2012 (3) TMI 323 - HC - Income Tax

Condonation of delay - Revision u/s 263 - dividend stripping - Commissioner of Income Tax noticed that the two transactions were accepted by the Assessing Officer without verification about the genuineness, nature and purpose of the transaction and without obtaining necessary details - Held that it has been held that order of the Assessing Officer cannot be treated as erroneous and therefore revisable under Section 263 of the Act, as Section 94(7) relating to dividend stripping became a part of the statute and is applicable from Assessment Year 2002-03 onwards and is not applicable to earlier assessment years - The purchase and sale of units by the Assessee was undoubtedly bona fide and this was accepted by the Assessing Officer - Decided in favor of the assessee Regarding failure of the Assessing Officer to invoke Section 40A (2)(b) in respect of Rs.2,37,500/- paid to Rajesh Mehta, CA, who is also a director of the respondent-assessee - Tribunal has observed and held that the Commissioner of Income Tax had recorded an entirely incorrect finding - It is not pointed out and shown to us how and why the finding recorded by the Tribunal is factually incorrect or perverse - Decided in favor of the assessee

Summary

Issues:
Delay in refiling application, Setting aside of order under Section 263 of the Income Tax Act, 1961, Dividend stripping transactions, Application of Section 94(7) of the Act, Failure to invoke Section 40A (2)(b) in payment to a director.

Delay in Refiling Application:
The judgment addresses an application for condonation of delay in refiling, where the delay was of 760 days due to the illness and subsequent demise of the then Sr. Standing Counsel. The delay was condoned based on the statement made by the respondent's counsel not opposing it.

Setting Aside of Order under Section 263:
The main issue pertains to whether the Income Tax Appellate Tribunal was correct in setting aside the order of the Commissioner of Income Tax under Section 263 of the Income Tax Act, 1961. The Tribunal set aside the order based on two additions made by the Assessing Officer, focusing on the genuineness, nature, and purpose of the transactions. The Tribunal held that the entire claim of the assessee was legally allowable, citing relevant case law.

Dividend Stripping Transactions:
One aspect involved dividend stripping transactions where the respondent-assessee purchased units of mutual funds before the record date, claimed tax-free dividends, and reported a loss on the sale of units. The Commissioner of Income Tax raised concerns about the transactions, but the Tribunal found them legally allowable based on previous court decisions and held that the Assessing Officer's order was not erroneous.

Application of Section 94(7) of the Act:
The judgment highlighted the applicability of Section 94(7) of the Act, dealing with dividend stripping, from the assessment year 2002-03 onwards. Previous court decisions were cited to support the argument that the Assessing Officer's order could not be considered erroneous under Section 263 for earlier assessment years due to the non-applicability of Section 94(7).

Failure to Invoke Section 40A (2)(b):
Another issue addressed the failure of the Assessing Officer to invoke Section 40A (2)(b) regarding a payment made to a director of the respondent-assessee. The Commissioner of Income Tax held that the payment was allowed without proper examination, but the Tribunal disagreed, stating that the Assessing Officer had considered relevant documents and no further inquiry was necessary.

In conclusion, the judgment ruled in favor of the assessee, dismissing the appeal and emphasizing that the Commissioner of Income Tax was not justified in invoking revisionary power under Section 263 concerning dividend stripping and the payment made to the director. The Tribunal's factual findings were upheld, and the question of law was answered in favor of the assessee against the Revenue.