OM SAI HOUSING & DEVELOPMENT CO. P. LTD.,MUMBAI vs. PR. CIT - 8, , MUMBAI

O R D E R PER S. RIFAUR RAHMAN (AM)

15. Escalate Buildtech Pvt 80,00,000/- Business Advance. Ltd. Non interest bearing Assessee Company has taken various above loans for making investment in some real estate/ other projects. Assessee Company has given various advances to the following Company / persons: Sr. Amount Name of the Party Re marks No. (Rs.) 1. Aquila Medicare Pvt. Ltd. 5,00,000/- Company is into PAN: AADCA9886C Pharmaceutical Business 2. Franklin Fernandis 31,50,000/- Person is into PAN: AAKPF9237A Pharmaceuticals Business 3. Siddhesh Properties Pvt Ltd. 1,48,37,500 Company is into Real PAN: AAPCS1903G Estate Business 4. Siddhesh Developers Pvt. Ltd. 14,05,000/- Company is into Real PAN: AALCS4350F Estate Business 5. Vinayak Enterprises 41,00,000/- Amount paid for advance PAN: AAGFV0577K for acquisition of Land.

6. Multiventure Agro & 25,00,000/- Company is into Real Infrastructure Pvt. Ltd. Estate Business. PAN: AAECM9836B Assessee Company has not received Income from all above mentioned parties due to various reasons like non commencement of project, non completion of expected stage of the project, non receipt of Government permission etc. Still Interest on loans given (Income) is more than Interest Expense.”

4 ITA.NO.635/MUM/2021 (A.Y: 2015-16) Om Sai Housing & Development Co. Private Limited 3. From the above submissions filed before Assessing Officer, Ld.Pr.CIT observed some discrepancies as discussed in his order as under: “(a) Paresh M. Bagadia, whose name is shown under the head "Long Term Borrowings - Unsecured Term Loans" [Note No.3 to Balance Sheet] to whom interest of Rs.60,000/- has been paid [as per confirmation available on record]. (b) Bharati Praful Sanghavi, whose name is shown under the head "Other Current Liabilities - Other Payables" [Note No. 5 to Balance Sheet] to whom interest of Rs.85,151/- has been paid on account of Interest on Unsecured Loan. In Note No. 7 to the Balance Sheet, the assessee has given the details of Long Term Loans and Advances. It is seen from the details furnished during the course of assessment proceedings that, out of 10 parties appearing therein, interest was received from only 3 parties i.e. from (i) Siddhesh Builders Pvt. Ltd; (ii) Siddhesh Developers Pvt. Ltd.; and (iii) Siddhesh Properties Pvt. Ltd. The relevant details are as under: As per Form 26AS 7. Long Term Loans and Advances (Rs.) Interest TDS Loans and advances to related parties Aquila Medicare Pvt. Ltd. 5,00,000 0 Landmark Builders & Developers 54,000 0 Lordlife Science Pvt. Ltd. 2,00,000 0 7,54,000 0 Other loans and advances Multi Venture Agro & Infrastructure Pvt. 25,00,000 0 0 Ltd. Franklin Fernandies 54,000 0 0 Sachin Manve 2,00,000 0 0 Siddhesh Builders Pvt. Ltd. 4,54,000 60,000 6,000 Siddhesh Developers Pvt. Ltd. 14,05,000 1,50,000 1,50,000 Siddhesh Properties Pvt. Ltd. 1,48,37,500 15,00,000 1,50,000 Vinayak Enterprises 41,00,000 0 0 2,66,46,500 17,10,000 1,71,000 Total 2,74,00,500 17,10,000 1,71,000

5 ITA.NO.635/MUM/2021 (A.Y: 2015-16) Om Sai Housing & Development Co. Private Limited In its reply (24 Table above) though the assessee is saying that, "Assessee Company has given various advances to the Following Company/ persons and the "Assessee Company has not received income from all above mentioned parties due to various reasons like non commencement of project, as shown in the Table at Sr. No. (iv) above, in all, the assessee has received interest from three parties [out of which two are included in assessee's reply (24 Table above, which is appearing in the Form 26AS also. Further, as per the "Confirmation of Accounts" of these parties, the amounts given to them are interest bearing loans. The assessee being a Company, is following mercantile system of accounting. Therefore, it should have offered the relevant income to tax during the year itself, on accrual basis. It cannot postpone offering income accrued to it during the year under consideration for tax. It was also seen from the 1 Table (Sr. No.14) of assessee's AR's reply dated 27.09.2017 that the liability of Rs.1,35,00,000/- payable to Yash V Jewels Ltd. was explained as "Share consideration payable. Hot Unsecured Loans". In Note No.5 to the Balance Sheet, the assessee has shown the same under the head "Other Current Liabilities Other Payables". However, there is no corresponding investment shown in the shares of the company "Yash V Jewels Ltd." The AO was required to examine the genuineness of this transaction of Rs. 1,35,00,000 with M/s. Yash V Jewels Ltd. It was also not clear whether the said liability was on account of Share consideration received' by the assessee, but refundable / returnable due to non-allotment of shares. It is seen from the Balance Sheet that the Share Capital amount remained same at Rs.4,25,900/- as has been declared during the immediate previous financial year (A.Y. 2014-15). If that is the case, it is not clear under which head the corresponding amount has been included. Out of the total amount of Rs.2,29,01,797/- shown under the head "Other Current liabilities - Other payables', the assessee has furnished confirmation in respect of Ms. Bharati Praful Sanghavi, having closing balance of Rs.10,76,636/-, from whom the assessee has taken unsecured loan of Rs.10,00,000/-, The AO has not made any further verification with regard to the fresh loan of Rs. 10,00,000/- taken from Shri. Bharati Praful Sanghavi to ascertain the genuineness of this transaction. In short, the AO did not verify the status of "Other Current Liabilities - Other Payables shown at Rs.2,29,01,797/-, and has 6 ITA.NO.635/MUM/2021 (A.Y: 2015-16) Om Sai Housing & Development Co. Private Limited accepted the same in the light of partial details furnished by the assessee.”

7 ITA.NO.635/MUM/2021 (A.Y: 2015-16) Om Sai Housing & Development Co. Private Limited 6. With regard to Shares consideration outstanding as on 31.03.2015 to Yash V Jewels Pvt Ltd, the said shares were purchased during A.Y.2013-14 and consideration paid partly in AY 2013-14 and AY 2015-16 and balance consideration of ₹.1,35,00,000/- was outstanding as on 31.03.2015 as reflected in audited accounts. The said share purchase has been clearly reflected under the head investment in shares of Multiventure Agro and Infrastructure Put Ltd (Note 6 to audited balance sheet). Details of outstanding advances received from Escalate Buildtech Pvt Ltd of ₹.80,00,000/- which was received during A.Y. 2013-14, out of which ₹.50,00,000/- has been repaid during A.Y. 2016-17. Balance amount is still under payment. Details of various loans and details were submitted on 27-09-2017 and 30-11-2017 during assessment proceedings. Our client has duly accounted interest on loans wherever applicable on accrual basis. For rest of transactions they were given either by way of business advance where no interest was receivable or by way of loans but the said loans have turned bad even in respect of principal amount and hence question of providing interest income on such doubtful loans does not arise. Most of the transactions referred to in your notice are during the earlier years for which scrutiny assessment has taken place. Assessee

8 ITA.NO.635/MUM/2021 (A.Y: 2015-16) Om Sai Housing & Development Co. Private Limited relied on the decision of Hon'ble Jurisdictional High Court in the case of CIT v. Gabriel India Ltd 1993 [203 ITR 108 BOM].

9 ITA.NO.635/MUM/2021 (A.Y: 2015-16) Om Sai Housing & Development Co. Private Limited during the assessment proceedings. Assesse is following accrual basis of accounting. In view of the fact that "Low income in comparison to high loans / advances / investment in shares is one of the reasons of selection for Limited Scrutiny, the Assessing Officer should have examined the issue of not offering the interest income by the assessee on accrual basis. Further, liability of Rs.1,35,00,000/- payable to Yash V Jewels Ltd. was explained as "Share consideration payable. Not Unsecured Loans". In Note No.5 to the Balance Sheet. The assessee has shown the same under the head "Other Current Liabilities - Other Payables". However, there is no corresponding investment shown in the shares of the company "Yash V Jewels Ltd." It was also not clear whether the said liability was on account of Share consideration Teceived' by the assessee, but refundable/returnable due to non-allotment of shares. It is seen from the Balance Sheet that the Share Capital amount remained same at Rs.4,25,900/- as has been declared during the immediate previous financial year (A.Y. 2014-15). If that is the case, it is not clear under which head the corresponding amount has been included. The AO has failed to examine the genuineness of this transaction of Rs. 1,35,00,000 with M/s. Yash V Jewels Ltd. Out of the total amount of Rs.2,29,01,797/- shown under the head "Other Current liabilities - Other payables", the assessee has furnished confirmation in respect of Ms. Bharati Praful Sanghavi, having closing balance of Rs.10,76,636/-, from whom the assessee has taken unsecured loan of Rs. 10,00,000/-. The AO has not made any further verification with regard to the fresh loan of Rs. 10,00,000/- taken from Shri. Bharati Praful Sanghavi to ascertain the genuineness of this transaction. Thus, the AO did not verify the status of "Other Current Liabilities - Other Payables" shown at Rs.2,29,01,797/-, and has accepted the same in the light of partial details furnished by the assessee. AO passed the assessment order u/s 143(3) o 14-12-2017 of the Act without examining these issues at all. In absence of any inquiry made by the AO or recording his reasons for accepting assessee's submission without any appropriate evidence, it can not be said that documents were duly verified by the AO. Therefore the facts of the case of the assessee are distinguished from the Judicial pronouncement relied upon by the assessee in the case of Commissioner of Income Tax v/s Gabriel India Ltd 1993 203 ITR 108 BOM.

10 ITA.NO.635/MUM/2021 (A.Y: 2015-16) Om Sai Housing & Development Co. Private Limited Reliance is placed on, Hon'ble Kolkata High Court's judgement in the case of Rajmandir Estates Private Limited vs. Pr. CIT 386 ITR 162 (Cal) which has been affirmed by the Hon'ble Supreme Court, as also in the case of Daniel Merchants Private Limited vs. ITO pronounced by the Hon'ble Supreme Court on 29.11.2017, that the CIT is entitled to revise the assessment order u/s 263 of the Act on the ground that the Assessing Officer did not make any proper inquiry while accepting the explanation of the assessee. Further reliance is placed on 'Malbar Industrial Ltd vs CIT (2000) 243 ITR 83(SC)'. As per this judgment the order of the AO can be held to be erroneous, i.c. i) If the AO's order is passed without application of mind or ii) If the AO has not investigated the issue before him. Reliance is also placed on Ld. Mumbai ITAT's judgement in the case of 'Laxmi Ventures (India) Pvt Ltd vs Principal Commissioner of Income Tax-7, Mumbai (ITA No.2199/MUM/2018), where it has upheld the order u/s 263 by observing that, the AO has not given any reason in the assessment order or even did not discuss the issue concerned which shows that AO failed to exercise due diligence to determine the income. In this case too the AO has not given any reason nor discussed issues for having accepted the assessee's submission.

2. The Hon. Pr. CIT erred in setting aside to the file of the assessing officer, the assessment framed u/s 143 (3) of the I.Tax Act, 1961 on 14.12.2017, holding that the original assessment was required to be revised, as the assessing officer had failed to carry out necessary verification of other liabilities of Rs. 2,29,01,797/- and therefore the order u/s 143 (3) passed on 14.12.2017 was erroneous in so far as it is prejudicial to be interest of revenue.

3. The Hon. Pr. CIT erred in directing the ld AO to revise the assessment, after setting it aside for de novo consideration, which direction of the Hon. Pr. CIT is not appropriate by law, as the ld AO has been robbed of independent decision in the matter and for this reason, the order u/s 263 is not valid in law and bears to be quashed.

4. The appellant craves leave to add, alter, amend and/or vary any of the grounds at any time before the decision of the appeal.”

10. At the time of hearing, Ld.AR of the assessee submitted that the assessee raised the Ground No. 1, a legal ground objecting to exercise of revisionary power when the Assessing Officer has made enquiries in detail and accepted genuineness of the income declared by the assessee, which was a plausible view and one of the possible view, same cannot be 12 ITA.NO.635/MUM/2021 (A.Y: 2015-16) Om Sai Housing & Development Co. Private Limited considered as erroneous or prejudicial to the interest of the revenue. In this regard he relied on the Hon’ble Supreme Court decision in the case of PCIT v. Shreeji Prints (P) Ltd (2021) 130 taxmann.com- 294(SC).

13 ITA.NO.635/MUM/2021 (A.Y: 2015-16) Om Sai Housing & Development Co. Private Limited Further with regard to unsecured loans, he submitted that the assessee has submitted loan confirmations and other relevant documents before Assessing Officer. He prayed that the review proceedings initiated by the Ld.Pr.CIT is bad in law and needs to be quashed.

15 ITA.NO.635/MUM/2021 (A.Y: 2015-16) Om Sai Housing & Development Co. Private Limited “4. Being aggrieved by the order passed by the PCIT under section 263 of the Act, 1961, the assessee went before the Tribunal. The Tribunal, after considering the submissions made by the assessee and after considering the scope of power to be exercised by the PCIT under section 263 of the Act, 1961 came to be conclusion that the Assessing Officer has made inquiries in detail about two unsecured loans taken by the respondent assessee and observed as under. "13 In the light of the aforesaid judicial precedents in the present case what has to be seen is whether the AO has made enquiries about two loans taken from GTPL and PAFPL. If the answer is affirmative, then second question arises whether the acceptance of the claim by the AO was a plausible view or on the facts of the finding on the facts that the said funding of the AO can be termed as sustainable in law. We find that vide notice issued u/s.142(1) dated 13-10-2015 placed at Page No. 1 of Paper Book shows the AO vide item no. (iii) has asked the information regarding details of unsecured loan outstanding as on 31-3-2013 and the loans were squared up amounts in the format prescribed therein. In compliance to thereof, the assessee has furnished complete details of the unsecured loans outstanding/squared up vide para 3 of his letter dated 2- 11-2015 placed as Annexure-2 at page 4 of paper book. The assessee has also furnished details consisting of copies of ledger account, copy of acknowledgment of income filed for A.Y. 2012-13 and 2013-14 and copy of bank statement reflecting the payment received was paid during the financial year 2012-13 relevant to assessment year 2013-14 which are placed at paper book, page 9 to 49 in respect of GTPL as well as PAFPL This indicate that the assessee has furnished account confirmation of the depositor, acknowledgment of income of the parties, audited balanced sheet and profit and loss account of the parties and bank pass book and bank statement of the parties. During the course of assessee proceedings, form these facts it is clear that the assessee has not only proved the from these facts it is clear that the assessee has not only proved the identity of the lenders but also the genuineness of the transactions and credit worthiness

16 ITA.NO.635/MUM/2021 (A.Y: 2015-16) Om Sai Housing & Development Co. Private Limited of the lenders. Accordingly, the Ld. AO after verifying the details of unsecured loans being satisfied, accepted the submissions of the assessee which leads to infer that the Assessing Officer had made full enquiries of unsecured loans by raising the queries and calling for the all information in respect of the loan taken along with details evidences in support thereof and the same were also duly replied by the assessee and on receipt of all the details of evidences, the unsecured loans received by the assessee were accepted by the Assessing Officer and the assessment was finalised u/s.143(3) of the Act on 15-3- 2016. We also note that there was audit objection in the case of the assessee. The language of audit objection and show-cause notice under section 263 is same meaning thereby that the show cause notice u/s.263 has been issued by the PCIT Without going through assessment records and without exercising his own application of his mind. The assessee has not only filed complete details of Income-tax Return, audited balance sheet, profit and loss account and bank statement. The assessee further explained that both the these unsecured loans stands fully repaid as on the date and there is no capital creation by the assessee on this count. In view of these facts and circumstances, we are of the considered opinion that the order of the Assessing Officer is not erroneous nor it is prejudicial to the interest of revenue. It was also brought to the notice of the PCIT that entire share capital of GTPL being already tax, all the investment made by the said company recorded in its balance sheet stands explained tax in its hands itself and hence, "there is no question of adding the same amount in the hands of the assessee. As regards loans from PAFPL, it was submitted that assessee company has made voluntary disclosure of income of Rs. 1.5 crore under IDS 2016 in September 2016 and the said loan was repaid before making declaration. In view of these facts and circumstances, we find that the AO has made due enquiries. Since we find that the AO had made enquiries regarding unsecured loans and accepted the claim of the assessee after detailed enquiries."

17 ITA.NO.635/MUM/2021 (A.Y: 2015-16) Om Sai Housing & Development Co. Private Limited 15. The Pr.CIT had observed that Explanation 2 of section 263 of the Act is clearly applicable and it is clear that the Assessing Officer has passed the assessment order after making enquiries for verification which ought to have been made in this case. However, we find that the Pr. CIT has not mentioned in the show- cause notice issued under section 263 that he is going to invoke the Explanation 2 to 263 hence, invocation of Explanation in the order without confronting the assessee is not appropriate and sustainable in law in support of this contention, the ld. Counsel has placed reliance on the following decision: CIT v. Amir Corporation 81 CCH 0069 (Guj.), CIT Mehrotra Brothem -270 ITR 0157 (MP.CIT v. Ganpet Ram Bishnoi - 296 ITR 0292 (Raj.), Cadila healthcare Ltd. v. Cl 7, Ahmedabadh-1 [ITA no. 1096/Ahd/2013 & 910/Ahd/2014], Sri Sai Contractors v. ITO [ITO no. 109Nizag/2002] and Pyare lal Jaiswal v. CIT, Vamnesi [(2014) 41 taxmann.com 27 & (AII Trib.)]. It was contended by the Learned Counsel that clause- (a) & (b) of Explanation 2 of Section 263 are not applicable as the Assessing Officer has made enquiry and verification which should have been made. Further, in the show cause notice, the Explanation-2 of section 263 was not invoked by the PCIT and it was referred in the order u/s.263 of the Act. Therefore, in the light of decision of the Co- ordinate Bench of Mumbai ga in the case of Narayan Tatu Rane - 70 taxmann.com 227 (Mum. Trt.) [PB 153-1561 wherein held that explanation cannot laid to have over ridden the law as interpreted/the various High Courts where the High Courts have held that before reaching the conclusion that the order of the Assessing Officer is erroneous prejudicial to the interest of Revenue. The CIT himself has to undertake some enquiry to establish that the assessment order is erroneous and prejudicial to the interest of Revenue. The Id. Counsel relied on the decision of M/s. Amira Pure Foods Pvt. Ltd., v. PCIT in and Ahmedabad Tribunal in the case of Torrent Pharmaceuticals Ltd. v. DCIT [2018] 97 taxmann.com 671 (Ahd. Trib.), it is clear from the enquiries made by the Assessing Officer and submissions

18 ITA.NO.635/MUM/2021 (A.Y: 2015-16) Om Sai Housing & Development Co. Private Limited made by the assessee that the Assessing Officer has taken the plausible view which is valid in the eyes of law. The Assessing Officer was satisfied consequent to making enquiry and after examining the evidences produced by the assessee, he accepted the assessee's claim of loan similar vi ew were also expressed by the Hon'ble Delhi High Court in the case of CIT v. Vodafone Essar South Ltd. [2013] 212 an 0184. We observe the Pr.CIT has drawn support from newly inserted Explanation 2 below section 263(1) of the Act introduced by Finance Act, 2015 w.e.f. 1-6-2015 for his action. The Explanation 2 inter alia provides that the order passed without making inquiries or verification 'which should have been made will be deemed to be erroneous insofar as it is prejudicial to the interest of the Revenue. It is on this basis, the assessment order passed by the AO under section 143(3) of the Act has been set aside with a direction to the AO to pass a fresh assessment order. It will be therefore imperative to dwell upon the impact of Explanation 2 for the purposes of section 263 of the Act. The aim and object of introduction of aforesaid Explanation by Finance Act, 2015 was explained in CBDT Circular No. 19/2015 [F.NO.142114/2015T PL]. Dated 27-11-2015 which is reproduced hereunder: “53. Revision of order that is erroneous in so far as it is prejudicial to the interests of revenue. 53.1 The provisions contained in sub-section (1) of section 263 of the Income-tax Act, before amendment by the Act, provided that if the Principal Commissioner or Commissioner considers that any order passed by the Assessing Officer is erroneous in so far as it's prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and after making an enquiry pass an order modifying the assessment made by the Assessing Officer or cancelling the assessment and directing fresh assessment. 53.2 The interpretation of expression "erroneous in so far as it prejudicial to the interests of the revenue" has 19 ITA.NO.635/MUM/2021 (A.Y: 2015-16) Om Sai Housing & Development Co. Private Limited been a contentious one. In order to provide clarity on the issue, section 263 of the Income-tax Act has been amended to provide that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner. (a) the order is passed without making inquiries or verification which, should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision, prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. 53.3 Applicability: This amendment has taken effect from 1st day of June, 2015." "17 We thus find merit in the plea of the assessee that the Revisional Commissioner is expected show that the view taken by the AO is wholly unsustainable in law before embarking upon exercise of revisionary powers. The revisional powers cannot be exercised for directing a fuller inquiry to merely find out if the earlier view taken is erroneous particularly when a view was already taken after inquiry. If such course of action as interpreted by the Revisional Commissioner in the light of the Explanation 2 is permitted, Revisional Commissioner can possibly find fault with each and every assessment order without himself making any inquiry or verification and without establishing that assessment order is not sustainable in law. This would inevitably mean that every order of the lower authority would thus become susceptible to section 263 of the Act and, in turn, will cause serious unintended hardship to the tax payer concerned for no fault on his part. Apparently, this is not intended by the Explanation. Howsoever wide the scope of Explanation 2(a) may be, its limits are implicit in it. It is only in a very gross case of inadequacy in inquiry or 20 ITA.NO.635/MUM/2021 (A.Y: 2015-16) Om Sai Housing & Development Co. Private Limited where inquiry is per se mandated on the basis of record available before the AO and such inquiry was not conducted, the revisional power so conferred can be exercised to invalidate the action of AO. The AO in the present case has not accepted the submissions of the assessee on various issues summarily but has shown appetite for inquiry and verifications. The AO has passed after making due enquiries issues involved impliedly after due application of mind. Therefore, the Explanation 2 to section 263 of the Act do not, in our view, thwart the assessment process in the facts and the context of the case. Consequently, we find that the foundation for exercise of revisional jurisdiction is sorely missing in the present case.

of the Assessee."

5. The Tribunal has found that in the order passed by the PCIT, Explanation 2 of section 263 of the Act, 1961 is made applicable. The Tribunal observed that the PCIT has not mentioned in the show cause notice to invoke the Explanation 2 of section 263 of the Act 1961. Therefore, by invocation of Explanation in the order without confronting the assessee and giving an opportunity of being heard to the assessee is not appropriate and sustainable in law.

6. Thus, the Tribunal has considered in detail the aspect of revisional power to be exercised by the PCIT in the facts of the case 21 ITA.NO.635/MUM/2021 (A.Y: 2015-16) Om Sai Housing & Development Co. Private Limited and has given a finding of facts that the Assessing Officer has made inquiries in detail and after applying mind, accepted the genuineness of loans received by the respondent assessee from the aforesaid two companies and such view of the Assessing Officer is a plausible view, and therefore, the same cannot be said to be erroneous or prejudicial to the interest of the Revenue.

7. In view of such finding of facts arrived by the Tribunal, no questions of law much less of any substantial questions of law arise out of the impugned order passed by the Tribunal.”

Order pronounced in the open court on 15th February, 2023