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Income Tax Appellate Tribunal, “B” BENCH, PUNE
Before: SHRI R.S. SYAL & SHRI S.S. VISWANETHRA RAVI
आदेश / ORDER
PER S.S. VISWANETHRA RAVI, JM :
This appeal by the assessee against the order dated 23-03-2017 passed u/s. 263 of the Act by the Pr. Commissioner of Income Tax-1, Pune for assessment year 2012-13.
The assessee raised 4 grounds of appeal amongst which the only issue emanates for our consideration is as to whether the Pr. CIT is justified in invoking the jurisdiction u/s. 263 of the Act in the facts and circumstances of the case.
3. Heard both the parties and perused the material available on record. We note that the Pr. CIT set aside the order passed by the AO u/s. 143(3) of the Act declaring the same as erroneous and prejudicial to the interest of the Revenue. The Pr. CIT invoked the jurisdiction u/s. 263 of the Act on three items which were debited to the profit and loss account on account of provision for doubtful debts and loss of Rs.4,91,000/-, Rs.25,31,000/- on account of advances written off and Rs.88,99,000/- on account of interest payment. The ld. AR, Shri M.K. Kulkarni submits that the assessee created a provision for doubtful debts and conceded the said amount of Rs.4,91,000/- is liable for disallowance. The ld. DR, Shri Deepak Garg submits that the assessee made submissions in this regard accepting the disallowance in its written submissions before the Pr. CIT and referred to Para No. 4 of the impugned order. We note that the ld. AR fairly accepted the said disallowance while in 263 proceedings and also before us. Therefore, the order of Pr. CIT in holding the order of AO is erroneous and prejudicial to the interest of Revenue is justified.
4. Next item regarding advances written off to an extent of Rs.25,31,000/- the ld. AR referred to Second Paper Book filed consisting of 127 pages on 18-12-2020 and drew our attention to Page No. 2 and argued that all the items disclosed therein consisting of sundry balances to an extent of Rs.25,31,000/- which were written off in the year under consideration in view of no possibility of recovery. The ld. DR referred to Q. No. 31 with reference to the notice issued u/s. 142(1) of the Act by the AO which is at Page No. 6 of the paper book and submitted the AO asked the details of debts which have been claimed as bad debts written off such as Name, amount, since when outstanding, efforts made to recover, financial position of the party and to file proof of correspondence in respect of the said claim. The AO also asked the assessee to produce copy of ledger account or any other account and evidences showing the said debts treated as income in the earlier year. The ld. DR, Shri Deepak Garg further referred to reply of the assessee in response to the queries of AO in notice u/s. 142(1) of the Act which is at Page No. 10 of the paper book and vehemently argued no such details given as sought by the AO in this respect. In rejoinder to the submissions of ld. DR, the ld. AR conceded that the issue may be referred to the AO for his fresh examination. We note that as rightly pointed by the ld. DR that the AO asked the assessee to produce all the details relating to bad debts written off but no such details were produced by the AO and it is clearly established from the reply in Page No. 10 that the assessee agreed to produce the same in shortly. Admittedly, we find no details were submitted by the assessee before the AO in the original proceedings and the view of Pr. CIT in holding the assessment in this regard as erroneous and prejudicial to the interest of Revenue is substantiated. Therefore, the order of Pr. CIT in holding the AO did not examine the said issue is hors good and the order of Pr. CIT u/s. 263 of the Act is justified in this aspect.
5. Coming to the next item of Rs.88,99,000/- on account of interest payment on the borrowings. The Pr. CIT on scrutiny of the Balance sheet (Note-14), it is noticed that the assessee had given interest free loans and advances to related parties amounting to Rs.2,62,14,000/- and made investment (Note-13) for Rs.4,87,08,000/- and accordingly to him, that the company is giving interest free funds to the related parties and on the other hand paying interest on the borrowed funds. The interest on loans given to related parties having no business nexus, needs to be disallowed out of the interest of Rs.88,99,000/- debited to profit and loss account considering the rate of interest at 18.82% on interest free loans given of Rs.2.62 crores. The interest on loans given works out to Rs.49,33,475/-. It was contended by the assessee that the advance of Rs.1,61,41,000/- is a business advance paid to M/s. Eagle Flask Ind. Ltd. as the Chennai Unit of Eagle Flask Ind. Ltd. Supplied Steel Flasks to the assessee cannot be considered as interest free advance to the sister concern. Further, it was submitted that the advanced to Eagle Agro of Rs.63.78 lakhs and to M/s. padamsee & Sons of Rs.30.97 lakhs are very old advances not given in this year or immediate earlier years. The assessee is having interest free funds of Rs.6,76,75,000/- and it is judicially presumed that interest free funds of Rs.94.73 lakhs advanced to M/s. Eagle Agro and Padamsee & Sons (63.71 + 30.97) are out of interest free funds with the assessee. The Pr. CIT held that the AO in the assessment has not examined the issue of charging of interest and giving interest free advances and is a case of inadequate inquiry.
The ld. DR referred to page No. 4 of the paper book at Q. No. 15 submitted that the AO asked the assessee to furnish details of loans, advances and deposits given. The AO also particularly asked the assessee whether any money has been advanced free of interest, if so, give details and state the necessity of advancing the money, show caused why equivalent interest at the prevailing market rate should not be disallowed out of the gross interest expenses claimed as deduction on the ground of not having been wholly and exclusively incurred for the purpose of the business. He referred to page No. 9 of the paper book and submitted that the assessee provided only details of loans, advances deposits given, including accounts squared up during the year but no details of interest were given and no reasons for charging of interest was also given. He vehemently argued that the assessee did not provide all the details as sought by the AO under the notice issued u/s. 142(1) of the Act and the AO has no chance to examine the same. The Pr. CIT rightly held that it is an inadequate inquiry that the AO has not examined charging of interest and giving interest free advances and supported the order of Pr. CIT. We note that as rightly pointed by the ld. DR that the AO called for information regarding the details of loans, advances and deposits and specifically asked any money has been advanced fee of interest and the details and necessity the advancing the money vide Q. No. 15 in notice u/s. 142(1) of the Act. The assessee replied to the same which is placed at page No. 9 and details of loans in Annexure No. 13 at page No. 27 of the paper book. On perusal of the Annexure No. 13 at page No. 27 we find the assessee has given details of loans, advances and deposits given to related parties and no such information whether any money has been advanced free of interest and also details and necessity of advancing such money free of interest were given. Therefore, in our opinion, there were no details submitted by the assessee in terms of Q. No. 15 particularly regarding whether any money advanced free of interest explaining the necessity of advancing such money free of interest and there was no opportunity for the AO to examine the same in the assessment proceedings. Thus, we find no infirmity in the order of Pr. CIT in holding that the assessment in this regard is erroneous and prejudicial to the interest of revenue. Thus, the order of Pr. CIT is justified and grounds raised by the assessee in this regard are dismissed.
In the result, the appeal of assessee is dismissed.
Order pronounced in the open court on 25th August, 2021.
Sd/- Sd/- (R.S. Syal) (S.S. Viswanethra Ravi) VICE PRESIDENT JUDICIAL MEMBER ऩुणे / Pune; ददनाांक / Dated : 25th August, 2021. RK आदेश की प्रनिलऱपप अग्रेपषि / Copy of the Order forwarded to : अऩीऱाथी / The Appellant. 1. प्रत्यथी / The Respondent. 2. 3. The Pr. CIT(A)-1, Pune ववभागीय प्रतततनधध, आयकर अऩीऱीय अधधकरण, “बी” बेंच, 4. ऩुणे / DR, ITAT, “B” Bench, Pune. गार्ड फ़ाइऱ / Guard File. 5. //सत्यावऩत प्रतत// True Copy// आदेशानुसार / BY ORDER,
तनजी सधचव / Private Secretary, आयकर अऩीऱीय अधधकरण, ऩुणे / ITAT, Pune