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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI V. DURGA RAO, HON’BLE & SHRI D.S. SUNDER SINGH, HON’BLE
IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE SHRI V. DURGA RAO, HON’BLE JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH, HON’BLE ACCOUNTANT MEMBER ITA No. 12/VIZ/2018 (Asst. Year : 2012-13) M/s. Tirumala Enterprises, vs. ITO, Ward-2, 11-1-21, Putchala Veedhi, Vizianagaram. Vizianagaram. PAN No. AAFFT 9391 L (Appellant) (Respondent)
Assessee by : Shri G.V.N. Hari – Advocate. Department By : Shri D.K. Sonawal – Sr.DR Date of hearing : 05/02/2019. Date of pronouncement : 13/02/2019. O R D E R PER V. DURGA RAO, JUDICIAL MEMBER
This appeal by the assessee is directed against the order of Principal Commissioner of Income Tax-1, Visakhapatnam, dated 27/03/2017 for the Assessment Year 2012-13. 2. Facts of the case, in brief, are that assessee-firm engaged in the business of trade in Cigarettes, filed its return of income admitting total income of Rs. 9,07,660/-. The return filed by the assessee was processed under section 143(1) of the Income Tax Act, 1961 (hereinafter referred to as 'Act'). Thereafter, it was
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selected for scrutiny and after following due procedure, assessment was completed under section 143(3) of the Act on 30/03/2015. Thereafter, the Pr.CIT by exercising his powers conferred on him under section 263, the order passed by the Assessing Officer is held erroneous and prejudicial to the interest of the Revenue on the following reasons:- “2. On perusal of the financial statements filed with the return of income, it is observed that a sum of Rs.6,12,67,855/- was shown as 'Sundry Debtors' in the Balance Sheet of the assessee as on 31.03.2012. The sundry debtors include two amounts of Rs.1,18,34,400/- and Rs.3,21,18,685/- in the name of partners of the assessee firm Sri K V Janardhana Rao, Sri K.V.Sudhakar Rao respectively. In the course of the assessment proceedings, the Assessing Officer has not examined whether these advances to partners shown under the head 'Sundry Debtors' were given for business purposes or not and no query at all was raised about the business necessity of the assessee- firm to make such huge advances to the partners of the firm. On further perusal of the financial statements, it is also noticed that the assessee had borrowed substantial funds by way of Bank Overdraft and Secured Loans and claimed interest of Rs.25,24,368/- in the Profit & Loss Account on such borrowings. Since substantial amounts were advanced to the partners of the firm apparently without charging any interest, the interest attributable to such non-business advances to the partners ought to have been disallowed by the Assessing Officer u/s.36(1)(iii) of the Income-tax Act. But the Assessing Officer has failed to examine this aspect in the course of the assessment proceedings and no disallowance of interest charged to Profit & Loss A/c was made. For the foregoing reasons, the assessment order 4. dt.30.03.2015 passed u/s.143(3) of the Income Tax Act for Asst. Year 2012-13 is prima facie erroneous and prejudicial to the interest of the revenue and the same is proposed to be revised u/s.263 of the I.T. Act. Accordingly, vide this office show cause letter dated 30.06.20 16 the assessee was asked to show-cause as to why the assessment order u/s.143(3) of the I.T. Act dated 30.03.2015 should not be revised as per the above discussion.”
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Before the Pr.CIT, the AR of the assessee appeared and filed a detailed reply and after considering the reply, the Pr.CIT gave a categorical finding that the Assessing Officer while completing the assessment under section 143(3), dated 30/03/2015 has not examined the issue, therefore, the order passed by the Assessing Officer is erroneous and prejudicial to the interests of the Revenue and directed the Assessing Officer to redo the assessment after giving opportunity to the assessee. 4. On being aggrieved, assessee carried the matter in appeal before this Tribunal. 5. Ld. counsel for the assessee has submitted that the Assessing Officer after considering all the details filed by the assessee, assessment was completed under section 143(3) and therefore, the order passed by the Assessing Officer cannot be said to be erroneous and prejudicial to the interests of the Revenue. 6. On the other hand, ld. Departmental Representative strongly supported the order passed by the Pr.CIT. 7. We have heard both the sides, perused the material available on record and orders of the authorities below. 8. In this case, assessment was completed under section 143(3) dated 30/03/2015. Subsequently, the Pr.CIT by exercising
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his powers conferred on him under section 263 called for the records and examined the case of the assessee and found that a sum of Rs. 6,12,67, 855/- has been shown as sundry debtors in the balance sheet as on 31/03/2012. The sundry debtor includes two amounts of Rs. 1,18,34,400/- & Rs. 3,21,18,685/- in the name of Sri K.V. Janardhana Rao & Sri K.V. Sudhakar Rao respectively. In the assessment proceedings, the Assessing Officer has not examined whether these advances to the partners shown under the head ‘sundry debtors’ were given for business purposes or not and no query at all was conducted about the business necessity of the assessee-firm to make such huge advances to the partners of the firm. On further perusal of the financial statements, it is also noticed that the assessee had borrowed substantial funds by way of bank overdraft and secured loans and claimed interest of Rs. 25,24,368/- in the profit & loss account, on such borrowings. Since substantial amounts were advanced to the partners of the firm apparently without charging any interest, the interest attributable to the non-business advance to the partners ought to have been disallowed by the Assessing Officer under section 36(1)(iii) of the Act, but the Assessing Officer failed to examined this aspect in the course of the assessment proceedings and no disallowance of interest charged
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to profit & loss account. We have examined this aspect and find that the Assessing Officer has not at all examined insofar as the advance given to the partners, funds borrowed from the banks and interest paid thereon while passing the assessment order under section 143(3) of the Act dated 30/03/2015. Therefore, we find that the Pr.CIT has rightly exercised his jurisdiction under section 263 of the Act and held that the order passed by the Assessing Officer is erroneous and prejudicial to the interests of the Revenue. We find no infirmity in the order passed by the Pr.CIT. Thus, this appeal filed by the assessee is dismissed. 9. In the result, appeal filed by the assessee is dismissed. Order Pronounced in open Court on this 13th day of Feb., 2019.
Sd/- sd/- (D.S. SUNDER SINGH) (V. DURGA RAO) Accountant Member Judicial Member Dated: 13th Feb., 2019. vr/- Copy to: 1. The Assessee – M/s. Tirumala Enterprises, 11-1-21, Putchala Veedhi, Vizianagaram. 2. The Revenue – ITO, Ward-2, Vizianagaram. 3. The Pr.CIT-1, Visakhapatnam. 4. The D.R., Visakhapatnam. 5. Guard file. By order
(VUKKEM RAMBABU) Sr. Private Secretary, ITAT, Visakhapatnam.