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TMI Blog2025 (4) TMI 467X X X X Extracts X X X X X X X X Extracts X X X X ..... hanced as if it was complete scrutiny by making additions relating to (i) alleged cessation of liability u/s 41(1) and (ii) disallowance of transmission charges which were not covered by limited scrutiny reasons. Scope of limited scrutiny has been enhanced without prior approval from Pr CIT, without intimation to the appellant and contrary to binding CBDT instructions. Ld. CIT(A) has also erred in stating that the issue of unauthorized enhancement of limited scrutiny is an administrative action which is not appealable and accordingly, erred in not quashing the said assessment. 1.1 That in the alternative without prejudice to the above ground, the Ld. AO has erred in making addition for alleged cessation of liability u/s 41(1) of Rs 11,25,00,000 and disallowance of transmission charges of Rs 1,46,58,592/- which were outside the scope of limited scrutiny notice. The Ld. CIT(A) has erred in sustaining the said additions. Compulsorily Convertible Debentures (CCD): 2. That the Ld. CIT(A) has erred in sustaining the addition of Rs 1,91,70,000/- as notional, hypothetical interest income on 9% CCD. Strategic investment in CCD of sister concern engaged in similar business has been mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal as herein are without prejudice to each other. 8. That the appellant respectfully craves leave to add, amend, alter and / or forego ground(s) at or before the time of hearing. 3. We have heard the rival submissions and perused the materials available on record. The assessee is engaged in the business of installation and sale of windmill projects and provision of consultancy services in relation to windmill projects and investment in other companies doing such business. The return of income for the Assessment Year 2015-16 was filed by the assessee company declaring total loss of Rs 7,26,558/- on 30-11- 2015. The case was selected for limited scrutiny by issuance of notice under section 143(2) of the Act dated 2-8-2016 for examination of the following specific issues :- 1. Contract receipt / fees mismatch 2. Sales turnover mismatch 3. Receipt of foreign remittance 4. Low income and high loans / advances / investments 5. Low income and high investments 6. Loss from currency fluctuations 4. But, during the course of assessment proceedings, the Learned AO apart from the aforesaid issues which were subject matter of limited scrutiny also proceeded to examine certain o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore venturing into other issues outside the scope of limited scrutiny, the Learned AO should have taken prior approval of Learned PCIT. Admittedly, in the present case, the Learned AO had not taken any such approval of the concerned authorities. Therefore, the assessment order passed is in violation of CBDT instructions referred to above. Now a question arises as to what will be the fate of such an order passed in violation of extant CBDT instructions. We find that the Hon'ble Jurisdictional High Court in the case of CIT vs Best Plastics Private Limited reported in 169 Taxman 4 (Del) and the Hon'ble Supreme Court in the case of Commissioner of Customs vs Indian Oil Corporation Limited reported in 267 ITR 272 (SC) had categorically held that circulars and instructions issued by CBDT are binding on the officers of the Income Tax Department. Since the addition made on account of cessation of liability under section 41(1) of the Act and disallowance of transmission charges were admittedly beyond the scope of limited scrutiny, those additions are liable to be deleted as the same has been made in violation of aforesaid CBDT instructions and the decisions of Hon'ble Jurisdic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee waived off its right to charge interest on CCDs, no such notional interest can be taxed in the hands of the assessee as neither it has accrued nor it has been received during the year. The Learned DR before us vehemently argued that the decision of waiver was taken by the assessee only on 31-3-2015 and hence interest had accrued to the assessee for the whole year. This was buttressed by the Learned AR by stating that the effective date of waiver was 1-4-2014 and hence no interest could accrue to the assessee. 10. It is not in dispute that the entire investment of Rs 21.30 crores in CCDs of group concerns were made out of own funds and not out of borrowed funds. The waiver of interest stipulated is always at the discretion of the debenture holders. On request from the borrower i.e. DJ Wind Solutions Pvt Ltd, the assessee waived off their right of interest on CCDs on 31-03-2015 for bona fide commercial expediency. The borrower of the CCDs, i.e DJ Wind Solutions Pvt. Ltd. did not have the income or financial capacity to pay the interest and there was no hope of recovery as is evident from its audited financial statements as on 31-03-2015, wherein it had nil income and loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he resolutions taken for waiver of interest. 12. We find that the waiver of interest by the assessee was a bona fide commercial decision to support the group concerns as mutually agreed, neither the assessee has provided interest income nor has the borrower DJ Windfarm / Jasdan, etc., provided any interest expenditure. Entire investment in CCDs was out of own non-interest bearing funds of the assessee. With regard to taxation of notional interest income, the Hon'ble Jurisdictional High Court in the case of Shiv Nandan BuildCon Pvt. Ltd. VS. CIT reported in 60 Taxmann.com 347 had observed as under :- "Where assessee-company gave interest-free advance to another company, in absence of any specific provision under Income-tax Act, notional interest income computed by Assessing Officer on said advance was to be deleted." 13. In view of the aforesaid observations and respectfully following the various judicial precedents relied upon hereinabove, we have no hesitation to delete the addition made in the sum of Rs 1,91,70,000/- towards interest income on notional basis. Accordingly, the Ground No.2 raised by the assessee is allowed. 14. The Ground Nos. 5 to 8 raised by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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