M/s Preet Credit Pvt. Ltd., Ludhiana V. CIT-III, Ludhiana

ITA 585/CHANDI/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5377 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 7 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-01-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 20-01-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 24-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JYOTI KUMARI
• Keywords: Proportionate interest; Assessment record
• Section: 143(3); 6; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A, CHANDIGARH BEFORE SHRI T.R.SOOD, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO.585 /CHD/2012 (ASSESSMENT YEAR : 2007-08) M/S PREET CREDIT PVT. LTD., VS. THE C.I.T.-III ., SCF-1, 1 ST FLOOR, LUDHIANA. DUGRI ROAD, URBAN ESTATE, LUDHIANA. PAN: AAACP9829P (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI TEJ MOHAN SINGH RESPONDENT BY : SMT.JYOTI KUMARI, DR DATE OF HEARING : 20.01.2014 DATE OF PRONOUNCEMENT : 23.01.2014 O R D E R PER SUSHMA CHOWLA, J.M. : THE APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORD ER OF THE COMMISSIONER OF INCOME-TAX-III, LUDHIANA DATED 09.0 3.2012 RELATING TO ASSESSMENT YEAR 2007-08 AGAINST THE ORDER PASSED U/ S 263 OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THAT THE LD. COMMISSIONER OF INCOME TAX HAS WRO NGLY ASSUMED JURISDICTION UNDER SECTION 263 OF THE ACT TO SET-ASIDE THE ASSES SMENT ORDER DATED 15.02.2009 PASSED BY THE ASSESSING OFFICER IN AS MUCH AS THE ORDER IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF REVENUE AND AS SUCH THE ASSUMPTION OF JURISDICTION UNDER SECTION 263 OF THE ACT IS BEYOND HIS COMPETEN CE. 2. THAT THE ASSESSMENT ORDER HAVING BEEN PASSED BY THE ASSESSING OFFICER AFTER DUE APPLICATION OF MIND AND TAKING INTO CONSIDERATION THE VARIOUS REPLIES, MATERIAL ON RECORD AND BOOKS OF ACCOUNT, THE ACTION RESORTED TO BY THE COMMISSIONER OF INCOME TAX IS UNWARRANTED AND UNCALLED FOR. 3. THAT THE REASONS MENTIONED IN THE NOTICE ISSUED BY THE COMMISSIONER OF INCOME TAX FOR INITIATION OF PROCEEDINGS UNDER SECTION 263 ARE BASED ON SUSPICIO N, 2 CONJECTURES AND SURMISES WITH NO MATERIAL WHATSOEVER ON RECORD TO SUBSTANTIATE THE ACTION SO INITIATED WHICH, IN ANY CASE, HAS DULY BEEN COUNTERED DURING THE COURSE OF PROCEEDINGS BEFORE HIM CLEARLY ESTABLISHING THAT THE ORDER SOUGHT TO BE REVISED IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTERES T OF REVENUE. 4. THAT THE LD. COMMISSIONER OF INCOME TAX HAS FAILED TO CONSIDER T HE EXPLANATION RENDERED IN RESPECT OF YEARS OLD ADVANCES MADE ESPE CIALLY IN VIEW OF THE DECISION OF THE APEX COURT REPORTED IN 288 ITR 1 WHICH IS ILLEGAL, ARBITRARY AND UNJUSTIFIED. 5. THAT THE ORDER OF COMMISSIONER OF INCOME TAX IS ERRONEOUS, ARBITRA RY, OPPOSED TO THE FACTS OF THE CASE AND IS UNSUSTAINABLE IN LAW. 3. THE PRESENT APPEAL IS FILED BY THE ASSESSEE AGAI NST INVOKING OF JURISDICTION UNDER SECTION 263 OF THE ACT BY THE CO MMISSIONER OF INCOME TAX. THE ORIGINAL ASSESSMENT IN THE CASE WAS COMPL ETED VIDE ORDER PASSED UNDER SECTION 143(3) OF THE ACT DATED 15.12. 2009. THE COMMISSIONER OF INCOME TAX ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE UNDER SECTION 263 OF THE ACT AFTER NOTING THAT THOU GH THE ASSESSEE HAD RAISED UNSECURED LOANS FROM VARIOUS PARTIES AND INT EREST AMOUNTING TO RS.33,92,371/- HAD BEEN PAID DURING THE YEAR UNDER CONSIDERATION BUT THE ASSESSEE HAD GIVEN AN INTEREST FREE LOAN OF RS.65 L ACS TO M/S PICCADILLY SUGAR & ALLIED INDUSTRIES (P) LIMITED, LUDHIANA ON WHICH PROPORTIONATE INTEREST HAD TO BE DISALLOWED. THE EXPLANATION FIL ED BEFORE THE COMMISSIONER OF INCOME TAX IS INCORPORATED UNDER PA RAS 10 AND 11 AT PAGES 4 AND 5 OF THE ORDER PASSED UNDER SECTION 263 OF THE ACT. THE EXPLANATION OF THE ASSESSEE WAS THAT DURING THE COU RSE OF ASSESSMENT PROCEEDINGS THE MATTER WAS DISCUSSED AT LENGTH WITH THE ASSESSING OFFICER AS NON-CHARGING OF INTEREST ON THE SAID LOA N WAS MENTIONED IN THE NOTES OF ACCOUNTS BELOW THE PROFIT & LOSS ACCOUNT F ILED ALONGWITH THE AUDIT REPORT. THE ASSESSEE CLAIMED THAT IT HAD FIL ED REPLY TO THE QUERY RAISED IN WHICH IT WAS EXPLAINED THAT THE SAID ADVA NCE WAS NOT MADE DURING THE YEAR AND THE AMOUNT HAD BEEN RECEIVED BA CK IN THE SUBSEQUENT ASSESSMENT YEAR. IT WAS ALSO EXPLAINED THAT THE AS SESSEE HAD SUFFICIENT FUNDS IN THE RELEVANT YEAR FOR MAKING THE SAID ADVA NCE AND NO INTEREST WAS CHARGED. 3 4. THE SECOND PLEA OF THE LEARNED A.R. FOR THE ASSE SSEE BEFORE THE COMMISSIONER OF INCOME TAX WAS THAT THE ASSESSING O FFICER AFTER DUE APPLICATION OF MINE HAD CONSIDERED THE REPLY AND FR AMED ASSESSMENT AND THE SAME WAS NOT PREJUDICIAL TO THE INTEREST OF THE REVENUE. ANOTHER EXPLANATION WAS FILED BEFORE THE ASSESSING OFFICER THAT THE SAID ADVANCE OF RS.65 LACS WAS MADE ON 1.2.2001 OUT OF OWN FUNDS OF THE ASSESSEE AND IN CONSIDERATION THEREOF, THE LONEE COMPANY WHILE S ETTING UP DISTILLERY UNIT AT PATRAN HAD TAKEN ON LEASE THE PLANT & MACHI NERY AND GIVEN LEASE MONEY OF RS.60 LACS PER ANNUM BEGINNING FROM 2004. THE COMMISSIONER OF INCOME TAX FURTHER PLACED RELIANCE ON THE RATIO LAID DOWN BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF MUNJAL SALES CORPORATION IN ITA NO.667 OF 2005, DATED 16.10.2006 , COPY OF WHICH IS ANNEXED AS ANNEXURE-2 TO THE ORDER PASSED UNDER SEC TION 263 OF THE ACT. THE LEARNED A.R. FOR THE ASSESSEE IN REPLY POINTED OUT THAT THE SAID JUDGMENT HAD BEEN DILUTED BY THE SUBSEQUENT DECISIO N OF THE HON'BLE APEX COURT IN THE CASE OF S.A. BUILDERS PVT. LTD., REPORTED IN 288 ITR 1 (SC). THE COMMISSIONER OF INCOME TAX REJECTING THE PLEAS OF THE ASSESSEE HELD THAT THE ORDER PASSED BY THE ASSESSIN G OFFICER WAS BOTH ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE AND THEREAFTER THE INCOME WAS ENHANCED TO THE EXTENT OF INTEREST, WHICH WAS REQUIRED TO BE DISALLOWED ON THE ADVANCES MADE FOR NON-BUSINESS PURPOSES ON WHICH THE ASSESSEE BORROWED FUNDS, EVEN THOUGH IN THE EAR LIER ASSESSMENT YEAR. 5. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF T HE COMMISSIONER OF INCOME TAX. THE LEARNED A.R. FOR THE ASSESSEE POIN TED OUT THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE SAID ISSU E OF DISALLOWANCE OF INTEREST RELATABLE TO THE INTEREST FREE ADVANCE MAD E BY THE ASSESSEE WAS RAISED BY THE ASSESSING OFFICER AND IT WAS POINTED OUT TO THE ASSESSING OFFICER THAT THE SAID ADVANCE WAS MADE IN THE YEAR 2001 AND NOT DURING 4 THE YEAR UNDER CONSIDERATION. AS PER THE LEARNED A .R. FOR THE ASSESSEE THE ASSESSING OFFICER HAD MADE ENQUIRIES, AGAINST W HICH THE ASSESSEE HAD FILED REPLIES, WHICH ARE PLACED AT PAGES 23 TO 25 OF THE PAPER BOOK. OUR ATTENTION WAS FURTHER DRAWN TO THE SHOW CAUSE N OTICE ISSUED BY THE COMMISSIONER OF INCOME TAX AND IT WAS POINTED OUT T HAT THERE WAS NO MERIT IN THE SAID SHOW CAUSE NOTICE ISSUED BY THE C OMMISSIONER OF INCOME TAX. THE LEARNED A.R. FOR THE ASSESSEE FURT HER POINTED OUT THAT THE RATIO LAID DOWN BY THE HON'BLE PUNJAB & HARYANA HIGH COURT MUNJAL SALES CORPORATION (SUPRA) IS NOT APPLICABLE AS THE ISSUE HAS BEEN REVERSED BY THE HON'BLE SUPREME COURT IN THE CASE O F MUNJAL SALES CORPORATION, REPORTED IN 298 ITR 298 (SC). 6. THE LEARNED D.R. FOR THE REVENUE PLACED RELIANCE ON THE ORDER OF THE COMMISSIONER OF INCOME TAX AND POINTED OUT THAT THE ORDER PASSED BY THE ASSESSING OFFICER WAS BOTH ERRONEOUS AND PRE JUDICIAL TO THE INTEREST OF THE REVENUE AND HENCE WAS REVERSED BY T HE COMMISSIONER OF INCOME TAX IN EXERCISE OF POWER UNDER SECTION 263 O F THE ACT. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE COMMISSIONER OF INCOME TAX UNDER THE PROVISIONS OF SECTION 263 OF THE ACT IS EMPOWERED TO INVOKE JURISDICTION WHERE THE O RDER PASSED BY THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO T HE INTEREST OF THE REVENUE. THE TWIN CONDITIONS OF THE ORDER BEING E RRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE ARE TO B E SATISFIED IN ORDER TO ENABLE THE COMMISSIONER OF INCOME TAX TO INVOKE THE JURISDICTION UNDER SECTION 263 OF THE ACT. WHERE THE ORDER PASSED BY THE ASSESSING OFFICER IS ERRONEOUS AND NOT PREJUDICIAL TO THE INTEREST OF THE REVENUE OR VICE- VERSA, THE COMMISSIONER OF INCOME TAX WAS NOT EMPOW ERED TO INVOKE THE JURISDICTION UNDER SECTION 263 OF THE ACT AS THE TW IN CONDITIONS HAVE TO BE SATISFIED SIMULTANEOUSLY. 5 8. NOW COMING TO THE FACTS OF THE PRESENT CASE, THE ASSESSEE HAD FILED ITS RETURN OF INCOME ON 27.10.2006 DECLARING NIL IN COME. THE ASSESSEE RECEIVED LEASE RENTAL OF RS.60 LACS DURING THE YEAR UNDER CONSIDERATION. THE CASE OF THE ASSESSEE WAS PICKED UP FOR SCRUTINY AND AT THE START OF THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER I SSUED SHOW CAUSE NOTICE DATED 4.11.2009 WHICH IS ANNEXED AS ANNEXURE -I TO THE ORDER PASSED UNDER SECTION 263 OF THE ACT. AS PER QUERY NOS.6 AND 7 THE ASSESSEE WAS ASKED TO FURNISH THE FOLLOWING DETAILS : 6. FURNISH THE NAME AND ADDRESS OF ALL UNSECURED LO ANS, LOANS AND ADVANCES AND ADVANCE TO SUPPLIERS SHOWN IN THE BALANCE SHEET. 7. COMPLETE DETAILS WITH NAME AND ADDRESS OF THE PERSONS/PARTIES TO WHOM INTEREST PAID/FROM WHOM INT EREST RECEIVED, AND RATE OF INTEREST. 9. THE ASSESSEE IN REPLY FILED A LETTER DATED 18.11 .2009 WHICH IS PLACED AT PAGE 23 OF THE PAPER BOOK AND REQUISITE D ETAILS WERE FILED. THEREAFTER ANOTHER LETTER WAS FILED, WHICH IS DATED 15.12.2009 IN WHICH IT WAS STATED THAT THE LOAN OF RS.65 LACS WAS ADVAN CED TO ANOTHER COMPANY AND IT IS MENTIONED IN THE NOTES OF ACCOUNT S THAT NO INTEREST HAD BEEN RECEIVED ON THE SAME. THE SAID ADVANCE WAS MA DE IN THE YEAR 2000- 01 AND SINCE THEN IT IS GOING ON AND WHICH HAD BEEN RECEIVED BACK IN THE SUBSEQUENT ASSESSMENT YEAR. THE COPY OF THE REPLY IS PLACED AT PAGES 24 AND 25 OF THE PAPER BOOK. THE ASSESSEE HAD ALSO E NCLOSED COPY OF AUDIT REPORT ALONGWITH AUDITED PROFIT & LOSS ACCOUN T AND BALANCE SHEET AS ON 31.3.2007 AT PAGES 1 TO 22 OF THE PAPER BOOK. IN THE NOTES OF ACCOUNTS AT SR.NO.5 IT WAS REPORTED THAT THE INT EREST FREE LOAN HAS BEEN GIVEN TO ANOTHER COMPANY AMOUNTING TO RS.65 LACS (R S.65 LACS P.Y.). THE BORROWER HAD EXTENDED MORTGAGE OF THE SAID LAND AS SECURITY VIDE DEED DATED 1.8.2005. THE ASSESSING OFFICER IN VIEW THEREOF HAD ACCEPTED THE PLEA OF THE ASSESSEE AND HAD NOT MADE ANY DISALLOWANCE 6 UNDER SECTION 36(1)(III) OF THE ACT WHILE PASSING T HE ASSESSMENT ORDER DATED 15.12.2009. THE ASSESSING OFFICER IN THE PRE SENT CASE THUS AFTER CONSIDERING THE FACTS OF THE CASE HAD ADOPTED A VIE W UNDER WHICH THE SAID PLEA OF THE ASSESSEE OF HAVING NOT CHARGED ANY INTEREST ON THE LOAN ADVANCED IN THE EARLIER YEAR WAS ACCEPTED AND NO DI SALLOWANCE WAS MADE UNDER SECTION 36(1)(III) OF THE ACT. 10. THE COMMISSIONER OF INCOME TAX IN EXERCISE OF T HE POWER UNDER SECTION 263 OF THE ACT ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE IN THIS REGARD AND IT WAS MENTIONED IN THE SHOW CAUSE NOTIC E AS UNDER: SCRUTINY OF THE ASSESSMENT RECORD REVEALS THAT THE COMPANY RAISED UNSECURED LOAN FROM VARIOUS PARTIES AND INTEREST AM OUNTING TO RS.33,92,371/- HAS BEEN PAID DURING THE YEAR UNDER CONSIDERATION. ON THE OTHER HAND THE COMPANY HAS GIVEN AN INTEREST FREE LOAN OF RS.65,00,000/- TO ONE CONCERN NAMELY M/S PICCADILLY SUGAR AND ALLIED INDUSTRIES ( P) LIMITED, LUDHIANA. NO INTEREST HAS BEEN CHARGED FROM M/S PICCADILLY SUGAR AND ALLIED INDUSTRIES (P) LIMITED, LUDHIANA ON THE SAID LOAN. PROPORTIONAL, I NTEREST SHOULD HAVE BEEN DISALLOWED. 11. THE ISSUE ARISING IN THE PRESENT APPEAL IS WHET HER THE COMMISSIONER OF INCOME TAX HAD CORRECTLY INVOKED TH E PROVISIONS OF SECTION 263 OF THE ACT TO HOLD THAT THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER WAS BOTH ERRONEOUS AND PREJUDICIA L TO THE INTEREST OF THE REVENUE. IN RESPECT OF THE FIRST ASPECT, THE O RDER OF THE ASSESSING OFFICER COULD NOT BE SAID TO BE ERRONEOUS AS NECESS ARY QUERIES WERE RAISED BY THE ASSESSING OFFICER IN THIS REGARD AND THE SAME WERE REPLIED TO BY THE ASSESSEE AND AFTER DELIBERATION THE ISSUE WAS DECIDED BY THE ASSESSING OFFICER. MERELY BECAUSE THE ORDER OF THE ASSESSING OFFICER IS CRYPTIC, DOES NOT ESTABLISH THE FACT THAT NO ENQUIR IES WERE MADE IN THE PRESENT CASE. REFERENCE WAS MADE TO THE QUESTIONNA IRE ISSUED BY THE ASSESSING OFFICER AND REPLIES FILED BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS. FURTHER THE SAID INTEREST FREE LOAN OF RS.65 LACS WAS ADVANCED TO M/S PICCADILLY SUGAR & ALLIED INDUS TRIES (P) LIMITED, 7 LUDHIANA ON 1.2.2001 AND THE CLAIM OF THE ASSESSEE WAS THAT THE SAID ADVANCE WAS MADE OUT OF ITS OWN FUNDS. THE YEAR U NDER CONSIDERATION IS FINANCIAL YEAR 2006-07 RELEVANT TO ASSESSMENT YEAR 2007-08 AND UNDER NO PROVISIONS OF THE ACT, THE QUERY IN RESPECT OF INTE REST RELATABLE TO SUCH ADVANCES MADE IN THE PAST YEARS COULD BE RAISED SPE CIALLY IN THE CIRCUMSTANCES WHERE NO INTEREST DISALLOWANCE WAS MA DE IN THE HANDS OF THE ASSESSEE IN ANY OF THE PAST YEARS. IN SUCH CIR CUMSTANCES, THE ORDER PASSED BY THE ASSESSING OFFICER IN ACCEPTING THE PL EA OF THE ASSESSEE THAT NO PART OF THE INTEREST EXPENDITURE WAS RELATA BLE TO SUCH OLD ADVANCES MADE IN PRECEDING YEARS, COULD NOT BE SAID TO BE PREJUDICIAL TO THE INTEREST OF THE REVENUE. IN THE CIRCUMSTANCES, WHERE THE ORDER OF THE ASSESSING OFFICER IS NEITHER ERRONEOUS NOR PREJUDIC IAL TO THE INTEREST OF THE REVENUE, THE EXERCISE OF JURISDICTION BY THE CO MMISSIONER OF INCOME TAX UNDER SECTION 263 OF THE ACT IS INVALID AND THE SAME IS DIRECTED TO BE QUASHED. THE ORDER PASSED BY THE COMMISSIONER O F INCOME TAX UNDER SECTION 263 OF THE ACT IS THUS CANCELLED. THE GROU NDS OF APPEAL RAISED BY THE ASSESSEE ARE ALLOWED. 12 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 23 RD DAY OF JANUARY, 2014. SD/- SD/- (T.R.SOOD) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED 23 RD JANUARY, 2014 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH 8