2016 (9) TMI 256 - AT - Income Tax

Revision u/s 263 - addition u/s 2(22)(e) - deemed dividend - Held that - It is not the Department s case that no information regarding the loan/advance was called for by the AO. That relevant details and documents were furnished by the assessee during the assessment proceedings and forms part of the record. Hence, no inference can be drawn that the AO has not examined the issue although he has not expressed it in as many terms as may be considered appropriate by his superior authority and even if the same is found to be inadequate the same cannot be a ground for revision. It is clear that an order cannot be termed as erroneous unless it is not in accordance with law. This section does not visualize a case of substitution of the judgment of the Commissioner for that of the AO. Therefore, it cannot be held that in the instant case the AO s order was erroneous and prejudicial to the interest of the revenue within the terms of section 263 of the Act. Once the issue of loan/advance was considered and examined by the Assessing Officer, Ld. Commissioner cannot set aside the order without recording a contrary finding. This will be contrary to Section 263 of the Act. Therefore, in view of the factual matrix of the case and respectfully following the ratio of the various judicial pronouncements as discussed above, we are of the considered opinion that the impugned action of the Ld. CIT u/s 263 of the Act was patently illegal and is liable to be quashed. The proceedings u/s 263 of the Act are accordingly quashed.

Issues Involved:
1. Legality and jurisdiction of the notice issued under Section 263 of the Income Tax Act, 1961.
2. Validity of the order under Section 263 in the absence of incriminating material found during the search.
3. Consideration of the special audit report by the Assessing Officer (AO).
4. Applicability of Section 2(22)(e) regarding deemed dividend.
5. Adequacy of the enquiry conducted by the AO.

Detailed Analysis:

1. Legality and Jurisdiction of the Notice Issued Under Section 263:
The assessee challenged the notice issued under Section 263 of the Income Tax Act, 1961, asserting that it was illegal, bad in law, and without jurisdiction. The Tribunal examined the provisions of Section 263, which allow the Commissioner to revise an order if it is erroneous and prejudicial to the interests of the revenue. The Tribunal emphasized that both conditions must be satisfied for the Commissioner to exercise this power. It was concluded that the Commissioner must provide adequate reasons to justify the exercise of suo moto revisional powers, and a mere reiteration that the order is erroneous and prejudicial is insufficient.

2. Validity of the Order Under Section 263 in the Absence of Incriminating Material Found During the Search:
The assessee argued that no incriminating material was found during the search, and therefore, the AO had no jurisdiction to add the amount of ?1,74,000 as deemed dividend under Section 2(22)(e). The Tribunal noted that the returned income was accepted in the order passed under Section 153A, and no incriminating material was found during the search. Consequently, the proceedings under Section 263 were not legally tenable on this count.

3. Consideration of the Special Audit Report by the Assessing Officer:
The assessee contended that the special audit report was obtained in the case of LT Foods Ltd. and not in the case of the assessee. Therefore, the Commissioner was wrong in concluding that it was ignored by the AO since it was never part of the record of the assessee. The Tribunal found that the special audit report was received much after the completion of the assessment of the assessee, making it impossible for the AO to have considered the same. The Tribunal held that the Commissioner cannot revise an order based on material that was not part of the record at the time of assessment.

4. Applicability of Section 2(22)(e) Regarding Deemed Dividend:
The Commissioner held that the amount of ?1,74,000 advanced to the assessee should be deemed as dividend under Section 2(22)(e). The assessee argued that the amount was neither an advance nor a loan but an imprest to meet day-to-day business expenses. The Tribunal noted that the AO had examined the issue and accepted the assessee's explanation. The Tribunal emphasized that an order cannot be termed erroneous unless it is not in accordance with law and that the Commissioner cannot substitute his judgment for that of the AO.

5. Adequacy of the Enquiry Conducted by the AO:
The assessee argued that a detailed questionnaire was issued during the assessment, and specific questions regarding loans/dividends were asked, indicating that the AO conducted an enquiry. The Tribunal reiterated that there is a distinction between "lack of enquiry" and "inadequate enquiry." It held that if there was any enquiry, even if inadequate, it would not justify the Commissioner passing orders under Section 263 merely because he has a different opinion. The Tribunal concluded that the AO had examined the issue, and therefore, the order could not be considered erroneous and prejudicial to the interest of the revenue.

Conclusion:
The Tribunal quashed the proceedings under Section 263, holding that the Commissioner had not provided adequate reasons to justify the exercise of his revisional powers. The Tribunal found that the AO had examined the issue, and the order was not erroneous or prejudicial to the interest of the revenue. Consequently, the appeal of the assessee was allowed.

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