2014 (1) TMI 928 - AT - Income Tax

Revision of order u/s 263 of the Act Assessment revised u/s 143(3) r.w section 153A of the Act Term loan treated as deemed dividend u/s 2(22)(e) of the Act Held that - The details of loans advanced were available before the AO and he has examined these details during those assessments - the AO has not expressed the acceptance of these loan details in so many words in the assessment order or search assessment order, that does not make any difference that the AO has not gone into the details of these loans - the CIT order passed u/s. 263 of the Act wants to change the opinion and this is not permissible in law as decided by the Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT 2000 (2) TMI 10 - SUPREME Court - An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous - In the same category fall orders passed without applying the principles of natural justice or without application of mind - The phrase prejudicial to the interests of the Revenue is not an expression of art and is not defined in the Act. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue - If due to an erroneous order of the Income-tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue - 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 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 taken by the Income-tax Officer is unsustainable in law the order of Revision u/s 263 set aside Decided in favour of Assessee.

Summary

Issues Involved:
1. Validity of the initiation of proceedings under Section 263 of the Income-tax Act.
2. Bar of limitation in issuing the show-cause notice under Section 263.
3. Justification for the revision of assessment orders under Section 143(3) read with Section 153A.
4. Treatment of loans as deemed dividends under Section 2(22)(e).
5. Application of CBDT Circular No. 495 dated 22-09-1987.

Issue-wise Detailed Analysis:

1. Validity of the initiation of proceedings under Section 263 of the Income-tax Act:
The assessee argued that the CIT was wholly wrong and unjustified in initiating proceedings under Section 263 on 07.03.2011 and passing the order on 28.03.2011 without proper application of mind and appreciation of facts. The CIT issued a show-cause notice based on scrutiny of assessment records, noting that loans from M/s. Ajanta Rubber India Pvt. Ltd. to M/s. Makson Developers Pvt. Ltd. and M/s. Ajanta Footcare (India) Ltd. should be treated as deemed dividends under Section 2(22)(e).

2. Bar of limitation in issuing the show-cause notice under Section 263:
The assessee contended that the show-cause notice issued on 07.03.2011 was barred by limitation since the cause of action had arisen long before the completion of the search and seizure assessment under Section 143(3)/153A on 30.12.2008. The notice and subsequent order under Section 263 were claimed to be illegal and barred by limitation.

3. Justification for the revision of assessment orders under Section 143(3) read with Section 153A:
The CIT revised the assessment orders on the grounds that the Assessing Officer (AO) did not verify the issue of loans being treated as deemed dividends under Section 2(22)(e). The CIT noted that the assessee had substantial interest in the companies involved and directed the AO to revise the assessment, enhancing the assessed total income by Rs. 11,73,913/-.

4. Treatment of loans as deemed dividends under Section 2(22)(e):
The CIT treated loans given by M/s. Ajanta Rubber India Pvt. Ltd. to M/s. Makson Developers Pvt. Ltd. and M/s. Ajanta Footcare (India) Pvt. Ltd. as deemed dividends in the hands of the assessee, based on the shareholding pattern and accumulated profits of the lender company. The assessee argued that the AO had already scrutinized these details during the original and search assessments, and the CIT's revision was merely a change of opinion, which is not permissible under law.

5. Application of CBDT Circular No. 495 dated 22-09-1987:
The assessee relied on CBDT Circular No. 495, which clarifies that deemed dividend under Section 2(22)(e) should be taxed in the hands of the borrower company or concern, not the shareholder. The circular aimed to remove the rigors of Section 2(22)(e) by ensuring that shareholders who did not borrow the loan are not taxed. The Tribunal agreed with the assessee's reliance on the circular, stating that the AO could not have treated the loan as deemed dividend in the hands of the assessee.

Conclusion:
The Tribunal quashed the revision orders passed by the CIT under Section 263, holding that the AO had already scrutinized the loans during the original and search assessments. The CIT's revision was deemed as a change of opinion, which is not permissible. The appeals of the assessee were allowed, and the orders of the CIT were set aside.