Tribunal's Remand must be "Open" and Not Restrict Assessment Provisions: Kerala HC Clarifies ITAT Order in Director's Income Tax Case [Read Order]

In a recent ruling, the Kerala High Court clarified that a tribunal's remand must be "open" and not restrict assessment provisions, holding that the Income Tax Appellate Tribunal's observation about assessment under Section 68 of the Income Tax Act, 1961, was not a binding direction on the assessing authority.

The appeals were filed by Dr. K.M. Ashik, a Director of M/s. Moidu Medicare Pvt. Ltd., challenging the common order dated 30.01.2018 of the Income Tax Appellate Tribunal (ITAT) for assessment years 2007-08, 2011-12, and 2012-13. The assessing authority had treated amounts received by the appellant from the company as "deemed dividend" under Section 2(22)(e) of the Income Tax Act and added them to his income.

The Tribunal held that since the appellant's corresponding loan account was not found in the company's books, the addition should be made under Section 68 of the Act rather than Section 2(22)(e).

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The appellant, represented by advocates including Sri. Raja Kannan, argued that the Tribunal shouldn't have directed assessment under Section 68 when the revenue hadn't made such a case. He contended that as a Director, he had introduced certain amounts to the company, and a portion was being repaid to him, which wouldn't attract Section 2(22)(e). The revenue, represented by Sri. Christopher Abraham, sought to sustain the Tribunal's orders and pointed out that reassessments had already been finalized.

The Division Bench of Justice A. Muhammed Mustaque and Justice Harisankar V. Menon observed that while the Tribunal rightly remitted the matter for fresh consideration, its observation about assessment under Section 68 was not to be taken as a positive-binding direction.

The Court held that an assessment under Section 68 is required only when the assessee has no explanation regarding cash credits in their books. Since the appellant had offered explanations regarding his dealings with the company, the remit ordered by the Tribunal should be an "open remit."

Accordingly, the Court disposed of the appeals, holding that the remand by the Tribunal would be an open remand, and the Department must consider the contentions regarding the non-applicability of Section 2(22)(e) and finalize the assessment accordingly.

If any steps under Section 68 are taken, the assessee must be given an opportunity to explain why those provisions don't apply. The Court noted that since revised assessments had already been completed and appeals were pending, the appellant would be entitled to raise all such contentions before the first appellate authority.

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