2025 (2) TMI 440 - AT - Income Tax

Assessment order passed in respect of original return of income - AO failed to consider the revised return filed by the assessee - HELD THAT - It is not a case where the assessee had not filed original return of income. However the case is that pursuant to filing of revised return of income the AO was supposed to take cognizance of revised return of income and the assessment order passed by the AO in respect of original return of income neither can be treated as an order passed u/s 144 of the Act nor the same could be held to be a valid order as the same has not been passed in respect of valid/revised return of income filed by the assessee. Therefore this legal issue is decided in favour of the assessee and against the revenue. The assessment order passed by the Assessing Officer is hereby quashed. Deemed dividend u/s 2(22)(e) - Since the AO has thoroughly examined the nature of the transactions done by the assessee which have been done regularly and consistently and has noted that the same being in the ordinary course of business and out of commercial expediency and the account between the assessee and its subsidiary was in the nature of current account and further since the issue is squarely covered by the decision of the various High Courts/Tribunal decisions therefore in view of the above discussion the addition made/confirmed by the lower authorities u/s 2(22)(e) of the Act is not sustainable in this case and the same is accordingly ordered to be deleted. Deduction u/s 80IA - assessee company claimed deduction for its steam generation unit from the boiler plant U-I located at Hapur - HELD THAT - Counsel has duly demonstrated that the deduction u/s 80IA was duly claimed in the revised return. As observed above both the lower authorities failed to take note of the revised return filed by the assessee. Therefore the denial of deduction on this ground was not justified. So far as the computation of deduction is concerned the issue is squarely covered by various decisions of the higher courts including the decision of the Hon ble Supreme Court in the case of CIT vs. M/s Jindal Steel Power Ltd 2023 (12) TMI 417 - SUPREME COURT Quantum of deduction admissible - AO will verify the rates charged by the Electricity Board to other industrial undertakings as claimed above by the assessee and accordingly allow the deduction u/s 80IA of the Act to the assessee.

ISSUES PRESENTED and CONSIDERED

The Tribunal considered several key issues in the cross-appeals presented by the assessee and the revenue:

Whether the assessment order was valid given that the Assessing Officer (AO) failed to consider the revised return filed by the assessee.
Whether the addition of Rs. 9,01,00,000 as deemed dividend under Section 2(22)(e) of the Income Tax Act was justified.
Whether the assessee was entitled to claim a deduction under Section 80IA of the Act for its steam generation unit, and if so, the appropriate method for calculating such deduction.

ISSUE-WISE DETAILED ANALYSIS

1. Validity of the Assessment Order

Legal Framework and Precedents: The core legal question was whether the assessment order was valid given the AO's failure to consider the revised return filed by the assessee within the prescribed period. The Tribunal referenced Section 139(5) of the Income Tax Act and various judicial precedents, including the Supreme Court's decision in 'ACIT vs. Hotel Blue Moon', which mandates the issuance of a notice under Section 143(2) for a valid assessment.
Court's Interpretation and Reasoning: The Tribunal found that the AO erred by not issuing a notice under Section 143(2) for the revised return, which is a procedural requirement for a valid assessment. The Tribunal emphasized that the original return is deemed withdrawn upon the filing of a revised return.
Conclusion: The assessment order was quashed as invalid because it was not based on the revised return, which the AO failed to consider.

2. Deemed Dividend under Section 2(22)(e)

Legal Framework and Precedents: Section 2(22)(e) of the Income Tax Act deems certain loans and advances to shareholders as dividends. The Tribunal examined whether the financial transactions between the assessee and its subsidiary fell within this provision.
Court's Interpretation and Reasoning: The Tribunal noted that the transactions were in the nature of a current account, with funds exchanged between the companies for business needs, and were squared off at the end of the financial year. The Tribunal referred to various precedents, including the decisions in 'Shree Krishna Gyanodya Flour Mills Pvt. Ltd. vs. PCIT' and 'Pradip Kumar Malhotra vs. CIT', which held that such transactions do not attract the provisions of Section 2(22)(e).
Conclusion: The Tribunal concluded that the transactions were not gratuitous and were conducted in the ordinary course of business. Therefore, the addition of Rs. 9,01,00,000 as deemed dividend was not justified and was deleted.

3. Deduction under Section 80IA

Legal Framework and Precedents: The issue was whether the assessee was entitled to a deduction under Section 80IA for its steam generation unit and the correct method for computing such deduction. The Tribunal considered the Supreme Court's decision in 'CIT vs. Jindal Steel & Power Ltd.', which clarified that the market value of electricity supplied should be based on the rate charged by the State Electricity Board to industrial consumers.
Court's Interpretation and Reasoning: The Tribunal found that the deduction was claimed in the revised return, which the AO failed to consider. The Tribunal agreed with the assessee's method of calculating the deduction based on the market value of electricity as per the Supreme Court's guidance.
Conclusion: The Tribunal directed the AO to verify the market rates and allow the deduction accordingly. The assessee's appeal on this ground was allowed.

SIGNIFICANT HOLDINGS

Assessment Order: The Tribunal held that the assessment order was invalid due to the AO's failure to consider the revised return and issue a notice under Section 143(2).
Deemed Dividend: The Tribunal established that transactions conducted in the ordinary course of business and represented as current account transactions do not attract the provisions of Section 2(22)(e).
Deduction under Section 80IA: The Tribunal upheld the principle that the market value for computing deductions under Section 80IA should reflect the rate charged by the State Electricity Board to industrial consumers.
Final Determinations: The Tribunal quashed the assessment order, deleted the addition of Rs. 9,01,00,000 as deemed dividend, and allowed the deduction under Section 80IA, subject to verification of market rates by the AO.