Shri. Ch. Krishna Murthy, Hyderabad vs Assessee

2. Briefly stated, assessee is an individual and was covered in the search and seizure operations u/s 132 of the Act conducted on Vishnu Chemicals Group. Assessment for A.Y 2002-03 was completed u/s 143(3) r.w.s. 153A on 31.12.2009. Later the CIT (Central) Hyderabad treated the assessment order as erroneous and prejudicial to the interests of the Revenue and has ordered for re-assessment u/s 263 of the I.T.Act, 1961 and directed the AO to invoke provisions of section 2(22)(e) in the case of journal

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entries debiting the assessee in the books of M/s Vishnu Chemicals Private Ltd, in which company assessee is holding more than 10% of the share capital.

3. The CIT (A) dismissed the appeal filed by the assessee against the order passed u/s 143(3) r.w.s. 263 of the Act. Aggrieved, assessee is in appeal before us.

4. We heard both the parties and perused the material placed on record. We find that Coordinate Bench of Hyderabad 'B' Bench vide ITA No.766/Hyd/2012 dated 13.02.2015 had decided the appeal on the order of the CIT u/s 263 vide para Nos.24 and 25 which are reproduced below:

"24. Furthermore, it is clear from the discussions made by ld. CIT, the reasons on which range head i.e. Addl. CIT disapproved treating the advance as deemed dividend u/s 2(22)(e) is because it is converted as advance in the name of assessee merely through book entries and actually no money was advanced to assessee and secondly the company i.e. VCPL was not having accumulated profits Ch. Krishna Murt hy at the time of such payment. Though, learned CIT has accepted the fact that in reality no money was advanced by the company to assessee, but, according to him, by virtue of such a transaction assessee and his family members have become owner of shares worth Rs. 4 crores in the newly formed company. According to him, in these circumstances, journal entries passed in the books of account by converting the outstanding liability of the newly formed company as advance given to assessee will attract provisions of section 2(22)(e). In this context, he has relied upon a decision of the ITAT Chennai Bench and another decision of Hon'ble Madras High Court in case of T. Sundaram Chettiar and Another Vs. CIT, 49 ITR 287. From the aforesaid discussions of learned CIT, it is apparent and obvious that the issue whether the advance can be treated as deemed dividend u/s 2(22)(e) at the hands of assessee is a debatable issue on which more than one view are possible. Therefore, when the view taken by Addl. CIT and Assessing Officer can be considered as one of the possible views, assessment order cannot be treated

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as erroneous, even though there may be some prejudice caused to revenue. One more aspect, which needs to be taken note of is learned CIT while revising assessment order and directing Assessing Officer to treat the amount of Rs. 4,27,36,648 as deemed dividend at the hands of assessee has totally failed to examine whether M/s VCPL at the time of alleged payment was having accumulated profits or not. When learned CIT is aware of the fact that Addl. CIT while disapproving the addition proposed to be made u/s 2(22)(e) has observed that M/s VCPL did not have accumulated profits, which is one of the conditions for invoking section 2(22)(e), it was incumbent upon him to examine that aspect before directing for addition of Rs. 4,27,36,648 u/s 2(22)(e). ITAT Lucknow Bench in case of Mehtab Alam Vs. ACIT, ITA No. 288 to 294/LKW/14 dated 18/11/2014 while setting aside the order passed u/s 263 of the Act, amongst other decisions also took note of a decision of the Hon'ble Allabahad High Court in case of CIT Vs. Dr. Ashok Kumar wherein it was held that when Assessing Officer Ch. Krishna Murt hy was fully alive about the facts of the case and the order passed by him was approved by Addl. CIT, then, ld. CIT cannot be justified in interfering in the approval given by Addl. CIT for framing assessment order and there will be no case for setting aside the assessment order. Therefore, considered in the aforesaid perspective when it is a fact on record that both the addl. CIT while granting approval u/s 153D as well as Assessing Officer in course of assessment proceeding have examined the issue of deemed dividend u/s 2(22)(e) of the Act at the hands of assessee in relation to the advance shown in his name in the books of M/s VCPL and the view taken by Assessing Officer as well as addl. CIT can be considered as one of the possible views, assessment order cannot be treated as erroneous. More so, when assessment order has been passed in terms with section 153D of the Act and ld. CIT has not revised the directions of addl. CIT. In these circumstances, as one of the conditions of section 263 is not satisfied, the impugned order passed u/s 263 is not valid. Accordingly, we set aside the impugned order of learned CIT and restored the assessment order passed.

25. As we have held the revision order to be invalid for the reasons stated above, the other issues raised by assessee in the grounds of appeal relating to the absence of incriminating material, etc. are not required to be gone into. For the very same reason, additional ground is also not required to be adjudicated".

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5. Since the ITAT has set aside the order passed u/s 263 in ITA No.766/Hyd/2012 dated 13.02.2015, the order passed by the AO and confirmed by the CIT (A) in this appeal becomes redundant.

6. In the result, appeal preferred by the assessee is allowed for statistical purposes.

Order pronounced in the Open Court on 17thJune, 2015.

Sd/- Sd/- (B. Ramakotaiah) (Asha Vijayaraghavan) Accountant Member Judicial Member

Hyderabad, dated 17th June, 2015.

Vnodan/sps Copy to:

1. Shri Ch. Krishna Murthy, Plot Road No.47, Jubilee Hills, Hyderabad

2. Dy. Commissioner of Income Tax, Circle 3(3) Hyderabad

3. The CIT (A)-IV Hyderabad

4. The CIT-III Hyderabad

5. The CIT (Central) Hyderabad

6. DR, ITAT, Hyderabad

7. Guard File

By Order

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