Dewars Garage Limited , ACIT V. A CIT-5 (1) , Kolkata

ITA 183/KOL/2022

AI Insights

The case involves Dewars Garage Ltd., which appealed against the order of the Principal Commissioner of Income Tax, Kolkata, under section 263 of the Income Tax Act, 1961. The appeal was directed against the revision of the assessment order for the Assessment Year 2017-18, which was initially completed under section 143(3) of the Act. The Principal Commissioner found that the assessment was erroneous as it did not consider a substantial sum received from M/s. Dewars Garage Insurance Agencies Pvt Ltd as deemed dividend, which should have been taxed under section 56 of the Act. The Tribunal examined the submissions and the audit report, concluding that the assessment order was indeed erroneous and prejudicial to the revenue, leading to the dismissal of the appeal.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 136121 (ITAT-KOLKATA)
• Duration Of Justice: 13 year(s) 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 05-09-2022
• Assessment Year: misc
• Appeal Filed On: 20-06-2009
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MD. GHAYASUDDING; DR
• Assessee Lawyers: NILIMA JOSHI
• Keywords: Revision of order; Transfer pricing; Opportunity of being heard; Period of limitation; Deemed dividend; Assessment record; Set aside
• Section: 68; 56; 263; 143(3); 2(22)(e); 271D; 92CA

Judgement Text

। आयकर अपीलीय अिधकरण ᭠यायपीठ, कोलकाता । IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, KOLKATA BEFORE SHRI SANJAY GARG, HON’BLE JUDICIAL MEMBER & SHRI MANISH BORAD, HON’BLE ACCOUNTANT MEMBER I.T.A. No. 183/Kol/2022 Assessment Year: 2017-18 Dewars Garage Ltd. 4, Council House Street Kolkata - 700001 [PAN : AABCD7605C] Vs Asstt. Commissioner of Income Tax, Circle-5(1), Kolkata अपीलाथᱮ/ (Appellant) ᮧ᭜ यथᱮ/ (Respondent) Assessee by : Shri Nilima Joshi, C.A. Revenue by : Md. Ghayasudding, CIT D/R सुनवाई कᳱ तारीख/Date of Hearing : 06/09/2022 घोषणा कᳱ तारीख/Date of Pronouncement : 21/11/2022 आदेश/O R D E R PER MANISH BORAD, ACCOUNTANT MEMBER: The present appeal is directed at the instance of the assessee against the order of the learned Principal Commissioner of Income Tax, Kolkata - 2 (hereinafter the “ld. Pr. CIT”) dt. 23/03/2022, passed u/s 263 of the Income Tax Act, 1961 (“the Act’), for Assessment Year 2017-18. 2. The assessee has raised the following grounds of appeal:- “1. That under the facts and circumstances of the case and in law, the Ld. PCIT in passing the order under section 263 of the Act erred in holding that there was omission on the part of the Assessing Officer which rendered the assessment order u/s. 143(3) of the Income Tax Act, 1961 erroneous in so far it is prejudicial to the interest of revenue, and the same ought to be quashed and set aside. 2. That under the facts and circumstances of the case and in law, the Ld. PCIT in passing the order under section 263 of the Act, was unjustified and erred in setting aside the assessment order under section 143(3) of the Act passed by the Assessing Officer, and the same ought to be quashed and set aside. 3. That under the facts and circumstances of the case and in law, the Ld. PCIT in passing the order under section 263 of the Act and having made observations adverse to the assesse therein, was unjustified and erred in directing the Assessing Officer to frame the assessment afresh, and the same ought to be quashed and set aside. I.T.A. No. 183/Kol/2022 Assessment Year: 2017-18 Dewars Garage Ltd. 2 4. That the above grounds of appeal are without prejudice to one another; and 5. The Appellant craves leave to add, modify or delete any of the above grounds of appeal at the time of hearing.” 3. Brief facts of the case are that the assessee is a private limited company. The assessee declared loss at Rs.1,42,78,245/- in the e-return filed on 04/11/2017. The assessee’s case was selected for scrutiny and assessment u/s 143(3) of the Act was framed on 29/12/2019, wherein the ld. Assessing Officer disallowed the employees’ contribution to welfare fund due to delay in deposit and also certain other expenditures not allowable being incurred for business and assessed the loss at Rs.1,27,93,243/- as against the loss declared in the return at Rs.1,42,78,245/-. Subsequently, the ld. Pr. CIT called for the assessment records and after going through the same, invoked the revisionary powers u/s 263 of the Act and issued showcause notice u/s 263(1) of the Act, dt. 08/03/2022 and the issue raised therein is appearing in para 3 and 4 of the notice which is reproduced below:- “3. There were certain issues in the case and accordingly, the case record was called for and examined. Upon examination of case records, it is observed from the available records that you M/s Dewars Garage Ltd received a sum of Rs. 12,39,56,758/- on account of Loan and Advances from M/s Dewars Garage Insurance Agencies Pvt Ltd. On examination of the Balance Sheet of M/s Dewars Garage Insurance Agencies Pvt Ltd, it is observed that the said company is a private limited company where public were not substantially interested as per provision of Section 2(18) of the Act. It is further observed that you M/s. Dewars Garage Ltd were holding 19% of its total equity shares of M/s Dewars Garage Insurance Agencies Pvt Ltd. It is also observed that the closing balance of reserve and surplus in the Balance Sheet of M/s Dewars Garage Insurance Agencies Pvt Ltd as on 31/03/2017 was Rs. 1,59,06,942/-. 4. It is noticed that the Loan & Advances given by M/s Dewars Garage Insurance Agencies Pvt Ltd to you M/s Dewars Garage Ltd during the F.Y. 2016-17 fulfill all the condition of the Section 2(22) (e ) of the Income Tax Act, 1961. Hence, the Loans & Advances amount, upto accumulated profit of Rs. 1,59,06,942-, advanced to you during A.Y. 2017-18 should have been treated as Deemed Dividend u/s 2(22)(e ) of the I. T. Act, 1961 and was to be added back your income as per provision of Section 56 of the Act. However, this was not done while completing the assessment of your income u/s 143(3) of the I. T. Act. Omission on the part of AO to consider the sum of Rs. 1,59,06,942/- as deemed dividend u/s 2(22)(e) of the Act and charge the same to tax u/s 56 of the Act I.T.A. No. 183/Kol/2022 Assessment Year: 2017-18 Dewars Garage Ltd. 3 rendered the assessment order to be erroneous in so far as it is prejudicial to the interest of revenue.” 4. During the course of revisionary proceedings, the assessee’s contention was that the alleged sum received by the assessee from M/s Dewars Garage Insurance Agencies Pvt Ltd. (M/s. DGIAPL) at Rs. 12,39,56,758/- is not in the nature of loans but they are business transactions carried out in the course selling cars of Maruti Suzuki. Relevant portion of the submissions made by the ld. Pr. CIT is extracted for ready reference:- “3. The reason for opening under section 263 of the Income Tax Act at present is stated as under - That M/s. Dewars Garagc Garage Limited received a sum of Rs. 12,39,56,758/- on account of Loan and Advances from M/s. Dewars Garage Insurance Agencies Pvt. Limited on examination of the Balarnce Sheet of M/s. Dewars Garage Insurance Agencies Pvt. Limited, it is observed that the said company is a private limited company where public were not substantially interested as per provision of Section 2(18) of the Act. It is further observed that you M/s. Dewars Garage Limited were holding 19% of its total equity shares of M/s. Dewars Garage insurance Agencies Pvt. Limited. I, is also observed that the closing balance of reserve and surplus in the Balance Sheet of M/s. Dewars Garage Insurance Agencies Pvt. Limited as on 31/03/2017 was Rs. 1,59,06,942/-. It is noticed that the Loan & Advances given by M/s. Dewars Garage Insurance Agencies Pvt. Limited to you M/s. Dewars Garage Limited during the E.Y. 2016- 17 fulfil all the condition of the Section 2(22)(e) of the Income Tax Act, 1961. Hence, the Loans & Advances amount, upto accumulated profit of Rs. 1,59,06,942/, advanced to you during A.Y. 2017- 18 should have been treated as Deemed Dividend u/s. 2(22) (e) of the I. T. Act, 1961 and was to be added back your income as per provision of Section 56 of the Act. However, this was not done while completing the assessment of your income u/s. 143(3) of the I.T. Act. Omission on the part of AO to consider the sum of Rs. 1,59,06,942/- as deemed dividend u/s. 2(22)(e) of the Act and charge the same to tax u/s. 56 of the Act rendered the assessment order to be erroneous in so far as it is prejudicial to the interest of revenue. 4. The assessment for the above year was completed after the assessee Company filed its submissions/representations and details/documents. Audited accounts and tax audit report were also pursued by the Assessing Officer From the tax audit Report the AO has also seen the details shown in S. No. 31(a) (as per para 6 &7 of his assessment order) in relation to loans or deposits exceeding a particular limit accepted during the year and s. No. 31(c) shows the repayment of loan and deposit and advance exceeding a particular limit. I.T.A. No. 183/Kol/2022 Assessment Year: 2017-18 Dewars Garage Ltd. 4 There are not loans taken or repaid to Dewars Garage Insurance Agencies Pvt. Limited (DGIAPL) but these are all business transactions. In fact DGIAPL handles all Insurance renewal requirements of customers of Dewars Garage Limited which is selling cars of Maruti Suzuki Make (As per Insurance Regulation for carrying on Insurance Business a separate entity is required for Insurance business). Hence for renewal of Insurance policies for Cars Sold, the same was carried out through DGIAPL was collecting the insurance amount for which a running accounts was maintained by the assessee company and DGIAPL This money was then transferred to Maruti in their Auto Debit Account. Accordingly the Insurance premium collected by Dewars Garage Insurance Agencies Pvt. Limited were paid into such Auto Debit Account maintained by Maruti with its designated Bank Account directly, or it was paid to the assessee which in turn paid to the Maruti Auto Debit Account and sometimes the assessee paid to Maruti Auto Debit Account on its own and this was reimbursed by DGIAPL, as per business needs. Hence there is a running account between the two Companies as per business needs as one Company is facilitating the other Company for carrying on these business objects. Hence there are no loans or advance but expenses and amount given for business. Also the assessee has taken properties for running its business (showroom etc.) from DGIAPL on rent and therefore paid rent and deposits for the same. Some deposit against rent has also been returned by DGIAPL to DGL during the year.” 5. However, the ld. Pr. CIT did not find any merit in the submissions filed by the assessee and he referred to the tax audit report in Clause 31(a) of Form 3CD wherein, in the list of loans or deposits exceeding Rs.20,000/-, taken or accepted during the year, the Auditor has mentioned the details of loans of Rs.12,39,56,758/-. Since the submission of the assessee were in contradiction to the report of the auditor, the ld. Pr. CIT came to the conclusion that the assessment order dt. 29/12/2019, is erroneous and prejudicial to the interest of the revenue as, the ld. Assessing Officer has not examined the issue of sum received from M/s. DGIAPL, before concluding the assessment. Accordingly, the assessment order u/s 143(3) of the Act, dt. 29/12/2019, was set aside to be framed afresh after considering the observations made by the ld. CIT(A) in the impugned order. 6. Aggrieved, the assessee is in appeal before this Tribunal. I.T.A. No. 183/Kol/2022 Assessment Year: 2017-18 Dewars Garage Ltd. 5 7. The ld. Counsel for the assessee referring to the paper book containing the showcause notice, submissions made before the ld. Pr. CIT on 21/03/2022, ledger copy of M/s. DGIAPL for financial year 2016-17 and a note on the nature of transactions between M/s. DGIAPL and the assessee company, stated that M/s. DGIAPL, handles all insurance renewal requirements of the customers of M/s. Dewars Garage Ltd., which is selling cars of Maruti Suzuki make and for renewal of insurance policies of cars sold, the same are carried out through M/s. DGIAPL, which was collecting the insurance amount for which a running account was maintained by the assessee company and M/s. DGIAPL. The insurance premium collected by M/s. DGIAPL, were paid into an auto debit account maintained by Maruti or it was paid to the assessee which in turn was deposited in the Maruti auto debit account. Further, the ld. Counsel for the assessee, submitted that there is a running account between the two companies for facilitating the business objectives and no loans or advances were taken but these were expenditures and amounts given for business. On the other hand, the ld. D/R vehemently argued and relied on the order of the ld. Pr. CIT. 8. We have heard the rival contentions and perused the material on record. 9. The issue referred by the ld. Pr. CIT in the show-cause notice is regarding the sum of Rs.12,39,56,758/-received by the assessee from M/s. DGIAPL. It remains an undisputed fact that in the tax audit report filed along with the return of income the auditor in clause 31(a) of the tax audit report has mentioned the details of the alleged sum in the list prepared for the loans or advances taken exceeding the limits specified in Section 269SS of the Act which refers to the mode of taking or accepting certain loans, I.T.A. No. 183/Kol/2022 Assessment Year: 2017-18 Dewars Garage Ltd. 6 deposits and the specified sums. If any such loan or advance exceeding ₹ 20,000/-, is taken or accepted in cash, then such transaction can be subject to the levy penalty u/s 271D of the Act which is a sum equal to the amount of loan or deposit or a specified sum so taken or accepted. The purpose of clause 31(a) in Form 3CD is that the auditor who examines the books of account has to fill up the details of all the loans are deposits taken or accepted during the year and in the remarks column it has to mention that whether it is in a mode otherwise than by account payee cheque/bank transfer/account payee demand draft. Further in the very same detail those loan accounts which are repaid/squared off during the year are also needed to be provided as there may be a situation that loan taken during the year has been repaid and it is not appearing in the closing balance of the unsecured loan at the close of the year. Such details are further helpful to the assessing officer while conducting the scrutiny proceedings and with the details provided by the auditor it is easy for the assessing officer to examine the transactions of loans or deposits taken during the year and the applicability of provisions of Section 68 of the Act. 9.1. In the instant case, the auditor has provided all these details in the audit report of the alleged sum received from M/s. DGIAPL, shown as a loan received by the assessee. Now whether the assessing officer has carried out any investigation or has examined the said transaction during the course of assessment proceedings relating to the alleged sum is not placed before us by the ld. Counsel for the assessee. Rather it is an admitted fact that the assessing officer has not examined the transactions carried out between the assessee and M/s. DGIAPL. I.T.A. No. 183/Kol/2022 Assessment Year: 2017-18 Dewars Garage Ltd. 7 10. Before us, the contention of the ld. Counsel for the assessee is that the alleged sum is not a loan/deposit and it is a regular business transaction relating to insurance premium of various cars sold by it and certain other expenditures and transactions carried out between the two companies but they are not in the nature of loan or advances. Presently, we are examining the validity of the revisionary proceedings u/s 263 of the Act and also whether the ld. Pr. CIT was justified in invoking the provisions u/s 263 of the Act, which reads as follows:- “263. (1) The 80 [ 82 [Principal Chief Commissioner or Chief Commissioner or Principal Commissioner] or] Commissioner may call for and examine 83 the record 83 of any proceeding under this Act, and if he considers that any order 84 passed therein by the 85 [Assessing] Officer 85a [or the Transfer Pricing Officer, as the case may be,] is erroneous 84 in so far as 84 it is 84 prejudicial to the interests of the revenue 84 , he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, 84 pass such order thereon as the circumstances of the case justify, 85b [including,— (i) an order enhancing or modifying the assessment or cancelling the assessment 84 and directing a fresh assessment; or (ii) an order modifying the order under section 92CA; or (ii) an order cancelling the order under section 92CA and directing a fresh order under the said section ] . 86 [ 87 [Explanation 1.]—For the removal of doubts 88 , it is hereby declared that, for the purposes of this sub-section,— (a) an order passed 89 [on or before or after the 1st day of June, 1988] by the Assessing Officer 89a [or the Transfer Pricing Officer, as the case may be,] shall include— (i) an order of assessment made by the Assistant Commissioner 90 [or Deputy Commissioner] or the Income-tax Officer on the basis of the directions issued by the 91 [Joint] Commissioner under section 144A; (ii) an order made by the 91 [Joint] Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer 89a [or the Transfer Pricing Officer, as the case may be,] conferred on, or assigned to, him under the orders or directions issued by the Board or by the 92 [Principal I.T.A. No. 183/Kol/2022 Assessment Year: 2017-18 Dewars Garage Ltd. 8 Chief Commissioner or] Chief Commissioner or 92 [Principal Director General or] Director General or 92 [Principal Commissioner or] Commissioner authorised by the Board in this behalf under section 120; 92a [ (iii) an order under section 92CA by the Transfer Pricing Officer; ] (b) 93 "record" 94 [shall include and shall be deemed always to have included] all records relating to any proceeding under this Act available at the time of examination by the 92 [Principal 95 [Chief Commissioner or Chief Commissioner or Principal] Commissioner or] Commissioner; (c) where any order referred to in this sub-section and passed by the Assessing Officer 92a [or the Transfer Pricing Officer, as the case may be,] had been the subject matter 96 of any appeal 97 [filed on or before or after the 1st day of June, 1988 96 ], the powers of the* 98 [Principal Commissioner or] Commissioner under this sub-section shall extend 97 [and shall be deemed always to have extended] to such matters as had not been considered and decided in such appeal.] [Explanation 2.—For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer 99a [or the Transfer Pricing Officer, as the case may be,] shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal 1 [Chief Commissioner or Chief Commissioner or Principal] Commissioner or Commissioner,— (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) 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.] [Explanation 3.—For the purposes of this section, "Transfer Pricing Officer" shall have the same meaning as assigned to it in the Explanation to section 92CA.] [(2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed.] I.T.A. No. 183/Kol/2022 Assessment Year: 2017-18 Dewars Garage Ltd. 9 (3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, 3 [National Tax Tribunal,] the High Court or the Supreme Court. Explanation.—In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded.” 11. Now, examining the instant case in light of the above provisions of Section 263 of the Act, we find that the transactions referred to by the ld. Pr. CIT in the impugned order has never been examined by the assessing officer. No enquiry has been conducted relating to the alleged sum. It is also surprising to note that even when the tax audit report was available with the assessing officer and it was specifically mentioned that loans or advances have been taken by the assessee from M/s. DGIAPL, the assessing officer failed to take any action. It could have been a situation that the assessing officer after examining the transactions, ledger account and other relevant details have come to a conclusion that they are not in the nature of loans or advances. But this action of carrying out necessary exercise is completely missing at the end of the assessing officer and in the given scenario where only few cases are selected for scrutiny such type of scrutiny proceedings as has been carried out by the assessing officer are erroneous so far as they are prejudicial to the interest of the revenue wherein the important aspects and the crucial financial transactions having sufficient volume in terms of value remained to be examined by the assessing officer. I.T.A. No. 183/Kol/2022 Assessment Year: 2017-18 Dewars Garage Ltd. 10 12. Under these given facts and circumstances, we fail to find any infirmity in the finding of the ld. Pr. CIT holding the assessment order dated 29/12/2019, as erroneous and prejudicial to the interest of the revenue. Thus, the finding of the ld. Pr. CIT in the order passed u/s 263 of the Act, is confirmed and grounds of appeal raised by the assessee are dismissed. 13. In the result, appeal of the assessee is dismissed. Order pronounced in the Court on 21 st November, 2022 at Kolkata. Sd/- Sd/- (SANJAY GARG) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER Kolkata, Dated 21/11/2022 *SC SrPs आदेश कᳱ ᮧितिलिप अᮕेिषत/Copy of the Order forwarded to : 1. अपीलाथᱮ / The Appellant 2. ᮧ᭜यथᱮ / The Respondent 3. संबंिधत आयकर आयुᲦ / Concerned Pr. CIT 4. आयकर आयुᲦ)अपील (/ The CIT(A)- 5. िवभागीय ᮧितिनिध, आयकर अपीलीय अिधकरण Ɋायपीठ,कोलकाता/DR,ITAT, Kolkata, 6. गाडᭅ फाईल /Guard file. आदेशानुसार/ BY ORDER, TRUE COPY Assistant Registrar आयकर अपीलीय अिधकरण ITAT, Kolkata