2023 (2) TMI 424 - HC - Income Tax

Revision u/s 263 - As per CIT block assessment was erroneous and prejudicial to the interest of revenue post amalgamation - As per CIT AO failed to include the reserves and surplus for quantification of deemed dividend income consequent to amalgamation - CIT was not convinced with the explanation and held that the quantification of deemed dividend income in the case of assessee, the decision of this Court ordering amalgamation with retrospective effect cannot be ignored - calculation of accumulated profits for the purpose of computation of deemed dividend income has to be taken into account the reserves and surplus of both the companies - Tribunal cancelled CIT order of revision - HELD THAT - Tribunal called for the assessment records and found that a note not for assessee prepared by the assessing officer regarding various issues involved in the block assessment proceedings. The said note not for assessee has been extracted in full wherein there is also a specific observation stating that the matter was discussed with the Additional CIT, Range-III(C), Kolkata along with the submission of the assessee dated 25.03.2004 and in view of the specific methodology of calculating deemed dividend at the time of advancing the loan by the company to the assessee, reference was made to the decision of K. K. Sen 1964 (10) TMI 16 - SUPREME COURT wherein it was held that the subsequent event of amalgamation, though with retrospective effect, is not significant. Therefore, the assessing officer concluded that the assessee s stand of reckoning the reserve and surplus for the purpose of deemed dividend under Section 2(22)(e) of the Act is acceptable and no adverse inference was drawn. This factual aspect was taken into consideration by the Tribunal and it was held, in our view rightly, that the assessing officer was very well aware of the issue and has taken a consistent decision after examining the issue on hand and also after taking note of various decisions of the Hon ble Supreme Court. Tribunal rightly referred to the decision G.M. Mittal Stainless Steel Pvt. Ltd. 2002 (12) TMI 13 - SUPREME COURT . AO has taken a plausible view and there are several decisions of the Hon ble Supreme Court wherein it has been held that if two views are plausible and the assessing officer takes one of the two views and assigns reasons, such order cannot be construed to be erroneous nor prejudicial to the interest of the revenue - twin-test which are required to be simultaneously fulfilled for assuming jurisdiction under Section 263 of the Act are conspicuously absent. Decided in favour of assessee.

Summary

Issues:
1. Jurisdiction of CIT under Section 263 of the Income Tax Act, 1961.
2. Calculation of deemed dividend income in the case of amalgamation.
3. Relevance of court decisions in determining deemed dividend income.

Jurisdiction of CIT under Section 263:
The case involved an appeal filed by the revenue challenging an order passed by the Income Tax Appellate Tribunal. The Commissioner of Income Tax initiated proceedings under Section 263, arguing that the block assessment order was erroneous and prejudicial to the revenue's interest due to the failure to include reserves and surpluses of two companies for calculating deemed dividend income. The assessee contended that the assessing officer had considered all details during the original assessment, and the CIT erred in invoking Section 263. The Tribunal noted that the assessing officer was aware of the issue and had accepted the assessee's contentions after thorough examination, citing relevant case law. The Tribunal found no grounds for the CIT's jurisdiction under Section 263, and the appeal was dismissed.

Calculation of Deemed Dividend Income in Amalgamation:
The crux of the issue was the calculation of deemed dividend income following an amalgamation between two companies. The CIT argued that the reserves and surpluses of both companies should have been considered for calculating deemed dividend income, as per a court order for retrospective amalgamation. However, the Tribunal observed that the assessing officer had already accepted the assessee's method of calculation during the original assessment, considering relevant case law and submissions. The Tribunal emphasized that the assessing officer's decision was well-informed and consistent, leading to the conclusion that the order was not erroneous or prejudicial to revenue. The Tribunal's analysis highlighted the importance of assessing officer's awareness and consideration of relevant factors in determining deemed dividend income post-amalgamation.

Relevance of Court Decisions on Deemed Dividend Income:
The Tribunal also addressed the relevance of court decisions in determining deemed dividend income. It noted that the decision of a court in force at the time of CIT's assumption of jurisdiction under Section 263 would bind the department, regardless of subsequent reversals. The Tribunal referred to various Supreme Court decisions to support the assessee's position that if the assessing officer takes a plausible view supported by reasons, the order cannot be deemed erroneous or prejudicial to revenue. The Tribunal emphasized the importance of considering multiple plausible views and the absence of twin-tests required for invoking jurisdiction under Section 263. Consequently, the Tribunal upheld the assessee's appeal, dismissing the revenue's appeal and answering substantial questions of law against the revenue.