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TMI Blog2011 (12) TMI 125X X X X Extracts X X X X X X X X Extracts X X X X ..... 1998-99, the assessee viz., M/s.Prem Electrical Conductors Pvt. Ltd., hereinafter referred to as PEC, filed its return of income on 18.01.1999 admitting a total income of Rs.29,660/-. The return was processed under section 143(1A) of the Income Tax Act on 28.09.1999. Subsequently, a notice under section 148 of the Act was issued on 31.03.2005 and it was served on the assessee on 02.04.2005. The assessee, vide letter dated 24.02.2005, requested that the return filed on 18.01.1999 be treated as the one filed in response to the notice under section 148 of the Act. The assessment under section 143(3) read with section 147 of the Act was completed on 30.09.2005. The said order was revised by the Commissioner of Income Tax, Chennai III on 31.01. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case that the Tribunal has committed an error in quashing the order passed by the Commissioner under section 263 of the Act since, the Commissioner has rightly exercised the revisional power conferred on him under the said section on the ground that the Assessing Officer has not gone into the materials available on record before passing the assessment order, thereby causing prejudice to the interest of the Revenue. In support of the said submission, learned counsel appearing for the Revenue relied upon a Division Bench judgment of this court in the case reported in (2003) 259 ITR 507 (C.I.T. Vs. P.K.Abubucker) and a decision of the Hon'ble Supreme Court of India in the case reported in (2007) 290 ITR 433 (Commissioner of Income Tax Vs. Muku ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , who was a Director of the assessee company, was also the Director in Madras Electrical Conductors Pvt. Ltd.; even if it is taken that this transfer of funds was initially on account of business transaction, the assessee company stopped all business activities since October 1997 as per its own admission during the course of assessment proceedings; the said amount partakes the character of advance, so as to attract the provisions of section 2(22)(e) of the Act; this aspect was not looked into by the Assessing Officer while completing the assessment on 30.09.2005 and therefore, this constituted an error, which is prejudicial to the interest of the Revenue. Therefore, a show cause notice under section 263 of the Act was issued to the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt of Rs.2,73,500/- received from MEC is taxable as deemed dividend under section 2(22)(e) of the Act during the assessment year 1998-99 in the hands of PEC. On the basis of the above finding, the Commissioner held that the entire sum of Rs.2,73,500/- received from October 1997 to March 1998 from MEC is liable to tax as "deemed dividend" and therefore directed the Assessing Officer to bring to tax the said sum of Rs.2,73,500/- in the hands of PEC as "deemed dividend" for the assessment year 1998-99 under section 2(22)(e) of the Act. 8. In addition to the above, the Commissioner also found from the materials available on record that, there was a credit of about Rs.2 crores on 03.03.1998 with the caption "To Prem Krishi"; this was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in PEC; once it is established that the deposit or advance is in the nature of business transaction, it cannot be held that the same will attract the provisions of section 2(22)(e) of the Act; the assessment was framed under section 143(3) read with section 147 of the Act and all the details were available before the Assessing Officer at the time of completion of assessment. The Tribunal also found that it has not been established that there was an error in the assessment order and that the Commissioner has no power to review the said order under section 263 of the Act. On the basis of the above finding, the Tribunal quashed the order passed by the Commissioner exercising his revisional powers under section 263 of the Act. Pursuant to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profits. It is for this group to decide whether the profits should be distributed as dividends or not. The declaration of dividend is entirely within the discretion of this group. Therefore, the Legislature realised that though funds were available with the company in the form of profits, the controlling group refused to distribute accumulated profits as dividends to the shareholders but adopted the device of advancing the said profits by way of loan to one of its shareholders so as to avoid payment of tax on accumulated profits. This was the main reason for enacting section 2(22)(e) of the Act." The Supreme Court has also held that "the concept of "deemed dividend" under section 2(22)(e) postulates two factors viz., whether the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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