2016 (11) TMI 1750 - AT - Income Tax

Revision u/s 263 - interest not offered to tax on accrual years - as submitted interest was offered to tax by the assessee during this A.Y. 2011-12 in spite of the fact that the same advance made by the assessee still exist as outstanding - HELD THAT - We noticed that in this case there is a history of interest receipt which is a huge amount in the preceding year on the similar advances made by the assessee and inspite of this the AO had not made any inquiry and verification that no such interest was shown as accrued in the year under consideration in spite of the fact that the advance is still remained outstanding during this Assessment Year. AO has not made any enquiry on this issue during the course of assessment proceedings and even during the course of proceedings u/s. 263 the assessee failed to furnish any relevant supportive evidences and agreement to justify that such interest was not be charged during the year under consideration. The case of Commissioner of Income Tax vs. Arihant Avenues Credit Ltd ( 2014 (10) TMI 790 - GUJARAT HIGH COURT ) relate to the facts where borrowed money without interest was given as interest free advance. In view of the above facts and findings, the ratio of the judgments quoted are not applicable to the facts of the assessee s case. We considered that the AO has passed the order without making inquiry and verification as to why no interest has been offered to tax on accrual years. Deduction claimed u/s. 80IA - We find that assessee has started to operate the eligible business from 12-03-2007 relevant to AY 2007-08 and assessee has not claimed any deduction u/s. 80IA of the Act before A.Y. 2010-11 when he has opted consequent ten years out of fifteen years for claim of deduction u/s. 80IA. These informations and facts are available in the assessment record of the assessee. We are not inclined to uphold the order of the Ld. Pr. Commissioner of Income Tax on the second issue regarding deduction u/s 80IA(5) of the act. Assessee s appeal is partly allowed.

Summary

Issues Involved:
1. Jurisdiction and validity of the order under section 263 of the Income Tax Act.
2. Accrued interest on advances given to Sanman Holding Pvt. Ltd.
3. Deduction under section 80IA(5) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Jurisdiction and Validity of the Order under Section 263:
The assessee challenged the order passed by the Pr. Commissioner of Income Tax (Pr. CIT) under section 263 of the Income Tax Act, claiming it was without jurisdiction and bad in law. The Pr. CIT held that the assessment order under section 143(3) was erroneous and prejudicial to the interest of the revenue due to lack of proper investigation and verification by the Assessing Officer (AO) on two issues: accrued interest on advances and the quantum of deduction allowable under section 80IA(5).

2. Accrued Interest on Advances Given to Sanman Holding Pvt. Ltd.:
The Pr. CIT observed that the assessee had not offered accrued interest for taxation on a deposit of Rs. 350 crores given to Sanman Holding Pvt. Ltd., despite following the mercantile system of accounting. The assessee argued that the company Sanman Holding Pvt. Ltd. was amalgamated with Tanti Holding Pvt. Ltd., and due to financial constraints, no provision for interest payment was made. The Pr. CIT found that the AO had not verified or inquired into this matter during the assessment, making the assessment order erroneous and prejudicial to the revenue's interest.

The Tribunal upheld the Pr. CIT's order on this issue, noting that the AO did not make any inquiry or verification regarding the non-accrual of interest, despite the history of interest receipt in the preceding year. The Tribunal directed the AO to complete the assessment after examining this issue as per the law.

3. Deduction under Section 80IA(5) of the Income Tax Act:
The Pr. CIT held that the AO allowed the deduction under section 80IA without considering the unabsorbed depreciation and losses from the eligible undertaking incurred in preceding years. The assessee argued that the initial assessment year for claiming the deduction was 2011-12, and there was no carry forward of unabsorbed depreciation or loss as of 01-04-2010. The Tribunal agreed with the assessee, citing the CBDT circular No. 1 of 2016, which clarified that the assessee could choose the initial assessment year for claiming the deduction under section 80IA. The Tribunal found that the AO had correctly allowed the deduction as there was no brought forward loss or unabsorbed depreciation in the initial assessment year.

Conclusion:
The Tribunal partly allowed the assessee's appeal. It upheld the Pr. CIT's order regarding the issue of accrued interest on advances, directing the AO to re-examine this matter. However, it did not uphold the Pr. CIT's order on the deduction under section 80IA, agreeing with the assessee's position that the deduction was correctly claimed and allowed by the AO. The Tribunal emphasized that the AO's order was not erroneous or prejudicial to the revenue's interest on this issue.