TaxTMI 
TaxTMI 
2014 (1) TMI 928
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....see is as regards to revision orders passed u/s. 263 of the Act by CIT, Central-III, Kolkata for revising the assessment orders passed u/s. 143(3) r.w.s. 153A of the Act for invoking the provisions of section 2(22)(e) of the Act treating loan amounts as deemed dividend. The assessee has raised common ground in all these ten appeals. Facts and circumstances are exactly identical in all these appeals and the lead appeal being AY 2001-02 in ITA No. 826/K/2011will be taken up first and the issue will be decided. The grounds raised in ITA No. 826/K/2011 read as under: "1. For that in view of the facts and circumstances of the case the Hon'ble CIT was wholly wrong and unjustified in initiating the proceeding u/s 263 of the I. T. Act on 07.03.2011 and subsequently passing an order of u/s 263 on 28.03.2011 directing revision of the order of search & seizure assessment u/s l43(3)/153A dt. 30.12.2008 without proper application of mind and without appreciation of the facts. The notice as well as the order u/s 263. being not valid in the eye of law, are liable to be quashed/cancelled, as none of the conditions precedent for assumption of juri....
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....essee filed return of income on 02.10.2001. Pursuant to search notice u/s. 153A of the Act was issued and served on the assessee on 24.08.2007 and assessee filed his return of income on 21.01.2008. Assessment u/s. 153A/143(3) of the Act was framed by Asstt. CIT, Central Circle-II, Kolkata vide order dated 30.12.2008. Subsequently, CIT Central-III, Kolkata issued show-cause notice dated 07.03.2011 as under: "(i) On scrutiny of assessment records it is seen that M/s. Makson Developers Pvt. Ltd. and M/s Ajanta Footcare (India) Ltd. have received loans from its group company M/s. Ajanta Rubber India Pvt. Ltd. during the F.Yr. 2000-01 relevant to Assessment Year 2001-02 amounting to Rs. 5,00,000/- and Rs.25,00,000/- respectively. (ii) It is also found that out of 2300 shares issued by M/s. Ajanta Rubber India Pvt. Ltd.; you held 900 shares. In the companies namely, M/s Ajanta Foot Care (India) Ltd. and M/s. Makson Developers Pvt. Ltd. you held more than 20% of the shareholding of the companies. Thus you are the person having substantial interest in the companies as defined u/s. 2(32) of the I.T Act 1961. (iii)....
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..... Ajanta Footcare (India) Pvt. Ltd. 1500 500 1000 In view of the above, the CIT noted that during the financial year relevant to Assessment Year 2001-02, Ajanta Rubber India Pvt. Ltd. advanced a sum of Rs.25 lakh to Makson Developers Pvt. Ltd. and Rs.5 lakh to Ajanta Footcare (India) Pvt. Ltd. According to him, the assessee has substantial interest as defined u/s. 2(32) of the Act in all the companies as mentioned above because he carries more than 20% of the voting power. The assessee is a registered as well as beneficial owner of shares in the companies mentioned above. According to him, loan given by Ajanta Rubber India Pvt. Ltd. to Makson Developers Pvt. Ltd. and also Ajanta Footcare (India) Pvt. Ltd. is to be treated as deemed dividend in terms of section 2(22)(e) of the Act. He noted, since there is one more shareholder and both of them have substantial interest as defined u/s. 2(32) of the Act in all the companies as mentioned above, the dividend in their hands has to be considered on the basis of their proportionate share holding in the lender company. The assessee before CIT during the original proceedings referred to clause 3 of section 2(22)(e) of the Act but CIT rel....
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....nder company and more than 20% in the borrower company. Such loan advanced to these concerns have been treated as deemed dividend income u/s. 2(22)(e) of the Act by revisionary order passed by CIT u/s. 263 of the Act. It is to be mentioned that none of the loans treated as deemed dividend u/s. 2(22)(e) of the Act has been received by the assessee. The Ld. counsel for the assessee has relied on Board Circular No.495 dated 22-09-1987, which reads as under: "10.1 Secs. 104 to 109 relate to levy of additional tax on certain closely-held companies (other than those in which the public are substantially interested) if they fail to distribute a specified percentage of their distributable profits as dividends. These provisions had lost much of their relevance with the reduction of the maximum marginal rate of personal tax to 50 per cent which is lower than the rate for corporation tax on closely-held companies. Secs. 104 to 109 have, therefore, been omitted by the Finance Act, 1987. 10.2 With the deletìon of ss. 104 to 109 there was a likehood of closely-held companies not distributing their profits to shareholders by way of divide....
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....tances mentioned in the above circular that such loan will be treated as deemed dividend income u/s. 2(22)(e) of the Act in the hands of borrower company or concerns in which the shareholder is having beneficial interest of 10% in lending company and more than 20% in the borrower company. But, by this financial circular revenue wanted to remove the rigors of section 2(22)(e) of the Act so that the shareholder has not taxed who has not borrowed the loan at all. In view of the above circular issued by CBDT, according to assessee, the AO while framing assessments in these years u/s. 143(1) or 143(3) in some of the years or even after search assessments framed u/s. 153A of the Act, could not have treated the loan received by the borrower company from another lender company wherein assessee had held beneficial interest of 10% of lender company and 20% in the case of borrower company as deemed dividend income u/s. 2(22)(e) of the Act in the hands of the assessee as shareholder even though it may be treated as deemed dividend income in the hands of recipient company. It was the contention of the assessee before us that, from the above CBDT Circular the position is clear that the AO could ....