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2018 (4) TMI 1428 - AT - Income TaxRevision 263 - deemed dividend addition u/s 2(22)(e) - Held that - The assessee had furnished the information vide his replies dt. 25/03/2015, 22/01/2015, 11/02/2015. So the facts that SVPL is a related party and that it has given loans to the assessee was enquired into by the Assessing Officer. It cannot be said that there was no enquiries or verification made by the Assessing Officer on this issue of loan. Inadequate enquiries cannot be a basis for invoking powers u/s 263 of the Act, by the ld. Pr. CIT. At the same time, it is a fact that the ld. Assessing Officer has not recorded that he had examined the transaction from the angle of Section 2(22)(e) of the Act. When the assessee has submitted that what was given was an Inter Corporate Loan and that it carried interest and that it was not a gratuitous loan and SVPL is a NBFC and that substantial part of its business, in fact more than 90 per cent of its business is lending money i.e. giving loan and advances and when the judgement of the Hon ble Jurisdictional High Court and the Tribunals which had laid down propositions of law on this issues are placed before the ld. Pr. CIT, to come to a conclusion, contrary to these judgments cannot be countenanced. The submissions made by the assessee either on facts or on law has not been controverted by the ld. Pr. CIT. The ld. Pr. CIT is bound by the proposition of law laid down by the Hon ble Jurisdictional High Court. Ignoring the same makes the order bad in law.- CIT as bound to conduct enquiry and verification on its own and give his findings in facts and law. This was not done. - Decided in favour of assessee
Issues Involved:
1. Invocation of revisionary powers under Section 263 of the Income Tax Act by the Principal Commissioner of Income Tax (Pr. CIT). 2. Applicability of Section 2(22)(e) of the Income Tax Act regarding deemed dividend. 3. Adequacy of the Assessing Officer's (AO) inquiry and verification during the assessment proceedings. 4. Legal principles and precedents related to the exercise of jurisdiction under Section 263. Issue-wise Detailed Analysis: 1. Invocation of Revisionary Powers under Section 263: The Pr. CIT invoked his powers under Section 263 by issuing a showcause notice to the assessee, proposing that the assessment order passed by the AO was erroneous and prejudicial to the interests of the revenue. The basis for this invocation was that the AO did not adequately inquire into the applicability of Section 2(22)(e) regarding a loan received by the assessee from Shraddha Vyapaar Private Limited (SVPL). 2. Applicability of Section 2(22)(e) - Deemed Dividend: The Pr. CIT observed that the assessee received loans and advances from SVPL, a company in which the assessee held a substantial shareholding. Since SVPL had accumulated profits and the assessee held more than 10% of its share capital, the Pr. CIT concluded that the conditions of Section 2(22)(e) were satisfied, making the loan taxable as deemed dividend. The assessee contested this, arguing that the loan was an Inter Corporate Deposit (ICD) and not gratuitous, and that SVPL, being a Non-Banking Financial Company (NBFC), lent money in the ordinary course of its business. 3. Adequacy of AO's Inquiry and Verification: The Pr. CIT held that the AO did not make adequate inquiries or verification regarding the applicability of Section 2(22)(e). The assessee countered that detailed information and confirmations regarding the loan were furnished during the assessment proceedings, and the AO had taken a conscious decision. The Tribunal noted that the AO had indeed inquired into the unsecured loans and related party transactions but did not specifically record examination from the angle of Section 2(22)(e). 4. Legal Principles and Precedents: The Tribunal referred to various legal precedents to outline the principles governing the exercise of jurisdiction under Section 263. It emphasized that for the Pr. CIT to invoke Section 263, the order must be both erroneous and prejudicial to the interests of the revenue. It was noted that if the AO adopts one of the permissible legal views, the order cannot be deemed erroneous simply because the Pr. CIT holds a different view. The Tribunal also highlighted that the Pr. CIT must provide clear reasons and findings based on material evidence to justify the revision. Tribunal's Findings: - The Tribunal found that the AO had made inquiries regarding the loan and related party transactions, although not explicitly from the perspective of Section 2(22)(e). - The Tribunal held that the loan was not gratuitous as it carried interest and was given by an NBFC in the ordinary course of business, thus not attracting Section 2(22)(e). - The Tribunal quashed the Pr. CIT’s order, stating that the Pr. CIT ignored binding judicial precedents and failed to conduct necessary verification and provide specific findings. Conclusion: The Tribunal allowed the assessee's appeal, quashing the order passed by the Pr. CIT under Section 263, and held that the AO's original assessment was not erroneous or prejudicial to the interests of the revenue. The Tribunal emphasized adherence to legal principles and precedents, and the necessity for the Pr. CIT to conduct thorough verification before invoking revisionary powers.
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