The Madras High Court held that the reassessment in absence of prima facie finding is erroneous.
The assessee, M/s.Accel Limited filed its return of income disclosing a loss and the return was processed under Section 143(1) of the Act and was accepted. Subsequently, during the scrutiny proceedings, it was observed that the assessee had received a loan amounting to Rs.3 Crores from M/s.Accel ICIM, a company in which the assessee holds more than 10% of the shares carrying voting rights. The Assessing Officer was of the view that in terms of the provisions of Section 2(22)(e) of the Act, any loan or advance received from a company in which, the assessee holds more than 10% of the shares with voting powers, shall be deemed to be a dividend taxable under the Act. For such a reason, notice under Section 148 of the Act was issued. The assessee objected to the reopening of the assessment. The objections were disposed of by order stating that only during the remand proceedings, when the ledger account was examined, it came to the knowledge of the Assessing Officer that a sum of Rs.3 Crores has been actually received by the assessee from their subsidiary company in the year relevant to the assessment year 2002-03. The reassessment is valid. It was pointed out that during the course of scrutiny assessment, it appeared in the books of the assessee that they have received a loan of Rs.3 Crores from its subsidiary company. The Assessing Officer discussed various aspects and completed the assessment.
Mr.R.Sivaraman, counsel appearing for the assessee submitted that de hors the said issue, the Tribunal has also gone into the aspect as to whether the CIT without even recording any prima facie finding to make out a case that certain amount claimed by the assessee as deduction in its computation income de facto relating to the earning of tax-free income, held that reassessment could not have been made. Therefore, it is submitted both on the legal issue as well as on the exercise of the power of the CIT under Section 263 that the Tribunal has rightly held in favour of the assessee.
The division bench of Justice T.S.Sivagnanam and Justice Sathi Kumar Sukumara Kurup while upholding the Order of the Tribunal ruled that when such was the stand taken by the assessee, it is necessary for the CIT to at least record a prima facie finding that certain amount claimed by the assessee as deduction in its computation of income de facto related to earning of tax-free income. Thus, it was held that in the absence of any such prima facie finding, the reassessment was erroneous.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan AdFree. Follow us on Telegram for quick updates.
