SUMITKUMAR DEVCHANDBHAI SAVALIYA,BODAKDEV V. DCIT, CIRCLE-4(1)(1), AHMEDABAD

ITA 964/AHD/2024

AI Insights

The case involves Sumitkumar Devchandbhai Savaliya, an individual and director of M/s. Suvas Infrastructure Pvt. Ltd., who appealed against the order of the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi. The appeal contested the addition of Rs. 34,65,000 as deemed dividend under Section 2(22)(e) of the Income Tax Act, which was initially upheld by the Ld. CIT(A). The assessee argued that the funds received were for commercial purposes related to acquiring agricultural land for development, and not for personal gain, thus should not be taxed as deemed dividend. The CIT(A) dismissed the appeal, citing that the funds were diverted for earning exempt income. The Income Tax Appellate Tribunal (ITAT) found procedural flaws in the handling of the appeal and restored the matter for re-evaluation.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 25833 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-02-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2017-2018
• Other Referred Cases: Vikram Krishna Vs PCIT [2020] 114 taxmann.com 197 (SC), M. Amareswara Rao Vs DC1T [2016] 67 taxmann.com 15 (Visakhapatnam - Trib.), Sanjay Subhashchand Gupta Vs ACIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MAMTA SINGH
• Assessee Lawyers: VIVEK CHAVDA
• Keywords: Additional evidence; Deemed dividend; Commercial expediency; Principle of natural justice; Earning of tax free income
• Section: 147; 250; 2(22)(e)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, AHMEDABAD BEFORE DR. BRR KUMAR, VICE PRESIDENT & SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER I.T.A. No.964/Ahd/2024 (Assessment Year: 2017-18) Sumitkumar Devchandbhai Savaliya, 401, Avdhesh House, Opp. Gurudwara, S.G. Highway, Bodakdev, Ahmedabad-380054 Vs. Deputy Commissioner of Income Tax, Ward-4(1)(1), Ahmedabad [PAN No.AMBPS6193H] (Appellant) .. (Respondent) Appellant by : Shri Vivek Chavda, A.R. Respondent by: Smt. Mamta Singh, Sr. DR Date of Hearing 24.02.2025 Date of Pronouncement 25.02.2025 O R D E R PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER: This appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals), (in short “Ld. CIT(A)”), National Faceless Appeal Centre (in short “NFAC”), Delhi vide order dated 08.03.2024 passed for A.Y. 2017-18. 2. The assessee has taken the following grounds of appeal:- 1.1 The order passed u/s. 250 on 08.03.2024 for A.Y.2017-18 by NFAC, Delhi upholding the additions of Rs.34,65,000 is wholly illegal, unlawful and against the principles of natural justice. 1.2 The Ld. CIT(A) has grievously erred in law and or on facts in not considering fully and properly the eccentric facts and evidence available with regard to the impugned additions. 1.3 The Ld. CIT(A) has grievously erred in law and on facts in not carrying out any inquiry with regard to the applicability of the provisions of Income tax Act and thereby violated the principle of natural justice. Therefore, the appellant shall be granted opportunity to produce additional evidences. ITA No. 964/Ahd/2024 Sumitkumar Devchandbhai Savaliya vs. DCIT Asst.Year –2017-18 - 2– 2.1 The Ld. CIT(A) has grievously erred in law and / or on facts in upholding the initiation of proceedings U/S 147. 2.2 The Ld. CIT(A) has erred in law and/ or on facts in not considering the legal position that the reopening cannot be initiated for rowing and fishing inquiry. It is a well settled position of law that provisions of Section 147 cannot be used merely to inquire a transaction. 2.3 That in the facts and circumstances of the case, the AO has invoked the provisions of Section 147 merely because he received information from insight portal. The AO has acted mechanically on the information which is wholly against the principle of natural justice which was upheld by Ld. CIT(A). 2.4 The Ld. CIT(A) has erred in law and/ or on facts in upholding non furnishing of the reasons recorded by the AO. 2.5 The Ld. CIT(A) has failed to appreciate that in absence of supply of reasons recorded to the appellant, the assessment framed by reopening under section 147 becomes wholly illegal and deserves to be quashed. 2.6 The Ld. CIT(A) has erred in law and/ or on facts in upholding of reopening the case under section 147 even after amendment to the provision of reopening. 2.7 The Ld. CIT(A) has failed to appreciate that the reopening u/s 147 was barred by time. 3.1 The Ld. CIT(A) has grievously erred in law and or on facts in upholding the addition of Rs.34,65,000 being deemed dividend u/s 2(22)(e) r.W.S. 56(2). 3.2 That the Ld. CIT(A) ought not to have upheld addition of Rs.34,65,000 being deemed dividend u/s 2(22)(e) r.w.s. 56(2). 3.3 The Ld. CIT(A) has failed to appreciate that the appellant had received the funds back which was given previously to the impugned company. The Ld. CIT(A) has also failed to appreciate that the appellant had utilized those funds for the purpose of the business of the impugned company. Therefore the Ld. CIT(A) has failed to consider the commercial expediency.” 3. The brief facts of the case are that the assessee is an individual and director in M/s. Suvas Infrastructure Pvt. Ltd. The assessee filed his return of income declaring total income of Rs. 9,31,870/- for the impugned assessment year. During the course of assessment, the Assessing Officer observed that the assessee held more than 10% share holding in the said company M/s. Suvas Infrastructure Pvt. Ltd. and had received an amount of Rs. 34,65,000/- from the ITA No. 964/Ahd/2024 Sumitkumar Devchandbhai Savaliya vs. DCIT Asst.Year –2017-18 - 3– said company, which as per the Assessing Officer was taxable as deemed dividend in the hands of the assessee under Section 2(22)(e) of the Act. During the course of assessment proceedings, the assessee submitted that there was commercial expediency behind the said company giving loans to the assessee, which was for the purpose of acquiring an agricultural land with the aim of developing and constructing residential and commercial buildings thereon. Usually, the individual farmers, being Directors of the company use these funds to acquire such agricultural land since the company in which they are Directors are not permitted to acquire such agricultural lands for non-agricultural purposes. Accordingly, the assessee submitted that the Assessing Officer failed to appreciate that the provisions of Section 2(22)(e) of the Act are not applicable to such loans and advances provided by the company to it’s Directors for commercial purposes. However, the Assessing Officer did not agree with the submissions of the assessee and invoked the provisions of Section 2(22)(e) of the Act and made addition of Rs. 34,65,000/- as income of the assessee under Section 2(22)€ of the Act. 4. In appeal, Ld. CIT(A) dismissed the appeal of the assessee with the following observations: “10. I have considered the facts of, the case, submissions of the appellant and the order of AO in detail. Perusal of written submission of the appellant, it is found that these facts in fact, strengthen the case of the department and that his closely held family company is diverting funds to the beneficial owner. Section 2(22)(e) applies for loan taken and not net loan hence, this plea cannot be entertained. It is a very clear-cut case of diversion/of funds, which is used for earning exempt income in investment. 11. In this regard, reliance is placed on rationale held in the cases of:- 1. Vikram Krishna Vs PCIT [2020] 114 taxmann.com 197 (SC) wherein it was held that where High Court upheld Tribunal's order holding that certain amount received by assessee, a director of ‘C’ Ltd., from said company ITA No. 964/Ahd/2024 Sumitkumar Devchandbhai Savaliya vs. DCIT Asst.Year –2017-18 - 4– constituted deemed dividend under section 2(22)(e) and not as advance in respect of sale of land, SLP filed against said order was to be dismissed. 2. M. Amareswara Rao Vs DC1T 2016] 67 taxmann.com 15 (Visakhapatnam - Trib.) wherein it was held that where assessee, having beneficial ownership of more than 10 per cent shares in a closely held company, claimed to have received certain amount from company for purchase of land for company but failed to prove same by furnishing relevant details, such amount would come within ambit of section 2(22)(e). 3. Sanjay Subhashchand Gupta Vs ACIT wherein it was held that Where assessee claimed to have received loan from two companies in which it was a shareholder holding more than 10 per cent of shares and public was not substantially interested in these two companies and loan amount was given out of accumulated profits of companies upto date of payments, basic conditions for attracting provisions of section 2(22)(e) were satisfied and, thus, Assessing Officer was justified in treating impugned amount received by assessee as deemed dividend. 12. The act of giving guarantee by main Director of the company, is neither a remedy nor an exception to; the applicability of section 2(22)(e). These are not at all related to buslrress but only personal investments by the beneficial owner. Thus, I find that the AO reasonably made the addition and the appellant has failed to \"show that the sum was given for business purpose and ground of appeal No. 3 the appellant is dismissed.” 5. The assessee is in appeal before us against the aforesaid order passed by Ld. CIT(A) dismissing the appeal of the assessee. 6. Before us, the Counsel for the assessee submitted that during the course of appellate proceedings before Ld. CIT(A), only one notice of hearing was issued by Ld. CIT(A). The assessee was of the understanding that Ld. CIT(A) has asked the assessee to furnish the grounds of appeal and accordingly, the same were submitted by the assessee. However, Ld. CIT(A) dismissed the appeal of the assessee without considering the peculiar facts of the assessee’s case and without granting sufficient opportunity of hearing to the assessee. Accordingly, the Counsel for the assessee submitted that in the interest of justice, the matter may be restored to the file of Ld. CIT(A) for de-novo consideration. ITA No. 964/Ahd/2024 Sumitkumar Devchandbhai Savaliya vs. DCIT Asst.Year –2017-18 - 5– 7. In response, Ld. D.R. has also not objected to the matter being restored to the file of Ld. CIT(A) for de-novo consideration, in the interests of justice. 8. Accordingly, looking into the submissions of the Counsel for the assessee before us, in the interest of justice, the matter is hereby being restored to the file of Ld. CIT(A) for de-novo consideration after giving due opportunity of hearing to the assessee. 9. In the result, the appeal of the assessee is allowed for statistical purposes. This Order is pronounced in the Open Court on 25/02/2025 Sd/- Sd/- (DR. BRR KUMAR) (SIDDHARTHA NAUTIYAL) VICE PRESIDENT JUDICIAL MEMBER Ahmedabad; Dated 25/02/2025 TANMAY, Sr. PS TRUE COPY आदेश की Ůितिलिप अŤेिषत/Copy of the Order forwarded to : 1. अपीलाथŎ / The Appellant 2. ŮȑथŎ / The Respondent. 3. संबंिधत आयकर आयुƅ / Concerned CIT 4. आयकर आयुƅ(अपील) / The CIT(A)- 5. िवभागीय Ůितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाडŊ फाईल / Guard file. आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपीलीय अिधकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation 24.02.2025 2. Date on which the typed draft is placed before the Dictating Member 25.02.2025 3. Other Member………………… 4. Date on which the approved draft comes to the Sr.P.S./P.S 25.02.2025 5. Date on which the fair order is placed before the Dictating Member for pronouncement 25.02.2025 6. Date on which the fair order comes back to the Sr.P.S./P.S 25.02.2025 7. Date on which the file goes to the Bench Clerk 25.02.2025 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 Dispatch of the Order…………………………………… "