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Income Tax Appellate Tribunal, AHMEDABAD – BENCH ‘B’
Before: SHRI RAJPAL YADAV, VICE- & SHRI WASEEM AHMED
PER RAJPAL YADAV, VICE-PRESIDENT: Assessee is in appeal before the Tribunal against order of the ld.Pr.CIT-1, Vadodara dated 14.03.2018 passed under section 263 of the Income Tax Act, 1961 for the Asstt.Year 2013-14.
Assessee has raised two grounds of appeal, which however revolve around a single issue i.e. the ld.Pr.CIT has erred in setting aside the assessment order by invoking provision of section 263, and directing the ld.AO to make a fresh assessment order and proposing an addition of Rs.2,68,76,432/- on account of interest paid to loan creditors.
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Facts in nutshell are that the assessee is a manufacturer of various types of engineering goods. It has filed return of income declaring total loss at (-)Rs.48,79,66,620/- on 27.9.2013. Thereafter, case of the assessee was selected for scrutiny assessment by issuance notice under section 143(2) of the Act. During the scrutiny assessment, it was noticed by the AO that assessee has received unsecured loans from companies from Kolkata, Mumbai, Thane, Surat and Kerala etc. for Rs.49,93,00,000/-. The assessee was asked to explain the genuineness of the loan transactions, identity and creditworthiness of the loan creditors. Assessee explained that all the loans were taken through banking channel, names and address and PANs of all the parties were mentioned in form no.3CD report, and therefore, the addition proposed did not come under the purview of section 68 of the Act. The ld.AO did not satisfy with explanation of the assessee, and held that since the assessee has not proved three limbs of provisions viz. identify of the depositors, genuineness of the transactions and credit-worthiness of the depositors, he treated the unsecured loans of Rs.49,58,00,000/- as unexplained income and added the same to the total income of the assessee under section 68 of the Act. Thereafter the ld.Pr.CIT-I sought to revise the assessment order by invoking revisionary power under section 263 of the Act. In the impugned order, the ld.Pr.CIT observed that unsecured loan to the tune of Rs.49,58,00,000/- was found to be non-genuine and treated it as unexplained income and added to the total income of the assessee under section 68, but interest paid on the said loan has been erroneously allowed as an expenses. It is further observed once the loan has been found to be non-genuine, no interest expenses could be held to be allowable on such loan, and therefore, order of the AO was erroneous
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and prejudicial to the interest of the Revenue to that extent. He set aside the assessment order, and directed the AO to frame assessment afresh after proper enquiries/ verification. Dissatisfied with order of the ld.CIT, the assessee is now before the Tribunal.
Before us, the ld.counsel for the assessee reiterated submissions, as were made before the Revenue authorities. He submitted that before the ld.AO, the assessee has pleaded that the company has paid interest on the deposits and TDS on such deposits has been paid with tax authority. He further submitted that all the materials were placed before the AO while framing the assessment, and after careful examination of the same, the ld.AO passed a reasoned assessment order, and therefore no room for the ld.CIT to exercise his power under section 263 and direct the AO to revise the assessment order in accordance with his finding in the impugned order. On the other hand, the ld.DR supported the impugned order.
We have considered rival submissions and gone through the records carefully. Section 263 of the Income Tax Act has direct bearing on the controversy, therefore, it is pertinent to take note of this section. It reads as under:
“263(1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.
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[Explanation.- For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,- (a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include- (i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income-tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A; (ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief Commissioner or Director General or Commissioner authorized by the Board in this behalf under section 120;
(b) “record shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Commissioner;
(c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal.
(2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed.
(3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, National Tax Tribunal, the High Court or the Supreme Court.
Explanation.- In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to
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section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded.”
On a bare perusal of the sub section-1 would reveal that powers of revision granted by section 263 to the learned Commissioner have four compartments. In the first place, the learned Commissioner may call for and examine the records of any proceedings under this Act. For calling of the record and examination, the learned Commissioner was not required to show any reason. It is a part of his administrative control to call for the records and examine them. The second feature would come when he will judge an order passed by an Assessing Officer on culmination of any proceedings or during the pendency of those proceedings. On an analysis of the record and of the order passed by the Assessing Officer, he formed an opinion that such an order is erroneous in so far as it is prejudicial to the interests of the Revenue. By this stage the learned Commissioner was not required the assistance of the assessee. Thereafter the third stage would come. The learned Commissioner would issue a show cause notice pointing out the reasons for the formation of his belief that action u/s 263 is required on a particular order of the Assessing Officer. At this stage the opportunity to the assessee would be given. The learned Commissioner has to conduct an inquiry as he may deem fit. After hearing the assessee, he will pass the order. This is the 4th compartment of this section. The learned Commissioner may annul the order of the Assessing Officer. He may enhance the assessed income by modifying the order.
A perusal of order of the AO and the impugned order of the ld.CIT, would certainly make out a prime facie case in favour of the
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ld.Commissioner, as the AO has not applied his mind nor he enquired into the issue and verified/examined the record of the case properly. We find that the factum of addition made by the AO under section 68 of the Act on the loan taken by the assessee treating the same as unexplained and non-genuine has not been disputed before us by the assessee, nor the issue of addition was contested by the assessee further on merit. The issue, therefore, before us is about allowance of interest expenses made by the assessee on the alleged loans which ought to have been disallowed by the AO. The ld.CIT observed that when loan deposits were found to be non-genuine, remained unexplained and added the same to the total income of the assessee, then there would not be any question allowing the alleged interest expenditure thereon, and therefore, there was a failure on the part of the AO with regard to examination/verification of the issues, which rendered the assessment order erroneous in so far as it is prejudicial to the interest of the Revenue. After perusal of impugned order, we are of the view that the reason for invocation of revisionary power by the ld.CIT is obvious and specific because there is an inherent lack of examination/verification of the record at the end of the AO while finalizing the assessment. On one hand, the ld.AO is treating the alleged loan deposits as non-genuine and adding the same to the income under section 68 of the Act, but on other hand, without proper verification, allowed the interest payment allegedly made to the loan depositors, that would render the assessment order erroneous and prejudicial to the interest of the Revenue. Interest paid to creditors against unsecured loans is allowable only when loan deposited by the creditor with the assessee are established. Therefore, the conclusion of the AO while finalizing the assessment is contradictory
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in itself, which render the assessment order erroneous and prejudicial to the interests of the Revenue. The ld.CIT is therefore justified in exercise of his power under section 263, which we uphold and the ground of appeal of the assessee is dismissed.
In the result, appeal of the assessee is dismissed.
Pronounced in the Open Court on 27th July, 2021
Sd/- Sd/- (WASEEM AHMED) (RAJPAL YADAV) ACCOUNTANT MEMBER VICE-PRESIDENT