आयकर अपीलीय अिधकरण, ‘बी’ ᭠यायपीठ, चे᳖ई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH: CHENNAI ŵी एबी टी. वकŎ, Ɋाियक सद˟ एवं ŵी एस. आर. रघुनाथा, लेखा सद˟ के समƗ BEFORE SHRI ABY T. VARKEY, JUDICIAL MEMBER AND SHRI S.R.RAGHUNATHA, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.228/Chny/2021 िनधाᭅरण वषᭅ/Assessment Year: 2013-14 Shri D. Vijay Mohan, No.232, Tea Estates, Race Course Road, Coimbatore-641 018. v. The DCIT, Central Circle-3, Coimbatore. [PAN: AATPM 1202 F] (अपीलाथᱮ/Appellant) (ᮧ᭜यथᱮ/Respondent) आयकर अपील सं./ITA No.229/Chny/2021 िनधाᭅरण वषᭅ/Assessment Year: 2013-14 Smt. Vanitha Mohan, No.232, Tea Estates, Race Course Road, Coimbatore-641 018. v. The DCIT, Central Circle-3, Coimbatore. [PAN: ADJPM 0478 J] (अपीलाथᱮ/Appellant) (ᮧ᭜यथᱮ/Respondent) Assessee by : Shri T. Banusekar, Advocate & Shri Suraj Nahar, CA Department by : Shri V. Nandakumar, CIT सुनवाईकᳱतारीख/Date of Hearing : 03.06.2024 घोषणाकᳱतारीख /Date of Pronouncement : 03.07.2024 ITA No.228/Chny/2021 (AY 2013-14) Shri D. Vijay Mohan ITA No.229/Chny/2021 (AY 2013-14) Smt. Vanitha Mohan :: 2 :: आदेश / O R D E R PER S.R. RAGHUNATHA, AM: This is an appeal preferred by the assessee against the order of the Learned Commissioner of Income Tax (Appeals)-18, (hereinafter in short "the Ld.CIT(A)”), Chennai, dated 31.03.2021 for the Assessment Year (hereinafter in short "AY”) 2013-14 against the re-opening and consequent reassessment order passed u/s.147/143(3) of the Income Tax Act, 1961 (hereinafter in short "the Act”). 2. At the outset, we note that there is delay of ‘11’ days in filing both appeals. Having gone through the contents of the application filed for condonation of delay, we are satisfied that there was sufficient cause for condoning the delay and we condone the delay and proceed to adjudicate the appeals of the assessees. 3. Even though, the assessee has raised several legal issues against re-opening of the assessment, first of all, we will adjudicate the merit of the addition sustained by the Ld.CIT(A). 4. Brief facts are that the AO noted that M/s. Shrimayi Enterprises Pvt. Ltd., was a private limited company wherein, both assessee as well as her husband were having 33% shareholding; and the said company had ITA No.228/Chny/2021 (AY 2013-14) Shri D. Vijay Mohan ITA No.229/Chny/2021 (AY 2013-14) Smt. Vanitha Mohan :: 3 :: advanced loan to Shri M K Yousuf, and he in-turn remitted the interest on it (loan advanced to him by the company) to assessee to the tune of Rs.31,31,507/- and her husband Rs.41,82,877/- instead to lender-company; And the AO notes that both assessee as well as her husband didn’t pass on the interest [from Shri Yousuf] to the lender company, which action of omission according to AO tantamounts to deemed dividend, u/s.2(22)(e) of the Act; and therefore alleging escapement of income, on this issue the AO after recording reasons, reopened the assessment earlier framed u/s.153A of the Act and consequently made impugned addition of Rs.31,31,507/- in the hands of Smt. Vanitha Mohan and Rs.41,82,877/- in the hands of Shri D. Vijay Mohan. On appeal, the Ld.CIT(A) confirmed the action of the AO. Aggrieved, the assessee’s are before us. 5. According to ld.AR, the Private Limited Company, M/s.Shrimayi Enterprises Pvt. Ltd., had given loan/advance to one Shri M.K.Yousuf [who is undisputedly not a share-holder of Lender- Company]; and that it is undisputed that no loan/advance were given by the said company to assessee or her husband who were having 33% shareholding in the said company/Lender-Company. Therefore, according to him, the essential condition-precedent as required u/s.2(22)(e) of the Act, is not attracted ITA No.228/Chny/2021 (AY 2013-14) Shri D. Vijay Mohan ITA No.229/Chny/2021 (AY 2013-14) Smt. Vanitha Mohan :: 4 :: and for such a proposition, the Ld.AR relied on the decision of the Hon’ble Madras High Court in CIT v. Smt. Savitri Sam 236 ITR 1003 (Mad) and also relied on the ratio laid by the Hon’ble Supreme Court in the case of Gopal & Sons (HUF) v. CIT reported in [2017] 391 ITR 1 (SC), wherein, the Hon’ble Apex Court held as under:- 12) Section 2(22)(e) of the Act creates a fiction, thereby bringing any amount paid otherwise than as a dividend into the net of dividend under certain circumstances. It gives an artificial definition of 'dividend'. It does not take into account that dividend which is actually declared or received. The dividend taken note of by this provision is a deemed dividend and not a real dividend. Loan or payment made by the company to its shareholder is actually not a dividend. In fact, such a loan to a shareholder has to be returned by the shareholder to the company. It does not become income of the shareholder. Notwithstanding the same, for certain purposes, the Legislature has deemed such a loan or payment as 'dividend' and made it taxable at the hands of the said shareholder. It is, therefore, not in dispute that such a provision which is a deemed provision and fictionally creates certain kinds of receipts as dividends, is to be given strict interpretation. It follows that unless all the conditions contained in the said provision are fulfilled, the receipt cannot be deemed as dividends. Further, in case of doubt or where two views are possible, benefit shall accrue in favour of the assessee. 13) A reading of clause (e) of Section 2(22) of the Act makes it clear that three types of payments can be brought to tax as dividends in the hands of the share holders. These are as follows: (a) any payment of any sum (whether as representing a part of the assets of the company or otherwise) by way of advance or loan to a shareholder. (b) any payment on behalf of a shareholder, and (c) any payment for the individual benefit of a shareholder. 14) Certain conditions need to be fulfilled in order to attract tax under this clause. It is not necessary to stipulate other conditions. For our purposes, following conditions need to be fulfilled: (a) Payment is to be made by way of advance or loan to any concern in which such shareholder is a member or a partner. (b) In the said concern, such shareholder has a substantial interest. ITA No.228/Chny/2021 (AY 2013-14) Shri D. Vijay Mohan ITA No.229/Chny/2021 (AY 2013-14) Smt. Vanitha Mohan :: 5 :: (c) Such advance or loan should have been made after the 31st day of May, 1987. 15) Explanation 3(a) defines “concern” to mean HUF or a firm or an association of persons or a body of individuals or a company. per Explanation 3(b), a person shall be deemed to have a substantial interest in a HUF if he is, at any time during the previous year, beneficially entitled to not less than 20% of the income of such HUF. 18) We, thus, do not find any merit in this appeal, which is accordingly dismissed. 6. According to Ld.AR, it is a trite law that the legal fiction should not be stretched beyond the purpose for which they are enacted and should not be extended beyond the legitimate field. And that “deeming provision” should be in respect of facts, from which legal consequences should follow and that legal consequence cannot be deemed and referred to decision of Hon’ble Apex Court in DCM v. State of Rajasthan (1996) 2 SCC 449. Therefore, he pleaded deletion of addition of Rs.31,31,507/- in the hands of the assessee (Smt.Vanitha Mohan ) and Rs.41,82,877/- in the hands of (Shri D. Vijay Mohan). 7. Coming to the legal issues, inter alia, the Ld.AR assailed the action of the authority sanctioning issue of notice u/s.148 of the Act i.e. the JCIT; and submitted that the JCIT didn’t apply his mind before giving his sanction to the AO for issuing the re-opening notice; and to buttress this fact he drew our attention to Page No.24 of the paper book, wherein, the JCIT has endorsed his approval by merely stating “yes approved as ITA No.228/Chny/2021 (AY 2013-14) Shri D. Vijay Mohan ITA No.229/Chny/2021 (AY 2013-14) Smt. Vanitha Mohan :: 6 :: proposed by the AO above u/s.147 r.w.s.149 of the Act and sec.151(C) of IT Act”. 8. Assailing the aforesaid action of the JCIT (while recording his satisfaction for issuance of notice u/s.148 of the Act), the Ld.AR drew our attention to the Hon’ble Supreme Court decision in the case of CIT v. S.Goyanka Lime & Chemicals Ltd., reported in [2016] 237 Taxman 378 (SC), wherein, at Page No.28, the Hon’ble Supreme Court dismissed the SLP, whereby, the Hon’ble Madhya Pradesh High Court order in the case of CIT v. S.Goyanka Lime & Chemical Ltd., reported in [2015] 56 taxmann.com 390 (MP) was upheld; The Hon’ble Madhya Pradesh High Court in S.Goyanka Lime & Chemical Ltd., (supra) noted that the question before the ITAT was that while re-opening of assessment u/s.147 of the Act, the action of the JCIT according sanction by stating “I am satisfied” tantamount to non-application of mind and was done in a mechanical manner. The ITAT held that the sanction granted by the JCIT was vitiated for non-application of mind, which action of the ITAT was upheld by the Hon’ble Madhya Pradesh High Court which decision was challenged by the Department by filing SLP, which was dismissed. Likewise, he also drew our attention to the decision of the Hon’ble Delhi High Court in the case of Yumi Restaurants Asia Pte Ltd. v. DDIT reported ITA No.228/Chny/2021 (AY 2013-14) Shri D. Vijay Mohan ITA No.229/Chny/2021 (AY 2013-14) Smt. Vanitha Mohan :: 7 :: in [2017] 397 ITR 665 (Delhi), wherein, similar sanction was granted by the Director of Income Tax (International Taxation) by recording “I have perused the reasons recorded and find that there is income of escapement of assessment, this is a fit case for taking action u/s.147/148 of the Act”. The Hon’ble Delhi High Court held that the Director of Income Tax has not applied his mind and quashed the notice for re-opening of assessment. For easy reference, copy of the order of Hon’ble Delhi High Court in Yumi Restaurants Asia Pte Ltd vs DDIT is reproduced as under: “2. One of the grounds of challenge to the re-opening of the assessment is that since the return originally filed was processed under Section 143 (1) of the Act, and the reopening was after the expiry of 4 years from the end of the relevant AY, the requirement under Section 151 (2) of the Act, as it then stood, had to be mandatorily complied with. The case of the Petitioner can be better understood by examining Section 151 of the Act as it then stood. It reads thus: "151. Sanction for issue of notice :- (1) In a case where an assessment under sub- section (3) of section 143 or section 147 has been made for the relevant assessment year, no notice shall be issued under section 148 by an Assessing Officer, who is below the rank of Assistant Commissioner or Deputy Commissioner, unless the Joint Commissioner is satisfied on the reasons recorded by such Assessing Officer that it is a fit case for the issue of such notice: Provided that, after the expiry of four years from the end of the relevant assessment year, no such notice shall be issued unless the Chief Commissioner or Commissioner is satisfied, on the reasons recorded by the Assessing Officer aforesaid, that it is a fit case for the issue of such notice. ITA No.228/Chny/2021 (AY 2013-14) Shri D. Vijay Mohan ITA No.229/Chny/2021 (AY 2013-14) Smt. Vanitha Mohan :: 8 :: (2) In a case other than a case falling under sub- section (1), no notice shall be issued under Section 148 by an Assessing Officer, who is below the rank of Joint Commissioner, after the expiry of four years from the end of the relevant assessment year, unless the Joint Commissioner is satisfied, on the reasons recorded by such Assessing Officer, that it is a fit case for the issue of such notice.” 3. There are two scenarios that Section 151 envisages. One is where the original return has been picked up for scrutiny and an assessment order has been passed under Section 143 (3) of the Act. In such event, the procedure outlined under Section 151 (1) of the Act has to be followed. Where the reopening is sought to be made after the expiry of 4 years from the end of the relevant AY, and where the return originally filed has been processed under Section 143 (3) of the Act then in terms of the proviso to Section 151(1) of the Act, the approval of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner has to be obtained to the effect that it is a fit case for issuance of such notice. 4. It is not in dispute that in the present case, the return originally filed by the Assessee for AY 2006-07 was processed under Section 143 (1) of the Act and not under Section 143 (3) of the Act. Therefore, as far as the Petitioner is concerned, the Department ought to have proceeded in terms of Section 151 (2) of the Act. Since the re-opening of the assessment was after the expiry of 4 years from the end of the relevant AY, the proposal of the AO to reopen the assessment should have had the approval of an officer of the rank of Joint Commissioner which in this case was the Additional DIT. 5. The factual scenario, however, is that the note put up by the AO to the DIT read as under: "Form of recording the reasons for initiating proceedings under Section 148 and for obtaining the approval of the Director of Income-tax/Central Board of Direct Taxes 1 Name and Address of the assessee : M/s. Yum! Restaurants (Asia) assessee PTE Limited 99, Bukit Timah ITA No.228/Chny/2021 (AY 2013-14) Shri D. Vijay Mohan ITA No.229/Chny/2021 (AY 2013-14) Smt. Vanitha Mohan :: 9 :: Road # 04-01 02, Singapore - 999999 2 Permanent Account No. : AAACY2204M 3 Status : Non Resident 4 District/Circle/Range : Circle 2(2), Intl. Taxation, New Delhi 5 Assessment Year in respect of which it is proposed to issue notice u/s 148 : 2006-07 6 The Quantum of income which has escaped assessment : Exceeding Rupees 1 lakhs 7 Whether the provisions of Sec. 147(a) to be made first time. If the reply is in the affirmative please state : Yes 8 Whether the assessment is proposed to be made first time. If the reply is in the affirmative please state : No (a) Whether any voluntary return had already been filed and : NA (b) If so, the date of filing the said return : NA 9 If the answer to item 8 is in the negative please state : (a) The income originally assessed : (b) Whether it is a case of under assessment that too low a rate, assessment which has been made the subject to excessive relief or allowing of excessive loss or depreciation : Under assessment 10 10 Whether the provisions of Sec. 150 (1) are applicable. If the reply is in the affirmative, the relevant facts may be stated against item no.11 and it may also be brought out that the provisions of Sec. 150 (2) would not stand in the way of initiating proceedings u/s. 147 : NO 11 Reasons for the believe that the : income has escaped assessment : As per Annexure A Dated: 26.03.2013 ITA No.228/Chny/2021 (AY 2013-14) Shri D. Vijay Mohan ITA No.229/Chny/2021 (AY 2013-14) Smt. Vanitha Mohan :: 10 :: (sd.) (Mazhar Akram) Deputy Director of Income Tax Circ 2 (2), Intl. Taxation, New Delhi 12 Comments of the Addl. DIT, R-2, Intl. Tax., Delhi, if any On persual of the reasons I have reasons to believe that income of more than one lakh has escaped assessment. The proposal is approved. (Sd.) (Manish Mishra) Addl. Director of Income Tax Range-2, Intl. Tax., New Delhi 13 Whether the Director of Income Tax (Intl. Tax.)-II, New Delhi is satisfied on the reasons recorded by the ITO/ADIT/DDIT) that it is a fit case for issue a notice u/S 148 : I have perused the reason recorded and find there is income making this a fit case for action U/S 147/148 of the IT Act, 1961. (Sd.) (Poonam K. Sidhu) Director of Income Tax Intl. Taxation-II, New Delhi 6. Two of the columns in the above note are of immediate relevance. Column 8 poses a question whether the assessment is proposed to be made for the first time. This question is directly relatable to Section 151 (2) of the Act since it seeks to ascertain whether the return filed for the AY in question has only been processed under Section 143 (1) of the Act or was it subject to a scrutiny assessment? If, as in the present case, the return was only processed under Section 143 (1) of the Act, then the answer to the question in Column 8 should have been in the affirmative i.e. "Yes". If the answer is in the affirmative, the AO then proceeds to fill up Columns 8 (a) and 8 (b). 7. As is evident from the above note prepared by the AO, he chose to answer the question in Column No. 8 in the negative. This meant that according to the AO, the return filed by the Assessee for AY 2006-07 ITA No.228/Chny/2021 (AY 2013-14) Shri D. Vijay Mohan ITA No.229/Chny/2021 (AY 2013-14) Smt. Vanitha Mohan :: 11 :: had in fact been picked up for scrutiny and an assessment order was passed under Section 143 (3) of the Act. However, the factual position was to the contrary. The only conclusion, therefore, to be drawn is that when the AO filled up Column 8 with a negative answer, he did not himself peruse the file as that would have clearly shown him whether the return was subject to scrutiny or not. This was definitely, therefore, an instance of non-application of mind by the AO. 8. If in fact the AO had seen the record, then apart from answering the question at Column 8 in the affirmative, he would have, in response to the question in Column 8 (a), again answered in the affirmative and in Column 8 (b) given the date on which the return was filed. Clearly, therefore, it appears that the AO did not peruse the record containing the return filed by the Assessee. 9. At this stage, it must be noted that for AY 2005-06, where a separate order has been passed by the Court today in W.P. (C) No.1353/2013, the stand taken by the Department was that the file for that AY was not traceable. However, as far as the present AY is concerned, the Department has not stated anywhere that the file was not traceable. 10. One mistake led to the other. Having answered the question in Column 8 in the negative, then logically the AO should have filled up Columns 9 (a) and 9 (b). Not only was Column 9 (a) left blank but Column 9 (b) was answered by stating 'under assessment', when in fact there was no pending assessment as far as the AY in question was concerned. 11. The purpose of Section 151 of the Act is to introduce a supervisory check over the work of the AO, particularly, in the context of reopening of assessment. The law expects the AO to exercise the power under Section 147 of the Act to reopen an assessment only after due application of mind. If for some reason, there is an error that creeps into this exercise by the AO, then the law expects the superior officer to be able to correct that error. This explains why Section 151 (1) requires an officer of the rank of the Joint Commissioner to oversee the decision of the AO where the ITA No.228/Chny/2021 (AY 2013-14) Shri D. Vijay Mohan ITA No.229/Chny/2021 (AY 2013-14) Smt. Vanitha Mohan :: 12 :: return originally filed was assessed under Section 143 (3) of the Act. Further, where the reopening of an assessment is sought to be made after the expiry of four years from the end of the relevant AY, a further check by the further superior officer is contemplated. 12. In the present case, having started off on a wrong note that the original assessment was scrutinized and an order was passed under Section 143(3) of the Act, the AO proceeded to put up the note to the DIT as is evident from the title of the note but, through the Additional DIT. Both the Additional DIT and the DIT appear to have concurred with the reasons for reopening the assessment but without applying their minds to the fact that the return originally filed was only processed under Section 143(1) of the Act and not under Section 143(3) of the Act. Had the Additional DIT realised this mistake, he would not have put up the file further for the approval of the DIT. Clearly, therefore, at the level of Additional DIT there was non- application of mind. Had the DIT realized the mistake, he would have declined to make a noting and would have returned the file to the Additional DIT drawing his attention to Section 151 (2) of the Act which did not require any further approval by the DIT where the return originally filed is only processed under Section 143 (1) of the Act. On the contrary, the DIT again recorded his concurrence with the views of the AO and the Additional DIT. Therefore, at the second level also plainly there was non-application of mind. 13. Mr. Rahul Chaudhary, the learned Senior Standing Counsel for the Department, sought to characterise this whole exercise as an 'over- application' of mind. According to him, it was out of anxiety that the reopening of the assessment might ultimately be invalidated, that these officers enthusiastically participated in the exercise by treating the return originally filed as having been subjected to scrutiny under Section 143 (3) of the Act. 14. What is evident to the Court is the non-application of mind by three officers of the Department - the AO, Additional DIT and the DIT. Plainly they did not bother to examine the record themselves. ITA No.228/Chny/2021 (AY 2013-14) Shri D. Vijay Mohan ITA No.229/Chny/2021 (AY 2013-14) Smt. Vanitha Mohan :: 13 :: 15. The counter affidavit filed by the Department, in the present case, makes for an interesting read. In para 9, it seeks to explain the lapse as under: "9. That, the contents of Para No. 23, are wrong, prejudiced and out of context, hence, the same are denied in totality as the objections raised by assessee company has been validly and correctly disposed off vide office letter dated 26.12.2013. Furthermore, the case laws cited by the assessee were distinguishable from the facts & circumstances of the case of assessee, and, hence, out of context. In respect of case laws relied for sanction of issuance of notice u/s 148, the same are distinguishable from the present case. From the records available in this circle for A.Y 2006-07, it was not clear as to whether the scrutiny assessment was done. Therefore, as a matter of abundant caution, prior approval of both Addl. DIT, Range-2, Intl. taxation, New Delhi and DIT (Intl. Tax)-II, New Delhi was taken. Besides, as detailed at Para 2, 3 & 7 above, there was valid reasons for reopening of the reassessment proceedings." 16. It is not understood how from the records available for AY 2006-07 it was not clear whether a scrutiny assessment was made. The records obviously would have contained the order of the AO under Section 143 (3) of the Act. If, as is the case, there was no such order then clearly the only conclusion to be drawn was that the return was processed under Section 143 (1) of the Act. Since it is not the case of the Department that the file for AY 2006-07 went missing, as was the case for AY 2005-06, the above statement in the counter affidavit filed on 9th September 2014, more than a year after the reopening, is inexplicable. 17. At the highest, the note prepared by the AO should have been candid in Column 8 that it was not clear whether the assessment was being made for the first time or not. That, at least, would have told the Court that the AO had applied his mind to the facts of the case. In any event, if such a note had been put up to the Addl. DIT and thereafter to the DIT, either of those officers could have applied their minds and ascertained if indeed the return was processed under ITA No.228/Chny/2021 (AY 2013-14) Shri D. Vijay Mohan ITA No.229/Chny/2021 (AY 2013-14) Smt. Vanitha Mohan :: 14 :: Section 143 (1) of the Act or picked up for scrutiny. The explanation now offered in the counter affidavit only underscores the non-application of mind at all three levels in the Department. 18. The Court, therefore, quashes the impugned notice dated 28th March 2013 issued by the AO under Section 148 of the Act seeking to reopen the assessment for AY 2006-07. The order dated 26th December 2013 of the AO rejecting the Petitioner's objections is also set aside. In the light of the judicial precedence, we find force in the submission of the Ld.AR and find that in the instant case, the JCIT has merely endorsed his approval by merely stating “yes approved as proposed by the AO above u/s.147 r.w.s.149 of the Act and sec.151(C) of IT Act” which exposes the non-application of mind and was made in a mechanical manner, which impugned action of JCIT cannot be countenanced and therefore, the approval granted by the JCIT to re-open the assessment is fragile and held to be invalid. 9. In the light of the aforesaid discussion, the assessee succeeds and therefore, the impugned action of re-opening of assessment is held to be without jurisdiction and bad in law. 10. Since we have decided the legal issue as noted (supra) in favour of assessee, the other legal issues as well as on merits are not adjudicated being academic. ITA No.228/Chny/2021 (AY 2013-14) Shri D. Vijay Mohan ITA No.229/Chny/2021 (AY 2013-14) Smt. Vanitha Mohan :: 15 :: 11. In the result, appeals filed by the assessees in ITA No.228/Chny/2021 & ITA No.229/Chny/2021 are allowed. Order pronounced on the 03rd day of July, 2024, in Chennai. Sd/- (एबी टी. वकŎ) (ABY T. VARKEY) Ɋाियक सद˟/JUDICIAL MEMBER Sd/- (एस. आर. रघुनाथा) (S.R.RAGHUNATHA) लेखा सद˟/ACCOUNTANT MEMBER चे᳖ई/Chennai, ᳰदनांक/Dated: 03rd July, 2024. JPV आदेश कᳱ ᮧितिलिप अᮕेिषत/Copy to: 1. अपीलाथŎ/Appellant 2. ŮȑथŎ/Respondent 3. आयकरआयुƅ/CIT- Coimbatore. 4. िवभागीयŮितिनिध/DR 5. गाडŊफाईल/GF