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Income Tax Appellate Tribunal, B BENCH, MUMBAI
Per contra, the Ld. Departmental Representative relied upon the 8. order passed by the PCIT. Referring to paragraph 5.2.2.2 of the order passed by the PCIT, the Ld. Departmental Representative submitted that relevant documents/details were never filed by the Appellant before the Assessing Officer. Without prejudice to the aforesaid, he submitted that even if it is taken with the necessary documents/details were filed by the Appellant, the Assessing Officer failed to carry out of necessary provision/enquiry. A perusal of the financial statement showed that the Appellant had paid interest on unsecured loan and at the same time, granted interest free loans and advances. Thus, the Appellant had incorrectly claimed excess (Assessment Year 2017-18) deduction for interest which was allowed by the Assessing Officer, thus, making the Assessing Officer, both, erroneous and prejudicial to the interest of the Revenue. The Ld. Departmental Representative, therefore, submitted that the PCIT was justified in invoking provisions to Explanation 2 to Section 263 of the Act and setting aside the Assessment Order, dated 29/11/2019, as being erroneous in so far as prejudicial to the interest of the Revenue.
We note that the Assessment Order, dated 29/11/2019, was passed by the Assessing Officer under Section 143(3) of the Act after the regular scrutiny under Section 143(3) of the Act. However, the Assessment Order does not deal with the allowance/disallowance of the interest expenditure. During the course of hearing, the Appellant had placed reliance upon the judgment of the Hon’ble Bombay High Court in the case of MOIL Ltd. vs. CIT-1, Nagpur: 396 ITR 244 (Bombay). The relevant extract of the aforesaid judgment read as under: “5. On a perusal of the orders passed by the Authorities, it appears that before the assessment order was passed, a notice was served on the assessee under Section 142(1) of the Act and 20 queries pertaining to different heads were made therein. The ninth query in the notice under Section 142(1) of the Act pertains to the expenditure for the Corporate Social Responsibility. By the said query, the assessee was directed to give a detailed note of expenditure for the Corporate Social Responsibility along with bifurcation of the expenses under different heads. An exhaustive reply was submitted by the assessee to the notice under Section 142(1) of the Act. In paragraph 8 of the reply, the assessee gave the detailed note pertaining to the expenditure for the Corporate Social Responsibility under different heads that runs into several pages. The heads under which the expenses were made towards the Corporate Social Responsibility were specifically mentioned as health, environment, sports, education etc. and for each of the different heads, particulars were given in respect of every minor or major expenses. A detailed note on the expenditure (Assessment Year 2017-18) on the Corporate Social Responsibility claim was given in paragraph 8 which runs into more than five pages. It is not disputed that the appellant - assessee is a Government of India undertaking and the Government has a control over the expenses of the undertaking. It is pertinent to note that during the previous assessment years, similar claims were made by the assessee - Company and the assessment orders allowing the claims have attained finality. We have minutely perused the assessment order. The claims for deductions were made by the assessee at least under 20 heads and queries were made in the notice under Section 142 (1) of the Act to the assessee in respect of nearly all of them. We, however, find from the assessment order that the Assessing Officer has dealt with nearly nine claims of deductions. These claims have been specifically mentioned in the assessment order and they have been discussed therein because the Assessing Officer appears to have disallowed those claims either partially or totally. In respect of the claim for the Corporate Social Responsibility and some other claims that were allowed by the Assessing Officer, the Assessing Officer has not made a specific reference in the assessment order. It is apparent from the assessment order that the Assessing Officer has expressed in detail about the claims that were disallowable. Where the claims were allowable, as we find from the reading of the assessment order, the Assessing Officer has not referred to those claims. The Corporate Social Responsibility claim is one of them. It is apparent from the notice under Section 142 (1) of the Act that a specific query in regard to the claim pertaining to the Corporate Social Responsibility was made and a detailed note after giving bifurcation of the expenses under different heads was sought. We have perused the response in respect of this query which is exhaustive. We find that the assessee has given the details, as are sought under query no.9 in the notice under Section 142(1) of the Act. If that is so, the judgments, reported in Fine Jewellery (India) Ltd. (supra) and Nirav Modi (supra) and on which the learned Counsel for the assessee has placed great reliance would come into play. It is held in the judgments referred to herein above by relying on the judgment in the case of Idea Cellular Ltd. (supra) that if a query is raised during the assessment proceedings and the query is responded to by the assessee, the mere fact that the query is not dealt with in the assessment order would not lead to a conclusion that no mind has been applied to it. In the case of Fine Jewellery (India) Ltd. (supra) 7 (Assessment Year 2017-18) this Court found that from the nature of the expenditure as explained by the assessee in that case the Assessing Officer took a possible view and therefore, it was not a case where the provisions of Section 263 of the Act could have been resorted to. Considering the explanation of the assessee in this case, we are also of the view that the Assessing Officer had taken a possible view. In the case of Nirav Modi (supra) this Court held that the Tribunal was justified in that case in cancelling the order under Section 263 of the Act as the assessee had responded to the query made to it during the assessment proceedings and merely because the assessment order did not mention the same, it would not lead to a conclusion that the Assessing Officer had not applied his mind to the case. In the instant case, we find that the Assessing Officer has applied his mind to the claims made by the assessee and wherever the claims were disallowable they have been discussed in that assessment order and there is no discussion or reference in respect of the claims that were allowed. In view of the law laid down in the judgments in the case of Fine Jewellery (India) Ltd. (supra) and Nirav Modi (supra) it would be necessary to hold that in the circumstances of the case, it cannot be said that merely because the Assessing Officer had not specifically mentioned about the claim in respect of the Corporate Social Responsibility, the Assessing Officer had passed the assessment order without making any enquiry in respect of the allowability of the claim of Corporate Social Responsibility. In our view, the provisions of Section 263 of the Act could not have been invoked by the Commissioner of Income Tax in the circumstances of this case. The Tribunal was not justified in holding that the query under Section 142 (1) of the Act was very general in nature and the reply of the assessee was also very general in nature. In our considered view, the query pertaining to Corporate Social Responsibility was exhaustively answered and the appellant - assessee had provided the data pertaining to the expenditure under each head of the claim in respect of Corporate Social Responsibility, in detail. The Tribunal was not justified in holding that the reply/explanation of the assessee was not elaborate enough to decide whether the expenditure claim was admissible under the provisions of the Income Tax Act. The Assessing Officer is not expected to raise more queries, if the Assessing Officer is satisfied about the admissibility of claim on the basis of the material and the details supplied. In the facts and circumstances of the case, we answer the 8 (Assessment Year 2017-18) question of law in the negative and against the Revenue.” (Emphasis Supplied) Therefore, we find merit in the contention advanced on behalf of the 10. Appellant that merely because the Assessment Order is silent on claim of deduction/allowance examined during the assessment proceedings and allowed by the Assessing Officer after inquiry/verification during the assessment proceedings would not lead to an automatic conclusion that there was no application of mind by the Assessing Officer and/or that the Assessing Officer had failed to conduct proper/necessary enquiry or verification in relation to the aforesaid claim during the assessment proceedings. As per Section 263 of the Act, the PCIT is required to examine the ‘record’ and not just the assessment order before exercising power of revision under Section 263 of the Act. Accordingly, we proceed to examine the material placed before us by the Appellant to establish that the claim of deduction of interest was allowed by Assessing Officer after proper inquiry/verification and after proper application of mind.
On perusal of the notice issued under Section 263(1) of the Act as 11. reproduced in paragraph 2 in the order impugned, we find that the PCIT was of the view that the Appellant had paid interest at the average rate of 12% per annum on unsecured loans while it has received interest at the average rate of 2-3% per annum on loans given and thus, the claimed excess expenses on account of interest. The Assessing Officer failed to examine the aforesaid aspect during the assessment proceedings. This had resulted in allowance of excess claim of interest without proper enquiry/verification, warranting exercise of power revision under Section 263 of the Act. However, on perusal of record, including the paper-book filed by the Appellant vide letter, dated 30/08/2022, we note that the findings (Assessment Year 2017-18) returned by the PCIT are factually incorrect and contrary to the material on record. When the case of the Appellant was selected for scrutiny notice, dated 07/06/2019, was issued under Section 142(1) of the Act. As per query No. 18-19 of the aforesaid notice, the Appellant was asked to furnish details of unsecured loans and squared of loans (in the specified form) along with copy of the ledger account and confirmation from the parties. The Appellant was also directed to furnish the details of loans and advances given in the specified proforma. Thereafter, vide notice, dated 18/09/2019, issued under Section 142(1) of the Act, the Appellant was again asked to furnish the details of squared of loans within the year and justification with supporting documents. In response, vide letter, dated 29/09/2019, the Appellant furnished the details of unsecured loans squared of loans during the relevant previous year along with the copy of ledger account (25 in number) and confirmations (25 in number) as well as the details of loans and advances given during the year. The aforesaid details are placed at page 19 to 23 of the paper-book. On perusal of details to unsecured loans and squared of loans we find that the Appellant had furnished the following details - PAN No., Closing Balance as on 31/03/2017, interest paid during the relevant previous year and the applicable rate of interest. On perusal of details of loans and advances given during the year, we find that the Appellant had disclosed the details of the interest free loans given to Ketan R. Shah and Nitin R. Shah. Thereafter, vide letter, dated 07/11/2019, filed before the Assessing Officer and the Appellant furnished note on interest which read as under: “The assessee is engaged in business as civil contractor, contracting of different types of works from Government, Semi-Government/Quasi Government and/or Private Bodies by tendering or by negotiation for execution of any type of work ie., road construction, road repairs, storm water drains petty works, etc. (Assessment Year 2017-18) The assessee is required to give security deposits, tender deposits, additional security deposits to BMC principal contractors towards proper performance/execution of works. Thus, the assessee has to keep funds available for the purpose of giving additional security deposits at time of filling up tenders, subsequent to awarding of works etc. Besides it is very difficult to get funds from loan creditors at times of need. Pending immediate requirement, the assessee parks its funds for short period of time which are temporary in nature. The same fetches interest rather than keeping it idle in Current account or Short Term FD's.” (Emphasis Supplied) 12. Thus, in the case before us specific queries regarding loans taken/given as well as interest received/paid were raised during the assessment proceedings by the Assessing Officer and the same were responded to by the Appellant by furnishing relevant explanation, documents, details and submission.
We note that during the assessment proceedings, the Appellant had filed Profit & Loss Account for the relevant previous year which shows that the Appellant had received interest of INR 29,52,275/- on fixed deposit receipts in addition to the interest on loans of INR 11,13,914/-. The interest received aggregating to INR 11,13,914/- consists of interest of INR 6,88,081/- computed at the rate of 9% per annum, received from MJ Chemicals and interest INR 4,25,833/- computed at the rate of 12% per annum received from Smith Developers which has been offered to tax. The PCIT returned incorrect finding in paragraph 5.2.2.1 of the order impugned that interest free loans were given to the MJ Chemicals and Smith Developers. As on 31/03/2017, outstanding loan given to MJ Chemicals was INR 35,00,000/- and Smith Developers was INR 85,92,759/-. The PCIT incorrectly aggregated the same to the interest free loans of INR 3,77,99,128/- given to associates to arrive at incorrect finding that the details of outstanding loans of INR 4,98,9,886/- was neither asked for nor furnished during the 11 (Assessment Year 2017-18) assessment proceedings. Whereas, the Appellant had filed the relevant details vide letter dated 29/09/2019. Since, no loan was given to MJ Chemicals during the relevant previous year, the name of MJ Chemicals was not stated in the list of loans granted during the year. However, the relevant disclosure has been made in the schedules forming part of the Balance Sheet under the head ‘Loans & Advances’ giving break up of Loans and Loans Against Expenses aggregating to INR 5,39,58,590/-. Thus, we find all the relevant details/documents formed part of the assessment record. We have already noted above that specific queries were raised by the Assessing Officer. Therefore, the finding returned by the PCIT that the relevant details/documents were not called for by the Assessing Officer as well as the finding that the relevant details were not furnished by the Appellant are contrary to material on record. Further, we note that the Appellant had given interest free loans aggregating to INR 3,77,99,129/- to associates. The contention of the Appellant is that the Appellant had sufficient interest free funds to give the aforesaid loans. It was contended by the Appellant that one of the partners of the Appellant-firm had contributed capital aggregating to INR 12,66,21,000/-. During the course of hearing, the Ld. Departmental Representative has also pointed out that the Appellant had received interest free unsecured loans from associates and as on 31/03/2017 interest-free unsecured loan of INR 1,19,48,829/- was outstanding to Hetal N. Shah. Similarly, interest- free unsecured loan of INR 1,75,000/- was also outstanding to Pushpalata Rajmal Shah. Further, the Appellant had ‘Contractor Deposit Against Work’ of INR 11,42,32,017/- during the relevant previous year. All this information/details formed part of the assessment records and were examined by the Assessing Officer. We note that the PCIT has accepted that INR 12,66,21,000/- was 12 ITA No.1326/Mum/2022 (Assessment Year 2017-18) contributed by one of the partners of the Appellant-firm. However, PCIT observed that since the interest free loans were given prior in time, the contention of the Appellant that the capital contributed was utilized for giving interest free loans cannot be accepted. We note that the PCIT has not taken into account the other sources of interest free funds being ‘Contractor Deposit Against Work’ and interest free unsecured loans. On perusal of the details of unsecured loan and the balance sheet along with the relevant schedules we find that sufficient interest free funds were available. The Contract Deposits Against Work at INR 12,40,16,517/- as on 01/04/2016 and at INR 11,42,32,017/- as on 31/03/2017. As per details of unsecured loan and advances furnished by the Appellant during the assessment proceedings interest free unsecured loan of INR 1,19,48,829/- was outstanding to Hetal N. Shah. Further, capital contribution of INR 12,66,21,000/- was received from the partner. As against the aforesaid interest free funds available with the Appellant, interest- free loan on INR 3,42,88,327/- was granted during the relevant previous year. The view taken by the Assessing Officer to allow the claim of deduction of interest on unsecured loan in entirety is a plausible view. The Assessment Order is does not deal with the aforesaid claim, however, material forming part of the assessment records shows that the Assessing Officer allowed the claim after making proper enquiry/verification. The PCIT has proceeded to exercise powers of revision under Section 263 of the Act without taking into consideration the entire material forming part of the assessment record and on incorrect understanding of facts. Thus, the PCIT was not justified in invoking provisions of Explanation 2 to Section 263 of the Act as the same are not triggered in the facts and circumstances of the present case. Accordingly, we set aside the order, dated 31/03/2022, passed under Section 263 of the Act and 13 (Assessment Year 2017-18) restore the Assessment Order, dated 29/11/2019, passed under Section 143(3) of the Act. Ground No. 1 to 3 raised by the Appellant are allowed while rest of ground raised by the Appellant are disposed off as being infructuous.
In result, the present appeal preferred by the Assessee is allowed. 14.
Order pronounced on 26.05.2022. 15.