M/s Pal Diesels P. Ltd., RAJKOT-GUJARAT V. The Pr. CIT-1, RAJKOT-GUJARAT

ITA 135/RJT/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 6478 (ITAT-RAJKOT)
• Duration Of Justice: 2 year(s) 8 day(s)
• Appeal Type: Income Tax (International Taxation) Appeal
• Pronouncement Date: 04-05-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 26-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: DM RINDANI
• Keywords: Revision of order; Opportunity of being heard; Commercial expediency; TDS; Set aside
• Section: 143(3); 142(1); 37; 263; 63; 10

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT LOZJH LOZJH LOZJH LOZJH EGKOHJ EGKOHJ EGKOHJ EGKOHJ IZLKN] U; IZLKN] U; IZLKN] U; IZLKN] U;KF KFKF KF;D LNL; , ;D LNL; , ;D LNL; , ;D LNL; ,OA OAOA OA OLHE OLHE OLHE OLHE VGEN] YS[KK LNL; DS LE{KA VGEN] YS[KK LNL; DS LE{KA VGEN] YS[KK LNL; DS LE{KA VGEN] YS[KK LNL; DS LE{KA BEFORE SHRI MAHAVIR PRASAD, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ./ I.T.A. NO.135/RJT/2017 ( / ASSESSMENT YEAR : 2012-13) M/S. PAL DIESELS PVT. LTD., 1 UMAKANT PANDITY UDYOG NAGAR, MAVDI, RAJKOT. / VS. THE PCIT, TAX-1, RAJKOT. ./ ./ PAN/GIR NO. : AADCP 2088 B ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI D. M. RINDANI, A.R. / RESPONDENT BY : SHRI JITENDRA KUMAR, CIT-D.R. / DATE OF HEARING 25/09/2018 !'# / DATE OF PRONOUNCEMENT 02/11/2018 $% / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX-1, RAJKOT, DATED 28.02.2 017 FOR THE ASSESSMENT YEAR (AY) 2012-13. 2. ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APP EAL: 1. THE LEARNED COMMISSIONER OF INCOME TAX - 1, RAJ KOT ERRED IN ASSUMING JURISDICTION U/S 263 OF THE ACT, PARTICULA RLY IN THE LIGHT OF REASONS STATED BY HIM IN THE SHOW CAUSE NOTICE A ND IN THE ORDER PASSED U/S 263 OF THE ACT AND HENCE THE IMPUG NED ORDER IS BAD IN LAW. 2. THE LEARNED COMMISSIONER OF INCOME TAX - 1, R AJKOT ERRED IN HOLDING THAT WHILE FINALIZING THE ASSESSMENT, THE A .O. FAILED TO ITA NO. 135 /RJT/2017 PAL DIESELS PVT. LTD. VS. PCIT ASST.YEAR 2012-13 - 2 - VERIFY THE GENUINENESS AND ALLOWABILITY OF CLAIM OF INTEREST EXPENSES, WHEN ALL THE REQUIRED DETAILS WERE DULY F ILED DURING ASSESSMENT PROCEEDINGS AND THEREFORE THE LEARNED CO MMISSIONER OF INCOME TAX - 1, RAJKOT ERRED IN DIRECTING THE AS SESSING OFFICER TO MAKE A FRESH ASSESSMENT. 3. ON MERITS, THE LEARNED COMMISSIONER OF INCOME TAX - 1, RAJKOT ERRED IN DIRECTING THE A.O. TO VERIFY THE GENUINENE SS AND ALLOWABILITY OF THE CLAIM OF INTEREST EXPENSES OF R S. 56,01,277/- PAID TO PANCHNATH AUTO PVT. LTD. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER AND WITHDRAW ANY GROUND OF APPEAL ANYTIME UP TO THE HEARING OF THIS APPEAL. 3. THE ONLY ISSUE RAISED BY THE ASSESSEE IS THAT LD . CIT ERRED U/S 263 OF THE ACT HOLDING THE ORDER PASSED BY THE AO U/S 1 43(3) OF THE ACT AS ERRONEOUS IN SO FAR PREJUDICIAL TO THE INTEREST OF THE REVENUE. 4. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY AND ENGAGED IN THE TRADING BUSINESS OF THRE E WHEELERS AND ITS SPARE PARTS. THE ASSESSEE IS ALSO PROVIDING LOAN RE COVERY SERVICES ALONG WITH ITS ASSOCIATES. 4.1 THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION F ILED ITS RETURN OF INCOME DECLARING TOTAL INCOME OF RS. (-)42,77,450/- . SUBSEQUENTLY, THE CASE OF THE ASSESSEE WAS SELECTED UNDER SCRUTINY UN DER CASS MODULE. ACCORDINGLY, THE NOTICES U/S 143(2)/142(1) WERE ISS UED AND SERVED UPON THE ASSESSEE. THE ASSESSMENT WAS FRAMED BY THE AO U /S 143(3) OF THE ACT VIDE ORDER DATED 20.02.2015 AT THE LOSS OF RS. 42,7 7,450/- AS DECLARED BY THE ASSESSEE IN ITS INCOME TAX RETURN. ITA NO. 135 /RJT/2017 PAL DIESELS PVT. LTD. VS. PCIT ASST.YEAR 2012-13 - 3 - 4.2 SUBSEQUENTLY, THE LD. CIT U/S 263 OF THE ACT OB SERVED THAT THE ASSESSEE HAS PAID INTEREST OF RS. 56,01,277/- TO IT S ASSOCIATE ENTERPRISES NAMELY PANCHNATH AUTO PVT. LTD. THE INTEREST WAS SH OWN BY THE ASSESSEE AS INTEREST ON BANK FINANCE IN ITS BOOKS OF ACCOUNT S. ACCORDINGLY, THE LD. CIT U/S 263 OF THE ACT NOTED THAT THERE IS A MISTAK E APPARENT FROM RECORD IN THE ASSESSMENT ORDER FRAMED U/S 143(3) OF THE AC T ON ACCOUNT OF FOLLOWING: I. PRIMA FACIE THE INTEREST WAS PAID BY THE ASSESSEE AND CLAIMED AS EXPENDITURE FOR THE LOAN AVAILED BY PUNCHNATH AUTO PVT. LTD. II. THERE WAS NO BANK LOAN REFLECTED IN THE BOOKS OF TH E ASSESSEE. III. THERE WAS A CLOSE CONNECTION BETWEEN THE ASSESSEE A ND PANCHNATH AUTO PVT. LTD. IN PURSUANCE TO THE PROVIS ION OF SECTION 40A(2)(B) OF THE ACT. IV. THE COPY OF MOU BETWEEN THE ASSESSEE AND PANCHNATH AUTO PVT. LTD. WAS NOT PRODUCED BY THE ASSESSEE DURING T HE ASSESSMENT PROCEEDINGS. ACCORDINGLY, THE LD. CIT U/S 263 OF THE ACT SOUGHT CLARIFICATION FROM THE ASSESSEE ON THE FACTS AS DISCUSSED ABOVE. 4.3 THE ASSESSEE IN RESPONSE TO THE NOTICE ISSUED U /S 263 OF THE ACT SUBMITTED THAT THE ISSUE OF INTEREST PAID TO PANCHN ATH AUTO PVT. LTD. WAS DULY DISCUSSED AND VERIFIED BY THE AO DURING THE AS SESSMENT PROCEEDINGS. AS SUCH, THERE WERE VARIOUS REPLIES FI LED BY THE ASSESSEE IN RESPONSE TO THE NOTICE ISSUED BY THE AO U/S 142(1) OF THE ACT ON DIFFERENT DATES I.E. 13.10.2014, 05.02.2015 & 10.02.2015. THU S THE ASSESSEE CLAIMED THAT THE ORDER OF THE AO CANNOT BE HELD AS ERRONEOUS IN SO FAR ITA NO. 135 /RJT/2017 PAL DIESELS PVT. LTD. VS. PCIT ASST.YEAR 2012-13 - 4 - PREJUDICIAL TO THE INTEREST OF THE REVENUE ON ACCOU NT OF NON-VERIFICATION OF THE AFORESAID ISSUE BY THE ASSESSING OFFICER. 4.4 THE ASSESSEE ON MERIT SUBMITTED THAT IT WAS UND ER THE OBLIGATION AS PER THE MOU WITH THE PANCHNATH AUTO PVT. LTD. TO RE COVER ALL THE LOANS ALONG WITH INTEREST FROM THE PARTIES TO WHOM THE TH REE WHEELERS WERE FINANCED. THUS, THE ASSESSEE FOR SUCH OBLIGATION HA S INCURRED INTEREST COST OF RS. 56,01,277/- FOR THE RECOVERIES FROM THE BUYE RS OF THE THREE WHEELERS. THE ASSESSEE FOR SUCH ACTIVITY HAS EARNED AN INCOME OF RS. 28,66,280/- WHICH WAS DULY SHOWN IN THE BOOKS OF AC COUNTS AND OFFERED TO TAX. 4.5 THE INTEREST PAID BY THE ASSESSEE TO M/S PANCHN ATH AUTO PVT. LTD WAS DULY ACCOUNTED BY M/S PANCHNATH AUTO PVT. LTD W HICH WAS DISCLOSED IN THE INCOME TAX RETURN. HOWEVER, THE LD. CIT DISAGREED WITH THE SUBMISSION OF THE ASSESSEE AND HELD THAT THE ORDER PASSED BY THE AO AS ERRONEOUS I N SO FAR PREJUDICIAL TO THE INTEREST OF THE REVENUE BY OBSERVING AS UNDER: 4.1 THE FIRST CONTENTION OF THE ASSESSEE IS THAT, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO HAD VERIFIED THE ISS UE AND NO OBJECTION HAS BEEN RAISED. THE SECOND CONTENTION IS THAT, THE INTEREST EXPENDITURE INCURRED BY IT, IS PART OF ITS BUSINESS ACTIVITIES AND HENCE, THE SAME IS ALLOWABLE. THE ASSESSEE HAS ALSO FILED A COPY OF AG REEMENT ENTERED INTO BY THE ASSESSEE WITH M/S. PANCHNATH AUTO P LTD. 4.2 SECTION 37 OF THE INCOME TAX ACT, 1961 IS BA SED UPON FOUR LIMBS AS UNDER:- ITA NO. 135 /RJT/2017 PAL DIESELS PVT. LTD. VS. PCIT ASST.YEAR 2012-13 - 5 - A. IT SHOULD NOT BE AN EXPENDITURE OF THE NATURE DE SCRIBED IN SECTION 30 TO 36. B. EXPENDITURE SHOULD NOT BE OF CAPITAL NATURE. C. EXPENDITURE SHOULD NOT BE OF PERSONAL NATURE. D, IT SHOULD BE EXPENDED WHOLLY AND EXCLUSIVELY FO R THE PURPOSE OF BUSINESS OR PROFESSION. 4.3 THE ASSESSEE COMPANY DERIVES INCOME FROM TRADI NG IN THREE WHEELERS AND ITS SPARE AND ALSO RENDERS ALLIED SERV ICES LIKE LOAN RECOVERY SERVICES. ON TOTAL REVENUE OF RS 34,80,801 /-, IT HAD CLAIMED EXPENSES TO THE TUNE OF RS 1,14,06,053/-. THIS EXPE NDITURE INCLUDED RS.82,72,538/- BEING INTEREST ON UNSECURED LOANS. T HIS INTEREST INCLUDED RS 56,01,277/- BEING INTEREST ON BANK FINANCE AS PE R MOU FOR THE YEAR 2011-12 WITH PANCHNATH AUTO P LTD. HOWEVER, COPY OF ANY SUCH MOU IS NOT AVAILABLE ON RECORD AND THE AO HAD FAILED TO OB TAIN AND VERIFY THE SAME. FURTHER, PRIMA FACIE IT APPEARS THAT THE INTE REST EXPENSES PERTAINED TO PANCHNATH AUTO P LTD BUT WAS BORNE BY THE ASSESSEE. FURTHER, AS PER THE BALANCE SHEET, THE ASSESSEE DOE S NOT HAVE ANY BANK LOAN LIABILITY. AGAIN, THE COMPANY PANCHNATH AUTO P LTD IS AN ASSOCIATE CONCERN OF THE ASSESSEE, WITHIN THE MEANING OF SECT ION 40A(2)(B) OF THE I T ACT, THEREFORE, IT IS CLEAR THAT, WHILE FINALIZIN G THE ASSESSMENT, THE AO FAILED TO VERIFY THE GENUINENESS AND THE ALLOWABILI TY OF THE CLAIM OF INTEREST EXPENSES, BY THE ASSESSEE. HENCE, THE-ORDE R PASSED BY THE AO, IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REV ENUE. 5. AS PER EXPLANATION 2(A) APPENDED BELOW THE SECT ION 263(1) OF THE ACT, INSERTED BY THE FINANCE ACT, 2015, AN ORDER PA SSED BY THE AO SHALL BE DEEMED TO BE IN SO FAR AS IT IS PREJUDICED TO TH E INTEREST OF THE REVENUE, IF THE ORDER IS PASSED WITHOUT MAKING INQU IRIES OR VERIFICATION, WHICH SHOULD HAVE BEEN MADE. ERRONEOUS ASSESSMENT REFERS TO AN ASSESSMENT THAT DEVIATES FROM THE LAW AND IS THEREF ORE INVALID. IT ALSO MEANS CONTRARY TO LAW, UPON MISTAKEN VIEW OF LAW OR UPON ERRONEOUS APPLICATION OF LEGAL PRINCIPLES. SOMETIMES, THE ERR OR OF LAW MAY NOT BE APPARENT ON THE FACE OF THE ORDER. PREJUDICIAL TO THE INTEREST OF REVENUE MEANS THAT THE ORDERS OF ASSESSMENT ARE SUCH AS ARE NOT IN ACCORDANCE WITH LAW, IN CONSEQUENCE WHEREOF, THE LAWFUL REVENU E DUE TO THE STATE HAS NOT BEEN REALIZED OR CANNOT BE REALIZED. LOSS O F TAX IS TREATED AS PREJUDICIAL TO THE INTEREST OF REVENUE BY MANY HON' BLE HIGH COURTS INCLUDING THE HON. GUJARAT HIGH COURT. THE POWERS A RE VERY WIDE IN EXERCISING THE POWERS OF REVISION UNDER SECTION 263 . THE ONLY LIMITATION ON THE POWER OF THE COMMISSIONER IS THAT, HE MUST H AVE SOME ITA NO. 135 /RJT/2017 PAL DIESELS PVT. LTD. VS. PCIT ASST.YEAR 2012-13 - 6 - MATERIALS WHICH WOULD ENABLE HIM TO FORM A PRIMA FA DE OPINION THAT THE ORDER PASSED BY THE OFFICER WAS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE. ONCE HE COM ES TO THE CONCLUSION ON THE BASIS OF THE MATERIAL THAT THE OR DER OF THE OFFICER WAS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF T HE REVENUE, THE COMMISSIONER IS EMPOWERED TO CANCEL THE ASSESSMENT ORDER OR MODIFY THE ASSESSMENT ORDER OR DIRECT A FRESH ASSESSMENT. THIS IS THE FINDING OF THE HON. APEX COURT IN THE CASE OF CIT VS SHREE MAN JUNATHESWARE PACKING PRODUCTS & CAMPHOR WORKS (231 ITR 53, 63-SC ) AND HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS SESHAYEE PA PIER & BOARDS LTD (242 ITR 490, 496 MAD). THE HON'BLE SUPREME COU RT IN THE CASE OF TARA DEVI AGGARWAL VS CIT (1973) 88 ITR 323 (SC) HA S HELD THAT, WHERE A STEREOTYPE ORDER IS PASSED, WHICH SIMPLY AC CEPTS WHAT THE ASSESSEE HAS SAID IN THE RETURN AND FAILS TO MAKE I NQUIRIES WHICH ARE CALLED FOR THE CIRCUMSTANCES OF THE CASE, THE COMMI SSIONER IS JUSTIFIED IN HOLDING THAT THE ORDER IS ERRONEOUS AND PREJUDIC IAL TO THE INTERESTS OF THE REVENUE. 6. IN VIEW OF THE ABOVE FACTS, I CONSIDER THAT THE ASSESSMENT ORDER PASSED BY THE AO U/S. 143(3) ON 20.2.2015 IS ERRONE OUS AND PREJUDICIAL TO THE INTEREST OF REVENUE AND THEREFORE, BY VIRTUE OF SECTION 263 OF THE I. T. ACT 1961, THE SAME IS CANCELLED AND THE AO IS DI RECTED TO MAKE A FRESH ASSESSMENT AFTER ALLOWING ADEQUATE OPPORTUNIT Y OF BEING HEARD TO THE ASSESSEE. BEING AGGRIEVED BY THE ORDER OF LD. CIT ASSESSEE IS IN APPEAL BEFORE US. 5. THE LD. AR BEFORE US FILED A PAPER BOOK RUNNING FROM PAGES 1-25 AND SUBMITTED THAT THE ISSUE OF INTEREST PAYMENT TO M/S PANCHNATH AUTO PVT. LTD WAS DULY VERIFIED BY THE AO DURING THE ASS ESSMENT PROCEEDINGS. THE LD. AR IN SUPPORT OF HIS CLAIM DREW OUR ATTENTI ON ON THE SHOW-CAUSE NOTICE ISSUED BY THE AO U/S 142(1) DATED 13.10.2014 DURING THE ASSESSMENT PROCEEDINGS WHICH IS PLACED ON PAGES 11- 14 OF THE PB. ITA NO. 135 /RJT/2017 PAL DIESELS PVT. LTD. VS. PCIT ASST.YEAR 2012-13 - 7 - 5.1 SIMILARLY, THE LD. AR FOR THE ASSESSEE ALSO DRE W OUR ATTENTION ON THE REPLIES FILED BY THE ASSESSEE DURING THE ASSESS MENT PROCEEDINGS WHICH ARE PLACED ON PAGES 15 TO 22 OF THE PAPER BOOK. 5.2 THE LD. AR BEFORE US FURTHER SUBMITTED THAT THE ASSESSEE HAS BEEN CLAIMING INTEREST EXPENSES PAID TO M/S PANCHNATH AU TO PVT. LTD FOR THE LAST SEVERAL YEARS BUT NO DISALLOWANCE WAS CALLED F OR IN THOSE YEARS. 5.3 THE LD. AR IN SUPPORT OF HIS CLAIM FILED THE CO PIES OF THE FINANCIAL STATEMENTS PERTAINING TO THE YEAR UNDER CONSIDERATI ON AS WELL AS FOR FINANCIAL YEAR 2011-12 WHICH ARE PLACED ON RECORD. 6. ON THE OTHER HAND, LD. DR SUBMITTED THAT THE COP Y OF THE AGREEMENTS BETWEEN THE ASSESSEE AND M/S PANCHNATH A UTO PVT. LTD WAS NOT FILED BY THE ASSESSEE DURING THE ASSESSMENT PRO CEEDINGS. THEREFORE IT IS CLEAR THAT THE ISSUE OF INTEREST HAS NOT BEEN VE RIFIED BY THE AO DURING THE ASSESSMENT PROCEEDINGS. THE LD. DR VEHEMENTLY S UPPORTED THE ORDER OF THE LD. CIT. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ORDER PASSED BY THE AO U/S 143(3) OF THE ACT WAS TREATED AS ERRONEOUS IN SO FA R PREJUDICIAL TO THE INTEREST OF REVENUE ON THE GROUND THAT THE AO HAS N OT CARRIED OUT VERIFICATION PROPERLY. ITA NO. 135 /RJT/2017 PAL DIESELS PVT. LTD. VS. PCIT ASST.YEAR 2012-13 - 8 - HOWEVER, ON PERUSAL OF THE DOCUMENTS FILED BY THE A SSESSEE WE NOTE THAT THE AO HAS CONDUCTED NECESSARY ENQUIRIES REGARDING THE PAYMENT OF INTEREST PAID TO M/S PANCHNATH AUTO PVT. LTD. THE R ELEVANT PORTION EXTRACT OF THE NOTICE ISSUED BY THE AO U/S 142(1) DATED 13. 10.2014 READS AS UNDER: 16. REASONABLENESS OF PAYMENT AND COMPARATIVE RATE S, IN RESPECT OF PAYMENTS COVERED U/S 40A(2)(B). SERVICES RENDERED B Y PERSONS TO WHOM SALARY/ REMUNERATION PAID ALONG WITH DETAILS OF QUA LIFICATION, COPY OF CONTRACT ENTERED AND DETAILS OF INCREASE IN PAYMENT S AS COMPARED TO PREVIOUS YEAR. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 18. PLEASE SHOW CAUSE AS TO WHY THE INTEREST ON BOR ROWED CAPITAL WHICH HAS BEEN UTILIZED FOR INVESTMENT/ ADVANCES IN / TO SISTER CONCERN SHOULD NOT BE TREATED AS NOT ALLOWABLE EXPENDITURE U/S. 36(1)(III) OF THE IT ACT, IN THE LIGHT OF THE FACT THAT NO COMMERCIAL EXPEDIENCY HAS BEEN PROVED BY YOU IN SUCH INVESTMENT/ ADVANCES. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 27. PLEASE SUBMIT DETAILS OF TDS MADE IN YOUR CASH IN THE FOLLOWING FORMAT: NAME & ADDRESS OF DEDUCTOR PAN OF DEDUCTOR NATURE OF INCOME/ RECEIPT ON WHICH TDS MADE AMT. OF INCOME/ RECEIPT DATE OF RECEIPT OF INCOME/RECEIPT DATE OF TDS DATE OF DEPOSIT IN GOVT. A/C. DELAY IN DEPOSIT OF TDS, IF ANY. AMOUNT OF REF AND CLAIMED FOR F.Y. 2011-12 7.1 THE REPLY FILED BY THE ASSESSEE READS AS UNDER: SR NO. NOTICE SR. NO. PARTICULARS PB PAGE NO. 8. 8 NAME, ADDRESS, PAN, CONTRA ACCOUNTS AND I.T. RETURN FOR A.Y.2012-13 OF FOLLOWING PARTY FROM WHOM LOAN IS TAKEN DURING THE YEAR IS ATTACHED 11-16 ITA NO. 135 /RJT/2017 PAL DIESELS PVT. LTD. VS. PCIT ASST.YEAR 2012-13 - 9 - HEREWITH. NAME ADDRESS PAN PANCHNATH AUTO PVT.LTD. SURVEY NO.287/1, SHAPER VILLAGE ROAD, SHAPAR (VARAVAL). AACCP 8808 L PANCHNATH SALES CORPORATION 1-UMAKANT PANDIT, UDYOG NAGAR, MAVADI PLOT, RAJKOT AACFP 8745 K SHIV INDUSTRIES 1-UMAKANT PANDIT, UDHYOGNAGAR, MAVADI, PLOT, RAJKOT AAIFS 8136 P SR NO. NOTICE SR. NO. PARTICULARS PB PAGE NO. 10. 10. LEDGER ACCOUNT OF FOLLOWING COMPANIES ARE ATTACHED HEREWITH FROM WHOM THE COMPANY HAS TAKEN LOAN P. M. DIESELS PVT. LTD. PANCHNATH AUTO PVT. LTD. 17-18 SR NO. NOTICE SR. NO. PARTICULARS PB PAGE NO. 16. 16. DURING THE YEAR UNDER CONSIDERATION, WE HAVE PAID INTEREST ON BORROWED CAPITAL TO RELATED PARTIES AT THE RATE OF 12% AND RENT OF RS.96,000/- TO PANCHNATH AUTO PVT. LTD. DETAILED STATEMENT OF THE SAME IS ATTACHED HEREWITH. 20 ITA NO. 135 /RJT/2017 PAL DIESELS PVT. LTD. VS. PCIT ASST.YEAR 2012-13 - 10 - SR NO. NOTICE SR. NO. PARTICULARS PB PAGE NO. 18. 18. EXPLAINED REGARDING INTEREST ON BORROWED CAPITAL: DURING THE YEAR WE HAVE PAID INTEREST OF RS. 82,72,538/- ON BORROWED FUNDS. IN THIS CONNECTION, WE HAVE TO STATE THAT NO INTEREST BEARING FUND WAS UTILIZED TOWARDS INVESTMENT/ADVANCES TO ANY SISTER CONCERN OR TO ANY PARTY. THEREFORE, IN OUR HUMBLE OPINION WE HAVE TO STATE THAT NO DISALLOWANCE U/S 36(1)(III) OF THE INCOME TAX ACT, 1961 SHOULD BE MADE. YOU CAN SEE FROM THE DETAILS FURNISHED, THAT NO BORROWED FUND WAS UTILIZED FOR THE PURPOSE OF FINANCING SISTER CONCERN OR TO ANY OTHER PARTY. -- SR NO. NOTICE SR. NO. PARTICULARS PB PAGE NO. 27. 27. DETAILS REGARDING TDS MADE IN OUR CASE ARE ATTACHED HEREWITH. 22 SR NO. PARTICULARS PB PAGE NO. 2 FOLLOWING LEDGER ACCOUNTS OF EXPENSES EXCEEDING RS.1,00,000/- DEBITED TO PROFIT AND LOSS ACCOUNT IS ATTACHED HEREWITH. COMMISSION INTEREST OF BANK INTEREST ON UNSECURED LOANS PETROL & DIESEL SALARY TRADE DISCOUNT 142-159 ITA NO. 135 /RJT/2017 PAL DIESELS PVT. LTD. VS. PCIT ASST.YEAR 2012-13 - 11 - 7.2 WE ALSO NOTE THAT THE ASSESSEE HAS DULY DISCLOS ED THE PAYMENT MADE TO M/S PANCHNATH AUTO PVT. LTD IN THE TAX AUDI T REPORT IN PURSUANCE TO THE PROVISION OF SECTION 40A(2)(B) OF THE ACT. T HE NECESSARY DETAILS WERE SPECIFIED IN ANNEXURE D ATTACHED TO THE TAX AUDIT REPORT WHICH READS AS UNDER: A.Y.2012-13 CLAUSE 18 TO FORM NO.3CD ANNEXURE NO. D NAME OF PAYEE NATURE OF PAYMENT AMOUNT IN RS. PANCHNATH AUTO PVT. LTD. RENT INTEREST 96,000 7,735,726 RAJKAMAL INTEREST 40,311 P. M. DIESELS LTD. INTEREST 174,837 AUTOMAT FASTENERS INTEREST 126,041 SIMPLE STEEL TRADERS INTEREST 110,908 SHIV INDUSTRIES INTEREST 60,257 PANCHNATH SALES CORPORATION INTEREST 24,459 7.3 WE ALSO NOTE THAT THE COPY OF THE AGREEMENT BET WEEN THE ASSESSEE AND M/S PANCHNATH AUTO PVT. LTD WAS NOT FURNISHED B Y THE ASSESSEE TO THE AO. HOWEVER, THAT CANNOT BE A GROUND FOR HOLDIN G THE ORDER OF THE AO AS ERRONEOUS. IT IS BECAUSE THIS WAS NOT THE FIR ST YEAR WHEN THE PAYMENT WAS MADE BY THE ASSESSEE TO M/S PANCHNATH A UTO PVT. LTD. IN FACT THE ASSESSEE HAS BEEN PAYING THE INTEREST ON R EGULAR BASIS TO M/S PANCHNATH AUTO PVT. LTD. THUS, NON AVAILABILITY OF AGREEMENT CAN AMOUNT TO INADEQUATE ENQUIRY AND NOT LACK OF INQUIRY. IN V IEW OF ABOVE, WE FIND THAT THE AO HAS APPLIED HIS MIND DURING THE ASSESSM ENT PROCEEDINGS. THEREFORE, THE ORDER OF THE AO CANNOT BE HELD AS ER RONEOUS IN SO FAR PREJUDICIAL TO THE INTEREST OF THE REVENUE DUE TO N ON-VERIFICATION. IN THIS ITA NO. 135 /RJT/2017 PAL DIESELS PVT. LTD. VS. PCIT ASST.YEAR 2012-13 - 12 - REGARD, WE FIND SUPPORT AND GUIDANCE FROM THE JUDGM ENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. NIRAV MODI REPORTED IN 390 ITR 292 WHEREIN IT WAS HELD AS UNDER: 6. IT IS A SETTLED POSITION IN LAW THAT POWERS UNDER S ECTION 263 OF THE ACT CAN BE EXERCISED BY THE CIT ON SATISFACTION OF TWIN CONDITIONS VIZ. THE ASSESSMENT ORDER SHOULD BE ERRONEOUS AND PREJUD ICIAL TO THE REVENUE. BY ERRONEOUS IS MEANT CONTRARY TO LAW. THU S, THIS POWER CANNOT BE EXERCISED UNLESS THE CIT IS ABLE TO ESTAB LISH THAT THE ORDER OF THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE REVENUE. THUS WHERE THERE ARE TWO POSSIBLE VIEWS AND THE ASSESSIN G OFFICER HAS TAKEN ONE OF THE POSSIBLE VIEWS, NO OCCASION TO EXERCISE POWERS OF REVISION, CAN ARISE. NOR CAN REVISIONAL POWER BE EXERCISED FO R DIRECTING A FULLER INQUIRY TO FIND OUT IF THE VIEW TAKEN IS ERRONEOUS, WHEN A VIEW HAS ALREADY BEEN TAKEN AFTER INQUIRY. THIS POWER OF REV ISION CAN BE EXERCISED ONLY WHERE NO INQUIRY AS REQUIRED UNDER T HE LAW IS DONE. IT IS NOT OPEN TO ENQUIRE IN CASES OF INADEQUATE INQUIRY. 7.4 WE ALSO EXTEND OUR RELIANCE ON THE JUDGMENT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. R. K. CONSTRUCTION COMPANY REPORTED IN 313 ITR 65 WHEREIN IT WAS HELD AS UNDER: 16. AS FAR AS LAW IS CONCERNED, THE ASSESSING OFFICER HAS TAKEN A PARTICULAR VIEW ON THE BASIS OF EVIDENCE PRODUCED B EFORE HIM. ON THE BASIS OF THE SAID MATERIAL AND MATERIALS WHICH WERE COLLECTED BY THE CIT IN REVISIONAL PROCEEDINGS, THE COMMISSIONER HAS TAKEN A DIFFERENT VIEW. HOWEVER, IN THE REVISIONAL PROCEEDINGS UNDER SECTION 263, IT IS NOT OPEN FOR THE COMMISSIONER TO TAKE SUCH A DIFFERENT VIEW IN VIEW OF THE DECISIONS OF THE HON'BLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD.(SUPRA). THERE IS NOTHING ON REC ORD TO SUGGEST THAT THE VIEW TAKEN BY THE ASSESSING OFFICER IS UNSUSTAI NABLE AT LAW. THIS COURT HAS ALSO TAKEN THE SAME VIEW IN CASE OF ARVIN D JEWELLERS (SUPRA) WHEREBY THE ORDER PASSED BY THE COMMISSIONER UNDER SECTION 263 OF THE ACT WAS QUASHED AND SET ASIDE. 7.5 WE ALSO NOTE THAT THE LD. CIT HAS MADE THE REFE RENCE TO THE EXPLANATION INSERTED BY THE FINANCE ACT 2015 AND AC CORDINGLY HELD THAT THE ORDER OF THE AO IS ERRONEOUS IN SO FAR PREJUDIC IAL TO THE INTEREST OF THE ITA NO. 135 /RJT/2017 PAL DIESELS PVT. LTD. VS. PCIT ASST.YEAR 2012-13 - 13 - REVENUE. THE CASE BEFORE US PERTAINS TO THE A.Y. 20 12-13 AND RE- IMPUGNED EXPLANATION TO SECTION 263 OF THE ACT WAS APPLICABLE W.E.F. 01.04.2015 THEREFORE, IN OUR CONSIDERED VIEW THE PR OVISION CANNOT BE APPLIED FOR THE YEAR UNDER CONSIDERATION. IN THIS R EGARD, WE FIND SUPPORT AND GUIDANCE FROM THE ORDER OF THIS TRIBUNAL IN THE CASE OF TORRENT PHARMACEUTICAL LTD. VS DCIT REPORTED IN 97 TAXMANN. COM 671 WHEREIN IT WAS OBSERVED AS UNDER: 9. THE PR.CIT HAS DRAWN SUPPORT FROM NEWLY INSERTE D EXPLANATION 2 BELOW SECTION 263(1) OF THE ACT INTRODUCED BY FINAN CE ACT, 2015 W.E.F. 01.06.2015 FOR HIS ACTION. THE EXPLANATION 2 INTER ALIA PROVID ES THAT THE ORDER PASSED WITHOUT MAKING INQUIRIES OR VERIFICATI ON 'WHICH SHOULD HAVE BEEN MADE' WILL BE DEEMED TO BE ERRONEOUS INSO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. IT IS O N THIS BASIS, THE ASSESSMENT ORDER PASSED BY THE AO UNDER SECTION 143 (3) OF THE ACT HAS BEEN SET ASIDE WITH A DIRECTION TO THE AO TO PASS A FRESH ASSESSMENT ORDER. IT WILL BE THEREFORE IMPERATIVE TO DWELL UPO N THE IMPACT OF EXPLANATION 2 FOR THE PURPOSES OF SECTION 263 OF THE ACT. 9.1 THE AIM AND OBJECT OF INTRODUCTION OF AFORESAID EX PLANATION BY FINANCE ACT, 2015 WAS EXPLAINED IN CBDT CIRCULAR NO . 19/2015 [F.NO.142/14/2015-TPL], DATED 27-11-2015 WHICH IS R EPRODUCED HEREUNDER: '53. REVISION OF ORDER THAT IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF REVENUE. 53.1 THE PROVISIONS CONTAINED IN SUB-SECTION (1) OF SECTION 263 OF THE INCOME-TAX ACT, BEFORE AMENDMENT BY THE ACT, PROVID ED THAT IF THE PRINCIPAL COMMISSIONER OR COMMISSIONER CONSIDERS TH AT ANY ORDER PASSED BY THE ASSESSING OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, HE MAY, AFTER GIVI NG THE ASSESSEE AN OPPORTUNITY OF BEING HEARD AND AFTER MAKING AN ENQU IRY PASS AN ORDER MODIFYING THE ASSESSMENT MADE BY THE ASSESSING OFFI CER OR CANCELLING THE ASSESSMENT AND DIRECTING FRESH ASSESSMENT. 53.2 THE INTERPRETATION OF EXPRESSION 'ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE' HAS BE EN A CONTENTIOUS ONE. IN ORDER TO PROVIDE CLARITY ON THE ISSUE, SECTION 2 63 OF THE INCOME-TAX ITA NO. 135 /RJT/2017 PAL DIESELS PVT. LTD. VS. PCIT ASST.YEAR 2012-13 - 14 - ACT HAS BEEN AMENDED TO PROVIDE THAT AN ORDER PASSE D BY THE ASSESSING OFFICER SHALL BE DEEMED TO BE ERRONEOUS IN SO FAR A S IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, IF, IN THE OPINION OF THE PRINCIPAL COMMISSIONER OR COMMISSIONER. (A) THE ORDER IS PAS SED WITHOUT MAKING INQUIRIES OR VERIFICATION WHICH, SHOULD HAVE BEEN MADE; (B) THE ORDER IS PASSED ALLOWING ANY RELIEF WITHOUT INQUIRI NG 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, PR EJUDICIAL TO THE ASSESSEE, RENDERED BY THE JURISDICTIONAL HIGH COURT OR SUPREME COURT IN THE CASE OF THE ASSESSEE OR ANY OTHER PERSON. 53.3 APPLICABILITY: THIS AMENDMENT HAS TAKEN EFFECT FROM 1ST DAY OF JUNE, 2015.' 7.6 BESIDES THE ABOVE, WE ALSO FIND THAT THE EXPLAN ATION CANNOT OVER RULE THE LAW INTERPRETED BY VARIOUS COURTS. THE COU RTS AS DISCUSSED ABOVE HAVE HELD THAT THE INITIATION OF PROCEEDINGS U/S 26 3 OF THE ACT ON THE GROUND OF ENQUIRY IS NOT SUSTAINABLE. IN THIS REGAR D, WE FIND SUPPORT AND GUIDANCE FROM THE ORDER OF MUMBAI TRIBUNAL IN THE C ASE OF NARAYAN TATU RANE VS. ITO REPORTED IN 70 TAXMANN.COM 227 WHEREIN IT WAS HELD AS UNDER: 19. THE LAW INTERPRETED BY THE HIGH COURTS MAKES IT CL EAR THAT THE LD PR. CIT, BEFORE HOLDING AN ORDER TO BE ERRONEOUS, S HOULD HAVE CONDUCTED NECESSARY ENQUIRIES OR VERIFICATION IN OR DER TO SHOW THAT THE FINDING GIVEN BY THE ASSESSING OFFICER IS ERRONEOUS , THE LD PR. CIT SHOULD HAVE SHOWN THAT THE VIEW TAKEN BY THE AO IS UNSUSTAINABLE IN LAW. IN THE INSTANT CASE, THE LD PR. CIT HAS FAILED TO DO SO AND HAS SIMPLY EXPRESSED THE VIEW THAT THE ASSESSING OFFICE R SHOULD HAVE CONDUCTED ENQUIRY IN A PARTICULAR MANNER AS DESIRED BY HIM. SUCH A COURSE OF ACTION OF THE LD PR. CIT IS NOT IN ACCORD ANCE WITH THE MANDATE OF THE PROVISIONS OF SEC. 263 OF THE ACT. T HE LD PR. CIT HAS TAKEN SUPPORT OF THE NEWLY INSERTED EXPLANATION 2(A ) TO SEC. 263 OF THE ACT. EVEN THOUGH THERE IS A DOUBT AS TO WHETHER THE SAID EXPLANATION, WHICH WAS INSERTED BY FINANCE ACT 2015 W.E.F. 1.4.2 015, WOULD BE APPLICABLE TO THE YEAR UNDER CONSIDERATION, YET WE ARE OF THE VIEW THAT ITA NO. 135 /RJT/2017 PAL DIESELS PVT. LTD. VS. PCIT ASST.YEAR 2012-13 - 15 - THE SAID EXPLANATION CANNOT BE SAID TO HAVE OVER RI DDEN THE LAW INTERPRETED BY HON'BLE DELHI HIGH COURT, REFERRED A BOVE. IF THAT BE THE CASE, THEN THE LD PR. CIT CAN FIND FAULT WITH EACH AND EVERY ASSESSMENT ORDER, WITHOUT CONDUCTING ANY ENQUIRY OR VERIFICATI ON IN ORDER TO ESTABLISH THAT THE ASSESSMENT ORDER IS NOT SUSTAINA BLE IN LAW AND ORDER FOR REVISION. HE CAN ALSO FORCE THE AO TO CONDUCT T HE ENQUIRIES IN THE MANNER PREFERRED BY LD PR. CIT, THUS PREJUDICING TH E INDEPENDENT APPLICATION OF MIND OF THE AO. DEFINITELY, THAT COU LD NOT BE THE INTENTION OF THE LEGISLATURE IN INSERTING EXPLANATION 2 TO SE C. 263 OF THE ACT, SINCE IT WOULD LEAD TO UNENDING LITIGATIONS AND THERE WOU LD NOT BE ANY POINT OF FINALITY IN THE LEGAL PROCEEDINGS. THE HON'BLE SUPR EME COURT HAS HELD IN THE CASE OF PARASHURAM POTTERY WORKS CO. LTD. V. ITO [1977] 106 ITR 1 THAT THERE MUST BE A POINT OF FINALITY IN ALL LEGA L PROCEEDINGS AND THE STALE ISSUES SHOULD NOT BE REACTIVATED BEYOND A PARTICULAR STAGE AND THE LAPSE OF TIME MUST INDUCE REPOSE IN AND SET AT REST JUDICIAL AND QUASI-JUDICIAL CONTROVERSIES AS IT MUST IN OTHER SP HERES OF HUMAN ACTIVITY. 20. FURTHER CLAUSE (A) OF EXPLANATION STATES THAT AN O RDER SHALL BE DEEMED TO BE ERRONEOUS, IF IT HAS BEEN PASSED WITHO UT MAKING ENQUIRIES OR VERIFICATION, WHICH SHOULD HAVE BEEN MADE. IN OU R CONSIDERED VIEW, THIS PROVISION SHALL APPLY, IF THE ORDER HAS BEEN P ASSED WITHOUT MAKING ENQUIRIES OR VERIFICATION WHICH A REASONABLE AND PR UDENT OFFICER SHALL HAVE CARRIED OUT IN SUCH CASES, WHICH MEANS THAT TH E OPINION FORMED BY LD PR. CIT CANNOT BE TAKEN AS FINAL ONE, WITHOUT SC RUTINISING THE NATURE OF ENQUIRY OR VERIFICATION CARRIED OUT BY THE AO VI S--VIS ITS REASONABLENESS IN THE FACTS AND CIRCUMSTANCES OF TH E CASE. HENCE, IN OUR CONSIDERED VIEW, WHAT IS RELEVANT FOR CLAUSE (A) OF EXPLANATION 2 TO SEC. 263 IS WHETHER THE AO HAS PASSED THE ORDER AFTER CA RRYING OUR ENQUIRIES OR VERIFICATION, WHICH A REASONABLE AND PRUDENT OFF ICER WOULD HAVE CARRIED OUT OR NOT. IT DOES NOT AUTHORISE OR GIVE U NFETTERED POWERS TO THE LD PR. CIT TO REVISE EACH AND EVERY ORDER, IF IN HI S OPINION, THE SAME HAS BEEN PASSED WITHOUT MAKING ENQUIRIES OR VERIFIC ATION WHICH SHOULD HAVE BEEN MADE. IN OUR VIEW, IT IS THE RESPONSIBILI TY OF THE LD PR. CIT TO SHOW THAT THE ENQUIRIES OR VERIFICATION CONDUCTED B Y THE AO WAS NOT IN ACCORDANCE WITH THE ENQURIES OR VERIFICATION THAT W OULD HAVE BEEN CARRIED OUT BY A PRUDENT OFFICER. HENCE, IN OUR VIE W, THE QUESTION AS TO WHETHER THE AMENDMENT BROUGHT IN BY WAY OF EXPLANAT ION 2(A) SHALL HAVE RETROSPECTIVE OR PROSPECTIVE APPLICATION SHALL NOT BE RELEVANT. ITA NO. 135 /RJT/2017 PAL DIESELS PVT. LTD. VS. PCIT ASST.YEAR 2012-13 - 16 - AFTER CONSIDERING IN TOTALITY, WE ARE OF THE VIEW T HAT THE ORDER PASSED U/S 263 IS NOT SUSTAINABLE. HENCE, THE GROUND OF APPEAL RAISED BY THE ASSESSEE IS ALLOWED. 8. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS A LLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 02/11/2018 SD/- SD/- EGKOHJ EGKOHJ EGKOHJ EGKOHJ IZLKN IZLKN IZLKN IZLKN OLHE VGEN OLHE VGEN OLHE VGEN OLHE VGEN U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; YKS[KK LN YKS[KK LN YKS[KK LN YKS[KK LN L; L; L; L; (MAHAVIR PRASAD) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 02/11/2018 PRITI YADAV, SR.PS !'#$ %$' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. & '( ) / CONCERNED CIT 4. ) ( ) / THE CIT(A)- I, RAJKOT. 5. *+, --'( , '(# , !. /DR,ITAT, RAJKOT 6. ,/0 1 / GUARD FILE. & ' / BY ORDER, * - //TRUE COPY// ( / ') * ( DY./ASSTT.REGISTRAR) , !. / ITAT, RAJKOT DATE OF DICTATION 16/10/2018 (DICTATION PAGES 7 ) 1. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 01/11/2018 2. OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S 02/11/2018 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S. 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER