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2022 (7) TMI 156 - AT - Income TaxRevision u/s 263 by CIT - deduction for interest expenditure made by the Appellant and allowed by the AO under Section 57 - HELD THAT - The conclusion drawn by the PCIT that the claim of deduction has been allowed without investigating the matter or verifying the allowability of such claim is contrary to material on record. Further, in letter dated 28.02.2016, the Appellant had submitted that the borrowed funds were kept in fixed deposits and the interest income earned was used for paying interest cost on borrowed funds, thus, explaining the nexus. The submission of the Appellant have been reproduced by the PCIT's order under heading Written Submission However, the PCIT failed to consider the same and returned incorrect finding that no submission were made by the Appellant. In view of the aforesaid, we set aside the order of PCIT on issue no.1. Share application money received form AMR - Perusal of record shows that the Appellant had, during the assessment proceedings, as well as before PCIT, provided explanation about the source of funds being his capital of INR 3,02,33,407/- and secured loans from bank as reflected in Balance Sheet of Lakshmi Business Centre, proprietorship firm of AMR - Further, as per the computation of income for the Assessment Year 2013-14, AMR had net taxable income - The aforesaid information and supporting documents were filed during the assessment proceedings. The PCIT had, relying upon incorrect facts, proceeded to conclude that the AO had failed to carry out necessary reconciliation of bank loan with its utilization. Accordingly, in view of the aforesaid, we set aside the decision of the PCIT on this issue. Share application money received by the Appellant from WEPL - We find that on the examining of the bank statements submitted by the Appellant, the PCIT had pointed out that there were deposits/fund transfers immediately prior to transfer of funds to the Appellant as share application money and referred to one such instance of fund transfer from of INR 36,00,000/- credited to the account of the Appellant on 27.07.2012 in paragraph 3.3 of the impugned order. Perusal of the bank statements shows that the observations of PCIT are factually correct as there were deposit/fund transfers (including fund transfers from Anika Universal Pvt. Ltd.) credited to the bank account of the Appellant. In our view, in absence of an explanation, merely by going through the narration given in the bank statement one cannot form an opinion about the nature or source of funds received in terms of the proviso to Section 68 of the Act inserted by the Finance Act, 2012, with effect from 1.04.2013, AO was duty bound to carry out necessary verification in terms of proviso to Section 68 of the Act and more so, for the reason that the case was selected for scrutiny under CASS, inter alia, for large share application money received against un-allotted shares as noted by the AO in paragraph 1 of the Assessment Order. Further, at the relevant time AMR held 46% shareholding of the Appellant, whereas balance 54% shareholding was held by WEPL. As per annual accounts of WEPL filed by the Appellant, AMR was also one of the directors of WEPL. Therefore, the Appellant was in a position to gather information and provide explanation about the nature and source of funds used by WEPL for making payment towards share application money. We are of the view that neither the assessment order nor the material on record supports the contentions of the Appellant the AO had carried out necessary inquiries and verification during the assessment proceedings, and therefore, the provisions of Explanation 2(a) to Section 263 are attracted. Accordingly, in view of the above, we confirm the order of PCIT passed under Section 263 of the Act to the extent it sets aside the Assessment Order, dated 29.03.2013, holding the same to be erroneous and prejudicial to the interest of Revenue on account of failure of the AO to carry out necessary verification in relation to share application money of INR 2,56,64,000/- received by the Appellant from WEPL in terms of Section 68 - Revenue appeal is partly allowed.
Issues Involved:
1. Condonation of delay in filing the appeal. 2. Legality of the order passed under Section 263 of the Income Tax Act, 1961. 3. Erroneous and prejudicial nature of the Assessment Order regarding deduction under Section 57 of the Act. 4. Erroneous and prejudicial nature of the Assessment Order regarding share application money received from two entities. Detailed Analysis: Issue 1: Condonation of Delay in Filing the Appeal The Tribunal initially dismissed the appeal due to a delay of 191 days in filing. However, the order was recalled after recognizing that the delay was due to incorrect legal advice. The Tribunal accepted the affidavit from the chartered accountant and judicial precedents, thereby condoning the delay and allowing the appeal to be heard on merits. Issue 2: Legality of the Order Passed Under Section 263 The Appellant challenged the order dated 23.03.2018 by the Principal Commissioner of Income Tax (PCIT) under Section 263, which set aside the Assessment Order dated 29.03.2016. The PCIT's order was based on the assessment being erroneous and prejudicial to the interests of the revenue. The Appellant argued that the Assessing Officer (AO) had already examined the issues in detail. Issue 3: Erroneous and Prejudicial Nature of the Assessment Order Regarding Deduction Under Section 57 PCIT's Findings: The PCIT found that the AO allowed a deduction of INR 14,22,847/- under Section 57 without proper verification, even though the interest income was shown as business income. Tribunal's Findings: The Tribunal noted that the AO had conducted sufficient inquiry and verification during the assessment proceedings. Specific queries were raised, and the Appellant provided detailed explanations and justifications. The Tribunal found the PCIT's conclusion that no investigation was done to be contrary to the material on record. Hence, the Tribunal set aside the PCIT's order on this issue. Issue 4: Erroneous and Prejudicial Nature of the Assessment Order Regarding Share Application Money PCIT's Findings: - From Shri Amrit Rajani (AMR): The PCIT noted a mismatch in the share application money figures and concluded that the AO failed to verify the details properly. - From Whiz Enterprises Pvt. Ltd. (WEPL): The PCIT observed immediate deposits before fund transfers to the Appellant, indicating that the AO did not verify the source of these funds as required by the amended Section 68. Tribunal's Findings: - From AMR: The Tribunal found that the PCIT had relied on incorrect facts and that the AO had conducted necessary verification during the assessment proceedings. The Tribunal set aside the PCIT's order on this issue. - From WEPL: The Tribunal agreed with the PCIT that the AO failed to verify the source of funds as mandated by the proviso to Section 68. The Tribunal found that the AO did not carry out necessary inquiries and verification, making the assessment order erroneous and prejudicial to the interests of the revenue. The Tribunal confirmed the PCIT's order on this issue. Conclusion: The Tribunal partly allowed the appeal: - Ground No. 1 and 2 were dismissed. - Ground No. 3 was allowed. - Ground No. 4 was partly allowed. - Ground No. 5 was disposed of as being infructuous. The appeal was partly allowed, with the Tribunal confirming the PCIT's order regarding the share application money received from WEPL but setting aside the PCIT's findings on other issues.
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