TMI Blog2018 (4) TMI 1428X X X X Extracts X X X X X X X X Extracts X X X X ..... itions of law on this issues are placed before the ld. Pr. CIT, to come to a conclusion, contrary to these judgments cannot be countenanced. The submissions made by the assessee either on facts or on law has not been controverted by the ld. Pr. CIT. The ld. Pr. CIT is bound by the proposition of law laid down by the Hon’ble Jurisdictional High Court. Ignoring the same makes the order bad in law.- CIT as bound to conduct enquiry and verification on its own and give his findings in facts and law. This was not done. - Decided in favour of assessee - I.T.A. No. 945/Kol/2017 - - - Dated:- 4-4-2018 - Sri J. Sudhakar Reddy, Accountant Member And Sri S.S. Viswanethra Ravi, Judical Member Shri Siddharta Jhaharia, FCA Shri Sujoy Sen, AR, appeared on behalf of the assessee Shri Goulen Hangshing, CIT, DR appearing on behalf of the revenue ORDER Per J. Sudhakar Reddy This appeal filed by the assessee is directed against the order of the ld. Principal Commissioner of Income Tax -1, Kolkata, (hereinafter the ld. CIT (A) ), passed u/s 263 of the Income Tax Act, 1961 (the Act ), dt. 01/03/2017, wherein he revised the order passed by the Assessing Officer u/s 143(3) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nto the matter. He has not passed the impugned asstt. Order keeping the mandate of Section 2(22)(e) in mind. 3. In short, the AO has passed the impugned assessment order without making enquiries or verification which should have been made in this case. 4. Having regard to the facts and circumstances of the case and in law and in accordance with the provisions of Sec.263(1) of I T Act, 1961 you are given an opportunity of being heard. You are requested to show cause as to why the impugned assessment order passed u/s 143(3) by DCIT,Cir-3(1), Kolkata on 17.03.2015 for A.Y. 2012-13 should not be held as erroneous in so far as it is prejudicial to the interests of the revenue. Therefore, you are requested to furnish your written submissions u/s 263(1) of I T Act, 1961 on 14.02.2017 at 11:15 A,M. 5. You may appear personally on the above date and time and rebut the contentions or you may send your AIR with valid vakalatnama to appear and furnish written submissions elaborating and/or evidencing your contentions. 6. In case of failure to respond to this notice, decision may be taken on merits of the case without providing further opportunities. 4. The assessee fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cting the AO to make fresh assessment after making proper enquires and verification of the issue relating to the applicability of section 2(22)( e) of the Act in the matter of treatment of loan taken by the assessee company from another private company as deemed dividend taking into a/c the amendment in section 263 and the judicial decisions referred to. 3. The Hon'ble CIT erred in law and on facts in not considering the facts that the Lender company Mls Shraddha Vyapaar Pvt. Ltd. ( in short SVPL) is an NBFC company, engaged in the business of granting loans advances on interest according to its Memorandum of Association, as per the Registration Certificate granted by the RBI long back on 06.04.1988 which is still continuing unabated and undisputed. 4. The Hon'ble CIT erred in law and on facts in giving its own findings as to how the order of the AO is erroneous and prejudicial to the interest of revenue especially in the light of submission made by the appellant before him and in the facts of the case it may kindle be held accordingly. 5. The Hon'ble CIT erred in law and on facts in not considering the facts that the provision contained in the exclusiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... money transacted to give effect to commercial transaction, does not fall within the ambit of provisions of Section 2(22)(e) of the Act. 6.1. The ld. Counsel for the assessee further pointed out that the Assessing Officer has made detailed enquiries and drew the attention of the Bench to page 47, 50 52 of the paper book, wherein the assessee has furnished confirmations along with account copies of SVPL as well as copy of bank statements, ITR Acknowledgements etc., to the Assessing Officer, during the course of assessment proceedings. He pointed out that the ld. Assessing Officer has called for the details of this particular loan transaction from SVPL and after examining all the documents took a conscious decision and accepted the explanation of the assessee. Hence, to hold that, there is no verification made by the Assessing Officer, is factually incorrect. He submitted that the Assessing Officer examined this loan and was also aware that this is a loan taken from a related party as a question, in this regard was asked and replied to by the assessee. Hence he submitted that it should be concluded that the Assessing Officer has taken a conscious decision that Section 2(22)(e) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s:- 8.1. The propositions of law laid down by various Hon ble High Courts on the issue of revisionary powers u/s 263 of the Act, conferred on the revenue authorities are brought out below:- The Hone ble Andhra Pradesh High Court in the case of Spectra Shares and Scrips Pvt. Ltd. V CIT (AP) 354 ITR 35 had considered a number of judgments on this issue of exercise of jurisdiction u/s 263 of the Act by the Principal Commissioner of Income Tax and culled the principles laid down in the judgments as below : 24. In Malabar Industrial Co.Ltd. ( 2 Supra), the Supreme Court held that a bare reading of Sec.263 makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suomotu under it, is the order of the Income Tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent if the order of the Income Tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but it is pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said section was amended eleven times; that different views existed on the day when the Commissioner passed his order; that the mechanics of the section had become so complicated over the years that two views were inherently possible; and therefore, the subsequent amendment in 2005 even though retrospective will not attract the provision of Sec.263. 26. In Vikas Polymers (4 Supra), the Delhi High Court held that the power of suomotu revision exercisable by the Commissioner under the provisions of Sec.263 is supervisory in nature; that an erroneous judgment means one which is not in accordance with law; that if an Income Tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written differently or more elaborately; that the section does not visualize the substitution of the judgment of the Commissioner for that of the Income Tax Officer, who passed the order unless the decision is not in accordance with the law; that to invoke suomotu revisional powers to reopen a concluded assessment under Sec.263, the Commissioner must give reasons; tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure on tools and dies by the assessee, a manufacturer of Car parts, is revenue expenditure where the said claim was allowed by the latter on being satisfied with the explanation of the assessee and where the same accounting practice followed by the assessee for number of years with the approval of the Income Tax Authorities. It held that the Assessing Officer had called for explanation on the very item from the assessee and the assessee had furnished its explanation. Merely because the Assessing Officer in his order did not make an elaborate discussion in that regard, his order cannot be termed as erroneous. The opinion of the Assessing Officer is one of the possible views and there was no material before the Commissioner to vary that opinion and ask for fresh inquiry. 28. In Gabriel India Ltd. (6 Supra), the Bombay High Court held that a consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cancelled assessee s assessment for the years 1952-1953 to 1960-61 because he found that the income tax officer was not justified in accepting the initial capital, the gift received and sale of jewellery, the income from business etc., without any enquiry or evidence whatsoever . He directed the income tax officer to do fresh assessment after making proper enquiry and investigation in regard to the jurisdiction. The assessee complained before the Supreme Court that no fair or reasonable opportunity was given to her. The Supreme Court held that there was ample material to show that the income tax officer made the assessments in undue hurry; that he had passed a short stereo typed assessment order for each assessment year; that on the face of the record, the orders were pre-judicial to the interest of the Revenue; and no prejudice was caused to the assessee on account of failure of the Commissioner to indicate the results of the enquiry made by him, as she would have a full opportunity for showing to the income tax officer whether he had jurisdiction or not and whether the income tax assessed in the assessment years which were originally passed were correct or not 31. From the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t cannot be permitted to begin fresh litigation because of new views they entertain on facts or new circumstance; that if this is permitted, litigation would have no end except when legal ingenuity is exhausted f) Whether there was application of mind before allowing the expenditure in question has to be seen; that if there was an inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under Sec.263 merely because he has a different opinion in the matter; that it is only in cases of lack of inquiry that such a course of action would be open; that an assessment order made by the Income Tax Officer cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately; there must be some prima facie material on record to show that the tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation, a lesser tax than what was just, has been imposed. g) The power of the Commissioner under Sec.263 (1) is not Commissioner is entitled to examine any other records which are available at th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der has been passed on merits. Thus, in cases of wrong opinion or finding on merits, the CIT has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under s. 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order passed is not sustainable in law and the said finding must be recorded. CIT cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mistake made by the Assessing Officer, making the order unsustainable in Law. In some cases possibly though rarely, the CIT can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the Assessing Officer had erroneously not undertaken the same. However, the said finding must b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n be exercised even in a case where the issue is debatable, it was held that the case of CIT vs. M. M. Khambhatwala was not applicable. The observation that the Commissioner can exercise power under Section 263 of the Act even in a case were the issue is debatable was a mere passing remark which is again contrary to the view taken by the Apex Court in thecase of Malabar Industrial Company Ltd. Max India Ltd. If the Assessing Officer has taken a possible view, it cannot be said that the view taken by him is erroneous nor the order of the Assessing Officer in that case can be set aside in revision. It has to be shown unmistakably that the order of the Assessing Officer is unsustainable. Anything short of that would not clothe the CIT with jurisdiction to exercise power under Section 263 of the Act. CIT vs. M. M. Khambhatwala reported in 198 ITR 144; CIT vs. Ralson Industries Ltd. reported in 288 ITR 322 (SC), not applicable; Malabar Industrial Co. Ltd. v. CIT reported in 243 ITR 83, relied on. (Para 72) As regard the third question as to whether the assessment order was passed by the Assessing Officer without application of mind, it was held that the Court has to start wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ercised if the CIT was satisfied that the basis for exercise of jurisdiction existed. No rigid rule could be laid down about the situation when the jurisdiction can be exercised. Whether satisfaction of the CIT for exercising jurisdiction was called for or not, has to be decided having regard to a given fact situation. In the present case, the Tribunal has held that the assessee had disclosed that out of sale consideration, a sum of ₹ 1 lakh was to be received for sale of permit. If that is so, there was no error in the view taken by the AO and no case was made out for invoking jurisdiction under s. 263. 9. Applying the propositions of law laid down in these various case-law to the facts of the case, we hold as follows:- 9.1. The first issue is whether the Assessing Officer during the course of assessment proceedings had examined this issue or not. Vide notice issued u/s 142(1) of the Act, on 08/08/2014, to the assessee, in connection with the assessment for the Assessment Year 2012-13, the Assessing Officer asked for the following details:- (a) Furnishing all details of unsecured loans, in a given form. (b) Details of interest payments along with details and su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with FD/ NCD Debt fund) Total asset 14,94,35,434.77 15,20,40,333.74 17,13,18,715 Capital 11,52,71,334.60 12,10,34,701,.80 12,74,49,467.00 Loans advances and percentage of total capital 94.84% 108.18% 115.45% Interest income as % of revenue from operator 93.62% 79.27% 94.09% 12. Certificate obtained by SVPL from Reserve Bank of India that it is a NBFC was furnished before the ld. Pr. CIT. Factually, this was not controverted by the ld. Pr. CIT. Hence Section 2(22)(e) cannot be applied under the facts and circumstances ofthis case. Even otherwise, the Hon ble Jurisdictional High Court in the case of Pradip Kumar Malhotra v. CIT (2011) 338 ITR 538 (Cal), held as follows:- The phrase 'by way of advance or loan' appearing to sub-clause (e ) of section 2(22) must be construed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lustrations/examples of trade advances/commercial transactions held to be not covered under section 2(22) (e) of the Act are as follows: i. Advances were made by a company to a sister concern and adjusted against the dues for job work done by the sister concern. It was held that amounts advanced for business transactions do not to fall within the definition of deemed dividend under section 2(22) (e) of the Act. (CIT v. Creative Dyeing Printing Pvt. Ltd.1, Delhi High Court). ii. Advance was made by a company to its shareholder to install plant and machinery at the shareholder s premises to enable him to do job work for the company so that the company could fulfil an export order. It was held that as the assessee proved business expediency, the advance was not covered by section 2(22)(e) of the Act. (CIT v. Amrik Singh, P H High Court)2. iii. A floating security deposit was given by a company to its sister concern against the use of electricity generators belonging to the sister concern. The company utilised gas available to it from GAIL to generate electricity and supplied it to the sister concern at concessional rates. It was held that the security deposit made by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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