Goldjyoti Polymers, U.T. OF DADRA & NAGAR HAVELI V. The CIT, Valsad

ITA 1004/AHD/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9694 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 8 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 20-12-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 21-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAGDISH
• Assessee Lawyers: DR DANIAL
• Keywords: Business expenditure; Opportunity of being heard; Principle of natural justice; Period of limitation; Deemed dividend; Assessment record; Time period of passing order
• Section: 143(3); 142(1); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH AHMEDABAD BEFORE SHRI S. S. GODARA, JM & SHRI MANISH BORAD , AM. ITA NO. 1004/AHD/2015 ASST. YEAR: 2010-11 GOLDJYOTI POLYMERS, PLOT NO.15, SHITAL INDUSTRIAL ESTATE, DEMNI ROAD, DADRA VILAGE, UT OF DADRA & NAGAR HAVELI. VS. CIT, VALSAD. APPELLANT RESPONDENT PAN AACFG 6968R APPELLANT BY DR. DANIAL, AR RESPONDENT BY SHRI JAGDISH, CIT, DR DATE OF HEARING: 20/12/2016 DATE OF PRONOUNCEMENT: 23/12/2016 O R D E R 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 TR EATING RS. 1,25,00,000/- AS DEEMED DIVIDEND U/S.2(22)(E). 2. THE LD. COMMISSIONER OF INCOME TAX FAILED TO APP RECIATE 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 ACCOU NTS OF THE ASSESSEE IN ITA NO. 1004/AHD/2015 ASST. YEAR 2010-11 2 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 APP RECIATE THAT ON THE FACTS AND IN LAW, THE NOTICE U/S. 263 IS INVALID IN LAW A S THE ORDER U/S. 143(3) DATED 28/0372013 NOT ERRONEOUS AND NOT IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. 4. THE LD. COMMISSIONER OF INCOME TAX FAILED TO APP RECIATE THAT THE APPELLANT, DURING THE ASSESSMENT PROCEEDINGS, HAD ASSERTED BEF ORE THE LD. AO THAT THE SUM OF RS.1,25,00,000/- RECEIVED FROM CANON LAMINAT ORS PRIVATE LIMITED IS PAYMENT FOR SALE-PROCEEDS AND/OR TRADE BALANCE. THI S FACT WAS DISCUSSED WITH AND EXAMINED AND ACCEPTED BY THE LD. AO. THUS THIS ISSUE WAS WELL IN THE KNOWLEDGE OF THE LD. AO AND THOROUGHLY EXAMINED BY HIM AND ACCEPTED BY HIM. ACCORDINGLY, THE ORDER PASSED THEREIN BY TH E ASSESSING OFFICER IS NOT ERRONEOUS AND NOT PREJUDICIAL TO THE INTERESTS OF T HE REVENUE. 5. THE LD. COMMISSIONER OF INCOME TAX FAILED TO APP RECIATE THAT THE ASSESSEE IS NOT THE SHAREHOLDER OF THE CUSTOMER COMPANY. 6. THE LD. COMMISSIONER OF INCOME TAX FAILED TO APP RECIATE THAT RUNNING ACCOUNT TRADE BALANCE ARE ALSO SUBJECT TO INTEREST. 7. THE LD. COMMISSIONER OF INCOME TAX FAILED TO APP RECIATE THAT THE ORDER OF THE LD. AC IS NOT ERRONEOUS AS THE ISSUE OF SECTION 2 ( 22) (E) HAS BEEN ALREADY EXAMINED BY THE LD. AO IN HIS ASSESSMENT ORDER IN R ESPONSE TO THE ASSESSED SUBMISSION DATED 12TH O : MARCH, 2012. NO ADVERSE FINDINGS OF THE LD, AO IN VIEW OF THE ABOVE ISSUE SIGNIFY AND INDICATE THAT T HE CONTENTION OF THE ASSESSEE IN THE ISSUE OF SECTION 2 [22) (E) OF INCO ME TAX ACT, 1961 IS ACCEPTED BY THE LD. AO. THE GROUND FOR REVISION OF ASSESSMENT ORDER U/S. 263 HAS 2 LEGS, THE FIRST LEG {ORDER PASSED THEREIN BY THE ASSESSING OFFICER IS ERRONEOUS) BEING THE PREREQUISITE TO INVOKING THE S ECOND AND SUBSEQUENT LEG (IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE). AS THE FIRST LEG (AND THE PREREQUISITE FOR INVOKING SECOND LEG) IS N OT APPLICABLE TO THE PRESENT CASE, THE PROPOSED ACTION OF ORDER OF REVISION U/S. 263 OF INCOME TAX ACT, 1961 MAY KINDLY BE DROPPED. 2. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF MANUFACTURING HDPE/PP WO VEN SACKS. ASSESSEE DISCLOSED INCOME AT RS.5,88,95,898/- IN TH E E-RETURN FILED ON 21.09.2010. CASE WAS SELECTED FOR SCRUTINY ASSES SMENT AND NECESSARY PROCEEDINGS WERE CARRIED OUT. ASSESSMENT U/S 143(3) OF THE ACT WAS FRAMED ON 28.3.2013 AFTER DISALLOWING C ERTAIN EXPENSES ITA NO. 1004/AHD/2015 ASST. YEAR 2010-11 3 OF RS.2,12,155/- AND INCOME WAS ASSESSED AT RS.5,91 ,11,053/-. SUBSEQUENTLY LD. CIT INVOKED HIS POWER UNDER SECTIO N 263 OF THE ACT AND PERUSED THE ASSESSMENT RECORDS AND OBSERVED THA T DURING F.Y.2009-10 ASSESSEE RECEIVED AND REPAID RS.1,25,00 ,000/- TO M/S CANON LAMINATION PRIVATE LTD. LD. CIT ON FURTHER EX AMINATION REVEALED THAT PARTNERS OF THE ASSESSEE FIRM ARE DIR ECTORS & SHAREHOLDERS IN M/S CANON LAMINATION PRIVATE LTD. A ND 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 LAM INATION PRIVATE LTD. AND IS TO BE TREATED AS DEEMED DIVIDEN D 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 BENEF ICIAL & REGISTERED SHARE HOLDER OF M/S CANON LAMINATION PRIVATE LTD. A ND 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 RS.1.25 CRORES WAS PART OF THE REGU LAR CURRENT ACCOUNT. HOWEVER, LD. CIT WAS NOT CONVINCED AND OBS ERVED THAT ASSESSING OFFICER HAS NOT EXAMINED THIS ISSUE PROPE RLY AND THE ORDER U/S 143(3) OF THE ACT WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. ACCORDINGLY LD. CIT SET ASIDE THE ASSESSME NT ORDER U/S 143(3) OF THE ACT DATED 28.3.2013 BY OBSERVING AS F OLLOWS :- 5. THE SUBMISSIONS MADE BY THE ASSESSEE HAVE BEEN C AREFULLY EXAMINED. CONSIDERING THE FACTS OF THE CASE THE EXPLANATION F URNISHED BY THE ASSESSEE CANNOT BE ACCEPTED IN VIEW OF THE FOLLOWING REASONS. I. FROM THE DETAILS OF THE TRANSACTIONS AVAILABLE O N RECORD, IT IS CLEARLY EVIDENT THAT THE AMOUNT OF RS.1,25,00,000/- PAID TO THE ASSESSEE FIRM BY M/S. CANON LAMINATORS PVT. LTD., IS IN THE NATUR E OF UNSECURED LOAN ITA NO. 1004/AHD/2015 ASST. YEAR 2010-11 4 WHICH WAS REPAID DURING THE YEAR ALONG WITH INTERES T. IT IS ALSO OBSERVED FROM THE COPY OF THE 'STATEMENT OF INTERES T PAID' THAT INTEREST @ 12% AMOUNTING TO RS.8,92,767/-HAS BEEN CHARGED ON THIS LOAN AMOUNT. THEREFORE, FROM THESE DETAILS IT IS CLEARLY EVIDENT THAT THE AMOUNT RECEIVED BY THE ASSESSEE FROM M/S. CANON PVT . LTD., IS IN THE NATURE OF A LOAN AND THERE CANNOT BE ANY DISPUTED I N THIS REGARD. II. IT IS ALSO SEEN THAT THE PARTNERS OF THE FIRM N AMELY MR. PREMJI V. BHANUSALI & MR. KANJI V. BHANUSALI, WHO HOLD 40% SH ARE IN THE PARTNERSHIP FIRM, ARE HAVING SHARE HOLDING OF 23.33 % & 27.50% RESPECTIVELY IN THE SHARE HOLDING OF COMPANY. THIS IMPLIES THAT THESE TWO PARTNERS ARE BENEFICIAL OWNERS OF SHARE EXCEEDI NG 10% OF THE COMPANY. THEREFORE, THE PROVISION OF SECTION 2(22)( E) OF THE I.T. ACT IS CLEARLY APPLICABLE IN THE CASE. III. HE CLAIM OF THE ASSESSEE THAT THE AMOUNT OF R S. 1,25,00,000/- RECEIVED BY THE ASSESSEE FROM M/S. CANON LAMINATORS PVT.LTD, IS IN THE NATURE OF TRADE ADVANCE IS ALSO FOUND TO BE FACTUAL LY INCORRECT, WHICH IS CLEARLY EVIDENT FROM THE RECORDS. IN THIS REGARD, R EFERENCE MAY BE MADE CLAUSE-24(A) OF FORM 3CD AND ANNEXURE-VIII, FU RNISHED ALONG WITH THE AUDIT REPORT. THE INFORMATION RELATES TO P ARTICULARS OF LOAN TAKEN OR ACCEPTED AND REPAID DURING THE YEAR. IN TH E ANNEXURE-VIII, IT IS CLEARLY STATED THAT AN AMOUNT OF 'LOAN' ACCEPTED DURING THE YEAR IS RS. 1,25,00,000/-. SIMILARLY, IN THE STATEMENT OF INTER EST PAID FOR THE F.Y. 2009-10, THE AMOUNT OF RS.1,25,00,000/- IS CLEARLY STATED AS THE 'PRINCIPAL AMOUNT OF LOAN' TAKEN FROM M7S. CANON LAMINATORS PVT. LTD. IN THE SAME STATEMENT THE RATE OF INTEREST IS STATE D AS 12% AND GROSS INTEREST IS FOUND TO BE RS.8,92,767/-. THE ABOVE TW O EVIDENCES CLEARLY ESTABLISH THAT THE AMOUNT OF RS.1,25,00,000/- RECEI VED 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 LO AN HAS BEEN PAID BACK TO M/S. CANON LAMINATORS PVT. LTD BY THE ASSESSEE D URING THE SAME FINANCIAL YEAR. IF THE CONTENTION OF THE ASSESSEE T HAT THE AMOUNT RECEIVED IS IN THE NATURE OF TRADE ADVANCE WAS CORR ECT, THEN WHY WAS THE AMOUNT RECEIVED RETURNED BACK TO THE COMPANY DU RING THE SAME FINANCIAL YEAR. HAD THIS AMOUNT ACTUALLY BEEN IN TH E NATURE OF TRADE ADVANCE, THE SAME SHOULD HAVE BEEN ADJUSTED AGAINST REGULAR TRADE TRANSACTIONS. IN THIS CONNECTION, IT IS ALSO RELEVA NT 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 RS.1,25,00,000/- IS CL EARLY A LOAN TAKEN FROM THE COMPANY AND THE EXPLANATION OF THE ASSESSEE THAT TH IS IS IN THE NATURE OF TRADE ADVANCE IS MERELY AN AFTERTHOUGHT AND CANNOT BE ACC EPTED IN VIEW OF THE SPECIFIC ITA NO. 1004/AHD/2015 ASST. YEAR 2010-11 5 EVIDENCES AS DISCUSSED ABOVE. HOWEVER, IT IS FOUND FROM THE ASSESSMENT RECORDS THAT THIS ISSUE HAS NOT BEEN CONSIDERED BY THE ASSE SSING OFFICER WHILE COMPLETING THE ASSESSMENT U/S. 143(3) OF THE I.T. ACT VIDE ORD ER DATED 28.01.2013. ALTHOUGH, THE ASSESSEE CLAIMS TO HAVE FURNISHED DETAILS REGARDING THE LOAN TRANSACTIONS, THE ASSESSING OFFICER HAS NOT MADE ANY ENQUIRIES TO ASC ERTAIN THE NATURE OF THE TRANSACTIONS. HE HAS COMPLETELY OVERLOOKED THE ENTR Y FOUND IN CLAUSE-24(A) AND ANNEXURE-VIII IN FORM 3CD, FURNISHED ALONG WITH THE AUDIT REPORT, WHERE THIS AMOUNT HAS BEEN SPECIFICALLY STATED AS LOAN. 7. THEREFORE, CONSIDERING THE ABOVE, IT IS CLEAR T HAT THE ASSESSING OFFICER HAS NOT EXAMINED THE ABOVE ISSUE, WHICH WAS VERY RELEVANT F OR TAXING THE AMOUNT OF RS.1,25,00,000/- AS DEEMED DIVIDEND IN THE CASE OF THE ASSESSEE. CONSIDERING THE FACTS OF THE CASE AS DISCUSSED ABOVE IT IS APPARENT THAT THIS ISSUE CLEARLY WARRANTED SPECIFIC ENQUIRY DURING THE ASSESSMENT PROCEEDINGS. FAILURE TO MAKE ENQUIRIES, WHERE SUCH ENQUIRY IS PRIMA-FACIE WARRANTED, WOULD CONSTITUTE PREJUDICE TO THE REVENUE, WHETHER ANY UNDER STATEMENT OF INCOME IS O THERWISE INFERABLE OR NOT. THEREFORE, CONSIDERING THE SPECIFIC ISSUES AS DISCU SSED ABOVE, THE ORDER PASSED U/S. 143(3) OF THE I.T. ACT DATED 28.03.2013 IS FOUND TO BE ERRONEOUS, IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE. THEREFORE, THE ASSESSMENT IS SET ASIDE WITH THE DIRECTION TO THE ASSESSING OFFICER TO REFRAME THE A SSESSMENT AFRESH, AFTER PROPER CONSIDERATION OF THE ISSUES RELATING TO THE TAXATIO N OF THE AMOUNT OF RS.1,25,00,000/- AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE, AS DISCUSSED ABOVE. 3. AGGRIEVED, ASSESSEE IS NOW IN APPEAL BEFORE THE TRIBUNAL RAISING VARIOUS GROUNDS BUT THE GRIEVANCE OF THE ASSESSEE R EVOLVES ROUND FOLLOWING ISSUES :- (I) CHALLENGING THE ORDER U/S 263 OF THE ACT BEING INVALID IN VIEW OF THE FACT THAT SUFFICIENT ENQUIRY WAS CONDUC TED BY THE ASSESSING OFFICER WITH REGARD TO THE TRANSACTIO N OF RS.1.25 CRORES BETWEEN THE ASSESSEE AND M/S CANON LAMINATION PRIVATE LTD. (II) ASSESSEE HAS ALSO CHALLENGED THE ORDER OF LD. CIT ON MERITS. THE PROVISIONS OF SECTION 2(22)(E) OF THE A CT DO NOT APPLY ON THE ASSESSEE WITH REGARD TO AMOUNT OF RS.1 .25 CRORES RECEIVED FROM M/S CANON LAMINATION PRIVATE L TD. AS REGULAR BUSINESS TRANSACTIONS HAVE TAKEN PLACE R OUND THE YEAR. ITA NO. 1004/AHD/2015 ASST. YEAR 2010-11 6 4. LD. AR SUBMITTED THAT ASSESSEE FIRM IS RUNNING B USINESS IN THE FIELD OF MANUFACTURING HDPE/PP WOVEN SACKS SINCE 3 RD APRIL, 1999. DURING F.Y. 2009-10 ASSESSEES GROSS TURNOVER STOOD AT RS.51.80 CRORES APPROXIMATELY. BOOKS OF ACCOUNTS ARE AUDITED AND NO MAJOR ADVERSITY HAS BEEN OBSERVED BY THE ASSESSING OFFICE R DURING ASSESSMENT PROCEEDINGS. IN THE LIST OF BUYERS OF AS SESSEES PRODUCTS M/S CANON LAMINATION PRIVATE LTD. IS ONE OF THEM. A SSESSEE REGULARLY MAKES SALES TO M/S CANON LAMINATION PRIVA TE LTD. AND DURING F.Y 2009-10 ASSESSEE MADE SALES OF RS.14,42, 50,640/- AND REGULAR TRANSACTIONS TOOK PLACE ROUND THE YEAR. ASS ESSEE 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 BHAN USHALI (40%) AND (4) M/S KANJI V BHANUSHALI HUF (10). SOME OF T HE 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 CA NON LAMINATION PRIVATE LTD. AGAINST SALE AND AGAINST THIS RS.1.25 CRORES WAS RECEIVED AS TRADE ADVANCE DURING THE YEAR AND THE S AME WAS REPAID BACK IN THE YEAR ITSELF WHICH HAS BEEN REFLECTED IN THE TAX AUDIT REPORT. 5. LD. AR IN SUPPORT OF HIS CHALLENGE TO THE ORDER OF LD. CIT U/S 263 OF THE ACT SUBMITTED THAT LD. CIT CAN INVOKE THE PO WER U/S 263 OF THE ACT ONLY IF THE ORDER U/S 143(3) IS PASSED WITHOUT MAKING ENQUIRIES OR VERIFICATION WHICH IS NOT SO IN THE CASE OF ASSESSE E. LD. AF REFERRED TO THE SHOW CAUSE NOTICE U/S 142(1) OF THE ACT DATED 1 3.1.2012 RAISING RELEVANT QUERY, REPLY BY ASSESSEE DATED 14.2.2012, 12.3.2012, ITA NO. 1004/AHD/2015 ASST. YEAR 2010-11 7 25.10.12 WHICH INTER ALIA INCLUDED DETAILS RELATING TO SALES MADE, IMPUGNED AMOUNT RECEIVED AND PAID TO M/S CANON LAMI NATION PRIVATE LTD. AND ALSO SUPPLYING NECESSARY INFORMATI ON TO PROVE THAT THE AMOUNT OF RS.1.25 CRORES CANNOT BE TREATED AS D EEMED DIVIDEND U/S 2(22)(E) OF THE ACT. LD. AR FURTHER SUBMITTED T HAT BEFORE THE ISSUANCE OF NOTICE U/S 263 OF THE ACT ON 26.2.15 TH ERE WAS A SPECIFIC NOTE OF THE AUDIT PARTY ENQUIRING ABOUT THE TRANSAC TIONS OF RS.1.25 CRORES BETWEEN THE ASSESSEE AND M/S CANON LAMINATIO N PRIVATE LTD. AND ALSO TO ENQUIRE WHETHER THE IMPUGNED AMOUNT CAN BE TREATED AS DEEMED DIVIDEND UNDER THE PROVISIONS OF SECTION 2(2 2)(E) OF THE ACT. A DETAILED NOTE WAS FURNISHED ON 22.12.2014 BY THE ASSESSEE TO ACIT, VAPI TO ESTABLISH THAT THE IMPUGNED TRANSACTI ON OF RS.1.25 CRORES IS DE JURE AND DE FACTO ADVANCE FOR PURCHASE OF GOODS AND THERE IS NO ELEMENT OF LOAN GIVEN BY FIGMENT OF IMA GINATION. 6. AS REGARDS THE MERIT OF THE CASE, LD. AR MADE TW O FOLD SUBMISSIONS WHICH READ AS FOLLOWS :- (I) THAT ASSESSEE IS NOT A SHAREHOLD OF M/S CANON LAMINATION PRIVATE LTD. AND THE PROVISIONS OF SECTI ON 2(22)(E) OF THE ACT ARE APPLICABLE ONLY IN THE CASE OF REGISTERED SHAREHOLDERS BEING A PERSON WHO IS A BENEFICIAL OWNER OF THE SHARE. (II) M/S CANON LAMINATION PRIVATE LTD. IS A CLIENT OF THE ASSESSEE AND REGULAR SALES TRANSACTIONS HAVE BEEN ENTERED INTO BETWEEN THE ASSESSEE & M/S CANON LAMINATION PRIVATE LTD. AND THE FLOW OF FUNDS IS EI THER FOR REPAYING SALES MADE OR ADVANCE FOR MAKING SUPPLIES. ITA NO. 1004/AHD/2015 ASST. YEAR 2010-11 8 7. LD. AR IN SUPPORT OF THE CONTENTIONS MADE CHALLE NGING THE ORDER U/S 263 OF THE ACT AND SUBMISSIONS ON MERIT TO EST ABLISH THAT PROVISIONS OF SECTION 2(22)(E) OF THE ACT ARE NOT A PPLICABLE TO THE ASSESSEE WITH REGARD TO THE TRADE ADVANCE OF RS.1.2 5 CRORES FROM M/S CANON LAMINATION PRIVATE LTD. REFERRED AND RELY ING ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS :- 1. MALABAR INDUSTRIAL CO. V. C.I.T. (2000)243ITR 83 (SC) 2. C.I.T. V. MAX INDIA LTD.(2007) 295 ITR 282 (SC) 3. C.I.T. V. C. P. SARATHY MUDALIAR (1972) 83 ITR 1 70 (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. (20 05) 95 TTJ 201 (MUM) 12. BAIDVANATH PLASTIC IND. (P) LTD. & OTHER S V. K. L. ANAND, INCOMETAX OFFICER (1998) 230 ITR 522 (DEL) 13. C.I.T. V DEVELOPMENT CREDIT BANK LTD.(20 10) 323 ITR 206 (BOM) 14. PRADIP KUMAR MALHOTRA V. C.I.T.(2011) 33 8 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 SUPP ORTING THE ORDER OF LD. CIT AND SUBMITTED THAT THE POWER OF A PPEAL AND REVISION IS CONTAINED IN CHAPTER XX OF THE ACT WHICH INCLUDE S SECTION 263 THAT CONFER SUO MOTU POWER OF REVISION IN THE PR./ C.L.T . THE PROVISIONS OF SECTION 263 OF THE IT ACT, LAYS DOWN THE FOLLOWING CONDITIONS FOR THE ASSUMPTION OF JURISDICTION BY PR./COMMISSIONER OF I NCOME TAX: (I)THE FIRST PLACE, THE COMMISSIONER MAY CALL FOR A ND EXAMINE THE RECORDS OF ANY PROCEEDING UNDER THE ACT. FOR THIS P URPOSE, HE DOES ITA NO. 1004/AHD/2015 ASST. YEAR 2010-11 9 NOT NEED TO SHOW ANY REASON. IT IS A PART OF HIS AD MINISTRATIVE CONTROL TO CALL FOR RECORDS AND EXAMINE THEM. (II)THE SECOND CONDITION IS THAT HE MAY CONSIDER TH AT ANY ORDER PASSED UNDER THE ACT BY THE AO IS ERRONEOUS IN SO F AR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THIS C ONSIDERATION, HAVING REGARD TO THE LANGUAGE OF SECTION 263, APPARENTLY I S A CONSIDERATION WHICH HE EXERCISES BY CALLING FOR AND EXAMINING THE RECORDS AS INDICATED ABOVE. DURING THIS PARTICULAR STAGE OF CO NSIDERATION, THERE IS NO QUESTION OF THE ASSESSEE APPEARING OR MAKING ANY SUBMISSION. IF AFTER CALLING FOR AND EXAMINING THE RECORDS THE PR. /COMMISSIONER 'CONSIDERS' THAT THE ORDER OF THE AO IS ERRONEOUS, IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. (III) THE THIRD CONDITION OF SECTION 263 COMES INTO OPERATION, AFTER THESE TWO STAGES, WHICH ARE PURELY ADMINISTRATIVE. THE PROCEEDING IN THE NEXT STAGE, WHICH IS THE THIRD STAGE, ACQUIRES QUASI-JUDICIAL CHARACTER. THE THIRD STAGE REQUIRES HIM TO DO WHAT IS STATED IN THE STATUTE: 'HE MAY, AFTER GIVING THE ASSESSEE AN OPPO RTUNITY OF BEING HEARD AND AFTER MAKING OR CAUSING TO BE MADE SUCH I NQUIRY AS HE DEEMS NECESSARY, PASS SUCH ORDER THEREON AS THE CIR CUMSTANCES OF THE CASE JUSTIFY, INCLUDING AN ORDER ENHANCING OR M ODIFYING THE ASSESSMENT, OR CANCELLING THE ASSESSMENT AND DIRECT ING A FRESH ASSESSMENT'. THIS REQUIRES THAT THE PR/COMMISSIONER MUST GIVE THE ASSESSEE AN OPPORTUNITY OF BEING HEARD. IT ALSO CON FERS ON THE COMMISSIONER THE POWER TO CAUSE OR MAKE SUCH INQUIR Y AS HE DEEMS NECESSARY. ITA NO. 1004/AHD/2015 ASST. YEAR 2010-11 10 (III) THE FOURTH CONDITION UNDER SECTION 263 IS THE POWER OF THE PR./COMMISSIONER UNDER THAT SECTION. THE PR./COMMIS SIONER CAN ENHANCE OR MODIFY THE ASSESSMENT. HE HAS ALSO THE P OWER TO CANCEL THE ASSESSMENT AND DIRECT FRESH ASSESSMENT. 9. LD. CIT, DR FURTHER SUBMITTED THAT EXPLANATION - 2 TO SECTION 263 OF THE ACT WAS INSERTED W.E.F. 1.6.2015 BY FINANCE BILL 2015 WHEREIN IT HAS BEEN DECLARED THAT AN ORDER PASSED BY ASSESSING OFFICER SHALL BE DEEMED TO BE ERRONEOUS IN SO FAR AS IT IS PREJUDICI AL TO THE INTEREST OF REVENUE IF IN THE OPINION OF PRINCIPAL COMMISSIONER /COMMISSIONER THE ORDER PASSED IS WITHOUT MAKING ENQUIRIES OR VER IFICATION OR IS WITHOUT INQUIRING INTO THE CLAIM OR THE ORDER HAS N OT 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 PREJUDICIA L TO THE ASSESSEE, RENDERED BY THE JURISDICTIONAL HIGH COURT OR SUPREM E COURT IN THE CASE OF THE ASSESSEE OR ANY OTHER PERSON. 10. LD. DR REFERRED TO THE JUDGMENT OF HON. DELHI H IGH 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 INTE RFERENCE UNDER SECTION 263 IS NOT TO SET ASIDE MERELY UNFAVOURABLE ORDERS AND BRING ITA NO. 1004/AHD/2015 ASST. YEAR 2010-11 11 TO TAX SOME MORE MONEY TO THE TREASURY NOR IS THE S ECTION MEANT TO GET AT SHEER ESCAPEMENT OF REVENUE WHICH IS TAKEN C ARE OF BY OTHER PROVISIONS IN THE ACT. THE PREJUDICE THAT IS CONTEM PLATED UNDER SECTION 263 IS PREJUDICE TO THE INCOME-TAX ADMINIST RATION AS A WHOLE. SECTION 263 IS TO BE INVOKED NOT AS A JURISDICTIONA L CORRECTIVE OR AS A REVIEW OF A SUBORDINATE'S ORDER IN EXERCISE OF THE SUPERVISORY POWER BUT IT IS TO BE INVOKED AND EMPLOYED ONLY FOR THE P URPOSE OF SETTING RIGHT DISTORTIONS AND PREJUDICES TO THE REVENUE WHI CH IS A UNIQUE CONCEPTION WHICH HAS TO BE UNDERSTOOD IN THE CONTEX T OF AND IN THE INTEREST OF REVENUE ADMINISTRATION. SUCH A POWER CA NNOT IN ANY MANNER BE EQUATED TO OR REGARDED AS APPROACHING IN ANY WAY IN APPELLATE JURISDICTION OR EVEN THE ORDINARY REVISIO NAL JURISDICTION CONFERRED ON THE COMMISSIONER UNDER SECTION 264 [VE NKATAKRISHNA RICE CO. V. CIT, (1987) 163 ITR 129 (MAD)]. THIS DE CISION HAS BEEN RELIED ON IN S.S. MUDDANNA V. STATE OF KARNATAKA [( 1993) 89 STC 90, 95-96 (KARN)]. 12. THE SPECIFIC PROVISIONS OF SECTION 263 OF THE A CT LAYS DOWN THAT A SATISFACTION THAT AN ORDER PASSED BY THE AUTHORIT Y UNDER THE ACT IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE IS THE BASIC PRE-CONDITION FOR EXERCISE OF JURISDICTION UNDER SE CTION 263 OF THE ACT. BOTH ARE TWIN CONDITIONS THAT HAVE TO BE CONJOINTLY PRESENT. ONCE SUCH SATISFACTION IS REACHED, JURISDICTION TO EXERC ISE THE POWER WOULD BE AVAILABLE SUBJECT TO OBSERVANCE OF THE PRINCIPLE S OF NATURAL JUSTICE WHICH IS IMPLICIT IN THE REQUIREMENT CAST BY THE SE CTION TO GIVE THE ASSESSEE AN OPPORTUNITY OF BEING HEARD. THE ABOVE C ONDITIONS HAVE BEEN FULFILLED IN THE INSTANT CASE. IN VIEW OF THE ABOVE SUBMISSIONS, IT ITA NO. 1004/AHD/2015 ASST. YEAR 2010-11 12 IS REQUESTED THAT THE MATTER MAY BE DECIDED ON MERI TS KEEPING IN VIEW THE VARIOUS JUDICIAL PRONOUNCEMENTS WHICH HAVE BEEN ENUMERATED IN THE WRITTEN SUBMISSIONS FILED BY THE DEPARTMENT AND IT IS REQUESTED THAT THE ORDER OF PR./CIT MAY KINDLY B E UPHELD. 13. LD. DR FURTHER SUBMITTED ON MERIT THAT IN THE T AX AUDIT REPORT AT ANNEXURE-8 IT HAS BEEN SPECIFICALLY MENTIONED TH AT ASSESSEE HAS TAKEN LOAN OF RS.1.25 CRORES FROM M/S CANON LAMINAT ION PVT. LTD. AND ALSO REPAID DURING THE YEAR. FURTHER LD. DR IN REBUTTAL TO THE SUBMISSIONS OF LD. AR SUBMITTED THAT PROVISIONS OF SECTION 2(22)(E) OF THE ACT ARE NOT APPLICABLE AS IT IS NOT A SHARE HOL DER OF CANON LAMINIATION PVT. LTD. REFERRED TO THE JUDGMENT OF H ON. DELHI HIGH COURT IN THE CASE OF CIT VS. NATIONAL TRAVEL SERVICES (20 11) 14 TAXMANN.COM 14 (DELHI) WHEREIN IT HAS BEEN HELD TH AT FOR THE FOR PURPOSE OF SECTION 2 (22)(E), A PARTNERSHIP FIRM HA VING PURCHASED SHARES THROUGH ITS PARTNERS IN COMPANY WHICH HAS PA ID LOANS IS TO BE TREATED AS A SHAREHOLDER AND IT IS NOT NECESSARY TH AT 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 R EFERRED AND RELIED ON BY BOTH THE PARTIES. THROUGH THIS APPEAL ASSESSE E HAS RAISED VARIOUS GROUNDS BUT THERE ARE TWO FOLD GRIEVANCE OF ASSESSEE FIRSTLY CHALLENGING THE VALIDITY OF THE ORDER U/S 263 OF TH E ACT AND SECONDLY ASSAILING THE CITS ORDER U/S 263 WHEREIN PROVISION S OF SECTION 2(22)(E) OF THE ACT HAVE BEEN INVOKED AND RS.1.25 C RORES RECEIVED BY ITA NO. 1004/AHD/2015 ASST. YEAR 2010-11 13 ASSESSEE FROM M/S CANON LAMINATION PVT. LTD. HAS BE EN TREATED AS DEEMED DIVIDEND. 15. WE WILL FIRST DEAL WITH THE ISSUE OF VALIDITY O F THE ORDER U/S 263 OF THE ACT ON AS RAISED BY THE ASSESSEE. WE OBSERVE TH AT ASSESSEE FIRM IS IN THE BUSINESS OF MANUFACTURING HDPE/PP WOVEN S ACKS SINCE F.Y.1999-2000. DURING F.Y.2009-10 GROSS TURNOVER SH OWN BY ASSESSEE IS AT RS.51.80 CRORES. IN THE LIST OF BUYE RS OF ASSESSEES GOODS NAME OF M/S CANON LAMINATION PVT. LTD. ALSO A PPEARS. FROM GOING THROUGH THE LEDGER ACCOUNT AT PAGES 84 TO 87 OF THE PAPER BOOK WE OBSERVE THAT REGULAR SALES TRANSACTIONS (ALMOST EVERY WEEK) HAVE BEEN ENTERED INTO WITH CANON LAMINATION PVT. LTD. A ND GROSS SALES MADE DURING THE YEAR COMES TO RS. 14.42 CRORES APPR OX. THERE ARE REGULAR PAYMENTS AGAINST SALES. DURING F.Y.2009-10 APART FROM VARIOUS PAYMENTS RECEIVED AGAINST SALES THERE ALSO WAS A TRADE ADVANCE TOTALING TO RS.1.25 CRORES WHICH WAS REPAID BY THE ASSESSEE IN DECEMBER, 2009. AT THE CLOSE OF THE YEAR BALAN CE IN CURRENT ACCOUNTS OF CANON LAMINATION PVT. LTD. IS NIL IN TH E BOOKS OF ACCOUNT OF ASSESSEE. 16. ASSESSEES CASE WAS SELECTED FOR SCRUTINY ASSES SMENT AND ALL NECESSARY DETAILS WERE CALLED FOR AND SUPPLIED AS A ND WHEN REQUIRED AND WITH A MINOR DISALLOWANCE OF EXPENSES ASSESSMEN T U/S 143(3) OF THE ACT WAS COMPLETED ON 28.3.2013. THEREAFTER LD. CIT INVOKED THE POWER U/S 263 OF THE ACT AND ISSUED SHOW CAUSE NOTI CE TO THE ASSESSEE MENTIONING AS TO WHY THE AMOUNT OF RS.1.25 CR. RECEIVED FROM M/S CANON LAMINATION PVT. LTD. BE NOT TREATED AS DEEMED ITA NO. 1004/AHD/2015 ASST. YEAR 2010-11 14 DIVIDEND U/S 2(22)(E) OF THE ACT AS THE ASSESSEE FI RMS PARTNERS ARE ALSO SHARE HOLDERS OF CANON LAMINATION PVT. LTD. NE CESSARY REPLIES WERE FILED BY ASSESSEE. HOWEVER, LD. CIT WAS FIRM O N HIS VIEW AND SET ASIDE THE ORDER U/S 143(3) OF THE ACT AND GAVE DIRECTION TO THE ASSESSING OFFICER TO REFRAME THE ASSESSMENT AFRESH AFTER PROPER CONSIDERATION OF THE ISSUE RELATING TO TAX OF RS.1. 25 CRORES AS DEEMED DIVIDEND IN THE HANDS OF ASSESSEE. 17. FURTHER IN ORDER TO EXAMINE AS TO WHETHER LD. C IT HAS RIGHTLY ASSUMED THE POWER UNDER SECTION 263 OF THE ACT, WE FIND THAT HON. SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. VS. CIT 243 ITR 83 (SC) HAS LAID DOWN THE FOLLOWING RATIO :- 'A BARE READING OF SECTION 263 OF THE INCOME-TAX AC T, 1961, MAKES IT CLEAR THAT THE PREREQUISITE FOR THE EXERCISE OF JURISDICT ION BY THE COMMISSIONER SUO MOTU UNDER IT, IS THAT 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 ERRON EOUS ; 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 IS PREJUDICIA L TO THE REVENUE-- RECOURSE CANNOT BE HAD TO SECTION 263(1) OF THE ACT. THE PRO VISION 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 ERRO NEOUS THAT THE SECTION WILL BE ATTRACTED. AN INCORRECT ASSUMPTION OF FACTS OR A N INCORRECT APPLICATION OF LAW WILL SATISFY THE REQUIREMENT OF THE ORDER BEING ERRONEOUS' 18. IN THE LIGHT OF ABOVE RATIO LET US EXAMINE WHET HER THE ASSESSMENT HAS BEEN MADE ON INCORRECT ASSUMPTION OF FACTS OR INCORRECT APPLICATION OF LAW. FIRSTLY WE OBSERVE TH AT SPECIFIC QUERY WAS RAISED BY LD. ASSESSING OFFICER VIDE HIS NOTICE U/S 142(1) OF THE ACT ITA NO. 1004/AHD/2015 ASST. YEAR 2010-11 15 DATED 13.1.2012 WHICH WAS DULY REPLIED ON 14.2.2012 FOLLOWED BY REPLY OF 13 TH MARCH, 2012. IN THE REPLY DATED 12 TH MARCH, 2012 ASSESSEE HAS SPECIFICALLY MENTIONED THAT IT HAS NOT OBTAINED ANY LOAN FROM CANON LAMINATION PVT. LTD. AND THE AMOUNTS LYI NG IN THE LEDGER OF THE ASSESSEE ARE PURELY TRADE ADVANCE AS ASSESSE E IS REGULARLY SELLING GOODS TO THIS PARTY. THIS REPLY DATED 12 TH 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 BUYER OF ASSESSEES GOODS NAMELY ZUARI INDUSTRIES LTD. WHICH ALSO HAS A REGULAR CURRENT ACCOUNT FOR SALE TRANSACTION AND TH ERE ALSO STANDS TRADE ADVANCE WITH THIS PARTY ON WHICH INTEREST IS ALSO PAID. 19. WE ALSO OBSERVE THAT DURING THE COURSE OF PROCE EDINGS BEFORE US LD. AR PLACED COPY OF NOTE SHEET FOR THE ASSESSM ENT RECORDS WHEREIN ON 16.10.2012 FOLLOWING QUERIES WERE MADE : - SHRI S. V. BHANUSHALI FROM A FIRM ATTENDED THE HEA RING. CASE DISCUSSED WITH REFERENCE TO THE DETAILS SUBMITTED B Y THE ASSESSEE FROM TIME TO TIME DURING THE EARLIER HEARI NGS. CASE ALSO DISCUSSED WITH REFERENCE TO THE VARIOUS SCHEDU LES OF THE B/S AND EVIDENCES THEREOF (S. CREDITORS S. DEBTORS) ASSESSEE WAS REQUIRED TO SUBMIT THE LEDGER A/C OF M/S GOLD C OIN POLYPACK PVT. LTD. AND CANON LAMINATION IN FURTHER ANCE OF HIS CLAIM THAT (2(22)(E) WAS NOT APPLICABLE TO ITS TRAN SACTION WITH THEM. CASE ADJOURNED. NEXT DATE OF HEARING FIXED FO R 25/10/2012 AT 3.00 P.M. THEREAFTER ON 25.10.12 ASSESSEE SUBMITTED THE REPLY TO THIS ABOVE QUERY AND THIS REPLY IS PLACED AT PAGES 63 TO 97 OF THE PAPER BOOK. ITA NO. 1004/AHD/2015 ASST. YEAR 2010-11 16 WE FURTHER OBSERVE THAT AUDIT PARTY EXAMINING THE A SSESSMENT RECORDS MADE A FACTUAL NOTE WITH REGARD TO THE APPL ICATION OF PROVISIONS OF SECTION 2(22)(E) OF THE ACT AND THE A MOUNT OF RS.1.25 CRORES FROM M/S CANON LAMINATION PVT. LTD. TO WHICH DETAILED SUBMISSIONS WERE MADE TO ACIT, VALSAD ON 20 TH DECEMBER, 2014 WHICH WAS AFTER THE DATE OF ASSESSMENT. GOING THROU GH THE SERIES OF INCIDENCES WHICH HAPPENED DURING THE COURSE OF ASSE SSMENT PROCEEDINGS AND SOME POST ASSESSMENT PROCEEDINGS MA KES IT EVIDENT THAT A SUFFICIENT ENQUIRY HAS BEEN UNDERTAK EN BY THE ASSESSING OFFICER AND HE HAS MADE FULL APPLICATION OF HIS MIND ON THE ISSUE RELATING TO APPLICATION OF SECTION 2(22)(E) O F THE ACT ON THE ASSESSEE. 20. SIMILAR TYPE OF FACTS CAME UP BEFORE THE CO-ORD INATE BENCH, MUMBAI IN THE CASE OF M/S SIMANDHAR ASSOCIATION VS . PRINCIPAL CIT- 32 IN ITA NO.789/MUM/2016 FOR ASST. YEAR 2012-13, W HEREIN ORDER U/S 263 MADE BY LD. PR. CIT WAS SET ASIDE AS THERE WAS SUFFICIENT ENQUIRIES CONDUCTED BY ASSESSING OFFICER ALONG WITH APPLICATION OF MIND ON THE ISSUE. THE CO-ORDINATE BENCH HELD AS FO LLOWS :- 10. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORD. BEFORE GOING INTO THE MERITS OF THE ISSUE, WE WOULD LIKE TO DISCUSS ABOUT THE LE GAL POSITION WITH REGARD TO THE POWER OF LEARNED CIT TO INVOKE REVISION PROCEEDINGS UNDER SE CTION 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 SUPRE ME COURT. THE RELEVANT OBSERVATIONS ARE EXTRACTED BELOW: SECTION 263 OF THE INCOME-TAX ACT, 1961 EMPOWERS T HE 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 ITA NO. 1004/AHD/2015 ASST. YEAR 2010-11 17 PREJUDICIAL TO THE INTERESTS OF THE REVENUE, TO PAS S AN ORDER UPON HEARING THE ASSESSEE AND AFTER AN ENQUIRY AS IS NECESSARY, ENHA NCING OR MODIFYING THE ASSESSMENT OR CANCELLING THE ASSESSMENT AND DIRECTI NG A FRESH ASSESSMENT. THE KEY WORDS THAT ARE USED BY SECTION 263 ARE THAT THE ORD ER MUST BE CONSIDERED BY THE COMMISSIONER TO BE ERRONEOUS IN SO FAR AS IT IS PR EJUDICIAL TO THE INTERESTS OF THE REVENUE. THIS PROVISION HAS BEEN INTERPRETED BY TH E 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 THAT THE PROVISION CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE O R ERROR COMMITTED BY THE ASSESSING OFFICER AND IT IS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTRACTED. THE SUPREME COURT HELD THAT AN INCOR RECT ASSUMPTION OF FACT OR AN INCORRECT APPLICATION OF LAW, WILL SATISFY THE REQU IREMENT OF THE ORDER BEING ERRONEOUS. AN ORDER PASSED IN VIOLATION OF THE PRIN CIPLES OF NATURAL JUSTICE OR WITHOUT APPLICATION OF MIND, WOULD BE AN ORDER FALL ING IN THAT CATEGORY. THE EXPRESSION PREJUDICIAL TO THE INTERESTS OF THE REV ENUE, THE SUPREME COURT HELD, IT IS OF WIDE IMPORT AND IS NOT CONFINED TO A LOSS OF TAX. WHAT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE IS EXPLAINED IN THE JUDGMEN T OF THE SUPREME COURT (HEADNOTE) : THE PHRASE PREJUDICIAL TO THE INTERESTS OF THE RE VENUE HAS TO BE READ IN CONJUNCTION WITH AN ERRONEOUS ORDER PASSED BY THE A SSESSING OFFICER. EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF THE ASSE SSING OFFICER, CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS OF THE REVE NUE, FOR EXAMPLE, WHEN AN INCOME-TAX OFFICER ADOPTED ONE OF THE COURSES PERMI SSIBLE IN LAW AND IT HAS RESULTED IN LOSS OF REVENUE, OR WHERE TWO VIEWS ARE POSSIBLE AND THE INCOME-TAX OFFICER HAS TAKEN ONE VIEW WITH WHICH THE COMMISSIO NER DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE INTERESTS OF THE REVENUE UNLESS THE VIEW TAKEN BY THE INCOME-TAX OFFICER IS UNSUSTAINABLE IN LAW. THE PRINCIPLE WHICH HAS BEEN LAID DOWN IN MALABAR I NDUSTRIAL CO. LTD. [2000] 243 ITR 83 (SC) HAS BEEN FOLLOWED AND EXPLAINED IN A SU BSEQUENT JUDGMENT OF THE SUPREME COURT IN CIT V. MAX INDIA LTD. [2007] 295 I TR 282. THE PRINCIPLES LAID DOWN BY THE COURTS ARE THAT THE LEARNED CIT CANNOT INVOKE HIS POWERS OF REVISION UNDER SECTION 263 IF THE ASSESSING OFFI CER HAS CONDUCTED ENQUIRIES AND APPLIED HIS MIND TO THE ISSUES. IF THE ASSESSMENT O RDER HAS BEEN PASSED BY CAUSING ENQUIRIES, THEN IT WOULD NOT GIVE OCCASION TO THE C OMMISSIONER TO PASS ORDERS UNDER SECTION 263 OF THE ACT, MERELY BECAUSE HE HAS A DIF FERENT OPINION IN THE MATTER. THE CONSIDERATION OF THE COMMISSIONER AS TO WHETHER AN ORDER IS ERRONEOUS IN SO FAR IT IS PREJUDICIAL TO THE INTERESTS OF REVENUE MUST BE BAS ED ON MATERIALS ON RECORD OF THE PROCEEDINGS CALLED FOR BY HIM. IF THERE ARE NO MATE RIALS ON RECORD ON THE BASIS OF WHICH IT CAN BE SAID THAT THE COMMISSIONER ACTING IN A REASO NABLE MANNER COULD HAVE COME TO SUCH A CONCLUSION, THE VERY INITIATION OF PROCEEDIN GS BY HIM WILL BE ILLEGAL AND WITHOUT JURISDICTION. THE COMMISSIONER CANNOT INITIATE PROC EEDINGS WITH A VIEW TO START FISHING AND ROVING ENQUIRIES IN MATTERS OR ORDERS WHICH ARE ALREADY CONCLUDED. ITA NO. 1004/AHD/2015 ASST. YEAR 2010-11 18 11. THE FACTS PREVAILING IN THE INSTANT CASE AND TH AT WERE DISCUSSED IN THE EARLIER PARAGRAPHS WOULD SHOW THAT THE ASSESSEE WAS CONSTRA INED TO INCUR EXPENSES OVER THE YEARS, I.E., SINCE 2006 ONWARDS IN ORDER TO CLEAR T HE ENCUMBRANCES AND RIVAL CLAIMS SO THAT THE PLOT OF LAND ON WHICH THE DEVELOPMENT TOOK PLAC E IS FREE FROM ALL KINDS OF ENCUMBRANCES. THERE IS NO DISPUTE WITH REGARD TO TH E 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 THI S REGARD OVER MANY YEARS. IN FACT, THE ASSESSING OFFICER HAS SOUGHT TO ASSESS THE INCOME R ELATING 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 RS.2.13 CRORES. THE SAID ACTION OF THE ASSE SSING OFFICER WAS SET ASIDE BY LD CIT(A), VIDE HIS ORDER DATED 27.2.2012 PASSED IN AP PEAL NO. CIT(A)35/ITO- 25(2)(3)/ITA.226/11-12. THUS, IT IS NOT A CASE THAT THE ASSESSING OFFICER WAS NOT AWARE OF THE EXPENSES CLAIMED BY THE ASSESSEE. THE FACTS NAR RATED BY THE ASSESSEE SHOWS THAT THE ASSESSEE HAS PURCHASED THE LAND FROM THE OWNERS, WH O HAD EARLIER ENTERED INTO AN AGREEMENT WITH TWO OTHER PARTIES. HENCE THE POSSIBI LITY OF CREATING HINDRANCES BY THE CONCERNED PERSONS SHOULD HAVE BEEN AVAILABLE AND TH E ASSESSEE WAS CONSTRAINED TO CLEAR ALL OF THEM, LEST ASSESSEES PROJECT SHOULD SUFFER. HOWEVER, THE LD PRINCIPAL CIT HAS TAKEN THE ASSESSEE HAS INCURRED THOSE EXPENSES ON H UMANITARIAN GROUNDS OR GRATUITOUSLY AND HENCE THE SAME CANNOT BE CONSIDERED AS BUSINESS EXPENSES. WE ARE OF THE VIEW THAT THE LEARNED CIT HAS MERELY TAKEN A DIFFERENT VIEW O F THE MATTER, WHERE AS IT IS SEEN THAT THE VIEW TAKEN BY THE ASSESSING OFFICER IN ALLOWING THE CLAIM WAS ONE OF THE POSSIBLE VIEWS, SINCE THE SAME HAS BEEN INCURRED IN FURTHERA NCE OF THE BUSINESS OBJECTIVES. IT IS WELL SETTLED PROPOSITION THAT THE ASSESSMENT ORDER WOULD NOT BE RENDERED PREJUDICIAL TO THE INTERESTS OF THE REVENUE, IF THE ASSESSING OFFICER HAS TAKEN A POSSIBLE VIEW OF THE MATTER. 12. SIMILARLY, THE VIEW TAKEN BY THE LD CIT THAT TH E EXPENDITURE INCURRED BY THE ASSESSEE ON THE FLATS ALLOTTED TO IT AS PER THE DEVELOPMENT AGREEMENT CANNOT BE CONSIDERED TO BE NON-BUSINESS EXPENDITURE IS HIS OWN VIEW. NORMALLY A BUSINESSMAN MAY FOLLOW DIFFERENT STRATEGIES TO EARN MAXIMUM PROFIT AND IN THE INSTAN T CASE, THE ASSESSEE APPEARS TO HAVE MADE VALUE ADDITION TO THE FLATS ALLOTTED TO IT SO THAT IT COULD FETCH HIGH SALE PRICE. THE SAID STRATEGY FOLLOWED BY THE ASSESSEE, ON COMMERCI AL CONSIDERATION AND BUSINESS STRATEGY, CANNOT BE FOUND FAULT WITH MERELY BECAUSE THE LD PRINCIPAL CIT HAS DIFFERENT VIEW ON THIS MATTER. 13. WE NOTICE THAT THE ASSESSING OFFICER HAS CARRIE D OUT NECESSARY ENQUIRIES WITH REGARD TO VARIOUS EXPENSES CLAIMED BY THE ASSESSEE. THE NOTIC E ISSUED BY THE AO U/S 142(1) OF THE ACT MAKES IT CLEAR THAT THE ASSESSING OFFICER HAS E XAMINED THE CLAIM OF THE ASSESSEE. THE ASSESSEE HAS ALSO RESPONDED TO THE AO BY FURNISHING REPLIES TO ALL THE QUERIES. HENCE, IT IS SEEN THAT THE ASSESSING OFFICER HAS ACCEPTED THE CL AIM OF THE ASSESSEE AFTER CARRYING OUT NECESSARY EXAMINATION AND HENCE IT CANNOT BE SAID T HAT THE ASSESSING OFFICER HAS COMMITTED AN ERROR BY ALLOWING THE CLAIM OF THE ASS ESSEE IN TERMS OF EXPLANATION 2 TO SEC. 263 OF THE ACT, WHICH WOULD RENDER THE ASSESSMENT O RDER ERRONEOUS. 14. BEFORE US, THE LD A.R PLACED RELIANCE ON HOST O F CASE LAWS. IN PARTICULAR, THE LD A.R PLACED RELIANCE ON THE DECISION RENDERED BY HONBLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO. VS. CIT (243 ITR 83), CIT VS . MAX INDIA LTD (295 ITR 282). HE ITA NO. 1004/AHD/2015 ASST. YEAR 2010-11 19 ALSO PLACED RELIANCE ON THE DECISION RENDERED BY TH E 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 OFFICE R HAS ALLOWED THE CLAIM OF THE ASSESSEE AFTER CARRYING OUT NECESSARY EXAMINATION AND FURTHE R IF THE ASSESSING OFFICER HAS TAKEN ONE OF THE POSSIBLE VIEWS, IT CANNOT BE TAKEN AS PREJUD ICIAL TO THE INTERESTS OF THE REVENUE. IN THE INSTANT CASE, WE ARE OF THE VIEW THAT THE AO HA S ALLOWED THE CLAIM OF THE ASSESSEE AFTER CARRYING OUT NECESSARY EXAMINATION AND HAS AL SO TAKEN ONE OF THE POSSIBLE VIEWS. ACCORDINGLY, WE ARE OF THE VIEW THAT THE IMPUGNED A SSESSMENT ORDER CANNOT BE CONSIDERED TO BE ERRONEOUS AND PREJUDICIAL TO THE I NTERESTS OF THE REVENUE. 16. FURTHER, WE NOTICE THAT THE LD PRINCIPAL CIT HA S GIVEN DIRECTION TO START FISHING AND ROVING ENQUIRIES IN MATTERS OR ORDERS WHICH ARE ALR EADY CONCLUDED, WHICH IS NOT PERMISSIBLE IN THE REVISION PROCEEDINGS. 17. IN VIEW OF THE FOREGOING DISCUSSIONS, WE ARE OF THE VIEW THAT THE REVISION ORDER PASSED BY THE LD PRINCIPAL CIT CANNOT BE SUSTAINED. ACCORD INGLY, WE SET ASIDE HIS ORDER. 18. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. 21. WE FURTHER OBSERVE THAT HON. SUPREME COURT IN T HE CASE OF RAMESHWARLAL SANWARMAL VS. CIT (SUPRA) DEALT WITH T HE ISSUE OF DEEMED DIVIDEND WHICH WAS COMING U/S 2(6A)(E) OF TH E INDIAN INCOME-TAX ACT, 1922 WHICH IN THE PRESENT IS SECTIO N 2(22)(E) OF THE ACT WHEREIN IT HAS BEEN HELD THAT WE ARE, THEREFO RE, OF THE VIEW THAT IT IS ONLY WHERE THE LOAN IS ADVANCED BY THE COMPAN Y TO REGISTERED SHARE HOLDER AND THE OTHER CONDITIONS SET OUT IN SE C.2(6A)(E) ARE SATISFIED THAT THE AMOUNT OF LOAN WOULD BE LIABLE T O BE REGARDED AS DEEMED DIVIDEND WITHIN THE MEANING OF SECTION 2(6A) (E) OF THE ACT 1922. THE AMOUNT OF LOAN WOULD NOT FALL WITHIN THE MISCHIEF OF THIS SECTION IF IT IS GRANTED TO BENEFICIAL OWNER OF THE SHARES WHO IS NOT THE REGISTERED SHAREHOLDER. THE DECISION OF CIT VS. C.P . SARATHY MUDALIAR ITA NO. 1004/AHD/2015 ASST. YEAR 2010-11 20 (SUPRA) DOES IN OUR OPINION LAY DOWN THE CORRECT IN TERPRETATION OF SECTION 2(6A)(E).. 22. WE FURTHER OBSERVE THAT CO-ORDINATE BENCH, MUMB AI IN THE CASE OF N.H. SECURITIES LTD. VS. DCIT IN ITA NO. 23 22 & 4277/MUM/2004 DEALT WITH SIMILAR TYPE OF CASE WHERE IN ASSESSEE WAS HAVING AN OPEN ACCOUNT AND THE ISSUE WAS AS TO WHETHER THE PROVISIONS U/S 2(22)(E) OF THE ACT WILL APPLY. THE CO-ORDINATE BENCH HELD AS UNDER :- AS PER THE SCHEDULE TO THE LIMITATION ACT, 1963 AND AS PER ARTS. 1 AND 19 THERETO, THE LIMITATION PERIOD PRESCRIBED IN THE CA SE OF MUTUAL, OPEN AND CURRENT ACCOUNT IS THREE YEARS FROM THE CLOSE OF TH E YEAR IN WHICH THE LAST ITEM IS ADMITTED OR PROVED AS ENTERED IN THE ACCOUN T. ON THE OTHER HAND, IN THE CASE OF A LOAN, THE LIMITATION PERIOD IS THREE YEARS FROM THE DATE ON WHICH THE LOAN IS MADE. THIS THROWS LIGHT ON THE CH ARACTERISTIC FEATURE OF A RUNNING ACCOUNT AND A LOAN ACCOUNT IN A SUBTLE MANN ER. THE LIMITATION ACT, 1963 RECOGNISES THE RUNNING CHARACTER OF A MUTUAL, OPEN AND CURRENT ACCOUNT BY TAKING THE LAST ACKNOWLEDGED TRANSACTION AS THE STARTING POINT OF IMITATION. BUT IN THE CASE OF THE LOAN, ONCE FOR AL L AND SINGLE TRANSACTION, THAT SINGLE TRANSACTION ITSELF IS THE STARTING POIN T OF LIMITATION. THIS STATUTORY DISTRACTION REFLECTED IN THE LIMITATION ACT, 1963 I S A POINTER TOWARDS THE BASIC DIFFERENCE BETWEEN A RUNNING ACCOUNT AND A LO AN ACCOUNT. (PARA 34) WHEREVER PAYMENTS MADE BY A LTD. CO. TO ITS SHAREHO LDER 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 EXI STING LIABILITY, THE QUESTION OF S. 2(22)(E) APPLYING, DOES NOT ARISE. T HE 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 AVA ILING OF SERVICE OR PAYING ON ACCOUNT ON ANY OTHER GROUND, SUCH PAYMENT S MADE IN THE ORDINARY COURSE OF CARRYING ON OF THE BUSINESS OF THAT COMPA NY 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 ADVANCE OR LOAN TO A SHAREHOLDER ALONE IS ITA NO. 1004/AHD/2015 ASST. YEAR 2010-11 21 TO BE CONSIDERED FOR THE PURPOSE OJ DEEMED DIVIDEND . PAYMENTS MADE BY A COMPANY THROUGH A RUNNING ACCOUNT IN DISCHARGE OF I TS EXISTING DEBTS OR AGAINST PURCHASES OR FOR AVAILING SERVICES, SUCH PA YMENTS MADE IN THE ORDINARY COURSE OF BUSINESS CARRIED ON BY BOTH THE PARTIES COULD NOT BE TREATED AS DEEMED DIVIDEND FOR THE PURPOSE OF S. 2( 22)(E). THE DEEMING PROVISIONS OF LAW CONTAINED IN S. 2(22) (E) APPLY I N SUCH CASES WHERE THE COMPANY PAYS TO A RELATED PERSON AN AMOUNT AS ADVAN CE OR A LOAN AS SUCH AND NOT IN ANY OTHER CONTEXT. THE LAW DOES NOT PROH IBIT BUSINESS TRANSACTIONS BETWEEN RELATED CONCERNS, AND, THEREFO RE, PAYMENTS MADE IN THE ORDINARY COURSE OF IN THE FACTS BUSINESS CANNOT BE TREATED AS LOANS AND ADVANCES. THEREFORE, PAYMENTS MADE BY A COMPANY IN THE COURSE OF CARRYING ON OF ITS REGULAR BUSINESS THROUGH A MUTUAL, OPEN A ND CURRENT ACCOUNT TO A RELATED PARTY DO NOT COME UNDER THE PURVIEW OFS. 2( 22)(E). THE PAYMENTS IN THE PRESENT CASE WERE MADE BY P IN SETTLEMENT OF IT S ACCOUNTS WITH THE ASSESSEE COMPANY IN THE ORDINARY COURSE OF BUSINESS WHERE THE ASSESSEE COMPANY IS ACTING AS THE BROKER OF P IN CARRYING ON THE BUSINESS OF PURCHASE AND SALE OF SHARES. THE PAYMENTS WERE MADE BY P, EI THER IN SETTLEMENT OF EXISTING DEBTS OR ON ACCOUNT. THEREFORE, IN THE FAC TS AND CIRCUMSTANCES OF THE CASE THE PAYMENTS MADE BY P TO THE ASSESSEE COMPANY THROUGH THE MUTUAL, OPEN AND CURRENT ACCOUNT INVOLVED IN THE PRESENT CA SE WERE THE PAYMENTS MADE IN THE ORDINARY COURSE OF BUSINESS AND, THEREF ORE, DO NOT COME UNDER THE PURVIEW OF S. 2(22)(E). CIT VS. NAGINDAS M. KAPADIA (1989) 75 CTR (BOM) 161 : (1989) 177ITR 393 (BOM) RELIED ON. 23. FURTHER HON. DELHI HIGH COURT IN THE CASE OF CI T VS. ANIL KUMAR SHARMA (2011) 335 ITR 83 (DELHI) WHILE DEALING WITH THE ISSUE ABOUT DISTINCTION BETWEEN LACK OF ENQUIRY AND INADEQUATE ENQUIRY HAS HELD AS UNDER :- THERE IS A DISTINCTION BETWEEN 'LACK OF INQUIRY' AN D 'INADEQUATE INQUIRY'. IF THERE WAS ANY INQUIRY, EVEN INADEQUATE THAT WOULD NOT BY ITSE LF GIVE OCCASION TO THE COMMISSIONER TO PASS ORDERS UNDER SECTION 263 OF THE INCOME-TAX ACT, 1961, MERELY BECAUSE HE HAS A DIFFERENT OPINION IN THE MATTER: HELD, DISMISSING THE APPEAL THAT THE PRESENT CASE WOULD N OT BE ONE OF 'LACK OF INQUIRY' EVEN IF THE INQUIRY WAS TERMED INADEQUATE. THE TRIB UNAL FOUND THAT COMPLETE DETAILS WERE FILED BEFORE THE ASSESSING OFFICER AND THAT HE APPL IED HIS MIND TO THE RELEVANT MATERIAL AND FACTS, ALTHOUGH SUCH APPLICATION OF MIND WAS NO T DISCERNIBLE FROM THE ASSESSMENT ITA NO. 1004/AHD/2015 ASST. YEAR 2010-11 22 ORDER. THE TRIBUNAL HELD THAT THE COMMISSIONER IN P ROCEEDINGS 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-APPLICATIO N OF MIND BY THE ASSESSING OFFICER. THE TRIBUNAL WAS RIGHT AND THE ORDER OF REVISION WA S 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 CI T VS. NATIONAL TRAVEL SERVICES (SUPRA) WHEREIN IT HAS BEEN HELD TH AT 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 A ND RELIED ON VARIOUS JUDGMENTS INCLUDING THE JUDGMENT OF HON. SUPREME CO URT IN THE CASE OF CIT VS. C.P. SARATHY MUDALIAR (SUPRA) AND THE DE CISION OF CO- ORDINATE BENCH MUMBAI IN THE CASE OF N.H. SECURITIE S LTD. VS. DCIT (SUPRA) WHERE THE DECISION ADJUDICATING SIMILAR FAC TS HAS BEEN RENDERED IN FAVOUR OF ASSESSEE. THEREFORE, THE JUDG MENT RELIED ON BY THE LD. DR WILL NOT BE OF ANY HELP TO THE REVENUE. IT ALSO BRINGS OUT THE FACT THAT DURING THE COURSE OF ASSESSMENT PROCE EDINGS ASSESSEE GAVE A DETAILED REPLY TOWARDS JUSTIFICATION OF SEC. 2(22)(E) OF THE ACT VIDE ITS LETTER DATED 25.10.2012 APPEARING IN PAGES 63 TO 67 OF THE PAPER BOOK WITH THE RELIANCE ON THE JUDGMENT OF HON . DELHI HIGH COURT IN THE CASE OF CIT VS. ARVINDKUMAR JAIN IN IT A 589 OF 2011 AND JUDGMENT OF HON. CALCUTTA HIGH COURT IN THE CASE OF PRADIP KUMAR MALHOTRA VS. CIT, WEST BENGAL-V, IN ITA NO.219 OF 2 003. WE FIND THAT ON THE BASIS OF THE REPLIES SUBMITTED BY ASSESSEE L D. ASSESSING OFFICER AFTER MAKING PROPER ENQUIRY HAS TAKEN ONE O F THE LEGALLY ACCEPTED VIEWS. THUS IT CAN BE SEEN THAT TO A SPECI FIC QUERY RAISED ITA NO. 1004/AHD/2015 ASST. YEAR 2010-11 23 DURING THE COURSE OF ASSESSMENT PROCEEDINGS ASSESSE E HAS GIVEN A SPECIFIC REPLY WHICH WAS DULY ACCEPTED BY THE ASSES SING OFFICER. WE OBSERVE THAT HON. BOMBAY HIGH COURT IN THE CASE OF CIT VS. GABRIEL INDIA LTD. (SUPRA) IT HAS BEEN HELD THAT IF THE ASS ESSING OFFICER HAS RAISED QUERIES AND THE ASSESSEE HAS FILED WRITTEN S UBMISSIONS/ EXPLANATION, MERELY BECAUSE THERE IS NO DISCUSSION IN THE ASSESSMENT ORDER ON THE RELEVANT ISSUE, IT CANNOT B E SAID THAT SUCH ORDER BECOMES ERRONEOUS. 25. WE FURTHER FIND THAT LD. DR HAS LAID EMPHASIS O N THE AMENDED PROVISIONS OF SECTION 263 OF THE ACT WHEREI N EXPLANATION -2 HAS BEEN INSERTED BY FINANCE ACT 2015 DURING THE CO URSE OF ARGUMENT, WE OBSERVE THAT HON. DELHI HIGH COURT IN THE CASE OF CIT VS. ANIL KUMAR SHARMA (2011) 335 ITR 83 (DELHI) HA S EXPLAINED THAT THERE IS A DISTINCTION BETWEEN LACK OF INQUIRY AND INADEQUATE INQUIRY. IF THERE WAS ANY INQUIRY EVEN INADEQUATE THAT WOULD NOT BY ITSELF GIVE OCCASION TO THE COMMISSION TO PASS ORDE RS U/S 263 OF THE ACT MERELY BECAUSE HE HAS A DIFFERENT OPINION IN TH E MATTER. 26. WE ARE THEREFORE, OF THE VIEW THAT JUDGMENT OF HON. SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO. (SUPRA) SQUARELY APPLIES ON THE FACTS OF THE CASE OF ASSESSEE ALONG WITH OTH ER JUDGMENTS AND DECISIONS OBSERVED IN THE PRECEDING PARAGRAPHS. WE ARE OF THE VIEW THAT THE ISSUE RAISED BY LD. CIT IN HIS NOTICE U/S 263 OF THE ACT HAS BEEN ADEQUATELY ENQUIRED AND THOROUGHLY EXAMINED BY LD. ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND HE HAS TAKEN ONE OF THE LEGALLY POSSIBLE VIEWS AS PER JUDI CIAL ITA NO. 1004/AHD/2015 ASST. YEAR 2010-11 24 PRONOUNCEMENTS AVAILABLE AT THAT PARTICULAR POINT O F TIME AND HAS FRAMED THE ASSESSMENT ORDER BY NOT INVOKING THE PRO VISIONS OF SECTION 2(22)(E) OF THE ACT ON THE AMOUNT OF RS.1.2 5 CRORES RECEIVED BY ASSESSEE FROM M/S CANON LAMINATION PVT. LTD. FOR THE VERY REASON THAT ASSESSEE FIRM WAS NOT REGISTERED BENEFICIAL SH AREHOLDER OF CANON LAMINATION PVT. LTD. AND ALSO FOR THE REASON THAT ASSESSEE WAS HAVING REGULAR CURRENT ACCOUNT TRANSACTIONS ROU ND THE YEAR FOR MAKING SALES TO M/S CANON LAMINATION PVT. LTD. AND IMPUGNED AMOUNT OF RS.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 INVAL ID 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 SD/- SD/- (S. S. GODARA) JUDICIAL MEMBER (MANISH BORAD) ACCOUNTANT MEMBER DATED 23/12/2016 MAHATA/- ITA NO. 1004/AHD/2015 ASST. YEAR 2010-11 25 COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, AHMEDABAD 1. DATE OF DICTATION: 22/12/2016 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 23/12/2016 OTHER MEMBER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: __________ 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 23/12/16 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: