M/s Cepham Dairy Development Limitted, Chandigarh V. Pr.CIT-1, Chandigarh

ITA 26/CHANDI/2021

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 4016 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-09-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2016-2017
• Appeal Filed On: 07-04-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revision of order; Tangible material; Assessment record; TDS; Set aside
• Section: 147; 263; 143(3); 142(1); 143(2); 194A

Judgement Text

आयकर अपील य अ धकरण,च डीगढ़ यायपीठ “ए” , च डीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “A”, CHANDIGARH ी आकाश द प जैन, उपा य एवं ी #व$म &संह यादव, लेखा सद+य BEFORE: SHRI. AAKASH DEEP JAIN, VP & SHRI. VIKRAM SINGH YADAV, AM ITA NO. 26/Chd/ 2021 Assessment Year : 2016-17 M/s Cepham Dairy Development Limited SCO 491, New Motor Market, Manimajra, Chandigarh Pr. CIT, Chandigarh-1 PAN NO: AAACC8571F Appellant Respondent ! " Assessee by : Shri Tej Mohan Singh, Advocate # ! " Revenue by : Shri Vivek Nangia, CIT, DR $ % ! & Date of Hearing : 20/09/2022 '()* ! & Date of Pronouncement : 23 /09/2022 आदेश/Order PER VIKRAM SINGH YADAV, A.M: This is an appeal filed by the Assessee against the order of the Ld. PCIT, Chandigarh -1 pertaining to A.Y. 2016-17 passed u/s 263 dated 19/03/2021. 2. Briefly the facts of the case are that the assessee filed its return of income declaring loss of Rs. 13,13,667/- which was processed under section 143(1)of the Act and thereafter the case was selected for limited scrutiny under CASS and notice under section 143(2) as well as 142(1) alongwith questionnaire were issued and after taking into consideration the information and documents furnished by the assessee, the loss return so filed by the assessee was accepted. 2.1 The assessment records were subsequently called for and perused by the Ld. Pr. CIT and a show cause under section 263 was issued dt. 06/03/2021 and thereafter taking into consideration the submission so filed by the assessee, however not been satisfied with the same, the assessment order passed under 2 section 143(3) was held to be erroneous as well as prejudicial to the interest of the Revenue on account of the fact the AO has failed to make proper inquiry and accordingly the assessment order was set aside to the file of the AO to pass a fresh order after making necessary inquiry / investigation and after giving due opportunity to the assessee. 3. Against the said findings and the order of the Ld. Pr. CIT, the assessee is in appeal before us. 4. During the course of hearing, the Ld. AR submitted that the case of the assessee was selected for limited scrutiny under CASS for verification of two transactions namely whether unsecured loans are genuine and from disclosed sources, and secondly, whether the share application money is genuine and from disclosed sources. It was submitted that during the course of assessment proceedings, the AO carried out necessary verification in respect of both these matters and has accepted the submissions of the assessee regarding both unsecured loans taken from disclosed sources as well as the fact that there is no introduction of share capital during the year under consideration. 4.1 In this regard, our reference was drawn to the notice under section 143(2) dt. 05/07/2017 wherein the AO has enquired about the aforesaid two issues for which the matter was selected for limited scrutiny. Further our reference was drawn to the submission dt. 17/07/2017 filed by the assessee, in response to the said notice wherein the assessee has submitted the ledger account of the parties from whom the loan has been taken for repayment of loan to PSIDC, copy of the bank statement regarding receipt of loan as well as repayment to PSIDC as well as the statement on behalf of the assessee that the assessee company has not received any share application money during the year under consideration. Further our reference was drawn to the notice under section 142(1) dt. 04/06/2018 wherein the AO has again raised these queries and the submission so filed by the assessee dt. 13/06/2018. It was accordingly submitted 3 that the necessary inquiry and investigations has been duly carried out by the AO on both issues for which the matter was selected for limited scrutiny. 4.2 Further, our reference was drawn to the show cause notice issued by the Ld. Pr. CIT wherein the Ld. Pr. CIT has stated the reasons for selection under the limited scrutiny as large increase in unsecured loan during the year as well as large increase in share application money pending for more than one year. It was submitted by the Ld. AR that the reasons for limited scrutiny so mentioned by the Ld. Pr. CIT in the show-cause are therefore at variance to the reasons for which the matter was initially selected for scrutiny as so stated by the AO as apparent from the notices issued during the course of assessment proceedings as well from the impugned order passed by the ld PCIT wherein at page 1 of the impugned order, the Ld. Pr. CIT has herself mentioned the reasons for which the case was initially selected for scrutiny. It was accordingly submitted that where the case was selected for limited scrutiny, the Ld. Pr. CIT while exercising the jurisdiction under section 263 cannot enlarge or modify the scope of assessment proceedings by modifying or expanding the scope of enquiry as not envisaged in the reasons so recorded while selecting the case for limited scrutiny and the reasons have to be read and understood as so recorded at the time of selection of case for limited scrutiny and accordingly, for the said reasons, the order so passed by the Ld. Pr. CIT cannot be sustained and the same deserves to be set aside. In support, reliance was placed on the decision of Coordinate Chandigarh Benches in case of Mr. Narender Kumar Sharma Vs. Pr. CIT (in ITA No.429/Chd/2018 dt. 18/07/2022). 4.3 Further, referring to the show cause issued by the Ld. Pr. CIT, it was submitted by the Ld. AR that in the said show cause, it has been stated that as per the balance sheet as on 31/03/2016, there is share application money amounting to Rs. 1,36,00,000/- and further on scrutiny of the assessment records, it is noticed that the share application money is pending prior to the year ending 4 31/03/2007. Thereafter referring to the provision of the Company Act, it was stated that the said amount was required to be returned back to the applicant within 90 days and since the company neither allotted the share nor returned back the share application money, there is cessation of liability and the provision of Section 41 are attracted which the AO has failed to verify in the instant case. 4.4 With regard to the aforesaid matter, our reference was drawn by the ld AR to the submissions filed before the Ld. Pr. CIT wherein it was submitted that firstly, the share application money was not a trading liability and secondly, no allowance / deduction has been claimed by the assessee company and the liability towards share application money continued to subsist up to 31/03/2018 and thereafter the company started the repaying the share application money. It was submitted that due to unfavorable financial condition of the assessee company, a fact which was duly brought to the notice of the Ld. Pr. CIT, the assessee company could not repay the said share application money earlier. It was submitted that the Ld. CIT(A) failed to take into consideration the submissions so filed by the assessee both on non-applicability of provisions of section 41(1) as well as subsistence of the liability towards the share application money as on the balance sheet date and has returned an incorrect finding that the AO has failed to make proper inquiry regarding the pending share application money received way back in the year 2007 and therefore, the order so passed by the AO was held as erroneous and prejudicial to the interest of the Revenue. 4.5 Further, drawing our reference to the second issue in the show cause notice, wherein it was stated by the Ld. Pr. CIT that since the assessee has made payment towards repayment of loan to PSIDC, the said repayment entails payment of interest of Rs. 1,20,78,503/- on which the TDS has not been deducted which the AO has again failed to verify during the course of 5 assessment proceedings. In this regard, our reference was drawn to the submissions before the Ld. Pr. CIT wherein the assessee has submitted that on account of one time settlement, the element of interest has got merged with the total repayment of Rs. 513.14 lacs and further PSIDC is a Financial Corporation established under the State Act and the provision to Section 194A are therefore not attracted. It was submitted that the Ld. Pr. CIT has failed to take the same into consideration and without disputing the said factual and legal position, has gone ahead and has reiterated his preliminary finding as noted in the show-cause without any material on record that the assessee has paid any interest during the year and which has been claimed as an allowable deduction which the AO has failed to verify. In this regard, our reference was drawn to the financial statements of the assessee company for the year ended 31/03/2016 which are available at Paper Book pages nos. 66 to 82 and it was submitted that on perusal of the profit/loss account, it is crystal clear that no interest has been claimed in the P&L Account and therefore the whole hypothesis and presumption of payment of interest during the year under consideration does not have a leg to stand and therefore the order so passed by the Ld. Pr. CIT deserves to be set aside. 4.6 Further, the assessee has relied on the findings of Hon’ble Delhi High Court in case of PCIT Vs. Delhi Airport Metro (2018) 99 Taxmann 382 as well as decision of Coordinate Chandigarh Benches in case of M/s Aggarwal Promoters Vs. Pr. CIT (in ITA No. 1708/Chd/2017 dt. 16/04/2019). 5. Per contra, the Ld. CIT DR submitted that it is not in dispute that the case of the assessee was selected for limited scrutiny under CASS. In this regard, our reference was drawn to the one of the notices issued by the AO under section 142(1) dt. 04/06/2018 wherein it has been stated that the assessee is in receipt of large share application money pending for more than 1 year as compared to preceding year and the assessee was accordingly asked to furnish details along 6 with documentary evidence with regard to sources thereof. Further our reference was drawn to the submission so filed by the assessee wherein the assessee has merely reiterated its earlier submission that the assessee company has not received any share application money during the year under consideration. Further our reference was drawn to another notice under section 142(1) dt. 11/06/2018 wherein there is a reference to the earlier notice under section 142(1) dated 04/06/2018 in respect of which the information was still awaited and which was required to be furnished by the assessee. It was submitted by the ld CIT DR that against the said notice, again there was no compliance on the part of the assessee and therefore where the Ld. Pr. CIT is stating that the AO has not verified the issue of outstanding share application money for more than one year, there is no infirmity in the findings of the Ld. Pr. CIT and in this regard our reference was drawn to the findings of the Ld. Pr. CIT which are contained at para 4.1 of the impugned order wherein the Ld. Pr. CIT has stated that the AO has simply raised limited query and prima facie accepted the reply so submitted by the assessee that no share application money has been received by the assessee during the year. However the AO has failed to raise the queries regarding the name and address of the person from whom the share application money was received and why the shares were not allotted, what is the mode of the share application money received ledger account of the share application money account and the confirmation that the balance is still outstanding. It was submitted that no correspondence is found in the assessment records relating to any effort made by the AO to call for the details and the evidence. Further referring to the provision of the Company Act, it was submitted that once the share application money is not returned within the stipulated time frame of 60 days, the same partake the character of deposit and where such deposits are outstanding for long period of time, the resultant benefit derived by the assessee would therefore qualify as a cessation of liability, albeit by operation of law and in this regard reference was drawn to the 7 decision of Hon’ble Delhi High Court in case of CIT vs. Chipsoft Technology Pvt. Ltd [TS-5490-HC-2012 (DELHI)]. Further regarding the issue of non deduction of TDS on the interest payment to PSIDC, the Ld. CIT DR relied on the findings of the Ld. Pr. CIT. 6. We have heard the rival contentions and purused the material available on record. It is not in dispute that the assessee has not received any share application money during the year under consideration. It is also not in dispute that the share application money amounting to Rs 1,36,00,000/- has been shown in the balance sheet of the assessee’s company as on 01/04/2015 which continued to be shown as on 31/03/2016. It is also not in dispute that the share application money was received by the assessee company prior to the year 2007 and the same continues to be shown as share application money all these years right up to the end of the financial year relevant to impugned assessment year and no shares have been allotted. In this factual background, the limited issue for consideration is whether the provisions of section 41(1) are applicable as so held by the ld PCIT and where the answer to the same is in affirmative, whether the order so passed by the AO is erroneous and prejudicial to the interest of the Revenue for non-invocation of section 41(1) and carrying out requisite enquiries in this regard. 6.1. On perusal of provisions of section 41(1), it is noted that there are two conditions which need to be cumulatively satisfied in a given case. The first condition is where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee. It thus envisages a scenario where there is either an actual outflow of funds or potential outflow of funds in respect of any loss, expenditure or trading liability which has been incurred by the assessee and secondly, there has been a claim by the assessee or a deduction has been claimed, and allowed by the Assessing officer in respect of such loss, expenditure or trading 8 liability while computing the income under the head “Income from business/profession” in the hands of the assessee in any of the previous assessment years. In the instant case, where the assessee was in receipt of share application money, there is an inflow of funds rather than outflow of funds and in respect of such inflow of funds, the assessee do carry an obligation to issue the shares and where the shares are not issued, an obligation to repay the same to the persons from whom the money has been received at first place. Such an obligation in financial terms can be categorized as a liability till the time the shares are not allotted, however the same cannot be categorized as trading liability as the assessee cannot be held to be dealing in its own shares by any stretch of imagination. Therefore, we find that where the assessee receives share application money, it doesn’t incur any loss, expenditure or trading liability and the question of an allowance or deduction made in the assessment for any year in respect of loss, expenditure or trading liability doesn’t arise at first place. Therefore, the first condition for invocation of provisions of section 41(1) is not satisfied in the instant case. As a result, the second condition which is an offshoot of the first condition where it says that the assessee has obtained any amount in respect of “such” loss, expenditure or some benefit in respect of “such” trading liability by way of remission or cessation thereof, the question of invocation thereof again doesn’t arise as the phrase “such” has to be read in context of first condition where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee. In light of the same, we are of the considered view that there is no legal basis for invocation of provisions of section 41(1) in respect of share application money which continues to remain outstanding pending allotment of shares and continues to remain reflected in the balance sheet of the assessee company as on 31/03/2016 and thus, we set-aside the findings of the ld PCIT in this regard where he says that the order so passed by the AO is 9 erroneous and prejudicial to the interest of the Revenue for non-invocation of section 41(1) and carrying out requisite enquiries in this regard. 7. Now coming to the other issue of non-deduction of TDS on interest payment to PSIDC, on perusal of the balance sheet and the profit/loss of the assessee company for the financial year relevant to impugned assessment year, we find that no amount of interest has been debited in the profit/loss account and it has been stated at the Bar by the ld AR on behalf of the assessee that the assessee has not claimed any interest as an allowable deduction while filing its return of income. Further, in the balance sheet as on 31/03/2016 under Note 5: long term borrowings from PSIDC which are secured by first charge on the fixed assets, etc, there is a opening balance of Rs 1,53,14,000/- and closing balance of NIL showing repayment of the said liability during the year under consideration. Though the assessee has submitted that on account of one time settlement, the element of interest has got merged with the total repayment of Rs. 513.14 lacs, whether the amount so repaid during the year includes interest or not and the exact quantum thereof is a matter of examination and is not prima facie discernable from the financial statements, a fact admitted by the ld PCIT and at the same time, holding that the assessee would have paid interest of Rs 1,20,78,503/- during the year without deduction of tax at source, we find that such a finding is not borne out of records and is merely a presumption drawn by the ld PCIT, again admitted by him as seen from the initial show-cause notice which apparently forms the basis for his subsequent findings in the impugned order. 7.1 Even where it is held that some amount of interest which has accrued and due in the past has been paid during the year, the question that arises for consideration is how the provisions of section 194A are attracted in the instant case where the assessee is contesting that PSIDC is a financial corporation established under the State Act and any payment to such financial corporation 10 is exempt from provisions of section 194A of the Act. The ld PCIT has not addressed the said contention and has gone ahead and held that since there is payment of interest, the provisions of section 194A are applicable. The application of relevant provisions have to be examined in its entirety including the relevant exemption provisions and tested based on facts and circumstances of each case and merely stating that certain provisions are applicable without establishing its applicability to the facts of the given case cannot be a basis to hold that the order passed by the AO is erroneous as he has failed to apply the relevant provisions. Further, even where it is held that interest so paid is subject to provisions of section 194A of the Act, how the order passed by the AO can be held as erroneous where at first place there is no claim of such interest payment made by the assessee while filing its return of income for the impugned assessment year and we find that the ld PCIT has not addressed the same as well. 7.2 In any case, we find that by virtue of repayment of PSIDC loan, there is a reduction rather than increase in secured loan during the year under consideration and one of the matters for which the case of the assessee was selected for limited scrutiny, even going by the phraseology employed by the ld PCIT in the show cause notice where he says that the case was selected for examining large increase in unsecured loans during the year, we find that matter of repayment of secured loan including the interest thereon was not a subject matter of limited scrutiny and the ld PCIT cannot enlarge the scope of assessment proceedings by invoking provisions of section 263 of the Act and in this regard, we refer to the decision of the Coordinate Chandigarh Benches in case of Narender Kumar Sharma (supra) where the relevant findings read as under: “7. It is a consistent stand across various Benches of the Tribunal that where the case of the assessee has been selected for limited scrutiny, the ld. Pr.CIT cannot enlarge the scope of the said assessment. In this regard, we refer to the decision of the Jaipur Benches in case of Mahendra Singh Dhankhar (HUF) v. ACIT, Jhunjhunu 11 (supra), where speaking through one of us, we have elaborately discussed the said matter in light of the CBDT instructions issued in the context of the limited scrutiny and the enlargement of limited scrutiny and have held that the Pr. CIT u/s 263 cannot be permitted to traverse beyond the jurisdiction that was vested with the A.O while framing the assessment as what cannot be done directly cannot be done indirectly. Therefore, where the matter was selected for limited scrutiny, revisional jurisdiction cannot be exercised for broadening the scope of jurisdiction that was originally vested with the A.O while framing the assessment and the relevant findings are as under: “16. We have heard the rival contentions and perused the material available on record. There is no dispute that the case of the assessee was selected for limited scrutiny under CASS on account of mismatch of sales turnover as reported in audit report, ITR, AIR and CIB data. The A.O. issued notice u/s 143(2) of the Act and enquired about the issues under consideration and in response, the assessee submitted copies of the sale deeds executed during the year under consideration and also submitted reconciliation of sales turnover with financials, ITR, AIR and CIB data which is also placed on record before us. Being satisfied, the AO completed the assessment u/s 143(3) without any adverse finding regarding the issues for which the matter was selected for limited scrutiny. 17. There is no dispute that scope of enquiry in case of limited scrutiny is only to the extent of the issues for which case was selected for scrutiny under CASS. The CBDT has issued instructions from time to time in this respect and has specifically instructed the taxing authorities that scope of enquiry should be limited to verification of all the particulars for which limited scrutiny was taken up under CASS. However, in case during the assessment proceeding if the AO is of the view that substantial verification of other issue is also required then the case may be taken up for comprehensive scrutiny with the approval of the Pr.CIT/DIT concerned. It is also instructed that such an approval shall be accorded by the Pr.CIT/DIT in writing after being satisfied about the merits of the issue(s) necessitating wider and detailed scrutiny in the case. In the latest Instruction No. 5/ 2016 dated 14-07-2016, CBDT has again instructed the taxing authorities in para 2 to 4 as under:- “2. In order to ensure that maximum objectivity is maintained in converting a case falling under ‘Limited Scrutiny’ into a ‘Complete Scrutiny’ case, the matter has been further examined and in partial modification to Para 3(d) of the earlier order dated 29.12.2015, Board hereby lays down that while proposing to take up ‘Complete Scrutiny’ in a case which was originally earmarked for ‘Limited Scrutiny’, the Assessing Officer (‘AO’) shall be required to form a reasonable view that there is possibility of under assessment of income if the case is not examined under ‘Complete Scrutiny’. In this regard, the monetary limits and requirement of administrative approval from Pr. CIT/CIT/Pr.DIT/DIT, as prescribed in Para 3(d) of earlier Instruction dated 29.12.2015, shall continue to remain applicable. 3. Further, while forming the reasonable view, the Assessing Officer would ensure that: a. there exists credible material or information available on record for forming such view; 12 b. this reasonable view should not be based on mere suspicion, conjecture or unreliable source; and c. there must be a direct nexus between the available material and formation of such view. 4. It is further clarified that in cases under ‘Limited Scrutiny’, the scrutiny assessment proceedings would initially be confined only to issues under ‘Limited Scrutiny’ and questionnaires, enquiry, investigation etc. would be restricted to such issues. Only upon conversion of case to ‘Complete Scrutiny’ after following the procedure outlined above, the AO may examine the additional issues besides the issue(s) involved in ‘Limited Scrutiny’. The AO shall also expeditiously concerned regarding conducting ‘Complete Scrutiny’ in such cases.” 18. Thus the AO is duty bound to follow the instructions in case limited scrutiny assessment proceeding are proposed to be converted into complete scrutiny and without following said procedure and necessary approval of the competent authority conducting an enquiry on the issue which is outside the limited scrutiny would be beyond the jurisdiction of the AO. As a necessary corollary, the Pr. CIT u/s 263 cannot be permitted to traverse beyond the jurisdiction that was vested with the A.O while framing the assessment as what cannot be done directly cannot be done indirectly. Therefore, where the matter was selected for limited scrutiny, revisional jurisdiction cannot be exercised for broadening the scope of jurisdiction that was originally vested with the A.O while framing the assessment as also held consistently by various Benches of the Tribunal as referred supra. 19. A contention which has been raised by the ld CIT/DR is that where there is a potential escapement of income, the AO is required to convert the limited scrutiny case into a comprehensive scrutiny case after taking the prior approval of ld. PCIT and if the AO does not get the limited scrutiny case converted to comprehensive scrutiny case even though there are material on record, the assessment order becomes erroneous as it is prejudicial to the interest of Revenue and provisions of section 263 of the Act are applicable. For the purposes of converting limited scrutiny to complete scrutiny, what is relevant is that there must be some credible material or information on face of the record and basis review thereof during the assessment proceedings, the AO is required to form a reasonable view that there is possibility of under assessment of income if the case is not examined under ‘Complete Scrutiny’ and after seeking approval from the competent authority, the case can be converted into complete scrutiny and that too, during the currency of assessment proceedings. Therefore, what is essential is the existence of credible material and basis examination thereof and formation of belief by the AO at first place during the course of assessment proceedings that there is a case of under assessment or escapement of income which is similar to provisions of section 147 of the Act. In the instant case, we find that the assessee, being in business of real estate development has followed percentage completion method of accounting and has accounted for actual costs incurred though after the end of the financial year as the project was substantially completed and revenues have been recognized. Therefore, we find that there is no infirmity in assessee following the accepted method of accounting and basis thereof, determination of income which is offered to tax and thus, we find that there was no tangible material or information available during the course of assessment proceedings 13 basis which reasonable belief can be formed of escapement or under assessment of income and which could have led the AO to seek permission to convert limited scrutiny into complete scrutiny. Therefore, the AO not seeking permission to convert limited scrutiny to complete scrutiny is not borne out of facts on record. Even for sake of arguments, if we were to assume that there is material on record pointing towards potential escapement of income and which has escaped the attention of the AO during limited scrutiny assessment proceedings and no action has been taken by him, it is not that the Revenue doesn’t have any recourse and correct course of action would have been for AO to record his satisfaction though after completion of current assessment proceedings and invoke jurisdiction u/s 147 of the Act subject of course to satisfaction of conditions specified therein rather than the ld. PCIT invoking jurisdiction u/s 263 of the Act. As we have discussed earlier, the revisional jurisdiction u/s 263 cannot be exercised for broadening the scope of jurisdiction that was originally vested with the A.O for limited scrutiny while framing the assessment and enlarging his scope of limited enquiry.” 8. In light of aforesaid discussions and in the entirety of facts and circumstances of the case, the impugned order passed by the ld. Pr.CIT u/s 263 cannot be sustained in the eyes of law and the same is hereby set aside and the order passed by the AO is sustained. 9. In the result, the appeal filed by the assessee is allowed. Order pronounced on 23/09/2022 Sd/- Sd/- आकाश द प जैन #व$म &संह यादव (AAKASH DEEP JAIN) (VIKRAM SINGH YADAV) उपा य / VICE PRESIDENT लेखा सद+य/ ACCOUNTANT MEMBER AG Date: 23/09/2022 ( + ! , - . - Copy of the order forwarded to : 1. The Appellant 2. The Respondent 3. $ / CIT 4. $ / 0 1 The CIT(A) 5. - 2 ग 4 5 & 4 5 678 ग9 DR, ITAT, CHANDIGARH 6. ग 8 : % Guard File ( + $ By order, ; # Assistant Registrar