Case Law Details
Pavan Morarka Vs ACIT (Bombay High Court)
Conclusion: Reopening of an assessment under Section 148 was not justified on the ground that AO was of the opinion that a contingency might arise in future resulting an escapement of income which would be wholly impermissible and would amount to a rewriting of the statutory provision.
Held: Assessee held 50% of the equity share capital of Shivum Holdings Pvt. Ltd. (Shivum) and 25% of the equity share capital of P & A Estate Pvt. Ltd. (P&A). Assessee’s wife, Rachana Murarka held 50% of the equity share capital of Shivum and 25% of the equity share capital of P&A. Balance 50% of the equity share capital of P&A was held by Mr. Akshat Prasad. Shivum held 85% interest in a partnership firm named Laxmi Trading Company (LTC) and assessee held the balance 15% interest in LTC. During the previous year relevant to the assessment year 2006-2007, LTC gave an advance to P&A on behalf of Shivum. An assessment order under Section 143(3) came to be passed in the case of P&A holding that the amount advanced by LTC on behalf of Shivum to P&A constituted dividend in the hands of P&A under Section 2(22)(e). CIT (Appeals) decided P&A’s appeal against the Revenue holding that addition under Section 2(22)(e) could not be made in the hands of P&A since P&A was not a shareholder of Shivum. ITAT held the similar view as CIT (A). On appeal by Revenue. It was held that even if accept Revenue’s contention that the present proceedings were continuation of the proceedings initiated by AO at New Delhi vide notice dated 22nd March 2013, the proceedings would be invalid since the notice issued by AO at New Delhi itself was invalid inasmuch as sanction of the appropriate authority as per Section 151 was not obtained before issuing the notice. It was Revenue’s contention before the Apex Court that the deemed dividend under Section 2(22)(e) was assessable in the hands of P&A. This was certainly not permissible because the jurisdictional requirement was that respondents must entertain a belief that income chargeable to tax has escaped assessment in the hands of assessee. It was not possible for respondents to entertain such belief if they were agitating the matter against P&A. On this ground also, the impugned notice should be held as invalid. The Division Bench of this Court in DHFL Venture Capital Fund V/s. Income Tax Officer5 held that where AO sought to make protective assessment by reopening an assessment on the ground that a contingency may arise in future resulting in escapement of income that would be wholly impermissible and would amount to rewriting of the statutory provision.
FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT
1. Since identical issues are involved in both petitions, facts from Writ Petition No.602 of 2014 in the case of Mr. Pavan Murarka (petitioner) are referred to hereunder :
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