NCL HOMES LIMITED,HYDERABAD vs. ITO WARD-16(1), HYDERABAD

Brief facts of the case are that the assessee filed its return of income for the assessment year 2016-17 on 17/10/2016 declaring an income of Rs. 3,70,270/- and accepting the same, an order under section 143(3) of the Income Tax Act, 1961 (for short “the Act”) was passed on 13/12/2018. Subsequently, on a perusal of the assessment order, Ld. PCIT noticed from the Balance Sheet for the year ending on 31/3/2016 that the assessee company made investment in listed and unlisted equities to the extent of Rs. 5,27,33,933/- and earned dividend income of Rs. 26,29,981/- which is exempt under section 10 (34) of the Act and claimed interest expenditure of Rs. 5,72,80,691/- which was debited to the P&L account, but no disallowance was made either in the computation of total income or in the assessment order under section 14A of the Act read with Rule 8D of the Income Tax Rules1962 (“the Rules”). Ld. PCIT recorded that the learned Assessing Officer overlooked the examination of the issue relating to the disallowance under section 14A of the Act read with Rule 8D of the Rules. Ld. PCIT, therefore, returned a finding that the assessment order was erroneous insofar as it is prejudicial to the interest of Revenue and therefore, while setting aside the same he directed the learned Assessing Officer to cause necessary verification of disallowance under section 14A of the Act read with Rule 8D of the Rules.

Assessee is, therefore, before us in this appeal with a delay of 337 days. It could be seen from the record that there is a delay of 351 days in preferring these appeals and the reason attributed for the delay in filing the appeals to the pandemic. As a matter of fact, though the learned DR does not concede to condone the delay, there is no denial of the fact that the Hon'ble Supreme Court in the Suo Motu proceedings in the case of M.A.No. 21/2022 in M.A.No. 665/2021 in SMW(C) No.3 of 2020 by order dated 10/01/2022 held that in cases, where the limitation would have expired during the period between 15/03/2020 and 28/02/2022, notwithstanding the actual balance period of limitation remaining, all persons shall have a limitation period of 90 days from 01/03/2022, and in the event of actual balance period of limitation remaining with effect from 01/03/2022 is greater than 90 days, that longer period shall apply. Since the date of impugned orders under these appeals is 26/03/2021, these appeals, filed on 11/05/2022 shall be treated as filed within the period of limitation. We, therefore, now shall proceed to hear the appeals.

It is submitted by the learned AR that the learned Assessing Officer took a conscious decision of accepting the returned income after examining the information furnished by the assessee and the details filed along with the return of income. Ld. AR submitted that interest free funds are available in excess of the investment yielding exempted income with the assessee and therefore there is no prejudice caused to the Revenue.

Per contra, Ld. DR submitted that whether or not the assessee is possessing the interest-free funds for investments was to be verified by the learned Assessing Officer. So also the learned Assessing Officer should have verified the disallowance of the administrative charges. Assessment order is very cryptic and it does not reflect any information sought by the learned Assessing Officer in respect of the disallowance under section 14A of the Act read with Rule 8D of the Rules, or the satisfaction of the learned Assessing Officer to accept that the returned income was proper.

We have gone through the record in the light of the submissions made on either side. For the sake of ready reference and convenience, we deem it just and necessary to refer to the contents of the assessment order, which is very brief, hereunder,-

ASSESSMENT ORDER The assessee company, M/s. NCL HOMES LIMITED, filed its e-return of income for the Asst.Year 2016-17 on 17.10.2016 declaring an income of Rs.3,70,270/-. Subsequently, the case is selected for scrutiny through CASS. The case was selected for limited scrutiny and notice u/s. 143(2) of IT.Act 1961 was issued. Notices were issued u/s. 143(2) and u/s. 142(1) of the I.T.Act form time to time. In response to the notices issued, the assessee filed information in ITBA. After examining the information furnished by the assessee and details filed along with return of income the income declared in the return of income is accepted. Raghuram Kundeti WARD 16(2), HYDERABAD 7. Above order does not reveal any enquiry caused by the learned Assessing Officer in respect of the disallowance under section 14A of the Act read with Rule 8D of the Rules. When once the assessee declared exempt income, it is the duty of the learned Assessing Officer to verify the claim and the aspect of disallowance under section 14A of the Act read with Rule 8D of the Rules by seeking requisite details. Learned Assessing Officer, however, did not make any enquiry on this aspect. It may be true that the assessee possessing its own funds to make investment. But the satisfaction of the learned Assessing Officer to that effect must be reflected in the enquiries conducted by him. If the learned Assessing Officer sought the requisite information and after examining the same, if a conscious decision is taken not to invoke the provisions under section 14A of the Act read with Rule 8D of the Rules, it could be inferred that though the learned Assessing Officer did not mince many words on this aspect in the assessment order, but still he examined the issue. Unfortunately it is not so in this case.

In the circumstances, we are satisfied that it is a fit case where the Ld. PCIT rightly exercised jurisdiction under section 263 of the Act and directed the learned Assessing Officer to cause necessary verification with assessee’s submission as per the provisions of section 14A of the Act read with Rule 8D of the Rules. We find no merit in the grounds of appeal and therefore, while upholding the findings of the Ld. PCIT, we dismiss the appeal.

In the result, appeal of the assessee is dismissed.