M/S JINDAL BUILDTECH PVT. LTD.,GURGAON vs. DCIT CIRCLE, PARWANOO

आदेश/Order

Per ANNAPURNA GUPTA, AM :

The present appeal has been filed by the assessee against the order of the Commissioner of Income Tax (Appeals), Shimla (in short referred to as ‘CIT(A)’ dated 30.01.2020 relating to A.Y. 2016-17, passed u/s 250(6) of the Income Tax Act,1961(hereinafter referred to as “Act”).

ITA No. 248-Chd-2020 M/s Jindal BuildtechPvt.Ltd., Gurgaon 2 1.At the outset itself it was stated that Ground No.2 was not being

pressed before us. Ground No. 2 of the appeal reads as under:-

ground was that the case of the assessee had been selected for scrutiny

in violation of the CBDT guidelines applicable and, therefore, the

assessment order passed as a consequence was bad in law and needed to

be quashed. In support of this proposition, reliance was placed on the

decision of the Coordinate Bench of the ITAT in the case of Mrs. Payal

Kumari,Jagadhari Vs. assessee ITA No. 23/Chd/2011 order dated

24-02-2011.

ITA No. 248-Chd-2020 M/s Jindal BuildtechPvt.Ltd., Gurgaon 3 4. The Ld. Counsel for the assessee took us first to the assessment order

pointing out from para 1 of the order that the case was selected for

Compulsory Scrutiny. He, thereafter, took us to the notice issued to the

assessee u/s 143(2) of the Act dated 20.9.2017 and drew our attention to

the fact that the notice was issued under Compulsory Manual Selection

on the basis of the parameter at para 1(i) of the Manual compulsory

Guidelines of the CBDT issued by Instruction No. 5/ 2017 dated

7.7.2017. The relevant contents of the notice issued u/s 143(2) of the

Act are reproduced as under:-

ITA No. 248-Chd-2020 M/s Jindal BuildtechPvt.Ltd., Gurgaon 4 5. He, thereafter, drew our attention to the guidelines of the CBDT

referred to in the notice u/s 143(2) placed at paper book page No.4 as

under:-

Manual Section of cases, it could have been selected for scrutiny on the

criteria that there was recurring addition in the past, the quantum

exceeding Rs. 10 lacs and the issue had either become final in favour of

the Revenue or the appeal was pending in this regard.

during the assessment proceedings itself to the selection of the case

pointing out that there was no recurring addition, as under:-

ITA No. 248-Chd-2020 M/s Jindal BuildtechPvt.Ltd., Gurgaon 5

dismissed his contention in his notice u/s 142(1) of the Act dated

5.12.2018 by simply stating that the assessment proceedings u/s 143(3)

of the Act was statutory proceedings and had to be completed by

passing order u/s 143(3) of the Act as under:-

“Please refer to the assessment proceedings for 2016- 17. In this connection in response to your letter dated 27.09.2018, you are hereby informed that assessment proceedings u/s 143(3) is statutory proceeding under

ITA No. 248-Chd-2020 M/s Jindal BuildtechPvt.Ltd., Gurgaon 6 Income Tax Act, 1961 and thus the same is to be completed by passing u/s 143(3).”

the Ld. CIT(A) pointing out therefrom that he had dismissed this

contention of the assessee by stating that in the assessment year 2013-

14, the assessee had been denied deduction u/s 80IC on the interest

income of Rs. 10,57,218/- and since this was of a recurring nature and

since the assessee had not filed appeal against the same ,the case had

been rightly selected for scrutiny. Our attention was drawn to para 5.2

of the CIT(A) order as under:-

“5.2 Ground No. 2: The appellant in this ground of appeal has challenged the selection of the case for manual scrutiny. I have carefully considered the facts of the case, the submission of the appellant and the action of the A.O. The only issue here is regarding manual selection of this case in scrutiny. The appellant has argued that there was no addition of Rs.10 lacs has been made in earlier assessment years and that therefore the issue of notice u/s 143(2) of the Act was not as per the CBDT guidelines vide Instruction No.5/2017 applicable for manual selection of cases for scrutiny. The appellant has also placed reliance on various judicial pronouncements. I have perused the submission of the appellant vis-a-vis the facts of the case on record and the CBDT Instruction No.5/2017 governing the guidelines for manual

ITA No. 248-Chd-2020 M/s Jindal BuildtechPvt.Ltd., Gurgaon 7 selection of cases for scrutiny during the FY 2016- 17. In this regard, the CBDT Instruction No. 5/2017 also covers the cases where an addition of recurring nature, apparently exceeding Rs.10 lakhs, in assessment has become final as no further appeal was/has been filed. In the case of appellant for the AY 2013-14, deduction u/s 80IC to the extent of interest income of Rs.10,57,218/- was disallowed in assessment order dated 22.02.2016, since, the interest Income was not directly derived by the assessee from its eligible manufacturing activities. Apparently, the addition on account of disallowance of deduction u/s 80IC on income arising from interest was of recurring nature which has attained finality, since, the assessee had not challenged the said addition. Therefore, the submission of the assessee in this regard is factually incorrect. Further, notice u/s 143(2) has been issued as per the provision of this Act. Therefore, no infirmity is found in the issue of notice u/s 143(2) issued in this case. Hence, this ground of appeal is dismissed.”

the fact that the disallowance of deduction u/s 80IC of the Act on

interest income in assessment year 2013-14, referred to by the Ld.

CIT(A), was an error and was rectified on an application filed by the

assessee u/s 154 of the Act vide order passed u/s 154 dated 15.6.2020.

Our attention was drawn to the said order placed at paper book pages 17

& 18. The Ld. counsel for the assessee, therefore, contended, that the

ITA No. 248-Chd-2020 M/s Jindal BuildtechPvt.Ltd., Gurgaon 8 basis for the Ld. CIT(A) to hold that there was a recurring disallowance

being made in the case of the assessee relating to disallowance of

deduction u/s 80IC of the Act on interest income exceeding Rs. 10 lacs,

was in fact non-existent since the said basis was deleted by way of

rectification order passed u/s 154 of the Act the Act, as the assessee

had never claimed such deduction and, therefore, the selection of the

assessee’s case for scrutiny in the impugned order was in violation of

the CBDT Guidelines in this regard and the assessment order passed as a

consequence needed to be quashed.

selected for scrutiny for claim of deduction of interest income u/s 80IC

of the Act which had not been deleted and, in fact, remained as such

even when the CIT(A) passed the order in the case of assessee for the

impugned year. She pointed out that the findings of the Ld. CIT(A) in

this regard were factually correct as on the date of selection of the

assessee case for scrutiny as also the passing of the order by the Ld.

CIT(A), the disallowance of deduction u/s 80IC of the Act on the

interest income was very much alive and no appeal had been filed by the

assessee against the same. She pointed out that it was only subsequently,

after the order was passed by the Ld. CIT(A) in the impugned case,

when the assessee had moved rectification application u/s 154 of the Act

for the assessment year 2013-14 and the order passed therein. In this

ITA No. 248-Chd-2020 M/s Jindal BuildtechPvt.Ltd., Gurgaon 9 regard, our attention was drawn to the chronology of the order as

under:-

1) 22.2.2016 Assessment order passed for assessment year 2013-14

making disallowance of deduction u/s 80IC on interest income. 2) 26.12.2018 Assessment order passed for the impugned

assessment year, i.e A.Y 2016-17 3) 30.1.2020 CIT(A) order for the impugned assessment year A.Y

2016-17 passed and, 4) 15.6.2020 order u/s 154 of the Act passed for A.Y 2013-14

deleting the disallowance of deduction made u/s 80IC of the Act.

12.1 She, therefore, contended that the Ld. CIT(A) has rightfully held

that the selection of the assessees case was in accordance with the

guidelines in this regard.

considered the documents referred to before us. We are not in

agreement with the contention of the Ld. Counsel for the assessee that

the assessee’s case in the impugned assessment year was selected for

scrutiny in violation of the CBDT guidelines in this regard and the

reasons for the same are evident from the arguments made by both the

parties before us and the undisputed facts of the case .

ITA No. 248-Chd-2020 M/s Jindal BuildtechPvt.Ltd., Gurgaon 10 14. It is not denied that as on the date when the assessee’s case for the

impugned assessment year i.e. A.Y 2016-17 was selected for scrutiny,

the assessment order for the assessment year 2013-14 had been passed

making disallowance of deduction claimed by the assessee u/s 80IC of

the Act on interest income which exceeded Rs.10 lacs. There is no

dispute vis- a-vis this fact. It is also not denied that no appeal had been

filed by the assessee against the said order. The CBDT guidelines, as

pointed out by the Ld. counsel for the assessee himself before us,

categorically states that cases for Manual Selection have to be taken on

the basis when certain disallowances made in the past have remained

uncontested by the assessee. Now, as on the date of selection of the

assessee’scase for scrutiny for the impugned year, position being so that

a disallowance exceeding Rs. 10 lacs had been made in the assessees

case which had remained uncontested, We do not find any mistake in the

order of the Ld. CIT(A) holding that the selection of the assessee’s case

for scrutiny was as per CBDT guidelines. That subsequently,

disallowance had been found to have been done erroneously and was

rectified u/s 154 of the Act, does not change the position, since as on

date of selection of the case of the assessee for manual scrutiny, the

assessees case fulfilled the conditions as specified in the CBDT

guidelines and there was no way by which the Assessing officer could

have known that the disallowance had been made erroneously, which he

could have been made aware of and could have come to his knowledge

ITA No. 248-Chd-2020 M/s Jindal BuildtechPvt.Ltd., Gurgaon 11 only by way of an order passed, and which ,is a fact on record, was

affected subsequently only after the order passed in appeal by the

CIT(A). It is the fact situation as on the date of selection of the case for

scrutiny which is to be considered and seen whether they fulfill the

criteria mentioned therein for selection of cases for scrutiny. It is

impossible for the Assessing officer to forsee on the date of selection of

case for scrutiny that the fulfillment of conditions was erroneous. A

strict interpretation to the affect that disallowance which could never

have been made by the Department could not have been the criteria for

selection of case, in our view, cannot be applied to administrative

matters relating to the selection of case for scrutiny. The CBDT

guidelines in this regard are only to facilitate selection of cases for

scrutiny for effective and worthwhile assessments to be conducted and

to ensure that there is no adhocism resorted to in the same resulting in

wastage of resources of the department in inconsequential assessments..

These guidelines are merely administrative in nature and have to be

considered as it is without reading between the lines or going deeper

into it. Even otherwise we find that the issue for which the case was

selected for scrutiny assessment, i.e disallowance of deduction u/s 80 IC

on interest income ,was not pressed by the Ld.Counsel for the assessee

before us, as noted in earlier part of our order above, thus virtually

conceding that it was not eligible to the said deduction as per law.

Considering the same, if the assessment order is quashed for the reason

ITA No. 248-Chd-2020 M/s Jindal BuildtechPvt.Ltd., Gurgaon 12 that the case was not selected for scrutiny as per CBDT guidelines, as

canvassed by the Ld.Counsel for the assessee, it would tantamount to

quashing an otherwise duly conducted assessment proceedings

disallowing an undisputedly ineligible claim of deduction of the

assessee, on a mere administrative aspect, which aspect did not even

exist as noted by us above. That would result in nothing short of

travesty of justice

the assessees case was selected for scrutiny in violation of the CBDT

Guidelines and we uphold the order of the CIT(A) in this regard.

16.. Ground No. 1 of the appeal is dismissed.

disallowance of interest relating to advance made by the assessee to one

M/s Adhunik Enercon, interest component being Rs. 4,00,800 and the

advance to the said party amounting to Rs. 33,40,000/-. The Assessing

officer disallowed the same following the proposition laid down by the

Hon'ble Jurisdictional High Court in the case of Abhishek Industries v

ITA No. 248-Chd-2020 M/s Jindal BuildtechPvt.Ltd., Gurgaon 13 286 ITR 1 (P&H) and CIT Vs. Avery Cycle Industries Ltd. 298 ITR 239

that interest free advances for non-business purposes made out of mixed

funds including interest bearing funds warrant disallowance of interest

relating to the interest free advances so made. The Assessing officer

applied a rate of 12% on the impugned advances and made disallowance

of interest of Rs.4,00,800/- u/s 36(1)(iii) of the Act.

before us was that the assessee had sufficient interest free own funds for

the purpose of making the impugned advances and the presumption,

therefore, was that the said interest free funds were used for making the

advances calling for no disallowance of interest. Our attention was

drawn to the decision of the Hon'ble Apex Court in the case of CIT Vs.

Reliance Utilities & Power Ltd.’ 313 ITR 340 (SC) laying down and

settling the aforesaid proposition. He further pointed out that this

contention had been raised before the Ld. CIT(A) also at para5.4.3 of

the order but had been summarily dismissed by the Ld. CIT(A) stating

that the assessee had failed to establish the nexus between the interest

free funds and the interest free advances made.

ITA No. 248-Chd-2020 M/s Jindal BuildtechPvt.Ltd., Gurgaon 14 19. The issue to be adjudicated relates to disallowance of interest u/s

36(1)(iii) of the Act on account of interest free non business advances

made . As pointed out by the Ld.Counsel for the assessee, the Hon’ble

apex court, in the case of CIT Vs. Reliance Utilities & Power

Ltd(supra), has settled the proposition in this regard that where

sufficient own interest free funds are available, the presumption is that

the said funds have been used for the purpose of making interest free

non business advances calling for no disallowance of interest u/s

36(1)(ii) of the Act .Having said so, we find that the assessee had

pleaded that sufficient own funds were available for the purpose of

making interest free non business advance to M/s Adhunik Enercon, in

the present case, amounting to Rs. 33,40,000/-, but the same has not

been dealt with by the Ld. CIT(A) in accordance with the settled

proposition of law as stated above. We, therefore, consider it fit to

restore the issue back to the file of the Assessing officer to verify the

fact of availability of own funds with the assessee and thereafter

adjudicate the issue afresh in accordance with law.

19.1. Ground No.3 of the appeal is allowed for statistical purposes.

ITA No. 248-Chd-2020 M/s Jindal BuildtechPvt.Ltd., Gurgaon 15 books of accounts were accepted and no details were asked for in E-Assessment Proceeding.

adhoc disallowance of 0.5% of the total expenditure incurred by the

assessee of Rs. 45,75,10,830/-. The Ld. counsel for the assessee

pointed out from paragraph 7 of the assessment order that the said adhoc

disallowance was made for the reason that the assessee did not produce

its books of account and bill and vouchers to authenticate the claim of

various expenses. The same was upheld by the Ld. CIT(A) also for the

same reason.

never asked to produce its books of account during the entire assessment

proceedings and assessee being a private limited company, its books of

accounts were statutorily audited as required by law as per the

Companies Act and was even subjected to tax audit under the Income

Tax Act also and nothing adverse had been pointed out by either of the

auditors with regard to the expenses claimed by it. He contended that

even in the past, no expenditure had ever been disallowed in the case of

the assessee.

23.The Ld. DR referred to the order of the Assessing officer and pointed

out that despite several opportunities, the assessee did not furnish the

ITA No. 248-Chd-2020 M/s Jindal BuildtechPvt.Ltd., Gurgaon 16 necessary information, books of account or bills and vouchers to

authenticate the claim.

expenses of Rs. 45,75,10,830/- as claimed by the assessee, 0.5% of the

same have been disallowed for non-production of books and vouchers.

Undisputedly, this disallowance is totally adhoc and without any basis

also. Even for the sake of arguments, if it is accepted that the assessee

did not produce any books and vouchers, the disallowance of expenses

ought to have been on a rational basis considering the surrounding facts

and circumstances of the case of the assessee and considering its past

history also. As pointed out by the Ld. Counsel for the assessee, its

books are subjected to statutory audit under Companies Act and tax

audit under the Income Tax Act. The Assessing officer ought to have at

least considered the report of the auditors which was based on the books

of account of the assessee only before resorting to this adhoc

disallowance. Further, there ought to have been a proper basis for

adopting the rate of 0.5% for disallowance Out of the entire expenses.

The assessee contended that he was never asked to produce the books of

account and having noted that the Revenue Authorities have made an

absolutely adhoc basis, we consider it fit to restore this issue back to the

AO to give opportunity to the assessee to substantiate its claim of

ITA No. 248-Chd-2020 M/s Jindal BuildtechPvt.Ltd., Gurgaon 17 expenses and thereafter adjudicate the issue in accordance with law.

Ground No.4 of the appeal is allowed for statistical purposes.

adjudication, and accordingly the same is dismissed.

statistical purposes..

Order pronounced on 19.04.2022.

Sd/- Sd/-

(SUDHANSHU SRIVASTAVA) (ANNAPURNA GUPTA) Judicial Member Accountatn Member Dated : 19. 04 .2022 “आर.के.”

आदेशक���त+ल,पअ-े,षत/ Copy of the order forwarded to : 1. अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent 3. आयकरआयु.त/ CIT 4. आयकरआयु.त (अपील)/ The CIT(A) 5. ,वभागीय��त�न1ध, आयकरअपील$यआ1धकरण, च3डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड�फाईल/ Guard File

आदेशानुसार/ By order, सहायकपंजीकार/ Assistant Registrar