TaxTMI 
TaxTMI 
2021 (11) TMI 494
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....ed Pro Commissioner of Income Tax is not justified in directing the assessing officer to reexamine the claim of the appellant towards loss of Rs. 2,27,39,54,719 on assigned portfolio in general and in particular the loss of Rs. 56,03,43,323 towards excess cash collateral over unpaid value of assigned portfolio. 4. The learned Pro Commissioner of Income Tax ought to have appreciated that the issue of loss on assigned portfolio was duly considered and allowed by the assessing officer and merely because the learned Pro Commissioner of Income Tax entertains a different view the assessment cannot be termed as erroneous. 5. Any other ground that may be urged at the time of appeal hearing." 2. We notice at the outset that assessee's instant appeals suffer from 111days delay in filing before the ITAT. To this effect, the assessee filed an a petition for condonation of delay along with an affidavit wherein it was inter-alia, affirmed that due to the resignation of his employee who is looking after income tax matters, caused the impugned delay in filing of the instant appeals. Case law Collector Land Acquisition Vs. Mst. Katiji & Ors, 1987 AIR 1353 (SC) and University of....
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....traditional banking facilities. The assessee company then gradually builds up a basket, (portfolio) of such borrowers with varying, loan amounts and repayment periods. Such portfolios, built over different time periods, is then offered to Banks/Fls for sale. The assessee company becomes the assignor and the portfolio purchasing Banks become/s the assignee/s. The assignee purchases this portfolio after, discounting the principal cum future interest value of this portfolio. 7.'3. The assessee company made provisions towards portfolio loans. The relevant para as per Page-31 of the Annual Report is as under:- "In earlier years, the company had voluntarily adopted a provisioning. methodology which was higher than the minimum prescribed norms by the Reserve Bank of ;India, in earlier years. Refer note(f) of schedule 19 for provisioning methodology followed in the earlier years. The Government of Andhra', Pradesh enacted "The Andhra Pradesh Micro Finance Institution (Regulation of Money Lending) Act, 2011 (Act 1 of 2011)" on December 31, 2010 by way of notification in the official gazette on 'January. 1, 2011 in lieu of "The Andhra Pradesh Micro Fina....
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....ned portfolio.' Moreover it was mentioned that excess cash collateral for Rs. 56,03,43,323/- was invoked by bank over' unpaid value of assigned portfolio. After careful consideration of the facts of the' case, relevant enquiries into the claim in general and amount of Rs. 56,03,43,323/- in particular which was claimed as excess cash collateral over unpaid value of assigned portfolio were not conducted. Hence it can be safely concluded that the order is erroneous and prejudicial to the interest of. revenue warranting invoking of provisions of section 263. 7.5 The assessment so made by the Assessing Officer is in a very casual and mechanical manner deserves to be set aside on the issues mentioned above. Assessment made without proper enquiry is held as erroneous and prejudicial to the interest of the revenue and the Commissioner of Income Tax is empowered to revise such assessment by invoking the provisions of section 263 there are various judicial decisions in support of such proposition which are as under: i. Rampyari Devi Sarogi Vs. CIT (SC) 67 ITR 114 ii. Malabar Industrial Go. Ltd. Vs. CIT(SC) 243 ITR 83 iii. Swarup Vegetable Produ....
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....r the submissions are correct or not. The Hon'ble ITAI observed as under: "Coming to the applicability of section 263, there is no possibility of taking different views in this matter. The finding of the Ld. CIT is that the assessing officer simply ignored the issue involved despite there being a specific query raised by his predecessor. We find that the assessing officer has not examined the nature of the income. He was not sure whether the submissions of the assessee were correct as such submissions only appeared to be correct to him. In view thereof, the order is erroneous as it, is not based upon appreciation of facts and law in the matter and, in fact, is contrary to the decision discussed above. It has also caused prejudice to the interest of the revenue as there has been loss of revenue. The ld.CIT has merely restored the matter to the assessing officer to decide the matter afresh after hearing the assessee. We do not find any fault with his finding. Therefore, it is held that the Id. CIT was right in holding the order to be erroneous and prejudicial to the interest of revenue on this ground. 9. It is the bounden duty of the Assessing Officer to. collec....
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....lio' were submitted to the assessing officer. Even the entries in the order sheet (copy placed on record at page no. 39 of the compilation filed by the learned CIT-DR) reveal that the assessing officer enquired into the matter. As per these entries, a notice u/s 142(1) was issued on 4.2.2014 (copy of the notice at page no.12 of the above compilation). The very first point in this notice is 'An amount of Rs. 254,19,10,185 is debited to P&L account under the head "Provision and write off'* Please state how this expenditure is allowable as per the provisions of Income Tax Act, 1961. On 13.2.2014 there is an entry in the order sheet confirming that Shri Gayas Moosavi, Manager (Taxation), Prashant Agarwal, CA, AR of the company appeared & filed the details called for by this letter dated 04/02/14'. Further, the assessing officer examined the information furnished and sought further details in respect of 'loss on assigned portfolio. The entry reads as detailed note on assigned portfolio- the valuation, board resolution, if any - & also accounting treatment of the same in your books as well as for income tax purpose'. The next entry on 24.02.2014 confirms the fact ....
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....y the banks from the Fixed deposits and bank balances on account of default on the part of the customers in repaying the loan installments and further on account of the fact that the appellant company also failed to fulfill its obligation to arrange payment of this amount. The appellant filed a copy of the ledger account to substantiate the contention that the amounts were actually debited to the bank account. Thus, the appellant submitted that the amount claimed is neither contingent nor provisional. However, the Pr.CIT-3 in his final order u/s 263 completely deviated from the show-cause notice and held that the assessing officer did not conduct relevant enquiries into the claim in general and amount of Rs. 56,03,43,323 in particular which was claimed as excess cash collateral over unpaid value of assigned portfolio. The appellant submits that the Pr. CIT erred in deviating from the show cause notice and raising the issue of 'inadequate enquiry' in the final order uls 263 of the Act. The appellant places reliance in this regard in the case of Pr.CIT Vs. Kesoram Industries Ltd. 181 DTR 236 (Cal) rendered on identical facts. 10. The learned CIT(DR) filed written sub....
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.... loss deficiency guarantee'. This was clearly explained to the assessing officer in the last para of the explanation at page no.39 of the paper book. The last two lines of this para read as it is these FLDGs that have been written off as 'Loss on Assigned Portfolio for Rs. 227.39,54,719 in the financials'. Therefore, it is incorrect to say that the assessing officer collected the relevant information in respect of FLDG but not the excess cash collateral. c) The learned CIT(DR) sought to support the order u/s 263 by taking reference to clause (a) and (b) of Explanation 2 to 5.263 of the Act. The appellant submits that this Explanation has no application to the case of the appellant. In some of the cases cited by the appellant hereinabove, the scope of Explanation 2 to 5.263 was clearly explained. d) Lastly, the learned CIT(DR) submitted that the appellant did not file any evidence before the assessing officer regarding claim of Rs. 56.03 crores towards 'Excess cash collaterals'. The appellant has already explained above that the assessing officer clearly stated in the order sheet as well as the assessment order that the appellant furnished all t....
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....siness income and same is offered for taxation. Please refer to example: Principle/Book value of portfolio (A) : Rs. 100 Interest income thereon (B) : Rs. 15 Total receivable over period of loan (A+B) : Rs. 115 Portfolio assigned for (D) : Rs. 107 Profit recorded in books-and offered for taxation (D-A) : Rs. 7 Since the amount received on portfolio assignment is always higher than the book value, the Company always records a profit on such assignment and has been offering the same for taxation. Loss on assigned portfolio during FY 2010-11 The Andhra Pradesh Microfinance institutions (Regulation of Moneylending) Act, 2010 severely and adversely impacted the entire microfinance industry in Andhra Pradesh. SSFL was more affected than others as nearly 70% of its total loan portfolio was within A.P. Large parts of loan portfolio and assigned portfolio started turning bad or unrecoverable. 55Fl continued to be liable to the assignees for bad debts on assigned portfolios to the extent of First Loss Deficiency Guarantee. As soon as parts of assigned portfolio started turning bad or unrecoverable, the assignees became legally entitled....
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.... write off". In response, the assessee filed a statement, in which Rs. 227.39 Cr was shown as loss on assigned portfolio. Further details were not given and it was stated that it was business loss incurred on assigned portfolio and the income has always been offered to tax. During the hearing dated 13/02/2014, a detailed note was sought on assigned portfolio regarding valuation of the portfolio and its accounting treatment in the books as well as in the income tax returns. There was no query on the loss on assigned portfolio or nature of assigned portfolio. 2. In the paper book filed by the assessee, it is stated that page 39 of the paper book was filed before AO in the original proceedings. The undersigned in unable to trace the same from the assessment record and there is no proof of filing the same. (During the course of arguments the ld. Dr. submitted that it was on record of the assessing officer) Even if it were to be presumed that the paper was filed, it may kindly be noticed that the explanation does not indicate any obligation on the part of the assessee to incur expenditure on account of ' revocation of excess cash collaterals. The only liability was in the f....
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.... termed as "excess" but it was actually ascertained liability. The assessee did not claim any loss higher than the total FLDG exposure. In support, copy of a ledger account on "loss from assignment of loans" was filed which is available at pages 44 and 45 of the paper book filed by the assessee. This account contained debits on account of payments to HDFC, IClCI, PNB, Axis Bank, Fullerton, Induslnd Bank, ING Vysya and Kotak Mahindra Bank. However, no proof in the form of confirmation from the said banks or copies of agreements empowering the banks to liquidate the FDs was furnished. 5. In the reply dated 26/11/2015, which is available at pages 46 to 48 only general submissions on the methodology were made. In these submissions also, no proof was filed regarding contractual obligation of the assessee on the said item. It was only stated that on account of default in repayment schedule, the FDs were liquidated. In essence it was stated that loss from assignment of loans of Rs. 56.03 Cr and FLDGs on assigned loans of Rs. 148.61 Cr are stated to be identical. Therefore, after considering the facts, the Pr CIT recorded a finding that in the assessment proceedings the assessee d....
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....led by the assessee is not in consonance with the questionnaire. In the questionnaire issued by the AO, he had specifically asked as under: "An amount of Rs. 254,19,10,185/- is debited to P&L Account under the head "provision and write off". Please state how this expenditure is allowable as per the provisions of the IT Act, 1961." 8.1 As against the above question, the reply filed by the assessee vide its letter dated 11th February, 2014 is as under: "Rs. 254,19,10,185/- debited to P&L Account as "provision and write off" has not been totally claimed as expenses in tax computation. The break up is as per Annexure 1. Also attached is computation and ITR extract for FY 2010-11 and FY 2009-10 for comparative analysis." 8.2 It is clear that the above reply of the assessee is not complete as the AO has asked the assessee how the expenditure is allowable as per the provisions of the IT Act, but, there was no proper explanation from the assessee in this regard. Even after perusal of the Explanatory Notes, there is no proper explanation from the assessee in the said explanatory notes, viz., under which section he has claimed the above expenditure, agreements, detail....
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....tates Pvt. Ltd. Vs. Pr. CIT, [2017] 77 Taxmann.com 285 (SC) 3. Pr. CIT Vs. Indian Farmers Fertilizers Cooperative Ltd., [2020] 113 Taxmann.com 599 (SC) 4. Sesa Starlite Ltd. Vs. CIT, [2021] 123 Taxmann.com 210 (Bombay) 5. Param Transport (P) Ltd. Vs. Pr. CIT, [2019] 102 Taxmann.com 328 (SC) 8.3 In the case of Rajmandir Estates Pvt. Ltd. Vs. Pr. CIT (supra), the Hon'ble High Court of Calcutta has held as under: ■ The following pieces of evidence are noticeable:- (a) 39 corporate subscribers purchased 7,92,737 shares of Rs. 10 each at a premium of Rs. 390 per share. In the process the assessee company raised a paid up share capital of Rs. 79.27 lakhs with a premium of Rs. 31.7 crores. (b) From the information made available by the assessee, it appears that 19 out of 39 applicants secured funds, for the purpose of contributing to the share capital of the assessee, on account of share application money. In otherwords, those 19 applicants collected funds on account of share application money in their respective companies and that money was contributed to the share capital of the assessee. 15 out of the 39 applicants procured....
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....large capital base, but, in fact these are mere paper companies having no real worth. The transaction of sale and purchase of shares was nominal rather than real. (b) The allegation, in response to the notice to show-cause under section 263 that it bears importance to state here that the investor companies of shares were interested to subscribe shares of the assessee company as, according to them, the assessee company had prospect in future is a plain lie. (c) The blank share application forms etc. tabulated above go to show that the alleged application for shares and the alleged allotment were not in the usual course of the business. (d) In the light of the aforesaid pieces of evidence and the prima facie finding, it can be said that the three requirements: (A) identity of the share-holders; (B) genuineness of the transaction and (C) the creditworthiness of the share-holders repeatedly impressed, by assessee have not been satisfied. Identity of the alleged shareholders is known but the transaction was not a genuine transaction. The transaction was nominal rather than real. The creditworthiness of the alleged shareholders is also not established because t....
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....der erroneous and prejudicial to the interest of the revenue is to be answered in the affirmative. Further, there is no substance in the submission that the order of the Tribunal is perverse, after examining all the submissions advanced by the assessee. [Para 28] ■ The assessee with an authorised share capital of Rs. 1.36 crores raised nearly a sum of Rs. 32 crores on account of premium and chose not to go in for increase of authorised share capital merely to avoid payment of statutory fees is an important pointer necessitating investigation. Money allegedly received on account of share application can be roped in under section 68 if the source of the receipt is not satisfactorily established by the assessee. The submission that any further investigation is futile because the money was received on capital account is unacceptable. The Special Bench in the case of CIT v. Sophia Finance Ltd. [1994] 205 ITR 98/70 Taxman 69 (Delhi) opined that section 68 is very widely worded and an Income-tax Officer is not precluded from making an enquiry as to the true nature and source thereof even if the same is credited as receipt of share application money. Mere fact that the payme....
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.... Chartered Account Shri Sunil Kumar Agrawal. Thereafter, search and seizure operations were conducted in the office of Shri Sunil Kumar Agrawal, Chartered Accountant and during these search and seizure operations, it was discovered that there was an investment of Rs. 39.08 crores by some shell companies in M/s. Prime Ispat Limited. The Appellants before us are the Shell Companies. Notice was issued to the Shell Companies to show cause from where they have got the funds to the extent of Rs. 39.08 crores. It would also be pertinent to mention that during search and seizure operations conducted in the office premises of Shri Sunil Kumar Agrawal, Chartered Accountant, pass books of all 232 share holders of these 13 Shell Companies were found in his office. The Bank Accounts were held in two banks only. The addresses of Shell Companies were almost identical. The Assessing Officer issued notices to these Shell Companies under Section 153C of the Act, and also issued a questionnaire. It would also be relevant to refer to question (vi) of the questionnaire which reads as follows: "(vi) Details of the share capital, share premium account and share application money, if any, which a....
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...." 4. A detailed reply was submitted by the Appellants herein and thereafter the Assessing Officer passed an order on 30.12.2011 which is identical in all the cases and reads as follows: "2. On being so satisfied on the basis of the documents seized as mentioned above and pertaining to the assessee company, notice U/s. 153C was issued to the assessee on 29/09/2011 and served on 29/09/2011 requiring to file the return of its income within 30 days of receipt of the notice. In response to which the return of income is filed by the assessee in this office on 21/11/2011. In its return the assessee has declared total income of Rs. NIL. The case was selected for scrutiny by issue of notice U/s. 143(2) dt. 05/12/2011 and questionnaire alongwith notice U/s. 142(1) were issued upon the assessee on 21/10/2011 and duly served. During the course of assessment proceedings, Shri Sunil Kumar Agrawal, CA and AR of the assessee, attended and filed a written submission giving parawise reply to the questionnaire. The assessee company is incorporated on 13/08/2004 which is evident from the copy of the Certificate of Incorporation filed. The assessee company was required to explain the ....
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....tal non-application of mind. 7. The Appellants before us challenged the order of the Commissioner of Income Tax before the Income Tax Appellate Tribunal (hereinafter called 'the Tribunal') which, vide impugned order dated 22.04.2016 has rejected the appeals. The main issue raised before us is that the order of the Assessing Officer cannot be said to be erroneous or prejudicial to the interest of the Revenue. It is also urged that the finding of the Settlement Commission cannot be a foundation for issuing notice under Section 263 of the Act. Lastly, it is urged that this amount of Rs. 39.08 Crores had been added to the income of Shri B.L. Agrawal and therefore, action could not be taken under Section 263 of the Act, especially when the Assessing Officer after sending a detailed questionnaire has accepted the case of the assessees. We are not at all in agreement with these submissions. 8. To appreciate the rival contention of the parties, it would be apposite to refer to Section 263 of the Act, relevant portion of which reads as follows: "263. (1) The CIT may call for and examine the record of any proceeding under this Act, and if he considers that ....
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....of the Revenue. The section did not at first contain any Explanation. An Explanation was added to section 263(1) by the Taxation Laws (Amendment) Act, 1984. By the Finance Act, 1988, the said Explanation was substituted with effect from June 1, 1988. The Explanation was again amended by the Finance Act, 1989. By the amendments made by the Finance Acts of 1988 and 1989 a definition of the term "record" was provided. It has been provided that "record" shall include and shall be deemed always to have included all records relating to any proceeding under the Act available at the time of examination by the Commissioner." 11. A Division Bench of the Madras High Court in Mofussil Warehouse and Trading Co. Ltd. v. Commissioner of Income-tax, ((1999) 238 ITR 867 (Mad)) was dealing with a case where the assessee company paid amounts to the holding company by way of reimbursement in relation to the utilization of the service of the employees of the holding company. The Assessing Officer had not taken into consideration the exact nature of the claim or the unreasonableness thereof. The Madras High Court held that non performance of such a duty cast upon the Income-tax Officer entitled....
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....h Court of Bombay in Commissioner of Income-tax v. Gabriel India Ltd., ((1994 Tax LR 116 (Bom)) and the High Court of Gujarat in Commissioner of Income-tax v. Smt. Minalben S. Parikh, ((1995) 215 ITR 81 (Guj)) treated loss of tax as prejudicial to the interests of the revenue. Mr. Abaraham relied on the judgment of the Division Bench of the High Court of Madras in Venkatakrishna Rice Company v. Commissioner of Income-tax, ((1987) 163 ITR 129 (Mad)) interpreting "prejudicial to the interests of the revenue". The High Court held, "In this context, it must be regarded as involving a conception of acts or orders which are subversive of the administration of revenue. There must be some grievous error in the order passed by the Income-tax Officer, which might set a bad trend or pattern for similar assessments, which on a broad reckoning, the Commissioner might think to be prejudicial to the interests of Revenue Administration". In our view this interpretation is too narrow to merit acceptance. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the Income Tax Offi....
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....orporation, ((2009) 314 ITR 81 SC), while dealing with Section 263 held as follows:- "Jurisdiction under Section 263: The scope of the provisions of section 263 of the Act is no longer res integra. The power to exercise suo motu power of revision in terms of section 263(1) is in the nature of supervisory jurisdiction and same can be exercised only if the circumstances specified therein, viz., (1) the order is erroneous; (2) by virtue of the order being erroneous prejudice has been caused to the interest of the Revenue, exist." 15. From a reading of the aforesaid judgments, it is apparent that the powers conferred on the Commissioner under Section 263 are very wide. However, two conditions have to be met before the Commissioner can exercise his powers under this section. The order sought to be reviewed should be erroneous and should also be prejudicial to the interest of the revenue. In Malabar Industrial Co. Ltd. V. Commissioner of Income-tax (supra), the Apex Court held that both the conditions must be satisfied and if only one of the conditions is satisfied recourse cannot be had to Section 263. It is also apparent that recourse to Section 263 cannot be....
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....pertain to only two banks i.e. Union of India, Main Branch, Raipur and Union of India, Pandri Branch, Raipur. There has to be some explanation why all the villagers of Kharora would open bank accounts in Raipur. A number of these companies are having their registered office in the office of Shri Sunil Kumar Agrawal, Chartered Accountant. Therefore, the Commissioner of Income Tax was justified in coming to the conclusion that there was ample material to point out that there may have been benami transactions in the name of individuals of village Kharora to induct share application money/share capital in the 13 shell companies. An enquiry is required to be conducted in this matter and therefore, we are clearly of the view that no question of law arises in these appeals. 18. In view of the above discussions, the appeals are dismissed in limine.' 8.5 The case law cited supra are squarely applicable to the case of the assessee in hand. In the above cases the notices were issued by the assessing officer and reply were also filed by the assessee in response to the notice u/s 142(1) of the Income Tax Act but the assessing Officer did not hold requisite investigation/enquirie....
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..... The total disallowance made by Assessing Officer U/s 14A r.w.r. 8D was Rs. 6,77,46,792/-. 12. On appeal, the CIT(A) deleted the entire addition made by the AO except confirming an amount of Rs. 5,000/- made under third limb of rule 8D. 13. Aggrieved, the revenue is in appeal before us. 14. We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. Before us, the contention of the ld. DR is that the CIT(A) failed to take note of the fact that the assessee had huge borrowings and incurred huge interest expenditure of Rs. 307,90,23,078/- and, therefore, the arguments of the assessee that it has sufficient own funds is devoid of any merit. In this connection, we reproduce the observations of the AO from his order, which are as under: "I have carefully considered the above submission of the assessee. In this regard, reference to balance sheet for the year ending 31/03/2011 is made. On perusal of balance sheet for the year ending 31/03/2011, it is seen that the assessee has got its own funds in the form of share capital and reserves & surplus at Rs. 2846.67 crores. As against this, the gross b....
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....period at the prevailing rate of interest. As the average rate of interest for which the assessee borrowed capital during the year is 11 %, the same percentage is applied to work out the proportionate interest and the same works out to Rs. 6,76,30,358/- (Annexure-A). This amount of Rs. 6, 76,30,358/- represents the expenditure directly relatable to income which do not form part of total income. The other expenditure relating to exempted income is determined by invoking the provisions of Rule 8D as under: 1. Amount of expenditure directly attributable to Exempted income Rs. 6,76,30,358 (I) 2. Amount of Expenditure on interest which cannot be attributable to the exempt income A x B / C A - Amount of expenditure of interest = 307,90,23,078 B - Average of Investments = 10,00,000+10,00,000/2 =10,00,000/-" 14.1 From the above order, it is clear that the assessee did not comply as per the observations of the AO in his order with regard to substantiate for using of its own funds for making investment as per Schedule 19. As per Balance Sheet as on 31/03/2010 & 2011 placed at paper book at page No. 9, the entire own funds have been ....
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....recedent of the decision of the ITAT, does not apply to this impugned AY. Considering the totality of the facts and circumstances of the case of the assessee, we observe that the assessee has not utilized its own funds for making investments. The case law relied on by the ld. AR are distinguishable on facts to the case under consideration and, therefore, the same are not of any help to the assessee's case. The law is settled in this regard from the decisions of various Hon'ble High Courts that the disallowance u/s 14A read with rule 8D cannot exceed from the exempt income. In the instant case, the assessee has earned exempt income of Rs. 11,22,16,130/- and disallowance made by the AO is of Rs. 6,76,30,358/- which is below the exempt income received by the assessee. On perusal of the assessment order, we find that the AO has disallowed under rule 8D(i), (ii) and (iii), once the AO has calculated disallowance under rule 8D(i) out of total interest debited into P&L Account of Rs. 307.90 crores, which comes to Rs. 6,76,30,358/- as interest directly attributable to earn exempt income. During the course of assessment, the AO asked to substantiate the utilization of own funds for making i....