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2017 (10) TMI 934 - AT - Income TaxRevision u/s 263 - proof of order of the AO to be erroneous and prejudicial to the interest of the revenue - deemed dividend addition - Held that - It should be remembered that every loss of revenue as a consequence of an order of AO cannot be treated as prejudicial to the interest of revenue. When the AO adopted one of the course permissible in law and it has resulted in a loss to the revenue; or where two views are possible and AO has taken one view with which Pr. CIT does not agree, it cannot be stated an erroneous order prejudicial to the interest of revenue unless the order of AO is unsustainable in law as held by the Hon ble Supreme Court in the case of Malabar Industrial Co. Ltd. Vs. CIT (2000 (2) TMI 10 - SUPREME Court). In this case original assessment order passed with the approval of JCIT u/s. 153D of the Act cannot be viewed as unsustainable in law. Further, when all the facts and the laws governing the issues were brought to the notice of the Pr. CIT for which show cause notice was issued by the Pr. CIT, while conveying his intention to invoke revisional jurisdiction u/s. 263 of the Act, we note that he has not discussed as to whether sec. 2(22)(e) of the Act is attracted and the transaction can be characterized or be termed as a loan/advance. We note that the Ld. Pr. CIT did not even care to discuss and pass a speaking order, has simply set aside the original assessment order, which action of Pr. CIT cannot be countenanced. Therefore, we are inclined to allow the appeal of the assessee and quash the impugned order of the Ld. Pr. CIT. - Decided in favour of assessee.
Issues Involved:
1. Legality of the revisional jurisdiction exercised under Section 263 of the Income-tax Act, 1961. 2. Characterization of transactions as loans/advances under Section 2(22)(e) of the Act. 3. Determination of whether the transactions between the assessee and M/s. Subhchintak Vancom Pvt. Ltd. qualify as mutual transactions or loans/advances. Issue-wise Detailed Analysis: 1. Legality of the Revisional Jurisdiction Exercised under Section 263 of the Income-tax Act, 1961: The assessee appealed against the revision order of the Principal Commissioner of Income Tax (Pr. CIT), Kolkata, dated 15.03.2016, for the assessment year (AY) 2012-13, passed under Section 263 of the Income-tax Act, 1961. The main argument presented by the counsel for the assessee was that for the Pr. CIT to exercise revisional jurisdiction under Section 263, the order of the Assessing Officer (AO) must be both erroneous and prejudicial to the interest of the revenue. The counsel highlighted that the Pr. CIT found fault with the AO for not enquiring about loans/advances given by three companies where the assessee had more than 10% shareholding. The AO, in compliance with the Pr. CIT's order, upheld the assessee’s contention regarding two companies and made no addition under Section 2(22)(e) of the Act. However, an addition was made concerning M/s. Subhchintak Vancom Pvt. Ltd. 2. Characterization of Transactions as Loans/Advances under Section 2(22)(e) of the Act: The assessee argued that the transactions with M/s. Subhchintak Vancom Pvt. Ltd. were in the nature of a current account and could not be characterized as loans/advances. The ledger showed shifting balances, indicating mutual transactions. The Supreme Court in Kesari Chand Jaisukh Lal vs. Shillong Banking Corporation Ltd. held that mutual transactions must create independent obligations on both sides. The Calcutta High Court in Pradip Kumar Malhotra vs. CIT stated that advances or loans under Section 2(22)(e) must be gratuitous and not in return for any benefit conferred upon the company by the shareholder. 3. Determination of Whether the Transactions between the Assessee and M/s. Subhchintak Vancom Pvt. Ltd. Qualify as Mutual Transactions or Loans/Advances: The Tribunal noted that the transactions between the assessee and M/s. Subhchintak Vancom Pvt. Ltd. involved mutual financial assistance, benefiting both parties. The Tribunal cited previous judgments, including those of the Coordinate Bench in ITO vs. Smt. Gayatri Chakraborty and Mr. Purushottam Das vs. DCIT, which differentiated between loan accounts and current accounts. They concluded that mutual transactions do not attract the provisions of Section 2(22)(e) as they are commercial in nature and benefit both parties. The Tribunal observed that the AO had considered all relevant records, including the assessee's books of account and the appraisal report from the Investigation Wing, before passing the original assessment order with the approval of the JCIT. The Pr. CIT failed to demonstrate that the AO's order was erroneous and prejudicial to the revenue. The Tribunal emphasized that the AO's plausible view, supported by law, cannot be revised merely because the Pr. CIT disagrees with it. The Tribunal referenced the Supreme Court's decision in Malabar Industrial Co. Ltd. vs. CIT, which stated that an order is not prejudicial to the revenue if the AO has adopted a permissible course of action. Conclusion: The Tribunal concluded that the AO's order was not erroneous or prejudicial to the revenue, as the transactions with M/s. Subhchintak Vancom Pvt. Ltd. were mutual and commercial, thus falling outside the purview of Section 2(22)(e). The Tribunal quashed the Pr. CIT's revision order and allowed the assessee's appeal. Result: The appeal of the assessee was allowed, and the impugned order of the Pr. CIT was quashed. The order was pronounced in the open court on 18th October 2017.
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