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
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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
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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.
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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
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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,
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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
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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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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
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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
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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
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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
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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
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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
