ASCENDUM SOLUTIONS INDIA PRIVATE LIMITED,AHMEDABAD vs. THE PCIT, AHMEDABAD-1, AHMEDABAD

We have heard contentions of both the parties. We have carefully gone through the order of the ld.Pr.CIT and we find that the impugned order passed is grossly unjustified, against all principles of natural justice for the reason that the ld.Pr.CIT has completely ignored the explanation furnished by the assessee before him in support of its contentions, which is reproduced in the order also, and without dealing with the same, has gone on to pass the order under section 263 of the Act, finding the assessment order passed in the case of the assessee to be erroneous causing prejudice to the Revenue.

Elaborating on the same, we have noted that in the present case, the jurisdiction to revise the order of the AO passed in the case of the assessee in the impugned order was assumed by the ld.Pr.CIT noting that the AO failed to examine the issue of disallowance of interest pertaining to the interest bearing loans used for the purpose of advancing interest free loans by the assessee. The ld.Pr.CIT noted from the record that while the assessee had borrowed funds to the tune of Rs.26,19,78,904/- paying interest thereon of Rs.2,05,40,844/- all of which was claimed as expenses by the assessee and allowed by the AO. The assessee was also noted to have made interest free loans to the tune of Rs.5,39,80,000/-. The ld.Pr.CIT was of the view that there was a diversion of interest bearing funds for non-business purpose, which the AO had failed to examine and had therefore wrongly allowed the assessee’s entire claim of interest of Rs.2,05,40,844/-. He also noted that there was a discrepancy in the amount of legal and profession charges reported by the assessee in the tax audit report of Rs.84,58,450/- and that reflected in the profit & loss account to the tune of Rs.68,45,601/-. The case of the ld.Pr.CIT was that the assessee accordingly had incurred expenditure to the difference of the same amounting to Rs.13,12,849/- out of the books, and this issue also remained unexamined by the AO though the facts were clearly revealed from the records. His noting in this regard are at para-2 of his order as under:

The order of the ld.Pr.CIT reveals that the assessee duly furnished the explanation with regard to both the issues .With regard to the disallowance of interest relating to funds utilized for giving interest free funds, the assessee had contended that it had sufficient own interest free funds for the said purpose to the tune of Rs.18,19,90,119/- for advancing the interest free loan of Rs.5.39 crores. The assessee had also submitted that all its interest bearing

On the issue of legal and professional fees, the assessee had clarified that the amount reflected in the tax audit report of Rs.81.58 lakhs included the heads like audit fees, connectivity charges etc. which were not included in the legal and professional fees of Rs.68,45,601/- shown in the profit & loss account, but were shown separately in the books of the assessee. A break up to this effect was also furnished to the ld.Pr.CIT. This facts are recorded at para-4. Of his order as under: 4.1 On the issue of Legal and professional fees, the assessee has submitted that amount of Rs.81 58,450/- on which TDS was deducted contains figures from various heads like audit fees, connectivity charges etc. The assessee has submitted break up of various expenses so as to substantiate the expenditure of Rs.84,58,448/-”

At para 5 to 5.2 of his order, the ld.Pr.CIT reproduced the explanation of the assessee, but without considering the same, and without deliberating as to how he found no merit in the explanation of the assessee, he still goes on to hold that the assessment order was erroneous causing prejudice to the Revenue for the reason for which he assumed jurisdiction under section 263 of the Act i.e. in the case of disallowance of interest as per the Ld.Pr.CIT, the AO should have disallowed the interest and in the case of legal and professional charges, since there was a difference in the amounts of expenditure as reflected in the profit & loss account and the tax audit report, the It is patently clear that despite the assessee furnishing an explanation with respect to both the issues before it, the ld.Pr.CIT has completely ignored the same, and has not given any reason therefor for rejecting such explanation of the assessee, and passed order under section 263 of the Act, holding the assessment order passed by the AO to be erroneous causing prejudice to the Revenue.

The ld.DR before us was unable to point out from the entire order of the ld.Pr.CIT as to where and how he had dealt with the contention of the assessee; nor he was able to point out any blatant infirmity in the explanation of the assessee.

In the result, the appeal of the assessee is allowed.