Loading judgment…
Facts
The assessee's appeal is against the PCIT's order under section 263 of the Act. The PCIT found the assessment order passed by the AO under section 144 r.w.s. 144B to be erroneous and prejudicial to the revenue due to lack of adequate inquiry, particularly concerning interest expenses.
Held
The Tribunal held that the AO's assessment order was indeed erroneous and prejudicial to the revenue. The Tribunal agreed with the PCIT's finding that the AO had failed to conduct adequate inquiry regarding the allowability of interest expenses claimed by the assessee.
Key Issues
Whether the assessment order passed by the Assessing Officer under section 144 r.w.s. 144B was erroneous and prejudicial to the interest of revenue due to lack of proper inquiry regarding allowability of interest expenses.
Sections Cited
263, 144, 144B, 37(1), 115BBE, 69A, 68
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI NARENDRA KUMAR BILLAIYA, HON’BLE & SHRI RAHUL CHAUDHARY, HON’BLE
This appeal by the assessee is preferred against the order of the PCIT, Mumbai-27 dated 26.03.2024 framed u/s.263 of the Act.
The sum and substance of the grievance of the assessee is that the PCIT erred in assuming jurisdiction u/s.263 of the Act and further, erred in holding that the assessment order dated 21/04/2021 framed Shilpkars Clothing Co. 2 u/s.144 r.w.s.144B of the Act is not only erroneous but also prejudicial to the interest of the revenue.
Representatives of both the sides were heard at length. Case records carefully perused and the relevant documentary evidences brought on record duly considered in the light of Rule 18(6) of the ITAT Rules.
Briefly stated facts of the case are that the return of income of the assessee was selected for complete scrutiny assessment under the e- assessment scheme 2019 on the following issues:- (i) Investments / advances / loans (ii) Business loss and (iii) Unsecured loans 5. The assessment order framed u/s.144 r.w.s. 144B of the Act and the AO computed the assessed income as under:- Income from long term capital gains Rs 5,08,96,216 Income from other sources: Rs 1,53,181 Total income Rs 5,10,49,397 Add: Unexplained cash deposits u/s 69A which attracts Rs.45,18,700 the tax rates as per the provisions of section 115BBE of the IT Act, 1961 Add: Unexplained cash credits u/s 68 of the IT Act. 1961 Rs.5,00,24,407
As the order is prejudicial to the interest of the assessee a Show Cause Notice was issued to the assessee on 08/04/2021 providing an opportunity of being heard to assessee. The date of hearing was fixed on 12/04/2021. The assessee has neither furnished any reply objecting the proposed addition/disallowance nor sought for any adjournment in view of the above, there is no other option left other than completing the assessment us 144 of the Act. Hence, this order is being passed u/s 144 rws 1448 of the IT Act, 1961 and the assessment is completed as under Income from long term capital gains: Rs 5,08,96,216 Income from other sources: Rs 1,53,181 Total income Rs 5,10,49,397 Add Unexplained cash deposits u/s: 69A which attracts Rs 45,18,700 the tax rates as per the provisions of section 115BBE of the IT Act. 1961 Add Unexplained cash credits u/s 68 of the IT Act. 1961 Rs.5,00,24,407 Total taxable income: Rs.10,55,92,504 Taxable income (Rounded off) Rs.10,55,92,500 6. Assuming jurisdiction conferred upon him by the provisions of Section 263 of the Act, the PCIT, Mumbai-27 issued a show-cause notice to the assessee. The relevant clause of the notice for our consideration read as under:- “On perusal of the case records, it is seen that you have debited a sum of Rs 5,24,32,881/- in the P&L Account under the head "interest to others".
Shilpkars Clothing Co. 4 However it is seen that during the course of assessment proceedings, you have failed to provide any documentary evidence to prove that the said expenditure has been incurred for the purpose of business. Since you have failed to provide any documentary evidence to prove that the expenses have been incurred by you for the purpose of business inspite of several opportunities provided to you during the course of assessment proceedings, the amount of Rs. 5,24,32,881/- should have been disallowed u/s 37(1) of the IT Act. 3 Therefore, it is considered that the order passed by the Assessing Officer for AY 2018-19 is erroneous in so far as it is prejudicial to the interest of revenue within the meaning of section 263 of the IT Act, 1961. 4 You are therefore, allowed an opportunity of being heard and show-cause as to why an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment within the meaning of section 263 of the IT Act. may not be passed in your case.”
Assessee filed detailed reply to the show-cause notice and furnished necessary details. After considering the details, the PCIT observed that the assessee had incurred interest expenses of Rs.5,24,32,881/- on secured loans of Rs.29.34 Crores taken from different banks as ‘business loan’. As the assessment was completed u/s.144 r.w.s. 144B of the Act, there were no submissions made by the assessee before the AO inspite of several opportunities and the AO was left with no choice but to complete the assessment without verifying the details regarding the nature and allowability of interest expenses. The PCIT concluded as under:- “8. In view of the above facts and circumstances of the case it is held that the A.O has passed the assessment order u/s 144 rws 144B dated 21.04.2021 without making adequate and complete enquiry and verification which should have been made by him. Hence, the assessment order dated 21.04 2021 passed Shilpkars Clothing Co. 5 u/s 144 rws 144B is erroneous in so far as it is prejudicial to the interest of revenue. Therefore the assessment order dated 21.04.2021 passed by the AO u/s 144 rws 1448 is set aside to the AO with a direction to make a fresh assessment. While completing the fresh assessment the AO shall examine and only verify the issue of whether the loans interest on which have been allowed were for business purpose with the help of documentary evidences and pass a fresh assessment order, in accordance with law and after affording an opportunity of being heard to the assessee.
Before us Counsel for the assessee vehemently contended that the AO did not allow the interest expenses claimed by the assessee therefore, there is no question of any further disallowance as per the directions of the PCIT. It is the say of the Counsel that since the AO has not allowed the interest expenditure therefore, to that extent the assessment order cannot be considered as erroneous and prejudicial to the interest of the revenue.
Per contra, the DR strongly supported the findings of the PCIT.
We have given a thoughtful consideration of the impugned orders. In its computation of income, the assessee has computed the business income at a loss of Rs.5,91,21,299/-. This business loss is the outcome of the profit and loss account for the year ended 31/03/2018 which is as under:- Particulars Amount in Particulars Amount in (Rs.) (Rs.) To Opening Stock 178,655,553 By Sales 8,476,955 Shilpkars Clothing Co. 6 To Purchases 558,041 By Closing Stock 170,736,639 To Gross Profit a/fd 0 179,213,594 179,213,594 To salaries & Wages 1,066,879 By Gross Profit B/fd To Staff Welfare 190,000 Expenses To Electricity Charges 273,645 By Discount 7,875 To Drinking water & 70,299 By Dividend 15,000 Expenses To Telephone Charges 138,653 By Interest on 181,903 FD Yes Bank To Professional fees 23,851 By Written off 367,520 To Advertisement 3,000 Expenses To Printing & 11,319 Stationery To Repairs & 12,443 Maintenance To VAT Paid 296,770 To General & 7,179 Miscellaneous Expenses To Other Expenses 5,625 To Service Tax Paid 46,020 To Legal Charges 8,000 To Insurance Charges 7,641 To Office Expenses 71,415 To Bank Charges 1,797,454 To Interest 52,432,881 To Depreciation 3,230,523 To Net Profit trf to -59,121,299 Cap.A/c Total 572,298 572,298
10. It can be seen from the above P & L account, the assessee has charged its profit by interest expenditure of Rs.5,24,32,881/-. Incidentally, the assessee has also claimed salaries and wages of Rs.10,66,879/- and depreciation of Rs.32,30,523/-. Both these expenses have been specifically disallowed by the AO while computing the assessed income. But the AO has not disallowed the claim of interest of Rs.52,43,288/- as no verification has been done at the same time. The contention of the Counsel that the AO has not allowed the interest expenditure has to be brushed aside knowing the fact that the appeal of the assessee is pending before the CIT(A) against the said assessment order wherein, the assessee has contended that its returned income should be accepted. Once the returned income is accepted, the interest expenditure of Rs.5,24,32,881/- shall be allowed without any verification.
Considering the totality of facts of the case in hand, we are of the considered view that the assessment order dated 21/04/2021 framed u/s.144 r.w.s.144B of the Act is not only erroneous but also prejudicial
Appeal of the assessee is accordingly dismissed.
Order pronounced in the Court on 11th September, 2024 at Mumbai.