TMI Blog2015 (3) TMI 359X X X X Extracts X X X X X X X X Extracts X X X X ..... impugned order of learned CIT and restored the assessment order passed. - Decided in favour of assessee. - ITA No. 766/Hyd/2012 - - - Dated:- 13-2-2015 - Shri j. Sudhakar Reddy And Shri Saktijit Dey JJ. For the Appellant : Shri M. Chandramouleswar Rao For the Respondent : Shri D. Sudhakar Rao ORDER Per Saktijit Dey, J.M.: This appeal by assessee is directed against order dated 21/03/2013 of CIT(Central) passed u/s 263 of the Act, for the assessment year 2002-03. 2. Assessee has raised five grounds. Ground Nos. 1 5 are general in nature, hence, need not be adjudicated. Ground No. 2 is with regard to the issue of limitation. However, Ld. AR did not press this ground at the time of hearing before us, hence, the same is dismissed as not pressed. 3. The grounds that are to be adjudicated are ground Nos. 3 4, which are as follows: Ch. Kr ishna Mur thy 3. On the facts and in the circumstances of the case, the Ld. Commissioner has erred in treating the assessment order as erroneous and prejudicial to the interest of the Revenue on an issue which has been considered, examined and investigated upon during the assessment both by the assessing office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssued U /s.153A, assessee filed returns for six assessment years including the present assessment year Assessment U/s.153A r.w.s. 143(3) was completed on 31/12/2009 after obtaining approval of Addl. CIT as per section 153D. 7. The ld. CIT, in exercise of power u/s 263 of the Act, called for assessment records of the assessee for the impugned assessment year and after examining the same was of the view that the assessment order passed is erroneous and prejudicial to the interests of revenue as the AO has failed to bring to tax an amount of ₹ 4,27,36,648, being loan granted to assessee by M/s Vishnu Chemicals Pvt. Ltd., as deemed dividend u/s 2(22)(e) of the Act. Accordingly, ld. CIT issued a show cause notice to the assessee to explain why the assessment order should not be revised for nonconsideration of the said issue. 8. In response to the show-cause notice as well as in course of the revision proceeding assessee submitted that M/s Vishnu Chemicals Pvt. Ltd., which is engaged in manufacturing inorganic chemicals had two divisions, Viz., i) Chrome division and (ii) Barium division. As barium division was sustaining loss, it was decided to separate it from the existing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on for invoking section 2(22)(e). In accordance with the direction of Addl. CIT, Assessing Officer finally passed the assessment order without making addition of deemed dividend. Ld. CIT, though, agreed that no amount was physically given to assessee by the company, but, assessee and his associates became absolute owner of 40,00,000 shares worth ₹ 4.00 crores without paying any amount. According to ld. CIT, what it ultimately means is advance given by chrome division has been converted as share capital of newly formed company which were allotted in the name of assessee and associates and not in the name of the company M/s VCPL. As a result assessee and associates are not only entitled to dividend, if any, but all other benefits as a shareholder. Ld. CIT held that non consideration of advance in the name of assessee as deemed dividend u/s 2(22)(e) has made the assessment order erroneous and prejudicial to the interests of revenue. Accordingly, he set aside the assessment order and directed the Assessing Officer to recompute the income by bringing to tax the amount of ₹ 4,27,36,648 as deemed dividend u/s 2(22)(e). Being aggrieved assessee is before us. 10. Ld. AR orall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so followed the directions of the Addl. Commissioner of Income Tax as required by the provisions of Sec.153D of the Act and Sec.144A of the Act. 13. Ld. AR submitted, it is settled law that, where the AO examines the accounts, makes enquires, applies his mind to the facts and circumstances of the case and determines the income, the Commissioner, while exercising his power U /s.263 is not permitted to substitute his view with that of AO without bringing any material on record to prove that the conclusions drawn by the AO are erroneous. Ld. AR submitted, the Commissioner in his order has not brought any fact to establish that the assessee or the newly formed company in which he is a share holder has taken any loan or advance or there are any transfer of funds for his benefits nor has he stated anywhere in his order that, there are accumulated profits available in the hands of the company in whose books of accounts the debits in the name of the assessee were found. The Addl. CIT has categorically recorded that, the debits in the account of the assessee are due to passing of journal entries made in the scheme of de-merger of the company and further recorded the fact that there are n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment/re-assessment contained in the IT Act, where search is conducted U/s.132 or requisition is made U/s.132A on or after 31/05/2003 in case of any person, the Assessing Officer shall issue notice to such person requiring him to furnish return of income within the time stipulated therein, in respect of six assessment years immediately proceedings the assessment year relevant to the previous year in which the search is conducted or requisition is made and thereafter assess or re-assess the total income for those assessment years. The second proviso to Sec.153A provides for abatement of assessments/re-assessments proceedings which are pending on the date of search/requisitions. Learned AR submitted, a plain reading of sec.153A of the IT Act, it is clear that on initiation of proceedings U /s.153A, it is only the assessments/reassessments proceeding that are pending on the date of conducting search U/s.132 or requisition U/s.132A will stand abated. It was submitted, by a Circular No. 8 of 2003 dated 18/09/2003 263 ITR (Sc) 61 at 107 the CBDT has clarified that on initiation of proceedings U /s.153A, the proceedings pending in appeal, revision or rectification proceedings agains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Learned Departmental Representative countering the submissions of assessee s counsel submitted that, Assessing Officer while completing the assessment having completely ignored the issue of assessing deemed dividend at the hands of assessee, assessment order is erroneous and prejudicial to the interests of revenue. He submitted that there is no dispute to the fact that assessee was a shareholder of Vishnu Chemicals Pvt. Ltd. (VCPL). It is also not disputed that liability of the new company i.e. VBPCL was treated as advance to Shri Ch. Krishnamurthy, present assessee, on the basis of which shares to the tune of ₹ 4 crores were allotted to assessee and his family members. In these circumstances, when the conditions of section 2(22)(e) are satisfied, Assessing Officer should have invoked provisions of section 2(22)(e) and treated the transfer liability as advance to assessee in the books of VCPL as deemed dividend. Ld. DR submitted that Assessing Officer in the draft assessment order having proposed the addition on account of deemed dividend should not have ignored it while completing assessment. Learned DR submitted that even if there is no incriminating material with refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly, para 17, it is very much evident that Assessing Officer was conscious about the fact that Barium Division was having outstanding liability of the advance given by Chrome Division at the time of demerger. He was also aware of the fact that outstanding liability was converted as advance given to assessee against which shares of newly formed company i.e. VBCPL were allotted to assessee and his associates. Therefore, it is clear from the assessment order that Assessing Officer has examined the issue of conversion of the outstanding liability of Barium Division to advance in the name of assessee through journal entries as well as allotment of shares against such advance to assessee and his family members. Furthermore, from para 2.3 of impugned order of learned CIT, it becomes clear that Assessing Officer while forwarding the draft assessment order for approval, after considering appraisal report has proposed to treat the conversion of outstanding liability of Barium Division as advance to assessee in the books of VCPL as deemed dividend u/s 2(22)(e). However, while according his approval in terms with section 153D, Addl. CIT, who is range head directed Assessing Officer not to make ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e range head for the directions given by him while approving the draft assessment order. Therefore, if at all, there is any error, it is in the order of the range head and not in the assessment order. Without revising the directions of addl. CIT, assessment order could not be revised. 24. Furthermore, it is clear from the discussions made by ld. CIT, the reasons on which range head i.e. Addl. CIT disapproved treating the advance as deemed dividend u/s 2(22)(e) is because it is converted as advance in the name of assessee merely through book entries and actually no money was advanced to assessee and secondly the company i.e. VCPL was not having accumulated profits at the time of such payment. Though, learned CIT has accepted the fact that in reality no money was advanced by the company to assessee, but, according to him, by virtue of such a transaction assessee and his family members have become owner of shares worth ₹ 4 crores in the newly formed company. According to him, in these circumstances, journal entries passed in the books of account by converting the outstanding liability of the newly formed company as advance given to assessee will attract provisions of section ..... X X X X Extracts X X X X X X X X Extracts X X X X
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