Gujarat High Court
Relitrade Stock Broking Pvt. Ltd vs Income Tax Officer Ward 3(1)(1) ... on 7 July, 2025
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/SCA/5399/2022 JUDGMENT DATED: 07/07/2025
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 5399 of 2022
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE PRANAV TRIVEDI
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Approved for Reporting Yes No
✔
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RELITRADE STOCK BROKING PVT. LTD.
Versus
INCOME TAX OFFICER WARD 3(1)(1) AHMEDABAD
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Appearance:
MR. HARDIK V VORA(7123) for the Petitioner(s) No. 1
MS MAITHILI D MEHTA(3206) , Senior Standing Counsel for the
Respondent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE PRANAV TRIVEDI
Date : 07/07/2025
ORAL JUDGMENT
(PER : HONOURABLE MR. JUSTICE PRANAV TRIVEDI)
1. Rule returnable forthwith. Ms. Maithili Mehta, learned Senior Standing Counsel waives service of rule on behalf of the respondent. With consent of the learned advocates Page 1 of 12 Uploaded by SAJ GEORGE(HC01069) on Thu Jul 10 2025 Downloaded on : Thu Jul 10 21:35:51 IST 2025 NEUTRAL CITATION C/SCA/5399/2022 JUDGMENT DATED: 07/07/2025 undefined appearing for the respective parties, the matter is taken up for final hearing today.
2. By way of this petition under Article 226 of the Constitution of India, the petitioner has challenged the notice dated 26.03.2021 issued under section 148 of the Income Tax Act, 1961 (hereinafter referred to as 'the Act' for short).
3. Facts in brief are as under:
3.1 The petitioner is a Private Limited Company and filed its return of income for the Assessment Year 2016-17 on 17.10.2016 declaring total income of Rs.5,84,250/-. The return was taken up for scrutiny. Notices under sec.142(1) was issued on 6.8.2018. The assessment order was passed on 18.12.2018.Page 2 of 12 Uploaded by SAJ GEORGE(HC01069) on Thu Jul 10 2025 Downloaded on : Thu Jul 10 21:35:51 IST 2025
NEUTRAL CITATION C/SCA/5399/2022 JUDGMENT DATED: 07/07/2025 undefined 3.2. It is the case of the petitioner that the Company is amalgamated with Relitrade Stock Broking Pvt. Ltd., vide order dated 27.6.2019. The respondent had issued notice under Section 148 of the Act on 26.3.2021 in the name of erstwhile Company. In response of the notice, the petitioner had filed return of income declaring income of Rs.5,84,250/-. The petitioner had raised objection to the reassessment proceedings with detailed submission. It was categorically contended in the objection that re-opening is based on facts incorrect data and the transactions were already examined in original assessment proceedings. However, the objections were not disposed of even when the assessment was getting time barred. It is also the case of the petitioner that transaction in question for re-assessment categorically comes in the Page 3 of 12 Uploaded by SAJ GEORGE(HC01069) on Thu Jul 10 2025 Downloaded on : Thu Jul 10 21:35:51 IST 2025 NEUTRAL CITATION C/SCA/5399/2022 JUDGMENT DATED: 07/07/2025 undefined purview of Section 2(22)(e) of the Act. 4 Mr.Hardik Vora, learned counsel appearing for the petitioner, would take us through the reasons recorded and submit that the reasons recorded are completely incorrect and contrary to the assessment proceedings itself. 4.2 It was further submitted that the petitioner has received unsecured loan of Rs.6,08,17,054/- during the year under consideration from Relitrade Stockbroking Pvt. Ltd. However, the said amount is credit side from client's account of Relitrade Stock Broking limited which include F&O Trading, payment, receipts, margin and interest on margin. Account of Relitrade Stockbroking Pvt. Ltd is not under the head of borrowing in audited financial statement and reflected under the head of sundry creditors. Further, Page 4 of 12 Uploaded by SAJ GEORGE(HC01069) on Thu Jul 10 2025 Downloaded on : Thu Jul 10 21:35:51 IST 2025 NEUTRAL CITATION C/SCA/5399/2022 JUDGMENT DATED: 07/07/2025 undefined CBDT vide Circular N.19/2017 dated 12.6.2017 has clarified that trade advances are not subject to Provision of Section 2(22)(e). Hence, the provision 2(22)(e) does not apply. 4.3 It was further submitted that it is clear that reasons are recorded on the basis of material filed during original assessment proceedings. Accordingly notice issued on the basis of facts, which are already considered and assessment order passed after considering all the aspects is clearly on the basis of change of opinion and hence liable to be quashed.
5. Per contra, Ms. Maithili Mehta, learned Senior Standing Counsel appearing for the revenue would support the notice. On the basis of affidavit-in-reply, she would contend that the basis of forming reasons to believe that Page 5 of 12 Uploaded by SAJ GEORGE(HC01069) on Thu Jul 10 2025 Downloaded on : Thu Jul 10 21:35:51 IST 2025 NEUTRAL CITATION C/SCA/5399/2022 JUDGMENT DATED: 07/07/2025 undefined there was escapement of income and that there was total clarity that Section 22(2)(e) of the Act would be attracted. On the basis of such submissions, she has submitted that the petition is devoid of merits and is required to be dismissed.
6. Having considered the submissions made by learned advocate appearing for the respective parties and perusal of the reasons recorded indicate that the basis of reason to believe for the revenue to re-open the assessment would indicate that the assessment Company had accepted unsecured loan from Relitrade Stockbroking Pvt. Ltd. and one Shri Karan Sanghvi, is one of the common Directors of both the Companies and was having substantial interest in both the Companies and, therefore, the transaction comes in the purview of Section 2(22)(e) of the Act.
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NEUTRAL CITATION C/SCA/5399/2022 JUDGMENT DATED: 07/07/2025 undefined
7. What is coming from the record is that disputed amount was not an unsecured loan but credit balance of Accounts which included F&O trading, payment receipts, margin and interest on margin, due to which an amount of Rs.6,08,17,054/- was received. It is a settled position of law that trade advances are not subject to Provision of Section 2(22)(e) as per Circular N.19/2017 dated 12.6.2017.
8. Ms. Maithili Mehta, learned Senior Standing Counsel was not in a position to dismiss this factual and legal position. Even this aspect is clarified by decision of this Court in case of GSEC Ltd. Deputy Commissioner of Income-tax, reported in [2023] 157 taxmann.com:
"6.1 What is evident from the records too is that it was clearly pointed out that the assessee company is not a Page 7 of 12 Uploaded by SAJ GEORGE(HC01069) on Thu Jul 10 2025 Downloaded on : Thu Jul 10 21:35:51 IST 2025 NEUTRAL CITATION C/SCA/5399/2022 JUDGMENT DATED: 07/07/2025 undefined shareholder of GSEC Aviation Limited from whom the loan of Rs.16,55,41,554/- has been received. As pointed out by the learned counsel for the petitioner, it is a settled position of law that where loan has been given by the Company to concern, wherein, the shareholder of the payer Company holds at least 20% of share carrying voting power, the said loan can be considered as dividend under section 2(22)(e) of the Act and not the concern to whom the loan has been given. From the annual accounts annexed to the petition, it is evident that a notice was given under Sec.142 of the Act, to which the petitioner had responded showing that the shareholder of the companies were original owners and the shares holding not less than 10% of the voting power.
6.2 Even in the case of Commissioner of Income-tax v. Daisy Packers (P) Ltd. reported in (2013) 40 taxmann.com 480(Gujarat), the Court had considered the question of deemed dividend under Sec.2(22)(e) of the Act and relying on the decision in the Page 8 of 12 Uploaded by SAJ GEORGE(HC01069) on Thu Jul 10 2025 Downloaded on : Thu Jul 10 21:35:51 IST 2025 NEUTRAL CITATION C/SCA/5399/2022 JUDGMENT DATED: 07/07/2025 undefined case of Commissioner of Income-tax v. Ankitech (P) Ltd., reported in [2011] 11 taxmann.com 100 (Delhi), held as under:-
" 2.0 The brief facts are that the assessee filed return of income for the Assessment Year 2000-01 declaring a loss of Rs.4,22,792/-. The return was processed under Section 143(1)
(a) of the Income Tax Act, 1961 (for short 'the Act') and income of the assessee was declared under Section 115JA of the Act. Thereafter the case was reopened under Section 147 of the Act which was served on the assessee. The case of the department was that the Amigo Brushes Pvt. Ltd. had a total surplus of Rs.70 lacs as on 31st March 1999 and it has advanced a loan to the assessee to the tune of Rs.25 lacs. Whereas the assessee contended that he received deposit from Amigo Brushes Pvt. Ltd. and Daisy Packers Pvt. Ltd. was not a shareholder in Amigo Brushes Pvt.
Ltd. The Assessing Officer by his order dated 30th September 2004 rejected the claim of the assessee and treated the deposits as loan and consequently deemed to be a deemed dividend under Section 2(22)
(e) of the Act and accordingly computed the tax. The assessee filed appeal which was dismissed by CIT(A) on 11th May 2006. The assessee filed Second Appeal which has been allowed by the Tribunal on 5th June 2009 and the Tribunal has hold that it was not the case of Page 9 of 12 Uploaded by SAJ GEORGE(HC01069) on Thu Jul 10 2025 Downloaded on : Thu Jul 10 21:35:51 IST 2025 NEUTRAL CITATION C/SCA/5399/2022 JUDGMENT DATED: 07/07/2025 undefined the deemed dividend and it was the case of the deposits. The Tribunal further recorded finding that it was not a loan given by Amigo Brushes Pvt Ltd. to the assessee company and it was inter-corporate deposits. However, we need not go into various questions raised by learned counsel for the parties as admittedly the assessee was not shareholder in the Amigo Brushes Pvt. Ltd. The Division Bench of this Court in Commissioner of Income Tax vs. Ankitach(P) Ltd. [(2012) 340 ITR 14]. The Delhi High Court has held that if the assessee company does not hold a share in other company from which it had received deposit then it cannot be treated tobe a deemed dividend under Section 2(22)
(e)of the Act. In view of this admitted position that assessee is not a shareholder in Amigo Brushes Pvt. Ltd. and therefore, the deposit received by the assessee of Rs.25 lacs from Amigo Brushes Pvt Ltd. was an inter-corporate deposit and not a deemed dividend and, therefore, though this aspect has not been considered by the Tribunal but since the order of the Tribunal can be supported by another legal reason on the admitted facts, we need not send the matter back." 6.3 The Delhi High Court in the case of Ankitech (supra), had held that where loans and advances are given in the Page 10 of 12 Uploaded by SAJ GEORGE(HC01069) on Thu Jul 10 2025 Downloaded on : Thu Jul 10 21:35:51 IST 2025 NEUTRAL CITATION C/SCA/5399/2022 JUDGMENT DATED: 07/07/2025 undefined normal course of business and transaction in question benefits both, i.e. the payer and the payee companies, the provisions of Sec.2(22)(e) cannot be invoked. The Hon'ble Supreme Court in the case of Commissioner of Income-tax vs. Madhur Housing & Development Co., reported in [2018] 93 taxmann.com 502 (SC)., held as under:-
"Section 2(22) of the Incometax Act, 1961-Deemed dividend - (Applicability of)- High Court relied upon judgment of Delhi High Court in Commissioner of Incometax v. Aankitech (P) Ltd. [2011] 11 taxmann.com 100 (Delhi) in which it was held that (I) legal fiction created under section 2(22)(e) enlarges definition of dividend only and it cannot be extended further for broadening concept of shareholders, (ii) a concern in which shareholder of payer company has at least 20 per cent of voting power and loan or advance under this category is given admittedly not to a shareholder / member of payer company, under no circumstances, said concern can be treated as shareholder / member receiving dividend, (iii) in a case where conditions stipulated in section 2(22)(e) treating loan and advance as deemed dividend are established, revenue can treat dividend income at hands of shareholders and tax them accordingly, and (iv) where loans and advances are given in normal course of business and transaction in question benefits both Page 11 of 12 Uploaded by SAJ GEORGE(HC01069) on Thu Jul 10 2025 Downloaded on : Thu Jul 10 21:35:51 IST 2025 NEUTRAL CITATION C/SCA/5399/2022 JUDGMENT DATED: 07/07/2025 undefined payer and payee companies, provisions of section 2(22)(e) cannot be invoked."
6.4 It is well settled in the case of CIT vs. Kelvinator of India Ltd reported in (2010) (320 ITR 561), that reason must have a link with the formation of the belief.
9. In view of the aforesaid, the notice dated 26.03.2021 issued under section 148 of the Income Tax Act, 1961 is hereby quashed and set aside. The petition is allowed, accordingly. Rule is made absolute to the aforesaid extent.
(BHARGAV D. KARIA, J) (PRANAV TRIVEDI,J) SAJ GEORGE Page 12 of 12 Uploaded by SAJ GEORGE(HC01069) on Thu Jul 10 2025 Downloaded on : Thu Jul 10 21:35:51 IST 2025