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Income Tax Appellate Tribunal, NAGPUR BENCH, NAGPUR
Before: SHRI V. DURGA RAO & SHRI K.M. ROY, ACCOUNTANT, MEMBER
The present appeal has been filed by the assessee challenging the impugned order dated 11/03/2022, passed under section 263 of the Income Tax Act, 1961 ("the Act") by the learned Principal Commissioner of Income Tax, Nagpur–1, Nagpur, [“learned PCIT”], for the assessment year 2017–18.
The assessee has raised following grounds:–
“1. That on the facts and circumstances of the case, the revision order passed by the Ld. Pr. CIT u/s 263 of the Income Tax Act, 1961 is bad in law and therefore deserves to be set aside. 2. That on the facts and circumstances of the case, the Ld. Pr. CIT erred in holding that the assessment order passed u/s 143(3) of the Income Tax Act,
San Finance Corporation ITA no.40/Nag./2022 1961 dated 19.12.2019 is erroneous and prejudicial to the interest of the revenue when all the necessary enquiries were duly made by the assessing officer and duly explained by the assessee.
3. That on facts and circumstances of the case, the Order u/s 263 of the Act dated 11.03.2022 setting aside the original Assessment Order dated 19.12.2019 and directing fresh assessment to examine issue on which the then Ld. AO has already applied it mind during the original assessment proceedings makes the present revision a mere change opinion, not being permissible under the Income Tax Act, 1961.”
Brief facts are, the assessee filed its return of income for the year under consideration on 15/10/2017, declaring loss of ` (–) 11,50,98,180. The Assessing Officer issued notice and called for various details from the assessee. The assessee filed submissions before the Assessing Officer and the same was verified. During the assessment proceedings, the Assessing Officer on a perusal of Profit & Loss A/c noted that the assessee has debited interest amounting to ` 19,59,24,342. During the course of assessment proceedings, the assessee was required to furnish the details and justification for payment of interest vis–a–vis the income earned by deploying the borrowed funds on which interest is paid. The assessee was also required to provide the details of loans given and interest charged on the same. The assessee has furnished details and the Assessing Officer on a perusal of such details noticed that there are 11 persons / concerns to whom interest from advance have been made. The Assessing Officer asked the assessee as to why the proportionate interest paid on borrowed funds should not be disallowed as the borrowed funds have been utilized for advancing interest free loans amounting to ` 3,97,65,217. The assessee submitted that out of 11 persons, the assessee has itself added back the interest @ 12% amounting to ` 34,26,074, to its income as per the return of income pertaining to 7 persons. The assessee
San Finance Corporation ITA no.40/Nag./2022 submitted details of 7 persons before the Assessing Officer. Insofar and remaining 4 persons are concerned, the assessee was asked to explain as to why proportionate interest on other interest free advances should not be disallowed. In response, the assessee vide reply dated 11/12/2019, submitted that it has no objection for the proposed disallowance of ` 13,45,752.
Subsequently, the learned PCIT, by exercising power under section 263 of the Act issued show cause notice and called for explanation from the assessee why the order passed by the Assessing Officer dated 19/12/2019, should not be set aside. In response, the assessee submitted that the Assessing Officer has examined the details and, therefore, invoking power under section 263 by the learned PCIT is invalid and the same should be quashed.
On the other hand, the learned Departmental Representative submitted that the main issues involved in this appeal are – (i) loans and advances; and (ii) sale of shares and profit on sale of share of SMS Infrastructure Ltd. and (iii) receipt of interest and interest payment. The learned D.R. further submitted that the Assessing Officer has not made efforts to examine any details and in this case simply the details furnished by the assessee only examined and passed the assessment order and submitted that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of Revenue.
San Finance Corporation ITA no.40/Nag./2022
We have heard the rival arguments, perused the material available on record and gone through the orders of the authorities below. In this case, the assessee has filed return of income declaring loss at ` (–) 11,50,98,180. The assessee also debited to Profit & Loss A/c amounting to ` 19,59,24,342. The assessee has borrowed huge loans and also made advances. The assessee also made various sales and he received profit on sale of share of SMS Infrastructure Ltd. He received interest also. The Assessing Officer has not examined any of the issues and not called for any details from the assessee. The assessee filed some details about borrowed funds which were given to certain parties out of which the assessee himself has disallowed @ 12%, and for the remaining parties, the Assessing Officer has added. The assessee himself has claimed huge interest and also filed loss return of income. It was the duty of the Assessing Officer to call for the details such as what is the reason for borrowing such huge amount; what is the amount of money utilised for the purpose of business; why he has given loans to various parties; what is the receipt of interest; the quantum of shares have been sold by the assessee and what is the ratio of profit he received whether long term capital gain / short term capital gain. All such details have were required to be examined by the Assessing Officer and he has examined nothing. For the reasons stated above, we are of the opinion that it is a fit case for invoking the provisions of section 263 of the Act. We find that the order passed by the Assessing Officer is erroneous inasmuch as it is prejudicial to the interests of Revenue and thus we find no infirmity in the order passed by the learned PCIT hence decline to interfere and uphold the same. For the sake of convenience, the order passed by the learned PCIT is reproduced below:– Page | 4
San Finance Corporation ITA no.40/Nag./2022 “7. I have carefully considered the submission of the assessee and perused the assessment record, analyzed the factual and legal matrix of the case.It is evident from records that the AO has neither examined the above issues nor did she obtain any submission on these major issues. The AO has thus failed to call for the relevant details to satisfy herself reasonably on the issues of i) Loans and advances ii) sale of shares iii) profit on sale of shares of SMS Infrastructure Ltd and iv) receipt of interest as per 26AS on deposits and advances which has been discussed at length in para-6 supra. It is further noteworthy to mention that the reply of the assessee is conspicuously silent on the issue of disallowability of interest on interest free advances given to 61 parties as mentioned in the notice issued u/s 263 of the IT Act 1961. Although the assessee has given break-up of the Advances, however, the allowability of interest paid in backdrop of the interest free advances given, its true purpose and consequent taxability has not been examined by the AO which ought to have been done. Even the break-up of the advances were never verified by the AO during assessment proceeding. For example, the assessee has claimed advances as advance towards property, sticky advances, etc. to justify not charging of interest. However, whether these advances are what is claimed and further whether such advances justify not charging of interest were never verified by the AO making the order amenable to Section 263 of the Act. Similarly, the AO has failed to verify the taxability of multiple transaction relating to authenticity and investment & sale of share which further makes the order of the AO amenable to Section 263.
8. In this case, the assessment order has been passed without making inquiries or verification which should have been made by the AO. Accordingly, the order passed by the Assessing Officer is erroneous and prejudicial to the interest of revenue in view of Explanation 2 to Section 263 of the I.T. Act. The above Explanation 2 to Section 263 of the Income Tax Act find favour in the various court decisions, which are enumerated below:- 8.1 The Hon'ble Apex Court in The Malabar Industrial Co. Ltd. Vs. CIT (243 ITR 83) had on the scope of proceedings u/s263 observed as under: "There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase prejudicial to the interests of the revenue is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax." 8.2 The Hon'ble ITAT Bench in the case of Apollo Tyres Ltd vs Assistant Commissioner of Income Tax, as reported in the 65 ITD 263 (Delhi) has held as under: It is a well-settled law that where the Assessing Officer fails to make proper inquiries and investigation, such failure on the part of the Page | 5
San Finance Corporation ITA no.40/Nag./2022 Assessing Officer will result in prejudice to interests of the revenue and initiation of action under section 263 by the Commissioner under such circumstances will be perfectly valid and justified. 8.3 Rajmandir Estates Private Limited V. Principal Commissioner of Income Tax'-2016 (5) TMI 801 - CALCUTTA HIGH COURT- The High Court held that lack of enquiry, where enquiry is necessary, can be treated as prejudicial to the interest of the Revenue so as to justify revisional jurisdiction. It was for non inquiry, the validity of action under Section 263 was held justified in a case of non verification of share capital contribution when there was evidence to suggest that the transaction could not be genuine. 8.4 The Hon'bleITAT Ahmedabad Bench in the case of M/s. Sonalank Investment & Trading Pvt. Ltd. Vs. CIT, (ITA No. 1343/AM/2011) had relied on following observations: "An assessment order can be erroneous either in law or in fact. An assessment order can be an erroneous one when prima facie a claim is allowed which according to the learned CIT was against the provisions of law. An assessment order can be held as prejudicial to the interest of the revenue if in the opinion of the learned CIT the inquiry was not adequate or no inquiry at all has been made. In a landmark decision in the case of G.V. Enterprises, 99 ITR 375, the Hon'ble Delhi High Court has held that "inadequacy of inquiry is a good reason for invoking the proceedings under section 263 of the Act." If the reasoning is lacking in an assessment order, then also the learned CIT can invoke the revisionary powers".
In view of the above and the factual and legal matrix, I am satisfied that the order passed u/s.143(3) of the IT Act, 1961 for the A.Y. 2017-18 on 19.12.2019 is erroneous in so far as it is prejudicial to the interest of revenue and therefore the same deserves to be revised u/s. 263 of the IT Act, 1961. In this case the AO failed to examine all the relevant issues viz. i) Loans and advances ii) sale of shares iii) profit on sale of shares of SMS Infrastructure Ltd and iv) receipt of interest as per 26AS on deposits and advances as discussed in preceding paras; which he is directed to inquire into. Therefore, in exercise of power vested in me u/s. 263 of the I.T. Act, 1961, I hereby set aside the orderu/s 143(3) of the IT Act, 1961 dated 19.12.2019 passed by the I.T.O. Ward-1(4), Nagpur for the A.Y. 2017-18 with a directions to pass a fresh Assessment Order and after giving an opportunity of being heard to the assessee and conducting necessary inquiries.”
In view of the above, we find no reason to interfere with the order passed by the learned PCIT. Accordingly, all the grounds raised by the assessee are dismissed.
San Finance Corporation ITA no.40/Nag./2022
In the result, appeal filed by the assessee is dismissed. Order pronounced in the open Court on 11/07/2024