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2016 (2) TMI 426 - ITAT KOLKATA

2016 (2) TMI 426 - ITAT KOLKATA - [2016] 46 ITR (Trib) 420 - Revision u/s 263 - deemed dividend addition u/s 2(22)(e) in assessments framed u/s 153C - Held 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.

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For the Appellant: Shri D.S Damle, FCA, ld.AR For the Respondent: None appeared ORDER 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 a .....

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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, the CIT was unjustified in revising the order u/s 153C/143(3) on the ground being erroneous because dividend u/s 2(22)(e) was not assessed. 3. For that the appellant craves leave to file additional grounds and/ or amend .....

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ence all the appeals are taken up together and disposed off by this common order for the sake of convenience :- 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 0 l.04.20 14 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 ca .....

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nd in the circumstances of the case, the CIT erred in holding the assessment order to be erroneous with reference to an issue which was highly contentious and legally debatable and there being conceivably more than 2 legal views possible on the question of applicability of Sec 2(22)(e) on the ICD received; the CIT could not revise the order in exercise of powers u/s 263 because the order passed by the AO was not erroneous within the provisions of Sec 263 of the Act. 4. For that on the facts and .....

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ividend 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 i .....

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principal" business of the loan granting company was not financing or granting of loans; ignoring and overlooking the fact that the said clause(ii) nowhere required the "main" business of the company to be loan granting and in that view of the matter the CIT erred in revising the order u/s 153C/ 143(3). 8. For that on the facts and in the circumstances of the case, the CIT erred in passing the order vi] s 263 on the ground of non application of mind and non examination of the rele .....

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ent order u/s. 143C/143(3) be restored since the same was neither erroneous in so far as prejudicial to the interest of the revenue. 10. For that the appellant craves leave to file additional grounds and / or amend or alter the grounds already taken either before or at the time of hearing of the appeal. 4. The brief facts of these appeals are that pursuant to the search operation u/s 132 of the Act conducted in the Prasad Group included in Abhijeet Group of Cases on 18.1.2011, certain documents .....

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ssee produced books of accounts , vouchers and bank statements and assessments were completed u/s 153C / 143(3) of the Act accepting the income returned by the assessee except for Asst Year 2009-10, wherein an addition of ₹ 1,52,598/- 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 bringin .....

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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 barred by limitation was rejected by Learned CIT. Accordingly he hel .....

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s in M/s Geeta Ganesh Promoters Ltd and hence there cannot be any question of deemed dividend that could be assessed in the hands of the assessee. He further argued that absolutely no incriminating materials were found during the course of search which warrants assessment or reassessment of total income in terms of section 153C of the Act and hence in this scenario, there is no need to disturb the assessments already made u/s 143(1) of the Act for the completed assessments. He stated that the ad .....

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t information was very much available with the Learned AO when the assessment u/s 143(1) of the Act was made in February 2009. The alleged mistake, if any, of not assessing the income u/s 2(22)(e) of the Act was therefore committed in the order dated 26.2.2009 and therefore the period of limitation u/s 263 was required to be computed with reference to the order dated 26.2.2009. If the period of limitation is so counted, then it will be evident that the proceedings u/s 263 could validly be initia .....

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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 Stateme .....

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Rs.7,84,086 Rs.19,27,246 Rs.43,80,140 5.2. Deemed Dividend could be assessed only in the hands of the shareholder and whether Deemed Dividend could be applied for inter corporate deposit received by the assessee from a lending company We find that the assessee is not a shareholder in the lending company. The Hon ble Apex Court in the case of Rameshwarlal Sanwarmal vs CIT reported in 122 ITR 1(SC) held that in order to invoke section 2(22)(e) of the Act, it is necessary for the tax authorities to .....

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ed in the hands of a non-shareholder merely on the ground that some other person is a common shareholder in both the companies and holds substantial interest in both such companies. We also find that the monies received by the assessee from the lending company is only inter corporate deposit and not loan and hence is automatically outside the ambit of applicability of section 2(22)(e) of the Act. It is well settled that inter corporate deposit and loan are totally distinct and separate. Admitted .....

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ot made any addition towards deemed dividend in the proceedings completed u/s 153C of the Act in view of this fact. The following decisions support our view in this regard:- CIT vs Sarva Equity Pvt Ltd reported in 225 Taxman 172 (Karnataka HC) CIT vs AR Magnetics (P) Ltd reported in 220 Taxman 209 (Delhi HC) CIT vs Impact Container Pvt Ltd reported in 367 ITR 346 (Bombay HC) CIT vs GTZ Securities Ltd reported in 359 ITR 345 (J&K HC) CIT vs Daisy Packers (P) Ltd reported in 220 Taxman 331 (Gu .....

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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 .....

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a that GGPL had deployed more than 20% of its Net Owned Funds by way of granting of inter corporate deposits to the assessee and then it could be concluded that the substantial part of company s business can be said to be granting loans , inter corporate deposits and advances and therefore clause (ii) of section 2(22)(e) of the Act becomes applicable in case of such company. We find from the paper book of the assessee that the interest income earned on loans and inter corporate deposits by GGPL .....

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8 (All) wherein it was held that all that clause (ii) of section 2(22)(e) requires is that the advance or loan must be made by a company in the ordinary course of business. The said clause does not require that the company must be engaged in money lending business. The court further held that where loan is made in the ordinary course of business, the fact that lending of surplus fund is not specified in the main objects of the memorandum but it is included as an ancillary object would not detrac .....

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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 coul .....

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n respect of the issue of deemed dividend. Hence it cannot be the subject matter of addition in 153C proceedings in respect of completed assessments. We hold that when an addition could not be made as per law in section 153C proceedings, then the said order cannot be construed as erroneous warranting revision jurisdiction u/s 263 of the Act. This addition was made based on audited accounts already available with the revenue. Hence on this count also, the addition contemplated by the Learned CIT .....

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s justified in cancelling the order of Commissioner of Income Tax passed under Section 263 of the Income Tax Act, 1961 ? Held: 6. Challenging the order of the Commissioner of Income Tax passed under Section 263 of the IT Act, the assessee filed an appeal and the ITAT by its order dated 5/1/2009 set aside the order of the Commissioner of Income Tax dated 4/10/2007 on the ground that neither the computation of book profit under Section 115JA nor deduction under Section 80HHC of the IT Act were the .....

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and abated and the Assessing officer is obliged to pass fresh assessment/reassessment orders and determine the total income afresh for those assessment years. In the present case, according to Mr. Jaiswal, the assessment order passed under Section 153A read with Section 143(3) of the Income- Tax Act is erroneous and prejudicial to the interests of the revenue because, firstly, the AO had only determined undisclosed income and had not determined the total income which the mandate of Section 153A .....

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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 .....

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table to the material found during the course of search, etc., which led to prolonged litigation. To overcome that difficulty, the legislature by Finance Act 2003, decided to discard Chapter XIVB provisions and introduce Sections 153A, 153B and 153C in the IT Act. 9. What Section 153A contemplates is that, notwithstanding the regular provisions for assessment/reassessment contained in the IT Act, where search is conducted under Section 132 or requisition is made under Section 132A on or after 31 .....

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eedings which are pending on the date of search/requisition. Section 153A(2) provides that when the assessment made under Section 153(A)(1) is annulled, the assessment or reassessment that stood abated shall stand revived. 10. Thus on a plain reading of section 153A of the Income-tax Act, it becomes clear that on initiation of proceedings under Section 153A, it is only the assessment/reassessment proceedings that are pending on the date of conducting search under Section 132 or making requisitio .....

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ssments do not abate, the appeal, revision or rectification pending 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 st .....

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llowed 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.T Act could not have disturbed the assessment/reassessment order which has attained finality, unless the materials gathered in the course of the proceedings under Section 153A of the Income-tax Act establish that the reliefs granted under .....

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elating to Section 80HHC deduction and consequently the C.I.T could not have invoked jurisdiction under Section 263 of the Act. 14. Moreover, since the AO had made addition on account of undisclosed income at ₹ 89,19,477/- in the assessment order passed under Section 153A, there was no question of computing book profits under Section 115JA of the I.T Act. When the addition of undisclosed income was deleted by CIT(A) without any direction to compute the book profits, the AO was bound to mod .....

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al in quashing the order of C.I.T passed under Section 263 of the I.T Act cannot be faulted. Accordingly, we see no merit in the present appeal and the same is hereby dismissed with no order as to costs. We also find that the impugned issue is also supported by the decision of the Hon ble Bombay High Court in the case of CIT vs Continental Warehousing Corporation (Nhava Sheva) Ltd and All Cargo Global Logistics Ltd reported in (2015) 374 ITR 645 (Bom) vide order dated 21.4.2015, wherein the fact .....

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de. 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 .....

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132 or making of requisition under section 132A , as the case may be, they abate. It is only pending proceedings that would abate and not where there are orders made of assessment or reassessment and which are in force on the date of initiation of the search or making of the requisition. The assessee was engaged in the operation of a container freight station. It claimed deduction under section BO-IA(4) producing a certificate dated July 13, 2006, from the Jawaharlal Nehru Port Trust Nhava Sheva .....

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tion 80-IA(4) of ₹ 1,25, 77,637. The Assessing Officer held that the assessee was not entitled to the deduction under section 80-IA. The Commissioner (Appeals) upheld the order of the Assessing Officer. The Special Bench of the Tribunal held that by the clear language of section 153A together with its provisos, pending assessments abated and that the Assessing Officer was required to make one assessment for each of the six years on the basis of the search and any other material existing or .....

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