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2016 (7) TMI 902 - ITAT KOLKATA

2016 (7) TMI 902 - ITAT KOLKATA - TMI - Revision u/s 263 - deemed dividend addition u/s 2(22) - Held that:- From the foregoing discussion we find that all the disclosures regarding the sales and purchases of jute materials were available before the AO at the time of assessment. The transaction has been duly reported by the assessee in the tax audit report as required u/s 40A(2)(b) of the Act. There was no adverse remark in the tax audit report. After considering the material information placed b .....

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ommercial transaction and hence will not qualify to be dividend. Now it can be said that sec. 2(22)(e) of the Act covers only those transactions which benefit the shareholder alone and results in no benefit to the company. On the other hand, if the transaction is mutual by which both sides are benefited, it is undoubtedly outside the purview of provisions of sec. 2(22)(e) of the Act. From the above, it is clear that the loan account differs from current account and the provisions of section 2(22 .....

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the instant case, we find that the question for the deduction on account of gratuity in the computation of total income does not arise. - Disallowance under section 14A - Held that:- In our view of the fat that some enquiry was made is sufficient to debar the authorities from exercising the powers u/s 263 of the Act. The Tribunal was accordingly justified in setting aside the order passed u/s 263 of the Act. We do not find any substantial question of law arising for consideration the appea .....

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sing Officer, therefore relying on the same, we reverse the order of Ld. CIT for u/s 263 of the Act. - Decided in favour of assessee - ITA No. 547/Kol /2011 - Dated:- 15-7-2016 - Shri N. V. Vasudevan, Judicial Member And Shri Waseem Ahmed, Accountant Member For the Appellant : Shri S. Jhajharia, FCA & Shri Sujoy Sen, Advocate For the Respondent : Shri Rajat Subhra Biswas, CIT-DR ORDER Per Waseem Ahmed, Accountant Member This appeal by the assessee is against the order of Commissioner of Inco .....

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and in the circumstances the order of the AO being not at all erroneous in as much as prejudicial to the interest of revenue and the AO having taken one of the possible views, such order u/s 263 is liable to quashed I cancelled and in view of the facts and in the circumstances it may kindly be held accordingly. 2. For that in view of the facts and in the circumstances it having been explained to the CIT in course of proceedings u/s 263 that ₹ 5,58,93,0001- was never received by the appell .....

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e circumstances the CIT having issued the notice U/S 263 in connection with allowability of claim for gratuity liability amounting to ₹ 4,19,58,203/- not debited in the Books of A/cs. and the matter having been explained in detail that such amount was never debited in the P&L alc. but had been claimed in computation of income and hence question of disallowance did not arise, the CIT exceeded his jurisdiction by making reference to ₹ 3,85,60,6901- which was not the subject matter .....

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rt and the same having been fully held as allowable in different appeals for A. Y s 2004-05 & 2005 06, the order of the AO on this account cannot be said to be erroneous in as much as prejudicial to the interest of revenue and in any case the AO having taken one of the possible views on the basis of the orders of the Appellate Authority in the case of your petitioner itself, provisions of sec. 263 were not at all applicable and in view of the facts and in the circumstances the order of the C .....

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ejudicial to the interest of revenue on this account and in view of the facts and in the circumstances the said finding of the CIT may kindly be deleted. 4. For that without prejudice and even otherwise the CIT is wholly unjustified in setting aside the entire order of the AO holding the entire order of the AO as erroneous in as much as prejudicial to the interest of revenue and in terms of sec. 263 and in terms of Show-Cause Notice such direction of the CIT is wholly bad, illegal, unjustified a .....

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(A), C-I, Kolkata in his order dated 28.01.2011 in appeal No. 430/CIT(A), CI/CC-VII/08-09 relating to assessment year 2006-07, no valid jurisdiction on the issue of gratuity liability and particularly and particularly n respect of Gratuity liability of ₹ 4,19,97,464/- lied with CIT, C-I u/s 263 and his order us. 263 dated 01.03.2011 on this issue, is, therefore wholly bad, illegal and uncalled for and in view of the facts and circumstances is liable to quashed / cancelled and in view of th .....

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ent case is a Limited Company and engaged in the business of manufacturing of jute goods of different varieties. The assessee for the year has filed its return declaring loss of ₹ 1,64,32,570/-. Thereafter a notice u/s. 143(2) r.w.s. 142(1) of the Act was issued for making the scrutiny assessment. The assessment was completed by AO after making certain additions / disallowances to the total income of assessee. However, L d CIT u/s. 263 opined that certain aspects in the assessment proceedi .....

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03/- was debited in the profit and loss a/c but the same was not disallowed in the computation of income although the assessee added back the same in its computation of income. iii) Assessee did not make the payment of employees contribution on or before the due date as per Sec. 36(i)Iva) of the Act for an amount of ₹ 64,96,988.00 which was not disallowed by AO. iv) Interest bearing funds were diverted by making investment in shares and no proportionate disallowance was made in the total i .....

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ssessee. Both the companies purchased / supplied jute bags, raw jute, stores etc., to each other. As such, there was no loan transactions between the aforesaid companies and therefore the transactions as discussed above are out of the purview of Sec. 2(22)(e) of the Act. 4.1 Regarding the gratuity liability, it was submitted that the expense for the gratuity of ₹ 4,19,58,203/- was never claimed in its profit and loss a/c. Such claim was made only in the computation of income. Accordingly, .....

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gh Court and after obtaining all the details and particulars. On similar facts the relief was given to the assessee in the AY 2004-05 in its own case by the ld. CIT(A). Similarly the proceedings were dropped by the Hon ble ITAT against the order passed under section 263 of the Act in its own case for the assessment year 2005-06. Therefore, on this account the order of AO cannot be held erroneous and prejudicial to the interest of revenue. 4.3 Regarding the provision of Sec. 115JB in relation to .....

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u/s 14A cannot be made. 5. However, Ld. CIT(A) rejected the argument of assessee and held that order is erroneous and prejudicial to the interest of revenue on account of the following reasons :- 1) Regarding the provision of Sec.2(22)(e) of the Act, it was not apparent from the record whether there was the business transactions between assessee and MHMPL in relation to purchases and sales of jute goods. The name of the company i.e. MHMPL was not appearing in the audited accounts of the company. .....

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ovision for not allowing the deduction as per section 2(24)(x) read with section 36(1)(va) of the Act. 4) Regarding the disallowance u/s. 14A of the Act, the investment has been made to the tune of ₹ 2423.97 lakhs whereas share capital and reserved are of ₹ 793.80 lakhs and ₹ 1139.69 lakhs. Therefore the loan bearing fund had been utilized for making such investment. In view of above, Ld CIT(A) has held that assessment u/s 143(3) of the Act was erroneous and prejudicial to the .....

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ended 31.03.2004 and for the year ended 31.03.2005 respectively. He further submitted that necessary details was filed at the time of original assessment along with the sample purchase bills of jute material from the MHMPL amounting to ₹ 13,39,26,825.00 and also bank statement reflecting the payments made to the party. This fact was brought to the notice of the AO at the time of assessment. The submission of the assessee at the time of original assessment is placed on page 13 of the 1st p .....

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to the file of AO for further verification. 7. Now coming to second issue which is regarding the payment of gratuity, before us Ld. AR submitted the gratuity amount was not claimed in the books of accounts and the finding of the AO is very clear on this issue. It was claimed under the computation of income and it was not allowed by AO. The ld. AR further stated that necessary details with regard to the gratuity were furnished at the time of framing original assessment. Ld AR also submitted that .....

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rd issue with regard to employees contribution, Ld. AR before us submitted that the judgment of Hon'ble Supreme Court has decided this issue in favour of assessee in the case of CIT vs. Vinay Cement Ltd. (2007) 273 CTR 208 (SC) and therefore the order of AO cannot be held erroneous and prejudicial to the interest of revenue. On the contrary,Ld. DR vehemently relied on the order of Ld. CIT passed under section 263 of the Act. Regarding the last issue of proportionate disallowance on interest .....

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discussion we find that all the disclosures regarding the sales and purchases of jute materials were available before the AO at the time of assessment. The transaction has been duly reported by the assessee in the tax audit report as required u/s 40A(2)(b) of the Act. There was no adverse remark in the tax audit report. After considering the material information placed before us, we are of the considered view that AO was in possession of sufficient information about the aforesaid transaction. Ac .....

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o mean those advances or loans which a share holder enjoys for simply on account of being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power; but if such loan or advance is given to such shareholder as a consequence of any further consideration which is beneficial to the company received from such a shareholder, in such case, such ad .....

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he assessee, the company is unable to release the property from the mortgage. In such a situation, for retaining the benefit of loan availed from the bank if decision is taken to give advance to the assessee such decision is not to give gratuitous advance to its shareholder but to protect the business interest of the company. Authorities below erred in law in treating the advance given by the company to the assessee by way of compensation to the assessee for keeping his property as mortgage on b .....

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idend under s. 2(22)(e). COMMISSIONER OF INCOME TAX vs. CREATIVE DYEING & PRINTING (P) LTD. whereby the Hon ble HIGH COURT OF DELHI (2010) 229 CTR 0250 : (2009) 30 DTR 0143 : (2009) 318 ITR 0476 : (2009) 184 TAXMAN 0483 has Held : The finding of facts, arrived at by the Tribunal is that the transaction in question was a business transaction and which transaction would have benefited both the assessee company and PE Ltd. In fact, the counsel for the appellant has conceded that the amount is i .....

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)(ii) is basically in the nature of an Explanation. That cannot however, have bearing on interpretation of the main provision of s. 2(22)(e) and once it is held that the business transactions do not fall within s. 2(22)(e), one need not to go further to s. 2(22)(e)(ii). The provision of s. 2(22)(e)(ii) gives an example only of one of the situations where the loan/advance will not be treated as a deemed dividend, but that s all. The same cannot be expanded further to take away the basic meaning, .....

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ee company by another company having common directors not being a loan but an advance f or business transaction which is to be adjusted against the moneys payable by the latter to the assessee company in the subsequent years, same did not fall within the definition of deemed dividend under s. 2(22)(e). Here in the present case, from the facts narrated above, it is clear that both the parties are beneficiary of the transaction being current account of the above transactions. So as per the legal p .....

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on 2(22)( e) of the Act covers only such situations, where the shareholder alone benefits from the loan. In the instant case the company benefits from the said transaction, it will take the character of a commercial transaction and hence will not qualify to be dividend. Now it can be said that sec. 2(22)(e) of the Act covers only those transactions which benefit the shareholder alone and results in no benefit to the company. On the other hand, if the transaction is mutual by which both sides are .....

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ind that Ld. CIT held that order of AO is erroneous and prejudicial to the interest of revenue on account of deduction allowed by AO with regard the claim made by assessee for gratuity. From the facts of the case, we find that AO has given a very clear finding that claim of gratuity was not made in assessee s books of account but it was claimed separately in the computation of income which was not allowed by AO while framing original assessment order. So in the instant case, we find that the que .....

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OF INDIA & ORS. (1990) 83 CTR 0177 : (1990) 184 ITR 0599 : (1990) 51 TAXMAN 0320 where it was held that Once an order of assessment is subject matter of appeal, the whole of it merges in that of the appellate order. Thus, the only question that requires consideration is whether the retrospective amendment of s. 263 overrides or nullifies the effect of those judgments.-CIT vs. P. Muncherji & Co. (1987) 63 CTR (Bom) 338 : (1987) 167 ITR 671 (Bom) : TC57R.432#1 and CIT vs. Smt. A.S. Narendr .....

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June, 1988. In the present case the appeals having been not only filed but also disposed of before that date, this Explanation would have no effect whatsoever. Coming then to the amendment of the Explanation in 1989 with retrospective effect from 1st June, 1988, it is seen that on the face of it there is some contradiction. The insertion of words "filed on or before or after the 1st June, 1988" and "and shall be deemed always to have extended" at two places in the Explanation .....

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June, 1988, the date on and from which Expln. (c) itself was inserted by the Finance Act, 1988. Expln. (c) requires to be constructed harmoniously. The insertion of words at two places as well as the fact that insertion is made retrospective from the date on which the Explanation itself was inserted can all be given proper meaning if it is held that these words are to be read in the Explanation right from the date the Explanation itself was inserted. Thus, only in cases where action under s. 26 .....

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ion under s. 263 is taken after 1st June, 1988, the merger of assessment order will be treated as confined to issues actually considered and decided in appeal in terms of the Expln. (c). In view of the above after relying on the above judgment we find that order of AO cannot be held to erroneous and prejudicial to the interest of revenue. Hence the impugned order passed by the ld. CIT under section 263 of the Act is not sustainable in law and therefore we set aside. 10. At the outset we find tha .....

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le feed etc, filed its return of income-AO noticed that, assessee had deposited payment of ₹ 14,60,412 in PF fund and ₹ 973 in ESI fund with delay, and therefore, added said amount to income of assessee as per provisions of s 36(1)(va) read with s 2(24)(x)-CIT(A), vide its appellate order after noticing certain judgments concluded that, where payments on account of contribution to PF, ESI etc. are made within due date of filing return, such deductions are allowable-CIT(A) accordingly .....

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inay Cement Ltd. [2009] 313 ITR (St.) 1 had observed that in such circumstances, assessee was entitled to claim the benefit in section 43B for that period particularly in view of fact that he had contributed to provident fund before filing of return. Following observations of Hon'ble Supreme Court in Vinay Cement (supra), the Delhi High Court in CIT v. Aimil Ltd. has also held that, in so far as the Income-tax Act is concerned, assessee can get benefit, if actual payment is made before retur .....

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