M/S. SUPRABHA INDUSTRIES LTD., ,KOLKATA vs. PRINCIPAL CIT, CENTRAL - 2, KOLKATA , KOLKATA

The assessee in the present case is a Company, which is engaged in the business of Manufacturing of Automobile components. In the assessment completed under section 153A/143(3) of the Act vide an order dated 30.03.2016, the total income of the assessee was determined by the Assessing Officer at a loss of Rs.4,60,520/-. The record of the said assessment came to be examined by the ld. Principal CIT. On such examination, he found that the assessee-company had received an (Assessment Year: 2012-2013) M/s. Suprabha Industries Limited unsecured loan of Rs.40,00,000/- from another Group Company namely M/s. Vijayshree Industries Pvt. Limited. He also found that Shri Devendra Kumar Mantri was a common shareholder in the assessee-company holding 49.75% shares and in M/s. Vijayshree Industries Pvt. Limited holding 51.06% shares. He also found that M/s. Vijayshree Industries Pvt. Limited had sufficient accumulated profit which was more than the loan of Rs.40,00,000/- given to the assessee-company. According to the ld. Principal CIT, the amount of Rs.40,00,000/- received by the assessee as loan from M/s. Vijayshree Industries Pvt. Limited thus should have been assessed by the Assessing Officer in the hands of the assessee-company as deemed dividend under section 2(22)(e) of the Act and there was an error in the order of the Assessing Officer passed under section 153A/143(3) in not making any enquiries/verification in respect of the said loan so as to consider the applicability of section 2(22)(e). He accordingly issued a notice under section 263 requiring the assessee to show-cause as to why remedial action should not be taken by exercising the powers under section 263 to revise the order passed by the Assessing Officer under section 153A/143(3).

In reply to the show-cause notice issued by the ld. Principal CIT under section 263, a written submission was filed by the assessee vide letter dated 22.11.2017 stating, inter alia, as under:- “With respect to your query regarding implication of section 2(22)(e) of the Income Tax Act, 1961 with respect to loan transactions entered into with M/s Vijayshree Industries Pvt. Ltd. we would like to state that M/s Vijayshree Industries Pvt. Ltd. has advanced loan to the assessee company in its ordinary course of business and loan advanced by a company in the ordinary course of its business is out of purview of section 2(22)(e) of the I. T. Act, 1961. We would like to further submit that the said company had duly charged interest on the loan given and thus such transaction should be treated as being entered during the normal course of business. Copy of loan confirmation as well as copy of audited financial statements of Vijayshree Industries Pvt. Ltd. for the A.Y. 2012-13 are enclosed herewith for your kind perusal. Hence, the said loan transaction should not be considered as deemed dividend and chargeable in the (Assessment Year: 2012-2013) M/s. Suprabha Industries Limited

hands of the assessee-company. In support of our contention we would like to submit that the Hon' ble Kolkata High Court in the case of Pradip Kumar Malhotra v CIT (2011) 338 ITR 538 held that for gratuitous loan or advances given by a company to those classes of shareholders would come within the purview of section 2(22)(e) but not to the clauses where loan or advances is given in return to an advantage conferred upon the company by such shareholders. In our case also the interest paid by the assessee company was a return on loan given by M/s Vijayshree Industries Pvt. Ltd. The amount being non- gratuitous is not covered u/s 2(22)(e)”.

The ld. Counsel for the assessee submitted that the ld. Principal CIT vide his impugned order passed under section 263 has set aside the order passed by the Assessing Officer under section 153A/143(3) of the Act dated 30.03.2016 on the ground that the necessary enquiry or verification regarding applicability of the provision of section 2(22)(e) to the loan of Rs.40,00,000/- taken by the assessee-company from another group company M/s. Vijayshree Industries Pvt. Limited was not made by (Assessment Year: 2012-2013) M/s. Suprabha Industries Limited the Assessing Officer. In this regard, he invited our attention to the copy of notice issued by the Assessing Officer under section 142(1) on 17.08.2015 placed at page no. 50 of the paper book to point out that the details of all the loans and advances were called for by the Assessing Officer during the course of assessment proceedings. He also invited our attention to the copy of letter dated 06.01.2016 submitted to the Assessing Officer placed at page no. 56 and 57 of the paper book to point out that the details of unsecured loans were furnished by the assessee as per Annexure-22. He also invited our attention to Annexure-I of the Tax Audit Report submitted by the assessee placed at page no. 45 of the paper book to point out that the loan amount of Rs.40,00,000/- taken by the assessee from M/s. Vijayshree Industries Pvt. Limited and squared off during the year itself was duly reflected therein. He also pointed out that the full particulars of persons who were beneficial owners of equity shares of the Company holding more than 10% shares were called for by the Assessing Officer during the course of assessment proceedings and the same were furnished by the assessee as per Annexure-V to the letter dated 06.01.2016. He submitted that the assessee-company during the year under consideration had paid interest on the loan taken from M/s. Vijayshree Industries Pvt. Limited and the same was duly shown in Annexure-F of the Tax Audit report showing payments to persons specified in section 40A(2)(b) of the Act. He contended that all the relevant details thus were furnished by the assessee in the Tax Audit Report filed alongwith the return of income as well as during the course of assessment proceedings as per the requirements of the Assessing Officer. He contended that since the assessee-company had paid interest on the loan amount of Rs.40,00,000/- taken from M/s. Vijayshree Industries Pvt. Limited, the provisions of section 2(22)(e) were not applicable as held by the Hon’ble Calcutta High Court in the case of Pradip Kumar Malhotra (338 ITR 538). He also contended that the assessee-company was not the shareholder in M/s. Vijayshree Industries Pvt. Limited and, therefore, the loan amount received from the said company could not be treated as deemed dividend in the hands of the (Assessment Year: 2012-2013) M/s. Suprabha Industries Limited assessee under section 2(22)(e) of the Act. He contended that proper enquiry and verification thus was made by the Assessing Officer during the course of assessment proceedings as regards the applicability of section 2(22)(e) to the loan amount of Rs.40,00,000/- received by the assessee-company from M/s. Vijayshree Industries Pvt. Limited and after having considered all the facts of the case as well as the legal position, a conscious decision was taken by him that the provisions of section 2(22)(e) were not applicable. He contended that there was thus no error in the order of the Assessing Officer passed under section 153A/143(3) as alleged by the ld. Principal CIT and the revision under section 263 by the ld. Principal CIT was not called for. He urged that the impugned order passed by the ld. Principal CIT under section 263 may be set aside and that of the Assessing Officer passed under section 153A/143(3) be restored back.

The ld. D.R., on the other hand, strongly supported the impugned order passed by the ld. Principal CIT under section 263. He contended that even though the relevant details were available on record, the Assessing Officer ought to have made the necessary enquiry to ascertain the applicability of section 2(22)(e) to the loan amount of Rs.40,00,000/- received by the assessee from the other group company M/s. Vijayshree Industries Pvt. Limited. He submitted that the query raised by the Assessing Officer and details furnished by the assessee as highlighted by the ld. Counsel for the assessee were general in nature and there was no specific enquiry or verification made by the Assessing Officer regarding the applicability of section 2(22)(e) to the loan amount of Rs.40,00,000/-. As regards the legal position pointed out by the ld. Counsel for the assessee by relying, inter alia, on the decision of the Hon’ble Calcutta High Court in the case of Pradip Kumar Malhotra (supra), the ld. D.R. contended that there is nothing to show that the Assessing Officer has taken into consideration this legal position while passing the order under section 153A/143(3). He contended that the enquiry or verification on the issue of applicability of section 2(22)(e) as required in the facts and (Assessment Year: 2012-2013) M/s. Suprabha Industries Limited circumstances of the case thus was not made by the Assessing Officer while passing the order under section 153A/143(3) and such lack of enquiry or verification made the said order erroneous as well as prejudicial to the interest of revenue warranting revision under section 263 as rightly done by the ld. Principal CIT.

We have considered the rival submissions and also perused the relevant material available on record. As demonstrated by the ld. Counsel for the assessee on the basis of relevant documentary evidence placed in the paper book, the details of unsecured loans taken during the year under consideration by the assessee-company were called for by the Assessing Officer during the course of assessment proceedings and the same were duly furnished by the assessee. Even the details of shareholders holding more than 10% shares in the assessee-company were called for by the Assessing Officer and the same were duly furnished by the assessee. In the Tax Audit Report filed by the assessee-company along with its return of income, the unsecured loan of Rs.40,00,000/- received by the assessee-company during the year under consideration from M/s. Vijayshree Industries Pvt. Limited and squared off in the year itself was duly reflected and even interest paid thereon was duly shown in the said Tax Audit Report in the details of payments made to related persons as specified in section 40A(2)(b). As rightly contended by the ld. Counsel for the assessee, all the relevant details to ascertain the applicability of section 2(22)(e) to the loan amount of Rs.40,00,000/- taken by the assessee-company during the year under consideration from M/s. Vijayshree Industries Pvt. Limited thus were either available on the record before the Assessing Officer or the same were called for by him during the course of assessment proceedings by raising specific queries and after applying his mind to the said details, a conscious decision was taken by him as regards the non-applicability of section 2(22)(e) to the loan amount in question while completing the assessment under section 153A/143(3) of the Act. In our opinion, it, therefore, cannot be said that there was an error in the order of the Assessing Officer in not making any (Assessment Year: 2012-2013) M/s. Suprabha Industries Limited enquiry or verification on the issue of applicability of section 2(22)(e) to the loan amount in question as alleged by the ld. Principal CIT and the revision under section 263 by the ld. Principal was not called for.

It is also observed that interest was paid by the assessee on the loan amount of Rs.40,00,000/- received from M/s. Vijayshree Industries Pvt. Limited and as held by the Hon’ble Calcutta High Court in the case of Pradip Kumar Malhotra (supra), the loan of Rs.40,00,000/- given to the assessee by M/s. Vijayshree Industries Pvt. Limited as a consequence of further consideration, which was beneficial to the said company, cannot be treated as deemed dividend under section 2(22)(e). It is also relevant to note here that the assessee-company was not the shareholder in M/s. Vijayshree Industries Pvt. Limited during the year under consideration and the amount of loan in question thus could not be treated as deemed dividend under section 2(22)(e) even on this ground as rightly contended by the ld. Counsel for the assessee. At the time of hearing before the Tribunal, the ld. D.R. has not disputed this legal position cited by the ld. Counsel for the assessee in support of the assessee’s case that section 2(22)(e) was not applicable to the loan amount of Rs.40,00,000/- received from M/s. Vijayshree Industries Pvt. Limited. He, however, has contended that there is nothing on record to show that this legal position was specifically considered by the Assessing Officer while completing the assessment under section 153A/143(3) of the Act. We are unable to accept this contention of the ld. D.R. In our opinion, the Assessing Officer is not only expected to be aware of such legal position but is also duty- bound to apply the same while completing the assessment, especially when it is propounded by the Hon’ble Jurisdictional High Court. In the present case, the Assessing Officer thus had not only made the enquiry or verification as required in the facts of the case to ascertain the applicability of section 2(22)(e) to the loan amount received by the assessee from M/s. Vijayshree Industries Pvt. Limited, but a conscious decision was also taken by him keeping in view the legal position that section 2(22)(e) was not applicable to the loan amount of Rs.40,00,000/- (Assessment Year: 2012-2013) M/s. Suprabha Industries Limited received by the assessee during the year under consideration from M/s. Vijayshree Industries Pvt. Limited. In our opinion, there was thus no error in the order of the Assessing Officer dated 30.03.2016 passed under section 153A/143(3) of the Act as alleged by the ld. Principal CIT and the revision of the same under section 263 by the ld. Principal CIT was not called for. In that view of the matter, we set aside the impugned order passed by the ld. Principal CIT under section 263 and restore that of the Assessing Officer passed under section 153A/143(3) of the Act.

In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on May 03, 2019.