PR COMMISSIONER OF INCOME TAX 1 CHANDIGARH vs. SH RAVINDER KUMAR GUPTA R/O HOUSE NO 250. SEC 19-A CHD

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ITA/7/2018HC Punjab & HaryanaPHHC01119400201804 July 2018Bench: MR. JUSTICE R.C. KATHURIA (RETD.),MS. JUSTICE RITU BAHRI5 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that it did not find any infirmity in the findings recorded by the Tribunal on merits and therefore did not consider it appropriate to express an opinion on the ambit of Section 263 of the Act. Specifically addressing the issues, the Court noted that the assessee advanced a loan of ₹85,00,000/- to his wife for the construction of a super structure on her land, intended for the assessee's business. Evidence was produced before the AO and relied upon by the Tribunal. The CIT did not dispute that this issue was examined during assessment. The Court found that the loan was established to be for business purposes. Regarding the second issue, the Court found that the assessee had substantiated having his own capital of ₹3,36,63,807/-, which was sufficient to advance the loan of ₹85,00,000/-, thus establishing he had his own funds available. The Court relied on its own decision in Bright Enterprises Pvt. Ltd. vs. CIT and the Bombay High Court's decision in CIT vs. Reliance Utilities & Power Ltd. The Revenue failed to point out any error warranting interference. Therefore, no substantial questions of law arose.

What were the facts?

The Revenue (Pr. Commissioner of Income Tax-I, Chandigarh) appealed against an order dated 12.07.2017 passed by the Income Tax Appellate Tribunal (ITAT), Chandigarh, which allowed the assessee's (Sh. Ravinder Kumar Gupta) appeal. The assessment year in question is 2012-13. The assessee's return was selected for scrutiny, and the assessment under Section 143(3) was finalized on 31.12.2014, with additions of ₹5,92,193/- for low net profit and ₹42,000/- for disallowance of interest-free advance. Subsequently, on an audit objection, Section 263 was invoked by the Pr. CIT, who set aside the assessment order on 22.02.2016, directing the Assessing Officer (AO) to investigate a loan of ₹84,92,000/- advanced by the assessee to his wife for business purposes and its nexus with borrowed funds. The AO framed a fresh assessment on 21.12.2016 after remand.

What were the issues?

1. Whether, on the facts and circumstances, the ITAT was correct in holding that the Pr. CIT was not right in invoking Section 263 of the Income Tax Act, 1961 (the Act) due to inadequate enquiry by the AO, particularly in light of Explanation 2(a) to Section 263 inserted w.e.f. 1.6.2015. 2. Whether, on the facts and circumstances, the ITAT was correct in law to set aside the order of the Pr. CIT, as the cases relied upon by the ITAT were distinguishable. Assessee's Contentions (as inferred from the High Court's findings): The assessee contended that the loan of ₹85,00,000/- advanced to his wife was for business purposes and that he had sufficient own capital (₹3,36,63,807/-) to make this advance, thus negating the need to establish it was not from borrowed funds. The Tribunal had examined the issue on merits and found in favour of the assessee. Revenue's Contentions: The Revenue contended that the ITAT erred in setting aside the Section 263 order. It argued that the assessment order was rightly revised as the AO had not made adequate enquiry regarding the loan advanced to the assessee's wife, specifically whether it was for business purposes and not from borrowed funds. The Revenue also argued that the cases relied upon by the ITAT were distinguishable.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 263

AI-generated summary — verify with the full judgment below

ITA No. 7 of 2018 -1- 110 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. ITA No. 7 of 2018 Decided on : 04.07.2018 Pr. Commissioner of Income Tax-I, Chandigarh . . . Appellant Versus Sh. Ravinder Kumar Gupta r/o House No. 250, Sector 19-A, Chandigarh. . . . Respondent

* * * CORAM : HON'BLE MR. JUSTICE AJAY KUMAR MITTAL HON'BLE MR. JUSTICE AVNEESH JHINGAN Present : Ms. Urvashi Dhugga, Sr. Standing Counsel for the appellant. * * * AVNEESH JHINGAN, J. 1. The Revenue (hereinafter referred to as the 'appellant') has filed this appeal against the order 12.07.2017 passed by the Income Tax Appellate Tribunal, Chandigarh (in short, 'the Tribunal') allowing the appeal of the assessee. 2. As per the appellant following substantial questions of law arise: (i)“Whether on the facts and circumstances of the case Hon'ble ITAT was correct in law in holding that Pr. CIT was not right in invoking the provisions of the section 263 of the IT Act as inadequate enquiry was conducted by the assessing officer in the case and where inadequate enquiry has been conducted the Pr. CIT can invoke the provisions of section PANKAJ BAWEJA 2018.08.28 15:25 I attest to the accuracy and integrity of this document High court, Chandigarh

ITA No. 7 of 2018 -2- 263 of the IT Act particularly in view of the applicability of clause 'a' of 'Explanation 2' to the provision of section 263 of the IT Act which has been inserted w.e.f. 1.6.2015. (ii)“Whether on the facts and circumstances of the case, Hon'ble ITAT was correct in law to set aside the order of Pr. CIT as the cases relied upon by the Hon'ble ITAT are distinguishable on facts as compared to the facts of the case of the assessee.” 3. The assessment year involved is 2012-13. The bare facts necessary for adjudication of the present appeal as narrated in the appeal are that the return filed by the assessee were selected for scrutiny and the assessment under Section 143(3) of the Income Tax Act, 1961 (for short 'the Act') was finalized vide order dated 31.12.2014. The assessing officer made additions of `5,92,193/- on account of low net profit rate and `42,000/- on account of disallowance of interest free advance given for non-business purposes. 4. On the basis of audit objection, Section 263 of the Act was invoked. Revision was done on the ground that the Assessing Officer had not verified and examined the loan advanced amounting to ` 84,92,000/- by the assessee to his wife allegedly for business purposes. Further assessee had not substantiated that the loan given to the wife had no nexus with the borrowed funds. Vide order dated 22.02.2016, the assessment order was set aside and assessing officer was directed to carry out the investigation as per discussion in the revisional order and thereafter frame the assessment afresh. 5. Being aggrieved of the order, the assessee preferred an appeal before the Tribunal. During the pendency of the appeal, the assessing PANKAJ BAWEJA 2018.08.28 15:25 I attest to the accuracy and integrity of this document High court, Chandigarh

ITA No. 7 of 2018 -3- officer in pursuance of the remand, framed assessment vide order dated 21.12.2016. 6. The Tribunal vide order dated 12.07.2017 accepted the appeal of the assessee. The Tribunal allowed the appeal holding that there was no finding in the order passed under section 263 of the Act that the assessment order was erroneous. The Tribunal examined the issue raised by the CIT on merits as well and adjudicated the same in favour of the assessee. 7. We have heard the learned counsel for the appellant. 8. Learned counsel for the appellant contended that the Tribunal erred in setting aside the order passed under Section 263 of the Act. Assessment order was rightly revived as Assessing Officer had not made adequate enquiry about the loan advanced to the wife of the assessee as to whether it was for business purposes and not made from the borrowed funds. 9. Since we do not find any infirmity in the findings recorded by the Tribunal on merits, accordingly it is not considered appropriate to express any opinion on the ambit of Section 263 of the Act. 10. The assessee advanced a loan of ` 85,00,000/- to his wife for construction of super structure on the land owned by her in Mullanpur. The super structure was to be used by the husband for conducting his business. The statements and evidence to this effect were produced before the Assessing Officer and the same have been relied upon by the Tribunal. Even the CIT while exercising powers under Section 263 of the Act did not dispute that the said issue was examined during the assessment proceedings. In the replies filed before the Assessing Officer it was pleaded that construction of godown on the land owned by assessee's wife was for PANKAJ BAWEJA 2018.08.28 15:25 I attest to the accuracy and integrity of this document High court, Chandigarh

ITA No. 7 of 2018 -4- business of assessee and for this purpose the loan of ` 85,00,000/- was advanced. It was established that the loan was given for business purposes. 11. The second issue that the assessee failed to establish that the loan advanced was not from the borrowed funds cannot be sustained in view of the factual findings recorded by the Tribunal. During the assessment proceedings the assessee had substantiated that he had his own capital amounting to `3,36,63,807/- which in itself was sufficient for advancing a loan of `85,00,000/-. Thus, assessee had his own funds available. 12. This Court in case reported as (2016) 381 ITR 107:2015 (84) RCR (Civil) 20 titled as Bright Enterprises Pvt. Ltd. Vs. Commissioner of Income Tax, Jalandhar, expressing similar view taken by the Bombay High Court in Commissioner of Income Tax Vs. Reliance Utilities & Power Ltd., (2009) 313 ITR 340, held as follows :- “16. As we noted earlier, the funds reserves of the appellant were sufficient to cover the interest free advances made by it of Rs.10.29 crores to its sister company. We are entirely in agreement with the judgment of the Bombay High Court in Commissioner of Income Tax Vs. Reliance Utilities & Power Ltd., (2009) 313 ITR 340, para-10, that if there are interest free funds available a presumption would arise that investment would be out of the interest free funds generated or available with the company if the interest free funds were sufficient to meet the investment.”

13.

Learned counsel for the appellant-revenue has not been able to PANKAJ BAWEJA 2018.08.28 15:25 I attest to the accuracy and integrity of this document High court, Chandigarh

ITA No. 7 of 2018 -5- point out any error in the order passed by the Tribunal warranting interference by this Court. Thus, no substantial questions of law arise. 14. The appeal is dismissed. [ AJAY KUMAR MITTAL] JUDGE [ AVNEESH JHINGAN ]

JUDGE 04.07.2018 pankaj baweja Whether speaking/reasoned ? Yes / No Whether reportable ? Yes / No PANKAJ BAWEJA 2018.08.28 15:25 I attest to the accuracy and integrity of this document High court, Chandigarh

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