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Income Tax Appellate Tribunal, Hyderabad ‘ B ‘ Bench, Hyderabad
Before: Shri R.K. Panda & Shri Laliet Kumar
IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘ B ‘ Bench, Hyderabad Before Shri R.K. Panda, Accountant Member AND Shri Laliet Kumar, Judicial Member ITA No.188/Hyd/2020 Assessment Year: 2015-16 R.K. Infra & Engineering India Vs. Income Tax Officer, Private Limited, Ward – 3, Hyderabad. Hyderabad. PAN : AADCR9570Q (Appellant) (Respondent) Assessee by: Shri Pawan Kumar Chakrapani Revenue by: Shri Jeevan Lal Lavidiya Date of hearing: 21.11.2022 Date of pronouncement: 22.11.2022
O R D E R Per Laliet Kumar, J.M.
The appeal of the assessee for A.Y. 2015-16 arises from the order of Principal Commissioner of Income Tax / CIT-3, Hyderabad – dated 13.12.2019 invoking proceedings under section 263 of the Income Tax Act, 1961 (in short, “the Act”) by raising the following grounds :
“The Order of the learned Principal Commissioner of Income-tax, Allahabad, passed under section 263 of the Act, in so far as it is against the Appellant is opposed to law, equity, weight of evidence, probabilities and the facts and circumstances in the Appellant's case.
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The learned Pr. CIT has grossly erred in revising the order passed by the learned assessing officer without appreciating that there is no error, much less prejudicial to the interests of the Revenue to warrant a revision and therefore the order passed by the learned Pr. CIT is ultra vires to the scope of Section 263 and requires to be cancelled under the facts and circumstances of the Appellant's case. 3. The learned Pr. CIT failed to appreciate that the direction to make fresh assessment amounts to ordering for making fishing and roving enquires without any material in support thereof and consequently the impugned order passed is bad in law is liable to be cancelled. 4. The learned Pr. Commissioner of Income-tax is not justified to conclude that the borrowed funds being issued to the related parties, without appreciating the fact that there were no borrowed funds with the Appellant, under the facts and circumstances of the case. 5. The learned Pr. Commissioner of Income-tax is not justified in concluding that the Appellant has not received any interest from related parties and therefore, interest paid on borrowed funds to the extent of loans issued to related parties does not belong to the Appellant and restricted to the extent of the loans issued, under the facts and circumstances of the case. 6. The learned Pr. Commissioner of Income-tax failed to appreciate the fact that there is no transfer of funds by the Appellant to the sister concern, under the facts and circumstances of the case. 7. Whether the learned Pr. Commissioner of Income-tax is correct in not appreciating the fact that it was a business transaction between the Appellant and sister concern, under the facts and circumstances of the case. 8. The learned Pr. Commissioner of Income-tax, has erred in not appreciating the settled position of law that, where there are two opinions possible on an issue, section 263 cannot be exercised to invoke such an issue. 9. The learned Pr. Commissioner of Income-tax has grossly erred in revising the order passed by the learned assessing officer without appreciating that there is no error, much less prejudicial to the interests of the Revenue to warrant a revision and therefore the order passed by the learned Pr. Commissioner of Income-tax is ultra vires to the scope of Section 263 and requires to be cancelled under the facts and circumstances of the Appellant's case.
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The learned Pr. Commissioner of Income-tax failed to appreciate that the learned assessing officer had passed the order after verifying the documents and other records produced and more specifically all the agreements and hence section 263 cannot be invoked under the facts and circumstances of the case. 11. Without prejudice to the above the learned Pr. Commissioner of Income-tax ought to have appreciated that the aforesaid issue on which the learned Pr. Commissioner of Income-tax had sought to revise the assessment order is a conscious view adopted by the learned assessing officer, which is not shown to be erroneous and consequently, the jurisdiction under section 263 of the Act stands ousted and accordingly the impugned order passed deserves to be cancelled.”
The brief facts of the case are that assessee is a company engaged in the business of civil works and filed its return of income for A.Y. 2015-16 on 26.09.2015 declaring income of Rs. Nil under normal provisions of the I.T.Act, 1961 and book loss of (-) Rs.1,70,68,219/- under MAT provisions. The assessment was completed u/s 143(3) of the Act on 19.12.2017 accepting the returned income filed by the assessee.
2.1. Subsequently, a show cause notice was issued on 13.08.2019 to the assessee as to why the assessment order for A.Y. 2015-16 should not be revised as the assessment order was erroneous and prejudicial to the interest of the revenue as per provisions of section 263 of the I.T. Act. In response to which, the Chartered Accountant of the assessee appeared and furnished written submissions on 30.10.2019. On verification of all the details furnished, ld.PCIT revised the assessment order u/s 143(3) of the Act on 13.12.2019 for A.Y. 2015- 16 as the same is erroneous and prejudicial to the interest of the revenue u/s 263 of the Act.
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Feeling aggrieved with the order passed by ld.PCIT u/s 263 of the Act, assessee is now in appeal before us.
Before us, the ld.AR for the assessee had drawn our attention to the written submissions filed by the assessee which are to the following effect :
“………… A. Legal Contention: 8. Want of Jurisdiction, when two views are possible then the view taken by the assessing officer has to be considered; 8.1 It is submitted that the learned assessing officer after pursuing and considering the records, submissions and explanations by the appellant arrived at the conclusion and completed the assessment by accepting the information and explanations produced before the learned assessing officer. The appellant further submits that, the Appellant had produced all the documents and information before the learned assessing officer for his perusal and consideration. 8.2 It is submitted by the appellant that, the Appellant had made a written submission vide letter dated 05/12/2017 and also represented the case physically, explained the learned Assessing Officer the submissions made. 8.3 It is evident from the order sheet noting of the learned Assessing Officer, that the Appellant's authorized representative had appeared and submitted the complete information called for by the learned Assessing Officer. The learned Assessing Officer after perusal of books of accounts, documents,_ and information available on record has arrived at the conclusion and completed the assessment. 8.4 At the very outset the appellant wishes to submit that the assumption of jurisdiction by the learned Principal Commissioner of Income-tax is bad in law and consequentially the order passed under Section 263 is required to be cancelled in toto. It is submitted that the jurisdiction under Section 263 of the Act can be assumed only when the assessment order is erroneous as well as prejudicial to the interest of the revenue. Where the assessing officer has verified the records, other
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documents had completed the assessment, it cannot be said that the order passed is erroneous and prejudicial to the interest of the revenue. 8.5 It is submitted further that there was no lack of inquiry or inadequate inquiry by the learned assessing officer while passing the order of assessment under section 143[3] of the Act. For the purposes of Section 263, where if the Honorable Principal Commissioner of Income-tax has to assume jurisdiction, twin conditions have to be satisfied together viz., order has to erroneous and such an order should be prejudicial to the revenue. 8.6 It is further submitted, that the order of the learned assessing officer is not erroneous nor prejudicial to the interest of revenue, as the assessing officer has passed the order after proper enquiry and application of mind, as is evident from the order sheet noting. It is only on the presumption of the learned Principal Commissioner of Income-tax, the order of assessment cannot be treated as erroneous and prejudicial to the revenue. 8.7 The Appellant relies on the judgment of the Hon'ble Gujarat High Court in the case of Commissioner of Income-tax Vs. Amit Corporation [2012] 21 taxmann.com 64 (Guj.) where it has been held: "while framing the assessment the Assessing Officer had access to all the information and the order was framed after perusing such information and records, then such assessment cannot be reopened by the Commissioner of Income Tax in exercise of revision powers under section 263 of the Act for making further enquiries". (Emphasis Supplied) 8.8 Reliance is placed on the parity of reasoning on the decision of the Delhi High Court in the case of Commissioner of Income-tax Vs. Sun Beam Auto Limited reported in 332 ITR 167 where it was held: "therefore one has to see from the record whether there was application of mind before allowing the expenditure in question as revenue expenditure. It there was an enquiry, even inadequate that would not by itself give occasion to the CIT to pass order under section 263, merely because he has different opinion in the matter. It is only in cases of lack of enquiry that such a course of action would be open. [paras 12 to 15]. in sum and substance the accounting practice of the assessee is questioned.. It is clear that view taken by the AO was one of the possible views and therefore, the assessment order passed by the AO could not be held to be prejudicial to the revenue. Thus from whatever angle the matter is to be looked into, the conclusion could be that the order of the Tribunal does not call for any interference [paras 16,18 & 21]. ....the A.O. having made
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enquiries, elicited replies and thereafter allowed the expenditure it cannot be said that it is a case of lack of enquiry". (Emphasis Supplied). 8.9 The appellant places reliance on the decision of Hon'ble High Court of Bombay in the case of Commissioner of Income-tax Vs. Gabriel India Ltd., reported in 203 ITR 108 on the reason that the assessing officer acted in accordance with law admitting the claim on the ground that such an expenditure was incurred for the purpose of running business. The Hon'ble Court in the above cited case held as under: "If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income- tax Officer, who has passed the order, unless the decision is held to be erroneous. Cases may be visualized where the Income-tax Officer while making an assessment examines the accounts, makes enquires, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income-tax Officer. That would not vest the commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed as to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interests of the Revenue. But that by itself will not be enough to vest the Commissioner with the power of suo motu revision because the first requirement, viz., that the order is erroneous, is absent. Similarly, if an order is erroneous but not prejudicial to the interests of the revenue, then also the power of suo motu revision cannot be exercised. Any and every erroneous order cannot be the subject-matter of revision because the second requirement also must be fulfilled." (Emphasis Supplied) 8.10 In this regard the appellant place reliance on the decision of the Hon'ble Delhi High Court in the case of Commissioner of Income-tax Vs. Vikas Polymers, reported in 194 Taxman 57. Wherein the Hon'ble High Court has held as under:
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“………….we are thus of the opinion that the provisions of section 263 of the Act, when read as a composite whole, make it incumbent upon the Commissioner before exercising revisional powers to: (1) Call for and examine the record, and (ii) give the assessee an opportunity of being heard and thereafter to make or cause too be made such enquiry as he deems necessary. It is only on fulfillment of these twin conditions that the Commissioner may pass an order exercising his power of revision. Minutely examined, the provisions of the section envisage that the Commissioner may call for the records and if he prima faice considers that any order passed therein by the Assessing Officer is erroneous and prejudicial to the interest of the revenue, he may after giving the assessee an opportunity of being heard and after making or causing to be made such enquiry as he deems necessary, pass such order thereon as the circumstances of the case justify. The twin requirement of the section is manifestly for a purpose. Merely because the Commissioner considers on examination of the record that the order have been erroneously passed so as to prejudice the interest of the revenue will not suffice. The assessee must be called, his explanation sought for and examined by the Commissioner, and thereafter if the Commissioner still feels that the order is erroneous and prejudicial to the interest of the Revenue, the Commissioner may pass revisional orders. if, on the other hand, the Commissioner is satisfied, after hearing the assessee, that the orders are not erroneous and prejudicial to the interest of the revenue he may choose not to exercise his powers of revision. This is for the reason that if a query is raised during the course of scrutiny by the Assessing Officer,- which was answered to the satisfaction of the Assessing Officer, but neither the query nor the answer were reflected in the assessment order, this would not by itself lead to the conclusion that the order of the Assessing Officer called for interference and revision." (Emphasis Supplied) 8.11 The appellant relies on the decision of the Hon'ble Apex Court in the case of Commissioner of Income-tax Vs. G.M. Mittal Stainless Steel [P] Ltd., reported in 263 ITR 255 wherein the Hon'ble Apex Court has held that "Given the fact that the decision of the Jurisdictional High Court was operative at the material time, the Assessing Officer could not be said to have erred in law. The fact that this court has subsequently reversed the decision of the High Court would not justify the Commissioner in treating the Assessing Officer's decision as erroneous". (Emphasis Supplied).
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8.12 The appellant places reliance on the decision of Jurisdictional Income Appellate Tribunal, Bench C, Bangalore, in the case of M/s. Sarvana Developers Vs. Commissioner of Income-tax - I, Bangalore, ITA No. 620/Bang/2011 Et 48/Bang/2013 where it was held: "that the very initiation of proceedings, made without proper appreciation of the facts on record, is bad in law as it is not in accordance with the conditions specified in section 263 of the Act and therefore cancel the impugned order under section 263". (Emphasis Supplied) The appellant submits, that the books of accounts, bills, vouchers, TDS details and other related documents were produced for verification before the learned assessing officer, the assessing officer had verified all the documents produced and having satisfied had accepted the income of the Appellant as NIL. 8.13 It is also relevant to bring to the notice of this Hon'ble Tribunal that for the purpose of invoking the provisions of section 263 of the Act two basic (twin) conditions have to be satisfied: i) The order passed by the assessing officer sought to be revised should be erroneous & ii) The order passed by the learned assessing officer is prejudicial to the interests of the revenue. So the Hon'ble Commissioner of Income-tax had to consider that whether the order passed by the learned assessing officer is erroneous and prejudicial to the interest of the revenue. Reliance is placed on the decision of the Hon'ble Apex Court in the case of Malabar Industrial Co., Ltd., Vs. CIT, reported in 243 ITR 83. Wherein the Hon'ble Court has held as under: "the scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the Income-tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. The phrase "prejudicial to the interests of the Revenue" has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every Loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial to the interests of the Revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue or where two views are possible and the Income-Tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law." (Emphasis Supplied).
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8.14 The appellant further relies on the decision of the Hon'ble Apex Court in the case of Commissioner of Income-tax Vs. MAX India Limited., reported in 295 ITR 282 for the proposition that when two views are possible a view adopted by the learned assessing officer is not accepted by the commissioner the same cannot be treated as an erroneous order prejudicial to the revenue. 8.15 The appellant wishes to place reliance on the judgment of the Jurisdictional High Court in the case of Commissioner of Income-tax Et Anr. Vs. D.G. Gopala Gowda reported in (2013) 354 ITR 501, where it was held: "the condition precedent for exercising the revisionary powers under section 263 of the Act is that the order under revision should not only be erroneous, but such erroneous order should result in prejudice to the interest of revenue. Mere error would not confer jurisdiction to exercise revisional powers under section 263 of the Act". (Emphasis Supplied) 8.16 It is once again reiterated that the order passed by the learned assessing officer under section 143(3) of the Act dated 19/12/2017 is not erroneous and more so is not prejudicial to the interest of the Revenue since the learned assessing officer after applying his mind and further considering the nature of transaction and the information and documents produced has completed the assessment accepting the income returned by the Appellant (i.e.) Rs. NIL. B. Merits of the matter: Brief facts of the case: • The Appellant's case was selected for scrutiny for examination of "low income and high loans / advances / investments". • On perusal of the balance sheet it can be discern that there are no working capital loan taken by the company and transferred to sister concern. • The loans which the company had were only hypothecation loans from Srei Finance which was settled during the impugned assessment year 2015-2016, by transferring the machinery to them. • The difference between the reschedule loan and the balance outstanding which is interest was transferred to finance charges.
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Borrowed funds issued to the related parties and though the assessee has paid the interest on borrowed funds but it has not received any interest from the related parties on the loans issued by the assessee company: 9.1 The appellant submits that the Honorable POT, has erred in stating that the Appellant has borrowed funds which was issued to related parties and further stated that the Appellant has paid interest and has not received interest from the related parties. 9.2 The Appellant submits that, during the impugned assessment year 2015-2016, nor during the previous assessment years, the Appellant had taken any working capital loan on which the Appellant had paid interest and the Appellant without utilizing the funds for the Appellants business had transferred the amount to sister concerns. 9.3 The Honorable PCIT, had mentioned that the Appellant has paid interest on the funds borrowed and advanced to the sister concern, this statement is completely wrong on facts. The Appellant has never borrowed loans from any bank or financial institution and such loans are not transferred to the sister concern. 9.4 The Honorable PCIT has failed to appreciate the fact that the loans which the company has borrowed are only on hypothecation of machinery which were borrowed from M/s. Srei Finance. M/s. Srei Finance is a non- banking finance company which is specialised in lending towards purchase of construction equipment and machinery. 9.5 The procedure which is followed by M/s. Srei Finance is that, the lender will directly give the amount through banking channels to the supplier of the machinery and the machinery supplier after getting the payment releases the machinery to the buyer of the machinery. 9.6 In the complete process the fund is not directly received by the Appellant in the company, in the whole transaction, the funds are directly paid by M/s. Srei Finance to the seller of the equipment. Hence, the contention on the Honorable PCIT that the borrowed funds being issued to related party is not correct and the order under section 263 of the Act, passed by the Honorable POT needs to be deleted on this count alone.
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9.7 It is further submitted that the Appellant has not borrowed any loans from any bank or financial institutions, and no amount which is borrowed on which the Appellant has paid interest were transferred to attract disallowance of interest in the hands of the Appellant. 9.8 On perusal of the balance sheet it can be discern that the Appellant has not borrowed any working capital loan or any cash credit loans which were borrowed for the business of the Appellant, which without using it for the business of the Appellant were transferred to related parties as alleged by the Honorable PCIT. 9.9 The Appellant humbly submits that, when the Appellant has not borrowed any working capital and claimed the interest paid on the working capital in the profit and loss account, there is no need for restricting the amount of interest on the taken for purchase of machinery to M/s. Srei Finance. 9.10 Wherefore in view of above submissions, the direction of the Honorable PCIT to restrict the interest paid on borrowed funds to the extent of loans issued to the related parties is bad in law as there are no borrowed funds in the Appellants case, and the finding of the Honorable PCIT, be set aside and hold that the order passed by the learned Assessing Officer for the impugned assessment year 2015-2016, cannot be erroneous and prejudicial to the interest of revenue. To Sum up, it is humbly prayed to: a. Hold that the Honorable Pr. Commissioner of Income-tax erred in assuming jurisdiction under Section 263 of the Act where the Assessing Officer had made the necessary enquiries before drawing his conclusions, which is evident from the order sheet noting of the Assessing Officer. b. Hold that the Appellant has not issued borrowed funds to related parties, and hence the interest paid to Srei Finance Limited of an amount being Rs.1,96,91,340/ -, is allowable in toto, under the facts and circumstances of the case. c. Hold that as the amount issued to related party is not from the borrowed funds, the interest paid need not be restricted and the interest claimed be allowed in toto, under the facts and circumstances of the case. d. Hold that the assumption of the learned Principal Commissioner of Income-tax is one that depends on possibility or guess work, and not actually an error either of facts or of law under the facts and circumstances of the case.
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e. Grant such other relief as the Hon'ble Tribunal may deem fit on the facts of the case. 10. In view of the above the appellant humbly prays before this Hon'ble Tribunal to allow the appeal preferred by the appellant and set aside the order passed by the Honorable Principal Commissioner of Income-tax.”
The ld.AR had further submitted that the order passed by the ld.PCIT is not in accordance with the law as the Assessing Officer while passing the assessment order had issued the 143(2) notice on 19.09.2016 wherein it was mentioned as under :
“This is for your kind Information that the return of income for Assessment Year 2015-16 filed vide ack. no. 8213273312609.15 on 26/0912015 has been selected for Scrutiny. Following issues have been identified for examination: i. Minimum Alternate Tax (MAT liability mismatch ii. Low income and High loans / advances / Investments 2. In view of the above, we would like to give you an .opportunity to produce, or cause to be produced, any evidence which you feel is necessary In support of the said return of Income on 26/09/2016 at 04:45 PM in the office of the undersigned. 3. Sending a communication to the undersigned in this regard 'shall also be treated as sufficient' compliance in case no evidence IS sought to be produced as required in Para 2 above. 4. Specific questionnaire/ show-cause notice shall be sent giving you another opportunity In case any adverse view is contemplated. 5. (#) The assessment proceeding in your case Is proposed to be conducted through email based communication. The email provided In the said return of Income shall be used for communication for this purpose. In case you wish. to communicate, through any other alternate email, the same may kindly be informed. A brief note regarding benefits of this facility and procedure is enclosed overleaf., In case you do not wish to participate in this taxpayer friendly initiative, You may convey your refusal to the undersigned by the above mentioned date. In case, you wish to 'opt out from this scheme at any subsequent stage due to any technical difficulties
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faced by you, the same can be done with prior intimation to the undersigned.”
Ld. AR also submitted that the assessee had given the reply to show cause notice dt.13.08.2019 and thereafter the Assessing Officer had passed the assessment order on 19.12.2017. It was the contention of the assessee that it is not for the assessee to direct the Assessing Officer to write a detailed and elaborate order. Once, the Assessing Officer is convinced with the reasoning given by the assessee then there is no requirement to pass a detailed and elaborate order.
Per contra, the ld.DR relied upon the order passed by the ld.PCIT and it was submitted that the ld.PCIT had rightly passed the order and our attention was drawn to the order of ld.PCIT and the relevant portion of the order of ld.PCIT reads as under :
“5. The assessee's submissions made as above are considered and the same are found not to be tenable for the following reasons. (A) On perusal of the records it is observed that one of the reasons for scrutiny selection was "Low income in comparison to high loans/advances/investments in shares appearing in balance sheet". As such, the AO ought to have verified the issue of low income vis-a-vis high loans/advances, nature of loans/advances received by the company and interest expenditure claimed thereon, nature of loans/advances issued by the company, sources of loans and interest earned therefrom. On perusal of the records, it is observed that neither AO has called nor the assessee has furnished above details and as such the Assessing Officer failed to verify the reason for which the case was selected for scrutiny. The assessee in its submission dated 05.12.2017 made before the Assessing Officer, under the heading " Low income in comparison to large equity and borrowings", has furnished details of investments only and not furnished details of loans issued or received. As such, contention of the assessee that the issue raised is beyond the scope under limited scrutiny and the Assessing Officer has already verified the issue, is not acceptable as the
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issue is well within the ambit of reasons for selections of scrutiny and the Assessing Officer failed to verify the same, as discussed above. Therefore, order u/s. 143(3) passed by the AO is considered as erroneous in so far as it is prejudicial to the interests of the revenue u/s 263 of IT Act 1961. (B) Further, submission of the assessee that the amounts paid to sister concern was not from the amounts which were received as loans from the hire purchase companies but were paid from the company's own generation, is not acceptable because as per the balance sheet, accumulated share capital and reserves and surplus of the assessee company at the beginning of the year and the at the end of the year was at Rs.3.03 Cores and 1.23 Cores respectively, only. As such, the assessee was not having sufficient funds of its own to issue loans/advances to the related parties when compared to loans issued to them. Further, contention of the assessee, that the amounts paid are in the nature of business exigency, is not acceptable as the assessee has not substantiated its claim with the any documentary evidence and Hon'ble Supreme Court in the case of A.C.I.T Vs. Tulip star Hotels Ltd. (2012)(SC) held that in our view, S.A. Builders Ltd. vs. Commissioner of Income-Tax (Appeals) and Another, reported in 288 ITR 1, needs reconsideration. Thus, the Hon'ble Apex Court itself has realised that the principle laid down in S. A. Builders Ltd vs. CIT 288 ITR 1 (SC) is too wide and sets the boundaries too loose to have a effective interpretation and implementation of the principle of commercial expediency. In the present case it is seen from record, the assessing officer did not make any enquiries as to whether the interest free loan was given to the related parties as a measure of commercial expediency. The assessee also did not furnish required information with proof to show that the interest free loan was given to the related parties as a measure of commercial expediency. (C) There are judicial pronouncements that the Commissioner may consider an order of the Assessing Officer to be erroneous not only of it contains some apparent error of reasoning or of law or of the fact on the face of it but also because it is a stereo typed order which simply accepts what the assessee has stated in its return and fails to make enquiries which are called for in the circumstances of the case. Reliance is placed on the Hon'ble Supreme Court decision in the case of Rampyari Devi Saraogi Vs. CIT(1968) 67 ITR 84(SC) and Taradevi Agarwal Vs.CIT (1973) 88 ITR 323 (SC).
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In view of the above discussion, it is clear that the Assessing Officer failed to verify the reason for which the case was selected for scrutiny and simply accepted what the assessee stated in the return and failed to make enquires on the issue of borrowed funds being issued to the related parties and though the assessee has paid the interest on borrowed funds but it has not received any interest from the related parties on the loans issued by the assessee company and therefore. interest paid on borrowed funds to the extent of loans issued to the related parties does not belong to the assessee and needs to be restricted to the extent of the loans issued. 8. In the light of above facts of the case and also legal precedents discussed above, the order passed U/5143(3) dated 19-12-2017 is considered as erroneous in so far as it is prejudicial to the interests of the revenue u/s 263 of IT Act 1961. Therefore the order passed U/s143(3) dated 19-12-2017 is set aside. The Assessing Officer is directed to redo the assessment in accordance with the law, in light of discussions above and allowing an opportunity of being heard to the assessee and after due verification of submissions made by the assessee.”
Further, the ld.DR relied upon the Explanation (2) of Section 263 whereby it is provided that the order of Assessing Officer shall be deemed to be erroneous and prejudicial to the interest of Revenue if the Assessing Officer had passed the order without making enquiries or verification.
We have gone through the order passed by the learned PCIT as well as the assessment order passed by the Assessing Officer. The Assessing Officer has not discussed any issue whatsoever while passing the assessment order and the assessment order is silent on all the counts. There is no application of mind or discussion on the subject for which the case was selected for scrutiny. In our view, the explanation
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(2) of Section 263 which was inserted in the statute w.e.f. 01.6.2015 really answers the issue before us.
9.1. In the present case, we are of the opinion that the Assessing Officer has neither made any enquiry nor any verification from the assessee which is discernable from the record. We further found that the Assessing Officer has not applied his mind to the issues before him during the assessment proceedings and had casually and without any application mind, passed a non-speaking, perfunctory and cryptic order. Hence, we are of the opinion that the order passed by the Assessing Officer has rightly been revised by the learned PCIT. We further found no error in the order passed by ld.PCIT since the order passed by the Assessing Officer was erroneous and prejudicial to the interest of the Revenue as there is no discussion on the subject matter of the scrutiny assessment. In the light of the above, we respectfully relying on the celebrated judgment of the Hon'ble Supreme Court in the case of Malabar Industrial Co. Vs. CIT reported in 243 ITR 83, dismiss the appeal of the assessee.
In the result, the appeal filed by the assessee is dismissed.
Order pronounced in the Open Court on 22nd November, 2022.
Sd/- Sd/-/- (RAMA KANTA PANDA) (LALIET KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER
Hyderabad, dated 22nd November, 2022. TYNM/sps/PVV
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Copy to: S.No Addresses 1 RK Infra and Engineering India Private Limited, #1-2-49/15, 1st Floor, Nijampet Road, Hydernagar, Hyderabad. 2 Income Tax Officer, Ward – 3, Hyderabad. 3 Principal Commissioner of Income Tax /CIT-3, Hyderabad. 4 DR, ITAT Hyderabad Benches 5 Guard File By Order