SPRINT ADVISORY SERVICES PVT. LTD.,MUMBAI vs. PR. CIT- 3 MUMBAI, MUMBAI

The facts relating to the case are stated in brief. The assessment in the hands of the assessee for the year under consideration was completed by the Assessing Officer on 25.12.2019 under section 143(3) of the Act. On examination of the assessment record, the learned PCIT noticed that the assessee has issued share capital to the three companies including foreign company. The assessee has issued at par in aggregate 2,71,43,546 number of shares having face value of Rs. 10/- each. Though the Assessing Officer has issued notice under section 133(6) of the Act to the above said companies, according to learned PCIT they have not given nature and source

Aggrieved, the assessee has filed this appeal before the Tribunal.

Learned AR submitted that the Assessing Officer has examined both the issues during the course of assessment proceedings. In this regard, the learned AR invited our attention to the notice dated 10.11.2019 issued under section 142(1) of the Act. He submitted that question No. 5 raised in the above said notice related to the disallowance to be made under section 14A of the Act and question Nos. 6.4 to 6.7 were related to the share capital issued by the assessee. The Learned AR submitted that the assessee has given due replies to the Assessing Officer with regard to the above said both the issues and the AO has accepted them.

With regard to the disallowance to be made u/s 14A of the Act, the Ld A.R submitted that the assessee did not earn any exempt income and hence no disallowance u/s 14A of the Act as per decisions rendered by various High Courts. Hence the view taken by the AO is a possible view. With regard to share application money, he submitted that major amount of share application money was collected from two Indian entities, viz., M/s. Future Corporate Private Limited and M/s. Future Enterprises Limited. He submitted that both these companies are group concerns of the assessee. He further submitted that the Assessing Officer has issued notices under section 133(6) of the Act to both the above said two companies calling for details. He submitted that both the above said share applicants have replied to the notices issued by the Assessing Officer under section 133(6) of the Act confirming the investments made by them in the assessee-company. Further they have also furnished copies of their income tax return alongwith financial statements and copies of their bank accounts. Hence it cannot be said that the AO has not made proper enquiries with regard to this issue. Accordingly, the learned AR submitted that the Assessing Officer has examined both the issues and has taken possible view of the matter. Accordingly, he contended that the impugned assessment order cannot be considered as erroneous and prejudicial to the interest of Revenue.

On the contrary, the learned DR submitted that the Assessing Officer has not followed the Circular issued by the CBDT with regard to the disallowance to be made under section 14A of the Act, he submitted that the assessee had offered explanation that no disallowance u/s 14A is called for since it did not earn any exempt income. However, the CBDT circular states that the disallowance is required to be made even if the assessee did not earn exempt income. He submitted that the CBDT circular is binding on the AO. With regard to share application money received by the assessee, the Ld D.R submitted that the Assessing Officer has not properly examined the documents furnished by the share applicants in order to find out the 4 Sprint Advisory Services Pvt. Ltd.

In the rejoinder, the Ld A.R submitted that the AO has accepted the claim that no disallowance is called for u/s 14A of the Act on the basis of decisions rendered by Hon’ble High Courts. With regard to the share application money, he submitted that both the share applicants had enough resources for making the impugned investments and hence their profitability is not relevant for examining their credit worthiness.

We heard rival contentions and perused the record. The scope of revision proceedings initiated under section 263 of the Act was considered by Hon'ble Bombay High Court, in the case of Grasim Industries Ltd. V CIT (321 ITR 92) by taking into account the law laid down by the Hon'ble Supreme Court in the case of Malabar Industrial Co Ltd (243 ITR 80). The relevant observations made by Hon’ble Bombay High Court are extracted below: “Section 263 of the Income-tax Act, 1961 empowers the Commissioner to call for and examine the record of any proceedings under the 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 interests of the Revenue, to pass an order upon hearing the assessee and after an enquiry as is necessary, enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment. The key words that are used by section 263 are that the order must be considered by the Commissioner to be “erroneous in so far as it is prejudicial to the interests of the Revenue”. This provision has been interpreted by the Supreme Court in several judgments to which it is now necessary to turn. In Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83, the Supreme Court held that the provision “cannot be invoked to correct each and every type of mistake or error committed by the Assessing

In the instant case, it was the contention of the assessee that it did not earn exempt income and hence no disallowance u/s 14A of the Act is called for. The above said contention of the assessee is supported by decisions rendered by various High Courts. The assessee has relied upon the decision rendered by Hon’ble Delhi High Court in the case of CIT vs. Holcim India (P) Ltd (272 CTR 1282)(Delhi) and also other decisions. With regard to the contention on the binding nature of circulars issued by CBDT, the assessee

With regard to the Share application money received by the assessee, we notice that the assessee has issued shares at Par, i.e., no share premium was received. Secondly, it was issued to group companies only, i.e., it is case of transfer of funds between group companies. Thirdly, we notice that the assessee has furnished all the details in order to discharge the onus placed upon it u/s 68 of the Act. After that, the AO has also issued notices u/s 133(6) of the Act to the two share applicants and both the share applicants have also duly responded to the notices by furnishing confirmation, bank statements, financial statements etc. The replies so given by the investor companies did not contradict with the submissions made by the assessee. With regard to the credit worthiness, as rightly contended by Ld A.R, one has examine the availability of the funds/resources with the investor companies for making impugned investments rather than their profitability. It is not the case of Ld PCIT that the investor companies did not have resources, which has actually escaped the attention of the AO. Hence, in the facts of the present case, it cannot be said that the AO did not make proper enquiries. Accordingly, the view taken by the AO on this issue is also a possible view.

In view of the foregoing discussions, we are unable to agree with the view taken by Ld PCIT on both the issues and accordingly hold that the 7 Sprint Advisory Services Pvt. Ltd.

In the result, the appeal filed by the assessee is allowed.