M/S SNEHAPUSHP BARTER PVT. LTD.,KOLKATA vs. PCIT, CENTRAL, KOLKATA-2, KOLKATA

We have heard rival submissions and gone through the facts and circumstances of the case. The main thrust of the argument of the Ld. Counsel for the assessee is that while exercising the revisional jurisdiction u/s. 263 of the Act, not only that the impugned order of the AO should be erroneous but it has to be prejudicial to the interest of the revenue. According to the Ld. Counsel, from a perusal of the show cause notice (copy available at page 63 of the paper book) would reveal that the Pr. CIT found fault with the action of the AO in not enquiring as to the loan/advance to have been given by three companies, in which companies, according to Ld. Pr. CIT, the assessee had more than 10% shareholding. The Ld. Counsel drew our attention to the order passed by the AO giving effect to the impugned order of Pr. CIT passed u/s. 263 of the Act which is placed at pages 71 to 73 of 2 Snehapusph Barter Pvt. Ltd., AY 2012-13 the paper book. The Ld. Counsel drew our attention to page no. 72 of the paper book wherein the AO has stated that while during the assessment proceedings giving effect to 263 order, despite him giving notice to the assessee, the Ld. AR of the assessee did not turn up before him, so he was constrained to pass the order without hearing the Ld. AR. From a perusal of the order we understand that other than the written submission of the Ld. AR Shri Ravi Tulsiyan, no other averments were taken into consideration while passing the order while giving effect to the order passed u/s. 263 of the Act. Nevertheless, the AO in the said order clearly upheld the contention of the assessee in respect to two companies i.e. in respect of M/s. SKG Flour Mills and M/s. Jagadhatri Tracon Pvt. Ltd. and made no addition u/s. 2(22)(e) of the Act. Only in respect of the transaction of the assessee with M/s. Subhchintak Vancom Pvt. Ltd, the AO has made the addition while giving effect to the order of Pr. CIT u/s. 263 of the Act. In respect of M/s. Subhchintak Vancom Pvt. Ltd. the main crux of the argument of the assessee is that the assessee is having a current account with that of M/s. Subhchintak Vancom Pvt. Ltd. and the transactions cannot be characterized as loan/advances. In order to buttress this point, the Ld. AR drew out attention to page no. 62 which is the ledger of M/s. Subhchintak Vancom Pvt. Ltd. in the books of the assessee. From a perusal of the same, we note that the assessee on 05.06.2011 owed to M/s. Subhchintak Vancom Pvt. Ltd. Rs.1.35 cr. On 03.09.2011 the assessee owed Rs.85,000/- to M/s. Subhchintak Vancom Pvt. Ltd.. Whereas on 14.10.2011, the assessee gave Rs.1.09 cr. to M/s. Subhchintak Vancom Pvt. Ltd.; and on 25.12.2011 gave M/s. Subhchintak Vancom Pvt. Ltd. Rs.5 lacs; and Rs. 70 lacs; and on 15.03.2012 the assessee had given Rs. 60 lacs to M/s. Subhchintak Vancom Pvt. Ltd. In the assessment year under consideration, the assessee had given to M/s. Subhchintak Vancom Pvt. Ltd. Rs.2,44,25,000/- whereas it owed to M/s. Subhchintak Vancom Pvt. Ltd. Rs.1,35,85,000/-. From the ledger, the assessee had only debited Rs.1,35,85,000/- whereas M/s. Subhchintak Vancom Pvt. Ltd. has drawn Rs.1,08,40,000/- in excess from the assessee. From the aforesaid facts stated above, according to ld counsel it is a clear case wherein there is a shifting of balance is apparent. On such factual matrix the assessee’s argument is that such kind of transaction cannot be termed as loan/advance to attract the provisions of section 2(22)(e) of the Act. The Hon’ble Supreme Court in the case of Kesari Chand Jaisukh Lal Vs. Shillong Banking Corporation Ltd. 1965 AIR 1711 has held as under:

3 Snehapusph Barter Pvt. Ltd., AY 2012-13 “To be mutual there must be transactions on each side creating independent obligations on the other and not merely transactions which create obligations on the one side, those on the other being merely complete or partial discharges of such obligations.”

The Hon’ble Calcutta High Court in the case of Pradip Kumar Malhotra Vs. CIT 338 ITR 538 (Cal) wherein the Hon’ble High Court has held as under: “The phrase "by way of advance or loan" appearing in sub-clause (e) of section 2(22) of the Income-tax Act, 1961, must be construed to mean those advances or loans which a shareholder enjoys simply on account of being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent. of the voting power; but if such loan or advance is given to such shareholder as a consequence of any further consideration which is beneficial to the company received from such a share-holder, in such case, such advance or loan cannot be said to be deemed dividend within the meaning of the Act. Thus, gratuitous loan or advance given by a company to those classes of shareholders would come within the purview of section 2(22) but not cases where the loan or advance is given in return to an advantage conferred upon the company by such shareholder."

Similarly, the Coordinate Bench of this Tribunal in Mr. Purushottam Das Vs. DCIT and vice versa in IT(SS)A Nos. 60 to 62 & 73-76/Kol/2011 dated 17.10.2014 has held as under: “5. …….. It is pertinent to note here that when dividends are declared by a company, it is solely the shareholders who benefit from the transaction. No benefits accrue to the company by way of dividend distribution. Thus, section 2(22)(e) of the Act covers only such situations, where the shareholder alone benefits from the loan transaction, because if the company also benefits from the said transaction, it will take the character of a commercial transaction and hence will not qualify to be dividend. In the case of the assessee, by giving and taking 4 Snehapusph Barter Pvt. Ltd., AY 2012-13 financial assistance from each other. both the assessee and the company were benefited and such transactions between them were nothing but commercial transactions and dividend attributable to the shareholder is nothing to do with such business transaction. From the above discussions it can be said that sec.2(22)(e) of the Act covers only those transactions which benefit the shareholder alone and results in no benefit to the company. On the other hand, if the transaction is mutual by which both sides are benefited, it is undoubtedly outside the purview of provisions of sec. 2(22)(e) of the Act. From the above, it is clear that the loan account differs from current account and the provisions of section 2(22}(e} of the Act, being a deeming section, cannot be applied to current account. In such circumstances, we delete the addition and this common issue of assessee's appeals is allowed.”

Further, we note that there is no interest element has been charged on the amounts owed by the assessee to M/s. Subhchintak Vancom Pvt. Ltd., so in the facts and circumstances of the case, the assessee by giving and taking financial assistance from each other, i.e. between the assessee and M/s. Subhchintak Vancom Pvt. Ltd. wherein both the parties were benefited and such transaction between them were nothing but commercial transactions and, therefore, cannot be termed as dividend attributable to the shareholder. From the above discussion it can be said that sec. 2(22)(e) of the Act covers only those transactions which benefited the shareholder alone and resultantly no benefit to the company M/s. Subhchintak Vancom Pvt. Ltd. On the other hand, if the transaction is mutual wherein both the sides are benefitted, it is undoubtedly outside the purview of sec. 2(22)(e) of the Act. We note that there is no loan/advance between M/s. Subhchintak Vancom Pvt. Ltd. and it cannot be called as a loan account. We find that there is mutuality and there were shifting of balances, so it is evident that there were reciprocal demands between parties and thus mutual in characteristic. The account maintained by the assessee with M/s. Subhchintak Vancom Pvt. Ltd. is an account so maintained in respect of mutual transfer of amount by way of giving and taking financial assistance. Therefore, it has the character of a current account and this current account is different from a loan account for the sole reason that the feature of mutuality is not present in a loan transaction. From the facts narrated above, it is clear that both the parties are beneficiary of the transaction being current account transaction i.e. shifting of balances, therefore, as held by the Hon’ble Supreme Court in Keshri Chand Jaisukh Lal, supra and Hon’ble Calcutta High Court in Pradip Kumar Malhotra, supra, we note that sec. 2(22)(e) of the Act is not attracted in the transaction with M/s. Subhchintak Vancom Pvt. Ltd. It should be remembered that for exercising revisional jurisdictional the Pr. CIT should find that the order of the AO is not only erroneous but also it should be prejudicial to the interest of revenue. It should be kept 5 Snehapusph Barter Pvt. Ltd., AY 2012-13 in mind that the assessee cannot dictate the AO how to pass the order or to ask how to investigate or what question to ask or what should be enquired into. We also note that a search warrant was executed in the case of the assessee on 15.06.2011 and search happened in the assessment year under consideration and, therefore, scrutiny u/s. 143(3) of the Act was framed. All the records including all the books of account were before the AO. Appraisal report prepared by the Investigation Wing was also before the AO. In the original assessment order itself in para 4 the AO notes that assessee has been served notice u/s. 143(2) and 142(1) of the Act along with the questionnaire dated 31.12.2012. The AO notes that the assessee’s AR appeared from time to time and submitted details. Further, we note that the original order of the AO was passed with the prior approval of JCIT, Range-4, Central Kolkata u/s. 153D of the Act. In such a scenario, the Pr. CIT while exercising his jurisdiction has to clearly spell out not only that the order of the AO is erroneous in so far as it is prejudicial to the interest of the revenue. In case, where the AO has taken a plausible view on a point of law or fact the Ld. Pr. CIT cannot exercise the jurisdiction u/s. 263 of the Act. In this case, we note that Pr. CIT found fault with the assessee on three counts. Firstly, the Pr. CIT found fault with the transactions between M/s. SKG Flour Mills Pvt. Ltd. and secondly, found fault with M/s. Jagadhatri Tracon (P) Ltd., which was apparently on a wrong assumption of facts which fact was evident from the order of AO passed while giving effect to the impugned order of Pr. CIT and, therefore, the original order of the AO cannot be termed as erroneous. Third fault as per the Pr. CIT was in respect to the transaction between assessee M/s. Subhchintak Vancom Pvt. Ltd., we note that the entire records were before the AO and the AO has taken a plausible view as per the law laid by the Hon’ble Supreme Court’s and High court’s order in Kesari Chand Jaisukh Lal Vs. Shillong Banking Corporation Ltd. 1965 AIR 1711 and Pradip Kumar Malhotra, (supra) respectively. Thus, the view of the AO in respect to the transaction cannot be held to be unsustainable in law. And, the phrase ‘prejudicial to the revenue’ has to be read in conjunction with ‘an erroneous order’ passed by the AO to exercise revisional jurisdiction. In this context, we say that erroneous means if on the face of the record the issue in question has not been enquired at all by the AO. It should be remembered that every loss of revenue as a consequence of an order of AO cannot be treated as prejudicial to the interest of revenue. When the AO adopted one of the course permissible in law and it has resulted in a loss to 6 Snehapusph Barter Pvt. Ltd., AY 2012-13 the revenue; or where two views are possible and AO has taken one view with which Pr. CIT does not agree, it cannot be stated an erroneous order prejudicial to the interest of revenue unless the order of AO is unsustainable in law as held by the Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. Vs. CIT (2000) 243 ITR 83 (SC). In the facts and circumstances of the case as narrated above, original assessment order passed with the approval of JCIT u/s. 153D of the Act cannot be viewed as unsustainable in law. Further, when all the facts and the laws governing the issues were brought to the notice of the Pr. CIT for which show cause notice was issued by the Pr. CIT, while conveying his intention to invoke revisional jurisdiction u/s. 263 of the Act, we note that he has not discussed as to whether sec. 2(22)(e) of the Act is attracted and the transaction can be characterized or be termed as a loan/advance. We note that the Ld. Pr. CIT did not even care to discuss and pass a speaking order, has simply set aside the original assessment order, which action of Pr. CIT cannot be countenanced. Therefore, we are inclined to allow the appeal of the assessee and quash the impugned order of the Ld. Pr. CIT.

In the result, appeal of assessee is allowed. Order is pronounced in the open court on 18th October, 2017. Sd/- Sd/- (Dr. A. L. Saini) (Aby. T. Varkey) Accountant Member Judicial Member Dated :18th October, 2017 Jd.(Sr.P.S.) Copy of the order forwarded to: Appellant – M/s. Snehapusph Barter Pvt. Ltd., 15B, Everest House, 46C, 1. Chowringhee Road, Kolkata-700 071. Respondent – Pr. CIT, Central, Kolkata-2. 2 The CIT(A), Kolkata 3.

CIT , Burdwan 5. DR, Kolkata Benches, Kolkata /True Copy, By order,