2021 (5) TMI 901 - AT - Income Tax

Revision u/s 263 - validity of Assessment completed u/s 153C - Limitation for completion of assessment - Correct date of search - as per CIT Expenses and depreciation not properly examined by the AO. AO has not examined the applicability of section 2(22)(e) on intercorporate deposits, AO has not disallowed proportionate interest on advance made to sister concerns, though assessee has paid interest on loans/ advances and AO has not examined the credits received from Mr Vinod Ambawatta - as argued by assessee contravention to provisions of section 153C and without obtaining prior approval of the JCIT HELD THAT - In view of provisions of section 153C, the date of search in the case of the assessee is 29.08.2013 which date falls under A.Y. 2014-15. Further, the Tribunal in assessee s own case for A.Y. 2012-13 2018 (9) TMI 1686 - ITAT DELHI has already held that the year of search for the assessee is 2014-15. We, therefore, find merit in the submission of the ld. counsel for the assessee that the present assessment should have been framed by the AO having jurisdiction after cases were centralized i.e., the AO of Central Circle-I, Faridabad whereas the impugned assessment order has been framed by the DCIT, Central Circle-I, Gurgaon and, therefore, the order becomes bad in law. Further, once it is held that the present assessment year i.e., A.Y 2014-15 is the year of search, then the limitation for completion of assessment in the instant case expires on 31.03.2016. Since the AO in the instant case has passed the order on 30.08.2016, therefore, the same is barred by limitation. Further, since the AO has not issued the mandatory notice u/s 153C and has passed the order u/s 143(3) and has not obtained any approval from the JCIT before passing the order for the impugned assessment year which is the search year as held by the Tribunal in assessee s own case in the immediately preceding years, therefore, the order is bad in law. Once it is held that the original order passed by the AO is without jurisdiction being passed by the wrong AO, barred by limitation being passed after 31.03.2016 and bad in law being passed in contravention to provisions of section 153C and without obtaining prior approval of the JCIT, therefore, the order passed u/s 263 against such assessment order is also bad in law and has to be quashed. We hold and direct accordingly. The additional grounds raised by the assessee are accordingly allowed. Applicability of section 2(22)(e) on intercorporate deposits - We find merit in the submission of the ld. counsel for the assessee that all inter-corporate deposits were given in the preceding years and the assessee has, in fact, received the deposits in the current year. Further, even the AO in the order passed subsequent to the 263 order has not made any addition u/s 2(22)(e) of the IT Act, 1961 or disallowed any depreciation on finance cost. Disallowance of proportionate interest on interest free advances to sister concerns - It is an admitted fact that most of these advances were given in the preceding years and no such disallowances were made in the assessments completed. Further, the own capital and free reserves were much more than the interest free advances given to sister concerns. Therefore, we find merit in the arguments of the ld. counsel for the assessee that there is no error in the order of the AO on this issue. Credits received from Mr. Vinod Ambawatta - It is an admitted fact that assessments of the above person were done by the same AO u/s 153C who has passed the order in the case of the assessee. Assessee has filed all the relevant details such as confirmations, proof of identity, copy of ITR, bank details, etc. to prove the ingredients of provisions of section 68 in response to the letter of the AO. Under these circumstances, it cannot be said that the AO has not made any enquiries especially when the assessee as well as Mr. Vinod Ambawata were assessed by the same AO. For invoking the provisions of section 263, the order passed by the AO must be both erroneous and prejudicial to the interest of the Revenue. The twin conditions must be satisfied. Absence of any one condition cannot empower the PCIT to invoke jurisdiction u/s 263 of the IT Act, 1961. The order passed by the AO in the instant case may be prejudicial to the interest of the Revenue but cannot be termed as erroneous in view of our discussion on various issues in the preceding paragraph. Further, even after giving details before the PCIT in response to his notice u/s 263 the PCIT has not examined the details himself and came to a definite conclusion but has merely set aside the matter to the file of the AO for denovo assessment which is not in accordance with law as held in the case of Sunbeam Auto Ltd 2009 (9) TMI 633 - DELHI HIGH COURT - Decided in favour of assessee.

Summary

Issues Involved:

1. Validity of proceedings under Section 263 of the Income Tax Act, 1961.
2. Examination of issues during the assessment proceedings.
3. Applicability of Section 153C and limitation period.
4. Examination of expenses, depreciation, and credits.
5. Applicability of Section 2(22)(e) on inter-corporate deposits.
6. Disallowance of proportionate interest on advances to sister concerns.
7. Jurisdiction and procedural compliance by the Assessing Officer (AO).

Detailed Analysis:

1. Validity of Proceedings under Section 263:

The assessee challenged the validity of the proceedings under Section 263 on the grounds that the Principal Commissioner of Income Tax (PCIT) initiated proceedings based on incorrect facts and failed to appreciate that all issues were examined during the assessment proceedings. The Tribunal found merit in the assessee's arguments, stating that the PCIT did not provide a clear basis for holding the assessment order as erroneous and prejudicial to the revenue. The Tribunal emphasized that the PCIT must conduct further inquiries and not merely set aside the order for de novo assessment.

2. Examination of Issues During Assessment Proceedings:

The Tribunal noted that the AO had issued a detailed questionnaire during the assessment proceedings and the assessee had provided comprehensive replies with documentary evidence. The AO had disallowed certain expenses and determined the total loss after making necessary inquiries. The Tribunal found that the AO had acted as an investigator and adjudicator, and his order could not be termed as erroneous merely because the PCIT had a different opinion.

3. Applicability of Section 153C and Limitation Period:

The Tribunal observed that the year of search for the assessee was AY 2014-15, as determined in the assessee’s own case for AY 2012-13. The assessment should have been framed by the AO having jurisdiction after the cases were centralized, i.e., the AO of Central Circle-I, Faridabad. Since the assessment order was passed by the DCIT, Central Circle-I, Gurgaon, it was held to be without jurisdiction. Additionally, the assessment order was barred by limitation as it was passed after the expiry date of 31.03.2016.

4. Examination of Expenses, Depreciation, and Credits:

The Tribunal found that similar expenses and depreciation were allowed in preceding assessment years and that the assessee had not completely stopped its business activities. The vehicles were in the name of the company, and depreciation was inevitable. The AO had made inquiries regarding the credits received from Mr. Vinod Ambawatta, and the assessee had provided all necessary details to prove the genuineness of the transactions.

5. Applicability of Section 2(22)(e) on Inter-Corporate Deposits:

The Tribunal agreed with the assessee that all inter-corporate deposits were given in preceding years and that the assessee had received deposits in the current year. The AO, in the order passed subsequent to the 263 order, did not make any addition under Section 2(22)(e) or disallow any depreciation on finance costs.

6. Disallowance of Proportionate Interest on Advances to Sister Concerns:

The Tribunal noted that most of the advances were given in preceding years and no disallowances were made in those assessments. The assessee had sufficient own capital and free reserves to cover the interest-free advances, and therefore, the AO's order was not erroneous.

7. Jurisdiction and Procedural Compliance by the AO:

The Tribunal held that the AO's order was without jurisdiction as it was passed by the wrong AO and was barred by limitation. The AO did not issue the mandatory notice under Section 153C and did not obtain prior approval from the JCIT before passing the order for the impugned assessment year. Consequently, the order passed under Section 263 was also held to be bad in law.

Conclusion:

The Tribunal quashed the order passed under Section 263, stating that the original assessment order was not erroneous or prejudicial to the interest of the revenue. The appeal filed by the assessee was allowed, and the decision was pronounced in the open court on 21.05.2021.