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TMI Blog2016 (2) TMI 426X X X X Extracts X X X X X X X X Extracts X X X X ..... R SHRI M.BALAGANESH, AM These appeals of the assessee arise out of the orders of the Learned CIT (Central), Kolkata-1 vide proceedings dated 16.3.2015 u/s 263 of the Income Tax Act, 1961 against the order of assessment u/s 153C / 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the 'Act') for the Asst Years 2007-08 , 2008-09 , 2009- 10 & 2010-11. 2. The assessee had raised additional grounds of appeal for the Asst Years 2009-10 & 2010-11 as below:- 1. For that on the facts and in the circumstances of the case, the CIT erred in passing the revision order u/s 263 dated 16.03.2015 even though proceedings u/s 263 had come barred by limitation prior to 01.04.2014 and in that view of the matter the CIT's order u/s 263 deserves to be cancelled holding it to be ab initio void. 2. For that on the facts and in the circumstances of the case, the CIT failed to appreciate that proceedings u/s 153C were confined only to items of income assessable with reference to incriminating material or information gathered from the books or documents unearthed on account of search and in the impugned case receipt of the Inter Corporate Deposit being recorded in the regular books, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessment u/s 153C/143(3) was erroneous since deemed dividend u/s.2(22)(e) with reference to inter corporate deposit receipt was not assessable in the hands of the appellant, a non shareholder. 5. For that on the facts and in the circumstances of the case, there being several judgment of the high courts holding that deemed dividend u/s.22(2)(e) was not assessable unless the recipient of the loan is a shareholder of the loan granting company and the AO having followed the view expressed in these high court judgments, the order of the AO could not be considered to be; erroneous within the meaning of Sec 263 and in that view of the matter the CIT was unjustified in revising the AO's order u/s 263. 6. For that on the facts and in the circumstances of the case, the loan granting company being substantially engaged in granting of loan for the purposes of earning interest, the provisions of Sec 2(22)(e) of the Act were not applicable since the case was covered by the exception provided in clause (ii) of Explanation to Sec 2(22) of the Act and in that view of the matter the CIT erred in invoking Sec 263 of the I TAct. 7. For that on the facts and in the circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was made towards section 14A of the Act. The said order was subjected to revision proceedings u/s 263 of the Act as in the opinion of the Learned CIT, the order passed by the Learned AO u/s 153C of the Act did suffer from certain irregularities by not bringing to tax the amount of deemed dividends in several assessment years. The Learned CIT held that the provisions of section 153C of the Act uses the word 'assess' or 'reassess'. Hence he held that the Learned AO ought to have made addition towards deemed dividend in section 153C proceedings irrespective of the existence of any incriminating materials found during the course of search. He held that moreover the original assessments were completed only u/s 143(1) of the Act and hence the Learned AO did not have an occasion to go into the aspect of deemed dividend. However, the Learned AO ought to have considered the same in proceedings u/s 153C of the Act which has not been done by him. Hence his order u/s 153C of the Act becomes erroneous and prejudicial to interests of the revenue by not considering the aspect of deemed dividend. Hence the objection raised by the assessee that the revision jurisdiction u/s 263 of the Act is barre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esent at the time the case was called on for hearing , even though he was very much present in tribunal on the said date before another bench. Accordingly this case was passed over in order to wait for the arrival of Learned DR. But we find that the Learned DR after completing his cases before the other bench , chose not to present himself before us for advancing the arguments. Hence we deem it fit and appropriate to proceed further based on the arguments advanced by the Learned AR and the materials available on records. 5.1. The following chart would make us understand the factual background of the case better:- M/s. Tanuj Holdings Pvt. Ltd Comparative Statement Particulars A.Y 2007-08 A.Y 2008-09 AY 2009-10 AY 2010-11 Return of income u/s. 139(1) filed on 24.08.2007 30.09.2008 24.09.2009 25.09.2010 Return of income processed & assessment u/s. 143(1) completed on 26.02.2009 - 22.03.2011 15.03.2011 Income returned Rs.7,24,871 Rs.7,84,086 Rs.17,77,148 Rs.43,80,143 Income assessed u/s. 143(1) Rs.7,24,871 Rs.7,84,086 Rs.17,74,650 Rs.43,80,140 Notice u/s. 153C issued on 26.04.2012 26.04.2012 26.04.2012 26.04.2012 Income assessed u/s. 153C Rs.7,24,871 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... * CIT vs GTZ Securities Ltd reported in 359 ITR 345 (J&K HC) * CIT vs Daisy Packers (P) Ltd reported in 220 Taxman 331 (Gujarat HC) * CIT vs Ankitech Pvt Ltd reported in 340 ITR 14 (Delhi HC) 5.3. Whether the lending of inter corporate deposit by GGPL could be considered as substantial part of business of GGPL We find that GGPL deployed in granting loans in excess of 20% of Net Owned Funds. It would thus be evident that granting of inter corporate deposits was ordinary business of GGPL and income derived from such activity was consistently assessed. However, we find in the show cause notice issued u/s 263 of the Act by the Learned CIT, it has been stated that the 'main business' of loan granting company i.e GGPL was Real Estate Development. In this regard, we find that the legislature in section 2(22) had consciously used the words 'substantial part of the business' in contradistinction to the words 'main business' or 'principal business'. We also find that the words 'substantial part of the business' is not defined in the Act which led to judicial interpretations by various judicial forums and it has been held that the expression 'substantial part of the business' is d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not come within the mischief of section 2(22)(e) of the Act. The following charts would prove the facts of the case beyond doubt :- TOTAL FUND DEPLOYMENT IN M/s. GEETA GANESH PROMOTERS LIMITED (Figures shown in Rs. Crores M/s. GEETA GANESH PROMOTERS LIMITED [ Figures shown in Rupees] Year Ended Net profit Interest Interest as % of Net profit 31/03/2007 55,13,705 14,53,599 26.36% 31/03/2008 123,24,477 117,11,240 95.02% 31/03/2009 133,47,723 70,26,224 52.64% 31/03/2010 183,58,104 230,86,852 125.76% 5.4. Hence on facts, we hold that no addition could be made in the hands of the assessee towards deemed dividend on the following contentions :- - what is received is only an inter corporate deposit and not a loan ; - assessee is not a shareholder in GGPL and deemed dividend could be assessed only in the hands of the shareholder; and - Substantial part of business of GGPL is granting of loans , advances and inter corporate deposits in the ordinary course of business. 5.5. We also find that no incriminating materials were found during the search in respect of the issue of deemed dividend. Hence it cannot be the subject matter of addition i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... date of Section 153A of the Incometax Act. Secondly, the total computed after giving effect to the order of Commissioner of Income-tax(A) being loss which less than 30% of the book profit, the AO ought to have computed book profit as per Section 115JA of the Income-tax Act. Thirdly, the deduction allowed under Section 80HHC of the Act in the original assessment was erroneous and since the original assessment order stood abated on initiation of proceedings under Section 153A of the Act, the AO ought to have correctly computed deduction under Section 80HHC in the assessment order passed under Section 153A read with Section 143(3) of the Income-tax Act. Accordingly, Mr. Jaiswal submitted that in the facts of the present case, the Commissioner of Income Tax was justified in invoking jurisdiction under Section 263 and the ITAT committed an error in setting aside the order passed by the C.I.T. 8. We find it difficult to accept the above contention raised on behalf of the revenue. The object of inserting Sections 153A, 153B and 153C by Finance Act, 2003 by discarding the existing provisions relating to search cases contained in Chapter XIVB of the Income-tax Act, as stated in the Memor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against finalized assessments/reassessments would not abate. Therefore, the argument of the revenue, that on initiation of under Section 153A, the assessments/reassessments finalised for the assessment years covered under Section 153A of the Income-tax Act stand abated cannot be accepted. Similarly on annulment of assessment made under Section 153(1) what stands revived is the pending assessment/reassessment proceedings which stood abated as per section 153A(1). 11. In the present case, as contended by Shri Mani, learned counsel for the assessee, the assessment for the assessment year 1998-99 was finalized on 29-12-2000 and search was conducted thereafter on 3-12-2003. Therefore, in the facts of the present case, initiation of proceedings under Section 153A would not affect the assessment finalized on 29-12-2000. 12. Once it is held that the assessment finalized on 29.12.2000 has attained finality, then the deduction allowed under section 80HHC of the Income-tax Act as well as the loss computed under the assessment dated 29-12-2000 would attain finality. In such a case, the AO while passing the independent assessment order under Section 153A read with Section 143(3) of the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g out of search or exercise of power of requisition, assessment in furtherance thereof is contemplated. There is a mandate to issue notices under section 153(1)(a) and assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made. Thus, the crucial words "search" and "requisition" appear in the substantive provision and the provisos. That would throw light on the issue of applicability of the provision. True it is that the assessment which has to be made in pursuance of the notice is in relation to the six years. An order will have to be made in that regard. While making the order, the income or the return of income filed for all these assessment years is to be taken into account. A reference will have to be made to the income disclosed therein. However, the scope of enquiry though not confined essentially revolves around the search or the requisition under section 132A , as the case may be. The provision deals with those cases where assessment or reassessment, if any, relating to the assessment years falling within the period of six ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exercised routinely, should be exercised if the search revealed any incriminating material. If that was not found then in relation to the second phase of three years, there was no warrant for making an order within the meaning of this provision." In view of the aforesaid findings and judicial precedent relied upon, we hold that the addition towards deemed dividend u/s 2(22)(e) of the Act in the assessments framed u/s 153C of the Act for the Asst Years 2007-08 to 2010-11 without any incriminating materials found during the course of search with respect to those assessment years, is not warranted and held as not in accordance with law. 5.6. We hold that the Learned CIT had just entertained a belief that order passed by the Learned AO u/s 153 C of the Act is erroneous , which otherwise does not emanate from the provisions of the Act. Hence in this scenario, invoking jurisdiction under section 263 proceedings is not permissible. 5.7. Since we have decided the impugned issue of addition towards deemed dividend in favour of the assessee on facts as well as on law, we don't find it necessary to address the same issue on the ground of limitation of invoking jurisdiction u/s 263 of the ..... 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