2019 (7) TMI 287 - AT - Income Tax

Revision u/s 263 - lack of enquiry - receipt of unsecured loan from group companies - applicability of section 2(22)(e) - Deemed dividend - HELD THAT - AO is not only expected to be aware of such legal position but is also duty-bound to apply the same while completing the assessments, especially when it is propounded by the Hon ble Jurisdictional High Court. In the present case, the AO thus had not only made the enquiry or verification as required in the facts of the case to ascertain the applicability of section 2(22) (e) to the loan amounts received by the assessee from the other group companies, but a conscious decision was also taken by him keeping in view the legal position that section 2(22)(e) was not applicable to the loan amounts in question received by the assessee during the years under consideration from the other Group Companies. There was thus no error in the orders of the AO for the years under consideration passed under section 153A/143(3) as alleged by the Principal CIT and the revision of the same under section 263 by the Principal CIT was not called for. In that view of the matter, we set aside the impugned orders passed by the Principal CIT u/s 263 and restore that of the AO passed under section 153A/143(3). - Decided in favour of assessee.

Issues Involved:
1. Applicability of Section 2(22)(e) of the Income-tax Act, 1961 to loans received by the assessee-company.
2. Adequacy of enquiry and verification by the Assessing Officer regarding the applicability of Section 2(22)(e).
3. Justification of the Principal CIT's revision of the assessment orders under Section 263.

Detailed Analysis:

1. Applicability of Section 2(22)(e) of the Income-tax Act, 1961 to loans received by the assessee-company:

The Principal CIT found that the assessee-company received unsecured loans from Group Companies, which had substantial accumulated profits. The loans were from M/s. Vijayshree Industries Pvt. Limited for A.Y. 2008-09 and M/s. Govind Promoters Pvt. Limited for A.Y. 2011-12. The Principal CIT argued that these loans should be assessed as deemed dividends under Section 2(22)(e) since a common shareholder held substantial shares in both the assessee-company and the lending companies.

The assessee contended that the loans were advanced in the ordinary course of business, with interest duly charged and paid, making them non-gratuitous. They cited judicial precedents, including the Hon'ble Kolkata High Court's decision in Pradip Kumar Malhotra v CIT (2011) 338 ITR 538, which held that loans given in return for an advantage conferred upon the company do not fall under Section 2(22)(e). Additionally, M/s. Govind Promoters Pvt. Limited was an NBFC, and loans given in the ordinary course of its business were excluded from Section 2(22)(e).

2. Adequacy of enquiry and verification by the Assessing Officer regarding the applicability of Section 2(22)(e):

The Principal CIT argued that the Assessing Officer did not make necessary enquiries or verification regarding the applicability of Section 2(22)(e) to the loans. The assessee countered this by demonstrating that all relevant details were furnished during the assessment proceedings, including loan confirmations, audited financial statements, and particulars of shareholders holding more than 10% shares. The Tax Audit Reports also reflected the unsecured loans and interest payments, indicating that the Assessing Officer had sufficient information to apply his mind to the issue.

3. Justification of the Principal CIT's revision of the assessment orders under Section 263:

The Principal CIT set aside the assessment orders under Section 263, directing the Assessing Officer to reassess after proper enquiry and verification. The assessee argued that the Assessing Officer had already made a conscious decision regarding the non-applicability of Section 2(22)(e) based on the available details and legal position. They contended that the Assessing Officer's decision was not erroneous or prejudicial to the interest of revenue.

The Tribunal found that the Assessing Officer had indeed made the necessary enquiries and had all relevant details to make a conscious decision. The Tribunal also noted that the assessee-company was not a shareholder in the lending companies, further supporting the non-applicability of Section 2(22)(e). The Tribunal held that the Assessing Officer's orders were not erroneous, and the Principal CIT's revision under Section 263 was not justified.

Conclusion:

The Tribunal set aside the Principal CIT's orders under Section 263 and restored the Assessing Officer's orders under Section 153A/143(3), allowing the assessee's appeals. The decision emphasized that the Assessing Officer had made proper enquiries and that the legal position supported the non-applicability of Section 2(22)(e) to the loans in question.

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