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FINOVA CAPITAL PRIVATE LIMITED,JAIPUR vs PCIT-1, JAIPUR, JAIPUR | BharatTax

FINOVA CAPITAL PRIVATE LIMITED,JAIPUR vs. PCIT-1, JAIPUR, JAIPUR

ITA 149/JPR/2024Status: HeardITAT Jaipur13 December 2024AY 2018-19Bench: DR. S. SEETHALAKSHMI (Judicial Member)1 pages

AI SummaryAllowed

Facts

The assessee, Finova Capital Private Limited, appealed against an order passed by the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act, 1961. The PCIT had found the original assessment order passed by the Assessing Officer (AO) to be erroneous and prejudicial to the interest of revenue. The appeal was filed with a delay of 262 days, which was condoned by the Tribunal.

Held

The Tribunal held that the PCIT had erred in assuming jurisdiction under Section 263 as the conditions for revision were not met. The assessment order was not found to be erroneous nor prejudicial to the interest of revenue. The PCIT's action was considered unjustified and arbitrary, as the AO had applied his mind and taken a plausible view based on the material on record.

Key Issues

Whether the PCIT was justified in invoking revisionary powers under Section 263 of the Income Tax Act, 1961, when the Assessing Officer's order was neither erroneous nor prejudicial to the revenue.

Sections Cited

263, 36(1)(via), 37(1), 40(a), 143(3), 142(1)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, JAIPUR BENCHES,”B” JAIPUR

Before: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, vk;dj vihy la-@ITA No. 149/JP/2024

For Appellant: CA &, CA jktLo dh vksj ls@

Hearing: 13/11/2024Pronounced: 13/12/2024

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”B” JAIPUR Mk0 ,l- lhrky{eh] U;kf;d lnL; ,oa Jh jkBksM deys'k t;UrHkkbZ] ys[kk lnL; ds le{k BEFORE: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, vk;dj vihy la-@ITA No. 149/JP/2024 fu/kZkj.k o"kZ@Assessment Years : 2018-19 cuke Finova Capital Private Limited PCIT-1, 702, 7th Floor Unique Aspire, Vs. Jaipur, Jaipur Cosmo Colony, Vaishali Nagar, Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AACCF 6521 A vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Sh. Rohan Sogani, CA & Sh. Vikash Rajvanshi, CA jktLo dh vksj ls@ Revenue by : MS Alka Gautam, CIT lquokbZ dh rkjh[k@ Date of Hearing : 13/11/2024 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 13/12/2024 vkns'k@ ORDER PER: RATHOD KAMLESH JAYANTBHAI, AM

Because the assessee aggrieved from the order of Pr. Commissioner of Income Tax, Jaipur-1 [ for short PCIT ] for the assessment year 2018-19 dated 28.03.2023 the present appeal is preferred. The ld. PCIT passed that order under challenge as per provisions of section 263 of the Income Tax Act, 1961 (for short “Act”) while examining the assessment record of the above-named assessee.

“1. In the facts and circumstances of the case and in law, ld. Principal Commissioner of Income Tax has erred in assuming jurisdiction u/s 263 when the order of the ld. AO is neither erroneous nor prejudicial to the interest of the revenue. The action of the ld. Principal Commissioner of Income Tax is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the order passed u/s 263.

2. The assessee company craves its right to add, amend or alter any of the grounds on or before the date of hearing.”

9. Attention is drawn towards the below mentioned judicial pronouncements, wherein similar type of expenses were held to be allowed as revenue in nature: - Case Law Ratio Laid Down JCT Electronics Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Ltd [2010] 188 Allowability of -Assessment year 2004-05 - Whether where Tribunal had treated expenditure for restructuring and viability study and Taxman 191 (Punjab & preparation of restructuring proposal as revenue expenditure by recording findings of fact that expenses were incurred for purpose Haryana) of business and were in conformity with provisions of section 37, no question of law arose from Tribunal's order - Held, yes Lok Advisory Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Services (P.) Ltd. Allowability of (Consultancy fee) - Assessment year 2012-13 - Delhi)/[2019] 264 Assessee-company was engaged in providingmanagerial, Taxman 39 (Delhi)[ technical, consultancy and investment research services to two overseas funds - Assessee-company entered into an agreement with its foreign associate entity 'LF' to help assessee in identifying potential investors and influence them to participate in said two overseas funds - Assessee paid Rs. 2.88 crores to LF as one time consultancy fee stating that due to efforts of one DP, co-founder of LF, total fund size of investments by said two funds had increased to huge amount - Assessee claimed said payment as deduction under section 37(1) - Same was disallowed - It was noted that revenue had accepted that fee was paid to LF for a gamut of services rendered by it namely, to identify and introduce potential investors in different countries, review and assist in preparation of material, influence potential investors, assist in negotiations to arrive at a commitment, move towards a closing and get a successful closure - Efforts had benefitted assessee in form of increased investment by said two overseas funds resulting in Finova Capital Pvt. Ltd. vs. PCIT increase in advisory fee being paid to assessee by said funds - Whether, on facts, impugned consultancy fee paid by assessee was expenditure wholly and exclusively for purpose of business and, therefore, same was to be allowed under section 37(1) - Held, yes [Paras 10 and 11] [In favour of assessee]

1,18,50,389/- which was claimed by the assessee as per provision of section 37(1) of the Act. On this issue the bench noted that the assessee has in detailed replied to the AO vide questionnaire dated 23.11.2020 wherein ld. AO called for the details of deduction and exemptions claimed by the assessee which was submitted vide reply dated 08.12.2020 point no. v page 130 and 131 in the paper book filed. After considering that submission made by the assessee ld. AO has considered the claim of the expenses as revenue expenses as allowable u/s. 37(1) of the Act. Whereas ld. CIT(A) is propagating that the same are capital expenditure. The issue Thus, to examine that the view taken by the ld. AO was erroneous or prejudicial to the interest of the revenue or not we would deal the complete facts of the issue. As we note from the record that during the year under consideration, the assessee paid Consultancy Fees in the form of Syndication Fees for raising Convertible Cumulative Preference Shares from Venture Capital “SCI Investment”. Such fees were paid as part of arranging for the Strategic Investor. On this issue of claim of expenditure while the proceeding before the ld. AO all the details related to the capital raised by the assessee company, the expenses incurred in relation to consultancy, and the fees paid to the Registrar of Companies for increasing the capital base of the company were submitted along with the documentary evidence. That records were also forms part of the paper book filed by the assessee vide page no 129 to 131 and that submission made were not disputed by the ld DR while arguing the case. Thus, we note that all the details related to the capital infusion and investment received by the assessee company were submitted to the ld. AO. ld. AO had specifically requested all the details related to the increase in the capital of the assessee company. The assessee also placed on record the details of the returns filed with the Registrar of Companies for the allotment attention is drawn to the query letter issued during the assessment proceedings, which is placed at PB Page 125 to 127. When the ld. AO was made aware of the issue by placing cogent evidence and based on the submissions and records verified the claim and was considered the same.

It is also clear from the record that fees paid to the consultant for different services, which inter-alia include, identifyin potential investors, strategizing the investment, exploring the best possible opportunities for the assessee company, providing guidance to the assessee company, in relation to type of the strategic investor, providing guidance of the type of securities to be issued and its ramification for the future etc. all these aspects as contended were considered in the assessment proceedings along with the documentary evidence, the Ld. AO took a conscious decision to allow the expenditure as revenue in nature and we do not find that the said decision was erroneous and prejudicial to the interest of the revenue. Before us in support of the view taken by the ld. AO the assessee has relied upon the judgments in the that the claim of the expenditure is duly allowable and as such the view of the ld.AO is not prejudicial to the interest of the revenue also when the legal precedent on the same very issue shows that the view adopted by the ld. AO was one of plausible view. The bench noted that ld. reliance on the decision of the Hon'ble Supreme Court in the case of Punjab State Industrial Development Corporation Limited [1997] 225 ITR 792 (SC). In the said case, payment was made filing fee to the Registrar of Companies (ROC) for the enhancement of the company's capital base whereas the same is not case of the assessee as the expenditure sought to be disallowed by the Ld. PCIT is not in relation to the fees paid to the Registrar of Companies and there that decision does not support the view of the ld. PCIT. Thus, we are of the considered view that there is part of the order of the ld. AO found be erroneous or prejudicial to the interest of the revenue. The bench also noted that ld. PCIT has invoked the clause (a) and clause (b) to explanation 2 to section 263. The clause (a) deals with those reasons where the ld. AO has not made any enquiry and verification of the claim. On this aspect of the matter we note from the submission so made the ld. AO raised the issue, assessee filed all the details on the issue and after application of mind ld. AO allowed the claim of the assessee.

We also take note of the fact that every inadequacy of the enquiry conducted by an AO as against the no enquiry cannot form a basis for setting aside an assessment order which has been passed by the NeFAC after raising the detailed enquiry on the issue flagged for scrutiny. In the instance case as discussed herein above on all of the issue either the ld. AO has raised the issue and taken a plausible view or the ld. AR of the assessee placed on record relevant material so as to establish that on that issue the order is not erroneous and that of the matter has not been challenged by the ld. DR. Thus, when based on the submission and discussion so recorded herein above as is evident that on all of the aspect of the matter either the inquiry has been made or considering the submission of the assessee the same is not prejudicial to the interest of the revenue the order passed by the ld. AO cannot be held prejudicial to the interest of the revenue as the twin condition laid down under the Act fails as order of the ld. AO is neither erroneous on facts nor prejudicial to the interest of the revenue. Therefore, the order passed by the ld. PCIT dated 28.03.2023 cannot be sustained in law merely because the original seeing. Moreover, we note that the issue that has been discussed on which the ld. AO took a possible view in the matter and even though the ld. AR of the assessee demonstrated the same are not prejudicial to the interest of the revenue. Hence, the PCIT could not have exercised the powers conferred upon her u/s. 263 of the Act only on the reasons that she had a different view or perspective in the matter. The principle of law enunciated by the Supreme Court in Malabar Industrial Co. Ltd. has set up a standard concerning the width and amplitude of power vested for exercising revisionary jurisdiction under Section 263 of the Act. While exercising power under the said provision, the concerned officer must be satisfied that the twin conditions provided therein stand fulfilled, i.e., the order passed by the AO, which is sought to be revised, is erroneous and is also prejudicial to the interest of the revenue. In other words, if one of the two conditions is not satisfied, the revisionary power under the said provision cannot be invoked. One cannot quibble with the principle of law in the said case.