESSEE COMPANY SINCE IT IS NOT A SHAREHOLDER OF PROLIFIC. THUS, WE UPHOLD THE ULTIMATE CONCLUSION OF THE COMMISSIONER OF INCOME-TAX (APPEALS) TO THE EFFECT THAT THE IMPUGNED AMOUNT IS NOT ASSESSABLE IN THE HANDS OF THE ASSE SSEE, ALBEIT ON A DIFFERENT GROUND. HAVING UPHELD THE ULTIMATE DECISION OF THE COMMISSIONER OF 10 INCOME-TAX (APPEALS) IN THE AFORESAID MANNER, WE DO N OT PROPOSE TO DWELL FURTHER ON THE REASONS ARTICULATED BY THE COMMISSIONER OF INCO ME-TAX (APPEALS) TO DELETE THE ADDITION, SINCE IT IS RENDERED ACADEMIC. 14. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. DECISION PRONOUNCED IN THE OPEN COURT ON THIS 29 TH DAY OF JULY, 2011. SD/- SD/- (I C SUDHIR) JUDICIAL MEMBER (G.S. PANNU) ACCOUNTANT MEMBER PUNE: DATED: 29 TH JULY, 2011 B COPY OF THE ORDER IS FORWARDED TO : 1. ASSESSEE 2. ACIT CIR.1, PUNE 3. THE CIT(A)-II, PUNE 4. THE CITII, PUNE 5. THE D.R, A BENCH, PUNE 6. GUARD FILE TRUE COPY BY ORDER ASSISTANT REGISTRAR ITAT, PUNE BENCHES, PUNE