2022 (1) TMI 796 - HC - Income Tax

Revision u/s 263 by CIT - deemed dividend addition u/s 2(22) - HELD THAT - We find on facts that the relevant documentary evidence was called for by the AO during the course of assessment proceeding and the same were furnished by the assessee. The details of shareholders holding more than 10% shares in the assessee-company was also called for by the AO which was furnished by the assessee. In the tax audit report filed by the assessee along with the return of income the unsecured loan of 40 lakhs received by the assessee during the year under consideration from M/s. Vijayshree Industries Pvt. Ltd. and squared off in the year itself was recorded and even interest paid thereon was shown in the tax audit report in the details of payments made to related persons as specified u/s 40A(2)(b). The assessee was able to demonstrate before the Tribunal that all relevant records were available in the file of the Assessing Officer and he rightly applied the legal position and granted relief to the assessee. These aspects were examined by the Tribunal and it was found that there was no justification for invoking the power u/s 263 - Tribunal noted that the AO has taken a conscious decision bearing in mind the legal position that section 2(22)(e) was not applicable to the loan amount of 40 lakhs received by the assessee.Thus we find that the Tribunal rightly allowed the appeal filed by the assessee and granted relief. The said decision of the Tribunal therefore does not call for any interference. In the result the appeal filed by the revenue is dismissed and the substantial questions of law are answered against the revenue.

Summary

Issues:
1. Justification of invoking power under Section 263 by PCIT
2. Applicability of Section 2(22)(e) of the Act

Analysis:
1. The first issue involves determining whether the Principal Commissioner of Income Tax, Central-2, Kolkata was justified in invoking his power under Section 263 of the Income Tax Act and setting aside the assessment order passed by the Assessing Officer. The Tribunal examined the facts and found that the Assessing Officer had conducted necessary enquiries and verifications during the assessment proceedings. The relevant documentary evidence was provided by the assessee, including details of shareholders and the unsecured loan received. The Tribunal concluded that there was no justification for invoking Section 263 as the Assessing Officer had correctly applied the legal position. Therefore, the Tribunal allowed the appeal filed by the assessee.

2. The second issue revolves around the applicability of Section 2(22)(e) of the Act in the loan transaction. The Tribunal noted that the revenue did not dispute that Section 2(22)(e) would be inapplicable to the loan transaction, especially when the assessee demonstrated that the loan was availed as an unsecured loan and interest was paid. The Tribunal found that all relevant records were available to the Assessing Officer, and he had taken a conscious decision that Section 2(22)(e) was not applicable to the loan amount received by the assessee. The Tribunal upheld the decision of the Assessing Officer, stating that there was no need to invoke Section 263. Consequently, the Tribunal dismissed the appeal filed by the revenue and answered the substantial questions of law against the revenue.

In conclusion, the High Court upheld the Tribunal's decision, dismissing the revenue's appeal and affirming that the Assessing Officer had correctly applied the legal position regarding Section 2(22)(e) of the Income Tax Act. The Court found no grounds for interference and rejected the revenue's arguments, thereby providing relief to the assessee. The application for stay was also dismissed, and no costs were awarded in the case.