TaxTMI 
TaxTMI 
2015 (3) TMI 359
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....d, examined and investigated upon during the assessment both by the assessing officer and also by the Addl.CIT while giving the approval to the draft assessment order. The Ld. Commissioner ought to have considered that the liability created in the books of one of the divisions is an artificial one which cannot be equated as any loan or advance to cover U/s.2(22)(e) of the Act. 4. On the facts and in the circumstances of the case, the Ld. Commissioner has erred in invoking in the provisions of Sec.2(22)(e) of the Act, in the case of journal entry transferring the artificial liability in the divisions books of accounts as a liability in the hands of the Assessee." 3.1 Assessee has also raised the following additional ground: "On the facts and in the circumstances of the case, and in law, the Ld. Commissioner of Income Tax has erred in exercising his Revisionary powers U /s.263 in relation to an invalid assessment order made U/s.153A. The Ld. Commissioner of Income Tax ought to have considered that no addition could be ordered U /s.2(22) (e) in the assessment U /s.153A without there being any incriminating material found during the search and he is not justified to direct the....
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....m division was sustaining loss, it was decided to separate it from the existing company and convert it to a new company in the name and style of M/s Vishnu Barium Chemicals Pvt. Ltd. Accordingly, all assets and liabilities of Barium division were transferred to the new company as per the scheme of demerger approved by Hon'ble AP High Court. It was submitted, when barium division was under the old company, it has taken funds from the chrome division which is appearing as a liability in the books of barium division in the name of chrome division. Correspondingly, it was shown in the books of chrome division as advance to barium division. After barium division was formed into a separate company, it required funds for its existence, hence, it offered share capital so that funds can be infused to meet the financial requirements. A foreign investor also agreed to participate in the share capital of the new company, provided the MD would also have some shares in the new company. To facilitate investment by foreign investor, the liability in the name of chrome division in the books of newly formed company was converted as share capital in the name of assessee and associates. An MoU was als....
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....2(22)(e). Being aggrieved assessee is before us. 10. Ld. AR orally as well as in writing submitted that the issue of invoking the provisions of section 2(22)(e) was thoroughly examined by Assessing Officer during the assessment proceedings under section 153A. The Additional Commissioner of Income Tax at the stage of granting his approval to the Assessment Order as per the provisions of section 153D of the IT Act, 1961 also had an occasion to examine the issue. The Addl. CIT also recorded the reasons why the advance shown in the Books of Accounts of the Private Limited company can not be brought to tax as "deemed dividend" in terms of sec.2(22)(e) of the IT Act. It was submitted, as per settled principles of law, the Commissioner of Income Tax is not empowered to substitute his views in place of views of the Assessing Officer, and CIT is precluded from terming the Assessment Order as 'erroneous' without pointing out the specific error, and without bringing on record the prejudice caused by such error. 11. Ld. AR submitted that, the Assessment Order made under section 153A after duly following the directions of the Addl. CIT and approved under the provisions of section ....
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....merger of the company and further recorded the fact that there are no accumulated profits available in the Balance Sheet of the Private Limited Company on the dated of debits. The availability of the accumulated profits is a mandatory condition to invoke the provisions of Sec. 2(22)(e) and this mandatory requirement has not been examined by the Ld. CIT and given a go bye. Therefore, the revision order of the Commissioner is erroneous and invalid even on the merits of the issues in the present case. 14. Ld. AR submitted, assessment in case of assessee was completed u/s 143(1) prior to the date of search. As on the date of search, no assessment proceeding for the impugned assessment year was pending which could have abated. In pursuance to notice u/s 153A, assessee filed return of income on 20/01/2009 declaring income at Rs. 3,34,53,850/- and agricultural income at Rs. 85,000/- as was declared in the original income tax return filed for AY 2002-03 before the date of search operations. Thereafter, the Assessing Officer passed order on 31/12/2009 U/s.153A r.w.S. 143(3) of the IT Act. determining income at Rs. 4,81,35,852/- and the only addition made was on account of short term capi....
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.... in appeal, revision or rectification proceedings against finalized assessment/re-assessment shall not abate. It is only because, the finalized assessments/re-assessments do not abate and the Assessee submit that, the completed assessments before the date of search will hold the ground and are valid and any addi8tions to the income have to be invariably base on incriminating material unearthed during the search. 17. The learned AR submitted, for the impugned assessment year, there are no incriminating material or documents found in the search. Ld. Commissioner of Income Tax has not referred to any fresh incriminating material in his Revisionary Order under sec. 263 for directing the Assessing Officer to bring to tax the amount of debits as 'deemed dividends'. Ld. CIT was only provoked by the observations of the audit party and has not examined the issue independently. 18. Ld. AR submitted, as no incriminating material was brought on record by the Ld. Commissioner of Income Tax which was unearthed during the search, the assessing officer was correct as per law in not making any addition in assessment order U/s.153A towards 'deemed dividend' in the absence of an....
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....even if there is no incriminating material with reference to the addition made, but, Assessing Officer u/s 153A retains the power to also look into other aspects as the entire assessment is open before him. 22. We have heard the parties and perused the orders of revenue authorities as well as other material on record. We have also applied our mind to the decisions relied upon by the parties before us. It is evident from the order of ld. CIT that he considers the assessment order to be erroneous and prejudicial to the interests of revenue as Assessing Officer has failed to treat the advance of Rs. 4,27,36,648 shown in the books of VCPL in the name of Ch. Krishnamurthy to be deemed dividend u/s 2(22)(e) of the Act. However, it is to be noted that actually no loan was advanced to assessee by VCPL, as such. It is a fact that due to demerger approved by Hon'ble High Court of AP one of the division of VCPL, namely, Barium Division was converted into a new company in the name and style of M/s Vishnu Barium Chemicals Pvt. Ltd. and assets & liabilities of Barium Division were transferred to the newly formed company. It is also a fact that Barium Division had taken some funds from Chrome ....
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....ange head directed Assessing Officer not to make addition u/s 2(22)(e). The reasoning of the Addl. CIT is, advance created in the name of assessee was only through book entry and no payment was made and secondly, there was no accumulated profits of the company, which is a prerequisite for invoking provisions of section 2(22)(e). Therefore, from the aforesaid discussion, it becomes clear that not only Assessing Officer has examined the issue, but, he has also passed the order in consequence to the directions of his higher authority in terms with section 153D of the Act. ITAT, Pune Bench in case of Akil Gulamali Somji Vs. ITO in ITA Nos. 455 to 458/PN/2010 dt. 30/03/2012 while holding the conditions imposed u/s 153D to be of mandatory nature, referred to clause 9 of Manual of Office Procedure, Volume II (Technical) February 2003 issued by Directorate of Income-tax on behalf of CBDT, which reads as under: "9. Approval for assessment : An assessment order under Chapter XIV-B can be passed only with the previous approval of the range JCIT/ADDL.CIT. (For the period from 30-6-1995 to 31-1 2-1996 the approving authority was the CIT.) The Assessing Officer should submit the draft assessm....
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....assessee will attract provisions of section 2(22)(e). In this context, he has relied upon a decision of the ITAT Chennai Bench and another decision of Hon'ble Madras High Court in case of T. Sundaram Chettiar and Another Vs. CIT, 49 ITR 287. From the aforesaid discussions of learned CIT, it is apparent and obvious that the issue whether the advance can be treated as deemed dividend u/s 2(22)(e) at the hands of assessee is a debatable issue on which more than one view are possible. Therefore, when the view taken by Addl. CIT and Assessing Officer can be considered as one of the possible views, assessment order cannot be treated as erroneous, even though there may be some prejudice caused to revenue. One more aspect, which needs to be taken note of is learned CIT while revising assessment order and directing Assessing Officer to treat the amount of Rs. 4,27,36,648 as deemed dividend at the hands of assessee has totally failed to examine whether M/s VCPL at the time of alleged payment was having accumulated profits or not. When learned CIT is aware of the fact that Addl. CIT while disapproving the addition proposed to be made u/s 2(22)(e) has observed that M/s VCPL did not have accumu....