2014 (12) TMI 553 - AT - Income Tax

Exercise of jurisdiction by CIT u/s 263 Assessment made u/s 153A - shortfall in the payment of dividend distribution tax - Declaration of dividend which can be made only by the company in the AGM on the recommendation of Board of Directors - Held that - The dividend proposed in the accounts by the Board of Directors on 31.03.2004 was ₹ 1.24 crores and the provision for dividend distribution tax amounted to ₹ 15.5 lakhs - In the AGM of the company held on 30.12.2004 the dividend declared was ₹ 62 lakhs and the dividend distribution tax due was ₹ 7.75 lakhs. This was duly paid by the assessee company - assessee company is liable to pay tax on distributed profits within 14 days from the date of declaration of dividend or distribution of dividend or payment of dividend whichever is earlier - the dividend was declared in the Annual General Meeting on 30.12.2004, when the AGM was held -The provision for dividend made in the accounts or the recommendation of the Board of Directors regarding the proposed dividend cannot be considered as declaration of dividend. It is only u/s 205(1)(A) that the power to declare interim dividend has been conferred to the Board of Directors - it is only the interim dividend that can be declared by the Board of Directors - since the Annual General Meeting took place on 30.12.2004 and in the AGM ₹ 62 lakhs was declared and the dividend distribution tax thereon came to ₹ 7.75 lakhs - the assessee company was not liable to pay dividend distribution tax of more than ₹ 7.75 lakhs order u/s 263 passed by the ld. CIT is not sustainable on merits - de hors any incriminating material when the assessment is not abated the addition u/s 153A is not sustainable the same has also been held in Al Cargo Global Logistics Limited vs DCIT 2012 (7) TMI 222 - ITAT MUMBAI(SB) - no assessment u/s 153A is sustainable - when assessment itself is not sustainable, no exercise of jurisdiction u/s 263 of the Act on such assessment is sustainable thus, the order of the CIT is set aside Decided in favour of assessee.

Summary

Issues Involved:
1. Limitation period for passing an order under Section 263.
2. Computation of the period of limitation with reference to the assessment order.
3. Alleged error in the payment of Dividend Distribution Tax (DDT).
4. Jurisdiction of the CIT in exercising powers under Section 263.
5. Merits of the case concerning the payment of DDT.

Detailed Analysis:

1. Limitation Period for Passing an Order under Section 263:
The appellant contended that the CIT erred in law and on facts by passing an order under Section 263 for the Assessment Year 2004-05 on 22.03.2013, which was beyond the period of limitation. The original assessment order was passed on 29.12.2006, and the appellant argued that the period of limitation should be computed with reference to this date, making the order passed on 22.03.2013 time-barred.

2. Computation of the Period of Limitation with Reference to the Assessment Order:
The appellant argued that the CIT unjustly computed the period of limitation with reference to the assessment order passed under Section 153A/143(3) dated 30.12.2010. The appellant contended that the payment of DDT was not the subject matter of the assessment proceedings under Section 153A of the I.T. Act, 1961, and thus, the period of limitation should be computed with reference to the order under Section 143(3) passed on 29.12.2006.

3. Alleged Error in the Payment of Dividend Distribution Tax (DDT):
The CIT held that there was a short payment of DDT based on the incorrect understanding of the legal provisions of the Companies Act, 1956. The appellant argued that the Board of Directors only recommended a dividend rate of 10%, but the shareholders approved a dividend rate of 5% in the AGM held on 30.12.2004. Consequently, the appellant paid DDT on the approved dividend of Rs. 62,00,000, and there was no shortfall in the payment of DDT.

4. Jurisdiction of the CIT in Exercising Powers under Section 263:
The appellant contended that the exercise of jurisdiction under Section 263 by the CIT was not sustainable. The original assessment order was passed under Section 143(3) on 29.12.2006, and no incriminating materials were found during the search conducted on 30.04.2008. The appellant argued that when no incriminating materials were found, the addition proposed by the CIT for non-payment of DDT under Section 115O of the Act was not sustainable. The Tribunal supported this view, citing the decision of the Special Bench of the Tribunal in the case of Al Cargo Global Logistics Limited vs DCIT, which held that in cases where the assessment is not abated, any addition to the income already assessed must be based on incriminating material found during the search.

5. Merits of the Case Concerning the Payment of DDT:
The Tribunal examined the provisions of Section 115O(1) and (3) of the Act, which state that tax on distributed profits must be paid within 14 days from the date of declaration, distribution, or payment of the dividend, whichever is earlier. In this case, the dividend was declared in the AGM held on 30.12.2004, and the appellant paid DDT on the declared dividend of Rs. 62,00,000. The Tribunal held that the provision for dividend made in the accounts or the recommendation by the Board of Directors cannot be considered as the declaration of dividend. Thus, the appellant was not liable to pay DDT on the proposed dividend of Rs. 1.24 crores, and the order under Section 263 was not sustainable on merits.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, holding that the order passed by the CIT under Section 263 was not sustainable on both merits and jurisdiction. The Tribunal did not address the issue of the CIT's order being time-barred, considering it to be of academic interest. The order pronounced in the court on 11/12/2014 concluded that the appeal by the assessee stands allowed.