Shree Ganesh Intermediary Pvt. Ltd, Ahmedabad V. The Pr. CIT-4, Ahmedabad

ITA 43/AHD/2021

• Counselvise Citation: [2023] 100 COUNSELVISE.COM (IT) 4973 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 7 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 05-09-2023
• Assessment Year: 2015-2016
• Appeal Filed On: 30-03-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revision of order; Transfer pricing; Opportunity of being heard; Principle of natural justice; Earning of tax free income; Period of limitation; Deemed dividend; Assessment record; Rule 8D; Set aside
• Section: 263; 143(3); 2(22)(e); 14A; 92CA

Judgement Text

आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरणआयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण, अहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठअहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठ ‘D’ अहमदाबाद। अहमदाबाद।अहमदाबाद। अहमदाबाद। IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, AHMEDABAD BEFORE SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER AND SHRI T.R. SENTHIL KUMAR, JUDICIAL MEMBER ITA No. 43/AHD/2021 Assessment Year : 2015-16 Shree Ganesh Intermediaries Pvt. Ltd. D-1004, 10 th Floor, Ganesh Meridian S.G. Road, Ahmedabad. PAN : AAQCS 6998 E Vs. Pr. Commissioner of Income Tax-4 Ahmedabad. अपीलाथ牸 अपीलाथ牸अपीलाथ牸 अपीलाथ牸/ (Appellant) 灹瀄 灹瀄 灹瀄 灹瀄 यथ牸 यथ牸यथ牸 यथ牸/(Respondent) Assessee by : None Revenue by : Dr. Darsi Suman Ratnam, CIT-DR सुनवाई क琉 तारीख/Date of Hearing : 06/09/2023 घोषणा क琉 तारीख /Date of Pronouncement: 30/11/2023 आदेश आदेशआदेश आदेश/O R D E R PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER This appeal has been filed by the assessee against order passed by the ld. Pr. Commissioner of Income Tax-1, Ahmedabad [hereinafter referred to as “Ld. Pr. CIT”] under section 263 of the Income Tax Act, 1961 ("the Act" for short) dated 16.3.2020 pertaining to the Asst. Year 2015-16. 2. None appeared on behalf of the assessee despite service of notice for hearing several times. Therefore, we proceed to dispose of the appeal ex parte qua the assessee after hearing the ld. DR and considering the material available on record. ITA No.43/Ahd/2021 Shree Ganesh Intermediary Pvt. Ltd. Vs. PCIT 2 3. At the outset, it was brought to our notice that the appeal filed by the assessee before the Tribunal is barred by limitation by 315 days. As we note from the record, the appeal was filed before Tribunal on 31.3.2021 resulting a delay of 315 days. However, we have noted that due to the Covid-19 pandemic, the limitation prescribed for filing appeals was extended till further orders by the Hon’ble Supreme Court vide its order dated 23/03/2020 in Suo Moto Writ Petition (Civil) No.(s) 3/2020. And the same was ultimately extended upto 28th February 2022 in M.A No.21 of 2022 dated 10th January 2022. This period of extension given by the Supreme Court is therefore to be excluded for the purpose of limitation in filing appeal before the various authorities. Therefore, considering the same, the delay in filing present appeal attributed to the COVID period from 23 rd March, 2020 till 31st March, 2021, when the appeal was filed before us, is to be excluded for the purpose of quantifying the period of delay. Keeping in view the above extended period of limitation by the Hon’ble Supreme Court, the impugned delay of 315 is condoned, and we proceed to dispose of the appeal of the assessee on merit. 4. The grounds raised are as under: 1. The Learned Pr. Commissioner of Income Tax grossly erred in setting aside the order of AO holding that the order passed by the AO is erroneous and prejudicial to the interests of law. 2. On the facts and under the circumstances of the case, the Ld. Pr. Commissioner of Income Tax, erred in revisiting the Limited Scrutiny Order of the AO without appreciating that AO was not required to look into matters other than that forming part of limited scrutiny as decided by CBDT instructions. Hence revision u/s 263 and directing the AO to make fresh assessment is bad in law. Without prejudice to the above 3. The Ld. Pr. Commissioner of Income Tax grossly erred in law and on facts of the case in invoking the provisions of Section 2(22)(e) of the Act by ignoring the fact that transaction between the assessee and MAP Ltd ITA No.43/Ahd/2021 Shree Ganesh Intermediary Pvt. Ltd. Vs. PCIT 3 were in the course of business activities and that the amount was not received in the nature of loans and advances. 4. The Ld. Pr. Commissioner of Income tax grossly erred in law and on facts of the case in confirming order u/s 263 by invoking deeming fiction on mere suspicion by ignoring the fact that assessee is holding less than 10% of voting rights in MAP Ltd. Revising order on mere suspicion is bad in law. Therefore, it is prayed that the order of revision may kindly be quashed. 5. The appellant craves leave to add, amend, alter, delete, change or modify any or all grounds of appeal before or at the time of the hearing. 5. As transpires from the order of the ld.Pr.CIT, the error noted by him in the assessment order passed in the present case was related to omission by the AO to invoke provisions of section 2(22)(e) of the Act pertaining to deemed dividend in relation to loans received by the assessee from another company, viz. MAP Limited. Para-2 of the ld.Pr.CIT’s order reveals that on perusing the assessment record he noted that the loans received by the assessee-company during the year from MAP Ltd. qualified as deemed dividend in terms of section 2(22)(e) of the Act liable to be taxed in the hands of the assessee, since he found that the assessee was a beneficial owner of shares in the said company, and such company had sufficient reserves and surplus for the loan transaction to qualify as deemed dividend in the hands of the assessee-company. Accordingly, jurisdiction under section 263 of the Act was assumed by the ld.Pr.CIT for revision of the assessment order. Para-2 and 2.1 of the ld.Pr.CIT’s order bring out the above facts as under: “2. After carefully perusing the assessment records for the assessment year 2015-16, it has been noticed as under:- 1) The assessee is a company carrying on the business in trading of commodities through MCX and NCDEX and incurred heavy losses as per the profit & loss account filed. It filed the return of income declaring current year's loss of Rs.33,78,626/-on 30.10.2015. 2) The case was selected for limited scrutiny purpose and to verify the following specific issues:- ITA No.43/Ahd/2021 Shree Ganesh Intermediary Pvt. Ltd. Vs. PCIT 4 i) Large increase in the unsecured loans ii) Low income in comparison to high loans / advances / investment in shares. 3) The Assessing Officer has made a disallowance of Rs.41,044/- by invoking the provisions of section 14A of the Act in respect expenses incurred in relation to earning of exempt income and by adopting the formula as provided in Rule 8D of the IT. Rules, 1962. 4) On careful perusal of the case-records called for from the Assessing Officer, it is noticed that the assessee-company is engaged in the business of trading in commodities through recognized stock exchanges. The assessee-company is a private limited company in which the public is not substantially interested. 5) It had made loan transactions with a company MAP Ltd.(PAN AAICM0132C) and from perusal of the copy of account maintained with this company, it is noticed that it had running account and there were many instances where there was a credit balance in the books of accounts of the assessee-company. Further, it has also been noticed that the assessee-company was holding 13.25% shares in this company and therefore, in terms of section 2(22)(e) of the Act, the assessee-company was a beneficial shareholder holding not less than 10% of the voting power at: any time during the previous year ending on 31.03.2015. 6) The accounts of MAP Limited as on 31.03.2015 further revealed that there were reserves and surplus of Rs.57,43,916/- which is the sufficient balance to be considered for distribution of dividend in the hands of the assessee-company which showed opening credit balance of Rs.2,09,57,508/- and closing credit balance of Rs.3,97,05,125/-. There was also a maximum outstanding balance as on 18.03.2015 at Rs.9,91,05,125/-. The transactions as reflected in this account were to be treated as unsecured loans in the hands of the assessee-company which was claimed to be received from MAP Ltd. 7) It has also been noticed further that the provisions of section 115O in relation to charging of tax on distributed dividend have not been made applicable to the deemed dividend as per the provisions of section 2(22)(e) of the Act and therefore, the deemed dividend in the hands of the assessee-company was required to be taxed by invoking the provisions of section 2(22)(e) of the Act. 2.1 Thus, it appeared that while passing the assessment order, the A.O. has omitted and erred in invoking the provisions of section 2(22)(e) of the Act which resulted into passing an erroneous assessment: order which was also prejudicial to the interest of the revenue. This omission and error on the part of the Assessing Officer necessitated invocation of provisions of section 263 of the Act so as to set-aside the assessment order with certain directions to the A.O.” ITA No.43/Ahd/2021 Shree Ganesh Intermediary Pvt. Ltd. Vs. PCIT 5 6. The ld.Pr.CIT’s order further reveals that the assessee pleaded otherwise, stating that its shareholding in MAP Ltd. was well below the specified limit to qualify for invoking of section 2(22)(e) of the Act and that the purported transaction even otherwise, was by way of advance received from MAP Ltd. for business purpose. The assessee, therefore, contended that the provisions of section 2(22)(e) of the Act were not applicable for loan transactions entered into by the assessee and received from MAP Ltd. during the impugned year. The ld.Pr.CIT, however, was not convinced with the explanation of the assessee. He analyzed all facts pertaining to the impugned issue, pointing out lucidly how the assessee qualified on every parameter for invocation of section 2(22)(e) of the Act on account of loan received during the year from MAP Ltd. He gave a detailed factual finding in this regard from para 3 to para-3.8 of his order, and finding the assessee to fulfill all parameters required for invoking section 2(22)(e) of the Act, he directed the AO to tax deemed dividend income of Rs.57,43,916/- ,being the extent of accumulated profit in the case of MAP Ltd, in the hands of the assessee as per the provisions of the section 2(22)(e) of the Act. Further, he found that the assessee had also received loans from another company MAP Cotton P.Ltd. which also qualified as deemed dividend in terms of provisions of section 2(22)(e) of the Act. Accordingly, he directed the AO to tax the loans received by the assessee from the MAP Cotton P.Ltd. of Rs.27,92,236/- to the extent of accumulated profit in the said company in the hands of the assessee-company under section 2(22)(e) of the Act. But at the same time, he directed the AO to afford fresh opportunity of hearing to the assessee, since the same was not confronted by him during the revisionary proceedings, and therefore to meet ends of justice. His finding with regard to taxing of ITA No.43/Ahd/2021 Shree Ganesh Intermediary Pvt. Ltd. Vs. PCIT 6 deemed dividend on account of loan received from MAP Ltd., and MAP Cotton P.Ltd. at para-4 of the order are reproduced hereunder: “4.0 In view of the above detailed discussion, the A.O. is directed to tax deemed dividend income of Rs.57,43,916/- being the accumulated profit in the case of MAP Limited and of Rs.27,92,236/- being the accumulated profit in the case of MAP Cotton Pvt. Ltd. totaling to Rs.85,36,152/- as per the provisions of section 2(22)(e) of the Act. So far as the taxing of the deemed dividend income of Rs.27,92,236/- is concerned, the A.O. shall afford a fresh opportunity of being heard to the assessee so as to meet the principles of natural justice for the reason that in the show cause notice u/s 263 of the Act, the said issue had been remained to be mentioned.” 7. We have carefully gone through the order of the ld.Pr.CIT, and also heard the ld.DR, and we find that the ld.Pr.CIT’s finding of error in the assessment order on account of non-invocation of section 2(22)(e) of the Act on account loans received from MAP Ltd and MAP Cotton P.Ltd amounting to Rs.57,43,916/- and Rs.22,92,236/- is not sustainable. 8. In the case of loan treated as deemed dividend in the hands of the assessee received from MAP Ltd. amounting to Rs.57,43,916/-, we find that the ld.Pr.CIT’s finding of the said amount qualifying as deemed dividend does not find support from the facts recorded by him relating to the impugned transaction in the order itself. As noted above by us, the assessee had contended before the ld.Pr.CIT that its beneficial ownership of shares in the said entity was less than 10% of the voting power; that as per the provision of section 2(22)(e) of the Act, the requirement for invocation of the said section was the payee company being beneficial owner of shares holding not less than 10% of the voting power. The assessee had pointed out that its ownership of shares in MAP Ltd. was 32,550 shares equivalent to 13.25% of the shares held, and 6.63% of voting right. This submission of the assessee finds mention at para 2.3 of the ld.Pr.CIT’s order at sub-para 3 to 5 as under: ITA No.43/Ahd/2021 Shree Ganesh Intermediary Pvt. Ltd. Vs. PCIT 7 3) The revision of the assessment was to be made only if the assessment order passed by the A.O. was erroneous and prejudicial to the interest of revenue as contemplated in section 263 of the Act. 4) The very basis on which the revision is sought to be made is incorrect. The MAP limited had issued 19672 shares to the assessee in the financial year 2012-13 which constituted 20.51% of the shareholding and 10.25% of the voting rights. The shares were issued with differential voting rights (DVR)^fo the assessee on 08.12.2012 so as to comply with the then prevailing regularity requirement. After this allotment, the assessee was owning 10.25% of voting rights. In support of this contention, the assessee- company has also filed a copy of resolution passed by MAP Ltd. 5) It has been further stated that there was a second issue of shares by MAP Ltd. during F. Yrs 2013-14 and 2014-15 and the assessee-company had acquired 12878 shares further in MAP Ltd. in F.Y.2014-15 and there was total holding of 32550 shares in MAP Ltd. which was equivalent to 13.25% of shareholding and 6.63% of voting rights. Thus, the assessee- company was owning less 10% of voting rights at all the time during the previous year and hence there cannot be any applicability of the provisions of section 2(22)(e) of the Act and there cannot be corresponding taxing of the deemed dividend to be taxed in the hands of the assessee-company.” 9. The ld.Pr.CIT, when noting the facts relating to the issue also noted the same facts recording ownership of the shares and voting power at para-3 Point No.(vii) of his order as under: ITA No.43/Ahd/2021 Shree Ganesh Intermediary Pvt. Ltd. Vs. PCIT 8 10. It is evident from the table above in the ld.Pr.CIT’s order recording details of shareholding of the assessee in MAP Ltd. that it corroborate facts pointed out by the assessee that it was the holder of 32,550 shares having 13.25% shareholding and voting power only of 6.63%. Therefore, as per the facts noted by the ld.Pr.CIT himself, the impugned transaction failed to qualify under section 2(22)(e) of the Act on account of non-fulfillment of the parameter of the holding of the shares with voting power of 10% in the company giving loans and advances to the assessee. We have noted that the ld.Pr.CIT after noting the above facts went to record fulfillment of the criteria of beneficial ownership of the assessee with voting power of 10% by noting that the assessee had shown ownership of 13.25% of shares in the MAP Ltd. Its finding is recorded at para 3.4 of the order as under: “3.4 In the background of holding that MAP Limited was not a company defined u/s 2(18) of the Act, the above-mentioned section 2(22)(e) of the Act is analyzed to fit the facts of the assessee's case and the following facts are noticed:- Sr. No. Parameter Result 1 Is there a payment by a company? Yes, there was a payment by a company namely MAP Limited. 2. Whether that company was not being a company in which public are substantially interested? Yes. MAP Limited is not the company in which public are substantially interested as per the definition of section 2(18) of the I.T. Act discussed above. 3. Whether the payment made was advance or loan? Yes. The word "loan" has been mentioned in the accounts as well as in the Tax Audit Report while reporting the transactions of loan for the purpose of section 269SS and 269T of the Act. 4. Whether it was made after 31.05.1971? Yes. 5 Whether the loan is given to a shareholder who is the beneficial owner of the shares which are not entitled to a fixed rate of dividend (whether with or without a right to participate in profit) holding not less than ten percent of the voting power ? Yes. The assessee-company is a beneficial share owner of shares which are not entitled to a fixed rate of dividend whether with or without a right to participate in profit holding not less than ten percent of the voting power. As per the details furnished, the voting power of the Assessee-company has been shown at 13.25% ith 32550 shares held by it during the previous year ending on3 1.03.2015. ITA No.43/Ahd/2021 Shree Ganesh Intermediary Pvt. Ltd. Vs. PCIT 9 11. Therefore, we find that the ld.Pr.CIT found the assessee to fulfill all parameters of section 2(22)(e) of the Act based on incorrect appreciation of the facts which were already there before him and noted by him. Therefore, since as per the finding of the ld.Pr.CIT himself, the assessee’s beneficial ownership of the shares in MAP Ltd. alongwith voting power fall below the criteria specified for invocation of section 2(22)(e) of the Act, the said section was not applicable to the facts of the present case. Therefore, finding of error by the ld.Pr.CIT in the assessment order for non-invocation of section 2(22)(e) of the Act on the loans received by the assessee from MAP Ltd. palpably fails on facts recorded by the Ld.PCIT himself. Accordingly, we hold that considering the facts noted by the ld.Pr.CIT himself, provisions of section 2(22)(e) of the Act were not attracted to the transaction of amounts/loan received by the assessee from MAP Ltd, and finding of the error by the ld.PCIT in this regard is, therefore, held to be not sustainable. 12. With respect to the finding of other error, in respect of the loans received from MAP Cotton Ltd. to the tune of Rs.22,92,236/-, it is evident from the order of the ld.Pr.CIT himself that this error noted by him was never confronted to the assessee during the revisionary proceedings, and therefore, he had directed the AO to confront the same to the assessee in the interest of justice, and thereafter deal with the issue. The same is evident from para 3.8 of the ld.Pr.CIT’s order wherein, while appraising the case record and other details afresh, he noticed the loans received by the assessee from MAP Cotton P. Ltd. which also qualified as deemed dividend in terms of the section 2(22)(e) of the Act. The relevant para 3.8 is as under: ITA No.43/Ahd/2021 Shree Ganesh Intermediary Pvt. Ltd. Vs. PCIT 10 “3.8 While appraising the case-records and other details afresh, it has also been noticed that MAP Cotton Pvt. Ltd. has given a loan of Rs.7,50,00,000/- to the assessee-company with recovery of loan of Rs.90,00,000/- given by the assessee-company to MAP Cotton Pvt. Ltd. The assessee-company is holding 30000 shares of Rs.l,50,00,000/- with face value of Rs.10/- with premium of Rs.490/- per share which constituted 32.95% of the total 91040 shares allotted as on 05.11.2014. This company had accumulated profit of Rs.27,92,236/- as per the copy of return of income uploaded by that company and made available during the course of assessment proceedings. Therefore, there is also a further requirement of the law in this regard to tax this amount of Rs.27,92,236/- as per the provisions of section 2(22)(e) of the Act. Since all the parameters and tests as applied in the case of MAP Limited are also found to be applicable to the MAP Cotton Pvt. Ltd., the deemed dividend of Rs.27,92,236/- which also remained to be considered by the A.O. while finalizing the assessment order has to be taxed. To this extent also, the assessment order so passed u/s 143(3) of the Act dated 08.12.2017 is held to be erroneous and prejudicial to the interest of revenue. 13. That accordingly, in para-4 of the order, he noted that since the assessee was not confronted with this error in the show cause notice issued to it under section 263 of the Act, he accordingly directed the AO to afford fresh opportunity of hearing to the assessee, and thereafter decide the issue. The relevant part-4 is reproduced as under: “4.0 In view of the above detailed discussion, the A.O. is directed to tax deemed dividend income of Rs.57,43,916/- being the accumulated profit in the case of MAP Limited and of Rs.27,92,236/- being the accumulated profit in the case of MAP Cotton Pvt. Ltd. totaling to Rs.85,36,152/- as per the provisions of section 2(22)(e) of the Act. So far as the taxing of the deemed dividend income of Rs.27,92,236/- is concerned, the A.O. shall afford a fresh opportunity of being heard to the assessee so as to meet the principles of natural justice for the reason that in the show cause notice u/s 263 of the Act, the said issue had been remained to be mentioned.” 14. It is evident, therefore, that this finding of error by the ld.Pr.CIT with regard to the loans received from MAP Cotton P.Ltd. qualifying as deemed dividend under section 2(22)(e) of the Act is against the principles of natural justice enshrined in section 263 of the Act itself, which categorically requires the assessee to be heard on the errors noted by the ld.Pr.CIT in the assessment orders for ITA No.43/Ahd/2021 Shree Ganesh Intermediary Pvt. Ltd. Vs. PCIT 11 valid exercise of revisionary jurisdiction under section 263 of the Act. Section 263(1) of the Act requiring powers of revision to be exercised by PCIT’s/CIT’s after giving opportunity of hearing to the assessee is reproduced for clarity :- “263. (1) The [Principal Chief Commissioner or Chief Commissioner or Principal Commissioner] or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer [or the Transfer Pricing Officer, as the case may be,] is erroneous in so far as it is prejudicial to the interests of the revenue, 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, pass such order thereon as the circumstances of the case justify, [including,— (i) an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment; or (ii) an order modifying the order under section 92CA; or (iii) an order cancelling the order under section 92CA and directing a fresh order under the said section].” 15. In view of the same, the finding of the error by the ld.Pr.CIT of non-invocation of section 2(22)(e) of the Act to the transaction of loan received by the assessee from MAP Cotton Ltd.is also held not sustainable in law. 16. In view of the above, both the errors noted by the Ld.PCIT are found not sustainable in law and therefore the order of the ld.Pr.CIT is set aside and appeal of the assessee is allowed. 17. In the result, the appeal of the assessee is allowed. Order pronounced in the Open Court on 30 th November, 2023 at Ahmedabad. Sd/- Sd/- (T.R. SENTHIL KUMAR) JUDICIAL MEMBER (ANNAPURNA GUPTA) ACCOUNTANT MEMBER Ahmedabad, dated 30/11/2023 vk* ITA No.43/Ahd/2021 Shree Ganesh Intermediary Pvt. Ltd. Vs. PCIT 12 आदेश क琉 灹ितिलिप अ灡ेिषत/Copy of the Order forwarded to : 1. अपीलाथ牸 / The Appellant 2. 灹瀄यथ牸 / The Respondent. 3. संबंिधत आयकर आयु猴 / Concerned CIT 4. आयकर आयु猴)अपील (/ The CIT(A)- 5. िवभागीय 灹ितिनिध ,आयकर अपीलीय अिधकरण,राजोकट/DR,ITAT, Ahmedabad, 6. गाड榁 फाईल /Guard file. आदेशानुसार/ BY ORDER True Copy सहायक पंजीकार (Asstt. Registrar) आयकर अपीलीय अिधकरण, ITAT, Ahmedabad 1. Date of dictation : 6-2-2023 2. Date on which the typed draft is placed before the Dictating Member. :23-11-2023 / 29.11/2023 3. Date on which the approved draft comes to the Sr.P.S./P.S : 29.11.2023 4. Date on which the fair order is placed before the Dictating Member for pronouncement. : 29.11.2023 5. Date on which fair order placed before Other Member : 29.11.2023 6. Date on which the fair order comes back to the Sr.P.S./P.S. : 30.11.2023 7. Date on which the file goes to the Bench Clerk. 30.11.2023 8. Date on which the file goes to the Head Clerk. : 9. The date on which the file goes to the Assistant Registrar for signature on the order. : 10. Date of Despatch of the Order :