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2015 (3) TMI 359 - AT - Income TaxRevision u/s 263 - Ld. Commissioner invoking in the provisions of Sec.2(22)(e) - whether d. 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? - Held that - when it is a fact on record that both the addl. CIT while granting approval u/s 153D as well as Assessing Officer in course of assessment proceeding have examined the issue of deemed dividend u/s 2(22)(e) of the Act at the hands of assessee in relation to the advance shown in his name in the books of M/s VCPL and the view taken by Assessing Officer as well as addl. CIT can be considered as one of the possible views, assessment order cannot be treated as erroneous. More so, when assessment order has been passed in terms with section 153D of the Act and ld. CIT has not revised the directions of addl. CIT. In these circumstances, as one of the conditions of section 263 is not satisfied, the impugned order passed u/s 263 is not valid. Accordingly, we set aside the impugned order of learned CIT and restored the assessment order passed. - Decided in favour of assessee.
Issues Involved:
1. Validity of the order passed under section 263 of the Income Tax Act. 2. Treatment of the liability as deemed dividend under section 2(22)(e) of the Income Tax Act. 3. Jurisdiction of the CIT to exercise revisionary powers under section 263 in relation to an invalid assessment order made under section 153A. 4. Examination of the presence of incriminating material found during the search. Detailed Analysis: Validity of the Order Passed Under Section 263: The appeal challenges the order dated 21/03/2013 of the CIT (Central) passed under section 263 of the Income Tax Act for the assessment year 2002-03. The CIT considered the assessment order erroneous and prejudicial to the interests of revenue because the AO failed to tax an amount of Rs. 4,27,36,648 as deemed dividend under section 2(22)(e). The CIT issued a show-cause notice and, after considering the submissions, set aside the assessment order directing the AO to recompute the income by bringing the amount to tax as deemed dividend. Treatment of the Liability as Deemed Dividend Under Section 2(22)(e): The assessee, a director with substantial shareholding in M/s Vishnu Chemicals Pvt. Ltd., argued that the liability was an artificial one created through journal entries and not an actual loan or advance. The liability was transferred to the assessee's name following a demerger approved by the High Court. The assessee and his family were allotted shares worth Rs. 4 crores in the newly formed company, M/s Vishnu Barium Chemicals Pvt. Ltd. The CIT's view was that the AO's failure to consider this as deemed dividend made the assessment order erroneous and prejudicial to revenue. Jurisdiction of the CIT to Exercise Revisionary Powers Under Section 263: The assessee contended that the CIT is not empowered to substitute his views for those of the AO. The AO, during the assessment under section 153A, had examined the issue thoroughly, and the Additional CIT, while granting approval under section 153D, directed not to make the addition as deemed dividend due to the lack of accumulated profits and the nature of the journal entry. The CIT's order was challenged on the grounds that it did not point out specific errors or prejudice caused by the AO's order. Examination of the Presence of Incriminating Material Found During the Search: The assessee argued that no incriminating material was found during the search that could justify the addition under section 2(22)(e). The assessment under section 153A was completed without any reference to such material. The CIT's revisionary order was based on audit observations rather than fresh incriminating evidence. The AO's decision not to treat the liability as deemed dividend was based on the absence of accumulated profits and the nature of the transaction. Conclusion: The Tribunal held that the AO had examined the issue and passed the order in accordance with the directions of the Additional CIT under section 153D. The assessment order could not be considered erroneous as it was based on one of the possible views. The CIT's order was invalid as it did not revise the directions of the Additional CIT. The appeal was allowed, and the assessment order was restored. The other issues raised by the assessee, including the absence of incriminating material, were not adjudicated as the revision order was found invalid. Result: The assessee's appeal was allowed, and the revision order under section 263 was set aside.
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