2019 (8) TMI 832 - AT - Income Tax

Revision u/s 263 - addition of accumulated profits as deemed dividend u/s 2(22)(e) - HELD THAT - It is a well settled proposition that a document should be read as a whole in order to understand the intent and purpose of the parties and to arrive at conclusion there-from. The said law is equally applicable to an assessment order. It should be read as a whole to understand as to whether or not the Assessing Officer has applied his mind on the facts before him. On going through the order passed u/s 143(3) we find that the AO after considering the plea of the assessee accepted that the transaction between the assessee and NGEPL was in the course of normal business, arrived at a conclusion that provisions of section 2(22)(e) are applicable only to the extent of funds utilised by the assessee for purchase of car and not for the balance amount. Thus, Assessing Officer has a possible view. We find that the decision relied upon by the assessee is relevant in the present case as the Assessing Officer has very much applied his mind on the issue and arrived at conclusion. Further, the Hon'ble Jurisdictional High Court in the case of CIT vs. Gabriel India Ltd. 1993 (4) TMI 55 - BOMBAY HIGH COURT held that there must be material before the Commissioner to satisfy himself that two requisites provided u/s. 263 are present, otherwise power cannot be exercised at the whims and caprice of the Commissioner. It is not permitted u/s 263 of the Act to substitute the judgment of the Commissioner for that of Assessing Officer unless the conditions stipulated therein are satisfied. The order of the Assessing Officer cannot be termed as erroneous simply because Commissioner does not agree with the conclusion drawn by the Assessing Officer. In another case from Hon'ble Jurisdictional High Court in CIT vs. Development Credit Bank Limited 2010 (2) TMI 161 - BOMBAY HIGH COURT , in a similar situation, wherein assessment order was passed after considering all details called for and furnished by the assesses, the Commissioner invoked revisional jurisdiction on the ground that enquiry was not conducted; and the Hon'ble High Court held that the Commissioner was not justified in invoking the revisional jurisdiction. In view of the above discussion, the impugned order of the Commissioner is untenable in the eyes of law. Resultantly, we set aside the order of the Commissioner and restore the assessment order qua the issue relating to the enhancement of addition on account of deemed dividend u/s 2(22)(e) - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the assessment order passed by the Assessing Officer (AO) under section 143(3) of the Income-tax Act, 1961 was erroneous and prejudicial to the interests of the Revenue under section 263 of the Act.
2. Whether the entire loans/advances received by the assessee from the company in which he was a major shareholder should be treated as deemed dividend under section 2(22)(e) of the Act.

Issue-wise Detailed Analysis:

1. Erroneous and Prejudicial to the Interests of the Revenue:
The Commissioner of Income Tax (CIT) invoked section 263 of the Income-tax Act, 1961, proposing that the assessment order dated 30.12.2011 was erroneous and prejudicial to the interests of the Revenue. The CIT argued that the AO should have treated the entire loans/advances received by the assessee from Nadiadwala Grandson Entertainment Pvt. Ltd. (NGEPL) as deemed dividend under section 2(22)(e) of the Act, instead of restricting the addition to ?2.30 crores. The CIT noticed that the assessee had received ?7,79,24,880/- as loans and advances from NGEPL, where the assessee held approximately 98% interest, and the accumulated profits of NGEPL as on 31.03.2009 were ?7,25,30,011/-.

The assessee resisted the CIT's action on both jurisdictional and merit grounds. However, the CIT was not satisfied with the submissions and directed the AO to enhance the addition under section 2(22)(e) by ?49,71,263/-, agreeing partly with the assessee's alternate submission.

2. Deemed Dividend under Section 2(22)(e):
The assessee contended that the AO, after due application of mind, concluded that the amount received from NGEPL was in the normal course of business and was advanced for the production of a movie. The AO restricted the addition under section 2(22)(e) to ?2.30 crores, utilized for the purchase of a car. The assessee relied on the judgment of the Hon’ble Jurisdictional High Court in CIT vs. Fine Jewellery (India) Ltd., which held that if specific queries were made and responded to during the assessment proceedings, the absence of discussion in the assessment order does not indicate non-application of mind by the AO.

The Tribunal examined the CIT's justification for invoking section 263, which requires satisfaction of two conditions: the order must be erroneous and prejudicial to the interests of the Revenue. The Tribunal found that the AO had considered the overall movement of funds and concluded that only the amount used for the car purchase should be treated as deemed dividend. The Tribunal noted that the CIT selectively quoted the AO's order and failed to consider the entire context.

The Tribunal referred to the Hon’ble Supreme Court's decision in Malabar Industrial Co. Ltd. vs. CIT and other relevant judgments, emphasizing that the AO's order cannot be termed erroneous simply because the CIT disagrees with the AO's conclusion. The Tribunal concluded that the AO had applied his mind and taken a possible view, making the CIT's invocation of section 263 untenable.

Conclusion:
The Tribunal set aside the CIT's order and restored the AO's assessment order dated 30.12.2011, quashing the enhancement of addition on account of deemed dividend under section 2(22)(e) of the Act. The appeal was allowed, and the order was pronounced in open court on 24th June, 2019.