TaxTMI 
TaxTMI 
2018 (1) TMI 74
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.... AO dated 01.11.2013 accepting the returned loss filed by the assessee was erroneous and prejudicial to the interests of the revenue. 4. The Pr. CIT on perusal of the records noticed that in Note 19 to the financial accounts, there was a reference to the assessee having entered into an agreement with M/s. Easy Access Financial Services, a NBFC for "factoring" of debts and pursuant to the said agreement, some of the receivables of the company were sold at a discount with a further obligation on assessee's part to collect the proceeds of receivables sold and remit the same to NBFC. The discount portion was termed as 'factoring charges' amounting to Rs. 21,43,516. The same was debited to the P&L account and claimed as a deduction while computing income of the assessee from business. The Pr.CIT was of the view that the factoring charges was in the nature of interest within the meaning of section 2(28A) of the Act and therefore the assessee ought to have deducted tax at source u/s. 194A of the Act on the factoring charges. Since the assessee failed to deduct tax at source, the factoring charges which were claimed as deduction while computing income from business, the AO ought to have....
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.... the Act are applicable to factoring charges. In this regard, the Pr. CIT also held that the note filed by the assessee dated 16.07.2014 was after the conclusion of the assessment and will be of no effect. The CIT also held that the definition of "interest" u/s. 2(28A) of the Act was brought into statute to take within its fold even factoring charges. The relevant observations of the Pr. CIT are extracted hereunder:- "4.1.1 The issue in dispute is whether the expenditure incurred on factoring charges can be covered under the provisions of Section 2(28A) of the Income Tax Act. "Factoring" involves the assignment of a debt to a Financier by the client of the debt, the giving of such assignment to the debtor and collection of the debt by the Financier (Factor). The client transfers its trade receivables/invoices to a Factor in order to obtain cash on an immediate basis. The Factor is essentially a funding source that agrees to pay to a client the value of the invoice less its commission and fees. The legal title to these receivables mayor may not be transferred to the Factor. In factoring arrangements, the client may transfer its invoices to a Factor with an understanding tha....
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....ter alia, banking companies to which the Banking Regulation Act, 1949 applies. Non Banking Financial Companies (NFBCs) which are registered separately with the Reserve Bank of India and not regulated by the provisions of the Banking Regulation Act are, however, required to deduct tax at source at the time of making interest payment and failure to do so attracts disallowance u/s 40(a)(ia) of the Act. It is not in dispute that M/s. Easy Access Financial Services is a Non Banking Financial Company (NBFC) and not a Banking Company governed by the Banking Regulation Act and hence not exempt from the application of the said section." 8. The Pr. CIT after making the above observations held that since the AO has not examined this claim while concluding the assessment, his order was erroneous and prejudicial to the interests of the revenue. On the question of the argument regarding insertion of 2nd proviso to section 40(a)(ia) of the Act w.e.f. 01.04.2013 being retrospective, the Pr. CIT referred to two decisions; one of the Hon'ble Kerala High Court and the other of the Hon'ble Punjab & Haryana High Court taking a view that second proviso to section 40(a)(ia) of the Act was only prospec....
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....enquiries which he ought to have made in the given circumstances of a case is well settled. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income-tax Officer should have made further inquiries before accepting the statements made by the assessee in his return. The Income-tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word "erroneous" in section 263 includes the failure to make such an enquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct. We derive support for the proposition as stated above from the decision of the Hon'ble Delhi High Court in the case o....