TMI Blog2016 (12) TMI 1411X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act on 28.3.2013. - Decided in favour of assessee - ITA No. 1004/Ahd/2015 - - - Dated:- 23-12-2016 - Shri S. S. Godara, JM and Shri Manish Borad, AM. For The Appellant : Dr. Danial, AR For The Respondent : Shri Jagdish, CIT, DR ORDER PER Manish Borad, Accountant Member . This appeal of assessee for Asst. Year 2010-11 is directed against the order of ld. CIT, Valsad , dated 30.03.2015 passed u/s 263 of the IT Act, 1961 (in short the Act) vide No.CIT/VLS/263/GJP /2014-15. Assessee has raised following grounds of appeal :- 1. The Ld. Commissioner of Income Tax erred on treating ₹ 1,25,00,000/- as deemed dividend u/s.2(22)(e). 2. The Ld. Commissioner of Income Tax failed to appreciate that the fact that the original assessment of the is completed u/s.143(3) of Income Tax Act,1961 after verification of facts and also after completing specific examination and verification of the facts and accounts of the Assessee in relation to the Current Account of the Assessee for selling the goods and Shareholding of the customer. 3. The Ld. Commissioner of Income Tax failed to appreciate that on the facts and in law, the Notice u/s. 263 is invalid in law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . CIT invoked his power under section 263 of the Act and perused the assessment records and observed that during F.Y.2009-10 assessee received and repaid ₹ 1,25,00,000/- to M/s Canon Lamination Private Ltd. Ld. CIT on further examination revealed that partners of the assessee firm are directors shareholders in M/s Canon Lamination Private Ltd. and was of the view that provisions of section 2(22)(e) of the Act will apply on the amount received by assessee firm from M/s Canon Lamination Private Ltd. and is to be treated as deemed dividend in the hands of assessee. Accordingly notice u/s 263 of the Act was issued to assessee firm on 26.2.2015. Necessary details were submitted by assessee showing that assessee firm is not a beneficial registered share holder of M/s Canon Lamination Private Ltd. and is having regular current account transaction in relation to goods sold by assessee firm to M/s Canon Lamination Private Ltd. and the transactions of ₹ 1.25 crores was part of the regular current account. However, ld. CIT was not convinced and observed that Assessing Officer has not examined this issue properly and the order u/s 143(3) of the Act was erroneous and prejudicial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 1,25,00,000/- received by the assessee from M7s. Canon Laminators Pvt. Ltd, is in the nature of loan. iii. Further, it is also noticed that this amount of loan has been paid back to M/s. Canon Laminators Pvt. ltd by the assessee during the same financial year. If the contention of the assessee that the amount received is in the nature of trade advance was correct, then why was the amount received returned back to the company during the same financial year. Had this amount actually been in the nature of trade advance, the same should have been adjusted against regular trade transactions. In this connection, it is also relevant to not .that interest has not been charged on any other amount which has been received by the assessee from M/s. Canon Laminators Pvt. ltd, during the normal course of trading transactions. 6. Therefore, the amount of ₹ 1,25,00,000/- is clearly a loan taken from the company and the explanation of the assessee that this is in the nature of trade advance is merely an afterthought and cannot be accepted in view of the specific evidences as discussed above. However, it is found from the assessment records that this issue has not been considere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l, 1999. During F.Y. 2009-10 assessee s gross turnover stood at ₹ 51.80 crores approximately. Books of accounts are audited and no major adversity has been observed by the Assessing Officer during assessment proceedings. In the list of buyers of assessee s products M/s Canon Lamination Private Ltd. is one of them. Assessee regularly makes sales to M/s Canon Lamination Private Ltd. and during F.Y 2009-10 assessee made sales of ₹ 14,42,50,640/- and regular transactions took place round the year. Assessee firm has four partners namely (1) M/s Premji v. Bhanushali (40%), (2) M/s Premji v Bhanushali HUF (10%), (3) M/s Kanji v Bhanushali (40%) and (4) M/s Kanji v Bhanushali HUF (10). Some of the partners of assessee firm are also share-holders and directors in M/s Canon Lamination Private Ltd. However, assessee firm is not in the list of share holders of M/s Canon Lamination Private Ltd. There were regular transactions of receiving funds from M/s Canon Lamination Private Ltd. against sale and against this ₹ 1.25 crores was received as trade advance during the year and the same was repaid back in the year itself which has been reflected in the Tax Audit Report. 5. L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia Ltd.(2007) 295 ITR 282 (SC) 3. C.I.T. v. C. P. Sarathy Mudaliar (1972) 83 ITR 170 (SC) 4. Ramcshwarlal Sanwarmal v. C.I.T. (1980) 122 ITR 1(SC) 5. A.C.I.T. v. Bhaumik Colour P. Ltd.(2009) 313 ITR (AT) 146 (Mum) (SB) 6. C.I.T. v Universal Medicare Pvt. Ltd. (2010) 324 ITR 263 (Bom) 7. C.I.T. v Rajkumar Singh Co. (2007) 295 ITR 9 (All) 8. N. H, Securities Ltd. v. Dy. C.I.T. (2007)llS.O.T.302(Mum) 9. C.I.T. v Arvindkumar Jain ITA7589of2011 10. C.I.T. v Ambassador Hotels P. Ltd. (2009) 318 ITR 376 (Del) 11. Scamist Properties P. Ltd. v. I.T.O. (2005) 95 TTJ 201 (Mum) 12. Baidvanath Plastic Ind. (P) Ltd. Others v. K. L. Anand, Incometax Officer (1998) 230 ITR 522 (Del) 13. C.I.T. v Development Credit Bank Ltd.(2010) 323 ITR 206 (Bom) 14. Pradip Kumar Malhotra v. C.I.T.(2011) 338 ITR 538 (Cal) 15. M/s. Simandhar Association v. Principal C.I.T. lTA/789/Mum/2016 16. Maya Gupta v. C.I.T., Delhi ITA/5701/Del/2014 17. IL FS Investment Managers Ltd. v. I.T.O. Others (2008) 298 ITR 32 (Bom) 8. On the other hand, ld. DR vehemently argued supporting the order of ld. CIT and submitted that the power of appeal and revision is contained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer shall be deemed to be erroneous in so far as it is prejudicial to the interest of Revenue if in the opinion of Principal Commissioner/Commissioner the order passed is without making enquiries or verification or is without inquiring into the claim or the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119 of the Act or the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. 10. Ld. DR referred to the judgment of Hon. Delhi High Court in the case of National Travel Services (2011) 14 taxmann.com 14 and decision of Co-ordinate Bench Mumbai in the case of Crompton Greaves Ltd. in ITA No.1994/Mum/2013 vide its order dated 1.2.2016. 11. Ld. DR further submitted that the scope of interference under section 263 is not to set aside merely unfavourable orders and bring to tax some more money to the treasury nor is the section meant to get at sheer escapement of revenue which is taken care of by other provisions in the Act. The prejudice that is contemplated under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (22)(e), a partnership firm having purchased shares through its partners in company which has paid loans is to be treated as a shareholder and it is not necessary that it has to be 'registered shareholder' of company. 14. We have heard the rival contentions and perused the record before us and gone through the legal propositions referred and relied on by both the parties. Through this appeal assessee has raised various grounds but there are two fold grievance of assessee firstly challenging the validity of the order u/s 263 of the Act and secondly assailing the CIT s order u/s 263 wherein provisions of section 2(22)(e) of the Act have been invoked and ₹ 1.25 crores received by assessee from M/s Canon Lamination Pvt. Ltd. has been treated as deemed dividend. 15. We will first deal with the issue of validity of the order u/s 263 of the Act on as raised by the assessee. We observe that assessee firm is in the business of manufacturing HDPE/PP Woven sacks since F.Y.1999-2000. During F.Y.2009-10 gross turnover shown by assessee is at ₹ 51.80 crores. In the list of buyers of assessee s goods name of M/s Canon Lamination Pvt. Ltd. also appears. From going throu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but is prejudicial to the Revenue-- recourse cannot be had to section 263(1) of the Act. The provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous 18. In the light of above ratio let us examine whether the assessment has been made on incorrect assumption of facts or incorrect application of law. Firstly we observe that specific query was raised by ld. Assessing Officer vide his notice u/s 142(1) of the Act dated 13.1.2012 which was duly replied on 14.2.2012 followed by reply of 13th March, 2012. In the reply dated 12th March, 2012 assessee has specifically mentioned that it has not obtained any loan from Canon Lamination Pvt. Ltd. and the amounts lying in the ledger of the assessee are purely trade advance as assessee is regularly selling goods to this party. This reply dated 12th March, 2012 is placed at pages 58 to 61 of the paper book. It also emphasized the fact that like Canon Lamination Pvt. Ltd. there is another bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n proceedings under section 263 of the Act. The scope of revision proceedings initiated under section 263 of the Act was considered by Hon'ble Bombay High Court, in the case of Grasim Industries Ltd. V CIT (321 ITR 92) by taking into account the law laid down by the Hon'ble Supreme Court. The relevant observations are extracted below: Section 263 of the Income-tax Act, 1961 empowers the Commissioner to call for and examine the record of any proceedings under the Act and, if he considers that any order passed therein, by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, to pass an order upon hearing the assessee and after an enquiry as is necessary, enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment. The key words that are used by section 263 are that the order must be considered by the Commissioner to be erroneous in so far as it is prejudicial to the interests of the Revenue . This provision has been interpreted by the Supreme Court in several judgments to which it is now necessary to turn. In Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83, the Supreme Court held th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to start fishing and roving enquiries in matters or orders which are already concluded. 11. The facts prevailing in the instant case and that were discussed in the earlier paragraphs would show that the assessee was constrained to incur expenses over the years, i.e., since 2006 onwards in order to clear the encumbrances and rival claims so that the plot of land on which the development took place is free from all kinds of encumbrances. There is no dispute with regard to the fact that the assessee is required to bear all the expenses in order to perfect the title of the land. There is also no dispute that the assessee has been incurring the expenses in this regard over many years. In fact, the assessing officer has sought to assess the income relating to the project in the hands of the assessee in AY 2009-10, by which time, the assessee has already incurred expenses to the tune of ₹ 2.13 crores. The said action of the assessing officer was set aside by Ld CIT(A), vid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowing the claim of the assessee in terms of Explanation 2 to sec. 263 of the Act, which would render the assessment order erroneous. 14. Before us, the Ld A.R placed reliance on host of case laws. In particular, the Ld A.R placed reliance on the decision rendered by Hon ble Supreme Court in the case of Malabar Industrial Co. Vs. CIT (243 ITR 83), CIT Vs. Max India Ltd (295 ITR 282). He also placed reliance on the decision rendered by the jurisdictional Bombay High Court in the case of CIT Vs. Gabriel India Ltd (203 ITR 108) and CIT Vs. Fine Jewellery (India) Ltd (ITA 296/Mum/2013). 15. All the case laws referred above makes it clear that the assessment order cannot be considered to be erroneous, if the assessing officer has allowed the claim of the assessee after carrying out necessary examination and further if the assessing officer has taken one of the possible views, it cannot be taken as prejudicial to the interests of the revenue. In the instant case, we are of the view that the AO has allowed the claim of the assessee after carrying out necessary examination and has also taken one of the possible views. Accordingly, we are of the view that the impugned assessment orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nowledged transaction as the starting point of imitation. But in the case of the loan, once for all and single transaction, that single transaction itself is the starting point of limitation. This statutory distraction reflected in the Limitation Act, 1963 is a pointer towards the basic difference between a running account and a loan account. (Para 34) Wherever payments made by a Ltd. Co. to its shareholder is proved by its characteristic as other than loan/advance; in other words, the payment is for the purposes of repayment of loan or such other existing liability, the question of s. 2(22)(e) applying, does not arise. The nature and character of the payments made by a company is very important in examining whether a payment made by the company falls under s. 2(22) (e) or not. Where a company pays to its shareholder any amount against repayment of an existing loan or advance or against purchase or availing of service or paying on account on any other ground, such payments made in the ordinary course of carrying on of the business of that company cannot be brought under the purview of s. 2(22)(e). That is why s. 2(22)(e) provides that any payment by a company by way of advan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer and that he applied his mind to the relevant material and facts, although such application of mind was not discernible from the assessment order. The Tribunal held that the Commissioner in proceedings under section 263 also had all these details and material available before him, but had not been able to point out defects conclusively in the material, for arriving at a conclusion that particular income had escaped assessment on account of non-application of mind by the Assessing Officer. The Tribunal was right and the order of revision was not valid. 24. As regards submissions of ld. DR wherein he has relied on the judgment of Hon. Delhi High Court in the case of CIT vs. National Travel Services (supra) wherein it has been held that a partnership firm can be treated as registered shareholder of a company for the purpose of invoking provisions of section 2(22)(e) of the Act if the partners of the firm are beneficial shareholders of the company. In this regard we find that ld. AR has also referred and relied on various judgments including the judgment of Hon. Supreme Court in the case of CIT vs. C.P. Sarathy Mudaliar (supra) and the decision of Coordinate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer during the course of assessment proceedings and he has taken one of the legally possible views as per judicial pronouncements available at that particular point of time and has framed the assessment order by not invoking the provisions of section 2(22)(e) of the Act on the amount of ₹ 1.25 crores received by assessee from M/s Canon Lamination Pvt. Ltd. for the very reason that assessee firm was not registered beneficial shareholder of Canon Lamination Pvt. Ltd. and also for the reason that assessee was having regular current account transactions round the year for making sales to M/s Canon Lamination Pvt. Ltd. and impugned amount of ₹ 1.25 crores was accepted in the nature of trade advance by ld. Assessing Officer. Therefore, we are of the view that order of ld. CIT passed u/s 263 of the Act is invalid and liable to quashed and we restore the assessment order passed u/s 143(3) of the Act on 28.3.2013. 27. As we have already quashed the order u/s 263 of the Act other grounds raised by assessee become infractuous. 28. In the Result, appeal of assessee is allowed. Order pronounced in the open Court on 23 December, 2016 - - TaxTMI - TMITax - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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