TaxTMI 
TaxTMI 
TaxTMI 
2016 (12) TMI 1411
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.... and in law, the Notice u/s. 263 is invalid in law as the Order u/s. 143(3) dated 28/0372013 not erroneous and not it is prejudicial to the interests of the revenue. 4. The Ld. Commissioner of Income Tax failed to appreciate that The Appellant, during the assessment proceedings, had asserted before the Ld. AO that the sum of Rs. 1,25,00,000/- received from Canon Laminators Private Limited is payment for sale-proceeds and/or trade balance. This fact was discussed with and examined and accepted by the Ld. AO. Thus this issue was well in the knowledge of the Ld. AO and thoroughly examined by him and accepted by him. Accordingly, the order passed therein by the Assessing Officer is not erroneous and not prejudicial to the interests of the revenue. 5. The Ld. Commissioner of Income Tax failed to appreciate that the Assessee is not the Shareholder of the Customer Company. 6. The Ld. Commissioner of Income Tax failed to appreciate that Running Account trade balance are also subject to interest. 7. The Ld. Commissioner of Income Tax failed to appreciate that the order of the Ld. AC is not erroneous as the issue of section 2 (22) (e) has been already examined by the Ld. AO in his assess....
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.... and prejudicial to the interest of Revenue. Accordingly ld. CIT set aside the assessment order u/s 143(3) of the Act dated 28.3.2013 by observing as follows :- 5. The submissions made by the assessee have been carefully examined. Considering the facts of the case the explanation furnished by the assessee cannot be accepted in view of the following reasons. i. From the details of the transactions available on record, it is clearly evident that the amount of Rs. 1,25,00,000/- paid to the assessee firm by M/s. Canon Laminators Pvt. ltd., is in the nature of unsecured loan which was repaid during the year along with interest. It is also observed from the copy of the 'statement of interest paid' that interest @ 12% amounting to Rs. 8,92,767/-has been charged on this loan amount. Therefore, from these details it is clearly evident that the amount received by the assessee from M/s. Canon Pvt. ltd., is in the nature of a loan and there cannot be any disputed in this regard. ii. It is also seen that the partners of the firm namely Mr. Premji V. Bhanusali & Mr. Kanji V. Bhanusali, who hold 40% share in the partnership firm, are having share holding of 23.33% & 27.50% respective....
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....er while completing the assessment u/s. 143(3) of the I.T. Act vide order dated 28.01.2013. Although, the assessee claims to have furnished details regarding the loan transactions, the Assessing Officer has not made any enquiries to ascertain the nature of the transactions. He has completely overlooked the entry found in clause-24(a) and annexure-VIII in form 3CD, furnished along with the audit report, where this amount has been specifically stated as loan. 7. Therefore, considering the above, it is clear that the Assessing Officer has not examined the above issue, which was very relevant for taxing the amount of Rs. 1,25,00,000/- as deemed dividend in the case of the assessee. Considering the facts of the case as discussed above it is apparent that this issue clearly warranted specific enquiry during the assessment proceedings. Failure to make enquiries, where such enquiry is prima-facie warranted, would constitute prejudice to the revenue, whether any under statement of income is otherwise inferable or not. Therefore, considering the specific issues as discussed above, the order passed u/s. 143(3) of the I.T. Act dated 28.03.2013 is found to be erroneous, in so far as it is prej....
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....3 of the Act submitted that ld. CIT can invoke the power u/s 263 of the Act only if the order u/s 143(3) is passed without making enquiries or verification which is not so in the case of assessee. Ld. AF referred to the show cause notice u/s 142(1) of the Act dated 13.1.2012 raising relevant query, reply by assessee dated 14.2.2012, 12.3.2012, 25.10.12 which inter alia included details relating to sales made, impugned amount received and paid to M/s Canon Lamination Private Ltd. and also supplying necessary information to prove that the amount of Rs. 1.25 crores cannot be treated as deemed dividend u/s 2(22)(e) of the Act. Ld. AR further submitted that before the issuance of notice u/s 263 of the Act on 26.2.15 there was a specific note of the audit party enquiring about the transactions of Rs. 1.25 crores between the assessee and M/s Canon Lamination Private Ltd. and also to enquire whether the impugned amount can be treated as deemed dividend under the provisions of section 2(22)(e) of the Act. A detailed note was furnished on 22.12.2014 by the assessee to ACIT, Vapi to establish that the impugned transaction of Rs. 1.25 crores is de jure and de facto advance for purchase of good....
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....f section 263 of the IT Act, lays down the following conditions for the assumption of jurisdiction by Pr./Commissioner of Income Tax: (i)The first place, the Commissioner may call for and examine the records of any proceeding under the Act. For this purpose, he does not need to show any reason. It is a part of his administrative control to call for records and examine them. (ii)The second condition is that he may consider that any order passed under the Act by the AO is erroneous in so far as it is prejudicial to the interests of the revenue. This consideration, having regard to the language of section 263, apparently is a consideration which he exercises by calling for and examining the records as indicated above. During this particular stage of consideration, there is no question of the assessee appearing or making any submission. If after calling for and examining the records the Pr./Commissioner "considers" that the order of the AO is erroneous, in so far as it is prejudicial to the interests of the revenue. (iii) The third condition of section 263 comes into operation, after these two stages, which are purely administrative. The proceeding in the next stage, which is the th....
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....review of a subordinate's order in exercise of the supervisory power but it is to be invoked and employed only for the purpose of setting right distortions and prejudices to the Revenue which is a unique conception which has to be understood in the context of and in the interest of revenue administration. Such a power cannot in any manner be equated to or regarded as approaching in any way in appellate jurisdiction or even the ordinary revisional jurisdiction conferred on the Commissioner under section 264 [Venkatakrishna Rice Co. v. CIT, (1987) 163 ITR 129 (Mad)]. This decision has been relied on in S.S. Muddanna v. State of Karnataka [(1993) 89 STC 90, 95-96 (Karn)]. 12. The specific provisions of Section 263 of the Act lays down that a satisfaction that an order passed by the Authority under the Act is erroneous and prejudicial to the interest of the Revenue is the basic pre-condition for exercise of jurisdiction under Section 263 of the Act. Both are twin conditions that have to be conjointly present. Once such satisfaction is reached, jurisdiction to exercise the power would be available subject to observance of the principles of natural justice which is implicit in the r....
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....ation Pvt. Ltd. and gross sales made during the year comes to Rs. 14.42 crores approx. There are regular payments against sales. During F.Y.2009-10 apart from various payments received against sales there also was a trade advance totaling to Rs. 1.25 crores which was repaid by the assessee in December, 2009. At the close of the year balance in current accounts of Canon Lamination Pvt. Ltd. is NIL in the books of account of assessee. 16. Assessee's case was selected for scrutiny assessment and all necessary details were called for and supplied as and when required and with a minor disallowance of expenses assessment u/s 143(3) of the Act was completed on 28.3.2013. Thereafter ld. CIT invoked the power u/s 263 of the Act and issued show cause notice to the assessee mentioning as to why the amount of Rs. 1.25 cr. received from M/s Canon Lamination Pvt. Ltd. be not treated as deemed dividend u/s 2(22)(e) of the Act as the assessee firm's partners are also share holders of Canon Lamination Pvt. Ltd. Necessary replies were filed by assessee. However, ld. CIT was firm on his view and set aside the order u/s 143(3) of the Act and gave direction to the Assessing Officer to reframe the asse....
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.... is also paid. 19. We also observe that during the course of proceedings before us ld. AR placed copy of note sheet for the assessment records wherein on 16.10.2012 following queries were made :- "Shri S. V. Bhanushali from a firm attended the hearing. Case discussed with reference to the details submitted by the assessee from time to time during the earlier hearings. Case also discussed with reference to the various schedules of the B/s and evidences thereof (s. creditors s. debtors) assessee was required to submit the ledger a/c of M/s Gold Coin Polypack Pvt. Ltd. and Canon Lamination in furtherance of his claim that (2(22)(e) was not applicable to its transaction with them. Case adjourned. Next date of hearing fixed for 25/10/2012 at 3.00 p.m." Thereafter on 25.10.12 assessee submitted the reply to this above query and this reply is placed at pages 63 to 97 of the paper book. We further observe that audit party examining the assessment records made a factual note with regard to the application of provisions of section 2(22)(e) of the Act and the amount of Rs. 1.25 crores from M/s Canon Lamination Pvt. Ltd. to which detailed submissions were made to ACIT, Valsad on 20th Decemb....
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....d". The Supreme Court held that an incorrect assumption of fact or an incorrect application of law, will satisfy the requirement of the order being erroneous. An order passed in violation of the principles of natural justice or without application of mind, would be an order falling in that category. The expression "prejudicial to the interests of the Revenue", the Supreme Court held, it is of wide import and is not confined to a loss of tax. What is prejudicial to the interest of the Revenue is explained in the judgment of the Supreme Court (headnote) : "The phrase 'prejudicial to the interests of the Revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial to the interests of the Revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view....
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....d by the assessee shows that the assessee has purchased the land from the owners, who had earlier entered into an agreement with two other parties. Hence the possibility of creating hindrances by the concerned persons should have been available and the assessee was constrained to clear all of them, lest assessee's project should suffer. However, the Ld Principal CIT has taken the assessee has incurred those expenses on humanitarian grounds or gratuitously and hence the same cannot be considered as business expenses. We are of the view that the learned CIT has merely taken a different view of the matter, where as it is seen that the view taken by the assessing officer in allowing the claim was one of the possible views, since the same has been incurred in furtherance of the business objectives. It is well settled proposition that the assessment order would not be rendered prejudicial to the interests of the revenue, if the assessing officer has taken a possible view of the matter. 12. Similarly, the view taken by the Ld CIT that the expenditure incurred by the assessee on the flats allotted to it as per the development agreement cannot be considered to be non-business expenditure i....
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....which are already concluded, which is not permissible in the revision proceedings. 17. In view of the foregoing discussions, we are of the view that the revision order passed by the Ld Principal CIT cannot be sustained. Accordingly, we set aside his order. 18. In the result, the appeal filed by the assessee is allowed. 21. We further observe that Hon. Supreme Court in the case of Rameshwarlal Sanwarmal vs. CIT (supra) dealt with the issue of deemed dividend which was coming u/s 2(6A)(e) of the Indian Income-tax Act, 1922 which in the present is section 2(22)(e) of the Act wherein it has been held that "we are, therefore, of the view that it is only where the loan is advanced by the company to registered share holder and the other conditions set out in sec.2(6A)(e) are satisfied that the amount of loan would be liable to be regarded as deemed dividend within the meaning of section 2(6A)(e) of the Act 1922. The amount of loan would not fall within the mischief of this section if it is granted to beneficial owner of the shares who is not the registered shareholder. The decision of CIT vs. C.P. Sarathy Mudaliar (supra) does in our opinion lay down the correct interpretation of secti....
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....ts made in the ordinary course of business carried on by both the parties could not be treated as deemed dividend for the purpose of s. 2(22)(e). The deeming provisions of law contained in s. 2(22) (e) apply in such cases where the company pays to a related person an amount as advance or a loan as such and not in any other context. The law does not prohibit business transactions between related concerns, and, therefore, payments made in the ordinary course of in the facts business cannot be treated as loans and advances. Therefore, payments made by a company in the course of carrying on of its regular business through a mutual, open and current account to a related party do not come under the purview ofs. 2(22)(e). The payments in the present case were made by P in settlement of its accounts with the assessee company in the ordinary course of business where the assessee company is acting as the broker of P in carrying on the business of purchase and sale of shares. The payments were made by P, either in settlement of existing debts or on account. Therefore, in the facts and circumstances of the case the payments made by P to the assessee company through the mutual, open and current....
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....ings out the fact that during the course of assessment proceedings assessee gave a detailed reply towards justification of sec.2(22)(e) of the Act vide its letter dated 25.10.2012 appearing in pages 63 to 67 of the paper book with the reliance on the judgment of Hon. Delhi High Court in the case of CIT vs. Arvindkumar Jain in ITA 589 of 2011 and judgment of Hon. Calcutta High Court in the case of Pradip Kumar Malhotra vs. CIT, West Bengal-V, in ITA no.219 of 2003. We find that on the basis of the replies submitted by assessee ld. Assessing Officer after making proper enquiry has taken one of the legally accepted views. Thus it can be seen that to a specific query raised during the course of assessment proceedings assessee has given a specific reply which was duly accepted by the Assessing Officer. We observe that Hon. Bombay High Court in the case of CIT vs. Gabriel India Ltd. (supra) it has been held that if the Assessing Officer has raised queries and the assessee has filed written submissions/ explanation, merely because there is no discussion in the assessment order on the relevant issue, it cannot be said that such order becomes erroneous. 25. We further find that ld. DR has ....