2019 (5) TMI 2014 - AT - Income Tax

Revision u/s 263 - as per CIT AO passed u/s 153A/143(3) in not making any enquiries/verification in respect of the said loans so as to consider the applicability of section 2(22)(e) - HELD THAT - As demonstrated by assessee on the basis of relevant documentary evidence placed in the paper book, the details of unsecured loans taken during the years under consideration by the assessee-company from the other Group Companies were called for by the AO during the course of assessment proceedings and the same were duly furnished by the assessee. Even the details of shareholders holding more than 10% shares in the assessee-company were called for by the AO and the same were duly furnished by the assessee. As rightly contended by assessee, all the relevant details to ascertain the applicability of section 2(22)(e) to the loan amounts in question taken by the assessee-company during the years under consideration from the other Group Companies thus were either available on the record before the AO 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 amounts in question while completing the assessment un/s 153A/143(3). In our opinion, it, therefore, cannot be said that there was an error in the orders of the AO in not making any enquiry or verification on the issue of applicability of section 2(22)(e) to the loan amounts in question as alleged by the Ld. Principal CIT and the revision under section 263 by the Ld. Principal was not called for. 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 amounts received by the assessee from the other group companies, 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 amounts in question received by the assessee during the years under consideration from the other Group Companies - no error in the orders of the Assessing Officer for the years under consideration passed u/s 153A/143(3) of the Act as alleged by the Ld. Principal CIT. Assessee appeal allowed.

Summary

Issues Involved:
1. Applicability of Section 2(22)(e) of the Income Tax Act, 1961 to unsecured loans received by the assessee-company.
2. Validity of the revisionary power exercised by the Principal Commissioner of Income Tax (CIT) under Section 263 of the Income Tax Act, 1961.
3. Adequacy of the enquiry and verification conducted by the Assessing Officer under Section 153A/143(3).

Detailed Analysis:

1. Applicability of Section 2(22)(e) of the Income Tax Act, 1961:
The issue revolves around whether the unsecured loans received by the assessee-company from its Group Companies should be treated as deemed dividends under Section 2(22)(e) of the Income Tax Act, 1961. The Principal CIT noted that the assessee-company had received substantial unsecured loans from Group Companies, which had significant accumulated profits. The Principal CIT argued that these loans should be assessed as deemed dividends under Section 2(22)(e). However, the assessee contended that the loans were advanced in the ordinary course of business and were not gratuitous, thus falling outside the purview of Section 2(22)(e). The assessee also cited the judgment of the Hon'ble Calcutta High Court in Pradip Kumar Malhotra v. CIT (2011) 338 ITR 538, which held that loans given in return for an advantage conferred upon the company by shareholders are not covered under Section 2(22)(e).

2. Validity of the Revisionary Power Exercised by the Principal CIT under Section 263:
The Principal CIT exercised his powers under Section 263 to revise the orders passed by the Assessing Officer under Section 153A/143(3), citing a lack of enquiry or verification regarding the applicability of Section 2(22)(e). The Principal CIT issued notices requiring the assessee to show cause why the orders should not be revised. The assessee argued that all relevant details were furnished during the assessment proceedings, and the Assessing Officer had made a conscious decision that Section 2(22)(e) was not applicable. The Tribunal found that the Assessing Officer had indeed called for and examined the relevant details, including the unsecured loans and the shareholders holding more than 10% shares. Therefore, it was held that there was no error in the orders of the Assessing Officer, and the revision under Section 263 was not warranted.

3. Adequacy of the Enquiry and Verification Conducted by the Assessing Officer:
The Principal CIT argued that the Assessing Officer had not made adequate enquiries or verification regarding the applicability of Section 2(22)(e) to the loans received by the assessee-company. However, the assessee demonstrated that the Assessing Officer had called for and examined all relevant details, including the Tax Audit Reports, which reflected the unsecured loans and interest payments. The Tribunal noted that the Assessing Officer had raised specific queries and received detailed responses from the assessee. The Tribunal also observed that the Assessing Officer is expected to be aware of and apply the legal position propounded by the Hon'ble Jurisdictional High Court. Therefore, it was concluded that the Assessing Officer had made the necessary enquiries and taken a conscious decision regarding the non-applicability of Section 2(22)(e).

Conclusion:
The Tribunal set aside the impugned orders passed by the Principal CIT under Section 263 and restored the orders of the Assessing Officer passed under Section 153A/143(3). It was held that the Assessing Officer had made adequate enquiries and verification and had taken a conscious decision that Section 2(22)(e) was not applicable to the loan amounts received by the assessee-company. Therefore, the revision under Section 263 was not justified.

Order:
In the result, all the three appeals of the assessee are allowed. Order pronounced in the open Court on May 29, 2019.