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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI PRASHANT MAHARISHI, AM & SHRI PAVAN KUMAR GADALE, JM
PER PRASHANT MAHARISHI, AM:
This appeal is filed by the assessee against the order passed by the Pr. Commissioner of Income-tax-8, (in short Ld. PCIT) Mumbai-20, dated 10th March, 2021 passed under section 263 of the income-tax Act, 1961 (the Act) holding that assessment order passed under section 143(3) of the Act on 13th December, 2017 by The Income-Tax Officer-7(1)(1), (the learned Assessing Officer) Mumbai for Assessment Year 2015-16 is erroneous and prejudicial to the interest of the Revenue.
“GROUND NO. I: IMPUGNED ORDER PASSED IS INVALID:
On the facts and circumstances of the case and in law, the ld. PCIT erred in passing order u/s. 263 of the Act in complete contravention of CBDT Circular No. 19 of 2019.
The Appellant prays that the order passed u/s. 263 of the Act be treated as invalid and be quashed.
WITHOUT PREJUDICE TO GROUND NO. I:
GROUND NO.II: IMPUGNED ORDER PASSED BY INVOKING PROVISIONS OF SECTION 263 OF THE ACT IS BAD IN LAW:
On the facts and circumstances of the case and in law, the ld. Pr. CIT erred in invoking the provisions of section 263 of the Act and setting aside the assessment order treating the same as erroneous and prejudicial to the interest of the revenue and directing the AO to pass an order de novo.
Ld. Pr. CIT, inter-alia, failed to appreciate and ought to have held that:
i. Order u/s. 263 of the Act cannot be passed without giving a reasonable opportunity of being heard to the Appellant;
Fact of the case shows that the assessee is a company engaged in financial services business, filed its return of income declaring total loss of Rs. 28,75,898/-. The case of the assessee was picked up for scrutiny and the assessment order was passed under section 143(3) of the Act on 13.12.2017 at the returned income of the assessee.
The learned PCIT examined the records and statedin show cause notice dated 03/12/2019 issued u/s 263 of the Act that the assessee has received a sum of Rs. 680,68,74,000/- as unsecured loan from M/s Sri Gopikrishna Trust. Said Trust was having a corpus of only Rs. 1 lacs. The audited accounts of that trust for 31/3/2015 shows that it has unsecured loan of Rs. 1006,73,50,000/- and investment of Rs. 87.63/- crores and has given a loan of Rs. 914.84 crores to various companies. There was no proof of disbursement of loan to above Trust by any bank before loan was advanced to assessee company. Therefore, the learned PCIT was of the view that the above said trust does not have capacity to grant unsecured loan of the above sum. It was also noted
The assessee explained that one Akshar Fincom Pvt. Ltd. (AFPL) is a corporate trustee of M/s Sri Gopikrishna Trust. Assessee submitted that before ld AO assessee drew attention to tax audit report of assessee where the name, address, PAN of the trust along with the amount of loan as well as maximum outstanding amounts was disclosed. Therefore, on this basis, ld Ao has accepted the loan as genuine. Thus ld AO has made due inquires. Before LD PCIT assessee submitted tax audit report of the trust, where the loan given to the assessee company is also disclosed and the financial capacity of the trust to give loan of Rs. 67.65 lacs is evident from the audited financial statements of the trust and from the income tax return of the trust. Therefore on this account the order of the LD AO is neither erroneous and nor prejudicial to the interest of revenue.
The learned PCIT passed an order under section 263 of the Act on 10th March, 2021 noted that;
i. Assessee has accepted loan of Rs. 68,55,000/- from M/s Sri Gopikrishna Trust, which is having a corpus fund of Rs. 1 lacs. Further, the loan sanctioned of HDFC Bank to that trust is on 26th September, 2014 of Rs. 750,00,00,000/-, whereas, the loan has been given to the assessee of Rs. 65,55,000/- before that date of loan from bank and only Rs. 2 lacs is advanced after the sanctioned of the loan to the trust by bank. Therefore, source of the loan is not clear. The Assessing Officer failed to verify the same. The Assessing Officer also did not make any third party inquiry to verify the genuineness of the transaction. Further, the bank account of the trust as well as the corporate trustee i.e. Akshar Fincom Limited was one bank account but the transactions in books of trust are recorded separately, hence, whether source of the funds belongs to the corporate trustee or the trust was not known.
In view of this, ld PCIT held that Assessing Officer has failed to make necessary inquiry and bring all true facts on record necessary for determining the true character and nature of the income. Omission to do so has resulted in an order, which is erroneous and prejudicial to the interest of the Revenue, therefore, she set aside the order to the file of the learned Assessing Officer with a direction to frame the order de novo.
The assessee aggrieved with that order preferred the appeal before learned PCIT.
The assessee challenged the order of the learned PCIT on several counts that:-
a. Order of The ld PCIT did not mention any DIN [ Document Identification Number ] that is in contravention of circular no. 19/2019 and therefore, such an order bad in law. He relied on the decision of Union of India Vs. Azadi Bachao Andolan [2003]
b. Learned PCIT has not come to a definite conclusion that the order of ld AO is erroneous and prejudicial to the interest of the Revenue. He submitted that the learned PCIT has failed to show that how the order passed by learned Assessing Officer was erroneous.
c. Show cause notice did not mention issue of ‘other payables and ‘other loans and advances’ , when those issues were raised during the course of hearing by the ld PCIT, assessee sought time for furnishing the reply, but the learned PCIT with a pre- determined mind held that as the issue would be set aside to the file of the Assessing Officer, no further time was given. Therefore, ld PCIT did not give any further opportunity to the assessee. He submitted that neither the adjournment was rejected nor a fresh opportunity is granted. Therefore, the order is bad in law to that extent.
d. learned PCIT has held that ld Assessing Officer has failed to make any inquiry with respect to certain issues. On aspect of loan accepted from Gopikishan Trust, He referred to the paper book submitted before us and submitted that the Assessing Officer
e. On the issue of ‘ Other payable’ and “ Loans and advances’ He submitted that the Assessing Officer raised an query vide notice under section 142(1) of the Act dated 6th December, 2017 with respect to the other payables of Rs. 13,48,320/- and loan and advance of Rs. 3,27,83,970/- and the learned PCIT
f. He submitted that Explanation [2] to section 263 of the Act does not given an unfettered power to the PCIT to assume jurisdiction under section 263 of the Act. He stated that provision of section 263 of the Act could not have been invoked when the assessment is passed after detailed inquiry.
h. assessment order passed under section 143(3) of the Act dated 13th December, 2017 was pursuant to selection of return For ‘Limited scrutiny’ under CASS. For this proposition, he referred to the notice issued under section 143(2) of the Act dated 22nd September 2016. He submitted that the issue of loans and advances was not a matter of ‘limited scrutiny’ and therefore, the ld PCIT could not have initiated action under section 263 of the Act on that issue.
i. Assessee filed reply dated 10th December, 2019, before ld PCIT wherein assessee , with respect to loan of Gopikrishna Trust, submitted following details; (i) Board resolution appointing Akshar Fincom Pvt. Ltd. as corporate trustee (ii) Letter of opening of bank account of the M/s Sri Gopikrishna Trust (iii) return of income for Assessment Year 2016-17 of the trust. (iv) the assessment order of the corporate trustee Akshar Fin Com Ltd. under section 143(3) of the Act on 26th March, 2015 (v) The letter dated 24th May, 2017 filed by the M/s Sri Gopikrishna Trust before the learned Assessing Officer of the trust along with its bank statement (the bank statement in the name of Akshar Fincom
j. With respect to not giving opportunity, he further referred to the adjournment letter dated 9th March 2021 filed before ld PCIT that despite seeking an adjournment the learned PCIT passed an order with respect to the loan amount and other payables.
In view of the above facts, it was argued that the order passed by the learned PCIT is bad in law, Order passed by ld AO is after making due inquires and no further inquiries could have been made and the details produced before the learned PCIT clearly shows that there was no error in the order passed by the learned Assessing Officer. Therefore, according to him, the order passed by the learned PCIT deserves to be quashed.
The learned CIT Departmental Representative vehemently supported the order of the learned PCIT. He submitted that
b. with respect to the unsecured loan from the M/s Sri Gopikrishna Trust, he submitted that the assessee has neither filed a confirmation and has not given any details to discharge its onus with respect to the loan.
c. learned Assessing Officer did not inquire anything about loan from M/s Sri Gopikrishna Trust but merely accepted on the basis of disclosure in tax audit report.
d. Learned PCIT has clearly held that there are no inquiries about the source of funds lent by the M/s Sri Gopikrishna Trust to the assessee.
e. there was no certainty from which banking account i.e. whether of the corporate trustee or the assessee, the funds were used for lending.
f. Shareholding of the M/s Sri Gopikrishna Trust in the assessee or the relationship of related parties neither proves the credit worthiness of the M/s Sri Gopikrishna Trust and nor the genuineness of the above transaction.
h. With respect to the other payables, loans, and advances given, it was submitted that neither before the learned Assessing Officer nor before the learned PCIT, assessee has uttered a single word on this issue, therefore, there is no inquiry , so learned PCIT has directed to the Assessing Officer to correct the same.
i. it is not correct that assessee has not been granted an opportunity on this aspect but despite opportunity, assessee sought adjournment and never furnished the details. He submitted that the request for adjournment was made on 9th March 2021 for 4 to 5 days and the notice was given for the above information on 31st March, 2021 and therefore, it is the assessee who has not availed opportunity.
j. On the issue of mentioning the DIN in the order passed by the learned PCIT he referred to the intimation letter dated 11th March, 2021, wherein PCIT has mentioned the DIN number in the order passed under section 263 of the Act dated 11th March, 2021. He therefore, submitted that the claim of the assessee that DIN is not mentioned in order passed under section 263 of the Act is not correct.
We have carefully considered the rival contentions and perused the orders of the lower authorities. The assessee
i. That the order passed without mentioning the Din as well as not mentioning the reasons for not mention the DIN is contravention of circular No. 19 of 2019 and therefore invalid.
ii. That the order passed is [1] bad in law and [2] no reasonable opportunity is given, [3] the order passed by the learned Assessing Officer is not erroneous and [4] further the learned PCIT should have inquired to show that the assessment order passed is erroneous and prejudicial before passing an order under section 263 of the Act. It also challenges on the issue that one of the items for which the provisions of section 263 of the Act have been invoked by the learned PCIT is not falling within the issues for which the case of the assessee is selected under limited scrutiny.
On the issue of not mentioning the DIN in the order passed under section 263 of the Act, we find that Circular no. 19/2019 issued on 14th August, 2019 provided that to maintain proper audit trail of communication the Central Board Of Direct Tax (CBDT) in exercise of its power under section 119 of the Act has directed that no communication have been issued by income tax authorities relating to
Coming to the merits of the case, we find that the case of the assessee was selected for scrutiny vide notice under section 143(2) of the Act dated 22nd September, 2016 under limited scrutiny where four reasons are mentioned. the two of the reasons were as under:-
(ii) Unsecured loans.
As per the audited financial statements of the assessee it is apparent that assessee has share capital of only Rs. 1 lacs and has short term borrowings of 300,68,06,874/- compared to Rs. 51,874/- only in the immediately previous preceding year. The assessee on the Assets side has short-term loans and advances of Rs. 330,92,46,575/- against Rs. Nil in the previous year. Further, on the revenue of Rs. 30,92,46,575/- the assessee has incurred a loss of Rs. 28,75,898/-. The facts show that the assessee has taken unsecured loan of Rs. 67,55,000/- from M/s Sri Gopikrishna Trust during the year. Gopikrishna Trust has claimed to own 100% shareholding of the assessee company. Ld Assessing Officer asked the assessee with respect to unsecured loans vide letter dated 19th June 2017. Vide letter dated 14th August 2017, the assessee merely narrated that the name, address and PAN of the lender are mentioned in clause 31 of the tax audit report. No other inquiries were made by the learned Assessing Officer and no further information was submitted by the assessee. Merely submitting the name, address, PAN number of the lender does not prove any creditworthiness and genuineness of the transaction. Further, the learned PCIT, on information produced by assessee, clearly carried out her own independent enquiry on the documents
As we have already held that order of learned PCIT on the issue of ‘other payables’ and ‘loans and advances’ is not sustainable in law. Therefore, There is no requirement of adjudicating about proper opportunity of hearing granted to the assessee by the learned PCIT.
Therefore, in nutshell; for completeness,
(i) The order passed by the learned PCIT under section 263 of the Act is quashed as it is in violation of the CBDT circular No. 19/2019 and
(ii) On the merits the order of the learned PCIT with respect to the loan amount of Rs.66,65,000/- from M/s Sri Gopikrishna Trust clearly holds that the order of the learned Assessing Officer is erroneous and prejudicial to the interest of the Revenue.
However, as we have quashed the order of the learned PCIT on ground no.1, the appeal of the assessee is allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 30.03.2022.
Sd/- Sd/- (PAVAN KUMAR GADALE) (PRASHANT MAHARISHI) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Mumbai, Dated: 30.03.2022 Sudip Sarkar, Sr.PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT(A) 4. CIT DR, ITAT, Mumbai 5. 6. Guard file. BY ORDER, True Copy//
Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Mumbai