ABT INVESTMENTS INDIA PVT. LTD., COIMBATORE V. ACIT, CORPORATE CIRCLE-1, COIMBATORE

ITA 1015/CHNY/2022

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The case involves M/s. ABT Investments India P. Ltd., which appealed against the revision order of the PCIT, Coimbatore, concerning the assessment year 2018-19. The PCIT had revised the assessment order, claiming it was erroneous and prejudicial to the interest of the Revenue because the Assessing Officer had not discussed the disallowance of proportionate interest payment in the final assessment order, despite it being part of the draft assessment order. The Tribunal, however, found that the issue had been adequately addressed during the scrutiny assessment proceedings and the final assessment order, thus quashing the revision order.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 135411 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-04-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 21-02-2023
• Assessment Year: 2018-2019
• Appeal Filed On: 29-11-2022
• Other Referred Cases: ITA No. 232/CHNY/2022
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revision of order; Earning of tax free income; Proportionate interest; Assessment record; Set aside
• Section: 263; 143(3)

Judgement Text

आयकर अपीलीय अिधकरण, ’सी’ Ɋायपीठ, चेɄई IN THE INCOME-TAX APPELLATE TRIBUNAL ‘C’ BENCH, CHENNAI ŵी वी दुगाŊ राव Ɋाियक सद˟ एवं ŵी जी. मंजुनाथा, लेखा सद˟ के समƗ Before Shri V. Durga Rao, Judicial Member & Shri G. Manjunatha, Accountant Member आयकर अपील सं./I.T.A. No.1015/Chny/2022 िनधाŊरण वषŊ/Assessment Year: 2018-19 M/s. ABT Investments India P. Ltd., 180, Race Course Road, Coimbatore 641 018. [PAN:AADCA6350P] Vs. The Assistant Commissioner of Income Tax, Corporate Circle 1, Coimbatore. (अपीलाथŎ/Appellant) (ŮȑथŎ/Respondent) अपीलाथŎ की ओर से / Appellant by : Shri S. Sridhar, Advocate ŮȑथŎ की ओर से/Respondent by : Shri M. Rajan, CIT सुनवाई की तारीख/ Date of hearing : 22.02.2023 घोषणा की तारीख /Date of Pronouncement : 12.04.2023 आदेश /O R D E R PER V. DURGA RAO, JUDICIAL MEMBER: This appeal filed by the assessee is directed against the order of the ld. Principal Commissioner of Income Tax, Coimbatore – 1, Coimbatore dated 23.11.2022 relevant to the assessment year 2018-19 passed under section 263 of the Income Tax Act, 1961 [“Act” in short]. 2. Brief facts of the case are that the assessee company filed its return of income for the assessment year 2018-19 on 30.11.2018 admitting income of ₹. NIL. The case was selected for limited scrutiny to I.T.A. No.1015/Chny/22 2 examine (i) investments/advances/loans, (ii) Ind-AS compliance and adjustment, (iii) business loss & (iv) expenses incurred for earning exempt income and the assessment was completed under section 143(3) r.w.s. 144B of the Act dated 14.07.2021. 3. Subsequently, the ld. PCIT, while exercising the powers conferred under section 263 of the Act, noted from the assessment records that the assessee had claimed interest expense upto the rate of 23% and total interest expense is ₹.26.30 crores. But, the assessee has not charged/earned any interest on advances given to the group companies. The assessee had given ₹.41,66,74,040/- as interest free advances to the companies (i) Anamalais Bus Transport P Ltd ₹.41,66,39,600/- (ii) ABT (Madurai) P. Ltd. ₹. 3,44,405/-. The assessee had claimed that interest free advance among the group companies is book entry only and the same has been made out of interest free fund. It is seen that the assessee had not established through documentary evidence that the advances were made out of interest free fund or own fund. Hence, proportionate interest at 22% is to be disallowed and added back to the income returned for the assessment year 2018-19 i.e., ₹. 9,58,35,029/- (22% of 41,66,74,040/- = ₹. 9,58,35,029/-) needs to be disallowed and added back to the total income disclosed. Since the above issue was not I.T.A. No.1015/Chny/22 3 considered in the assessment order passed u/s 143 (3) read with section 144B of the Act, the same was erroneous in so far as it is prejudicial to the interest of the revenue. Accordingly, the ld. PCIT served a show- cause notice dated 16.09.2022 to the assessee calling for objections, if any, to the proposed revision. In response to the show cause notice, the assessee’s AR vide written submissions dated 30.09.2022 submitted that the proposal made forming part of the draft assessment in the scrutiny assessment proceedings dated 19.04.2021, the reply submitted before the Assessing Officer was also submitted before the ld. PCIT against the show-cause notice and the reply of the assessee are reproduced as under: B) Disallowance of proportionate interest - Rs. 9,58,35,029/-: In the show cause notice issued, it is proposed to disallow proportionate claim of interest expenses amounting to Rs. 9,58,35,029/- on the ground that the assessee has made interest free advances to the following related entities out of the interest bearing funds: (1) Anarnalais Bus Transport P Ltd Rs. 41,66,39,600)/- (PAN: AAACU3310N) (2) ABT (Madurai) P Ltd Rs. 3,44,405/- (PAN: AADCA6354K) TOTAL Rs. 41,66,74,040/- In this regard, it is submitted that the interest bearing funds obtained during the AY 2017-18 was neither diverted to M/s Anamalais Bus Transport P Ltd nor to M/s ABT (Madurai) P Ltd and the above amount of Rs. 41,66,39,600/- shown as receivable in the balance sheet emanates from a standalone transac6on of share transfer and it was merely book entry thereby negating the presumption of diversion of the interest bearing funds. In this regard, the assessee places on record the ledger account of M/s Annamalai Bus Transport P Ltd in the books of the assessee and the ledger account of the assessee in the books of the said party along with confirmation to fortify the above stand. I.T.A. No.1015/Chny/22 4 Similarly, the transaction with M/s ABT (Madurai) P Ltd having a receivable of Rs. 3,44,405/- is also a book entry/journal entry negating the presumption of diversion of funds. Under such circumstances, it is submitted that there is no diversion of the interest bearing hinds and hence the assessee pleads for dropping the proposal to make a proportionate allowance of interest expenditure to the tune of Rs. 9,58,35,029/- in the interest of justice. After considering the above reply, the NaFAC accepted the plea for dropping the proposal on the issue mentioned in the show cause notice in the present proceedings and hence re-visiting the said issue by reviewing the scrutiny assessment order in the present narrow revisional proceedings is prohibited by law. In fact, the Jurisdictional Bench of the Income Tax Appellate Tribunal in their recent decision dated 23.09.2022 in ITA No. 232/CHNY/2022 had quashed the revisional order under identical circumstances. There is absolutely no scope in the context of jurisdiction assumed u/s 263 of the Act to question the acceptance of the explanation offered by the Assessee in the scrutiny assessment proceedings and reviewing the scrutiny assessment order on this aspect is completely ruled out and outside the powers vested in section 263 of the Act. Further, there is a factual error committed in the captioned notice and in this regard, it is proposed to revise the assessment order on the ground that the Assessee has not established during the assessment proceedings on the diversion of the interest free funds or own funds while however, the stand taken the Assessee in the original scrutiny assessment was completely different inasmuch as the amount reflecting against M/s Anamalais Bus Transport P Ltd Rs.41,66,39,600/- was only a book entry without any actual flow of cash. In such circumstances, the very reason for assuming jurisdiction u/s 263 of the Act falls to the ground and hence it is pleaded that the proposal to revise the scrutiny assessment order dated 14.07.2021 for the assessment year 2018-19 on the single issue incorporated in the captioned show cause notice may be dropped in the interest of justice. Dated at Coimbatore, this the 30th day of September, 2022. 3.1 By submitting the above reply before the ld. PCIT, the AR of the assessee has pleaded that the issue has already been considered by the Assessing Officer and prayed for dropping the revision proceedings. Though the ld. PCIT has agreed that the present issue of interest payment was very much part of the scrutiny assessment proceedings, the I.T.A. No.1015/Chny/22 5 ld. PCIT was of the opinion that the key issue that is missing is in the impugned assessment order (final) passed on 14.07.2021 and also silent on the issue of disallowance of the proportionate interest payment debited in the P & L account. It was further observed that had the FAO accepted the submissions of the assessee made in response to the draft assessment order, the generally accepted principles while faming the assessment, is to discuss the issue chronologically and the pass the judgement whether or not the assessee’s submission is acceptable and if it is acceptable, whether it is in accordance with law. Since the final assessment order dated 14.07.2021 was silent on the very same issue on which the Assessing Officer raised the query in the draft assessment order passed on 19.04.2021, by noting adjudicating on the merits of the issue and omission of the issue which is part of the draft assessment order, is clearly an erroneous assessment order and accordingly, the ld. PCIT, set aside the assessment order and directed the Assessing Officer to redo the assessment. 4. On being aggrieved, the assessee is in appeal before the Tribunal. The ld. Counsel for the assessee has submitted that during the course of assessment proceedings, the Assessing Officer has very well proposed a draft assessment order incorporated the issue of interest payment and I.T.A. No.1015/Chny/22 6 the ld. PCIT has also agreed that the issue of interest payment was part of the scrutiny assessment proceedings. Against the draft assessment order, the assessee filed its detailed reply and after examining the details and by accepting the same, the Assessing Officer completed the assessment under section 143(3) r.w.s. 144B of the Act. 4.1 It was further submission that just because the issue has not been discussed in the assessment order by the Assessing Officer, it cannot be held that the impugned assessment order is erroneous and prejudicial to the interest of the Revenue. Once the details are examined, it was not necessary that detailed assessment order is required to be passed. Therefore, the ld. Counsel for the assessee pleaded that the order passed by the Assessing Officer is neither erroneous nor prejudicial to the interest of Revenue and submitted that the revision order passed by the ld. PCIT has to be quashed. 5. On the other hand, the ld. DR has strongly supported the revision order passed by the ld. PCIT under section 263 of the Act. 6. We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. Before concluding the final assessment order under section 143(3) r.w.s. 144B of I.T.A. No.1015/Chny/22 7 the Act dated 14.07.2021, proposing additions, the Assessing Officer show-caused with draft assessment order to the assessee. The assessee filed its reply before the Assessing Officer on 17.05.2021. In the revision order under section 263 of the Act also, the ld. PCIT has observed at para 6 of page 6 that the issue of interest payment was very much part of the scrutiny assessment proceedings and to this effect, the arguments of the assessee in the present proceeding is correct. 6.1 In case the assessee has not furnished any detailed convincing reply against the additions proposed in the draft assessment order, definitely, the said addition would have been reflected in the final assessment order. Once the Assessing Officer has received reply of the assessee against the additions proposed in the draft assessment order, after examining the details furnished by the assessee and by accepting the same, the Assessing Officer dropped the additions proposed in the draft assessment order while concluding the final assessment order. Just because, the Assessing Officer has not discussed in the final assessment order about the additions proposed in the draft assessment order, acceptance of the reply of the assessee, etc., it cannot be presumed that the assessment order is erroneous and prejudicial to the interest of the Revenue. I.T.A. No.1015/Chny/22 8 6.2 In case, if the final assessment order did not speak anything about the issue of show cause notice or proposing draft assessment order, etc., then, it can be presumed that the Assessing Officer has not examined the issues at length. In the present case, in the final assessment order, it has been clearly stated that the case of the assessee was selected for complete scrutiny on the following issues: i. Investments/advances/loans ii. Ind-AS compliance and adjustment iii. Business loss iv. Expenses incurred for earning exempt income. Thereafter, the Assessing Officer issued show cause notice with draft assessment order, against which, the assessee filed its reply on 17.05.2021. 6.3 The only dispute of the ld. PCIT is that had the FAO accepted the submissions of the assessee made in response to the draft assessment order, the generally accepted principles while framing the assessment order, is to discuss the issue chronologically and then pass the judgement whether or not the assessee’s submission is acceptable and if it is acceptable whether it is in accordance with law. We defer from the above observation of the ld. PCIT. When the reply of the assessee is not in accordance with law, then only it will be reflected in the assessment order describing; what was the proposal, what was the reply and as to how the I.T.A. No.1015/Chny/22 9 reply of the assessee was found not in accordance with law. Naturally, when the Assessing Officer considered the reply of the assessee was in accordance with law, he has described in the final assessment order and just because the Assessing Officer has not elaborately discussed the addition proposed in the draft assessment order, reply of the assessee, whether the reply is in accordance with law, etc. the final assessment order cannot be held that as erroneous and prejudicial to the interest of the Revenue. Under the above facts and circumstances of the case, we are of the opinion that the order passed by the Assessing Officer is neither erroneous nor prejudicial to the interest of Revenue. Thus, the revision order passed by the ld. PCIT under section 263 of the Act is quashed. 7. In the result, the appeal filed by the assessee is allowed. Order pronounced on 12 th April, 2023 at Chennai. Sd/- Sd/- (G. MANJUNATHA) ACCOUNTANT MEMBER (V. DURGA RAO) JUDICIAL MEMBER Chennai, Dated, 12.04.2023 Vm/- आदेश की Ůितिलिप अŤेिषत/Copy to: 1. अपीलाथŎ/Appellant, 2.ŮȑथŎ/ Respondent, 3. आयकर आयुƅ (अपील)/CIT(A), 4. आयकर आयुƅ/CIT, 5. िवभागीय Ůितिनिध/DR & 6. गाडŊ फाईल/GF.