Kerala High Court Orders Fresh Assessment in Deemed Dividend Case
Tribunal's Decision Remanded for Reevaluation with Open Considerations on Cash Credits
In a significant judgment, the Kerala High Court has directed a fresh assessment in the case involving Dr. K.M. Ashik and others against the Commissioner of Income Tax. The court has remanded the case concerning deemed dividends under Section 2(22)(e) of the Income Tax Act, 1961, and cash credits under Section 68, for further consideration by the assessing authority.
The case pertains to the assessment years 2007-08, 2011-12, and 2012-13, where the assessing authority had categorized certain amounts received by Dr. Ashik from M/s Moidu Medicare Pvt. Ltd., where he serves as a director, as deemed dividends. The amounts in question were Rs. 5,32,205 for 2007-08, Rs. 14,47,789 for 2011-12, and Rs. 1,01,05,828 for 2012-13. These sums were treated as additional income by the authority, prompting the assessee to challenge the decision.
The Income Tax Appellate Tribunal initially found the addition under Section 2(22)(e) unwarranted due to the absence of a corresponding loan account in the company's books, suggesting instead that the assessment be made under Section 68 of the Act. However, the Kerala High Court has now clarified that the remand is open, allowing the assessee to contest the applicability of Section 68 and to provide explanations concerning the transactions recorded as unsecured loans from directors.
The judgment, delivered by Justices A. Muhamed Mustaque and Harisankar V. Menon, emphasizes that the transactions between the company and the appellant-assessee, as recorded in the company’s balance sheet and financials, do not fall under the purview of deemed dividends as per Section 2(22)(e). Furthermore, the court has upheld that an assessment under Section 68 should only be pursued if the assessee fails to offer a satisfactory explanation for the cash credits.
In response to the Tribunal's directions, the court has directed that the assessment remains open-ended, thereby allowing the appellant to argue against the applicability of Section 68 if raised during the remand process. Dr. Ashik's legal counsel, Sri Raja Kannan, argued that the repayment of amounts introduced by the director does not attract the provisions of Section 2(22)(e), and the Tribunal erred in suggesting assessment under Section 68, a stance that the High Court has now validated.
On the opposing side, the respondent-revenue, represented by Sri Christopher Abraham, maintained that reassessments had been concluded in line with the Tribunal's directions, with further appeals filed by the appellant against these revised assessment orders.
The Kerala High Court’s judgment is poised to impact how similar cases are assessed, stressing the necessity for thorough evaluation of explanations offered by the assessee regarding cash credits and business transactions. The decision underscores the importance of correctly interpreting statutory provisions and ensuring that procedural fairness is upheld in tax assessments.
Bottom Line:
Income Tax - Deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961 - Tribunal remitting the matter for fresh consideration - Appellate Court holding that the remand is an open remand and assessing authority to consider the assessee's explanations with regard to the non-applicability of provisions under Sections 2(22)(e) and 68 of the Act.
Statutory provision(s): Section 2(22)(e), Section 68 of the Income Tax Act, 1961
Dr. K.M. Ashik v. Commissioner Of Income Tax, (Kerala)(DB) : Law Finder Doc Id # 2790768
