2016 (6) TMI 803 - AT - Income Tax

Revision u/s 263 - taxability of deemed dividend under Section 2(22)(e) of the Act in the proceedings u/s 153A - Held that - In present case the issue of deemed dividend does not arise from the provisions of Section 153A of the Act and there is no seized material unearthed at the relevant time. Thus it is beyond Assessing Officer s power to address the said issue in proceedings initiated under Section 143(3) read with Section 153A of the Act. The CIT was wrong in directing the examination of taxability of deemed dividend under Section 2(22)(e) of the Act in the proceedings u/s 153A of the Act while passing order under Section 263 of the Act when the proceedings under Section 153A itself has not unearthed the said issue. Thus the CIT do not have power under Section 263 of the Act to give its own opinion when there is no new material unearthed. The issue taken up by the CIT was not within the purview of the Assessing Officer at the inception of assessment proceedings. - Decided in favour of assessee

Issues:
1. Jurisdiction of CIT under section 263 regarding order passed under section 153A.
2. Direction to examine taxability of deemed dividend under section 153A.
3. Reliance on High Court comments and other company's proceedings.
4. Interpretation of the word 'record' under section 263.
5. Legality of the order under section 263.

Issue 1: Jurisdiction of CIT under section 263 regarding order passed under section 153A:
The appeal challenged the CIT's assumption of jurisdiction under section 263, contending that the order passed under section 153A with the approval of the Joint Commissioner ceases to be an order of the Assessing Officer as per section 263(1). The appellant argued that the CIT wrongly relied on section 263(1) Explanation (a) (i) to assume jurisdiction, which was deemed inapplicable. The Tribunal found that the CIT's assumption of jurisdiction was incorrect, and the order under section 263 was deemed contrary to law and was subsequently quashed.

Issue 2: Direction to examine taxability of deemed dividend under section 153A:
The CIT directed the examination of the taxability of deemed dividend under section 2(22)(e) of the Income Tax Act in the proceedings under section 153A. The appellant contested this direction, stating that it widened the scope of section 153A as the issue was not based on search material. Referring to a previous ITAT order, the appellant argued against the CIT's decision. The Tribunal agreed with the appellant, stating that the issue of deemed dividend did not arise from section 153A proceedings, as no seized material was unearthed at the relevant time. The CIT was deemed wrong in directing the examination of taxability of deemed dividend under section 153A when no new material was discovered, and thus, the CIT did not have the power under section 263 to give its opinion on the matter.

Issue 3: Reliance on High Court comments and other company's proceedings:
The CIT relied on the comments of the High Court and proceedings of another company in passing the order under section 263. The appellant objected to this reliance, arguing that the CIT wrongly treated the High Court comments as binding precedent and included unrelated company proceedings in the assessment. The Tribunal agreed with the appellant, emphasizing that the CIT's reliance on external comments and unrelated company records was unwarranted and should be excluded from consideration.

Issue 4: Interpretation of the word 'record' under section 263:
The CIT interpreted the word 'record' under section 263 Explanation (b) broadly, considering statements of accounts not part of the assessee's record. The appellant argued against this broad interpretation, stating that the inclusion of such accounts was unwarranted. The Tribunal agreed with the appellant, highlighting that the CIT's broad interpretation of 'record' was incorrect, and the inference drawn should be excluded from consideration.

Issue 5: Legality of the order under section 263:
The legality of the order under section 263 was questioned by the appellant, contending that it was contrary to law. The Tribunal found merit in the appellant's argument and allowed the appeal, quashing the order under section 263. The Tribunal emphasized that the CIT's direction to examine taxability of deemed dividend under section 153A was beyond the Assessing Officer's power, as the issue did not arise from the section 153A proceedings due to the absence of seized material.

In conclusion, the Tribunal ruled in favor of the appellant, allowing the appeal and setting aside the CIT's order under section 263. The Tribunal emphasized the importance of adhering to legal procedures and the necessity for jurisdictional clarity in tax assessments and orders.

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