2017 (11) TMI 1084 - HC - Income Tax

Revision u/s 263 - deemed dividend u/s 2(22)(e) - as per CIT-A claim of the assessee that the amount received from M/s. Canon Laminators Pvt. Ltd. is in the nature of trade advance is factually incorrect - Tribunal quashing and setting aside the order passed by CIT u/s. 263 - Held that - We see no reason to interfere. As noted, the assessee had pointed out that the amount lying in the ledger account of the assessee was not received by a loan from Canon Laminators Pvt. Ltd. but it was only in the nature of a trade advance since the assessee continued to supply goods to the said company. On such advance, the assessee had also paid interest. No question of law arises - Decided against revenue

Summary

Issues:
1. Appeal against the judgment of the Income Tax Appellate Tribunal.
2. Whether the order passed by CIT under section 263 of the Income Tax Act was correctly quashed.
3. Whether the amount received from M/s. Canon Laminators Pvt. Ltd. was a trade advance or a loan.
4. Assessment of the sum of ?1.25 crores lying in the assessee's account.
5. Revision of the order by CIT (Appeals) and the subsequent decision by the Tribunal.

Analysis:
1. The appeal was filed challenging the judgment of the Income Tax Appellate Tribunal. The primary questions raised were related to the correctness of quashing the order passed by the Commissioner of Income Tax (CIT) under section 263 of the Income Tax Act and the nature of the amount received from M/s. Canon Laminators Pvt. Ltd. The Tribunal had to determine whether the Assessing Officer's decision not to make any addition under section 222E of the Act regarding the sum of ?1.25 crores was correct.

2. The issue revolved around the nature of the amount of ?1.25 crores received by the assessee from M/s. Canon Laminators Pvt. Ltd. The assessee argued that the sum was a trade advance and not a loan, as it was part of regular business transactions with the company. The Assessing Officer accepted this explanation and made no addition under section 222E. However, the CIT (Appeals) disagreed, finding the assessment order erroneous and prejudicial to the Revenue's interest.

3. The CIT (Appeals) revised the order, prompting an appeal by the assessee to the Tribunal. The Tribunal reversed the Commissioner's decision, holding that the Assessing Officer had conducted proper inquiries. It concluded that the case was not suitable for revision. The Tribunal's decision was based on the fact that the amount in the ledger account was indeed a trade advance, supported by the ongoing business relationship and interest payments made by the assessee.

4. The High Court upheld the Tribunal's decision, stating that the amount in question was correctly characterized as a trade advance and not a loan. The assessee's consistent supply of goods to M/s. Canon Laminators Pvt. Ltd. justified this classification. The Court found no legal issue warranting intervention and dismissed the tax appeal accordingly, affirming the Tribunal's ruling.

In conclusion, the judgment centered on the nature of the amount received by the assessee, emphasizing the distinction between a trade advance and a loan. The Tribunal's decision, upheld by the High Court, highlighted the importance of proper inquiries by the Assessing Officer and the relevance of ongoing business relationships in determining the tax treatment of such transactions.