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TMI Blog2023 (12) TMI 408X X X X Extracts X X X X X X X X Extracts X X X X ..... d.Pr.CIT with regard to the loans received from MAP Cotton P.Ltd. qualifying as deemed dividend under section 2(22)(e) of the Act is against the principles of natural justice enshrined in section 263 of the Act itself, which categorically requires the assessee to be heard on the errors noted by the ld.Pr.CIT in the assessment orders for valid exercise of revisionary jurisdiction u/s 263 of the Act. Section 263(1) of the Act requiring powers of revision to be exercised by PCIT s/CIT s after giving opportunity of hearing to the assessee is reproduced - the finding of the error by the ld.Pr.CIT of non-invocation of section 2(22)(e) of the Act to the transaction of loan received by the assessee from MAP Cotton Ltd.is also held not sustainable in law. Assessee appeal allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd were in the course of business activities and that the amount was not received in the nature of loans and advances. 4. The Ld. Pr. Commissioner of Income tax grossly erred in law and on facts of the case in confirming order u/s 263 by invoking deeming fiction on mere suspicion by ignoring the fact that assessee is holding less than 10% of voting rights in MAP Ltd. Revising order on mere suspicion is bad in law. Therefore, it is prayed that the order of revision may kindly be quashed. 5. The appellant craves leave to add, amend, alter, delete, change or modify any or all grounds of appeal before or at the time of the hearing. 5. As transpires from the order of the ld.Pr.CIT, the error noted by him in the assessment order passed in the present case was related to omission by the AO to invoke provisions of section 2(22)(e) of the Act pertaining to deemed dividend in relation to loans received by the assessee from another company, viz. MAP Limited. Para-2 of the ld.Pr.CIT's order reveals that on perusing the assessment record he noted that the loans received by the assessee-company during the year from MAP Ltd. qualified as deemed dividend in terms of section 2(22)(e) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,43,916/- which is the sufficient balance to be considered for distribution of dividend in the hands of the assessee-company which showed opening credit balance of Rs. 2,09,57,508/- and closing credit balance of Rs. 3,97,05,125/-. There was also a maximum outstanding balance as on 18.03.2015 at Rs. 9,91,05,125/-. The transactions as reflected in this account were to be treated as unsecured loans in the hands of the assessee-company which was claimed to be received from MAP Ltd. 7) It has also been noticed further that the provisions of section 115O in relation to charging of tax on distributed dividend have not been made applicable to the deemed dividend as per the provisions of section 2(22)(e) of the Act and therefore, the deemed dividend in the hands of the assessee-company was required to be taxed by invoking the provisions of section 2(22)(e) of the Act. 2.1 Thus, it appeared that while passing the assessment order, the A.O. has omitted and erred in invoking the provisions of section 2(22)(e) of the Act which resulted into passing an erroneous assessment: order which was also prejudicial to the interest of the revenue. This omission and error on the part of the Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and of Rs. 27,92,236/- being the accumulated profit in the case of MAP Cotton Pvt. Ltd. totaling to Rs. 85,36,152/- as per the provisions of section 2(22)(e) of the Act. So far as the taxing of the deemed dividend income of Rs. 27,92,236/- is concerned, the A.O. shall afford a fresh opportunity of being heard to the assessee so as to meet the principles of natural justice for the reason that in the show cause notice u/s 263 of the Act, the said issue had been remained to be mentioned." 7. We have carefully gone through the order of the ld.Pr.CIT, and also heard the ld.DR, and we find that the ld.Pr.CIT's finding of error in the assessment order on account of non-invocation of section 2(22)(e) of the Act on account loans received from MAP Ltd and MAP Cotton P.Ltd amounting to Rs. 57,43,916/- and Rs. 22,92,236/- is not sustainable. 8. In the case of loan treated as deemed dividend in the hands of the assessee received from MAP Ltd. amounting to Rs. 57,43,916/-, we find that the ld.Pr.CIT's finding of the said amount qualifying as deemed dividend does not find support from the facts recorded by him relating to the impugned transaction in the order itself. As noted above by us, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee that it was the holder of 32,550 shares having 13.25% shareholding and voting power only of 6.63%. Therefore, as per the facts noted by the ld.Pr.CIT himself, the impugned transaction failed to qualify under section 2(22)(e) of the Act on account of non-fulfillment of the parameter of the holding of the shares with voting power of 10% in the company giving loans and advances to the assessee. We have noted that the ld.Pr.CIT after noting the above facts went to record fulfillment of the criteria of beneficial ownership of the assessee with voting power of 10% by noting that the assessee had shown ownership of 13.25% of shares in the MAP Ltd. Its finding is recorded at para 3.4 of the order as under: "3.4 In the background of holding that MAP Limited was not a company defined u/s 2(18) of the Act, the above-mentioned section 2(22)(e) of the Act is analyzed to fit the facts of the assessee's case and the following facts are noticed:- Sr. No. Parameter Result 1 Is there a payment by a company? Yes, there was a payment by a company namely MAP Limited. 2. Whether that company was not being a company in which public are substantially interested? Yes. MAP Li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee during the revisionary proceedings, and therefore, he had directed the AO to confront the same to the assessee in the interest of justice, and thereafter deal with the issue. The same is evident from para 3.8 of the ld.Pr.CIT's order wherein, while appraising the case record and other details afresh, he noticed the loans received by the assessee from MAP Cotton P. Ltd. which also qualified as deemed dividend in terms of the section 2(22)(e) of the Act. The relevant para 3.8 is as under: "3.8 While appraising the case-records and other details afresh, it has also been noticed that MAP Cotton Pvt. Ltd. has given a loan of Rs. 7,50,00,000/- to the assessee-company with recovery of loan of Rs. 90,00,000/- given by the assessee-company to MAP Cotton Pvt. Ltd. The assessee-company is holding 30000 shares of Rs. l,50,00,000/- with face value of Rs. 10/- with premium of Rs. 490/- per share which constituted 32.95% of the total 91040 shares allotted as on 05.11.2014. This company had accumulated profit of Rs. 27,92,236/- as per the copy of return of income uploaded by that company and made available during the course of assessment proceedings. Therefore, there is also a further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Act, and if he considers that any order passed therein by the Assessing Officer [or the Transfer Pricing Officer, as the case may be,] is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, [including,-- (i) an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment; or (ii) an order modifying the order under section 92CA; or (iii) an order cancelling the order under section 92CA and directing a fresh order under the said section]." 15. In view of the same, the finding of the error by the ld.Pr.CIT of non-invocation of section 2(22)(e) of the Act to the transaction of loan received by the assessee from MAP Cotton Ltd.is also held not sustainable in law. 16. In view of the above, both the errors noted by the Ld.PCIT are found not sustainable in law and therefore the order of the ld.Pr.CIT is set aside and appeal of the assessee is allowed. 17. In the result, the appeal of the assessee is allowed. Or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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