TaxTMI 
TaxTMI 
2021 (11) TMI 494
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....e 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 Delhi Vs. Union of India, Civil Appeal No. 9488 & 9489/2019 dated 17 December, 20....
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....ying, 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 Finance Institution (Regulation of Money Lending) Ordinance 2010 promulgated on October 15, 2010. Post enactment of the above Act, the environment in w....
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....rtfolio. 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 Products Industries Ltd. Vs. CIT (ALL) 187 ITR 412 iv. Gee Vee Enterprises Vs: Addl. CIT&Ors (Del.) 991TR 375 v. Rajalakshmi Mills Ltd. Vs. ITO,(ITAT, S6-Chennai) 121 ITO 343, 313 ITR....
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.... 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. collect and it appreciate the facts collected and proper application of law is to be made while making the assessment. There is understatement. of income as mentioned in paras 7.2, 7.3 & 7.4 above. In the interest of justice and since the twin conditions, namely, (i) the order of the A....
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....o.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 that the above information was filed. Therefore, it is incorrect to presume that this issue was not addressed to the extent it deserves. 8. The Pr.CIT did not mention any specific reason as to why the order of the assessing officer 'inadequate enquiry' on the part of the assessing officer cannot be a ground to say ....
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.... 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 submissions dt.3.5.2021 and sought to justify the action of the* Pr.CIT in revising the assessment order. The appellant would like to submit the following with regard to each one of the arguments contained in these written submissions: a) The first contention of the learned CIT(DR) is that the explanation of the appellant filed before the assessing officer and placed at page no.39....
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....elevant 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 the requisite information. Part of the information might not have been kept in the assessment folder. That cannot be a reason to say that the assessing officer did not call for the relevant evidence." 6.1 In addition to the above written submissions, the ld. AR of the assessee filed paper book containing pages 1 to 48, which is placed on record and perused. He reiterated the submissions made before the CIT(....
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....ys 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 to invoke the respective FLDGs. It is these FLOGs that have been written off as 'Loss on Assigned Portfolio' for Rs. 2,27,39,54,719 in the financials." 6.2 After examining the above explanation, AO was satisfied and accepted the loss claimed by the assessee and, therefore, it cannot be said that the AO has not enquired and passed the assessment order. He submitted that the expenditure claimed by the assessee is a revenue expenditure, which is allowable u/....
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....ry 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 form of First Loss Deficiency Guarantee (FLDG), expenditure on which account is separately claimed and allowed. With regard to the excess recovery, neither the AO noticed the point nor did he call for any evidence in the form of agreements with the assignees or any other relevant information. The assessment was completed on 26/03/2014. Therefore, the argument that the AO examined the item in detail and formed an opinion is incorrect and devoid of merit. In light of the above, it is humbly submit....
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....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 did not furnish the data to verify the working out the loss and also repayment schedule furnished to the assignee Bank(s). The Pr CIT also stated that it is quite evident that the Assessing Officer has not addressed the issue to the extent it deserves and also there was no relevant enquiries conducted to allow the claim of the assessee company under the head "loss on assigned portfolio". The Pr CIT also stated that moreover it was mentioned that excess cash collateral for Rs. 56,03,43,323/- was invoked by the bank over unpai....
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.... 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, details of working notes with the relevant data with supporting documents and also the repayment schedule furnished to the assignee banks, guarantee invoked, etc. In view of the above observations, we approve the categorical finding of the Pr. CIT(A) that the AO has not addressed the issue to the extent it deserves and also there was no relevant enquiries conducted to allow the claim of the assessee company under the head "loss on assigned portfolio." Therefore, we are of the view that the AO without applying his mind, failed to make requisite enquiries and ....
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.... 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 the requisite fund by selling shares. The rest of the applicants of shares, in the share capital of the assessee company, did not disclose the nature of receipt at their end though the source of fund was identified. What has not been specified is, as to on what account was the money received. (c) The forms of share application purporting to have been signed by the applicant companies have also been disclosed from which it appears that the date of allotment, number of allotment, number of shares allotted, share ledger folio, allotment register folio, application number, have all been kept blank. These parti....
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.... 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 they did not have any money of their own. Each one of them received from somebody and that somebody received from a third person. Therefore, prima facie, the share-holders are mere name lenders. [Para 24] ■ The attempt of the assessee, it was apprehended in the case of Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC) was to assist someone else. An identical attempt is involved in this case. Who is the person sought to be assisted by the assessee? This question can only be answered after a thorough enquiry, directed by the Commissioner, is held. The assessee is interested installing that investigation on the plea that the order of the Assessing Officer is neither erroneou....
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....tablished 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 payment was received by cheque or that the applicants were companies, borne on the file of Registrar of Companies were held to be neutral facts and did not prove that the transaction was genuine. It need not be decided in this case as to whether the proviso to section 68 is retrospective in nature. To that extent the question is kept open. Further, the submission that the source of source is not a relevant enquiry does not appear to be correct. There is no substance in the submission that the exercise of power under section 263 by the Commissioner was an act of reactivating stale issues. In the instant case the evidence which was before the Assessing Officer which should have provoked him to make furthe....
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....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 appears as liability in the balance sheet. Please furnish the complete name, address, occupation of the investor and the date and mode of receipt of the funds. Also furnish the compliance made in this regard to the Registrar of Companies." 3. The Companies were also asked to submit explanation in the following terms: "3. You are also hereby asked to furnish explanation/submission with reference to the following points: (I) Details of liability appearing in the balance sheet in form of subscribed share capital, share premium and share application money. In this regard please furnish the complete list giving full name, postal address and PAN and assessment details. Also furnish copies of relevant ledger statements. (ii) In satisf....
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....l, 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 basis of determining his income and furnish information relating to affairs of his business which was done through compliances made during assessment proceedings. Subject to the above the income of the assessee as shown in the return is accepted. Income Assessed : Rs. NIL" 5. It would also be pertinent to mention that notices under the Income Tax Act, 1961 were also issued to M/s. Prime Ispat Limited which moved the Settlement Commission of the Income Tax authorities at Calcutta and the Settlement Commission, vide its order dated 07.11.2012 with regard to Shell Companies held as follows: "5.... Thus, in view of the plethora of evidence produced before us, we are of the opinion that the whole of investment other than that made through the medium of 13 shell companies etc. cannot be held as bogus. We have carefully gone through the statement of facts and the disclosure made by the applicant Prim....
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....ention 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 any order passed therein by the AO is erroneous insofar as it is prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment." 9. The Bombay High Court in Commissioner of Income Tax v. Gabriel India Ltd., ((1993) 203 ITR 108 Bom) held as follows:- "The power of suo motu revision under sub-section (1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise power of revision under this sub-section, viz. (i) the order is erroneous; (ii) by virtue of the order being erroneous prejudice has been caused to the....
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....cer 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 the Commissioner to invoke his power under Section 263. Relevant observation of the Madras High Court reads as follows:- "The non-performance of such a duty on the part of the Income-tax Officer culminated in distortions and prejudices to the Revenue. Such distortions and prejudices to the Revenue for being set right, the Commissioner of Income-tax invoked his power under Section 263 and in exercise of such power he cancelled the assessment passed by the Income-tax Officer with a direction to him to make a fresh assessment, according to law." 12. The Apex Court in Malabar Industrial Co. Ltd. v. Commissioner of Income-tax, ((2000) 243 ITR 83 (SC)), has dealt with the revisional powers under Section 263 in detail. The Apex Court held as follows:- "A bare reading of this provision makes it clear that the pre-requisite to exercise of jurisdiction by the Commissioner suo moto under it, is that the order of the Income-tax Officer is erroneous insofar as it is prejudicial to the in....
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....f 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 Officer, the revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the revenue. The phrase 'prejudicial to the interests of the revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the Income-tax Officer is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such wi....
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....f the conditions is satisfied recourse cannot be had to Section 263. It is also apparent that recourse to Section 263 cannot be taken to correct every small error or mistake committed by the Assessing Officer. However, if the order itself is erroneous the provisions of the section would be attracted. The Apex Court has made it clear that even incorrect assumption of facts would satisfy the requirement of order being erroneous. In case the orders are passed without applying the principle of natural justice or without application of mind then also the Commissioner can exercise his revisional powers. It is important to note that the Apex Court in Malabar Industrial Co. Ltd. v. Commissioner of Income-tax (supra) further held that the expression prejudicial to the interest of the revenue has very vide connotation and was not confined to loss of tax. If the Assessing Officer adopts one or two courses available under law and it results in loss of revenue then the order cannot be said to be erroneous or prejudicial to the interest of revenue within the meaning of Section 263 but where the view taken by the Income-tax Officer is unsustainable then the order passed by the Assessing Officer i....
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....u/s 142(1) of the Income Tax Act but the assessing Officer did not hold requisite investigation/enquiries as per the opinion of CIT. Similar situations are existed in the present case on hand. The case law relied on by the ld. AR is distinguishable on the basis of above cited judgements by us, of Hon'ble Apex Court as quoted supra. In view of the above observations and respectfully following the ratios laid down in the aforesaid judgments, we uphold the order of the Pr. CIT and dismiss the grounds raised by the assessee on this issue. 9. In the result, appeal of the assessee is dismissed. ITA No. 1474/Hyd/2016 - appeal by the revenue 10. This appeal filed by the revenue is directed against CIT(A) - 3, Hyderabad's order dated 08/08/2016 for AY 2011-12 involving proceedings u/s 143(3) of the Income- Tax Act, 1961; in short "the Act" on the following grounds of appeal: "1. The learned CIT (A) erred both in law and on facts of the case. 2. The learned CIT(A) erred in deleting the disallowance of Rs. 6,77,41,792/- out of total disallowance of Rs. 6,77,46,792/- made u/s 14A r.w.r.8D of the Act, without considering the facts of the case. 3. The Ld CIT(A) erred in deleting the....
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....Rs. 2846.67 crores. As against this, the gross block of fixed assets (including WIP) is stood at Rs. 29.47 crores and current assets in the form of loans & advances and bank balances at Rs. 3099.93 crores. Hence, from the above, it is clear that the assessee's own funds in the form of share capital and reserves & surplus have gone in fixed assets and loans & advances. Therefore, it is clear that in order to make investments in Mutual funds, the assessee has partly resorted to borrowings. On these borrowed funds, the assessee has debited interest expenditure of Rs. 307,90,23,078/_. Hence, the contention of the assessee, that it has sufficient own funds is devoid of any merit. Further, the assessee has not given any specific details as to whether the investments on which the tax free income has been received during the year have been financed from its Own Funds or Borrowed Funds. The mere presence of Borrowed Funds in its Funds Flow Statement does not support the proposition of the Assessee Company that it has sufficient Own Funds to finance its investment Portfolio. If Own Funds are sufficient, then, there would have been no reason to resort to Borrowed Funds and the consequent ....
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....wn funds have been utilized for the purpose of investment in fixed Assets and current assets. In the balance sheet, there is capital reserve of Rs. 70 lakhs, which cannot be utilized by the assessee. There are only Rs. 10 lakhs of investments appearing in the balance sheet as closing balance as on 31/03/2010. From the cash flow statement paced at page No. 11 of paper book, the net cash flow for the year ending 31.03.2011 is as under: A. Net cash provided by operating activities - (7,767,860,173) B. Net cash provided by/used in) investing activities - 188,497,139 C. Net cash provided by/(used in) investing activities - 1,764,294,246 14.2 From the above, it is clear that the entire cash during the year is negative, which shows that the entire own funds are dried up during the year. The own funds are only Rs. 4,743,809,875, which is less than the negative cash flow. In the impugned year, there is only opening of balance of investments is Rs. 10 lakhs and the assessee has invested Rs. 59,635,390,755/- as per schedule No. 19 - Notes to the Accounts at "O". Further, for the sake of clarity, we extract the "q. - Movement of loan portfolio" of schedule 19 - Notes to the accounts,....