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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: Shri George Mathan, JM & Shri M. Balaganesh, AM
Per: Bench
These appeal are directed against the orders of the learned Pr. CIT, Cochin under Section 263 of the Income Tax Act, 1961 dated 27.03.2019 for assessment years 2013-14 & 2014-15 treating the order passed by the learned AO as erroneous in as much as it is prejudicial to the interest of Revenue for the purpose of taxability of deemed dividend amounting to Rs.5,81,04,300/- in the hands of the assessee shareholders, i.e. Shri Ashok Thankappan Nair and Smt. T. Lekha.
ITA Nos. 627 to 630/Coch/2019 2 Smt. T. Lekha & Shri Ashok T. Nair 2. Shri B. Ramakrishnan, CA represented the assessee and Shri Shantham Bose, CIT-DR represented Revenue.
We have considered the rival contentions and perused the material on record. It is not in dispute that the residential property belonging to Mr. Ashok Thankappan Nair and Smt. T. Lekha (assessees herein) were constructed for Rs.5,81,04,300/- over a period of 4 years during the financial years 2012-13 to 2015-16. This sum was admittedly spent by M/s. Artech Realtors Pvt. Ltd. on behalf of the assessees. Admittedly, the assessees are directors in Artech Realtor Pvt. Ltd. having substantial voting power of more than 10 per cent. It is also not in dispute that M/s. Artech Realtors Pvt. Ltd. is engaged in the business of construction of residential projects. To evidence this fact, the learned A.R. also placed a copy of the Balance Sheet of M/s. Artech Realtors Pvt. Ltd. as on 31.03.2013.
Assessment in case of these assessees were framed under Section 153C r.w.s. 143(3) of the Act on 20.10.2016 in the case of Smt. T. Lekha and under Section 153A r.w.s. 143(3) of the Act on 20.10.2016 in the case of Shri Ashok Thankappan Nair. The fact of the entire cost of construction of residential house being met by M/s. Artech Realtors Pvt. Ltd. has been duly submitted by the assessees on 18.10.2016 before the learned AO. Since the assessment was getting time barred on 21.10.2016 the learned AO could not find sufficient time to verify the same and accordingly accepted the plea of the assessee by completing the assessments on 20.10.2016. Latter these assessments were subject matter of revision under Section 263 of the Act by the Pr. CIT on the ground of non-enquiry by the learned AO.
At the outset we found that M/s. Artech Realtors Pvt. Ltd. is engaged in the business of real estate projects including residential projects. Admittedly the cost of construction of residential house of the assessees was met by M/s. Artech Realtors Pvt. Ltd. In fact the money spent by M/s. Artech Realtors Pvt. Ltd. has been shown as inventory in the Balance Sheet of M/s. Artech Realtors Pvt. Ltd. This specifically goes to prove that
ITA Nos. 627 to 630/Coch/2019 3 Smt. T. Lekha & Shri Ashok T. Nair the company, i.e. M/s. Artech Realtors Pvt. Ltd. had taken up this project of construction of residential house on commercial basis through the said work is done for the purpose of the directors of the assessee company. Hence it can be safely construed that the work had been done in the normal course of business by the company on behalf of the directors. Since the transaction is carried out in the normal course of business of a company, even though said activity is carried out for the Directors of the said company, there cannot be applicability of provisions of Sectoin2(22)(e) of the Act as it would fall within the exception clause. Hence in these circumstances, the cost of construction of residential house carried out in the normal course of business by M/s. Artech Realtors Pvt. Ltd. on behalf of the directors cannot be construed as loan or advance falling within the meaning of Section 2(22)(e) of the Act in the facts and circumstances of the instant case. Hence the action of the learned Pr. CIT in invoking the provisions of Section 263 of the Act for invoking the provisions of Section 2(22)(e) Act in the hands of shareholders (assessees herein) is not sustainable in the eyes of law.
We find that the assessment in the case of Shri Ashok Thankappan Nair was framed under Section 153A of the Act and assessment in the case of Smt. T. Lekha was framed under Section 153C of the Act. The learned A.R. also stated that there is no incriminating material found during the course of search relatable to the proposed addition under Section 2(22)(e) of the Act. We find from a perusal of the assessment order that the search had taken place on 12.11.2013 hence as on the date of search the due date for issuance of notice under Section 143(2) of the Act for AY 2013-14 had not expired. Hence the issue of existence of incriminating material for the purpose of determination of total income under Section 153A or 153C of the Act has no relevance. Hence this ground raised by the assessee is hereby dismissed.
The learned A.R. also submitted that ultimately the Pr.CIT had directed the learned AO to refer the case to the learned Departmental Valuation Officer under Section 142A of the Act for determining the cost of construction of the residential premises. The learned A.R. placed on record
ITA Nos. 627 to 630/Coch/2019 4 Smt. T. Lekha & Shri Ashok T. Nair the consequential assessment order under Section 143(3) r.w.s. 263 of the At dated 20.03.2020 wherein the learned DVO had determined the value of the property at Rs.5.56 crores without considering the cost of land and moveable furniture, etc. We find that the assessees had claimed the cost of construction at Rs.5,81,04,300/-.
When all these facts were confronted to the learned D.R., he vehemently argued that the learned AO had passed completely non speaking orders both under Section 153A in the case of Shri Ashok Thankappan Nair and under Section 153C in the case of Smt. T. Lekha. Hence the Pr. CIT is fully justified in invoking the provisions under Section 263 of the Act and setting aside the order of the learned AO. We are unable to comprehend ourselves to accept this argument in as much as the learned Pr. CIT has nowhere in his order pointed out any error in the order passed by the learned AO. It is a fact which staring on us that M/s. Artech Realtors Pvt. Ltd. had carried out the construction activity of the residential premises belonging the Directors in the normal course of its business. Hence the very premise about the applicability of provision of Section 2(22)(e) of the Act itself is clearly in violation of law and such transaction falls within the exception clause. Hence it can be safely concluded that the learned Pr. CIT had proceeded on incorrect application of law while invoking his revisionary jurisdiction under Section 263 of the Act. In any case we find that the assessees had duly furnished all these details before the learned AO during the course of assessment proceedings in response to the queries raised by the learned AO. Hence it can be safely concluded that the learned AO had indeed made necessary verification on the same and was convinced with the reply given by the assessees. Hence no error could be attributed in the order passed by the learned AO. It also cannot be said that the learned AO had not made any enquiry on this issue. The law is very well settled that the learned Pr. CIT could invoke jurisdiction under Section 263 of the Act only when there is lack of enquiry by the learned AO. Reliance in this regard has been rightly pled by the learned A.R. on the decision of the Hon’ble Delhi High Court in the case of CIT vs. Sunbeam Auto Ltd. reported in (2011) 332 ITR 167 (Del).
ITA Nos. 627 to 630/Coch/2019 5 Smt. T. Lekha & Shri Ashok T. Nair 9. We further find in para 8 of the order that the learned Pr. CIT had merely directed the learned AO to examine the issue flagged by him in the order without pointing out where the order of the learned AO is erroneous. This only tantamount to directing the AO of fishing and roving enquires which is not permissible under Section 263 of the Act. Nothing stops the learned Pr. CIT from making enquiries on his own and bring on record how the order passed by the learned AO is erroneous.
In view of the aforesaid observations the order passed by the Pr. CIT under Section 263 of the Act deserves to be quashed and is accordingly quashed.
In the result, the appeals filed by the assessees are allowed.
Dictated and pronounced in the open Court on 17th March, 2022.
Sd/- Sd/- (M. Balaganesh) (George Mathan) Judicial Member Accountant Member
Cochin, Dated: 17th March, 2022
Copy to:
The Appellant 2. The Respondent 3. The CIT(A) - 4. The Pr.CIT - (Central), Cochin 5. The DR, ITAT, Cochin 6. Guard File By Order
//True Copy// Assistant Registrar ITAT, Cochin n.p.