2022 (10) TMI 21 - AT - Income Tax

Revision u/s 263 - As per CIT-A assessee has diverted interest-bearing fund to non-commercial purposes without charging any interest thereon - HELD THAT - There was no question with respect to the diversion of interest-bearing loan for noncommercial purposes. Thus, in the absence of any query, assessment order can be held as erroneous insofar prejudicial to the interest of revenue. It is also significant to note that, the assessee before us is a partnership firm and whatever capital is owned by the partnership firm belongs to the partners on which the firm generally bears the interest expenses. Thus, we are of the view that generally the partnership firm does not have any interest free fund with it. Therefore, it appears to us that the assessee cannot be given the benefit that it (the assessee) has given advances out of its own interest free funds and reserves. Thus to our understanding, this aspect as pointed out by the learned PCIT was supposed to be verified by the AO during the assessment proceedings. But the same has not been done by the AO, accordingly we do not find any infirmity in the observation of the learned PCIT. Differences in the import purchases, payment of custom duty and ITS data/CBES - Assessee before the learned PCIT has categorically submitted that the information provided in ITS data/CBES data was not pertaining to the year under consideration and therefore based on that no adverse inference can be drawn against the assessee. The submission of the assessee has not been controverted by the learned PCIT. From the finding of the Ld. PCIT, reproduced above, we find that there was no tangible material referred by the PCIT highlighting the differences between the value of purchases and the custom duty as discussed above. Based on this we hold that the learned PCIT has assumed the jurisdiction on this issue on wrong assumption of facts. Thus on this count, the assessment order framed under section 143(3) of the Act cannot be categorized as erroneous insofar prejudicial to the interest of revenue. No verification of the contribution made by the assessee towards the Provident fund - There was no query raised by the AO during the assessment proceedings with respect to the delay in the payment of the contribution towards the PF which is subject to the conditions of section 36(1)(v)/36(1)(va) read with section 43B of the Act. Thus, on this count as well, we are of the view that the order framed under section 143(3) of the Act suffers from infirmity so far the necessary facts were not verified by the AO during the assessment proceedings. In view of the above, after considering the facts in totality we confirm the order of the learned PCIT in part as discussed above. Hence, the ground of appeal of the assessee is allowed in part.

Summary

Issues:
1. Assessment framed under section 143(3) of the Income Tax Act deemed erroneous under section 263.

Analysis:
The appeal was filed by the Assessee against the order of the Principal Commissioner of Income Tax, Rajkot, challenging the assessment order passed under section 263 of the Income Tax Act for the Assessment Year 2017-18. The primary issue raised by the Assessee was regarding the Principal CIT's decision to hold the assessment as erroneous under section 263. The Principal CIT identified various discrepancies in the assessment, including diversion of interest-bearing funds for non-commercial purposes, differences in import purchase values, and non-verification of Provident Fund contributions.

The Principal CIT found that the interest-bearing funds were diverted for non-commercial purposes by providing interest-free advances to a sister concern. The Assessee argued that the assessment was conducted after due verification and justification, but the Principal CIT disagreed, stating that the AO did not verify the purpose of the loans given to the sister concern. The Principal CIT also highlighted discrepancies in import purchase values and custom duty payments, which the Assessee claimed were based on incorrect assumptions. Additionally, the non-verification of Provident Fund contributions was noted as a flaw in the assessment process.

During the appeal hearing, the Assessee presented detailed documentation to support the verification conducted regarding import purchases, custom duty payments, and fixed assets accounts. The Assessee contended that necessary verification was carried out, but the authorities below upheld the decision of the Principal CIT. The Tribunal analyzed each issue raised by the Principal CIT and found that while some discrepancies existed, the assessment order was not entirely erroneous. The Tribunal partially allowed the appeal, confirming the Principal CIT's decision on certain aspects while disagreeing on others.

In conclusion, the Tribunal partially allowed the appeal, emphasizing the importance of thorough verification and examination of facts during the assessment process. The judgment highlighted the significance of ensuring accuracy and compliance with tax regulations to prevent assessments from being deemed erroneous under section 263 of the Income Tax Act.