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Before: Shri V. Durga Rao & Shri G. Manjunatha
आयकर अपीलीय अिधकरण, ’बी’ �ायपीठ, चे�ई IN THE INCOME-TAX APPELLATE TRIBUNAL ‘B’ BENCH, CHENNAI �ी वी दुगा� राव �ाियक सद� एवं �ी जी. मंजुनाथा, लेखा सद� के सम� Before Shri V. Durga Rao, Judicial Member & Shri G. Manjunatha, Accountant Member आयकर अपील सं./I.T.A. Nos.1403 & 1404/Chny/2015 िनधा�रण वष�/Assessment Years: 2002-03 & 2003-04 M/s. Penta Media Graphics Ltd., Vs. The Deputy Commissioner of ‘TAURUS’, No. 25, First Main Road, Income Tax, Media Circle I, Room No. 311, 3rd Floor, New Block, United India Colony Kodambakkam, Chennai 600 024. 121, Mahatma Gandhi Road, Nungambakkam, Chennai 600 034. [PAN: AAACP1647B] (अपीलाथ�/Appellant) (��थ�/Respondent) अपीलाथ� की ओर से / Appellant by : Sree Lakshmi Valli, Advocate ��थ� की ओर से/Respondent by : Shri Guru Bashyam, CIT-DR सुनवाई की तारीख/ Date of hearing : 06.07.2022 घोषणा की तारीख /Date of Pronouncement : 29.07.2022 आदेश /O R D E R PER V. DURGA RAO, JUDICIAL MEMBER: Both the appeals filed by the assessee are directed against different orders of the ld. Commissioner of Income Tax (Appeals) 14, Chennai dated 27.03.2015 & 31.03.2015 relevant to the assessment years 2002-03 and 2003-04 respectively.
Both the appeals filed by the assessee are delayed by four days and one day for the assessment years 2002-03 and 2003-04 respectively in filing the appeal before the Tribunal. The assessee filed petitions for
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condonation of delay in filing the appeals by stating that the delay was neither wilful not wanton and pleaded for condoning the delay, against which, the ld. DR has not raised any serious objection. Since the assessee was prevented by reasonable cause, the delays in filing the appeals before the Tribunal are condoned and admitted the appeals for adjudication.
When the appeal for the assessment year 2002-03 was taken up for hearing, the ld. DR has submitted that the present appeal before the Tribunal relates to giving effect order passed by the Assessing Officer consequent to the revision order passed under section 263 of the Act by the ld. CIT and since the 263 order was already upheld by the Tribunal, the present appeal filed by the assessee is liable to be dismissed.
On the other hand, the ld. Counsel for the assessee has relied on the grounds of appeal.
We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. Against the assessment order under section 143(3) r.w.s. 263 of the Act dated
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15.12.2011, the assessee preferred appeal before the ld. CIT(A) and the ld. CIT(A) has observed and held as under: “The Facts: 3.1 For the assessment year 2002-03, the assessment was completed under section 143(3) of the Act. The assessment order was taken in appeal before the Commissioner of Income Tax(Appeals).Later on, the matter was taken before the Income Tax Appellate Tribunal in second appeal. In the light of the order of the Tribunal dated 24-3-2008, the assessing authority passed an order to give effect to the orders of the Tribunal through his proceedings dated 3-7-2008. 3.2 The Commissioner of Income-tax, on perusal of the records, found that the assessing authority, while giving effect to the order of the Tribunal, has adopted the profit as per the profit and loss account without excluding the depreciation already debited in the profit and loss account under the provisions of the Companies Act. This has resulted in the assessing authority giving deductions for depreciation allowance twice, one computed under the Companies Act and the other computed under the Income-tax Act. The Commissioner of Income-tax also found that while computing the benefit of section 10B, the assessing authority has not split depreciation allowance into two, to exclude one portion and on that ground also the order of the assessing authority has become erroneous. 3.3 In view of the above, the Commissioner of Income Tax passed a revision order under section 263 of the Act, directing the Assessing Officer to make appropriate adjustments in respect of depreciation and re-compute the taxable income after giving the assessee an adequate opportunity of being heard. 3.4 The AO finalized the assessment under section 143(3) r.w.s. 263 of the Act and adds back the book depreciation of Rs 54,18,33,000/-. 4. Grounds of Appeal: Aggrieved by the order of the AO, the appellant preferred the present appeal against the additions made in the assessment. The following grounds are raised. (a) "The Assessing Authority erred in passing the order of assessment dated 15.12.2011 in violation of the principles of natural justice; the bar of limitation, the provisions of law and facts involved. (b) The Assessing Officer has no jurisdiction to pass the order under Sec. 143(3) read with Sec. 263 of the Income Tax Act in so far as the order under sec.263, in consequence of which the impugned assessment order has been passed, is itself illegal, invalid and barred by
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jurisdiction. The consequential assessment order dated 15.12.2011 thus has no basis. (c) The Assessing Officer erred in not awaiting the order of the Income Tax Appellate Tribunal quashing the order under Sec.263 of the Income Tax Act, dated 24.3.2011. The assessment has been completed in haste and arbitrarily. (d) The Assessing Officer Authority ought to have noted that in so far as the order of the Commissioner of Income Tax pursuant to which the impugned order has been passed is barred by limitation in view of the judgment of the Hon’ble Supreme Court in the case of CIT Vs Alagendran Finance Ltd. (293 ITR 1), the present impugned order has no basis. (e) The Assessing Authority erred in proceeding pursuant to an invalid order in so far as the order u/s 263 passed by the Commissioner of Income Tax has been passed in contravention of the ingredients of Sec.263. The present impugned order dated 15.12.2011 refers to a proposal initiated by the Assessing Authority based on which the Commissioner revises the order of reassessment dated 3.7.2008. Sec.263 provides for a revision of an order of assessment if the CIT is of the opinion that the said order is erroneous and prejudicial to the interest of revenue. In the instant case in so far as the opinion has been formed by the Assessing Authority and not the Commissioner of Income Tax, jurisdiction u/s 263 is vitiated. The present impugned order passed consequent on the order u/s 263 thus cannot stand. (f) The Assessing Officer erred in revising the order of assessment on the aspect of depreciation. The adding back of an amount of Rs.54, 18,33,000/- is contrary to law and unwarranted. (g) The appellant prays that all the grounds raised by it in its appeal against the order under Sec. 263 of the Income Tax Act pending before the Income Tax Appellate Tribunal may be read as part and parcel of the appeal. (h) Any other ground that may be raised at the time of personal hearing." 5. The main contention of the assessee company is that the order of the Commissioner of Income Tax pursuant to which the impugned order has been passed is barred by limitation. All the grounds excepting the ground no f, are with respect to 263 order of the CIT. The order of CIT u/s 263 was challenged by the appellant before ITAT. Hon’ble ITAT A Bench, Chennai in their order ITA Nos.957 & 958(Mds)/2011 dated I 7th Jan 2012 held: “6. As feared by the assessee, the Commissioner of Income-tax has not dealt with any issue that was subject matter of adjudication before the Tribunal. In that way the Commissioner of Income-tax has not exceeded his jurisdiction available to him under section 263 of the Act. Section 263 authorises a Commissioner of Income-tax to revise any order passed by any subordinate authority, which is found to be
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erroneous and prejudicial to the interests of the Revenue. The order passed by the assessing authority to give effect to the orders of the Tribunal is "any order" passed by an assessing authority, who is subordinate to the Commissioner of Income-tax. Therefore the Commissioner of Income-tax invoked the powers under section 263 within the permissible limits of Jaw. He has not exceeded jurisdiction.” (emphasis supplied) Further on merit also, the ITAT observed: “7. Regarding the merits, it is quite evident that the assessing authority has adopted the net profit for further giving deduction by way of depreciation, which was already modified by the depreciation allowance as provided under the Companies Act. Therefore, the excess amount of depreciation allowance has been granted to the assessee. Likewise, the division of depreciation allowance also has not been done while computing the benefit available to the assessee under section 10B of the Act. This also has resulted in excessive benefit to the assessee. We, therefore, find that the order passed by the assessing authority is erroneous as well as prejudicial to the interests of the Revenue. 8. In these circumstances, the revision order passed by the Commissioner of Income-tax for the assessment year 2002-03 is in accordance with law and his order is upheld. The assessee fails in its appeal for the assessment year 2002-03.” 6. Thus, it is already held that the order of CIT is proper and also the adding back of book depreciation is justified, otherwise assessee will get double benefit. It is an obvious mistake committed by the AO that while allowing depreciation as per I T Rules he mistakenly did not add back the book depreciation (quantified as per companies act). This mistake was rectified in the present order. Thus, assessee doesn't have a case on merits also. Hence, the ground no. a, b, c, d, e, f and g as set out in grounds of appeal are dismissed. In the result, the appeal filed by the appellant is dismissed.” 6. We have carefully considered the above order passed by the ld. CIT(A) and find no infirmity in the order passed by the ld. CIT(A). Thus, the appeal filed by the assessee is dismissed.
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With regard to appeal for the assessment year 2003-04, the only issue for consideration before us is relating to confirmation of addition of ₹.55,03,123/- being interest paid to Global Trust Bank.
7.1 Facts are, in brief, that the assessee company M/s. Penta Media Graphics Ltd. decided to provide ESOP to its employees and for which purpose, the assessee has created M/s. Pentafour Software Employees Foundation (PSEF). M/s. PSEF obtained loan from Global Trust Bank and the amount received were deposited as share application deposit for the purpose of utilizing the said deposited amount towards allotment of shares to its employees from time to time. The employees did not opt for allotment of shares and consequently, the employees were not provided with ESOP. The loan taken from Global Trust Bank was repaid along with interest by the assessee. Since, the loan was taken by PSEF, no interest was payable by the assessee. However, in the assessment order under section 143(3) r.w.s. 92CA(3) and 147 of the Act, the Assessing Officer has allowed the interest payment made by the assessee to the Global Trust Bank. In the revision order passed under section 263 of the Act, the ld. CIT had opined that the interest claimed as expenses should have been
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disallowed. Accordingly, after verification of the accounts, vide order under section 143(3) r.w.s. 263 of the Act dated 15.12.2011, the Assessing Officer disallowed the interest expenses of ₹.55,03,123/- and brought to tax. On appeal, the ld. CIT(A) confirmed the order of the Assessing Officer.
Before us, the ld. Counsel for the assessee has submitted that the loan was taken for the purpose of benefit of employees and therefore, it is business purpose of the assessee and the expense has to be allowed under section 37(1) of the Act. Alternatively, it was submitted that there was application of money and therefore, it has to be allowed and relied upon the decision in the case of CIT v. PVP Ventures Limited (2012) 211 Taxman 554 (Mad) as well as Tribunal’s order in I.T.A. No. 304/Mds/2013 for the assessment year 2009-10 vide order dated 15.10.2013 in the case of ACIT v. M/s. Murugappa Management Services Ltd.
On the other hand, the ld. DR has submitted that the loan was taken by the M/s. PSEF and not by the assessee and therefore, it is not for the purpose of business of the assessee and it cannot be allowed.
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We have heard both the sides, perused the materials available on record and gone through the orders of authorities below including case law relied upon. In this case, the assessee has created M/s. Pentafour Software Employees Foundation (PSEF) for the purpose of allotment of shares to the employees and M/s. PSEF obtained loan from the Global Trust Bank and the same was deposited with the assessee as share application deposits for the purpose of utilizing the said deposit amount for allotment of shares to the employees from time to time. However, the assessee has not allotted any shares to the employees. The assessee has paid the loan interest of ₹.55,03,123/- to the Global Trust Bank against ESOP loan and the same was claimed as expenses. The Assessing Officer has disallowed the same on the ground that the assessee has not taken any loan for its business purpose and the same was confirmed by the ld. CIT(A).
We find that as per the facts available on record, the PSEF obtained the loan and the same was deposited with the assessee. Whether the assessee has utilized the amount for the purpose of business of the assessee was neither examined by the Assessing Officer nor by the ld. CIT(A). Besides, the assessee was not able to
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produce any evidence to show that the loan amount borrowed by the PSEF deposited with the assessee has been used for the purpose of business of the assessee. In our opinion, this aspect needs to be examined. Therefore, we set aside the order passed by the ld. CIT(A) and remit the matter back to the file of the Assessing Officer to examine and verify as to whether the borrowed amount deposited with the assessee has been used for the purpose of the business of the assessee and if at all it was utilized by the assessee, the interest expenditure has to be allowed or otherwise, not. Ordered accordingly.
In the result, the appeal filed by the assessee for AY 2003-04 is allowed for statistical purposes and the appeal for AY 2002-03 is dismissed. Order pronounced on 29th July, 2022 at Chennai.
Sd/- Sd/- (G. MANJUNATHA) (V. DURGA RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER Chennai, Dated, 29.07.2022 Vm/- आदेश की �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant, 2.��थ�/ Respondent, 3. आयकर आयु� (अपील)/CIT(A), 4. आयकर आयु�/CIT, 5. िवभागीय �ितिनिध/DR & 6. गाड� फाईल/GF.