2023 (1) TMI 128 - AT - Income Tax

Revision u/s 263 - Addition as deemed income u/s 2(22)(e) in the hands of the assessee - Assessee has received a loan from Leela Tubes Pvt. Ltd. in which the assessee had 51.42% share and also key managerial personnel in the company having more than 20% share holding during the Financial Year - HELD THAT -As decided in assessee s own case for the Assessment Year 2013-14 2018 (9) TMI 2108 - ITAT AHMEDABAD we are of the considered opinion that assessee had received an amount from M/s.Leela Tube Pvt.Ltd. (LTPL) in order to safe-guard the interest of the company and the same was done in order to protect the interest of the company and assessee even sought help from his relatives and placed as security the ancestral House being Flat No.203 at Shripalnagar Ahmedabad. Therefore in our considered opinion this was for the business expediency and same cannot be treated as deemed dividend u/s.2(22)(e) of the Act. Thus we direct the Assessing Officer to delete the addition As a result Assessee s ground of appeal is allowed. D.R. appearing for the Revenue could not state whether the Revenue has filed any appeal against the above order of the Tribunal before Hon ble High Court of Gujarat. The Ld. PCIT before passing this Revision order has not given due weightage to the Appellate order passed by the Tribunal which is against the fundamental principle of Judicial Discipline that is required to be followed by all the lower authorities. Not following the Judicial Discipline by the highest Officer of the Income Tax Department is highly deprecated. In this connection it is appropriate to rely upon the celebrated judgment of the Hon ble Supreme Court in the case of Union of India Others vs. Kamlakshi Finance Corporation 1991 (9) TMI 72 - SUPREME COURT wherein held order of the Appellate Collector is binding on the Assistant Collectors working within his jurisdiction and the order of the Tribunal is binding upon the Assistant Collectors and the Appellate Collectors who function under the jurisdiction of the Tribunal. The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not acceptable to the department - in itself an objectionable phrase - and is the subject matter of an appeal can furnish no ground for not following it unless its operation has been suspended by a competent court. If this healthy rule is not followed the result will only be undue harassment to assessees and chaos in administration of tax laws. Respectfully following the above ruling of the Apex Court we have no hesitation in quashing the Revision order dated passed by the PCIT for the reason of nonconsideration of the higher judicial forums decision in assessee s own case for earlier Assessment Year 2013-14 on identical issue. Appeal filed by the assessee is allowed.

Summary

Issues Involved:
1. Applicability of Section 2(22)(e) of the Income Tax Act, 1961 for deemed dividend.
2. Validity of the Principal Commissioner of Income Tax's (PCIT) revision order under Section 263 of the Income Tax Act, 1961.
3. Judicial discipline and adherence to appellate tribunal decisions.

Detailed Analysis:

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

The core issue revolves around whether the loan of Rs. 88,25,649/- received by the assessee from M/s. Leela Tubes Pvt. Ltd., where the assessee held a significant shareholding, should be treated as deemed income under Section 2(22)(e) of the Act. The assessee argued that the loan was used for business purposes, specifically to secure raw materials and maintain working capital during financial distress. The funds were transferred back to the company as needed, and the transactions were conducted through a personal account for over seven years. The assessee contended that these transactions were for the company's benefit and not for personal use, thus should not be considered as deemed dividend under Section 2(22)(e).

2. Validity of the Principal Commissioner of Income Tax's (PCIT) revision order under Section 263 of the Income Tax Act, 1961:

The PCIT issued a revision order under Section 263, citing that the Assessing Officer (AO) failed to consider the provisions of Section 2(22)(e) during the assessment, rendering the original assessment order erroneous and prejudicial to the interest of revenue. The assessee responded by referencing a prior tribunal decision (ITA No. 382/Ahd/2017) for the Assessment Year 2013-14, where a similar addition under Section 2(22)(e) was deleted. The PCIT, however, did not fully consider this precedent and directed the AO to re-examine the issue.

3. Judicial discipline and adherence to appellate tribunal decisions:

The tribunal noted that the PCIT selectively reproduced parts of the assessee's submissions and ignored the tribunal's previous decision favoring the assessee. The tribunal emphasized the importance of judicial discipline, citing the Supreme Court's ruling in Union of India & Others vs. Kamlakshi Finance Corporation, which mandates that lower authorities must adhere to the decisions of higher appellate bodies unless stayed by a competent court. The tribunal criticized the PCIT for not following this principle and causing undue harassment to the assessee.

Conclusion:

The tribunal quashed the PCIT's revision order dated 19.03.2020, highlighting the failure to consider the tribunal's earlier decision in the assessee's favor for a similar issue in the Assessment Year 2013-14. The appeal filed by the assessee was allowed, reinforcing the principle of judicial discipline and the necessity to follow higher judicial forums' decisions. The tribunal's decision underscores the importance of consistency and adherence to established legal precedents in tax assessments.