M/S NARAYAN POLYURETHANE INDUSTRIES,MUMBAI vs. PR CIT 30, MUMBAI

The only issue to be decided in this appeal is as to whether the ld PCIT was justified in assuming revision jurisdiction u/s 263 of the Act in respect

M/s. Narayan Polyurethane Industries of loans received by the assessee which were also squared up by the assessee, in the facts and circumstances of the case.

We have heard the rival submissions and perused the materials available on record. We find that the assessee is a partnership firm engaged in the business of manufacturing and selling of Polyurethane Flexipuff Foam and also providing services like finding market course in their field or providing commission basis services to their customers. We find that the assessee had filed its return of income for the Asst Year 2015-16 on 31.10.2015 declaring total income of Rs 63,88,660/-. The assessment for the Asst Year 2015-16 was completed u/s 144 of the Act on 8.12.2017 determining total income at Rs 6,09,22,060/- after making additions towards loans received in the sum of Rs 5,45,33,400/- as unexplained cash credit u/s 68 of the Act. We find that one of the reasons for selecting the case for scrutiny is verification of squared up loans by the assessee. This fact is clearly mentioned in page 2 of the assessment order. The ld AO observed that the assessee had received loans in the sum of Rs 5,45,33,400/- and had duly squared up the same during the year under consideration. This assessment completed u/s 144 of the Act on 8.12.2017 was sought to be revised by the ld PCIT invoking revision jurisdiction u/s 263 of the Act on the ground that the order passed by the ld AO is erroneous in as much as it is prejudicial to the interests of the revenue. We find that the ld PCIT had observed that apart from aforesaid loans of Rs 5,45,33,400/- , the assessee had also squared up the loan of Rs 11,30,000/- during the year which fact is mentioned in Form 3CD by the assessee. Hence according to ld PCIT, this amount also should have been added by the ld AO while framing the assessment. According to ld PCIT, non- consideration of the same had made the order of the ld AO erroneous and prejudicial to the interest of M/s. Narayan Polyurethane Industries the revenue warranting invoking revisionary jurisdiction u/s 263 of the Act. The ld PCIT observed that the ld AO had failed to make necessary inquiry and examination of the aforesaid squared up loans of Rs 11,30,000/- while framing the assessment.

We find that the assessee in response to show cause notice issued u/s 263 of the Act had responded before the ld PCIT that it had received a fresh loan from Shri Nilesh Patel during the year under consideration of Rs 11,30,000/- and the same was not squared up during the year. It was specifically pointed out before the ld PCIT that a sum of Rs 30,38,000/- was outstanding at the end of the year. It was also pointed out that the receipt of the said loan in the sum of Rs 11,30,000/- was duly disclosed in the tax audit report of the assessee and it was also mentioned that the said loan was not squared up during the year. It was specifically pointed out before the ld AO that only two loans in the sums of Rs 5,45,33,400/- were squared up during the year and hence the same alone was the subject matter of addition by the ld AO in the original assessment proceedings. Since this loan of Rs 11,30,000/- from Shri Nilesh Patel was not squared up during the year, the ld AO had rightly not made any addition towards the same. We find that the assessee had duly furnished the following documents before the ld PCIT in section 263 proceedings :-

We find that the ld PCIT had assumed revision jurisdiction u/s 263 of the Act on incorrect assumption of fact on the ground that the sum of Rs 11,30,000/- represent loan squared up during the year by the assessee. Whereas, from the aforesaid facts narrated and from the tax audit report submitted by the assessee before the ld AO, which are forming part of the records, we find that the said loan received from Shri Nilesh Patel is not at all squared up during the year. We find from the financial statement as on 31.3.2015 under the head Unsecured Loans, the party Shri Nilesh Patel is shown as outstanding loan payable at Rs 30,38,000/-.

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