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TMI Blog2022 (2) TMI 490X X X X Extracts X X X X X X X X Extracts X X X X ..... by the PCIT for the reasons best known to him and accepted the deduction claimed by the assessee in his return of income. Though AO is required to make necessary enquiries himself regarding the various claims of the assessee, he failed to do so. Therefore, the issues dealt by the PCIT were within his powers to invoke the provisions of section 263 of the Act where such enquiry was prima facie warranted. In view of the above, we are of the opinion that the ld. PCIT was justified in invoking the provisions of section 263. Deduction under Rule 7A(2) - Admittedly, the PCIT remitted the issues relating to prior period expenses, interest receivable from Karnataka Cashew Development Board, amount spent on bamboo plantation, interest on loan to Mysore Paper Mills Ltd., agricultural Income tax recoverable from Govt. of Karnataka and sundry balance written off as bad debts to the AO for reconsideration as there was no enquiry from the AO on this issues. However, with regard to deduction under Rule 7A(2), he has mentioned that even if the AO finds that finds that the actual allowable deduction is ₹ 7,09,58,595, he shall restrict the deduction to ₹ 6,46,03,000 which is the am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest of ₹ 51,76,521 receivable from Karnataka Cashew Development Corporation. A voluntary waiver of interest prima facie cannot be claimed as deduction by the assessee and interest to this extent was wrongly allowed by the AO. Similarly, an amount spent on Bamboo planation of ₹ 3,52,144 was prima facie in the nature of capital expenditure and the same has been wrongly allowed as a deduction by the AO without examining the issue. An amount of ₹ 4,49,194 written off as interest on loan to Mysore Paper Mills Ltd. and write off of agricultural income tax recoverable from Govt. of Karnataka amounting to ₹ 2,53,586 and write off of sundry balances amounting to ₹ 609 was not properly examined by the AO. The PCIT therefore set aside the order of the AO with a direction to re-examine the above issues and decide the same accordingly. Further, on the deduction under Rule 7A(2), he clarified that if the AO finds that the actual allowable deduction is ₹ 7,09,58,595, he shall restrict the deduction to ₹ 6,46,03,000 which is the amount allowed in the original assessment order since the revisionary proceedings are aimed at rectifying the orders prejudic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut providing any reasons for such restriction; 9. The learned PCIT failed to appreciate the submission of the Appellant that it was entitled to deduction of ₹ 7,09,58,595/- but only ₹ 6,46,03,000/- was claimed in the return of income hence there was no prejudice to the Revenue; 10. The learned PCIT erred on facts in ignoring the working sheet and the supporting documents filed by the Appellant to demonstrate that it was eligible for deduction of ₹ 7,09,58,595/- under Rule 7(2) and hence there was no loss of revenue. The assessment order was not prejudicial to the interest of the Revenue and hence the same was outside the purview of revision under section 263 of the Act; 11. The learned PCIT erred in setting aside the issue of Rule 7A(2) to the file of the AO without considering the evidences filed by the Appellant on merits which clearly shows that the deduction granted in the assessment order was in order; 12. The PCIT erred in not appreciating that the AO had applied his mind to Rule 7A(2) as per the details called for and furnished by the Appellant, and thus there is no any failure to conduct the enquiry; B] PRIOR PERIOD EXPENSES: 13. The lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... explanations of the assessee, he allowed the various claims of the assessee. There is no error in the order of the AO insofar as it is prejudicial to the interests of the revenue. According to the ld. AR, the AO completed the assessment after due application of mind and taken a conscious decision on various issued raised by the PCIT. Therefore, the assessment order cannot be termed as erroneous and prejudicial to the interests of revenue. According to the ld. AR, the PCIT cannot substitute his own conditions on the issues where the AO has taken a conscious decision after due verification of the books of account, as such exercise of jurisdiction u/s. 263 of the Act is bad in law. For this purpose, he relied don the judgment of the Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT , 243 ITR 83 (SC) . 6. The ld. AR further submitted that since the AO after duly considering the explanation filed by the assessee in response to questions raised and after being satisfied with such explanation chose not to make any further enquiry. Endless enquiry is not possible and it is for the AO to decide when to end the enquiry. According to the ld. AR, the PCIT cannot transgress th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8,595/- and the analysis of Capital work in progress of Rubber Replanting project for the FY 2014-15 for claiming under rule 7A(2), but claimed an amount of ₹ 6,46,03,000/- only in the revised statement of income. The analysis of capital work in progress of Rubber replanting project for the above year and amount which is capitalized during the year is reflected in the capital work in progress as per note 9. Thus claim of ₹ 6,46,03,000/- is less and thus there is no prejudice caused to the revenue and in fact prejudice is caused only to the assessee corporation and hence it is outside the preview of section 263 of the Act. 11. Further, regarding the actual capital work in progress of replanting project for assessment year, the closing balance of capital work in progress of Rubber Replanting project is ₹ 30,09,26,057/- is reflected on Note-09 at SI.No.1 which was also submitted during the course of assessment proceedings. The amount of additions during the year as claimed in the :statement of income and return of income has not been routed through profit and loss. The actual additions made during the year is ₹ 8,21,20,139/ minus the capitalized amount compr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... caused. 15. In regard to a sum of ₹ 2,00,000/-paid as donation in the P L account, since the donation paid is in the FY 2014-15 and assessee is not able to get the donation receipts, the assessee is agreeing for the addition of the same. 16. In regard to a sum of ₹ 28,97,408/- expenses written off, it is stated that it is made up of the following components:- (a) Interest receivable from Karnataka Cashew Development Corporation ₹ 18,41,875/- (₹ 5,47,745 + ₹ 12,94,130/-) The total interest receivable as per books as on 01/04/2014 was ₹ 53,00,246/- and ₹ 4,24,020/- provision was made for the year 20141-5 FY and the total receivable was ₹ 57,24,266/ which is reflected in books. Out of total interest receivable ₹ 5,47,745/- was written off since the interest rate was calculated on compounding basis and rate of interest percentage was also more than it was decided in the board meeting to reduce interest @ 8%, hence the excess interest charges have been reversed and written off. Even during the year as per board meeting approval to give concession on interest payable by Karnataka Cashew Development Corporation since th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d any opinion on merits and hence the impugned order has to be sustained. 19. We have heard both the parties and perused the material on record. Admittedly, the PCIT remitted the issues relating to prior period expenses, interest receivable from Karnataka Cashew Development Board, amount spent on bamboo plantation, interest on loan to Mysore Paper Mills Ltd., agricultural Income tax recoverable from Govt. of Karnataka and sundry balance written off as bad debts to the AO for reconsideration as there was no enquiry from the AO on this issues. However, with regard to deduction under Rule 7A(2), he has mentioned that even if the AO finds that finds that the actual allowable deduction is ₹ 7,09,58,595, he shall restrict the deduction to ₹ 6,46,03,000 which is the amount allowed in the original assessment order. In our opinion, the allowability of deduction is to the extent of claim made in the original assessment order of ₹ 6,46,03,000. However, he has not denied this deduction, but only remitted the issue to reconsider the allowability of deduction under Rule 7A(2). Being so, even on this issue there is no error by the PCIT in giving such a direction to the AO. In ..... X X X X Extracts X X X X X X X X Extracts X X X X
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