2022 (8) TMI 442 - AT - Income Tax

Revision u/s 263 - Commissioner of Income-tax jurisdiction in invoking powers u/s 263 - Assessing authority has adopted the profit as per the profit and loss account without excluding the depreciation already debited in the profit and loss account under the provisions of the Companies Act - deductions for depreciation allowance twice one computed under the Companies Act and the other computed under the Income-tax Act - HELD THAT - As feared by the assessee the Commissioner of Income-tax has not dealt with any issue that was subject matter of adjudication before the Tribunal. In that way the Commissioner of Income-tax has not exceeded his jurisdiction available to him under section 263 of the Act. Section 263 authorises a Commissioner of Income-tax to revise any order passed by any subordinate authority which is found to be erroneous and prejudicial to the interests of the Revenue. The order passed by the assessing authority to give effect to the orders of the Tribunal is any order passed by an assessing authority who is subordinate to the Commissioner of Income-tax. Therefore the Commissioner of Income-tax invoked the powers under section 263 within the permissible limits of Jaw. He has not exceeded jurisdiction. Assessing authority has adopted the net profit for further giving deduction by way of depreciation which was already modified by the depreciation allowance as provided under the Companies Act. Therefore the excess amount of depreciation allowance has been granted to the assessee. Likewise the division of depreciation allowance also has not been done while computing the benefit available to the assessee under section 10B of the Act. This also has resulted in excessive benefit to the assessee. We therefore find that the order passed by the assessing authority is erroneous as well as prejudicial to the interests of the Revenue. In these circumstances the revision order passed by the Commissioner of Income-tax for the assessment year 2002-03 is in accordance with law and his order is upheld. The assessee fails in its appeal for the assessment year 2002-03. Thus it is already held that the order of CIT is proper and also the adding back of book depreciation is justified otherwise assessee will get double benefit. It is an obvious mistake committed by the AO that while allowing depreciation as per IT Rules he mistakenly did not add back the book depreciation (quantified as per companies act). This mistake was rectified in the present order. Thus assessee doesn t have a case on merits too. Addition being interest paid to Global Trust Bank - HELD THAT - Assessee has created M/s. Pentafour Software Employees Foundation (PSEF) for the purpose of allotment of shares to the employees and M/s. PSEF obtained loan from the Global Trust Bank and the same was deposited with the assessee as share application deposits for the purpose of utilizing the said deposit amount for allotment of shares to the employees from time to time. However the assessee has not allotted any shares to the employees. The assessee has paid the loan interest to the Global Trust Bank against ESOP loan and the same was claimed as expenses.AO has disallowed the same on the ground that the assessee has not taken any loan for its business purpose and the same was confirmed by the Ld. CIT(A). As per the facts available on record the PSEF obtained the loan and the same was deposited with the assessee. Whether the assessee has utilized the amount for the purpose of business of the assessee was neither examined by the AO nor by the Ld. CIT(A). Assessee was not able to produce any evidence to show that the loan amount borrowed by the PSEF deposited with the assessee has been used for the purpose of business of the assessee. This aspect needs to be examined. Therefore we set aside the order passed by the CIT(A) and remit the matter back to the file of the AO to examine and verify as to whether the borrowed amount deposited with the assessee has been used for the purpose of the business of the assessee and if at all it was utilized by the assessee the interest expenditure has to be allowed or otherwise not. Ordered accordingly.

Summary

Issues:
1. Delay in filing appeals before the Tribunal for assessment years 2002-03 and 2003-04
2. Validity of the revision order passed under section 263 of the Act for assessment year 2002-03
3. Confirmation of addition of interest paid to Global Trust Bank for assessment year 2003-04

Issue 1: Delay in filing appeals
The appellant filed appeals against orders of the Commissioner of Income Tax (Appeals) for assessment years 2002-03 and 2003-04, delayed by four days and one day respectively. The appellant sought condonation of delay, attributing it to reasonable cause, which was not objected to by the Ld. DR. The Tribunal, considering the circumstances, condoned the delays and admitted the appeals for adjudication.

Issue 2: Validity of revision order for assessment year 2002-03
The appeal for the assessment year 2002-03 concerned a revision order under section 263 of the Act, challenging the Assessing Officer's computation of depreciation and taxable income. The Ld. CIT(A) upheld the revision order, emphasizing errors in granting excessive depreciation and benefits to the assessee. The ITAT affirmed the CIT's order, dismissing the appellant's contentions regarding the legality of the revision order and the depreciation adjustments. The Tribunal found no infirmity in the CIT(A)'s decision, leading to the dismissal of the appeal for the assessment year 2002-03.

Issue 3: Confirmation of addition of interest for assessment year 2003-04
The sole issue for the assessment year 2003-04 was the confirmation of the addition of interest paid to Global Trust Bank. The appellant argued that the interest payment was for the benefit of employees and should be allowed as a business expense. However, the Assessing Officer disallowed the interest expenses, a decision upheld by the Ld. CIT(A). Upon review, the Tribunal found that the purpose of the loan taken by M/s. PSEF and its utilization by the assessee for business were not adequately examined. Consequently, the matter was remitted back to the Assessing Officer for further verification. The appeal for AY 2003-04 was allowed for statistical purposes, while the appeal for AY 2002-03 was dismissed.

In conclusion, the Tribunal addressed the issues of delay in filing appeals, the validity of the revision order for AY 2002-03, and the addition of interest for AY 2003-04. The judgment highlighted the importance of proper examination of facts and adherence to legal provisions in determining tax liabilities.