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TMI Blog2025 (3) TMI 642X X X X Extracts X X X X X X X X Extracts X X X X ..... e learned Pr. Commissioner of Income Tax-1, Vadodara erred in law and on facts has held that the assessment order dated 29-12-2019 passed under section 143(3) of the Income Tax Act, 1961 is erroneous and prejudicial to the interest of revenue on the ground that the Assessing Officer failed to verify and examine the claim of (i) Bonus; (ii) interest accrued but not due on loans from PFC and (iii) Amount transferred to Profit & Loss Account in respect of Capital Grants & Subsidies and Consumer Contribution. The learned Pr. Commissioner of Income Tax-1, Vadodara failed to appreciate that the above claims were duly verified and examined by the Assessing Officer at the time of assessment proceedings. 3.0 The learned Pr. Commissioner of Income Tax-1, Vadodara erred in law and on facts has set aside the assessment order passed on 29-12-2019 under section 143(3) of the IT Act. 4.0 The above grounds of appeal are without prejudice to each other. 5.0 The appellant craves leave to add to, alter, delete or modify any of the grounds of appeal either before or at the time of hearing of this appeal. 3. As transpires from the order of the Ld.PCIT, the revisionary jurisdiction was exercise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , that there was no error in the order of the AO vis a vis the impugned issues, was also furnished to the Ld.PCIT, who disregarded the same and went on to hold that the assessment order was erroneous causing prejudice to the Revenue. 6. We shall now be adjudicating the appeal dealing with each issue raised by the Ld.PCIT considering all the explanations and evidences referred to by the assessee as well as the contentions of the Ld.DR. 7. Taking up the first issue of allowance by the AO of bonus remaining unpaid amounting to Rs. 2,02,67,957/- in violation of the provisions of section 43B, as per the Ld.PCIT, the assessment records revealed this amount of bonus as remaining unpaid during the year, and despite so the AO had not made any disallowance of the same u/s.43B of the Act, which mandates bonus to be allowed only on payment basis. 8. The assessee's contention against this finding of the Ld.PCIT was that this issue had been inquired into during assessment proceedings by the AO and demonstrated to him that the said amount was not unpaid by the assessee but was paid before the due date of filing of the income-tax return. That, accordingly, the AO had rightly allowed the claim o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, had, therefore, stated that there was no need in adding back the said amount of bonus which already stood paid by the assessee. 11. Considering the above submissions of the Ld.Counsel for the assessee, it is evident that during the course of assessment proceedings itself the assessee had placed the copy of the Tax Audit Report to the AO, wherein the amount of bonus of Rs. 2.02 crores was reflected as paid before the due date of filing of the return of income. The said fact was also communicated to the Ld.PCIT. Having noted the above facts, we now turn to the findings of the Ld.PCIT holding the assessment order to be erroneous on this count. 12. As noted in the earlier part of our order, the Ld.PCIT has generalized his findings with respect to the all three issues at paragraph No.7 of his order, as under: "7. I have carefully considered the facts of the case, assessment records and the written reply furnished by the assessee. The facts of the case have already been discussed herein above and the reasons/grounds on which the proceedings under Section 263 of the I.T. Act have been initiated have been discussed in the initial paragraphs of this order. On perusal of the reply fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. 7.2. In view of the above explanation, if an order is passed without making verification or inquiry which should have been made during the course of assessment proceedings, then clause (a) of the Explanation 2 to Section 263(1) of the I.T. Act 1961 would be applicable. Here in the instant case, as stated in the foregoing paragraphs, it is found that the Assessing Officer has not made any verification or inquiry on the above issues which should have been made during the course of assessment proceedings. Accordingly, this case is covered by clause (a) of the Explanation 2 to Section 263(1) of the I.T. Act 1961. 7.3. From the above position of the law, it is amply clear that after insertion of Explanation 2 to Section 263 from 01/06/2015 onwards, it is sufficient that if the concerned Princ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come. The Ld.DR was unable to point any infirmity accordingly in the allowance of claim of Bonus of Rs. 2.02 Crs by the AO in terms of the provisions of section 43B of the Act. Therefore, we hold that the AO had taken a legally correct view by not making any disallowance of bonus expenses. 17. The finding of error therefore on the issue of the assessment order being erroneous for having allowed the assessee's claim to bonus of Rs. 2.02 corres allegedly on violation of provisions of section 43B of the Act is accordingly set aside. 18. Taking up the next issue of allowance of interest expenses paid on PFC loan (RAPDRP) amounting to Rs. 17,91,17,390/- against in alleged violation of provisions of section 43B of the Act on account of the same, having remained unpaid 19. The contention of the Ld.Counsel for the assessee of the same having been examined during the assessment proceedings was demonstrated by referring to the notice issued by the AO u/s.142(1) dated 12/11/2019, copy placed before us at page No.27 of the PB, from where it was pointed out that the AO had specifically asked the assessee at point No.8 of the notice to "furnish details of interest pertaining to the yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3(3) of the IT Act. It is submitted that the facts of the case have not been considered in totality. This is because although the Loan was from PFC, being a Financial institution falling within the meaning of section 438 of the IT Act, the impugned interest amounting to Rs. 17,91,17.390/- did not become due to be paid till the date of filing of the IT Return of the year under consideration. Hence the provisions of section 438 does not apply to same. The facts are clearly reflected in the Notes to the Audited Annual Accounts, copy of the relevant extracts from the Notes to Accounts is enclosed herewith as Annexure B. As per terms of Part-A, the loan of Rs. 5,554.55 lakhs may be converted into capital grant on fulfilment of stipulated conditions. If conditions are not fulfilled, the loan is repayable in remaining 29 monthly instalments over a period of 3 years at an average of Rs. 191.54 lakhs each. As per terms of SCADA Part-A, for the loan of Rs. 701.00 lakhs may be converted into capital grant on fulfilment of stipulated conditions. If conditions are not fulfilled, the loan is repayable in 40 monthly instalments over a period of 4 years at an average of Rs. 17.52 lakhs each st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... furnished to the Ld.PCIT and also the AO. It is also not disputed that such interest is allowable only on payment basis as per section 43B of the Act. The only explanation given by the assessee vis a vis the unpaid interest expense not being disallowable u/s 43B of the Act is that it had not become due for payment and therefore could not be disallowed on account of remaining unpaid. We fail to understand how this explanation justifies the case of the assessee of the unpaid interest not being disallowable u/s 43B of the Act. There is no dispute with regard to the position of law u/s 43B of the Act allowing such interest payments only on payment basis . In the light of the clear position of law, we fail to understand how an unpaid interest, even if not accrued for payment, is allowable. No judicial decisions to support the contention of the assessee was filed at any stage, i.e the AO, the Ld.PCIT or even before us. Therefore it is evident that the AO had not examined the issue of allowability of unpaid interest in the light of the provision of law u/s 43B of the Act and neither has the assessee been able to demonstrate allowability of the same u/s 43B of the Act. 23. The findings of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... take in this calculation of Rs. 11317.93 lakhs added back by the AO to the income of the assessee. He noted that while the assessee had transferred an amount was only Rs. 9,00,61,839/-(900 lacs) in the P&L A/c. for the year under consideration on this aspect, the AO had allowed the assessee benefit of Rs. 6148.01 lakhs while calculating the amount short transferred to the P&L A/c. According to the Ld.PCIT, therefore, the AO had allowed excess deduction / relief of Rs. 52,47,39,161 [Rs.66148.01 lakhs (-) 900.61 lakhs ] (5247 lacs)without making verification or enquiry in respect of the above excess claim of deduction. These facts are noted at page 5 of the Ld.PCIT's order are reproduced hereunder:- "The Assessing Officer concluded that claim of the assessee was not factually correct. It was evident from Schedule DPM of the ITR that the assessee has claimed depreciation @ 15% on the assets of Plant and Machinery. Though the assessee has recognized the grant and consumer contribution @ 5.28% for the year under consideration aggregating to Rs. 9568.27 lacs and transferred the same to the Profit & Loss Account, it would be Rs. 6148.01 lacs for the F.Y. 2016-17 i.e. for the year under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ANCIAL YEAR 2016-17. SO HOW IT CAN BE SAID THAT ONLY 29,00,61,893.19/- HAS BEEN TRANSFERRED TO THE PEL ACCOUNT THOUGH THE AMOUNT TRANSFERRED OF Rs.95,68,27,264.55/- IS CLEARLY BEING SHOWN IN THE PROFIT AND LOSS ACCOUNT OF THE YEAR UNDER CONSIDERATION, THUS, THE SAID ISSUE DOES NOT REQUIRE ANY REVISION." Considering the above facts and circumstances, it is submitted that there is no error in the assessment order passed under section 143(3) of the IT Act and the same is not prejudicial to the interest of revenue in any manner." 28. Even during the course of hearing before us, the Ld.Counsel for the assessee pointed out that from the order of the Ld.PCIT that he had even noted the fact of the assessee having transferred Rs. 9568.27 lakhs to the P&L A/c at page 5 of his order reproduced above by us, but while finding error in the order of the AO, he had noted the assessee to have transferred only Rs. 900.61 lakhs which was incorrect. 29. The Ld.DR before us, though was unable to controvert this factual contention of the assessee, however, he relied heavily relied on the order of the Ld.PCIT on this issue that the assessee had furnished before him explanation which were not furnishe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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