2019 (5) TMI 1926 - AT - Income Tax

Revision u/s 263 by CIT - deemed dividend addition under section 2(22)(e) - assessment completed under section 153A/143(3) - HELD THAT - All the relevant details to ascertain the applicability of section 2(22)(e) to the loan amount taken by the assessee-company during the year under consideration from M/s. Vijayshree Industries Pvt. Limited thus were either available on the record before the Assessing Officer or the same were called for by him during the course of assessment proceedings by raising specific queries and after applying his mind to the said details, a conscious decision was taken by him as regards the non-applicability of section 2(22)(e) to the loan amount in question while completing the assessment under section 153A/143(3) - In our opinion, it, therefore, cannot be said that there was an error in the order of the Assessing Officer in not making any enquiry or verification on the issue of applicability of section 2(22)(e) to the loan amount in question as alleged by the ld. Principal CIT and the revision under section 263 by the ld. Principal was not called for. Interest was paid by the assessee on the loan amount received from M/s. Vijayshree Industries Pvt. Limited and as held by the Hon ble Calcutta High Court in the case of Pradip Kumar Malhotra 2011 (8) TMI 16 - CALCUTTA HIGH COURT the loan given to the assessee by M/s. Vijayshree Industries Pvt. Limited as a consequence of further consideration, which was beneficial to the said company, cannot be treated as deemed dividend under section 2(22)(e). Assessee-company was not the shareholder in M/s. Vijayshree Industries Pvt. Limited during the year under consideration and the amount of loan in question thus could not be treated as deemed dividend under section 2(22)(e) even on this ground as rightly contended by the ld. Counsel for the assessee. D.R. has not disputed this legal position cited by the ld. Counsel for the assessee in support of the assessee s case that section 2(22)(e) was not applicable to the loan amount received from M/s. Vijayshree Industries Pvt. Limited. He, however, has contended that there is nothing on record to show that this legal position was specifically considered by the Assessing Officer while completing the assessment under section 153A/143(3) of the Act. We are unable to accept this contention of the ld. D.R. In our opinion, the Assessing Officer is not only expected to be aware of such legal position but is also dutybound to apply the same while completing the assessment, especially when it is propounded by the Hon ble Jurisdictional High Court. In the present case, the Assessing Officer thus had not only made the enquiry or verification as required in the facts of the case to ascertain the applicability of section 2(22)(e) to the loan amount received by the assessee from M/s. Vijayshree Industries Pvt. Limited, but a conscious decision was also taken by him keeping in view the legal position that section 2(22)(e) was not applicable to the loan amount received by the assessee during the year under consideration from M/s. Vijayshree Industries Pvt. Limited. There was thus no error in the order of the Assessing Officer passed under section 153A/143(3) of the Act as alleged by the ld. Principal CIT and the revision of the same under section 263 by the ld. Principal CIT was not called for. - Decided in favour of assessee.

Summary

Issues Involved:
1. Applicability of Section 2(22)(e) of the Income Tax Act, 1961 to the loan received by the assessee-company.
2. Validity of the revision order passed under Section 263 by the Principal Commissioner of Income Tax.

Detailed Analysis:

1. Applicability of Section 2(22)(e) of the Income Tax Act, 1961:

The Principal Commissioner of Income Tax (Principal CIT) found that the assessee-company received an unsecured loan of ?40,00,000 from M/s. Vijayshree Industries Pvt. Limited, where a common shareholder held significant shares in both companies. The Principal CIT believed this loan should be assessed as "deemed dividend" under Section 2(22)(e) of the Act due to the substantial accumulated profits of M/s. Vijayshree Industries Pvt. Limited.

The assessee argued that the loan was advanced in the ordinary course of business with interest duly charged, thus falling outside the purview of Section 2(22)(e). They cited the Kolkata High Court's decision in Pradip Kumar Malhotra v CIT, which held that non-gratuitous loans or advances given in return for an advantage conferred upon the company by such shareholders are not covered under Section 2(22)(e).

The Tribunal noted that the Assessing Officer (AO) had called for and received detailed information about the unsecured loans, including the loan in question, during the assessment proceedings. The AO also had access to the Tax Audit Report, which reflected the loan and the interest paid. The Tribunal concluded that the AO had made the necessary enquiries and considered the legal position, leading to a conscious decision that Section 2(22)(e) was not applicable.

2. Validity of the Revision Order Passed Under Section 263:

The Principal CIT issued a notice under Section 263, stating that the AO had not made adequate enquiries regarding the applicability of Section 2(22)(e) to the loan, rendering the assessment order erroneous and prejudicial to the interest of revenue. The Principal CIT set aside the AO's order and directed a fresh assessment with proper enquiry and verification.

The Tribunal disagreed with the Principal CIT's view, emphasizing that the AO had indeed made specific enquiries and had the relevant details on record. The legal position regarding the non-applicability of Section 2(22)(e) to the loan was well-established by the jurisdictional High Court, and the AO was expected to apply this while completing the assessment.

The Tribunal concluded that there was no error in the AO's order warranting revision under Section 263. The AO had made a conscious decision based on the facts and legal position, and the Principal CIT's revision was not justified.

Conclusion:

The Tribunal set aside the Principal CIT's order under Section 263 and restored the AO's assessment order under Section 153A/143(3). The appeal of the assessee was allowed, and it was concluded that the provisions of Section 2(22)(e) were not applicable to the loan amount received by the assessee-company.