Purusottam Parmanandka, Tiruppur V. DCIT, Tiruppur

ITA 2076/CHNY/2015

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7736 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 3 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-02-2017
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 07-02-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 26-10-2015
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: T BANUSEKAR
• Keywords: Reopening of assessment; Business income; Search and seizure; Principle of natural justice; Deemed dividend; Revised return; Reason to believe; Reassessment proceedings
• Section: 143(3); 147; 148

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , ' # . $ & ' BEFORE SHRI M. BALAGANESH, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ I.T.A. NO. 2076/MDS/2015 / ASSESSMENT YEAR : 2007-08 SHRI PURUSOTAM PARAMANANDKA, NO. 9-A INDIRA NAGAR, 3 RD STREET, AEPC MAIN ROAD, TIRUPUR - 641 603. [PAN: AFSPP 1372F] VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE -1, TIRUPUR. ( / APPELLANT) ( / RESPONDENT) ) * / APPELLANT BY : SHRI T. BANUSEKAR, CA -.) * / RESPONDENT BY : SHRI A.V. SREEKANTH, JCIT * /DATE OF HEARING : 07.02.2017 * /DATE OF PRONOUNCEMENT : 16.02.2017 /O R D E R PER M. BALAGANESH, ACCOUNTANT MEMBER: THIS APPEAL OF THE ASSESSEE ARISE OUT OF THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-3, VIDE PROCEE DINGS IN ITA NO. 25/2014-15 DATED 31.08.2015 FOR THE ASSESSMENT YEAR 2007-08. :-2-: I.T.A. NO. 2076/MDS/2015 2. THE ASSESSEE HAD RAISED THE FOLLOWING GROUNDS OF APPEAL :- 2.1 THE ORDER OF THE COMMISSIONER OF INCOME TAX (AP PEALS) -3, IS ERRONEOUS IN LAW, FACTS AND CIRCUMSTANCES OF THE CA SE AND AT ANY RATE IS OPPOSED TO THE PRINCIPLES OF NATURAL JUSTICE, EQUIT Y AND FAIR PLAY. 2.2 THE FIRST APPELLATE AUTHORITY OUGHT TO HAVE HEL D THAT ON 24.04.2012 WHEN NOTICE UNDER SECTION 148 WAS ISSUED TO YOUR APPELLANT THERE WAS A SUBSTANTIVE ASSESSMENT IN THE HANDS OF THE COMPANY M/S. KESHARINANDAN KNIT FABRICS (P) LTD., TREATING THE S AME AMOUNT AS DEEMED DIVIDEND IN THE HANDS OF THE COMPANY. 2.3 YOUR APPELLANT THEREFORE STATES THAT PROCEEDING S INITIATED U/S. 148 CULMINATING IN RE-ASSESSMENT IN THE HANDS OF YOUR A PPELLANT IS BAD IN LAW. 2.4 THE FIRST APPELLANT AUTHORITY OUGHT TO HAVE HEL D THAT TWO SUBSTANTIVE ASSESSMENT ON THE SAME ISSUE, ONE IN TH E HANDS OF THE COMPANY AND ANOTHER IN THE HANDS OF YOUR APPELLANT ARE NOT PERMISSIBLE UNDER THE PROVISIONS OF THE INCOME TAX ACT. 2.5 THE FIRST APPELLATE AUTHORITY ERRED IN OVER RUL ING THE CONTENTION OF YOUR APPELLANT THAT THE ADVANCES WERE MADE BY M/S. NEERAJ ENTERPRISES (P) LTD., TO M/S. KESHARINANDAN KNIT FABRIC (P) LTD ., IN THE ORDINARY COURSE OF BUSINESS AND THAT SUCH LENDING OF MONEY W AS A SUBSTANTIATED PART OF THE BUSINESS OF THE LENDING COMPANY. 2.6 THE FIRST APPELLATE AUTHORITY OUGHT TO HAVE HEL D THAT YOUR APPELLANT'S CASE FALLS WITHIN THE EXCLUSION SPECIFI ED IN CLAUSE (II) OF SECTION 2(22)(E) AND THAT THE ASSESSMENT MADE BY TH E ASSESSING OFFICER IS NOT WARRANTED. :-3-: I.T.A. NO. 2076/MDS/2015 2.7 YOUR APPELLATE RESPECTFULLY PRAYS THAT ON THE A BOVE GROUNDS AND ON SUCH OTHER GROUNDS AS MAY BE PERMITTED TO BE ADD UCED AT THE TIME OF HEARING, THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-3, MAY BE HELD AS BAD IN LAW AND ON FACTS. THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-3 MAY BE SET A SIDE AND JUSTICE RENDERED. THE PRINCIPAL GROUND RAISED BY THE ASSESSEE REVOLVE S ON THE ISSUE AS TO WHETHER AN ADDITION TOWARDS DEEMED DIVIDEND U/S 2(2 2)(E) OF THE ACT COULD BE MADE IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND THAT TOO IN THE REOPENED ASSESSMENT PROCEEDINGS FRAMED BY THE LD AO . 3. THE BRIEF FACTS OF THIS CASE IS THAT THE ASSESS EE IS AN INDIVIDUAL EARNING COMMISSION INCOME APART FROM RECEIVING SALARY FROM M/S KESARINANDAN KNIT FABRICS PVT LTD AND M/S NEERAJ ENTERPRISES PVT LTD. THE ASSESSEE FILED THE RETURN OF INCOME FOR THE ASST YEAR 2007-08 ON 14.2. 2008 DECLARING TAXABLE INCOME OF RS. 8,30,826/- WHICH WAS DULY PROCESSED U /S 143(1) OF THE ACT. NO ASSESSMENT WAS FRAMED U/S 143(3) OF THE ACT ON THE SAID RETURN. THE LD AO OBSERVED THAT THE ASSESSEE WAS A SHAREHOLDER IN THE AFORESAID ENTITIES HOLDING MORE THAN 10% OF THE VOTING POWER. M/S NEERAJ ENTE RPRISES PVT LTD (IN SHORT NEPL) ADVANCED A SUM OF RS. 50,75,000/- TO M/S KE SARINANDAN KNIT FABRICS PVT LTD (IN SHORT KKFPL) DURING THE FINANCIAL YE AR 2006-07 RELEVANT TO ASSESSMENT YEAR UNDER APPEAL. ADMITTEDLY M/S NEPL HAD ACCUMULATED PROFITS TO THE TUNE OF RS. 3,37,68,317/-. ACCORDINGLY, THE LD AO SOUGHT TO INVOKE THE :-4-: I.T.A. NO. 2076/MDS/2015 PROVISIONS OF SECTION 2(22)(E) OF THE ACT IN THE HA NDS OF THE ASSESSEE SHAREHOLDER HOLDING SUBSTANTIAL INTEREST IN BOTH TH E ENTITIES. AS THE ORIGINAL ASSESSMENT WAS COMPLETED U/S 143(1) OF THE ACT, THE LD AO SOUGHT TO REOPEN THE ASSESSMENT FOR THE ASST YEAR 2007-08 BY ISSUANC E OF NOTICE U/S 148 OF THE ACT DATED 24.12.2012 . THE ASSESSEE FILED A RETURN ON 16.1.2013 ADMITTING TOTAL INCOME OF RS. 8,30,826/- IN RESPONSE TO NOTIC E ISSUED U/S 148 OF THE ACT AND ALSO SOUGHT FOR THE COMMUNICATION OF REASONS RE CORDED FOR REOPENING THE ASSESSMENT WITHIN THE MEANING OF SECTION 147 OF TH E ACT VIDE HIS LETTER DATED 19.1.2013. THE LD AO VIDE HIS COMMUNICATION DATED 28.1.2013 FURNISHED THE COPY OF THE REASONS RECORDED BY THE LD AO TO THE AS SESSEE WHICH IS REPRODUCED HEREINBELOW FOR THE SAKE OF CONVENIENCE :- 'THE ASSESSEE IS A SHARE HOLDER HOLDING MORE THAN 1 0% OF THE SHARES IN M/S. NEERAJ ENTERPRISES P LTD., TIRUPUR. THE SAID COMPANY HAD ADVANCED LOAN OF RS. 50.75 LAKHS TO M/S. KESARI NANDAN KNIT FABRICS P LTD., OUT OF ITS ACCUMULATED PROFITS OF RS. 3,37, 68,317/- DURING THE ASSESSMENT YEAR 2007-08. THE ABOVE ADVANCE FALLS W ITHIN THE DEFINITION OF SEC. 2(22)(E) OF THE INCOME TAX ACT, 1961 AND SI NCE THE ASSESSEE HOLDS 26.92% SHARES OF THE COMPANY M/S. NEERAJ ENTE RPRISES P LTD., THE ADVANCE HAS TO BE TAXED IN HIS INDIVIDUAL CAPAC ITY U/S. 2(22)(E). SO, I HAVE REASON TO BELIEVE THAT THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF SEC. 147 OF THE IN COME TAX ACT.' 4. THE LD AO DURING THE COURSE OF ASSESSMENT PROC EEDINGS REPRODUCED IN THE ASSESSMENT ORDER CERTAIN PORTIONS OF THE SWORN STATEMENT RECORDED FROM :-5-: I.T.A. NO. 2076/MDS/2015 THE ASSESSEE WHO WAS THE MANAGING DIRECTOR OF M/S N EPL (I.E THE LENDING COMPANY) ON 22.12.2010 BY DCIT, COMPANY CIRCLE, TIR UPUR. IN THIS STATEMENT, THE ASSESSEE HAD CATEGORICALLY STATED TH AT M/S NEPL WAS ALSO ENGAGED IN THE LENDING ACTIVITY AND HAD DERIVED INT EREST INCOME THEREON WHICH WERE OFFERED TO TAX UNDER THE HEAD PROFITS AND GAI NS OF BUSINESS OR PROFESSION AND FOR SOME YEARS, IT WAS ERRONEOUSLY OFFERED UNDER THE HEAD INCOME FROM OTHER SOURCES AND THE SAME WERE DULY RECTIFIED EITHER BY FILING A REVISED RETURN (WHEREVER TIME WAS AVAILABLE FOR FIL ING REVISED RETURN AS PER LAW) OR BY FILING A LETTER BEFORE THE LD AO AS THE CASE MAY BE. IT WAS THE CASE OF THE LD AO THAT M/S NEPL HAD ONLY COMMISSION INCOME AND INCOME FROM POWER GENERATION AND LENDING ACTIVITY W AS NOT SUBSTANTIAL PART OF THE BUSINESS OF THE ASSESSEE THOUGH HE ADMITTED THA T LENDING PER SE WAS DONE BY M/S NEPL WHICH EFFECTIVELY FORMED THE BASIS OF FRAMING THE ADDITION U/S 2(22)(E) OF THE ACT. THE LD AO OBSERVED THAT T HE INTEREST INCOME DERIVED BY M/S NEPL WAS OFFERED UNDER THE HEAD INCOME FROM OTHER SOURCES AS AGAINST PROFITS AND GAINS OF BUSINESS OR PROFESSIO N AND ACCORDINGLY HE INVOKED THE PROVISIONS OF SECTION 2(22)(E) OF THE A CT IN THE SUM OF RS. 50,75,000/- IN THE HANDS OF THE ASSESSEE SHAREHOLDE R AND COMPLETED THE ASSESSMENT. :-6-: I.T.A. NO. 2076/MDS/2015 5. BEFORE THE LD CITA, THE ASSESSEE QUESTIONED THE VALIDITY OF REASSESSMENT PROCEEDINGS APART FROM CONTESTING THE ADDITION ON MERITS. IT WAS ARGUED THAT ADMITTEDLY SUBSTANTIVE ASSESSMENT W AS ALREADY MADE IN THE HANDS OF M/S KKFPL VIDE ASSESSMENT ORDER DATED 7.12 .2009 ASSESSING THE SAME DEEMED DIVIDEND IN THE SUM OF RS. 50,75,000/- ON THE PREMISE THAT M/S KKFPL HAD ACTUALLY RECEIVED THE LOAN FROM M/S NEPL AND ACCORDINGLY M/S KKFPL IS THE BENEFICIARY OF THE SUMS DIVERTED FROM M/S NEPL. THE LD CITA DID NOT APPRECIATE THE CONTENTIONS OF THE ASSESSEE AND ACCORDINGLY UPHELD THE REASSESSMENT FRAMED BY THE LD AO. AGGRIEVED, THE A SSESSEE IS IN APPEAL BEFORE US. 6. THE LD AR FILED THE SEQUENCE OF EVENTS WITH RES PECTIVE DATES EXPLAINING THE VARIOUS PROCEEDINGS IN THE HANDS OF THE ASSESSE E AS WELL AS IN THE HANDS OF THE PARTIES INVOLVED IN THE SUBJECT MENTIONED LO AN TRANSACTION. FOR THE SAKE OF CONVENIENCE, THE SAME IS REPRODUCED HEREUND ER :- DATE EVENTS 14.02.2008 RETURN OF INCOME FILED FOR THE ASSESSME NT YEAR 2007-08 28.03.2008 RETURN OF INCOME FOR THE ASSESSMENT YEAR 2007- 08 WAS PROCESSED U/S.143(1 ) 07.12.2009 ASSESSMENT ORDER U/S.143(3) PASSED IN TH E CASE OF KESARINANDAN KNIT FABRICS PVT. LTD. FOR THE ASSESSM ENT YEAR 2007-08 TREATING ADVANCES RECEIVED FROM NEERAJ ENTE RPRISES (P) LTD AS DEEMED DIVIDEND U/S.2(22)(E) IN THE HAND S OF KESARINANDAN KNIT FABRICS PVT. LTD. :-7-: I.T.A. NO. 2076/MDS/2015 28.03.2012 ORDER PASSED BY CIT(APPEALS) IN THE CASE OF KESARINANDAN KNIT FABRICS PVT. LTD. CONFIRMING THE ADDITION MADE U/S.2(22)(E) OF THE ACT. 24.12.2012 NOTICE U/S.148 WAS ISSUED IN THE CASE OF ASSESSEE SHRI. PURUSOTTAM V PARAMANANDKA 16.01.2013 ASSESSEE FILED RETURN OF INCOME IN RESPO NSE TO NOTICE ISSUED U/S.148. 28.01.2013 NOTICE U/S.143(2) WAS ISSUED. 28.01.2013 REASONS FOR REOPENING WERE ISSUED. 05.02.2013 OBJECTIONS TO THE VALIDITY OF REOPENING WERE FILED BY THE ASSESSEE 04.04.2013 ORDER OF THE TRIBUNAL IN ITA NO.1216 / M DS / 2012 PASSED IN THE CASE OF KESARINANDAN KNIT FABRICS PVT. LTD. DEL ETING THE ADDITION U/S.2(22)(E) OF THE ACT SINCE KESARINANDAN KNIT FABRICS PVT. LTD. IS NOT THE SHARE HOLDER. 16.08.2013 APPEAL FILED BEFORE HIGH COURT AGAINST T HE ORDER OF TRIBUNAL ABOVE IN THE CASE OF KESARINANDAN KNIT FABRICS PVT. LTD BY REVENUE. 17.10.2013 SPEAKING ORDER PASSED ON OBJECTIONS RAIS ED BY THE ASSESSEE ON THE VALIDITY OF REOPENING THE ASSESSMENT. 29.03.2014 ASSESSMENT ORDER PASSED U/S.143(3) R.W.S .147 IN THE CASE OF ASSESSEE. 31.08.2015 COMMISSIONER OF INCOME TAX(APPEALS) PASS ED AN ORDER CONFIRMING THE ASSESSMENT ORDER 15.10.2015 APPEAL FILED BEFORE ITAT KESHARINANDAN KNIT FABRICS PVT LIMITED 07.04.2008 ASSESSMENT ORDER PASSED U/S.143(3) FOR T HE ASSESSMENT YEAR 2006-07 07.12.2009 ASSESSMENT ORDER PASSED U/S.143(3) FOR T HE ASSESSMENT YEAR :-8-: I.T.A. NO. 2076/MDS/2015 2007-08 TREATING ADVANCES RECEIVED FROM NEERAJ ENTE RPRISES (P) LTD AS DEEMED DIVIDEND U/S.2(22)( E) 04.03.2010 NOTICE U/S.148 FOR THE ASSESSMENT YEAR 2 005-06 04.03.2010 NOTICE U/S.148 FOR THE ASSESSMENT YEAR 2 006-07 16.12.2010 COMMON REPLIES FILED FOR THE ASSESSMENT YEARS 2005-06, 2006-07 AND 2008-09 STATING THAT ADVANCE RECEIVED F ROM NEERAJ ENTERPRISE IS NOT TAXABLE AS DEEMED DIVIDED 31.12.2010 ASSESSMENT ORDER PASSED U/S.143(3}-FOR T HE ASSESSMENT YEAR 2008-09. NO ADDITION WAS MADE U/S.2(22)(E) 17.11.2011 NOTICE U/S.142(1) FOR THE ASSESSME NT YEAR 2009- 10 ALONG WITH QUESTIONNAIRE I & II, DETAILS CALLING FO R INTER CORPORATE DEPOSITS. 15.12.2011 NOTE ON THE NON APPLICABILITY OF SECTION 2(22)( E) FILED BEFORE JCIT, TIRUPUR FOR THE ASSESSMENT YEAR 2009-10. 26.12.2011 ASSESSMENT ORDER PASSED U/S.143(3) FOR T HE ASSESSMENT YEAR 2009-10. NO ADDITION WAS MADE U/S.2(22)(E) 23.08.2012 AFTER ACCEPTING THE STAND OF THE ASSESSE E THAT ADVANCES RECEIVED IS NOT DEEMED DIVIDEND, PROCEEDINGS U/S.14 7 INITIATED BY ISSUE OF NOTICE U/S.148 DATED 04.03.20 10 FOR THE ASSESSMENT YEARS 2005-06 AND 2006 - 07 HAVE BEEN DROPPED. NEERAJ ENTERPRISES PRIVATE LTD 31.10.2004 RETURN OF INCOME FILED FOR THE AY 2004-0 5 17.03.2005 INTIMATION U/S.143(1) FOR THE AY 2004-05 31.10.2005 RETURN OF INCOME FILED FOR THE AY 2005-0 6 29.11.2006 RETURN OF INCOME FILED FOR THE AY 2006-0 7(1NTEREST INCOME OFFERED UNDER OTHER SOURCES) 13.08.2007 INTIMATION U/S 143( 1) FOR THE AY 2006-0 7 (I NTEREST INCOME OFFERED UNDER OTHER SOURCES) :-9-: I.T.A. NO. 2076/MDS/2015 12.10.2007 ASSESSMENT ORDER U/S 143(3) FOR THE AY 2 005-06. (INTEREST INCOME OFFERED UNDER THE HEAD BUSINESS INCOME. 05.11.2007 RETURN OF INCOME FILED FOR THE AY 2007-0 8. (INTEREST INCOME OFFERED UNDER OTHER SOURCES) 30.09.2008 RETURN OF INCOME FILED FOR THE AY 2008-0 9. (INTEREST INCOME OFFERED UNDER OTHER SOURCES) 30.09.2009 ORIGINAL RETURN FILED FOR THE AY 2009-10 . (INTEREST INCOME OFFERED UNDER INCOME FROM OTHER SOURCES) 27.11.2009 ASSESSMENT ORDER PASSED U/S.143(3) FOR T HE AY 2007- 08. INCOME ASSESSED ON BOOK PROFITS U/S 115JB. (INTERES T INCOME OFFERED UNDER OTHER SOURCES) 11.12.2009 LETTER FILED BEFORE DCIT, TIRUPUR DURING THE ASSESSMENT FOR AY 2007-08, TO TREAT THE INTEREST INCOME UNDER THE HEAD BUSINESS INCOME FOR THE AY 2006-07 & 2007-08. 17.12.2009 REVISED RETURN OF INCOME FILED FOR THE A Y 2008-09. (INTEREST INCOME OFFERED UNDER BUSINESS) 17.12.2009 REVISED RETURN FILED WITH COMPUTATION FO R THE AY 2009-10. (INTEREST. INCOME OFFERED UNDER THE HEAD BUSINESS ) 09.12.2010 SUBMISSION MADE BEFORE AO TO SAY THAT WE HAVE FILED A REVISED RETURN FOR THE AY 2008-09 AND REASONS FOR FILING A REVISED RETURN & SUBMISSIONS MADE TO STATE THAT INT EREST INCOME MAY BE ASSESSED UNDER THE HEAD BUSINESS. 22.12.2010 SWORN STATEMENT OF SRI. PURUSHOTTAM PARA MANANDAKA, MANAGING DIRECTOR OF NEERAJ ENTERPRISES (P) LTD WHE REIN HE HAS SAID THAT THE COMPANY IS INTO COMMISSION AGENCY AND MONEY LENDING BUSINESS. 27.12.2010 ASSESSMENT ORDER PASSED U/S 143(3) FOR T HE AY 2008-09 WHERE THE REVISED RETURN HAS BEEN ACKNOWLEDGED. :-10-: I.T.A. NO. 2076/MDS/2015 THE LD AR ASSAILED THE ORDER OF THE LOWER AUTHORITI ES BY ADVANCING THE FOLLOWING ARGUMENTS :- (I) HE STATED THAT THE SAME ADDITION OF RS. 50,75,0 00/- WAS MADE IN THE HANDS OF M/S KKFPL ON SUBSTANTIVE BASIS VIDE ORDER U/S 143(3) OF THE ACT DATED 7.12.2009 WHICH WAS SUBJECTED TO APPEAL BY TH EM BEFORE THE LD CITA, WHO HAD CONFIRMED THE ADDITION MADE TOWARDS DEEMED DIVIDEND IN THE HANDS OF M/S KKFPL VIDE ITA NO. 503/09-10 DATED 28.3.2012 . BY THIS PROCESS, THE ORDER OF ASSESSING OFFICER GOT MERGED WITH THE ORDE R OF THE LD CITA. HENCE AS ON 28.3.2012, AN APPELLATE AUTHORITY HAD CATEGOR ICALLY DECIDED THAT THE DEEMED DIVIDEND HAD TO BE ASSESSED ONLY IN THE HAND S OF M/S KKFPL. WHILE THIS IS SO, HOW CAN A SUBORDINATE AUTHORITY I.E THE ASSESSING OFFICER ISSUE NOTICE U/S 148 OF THE ACT ON 24.12.2012 (WHICH IS A FTER THE DATE OF ORDER OF LD CITA) IN THE HANDS OF THE ASSESSEE HEREIN TO TREAT THE VERY SAME AMOUNT OF RS. 50,75,000/- AS DEEMED DIVIDEND IN THE HANDS OF ASSESSEE. THE LD AR PLACED RELIANCE ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF METRO AUTO CORPORATION VS ITO & ORS REPORTED IN (2006) 286 ITR 618 (BOM) FOR THE PROPOSITION THAT NO NOTICE UNDER ANY SECTI ON COULD BE ISSUED DURING THE PENDENCY OF AN APPEAL. HOWEVER, THE L D AR FAIRLY STATED THAT THIS ORDER OF LD CITA DATED 28.3.2012 WAS SUBSEQUENTLY R EVERSED BY THIS TRIBUNAL IN THE HANDS OF M/S KKFPL IN ITA NO. 1216/MDS/2012 DATED 4.4.2013 AND AGAINST WHICH, THE REVENUE HAD PREFERRED AN APPEAL BEFORE THE HONBLE HIGH COURT OF MADRAS ON 16.8.2013 AND THE SAME IS PENDIN G. HE ARGUED THAT IN :-11-: I.T.A. NO. 2076/MDS/2015 VIEW OF THE ADDITION TOWARDS DEEMED DIVIDEND IN THE VERY SAME SUM OF RS. 50,75,000/- GOT CONFIRMED BY THE LD CITA IN THE HAN DS OF M/S KKFPL, ON THIS COUNT ITSELF, THE VERY BASIS OF FORMATION OF BELIEF THAT INCOME HAD ESCAPED ASSESSMENT IN THE HANDS OF THE ASSESSEE FAILS AND C ONSEQUENTLY THE REASSESSMENT HAD TO BE QUASHED AS VOID ABINITIO. (II) HE ARGUED THAT THE PROVISIONS OF SECTION 147 O F THE ACT ARE VERY CLEAR BY STATING THAT NO ASSESSMENT COULD BE REOPENED DURING THE PENDENCY OF ANY APPEAL OR REVISION PROCEEDINGS. ADMITTEDLY, IN THE INSTANT CASE, THE APPEAL WAS EVEN DISPOSED OFF BY THE LD CITA IN THE CASE OF M/S KKFPL ON 28.3.2012 AND ASSESSMENT IN THE HANDS OF THE ASSESSEE HEREIN WAS REOPENED ONLY ON 24.12.2012. HE BROUGHT THE ATTENTION OF THE BENCH , THE PROVISIONS CONTAINED IN THE THIRD PROVISO TO SECTION 147 OF THE ACT IN T HIS REGARD. (III) ON MERITS, HE ARGUED THAT WHAT WAS ADVANCED BY M/S NEPL TO M/S KKFPL WAS ONLY IN THE NATURE OF INTER CORPORATE DEPOSITS (ICD) AND NOT LOAN AND M/S KKFPL ALSO HAD TREATED THE SAME IN ITS BOOKS ONLY A S ICD. IN SUPPORT OF THIS, HE PLACED THE COPIES OF IT RETURNS TOGETHER WITH TH E FINANCIAL STATEMENTS OF M/S KKFPL. HE ARGUED THAT THE TERMS LOAN AND D EPOSIT ARE TOTALLY DIFFERENT FROM EACH OTHER AND THIS FINE DISTINCTION IS DULY A DDRESSED BY THE VARIOUS COURTS IN THE FOLLOWING CASES :- I) BAIDYANATH PLASTIC INDUSTRIES (P) LTD & ORS VS K.L .ANAND, ITO REPORTED IN (1998) 230 ITR 522 (DEL) :-12-: I.T.A. NO. 2076/MDS/2015 II) A.M.SHAMSUDEEN VS UNION OF INDIA & ORS REPORTED IN (2000) 244 ITR 266 (MAD) HE ALSO ARGUED THAT ICD DO NOT FALL UNDER THE CATEG ORY OF LOAN AND CONSEQUENTLY THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT COULD NOT BE MADE APPLICABLE THEREON. IN SUPPORT OF THIS ARGUMENT, H E PLACED RELIANCE ON THE FOLLOWING DECISIONS :- I) GUJARAT GAS FINANCIAL SERVICES LTD VS ACIT REPORTED IN (2008) 115 ITD 218 (AHD TRIB SPECIAL BENCH) II) BOMBAY OIL INDUSTRIES LTD VS DCIT REPORTED IN (2009 ) 28 SOT 383 (MUMBAI TRIB) (IV) ON MERITS, HE FURTHER ARGUED THAT THE AMOUNTS WERE ADVANCED BY M/S NEPL TO M/S KKFPL WAS DONE IN THE ORDINARY COURSE O F ITS BUSINESS AS PART OF ITS TRADE RELATED FINANCIAL TRANSACTIONS AND MOREOV ER THE LENDING OF MONEY IS ALSO FORMING PART OF SUBSTANTIAL PART OF BUSINESS O F M/S NEPL AND HENCE IT FALLS UNDER THE EXCEPTIONS PROVIDED IN SECTION 2(22)(E) O F THE ACT. HE ARGUED THAT OUT OF THE TOTAL ASSETS OF RS 5.13 CRORES, THE ADVA NCES ACCOUNT FOR RS. 1.96 CRORES WHICH WORKS OUT TO APPROXIMATELY 38.2% OF TH E TOTAL ASSETS . OUT OF THE NET PROFIT OF RS. 49.68 LAKHS, THE INTEREST REC EIVED FROM M/S KKFPL AMOUNTS TO RS. 18.86 LAKHS WHICH ACCOUNT FOR ABOUT 37% OF THE NET PROFIT. HENCE IN VIEW OF SUBSTANTIAL PERCENTAGE OF DEPLOYME NT OF ASSETS AND EARNING OF INCOME THEREON, LENDING OF MONEY IS SUBSTANTIAL PART OF THE BUSINESS OF M/S :-13-: I.T.A. NO. 2076/MDS/2015 NEPL. IN SUPPORT OF THIS ARGUMENT, HE PLACED RELIAN CE ON THE FINDINGS GIVEN BY THE LD ADDITIONAL COMMISSIONER OF INCOME TAX, TIRUP UR RANGE, TIRUPUR IN SECTION 144A PROCEEDINGS IN ADDL.CIT/TPR/CR NO. 211 /10-11 DATED 27.12.2010 IN THE CASE OF M/S KKFPL. THE LD AR AL SO PLACED RELIANCE ON CERTAIN DECISIONS IN SUPPORT OF THIS ARGUMENT. 7. IN RESPONSE TO THIS, THE LD. DR ALSO FILED WRI TTEN SUBMISSIONS OBJECTING TO VARIOUS ARGUMENTS ADVANCED BY THE LD. AR. THE L D. DR ARGUED VEHEMENTLY THAT THE RE-OPENING WAS VALIDLY MADE BY THE LD. AO AND IN VIEW OF THE FACT THAT THE ORDER OF THE LD. CIT(A) IN THE CASE OF M/S. KKFPL WAS SUBSEQUENTLY REVERSED BY THIS TRIBUNAL VIDE ORDER D ATED 04.04.2013, WHICH STRENGTHENS THE BASIS OF BELIEF OF THE LD. AO FOR R E-OPENING THE ASSESSMENT. HE ASSAILED THE ARGUMENTS OF THE LD. AR WITH REGARD TO TREATMENT OF THE SUBJECT MENTIONED TRANSACTION AS INTER-CORPORATE DE POSIT BY M/S. KKFPL AND THAT IT IS NOT RELEVANT AS TO HOW M/S. KKFPL TREATS THE SUBJECT MENTIONED TRANSACTION IN ITS BOOKS. WITH REGARD TO ANOTHER A RGUMENT ADVANCED BY THE LD. AR THAT THIS LENDING WAS MADE BY M/S. NEPL IN T HE ORDINARY COURSE OF ITS BUSINESS, HE ARGUED THAT M/S. NEPL WAS ONLY A YARN COMMISSION AGENT, DERIVING COMMISSION INCOME FROM M/S. KKFPL AND OTHE RS. THE REASON FOR MAKING PAYMENT OF THIS ADVANCE BY M/S. NEPL TO M/S, KKFPL WAS IN ORDER TO ENABLE M/S. KKFPL TO SETTLE ITS SUPPLIERS IN TIME. THE LD. DR ARGUED THAT M/S. NEPL HAD NOT ADVANCED MONEY TO OTHER CONCERNS EXCEP T TO M/S. KKFPL TO :-14-: I.T.A. NO. 2076/MDS/2015 ENABLE THEM TO MAKE PAYMENTS TO THEIR RESPECTIVE SU PPLIERS. WITH REGARD TO THE ARGUMENT THAT LENDING OF MONEY IS SUBSTANTIVE P ART OF THE BUSINESS OF M/S. NEPL BASED ON THE DEPLOYMENT OF ASSETS AND EAR NING OF INCOME AND THE CASE LAWS RELATABLE THEREON, HE ARGUED THAT THOSE C ASE LAWS RELIED UPON BY THE LD. AR ARE DISTINGUISHABLE ON FACTS. WITH REGA RD TO ANOTHER ARGUMENT THAT SIMILAR ADDITIONS WHICH WERE PROPOSED IN THE EARLIE R ASSESSMENT YEARS U/S. 148 PROCEEDINGS WHICH WERE DROPPED BY THE REVENUE I N THE HANDS OF M/S. KKFPL, HE ARGUED THAT THE DECISION TAKEN IN THE HAN DS OF M/S. KKFPL MAY NOT BE RELEVANT TO THE ASSESSEE'S CASE AS THEY ARE TWO DIFFERENT ASSESSEES'. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE HAVE GONE THROUGH THE SEQU ENCE OF EVENTS AS DETAILED HEREINABOVE TOGETHER WITH THE COMPILATION OF CASE LAWS ; PAPER BOOK COMPRISING OF PAGES 1 TO 16; COPY OF LEDGER ACCOUNT OF M/S NEPL IN THE BOOKS OF M/S KKFPL FOR THE PERIOD COMMENCING FROM 1.4.200 3 TO 31.3.2009 ; ITR ACKNOWLEDGEMENT OF M/S KKFPL FOR THE ASST YEAR 2007 -08 TOGETHER WITH ITS COMPUTATION OF TOTAL INCOME AND FINANCIAL STATEMENT S OF M/S KKFPL FOR THE YEAR ENDED 31.3.2007 TOGETHER WITH ITS SCHEDULES TH EREON. THE FACTS STATED HEREINABOVE REMAIN UNDISPUTED AND HENCE THE SAME AR E NOT REITERATED HEREIN FOR THE SAKE OF BREVITY. WE FIND THAT ON THE DATE OF ISSUANCE OF NOTICE U/S 148 OF THE ACT TO THE ASSESSEE (I.E ON 24.12.2012), THE LD CITA HAD ALREADY CONFIRMED THE ADDITION TOWARDS DEEMED DIVIDEND FOR THE VERY SAME LOAN GIVEN :-15-: I.T.A. NO. 2076/MDS/2015 BY M/S NEPL TO M/S KKFPL IN THE SUM OF RS. 50,75,00 0/- IN THE HANDS OF M/S KKFPL. HENCE WE FIND LOT OF FORCE IN THE ARGUME NT ADVANCED BY THE LD AR THAT THE LD AO OUGHT NOT TO HAVE FORMED ANY BELIEF THAT INCOME HAD ESCAPED ASSESSMENT IN THE HANDS OF THE ASSESSEE HEREIN BY R ECORDING REASONS THEREON. IT IS WELL SETTLED THAT THE REASONS RECORDED SHOULD HAVE LIVE LINK TO FORM A BELIEF THAT INCOME HAD ESCAPED ASSESSMENT IN THE HA NDS OF THE ASSESSEE. IN THE INSTANT CASE, THE VERY SAME ADDITION HAD ALREAD Y BEEN MADE BY THE REVENUE IN A SUBSTANTIVE MANNER IN THE HANDS OF M/S KKFPL AND THE SAME WAS DULY CONFIRMED AND UPHELD BY THE LD CITA. IT D OES NOT MATTER WHETHER THE SAID CITA ORDER GOT REVERSED BY THIS TRIBUNAL A T A LATER DATE. WHAT IS RELEVANT IS WHETHER THE LD AO COULD HAVE REASONABLY FORMED AN OPINION OR REASON TO BELIEVE IN ACCORDANCE WITH LAW, THAT THE VERY SAME SUM REPRESENTING INCOME HAD ESCAPED ASSESSMENT IN THE H ANDS OF THE ASSESSEE SHAREHOLDER IS THE MOOT QUESTION TO BE DECIDED, WHI CH WE ARE AFRAID, WAS NOT PRESENT WITH THE LD AO IN THE INSTANT CASE. HENCE WE HOLD THAT ON THE DATE OF RECORDING REASONS, THE LD AO DEFINITELY HAD THE BEN EFIT OF ADDITION BEING CONFIRMED BY THE LD CITA IN THE HANDS OF M/S KKFPL AND HENCE THE LD AO COULD NOT HAVE ENTERTAINED ANY BELIEF THAT INCOME O F THE ASSESSEE HAD ESCAPED ASSESSMENT IN THE HANDS OF THE ASSESSEE WIT HIN THE MEANING OF SECTION 147 OF THE ACT. IN ANY CASE, NO INCOME COU LD BE TAXED TWICE IN A SUBSTANTIVE MANNER IN THE HANDS OF TWO DIFFERENT PA RTIES. HENCE THE REOPENING OF THE ASSESSMENT FAILS ON THIS COUNT ITS ELF. :-16-: I.T.A. NO. 2076/MDS/2015 8.1. WITH REGARD TO THE NEXT LINE OF ARGUMENT ADVA NCED BY THE LD AR THAT THE ASSESSMENT COULD NOT BE REOPENED DURING THE PEN DENCY OF ANY APPEAL BY PLACING RELIANCE ON 3 RD PROVISO TO SECTION 147 OF THE ACT, WE FIND LOT OF FORCE IN THE ARGUMENT ADVANCED THEREIN. FOR THE SAKE OF CON VENIENCE, THE THIRD PROVISO TO SECTION 147 OF THE ACT IS REPRODUCED HER EUNDER:- SECTION 147 INCOME ESCAPING ASSESSMENT . PROVIDED ALSO THAT THE ASSESSING OFFICER MAY ASSESS OR REASSESS SUCH INCOME , OTHER THAN THE INCOME INVOLVING MATTERS WH ICH ARE THE SUBJECT MATTERS OF ANY APPEAL, REFERENCE OR REVISION, WHICH IS CHARGEABLE TO TAX AND HAS ESCAPED ASSESSMENT IT IS NOT IN DISPUTE THAT THE INCOME REPRESENTING D EEMED DIVIDEND IN THE SUM OF RS. 50,75,000/- WAS THE SUBJECT MATTER OF APPEAL BEFORE THE LD CITA IN THE CASE OF M/S KKFPL , WHICH VERY SAME SUM WAS SOUGHT TO BE ADDED IN THE HANDS OF THE ASSESSEE IN THE REOPENED PROCEEDINGS. HENCE WE FIND THAT THE THIRD PROVISO TO SECTION 147 OF THE ACT CLEARLY SUP PORTS THE ARGUMENTS OF THE LD AR . WE ALSO FIND THAT THE RELIANCE PLACED ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THIS REGARD IN THE CASE OF PRA SHANT PROJECTS LTD VS ACIT REPORTED IN (2011) 333 ITR 368 (BOM) IS VERY WELL FOUNDED WHEREIN IT WAS HELD THAT :- :-17-: I.T.A. NO. 2076/MDS/2015 9. . THE AO COULD NOT HAVE FORMED A REASON TO BELIEVE TH AT INCOME HAS ESCAPED ASSESSMENT. THAT APART, THERE IS MERIT IN THE CONTENTION THAT IN TERMS OF THE SECOND (TO BE READ AS THIRD) PROVIS O TO S.147, THE ASSESSMENT COULD NOT HAVE BEEN REOPENED. THE SECO ND (TO BE READ AS THIRD) PROVISO TO S.147 PROVIDES THAT THE AO MAY AS SESS OR REASSESS SUCH INCOME , OTHER THAN THE INCOME INVOLVING MATTE RS WHICH ARE THE SUBJECT MATTERS OF ANY APPEAL, REFERENCE OR REVISIO N, WHICH IS CHARGEABLE TO TAX AND HAS ESCAPED ASSESSMENT. THE V ERY ISSUE ON WHICH THE ASSESSMENT IS SOUGHT TO BE REOPENED WAS C ANVASSED IN APPEAL AND WAS DETERMINED IN THE APPELLATE PROCEEDI NGS BY THE CIT(A). THE SAME ISSUE COULD NOT LAWFULLY FORM THE BASIS OF THE NOTICE FOR REOPENING THE ASSESSMENT. HENCE RESPECTFULLY FOLLOWING THE AFORESAID DECISION AND THE THIRD PROVISO TO SECTION 147 OF THE ACT , WE HOLD THAT THE REOPENING OF ASSESSMENT MADE IN THE FACTS AND CIRCUMSTANCES OF THE CASE IS BAD IN L AW AND ACCORDINGLY DESERVE TO BE QUASHED. 8.2. EVEN ON MERITS, WE FIND THAT WHAT WAS ADVANCE D BY M/S NEPL TO M/S KKFPL WAS TREATED ONLY AS INTER CORPORATE DEPOSIT A ND IT IS ALSO WELL SETTLED NOW THAT INTER CORPORATE DEPOSIT COULD NOT BE CATEG ORIZED AS LOAN AND HENCE THE SUBJECT MENTIONED TRANSACTION WOULD AUTOMATICAL LY FALL OUTSIDE THE AMBIT OF PROVISIONS OF SECTION 2(22)(E) OF THE ACT. THE C ASE LAWS RELIED UPON BY THE :-18-: I.T.A. NO. 2076/MDS/2015 LD AR ON THE SPECIAL BENCH OF AHMEDABAD TRIBUNAL IS WELL FOUNDED AND SUPPORTS THE CASE OF THE ASSESSEE. 8.3. ON MERITS, THE LD AR FURTHER ARGUED THAT THE AMOUNTS WERE ADVANCED BY M/S NEPL TO M/S KKFPL ONLY IN THE ORDINARY COURSE O F BUSINESS AND PART OF ITS TRADING TRANSACTIONS. WE FIND THAT THE LD ADDITIO NAL CIT IN SECTION 144A PROCEEDINGS DATED 27.12.2010 IN THE CASE OF M/S KKF PL HAD CATEGORICALLY STATED AS FOLLOWS :- DURING THE DISCUSSION, THE DECISION OF THE HONBLE HIGH COURT OF BOMBAY AT GOA (IT APPEAL NO. 37 OF 2002) IN THE CAS E OF CIT VS M/S PARLEY PLASTICS LIMITED, GOA WAS CONSIDERED IN DETA IL ANDIT IS FOUND THAT THE FACTS PERTAINING TO THE CASE OF M/S KESARINANDA N KNIT FABRICS (P) LTD AND THEIR TRADE RELATED FINANCIAL TRANSACTIONS WITH M/S NEERAJ ENTERPRISES PVT LTD ARE VERY SIMILAR TO THE FACTS O F THE SAID CASE I.E CIT VS M/S PARLEY PLASTICS LIMITED, GOA. THEREFORE, IN THE LIGHT OF THE SAID DECISION, IT IS HELD THAT M/S NEERAJ ENTERPRISES P LTD MADE CERTAIN ADVANCES TO M/S KESARINANDAN KNIT FABRICS (P) LTD I N THE ORDINARY COURSE OF ITS BUSINESS AND IT IS ALSO HELD THAT LEN DING OF MONEY WAS SUBSTANTIAL PART OF THE BUSINESS OF M/S NEERAJ ENTE RPRISES P LTD. THE TWIN CONDITIONS CONTAINED IN CLAUSE 2 OF SECTIN 2(22)(E) OF INCOME TAX ACT, 1961 STATING THAT ANY ADVANCE OR LOAN MAD E BY THE COMPANY TO A SHAREHOLDER OF A CONCERN IN WHICH THE SHAREHOL DER HAS SUBSTANTIAL INTEREST WOULD NOT BE REGARDED AS DIVIDEND, IF, (1) THE LOAN OR ADVANCE WAS MADE BY THE LENDING COM PANY IN THE ORDINARY COURSE OF ITS BUSINESS; AND :-19-: I.T.A. NO. 2076/MDS/2015 (2) LENDING OF MONEY WAS A SUBSTANTIAL PART OF BUSI NESS OF THE LENDING COMPANY ARE SATISFIED WITH REGARD TO THE TRADE RELATED FINA NCIAL TRANSACTIONS CARRIED OUT BETWEEN M/S NEERAJ ENTERPRISES AND M/S KESARINANDAN KNIT FABRICS (P) LTD. THEREFORE, THE EXEMPTION PROVIDED UNDER CLAUSE 2 OF SECTION 2(22)(E) WILL APPLY TO THE CASE OF M/S KESARINANDAN KNIT FAB RICS P LTD FOR ASSESSMENT YEARS 2005-06, 2006-07 & 2008-09. YOU ARE DIRECTED TO COMPLETE THE ASSESSMENT FOR THE AFORESAID ASSESSMENT YEARS ACCORDINGLY. IN VIEW OF THIS SECTION 144A PROCEEDINGS, WHEREIN, THE NATURE OF TRANSACTIONS BETWEEN M/S NEPL AND M/S KKFPL HAVE BEEN CONSTRUED TO BE AMOUNTS ADVANCED IN THE ORDINARY COURSE OF ITS BUSINESS BY M/S NEPL IN PURSUANCE OF ITS TRADE RELATED FINANCIAL TRANSACTIONS AND IN VIE W OF ANOTHER CATEGORICAL FINDING THAT LENDING WAS ALSO SUBSTANTIAL PART OF B USINESS OF M/S NEPL AND ACCORDINGLY WOULD FALL UNDER THE EXCEPTION TO SECTI ON 2(22)(E) OF THE ACT. HENCE EVEN ON MERITS, THERE IS NO CASE MADE OUT BY THE REVENUE TO FRAME AN ADDITION TOWARDS DEEMED DIVIDEND U/S 2(22)(E) OF TH E ACT IN THE HANDS OF THE ASSESSEE HEREIN. :-20-: I.T.A. NO. 2076/MDS/2015 9. IN VIEW OF OUR AFORESAID FINDINGS, WE HOLD THAT THE REASSESSMENT PROCEEDINGS INITIATED FOR THE ASST YEAR 2007-08 IN THE HANDS OF THE ASSESSEE DESERVES TO BE QUASHED AS PER LAW FOR MORE THAN ONE REASON AND EVEN ON MERITS THERE IS NO CASE MADE OUT BY THE REVENUE THA T THE INCOME HAD INDEED ESCAPED ASSESSMENT IN THE HANDS OF THE ASSESSEE WIT HIN THE MEANING OF SECTION 147 OF THE ACT READ WITH SECTION 2(22)(E) O F THE ACT. ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS A LLOWED. ORDER PRONOUNCED ON THURSDAY, THE 16TH DAY OF FEBRU ARY, 2017 AT CHENNAI. SD/ - ( ' # . $ ) (DUVVURU RL REDDY) /JUDICIAL MEMBER SD/- ( ) (M. BALAGANESH) / ACCOUNTANT MEMBER /CHENNAI, 3 /DATED: 16TH FEBRUARY, 2017 JPV * -&45 65 /COPY TO: 1. ) APPELLANT 2. -.) /RESPONDENT 3. 7 ( )/CIT(A) 4. 7 /CIT 5. 5 -&& /DR 6. 9 /GF