TaxTMI 
TaxTMI 
2025 (6) TMI 1446
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of Income Tax is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the order passed u/s 263. 2. The assessee company craves its right to add, amend or alter any of the grounds on or before the date of hearing." 3. At the outset of hearing, the Bench observed that there is delay of 262 days in filing the present appeal by the assessee for which the ld. AR of the assessee filed an affidavit stating the reasons for delay and prayed for condonation of delay, the content of the affidavit reads as under :- I, Mohit Sahney, son of Late Mr. Kamal Krishna Sahney, resident of 55, Grenade Marg, Pratap Nagar, Khatipura Road, Vaishali Nagar, Jaipur-302021 (Rajasthan), hereby affirm and submit this affidavit to request condonation for the delay in filing appeal before the Income Tax Appellate Tribunal ('ITAT'), Jaipur of Finova Capital Private Limited (the 'Company'). 1. That I am a Director of the Company. 2. That on January 17, 2024, I have received mail on my personal id for notices u/s 263 from the Income Tax Officer ('ITO'). Subsequently, it came to my attention that the Principal Commissioner ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at aspect of the matter as declared in the affidavit placed on record we concur with the submission of the assessee. Thus the delay of 262 days in filing the appeal by the assessee is condoned in view of the decision of Hon'ble Supreme Court in the case of Collector, land Acquisition vs. Mst. Katiji and Others, 167 ITR 471 (SC) as the assessee is prevented by sufficient cause and therefore, we admit this appeal. 6. The brief facts related to the case are that the assessee company is a Non Banking Financial Company (NBFC) registered with Reserve Bank of India(R.B.I.). For the year under consideration the assessee-appellant had filed return of income on 02.10.2018 declaring total income of Rs. 3,86,42,770/- for the year under consideration. The case was selected for Complete Scrutiny assessment under the E-assessment Scheme, 2019 to verify the following issues: i. Claim of Any Other Amount Allowable as deduction in Schedule BP ii. Short term Capital Gains u/s. 111A iii. Refund Claim iv. Share Premium v. Disallowance u/s. 40A(7)(Gratuity provision) vi. Share Capital / Other Capital During the assessment proceedings u/s 143(3)....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d and doubtful debts made by a scheduled bank [ not being a bank incorporated by or under the laws of a country outside India] or a nonscheduled bank or a cooperative bank other than a primary agricultural credit society or a primary co-operative agriculture and rural development bank, an amount not exceeding eight and one-half per cent of the total income, the deductions provided shall be allowed in respect of the matters dealt with therein, in computing the total income referred to in section 28." 8. In view of above section, the provision is applicable only for bad and doubtful debts and not for "standard assets" and therefore the same was not allowable as a deduction. The assessee in its letter dated 14/03/2023 has stated that it is a Non Banking Financial Company (NBFC) registered with Reserve Bank of India. The assessee has relied upon the order of the Hon'ble ITAT in the case of DCIT v/s Nawanshahr Central Cooperative Bank on 3/01/2018 in ITA No.61/ASR/2017 for A.Y. 2013- 14 in support of its contention However, the Hon'ble ITAT in its order under reference has clearly stated that deduction u/s 36(1)(viia) of the Act is not allowable to NBFCs. From the perus....
X X X X Extracts X X X X
X X X X Extracts X X X X
....- ".... An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind." 11. Considering all the facts and circumstances of the case and for the reasons discussed above, the assessment order dated 15.03.2021 for A.Y. 2018-19 passed by the AO is held erroneous in so far as it is prejudicial to the interests of the revenue for the purpose of section 263 of the Income Tax Act, 1961. The said order has been passed by the AO in a routine and casual manner without verification of the issues discussed above. The AO was required to make the disallowances discussed in the paras above which he failed to do. The order of the AO is therefore liable to revision under the explanation (2) clause (b) and clause (a) of section 263 of the Income Tax Act, 1961. The assessment order is set aside to be made afresh in the light of the observations made in this order. The AO is required to make necessary verification and finalize the assessment in accordance with the prevailing law to determine the corre....
X X X X Extracts X X X X
X X X X Extracts X X X X
....et out here under for the sake of ready reference. Each of the issues set out hereunder have been dealt in detail subsequently:- Issue No. 1: As per Schedule 23 (Provisions on Loans and Advances) to the Profit and Loss account, an amount of Rs. 30,63,618 was debited on account of 'Standard Assets Provision' which was not allowable in view of Section 36(1)(via). Issue No. 2: Assessee deducted amount of Rs. 1,18,50,389/- from the total income on account of "Syndication fees for CCPS issue". However, as per provisions of Section 37(1), expenditure so claimed being a capital in nature, was to be disallowed and added back to the income of the assessee. Issue No. 3: During the year, assessee debited expenses pertaining to Rates and Taxes, amounting to Rs. 37,23,416/-, in the Profit & Loss account which was not allowable as per Section 40(a). VI. ISSUE NO. 1 1. Assessee company is an NBFC, duly registered with the Reserve Bank of India (RBI). As part of its regulatory oversight, the RBI has issued specific guidelines mandating NBFCs to create Provisions for Bad and Doubtful Debts. In compliance with these guidelines, which are issued under the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e said Sub-Clause by stating that the words used therein are "bad and doubtful debts." Accordingly, as per the Id. PCIT, the deduction for provision was not available to the assessee in relation to Standard Assets but was only available for bad and doubtful debts. 7. In the case of NBFCs, the assets are either classified as Standard Assets or Non-Performing Assets. The provision made on such assets is always termed as Bad and Doubtful Debts. This position is also discernible from the Schedule 23, which forms part of the Audited Financial Statements, screenshot of which is set out hereinbefore. 8. Ld. PCIT confused herself by considering that the provision made by the assessee company in relation to Standard Assets was not in relation to bad and doubtful debts. On the contrary, the practice adopted by NBFCs is that for different types of assets, provisioning is done, and all such provisioning is in relation to Bad and Doubtful Debts. 9. It is pertinent to note that subsequently, in the proceedings initiated pursuant to the order passed under Section 263, such legal position was accepted by the Assessing Officer, and accordingly, no additions were made to t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... under Section 263, placed reliance on the decision of the Hon'ble Supreme Court in the case of Punjab State Industrial Development Corporation Limited [1997] 225 ITR 792 (SC). In the said case, payment was made filing fee to the Registrar of Companies (ROC) for the enhancement of the company's capital base. However, the said case is not applicable to the present case of the assessee company. The expenditure sought to be disallowed by the Ld. PCIT is not in relation to the fees paid to the Registrar of Companies. 9. Attention is drawn towards the below mentioned judicial pronouncements, wherein similar type of expenses were held to be allowed as revenue in nature: - Case Law Ratio Laid Down JCT Electronics Ltd [2010] 188 Taxman 191 (Punjab & Haryana) Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of -Assessment year 2004-05 - Whether where Tribunal had treated expenditure for restructuring and viability study and preparation of restructuring proposal as revenue expenditure by recording findings of fact that expenses were incurred for purpose of business and were in conformity with provisions of section 37, no question of....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of income and the remaining 4/5th expenses were disallowed on its own by the assessee company. The same was also discernible from the computation of income/Income Tax Return form which had been submitted by the assessee company during the course of original assessment proceedings. 3. During the course of the assessment proceedings, a detailed query letter [PB 126] was issued by the Ld. AO, seeking information in relation to the deductions claimed in the return of income by the assessee company. In response to such a query letter, detailed submissions were made by the assessee, providing information on all the different expenses incurred and the nature of such expenses [PB: 129-131]. Based on the details provided, the Ld. AO accepted the return of income of the assessee company and did not make any disallowance. 4. It is pertinent to note that subsequently, in the proceedings initiated pursuant to the order passed under Section 263, such factual position was accepted by the Assessing Officer, and accordingly, no additions were made to the income of the assessee company. IX. ORIGINAL ASSESSMENT PROCEEDINGS - FACELESS MANNER 1. It is pertinent to n....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... "In the absence of any finding that there is loss of revenue, interference under section 263 of the Act was not justified. Eveready Industries India Ltd [2020] 181 ITD 528 (Kolkata -Trib.) " ... The Hon'ble Supreme Court, held that for invoking powers conferred by S.263; the CIT should not only show that the AO's order is erroneous as a result of any of the situations enumerated above but CIT must also further show that as a result of an erroneous order, some loss is caused to the interest of the revenue ... " 3. Provision of Section 263 no-where allows to challenge the judicial wisdom of NFAC or to replace it/his wisdom in the guise of revision unless the view taken by NFAC is not at all sustainable in law. Extent of enquiry can be stretched to any level by forcing the ld. AO/NFAC to go through the assessment process again and again this proposition is not authorized by the law. Reliance is placed on the decision of the Hon'ble Jurisdictional High Court in the case of CIT vs. Ganpat Ram Vishnoi, 296 ITR 292 (Raj.) wherein at Para 11 of the Hon'ble Court held as under: "Jurisdiction under section 263 cannot be invoked for making short e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....urse of assessment proceedings along with replies submitted by assessee company. 125-128 7. Copy of the reply filed by assessee company against the notice dated 23.11.2020, issued by the ld. AO, during the course of assessment proceedings. 129-131 8. Copy of the notice, dated 16.02.2021 issued to assessee company under Section 142(1) of the ITA, by ld. AO, during the course of assessment proceedings along with replies submitted by assessee company. 132-133 9. Copy of the reply filed by assessee company against the notice dated 16.02.2021, issued by the ld. AO, during the course of assessment proceedings. 134-136 10. The ld. AR of the assessee in addition to the above written submission so filed vehemently argued that the assessee the ld. PCIT has ragged up three issues in her order and out of that two issue have even though raised by the PCIT has been accepted by the ld. AO even after the assessment order passed pursuant to the order of the assessment. The left-out issue upon which ld. AO vide questionnaire dated 23.11.2020 called for the details of deduction and exemptions claimed by the assessee which was submitted vide reply dated 08.12.2020 poin....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the replies deals with the subject and issue raised for the scrutiny. Ld. AO after considering the replies filed by the assessee completed the assessment. After that ld. PCIT while exercising the power vested upon her called for the assessment record and observed that as per Schedule 23 (Provisions on Loan and Advances) to the Profit and Loss account, an amount of Rs. 30,63,618/- was debited by the assessee for Standard Assets Provisions which is not allowable as per provision of sections of section 36(1)(via) of the Act. Further it was also noticed by her that while computing taxable income as per Income Tax Act, on account of "Syndication fees for CCPS issue (Convertible Cumulative preference shares), an amount of Rs. 1,18,50,389/- was reduced by the assessee from the taxable income. However, the same is not allowable as per provision of section 37(1) of the Act, being an expenditure in capital in nature. She also noticed that assessee debited expenses under the head rates and rates of Rs. 37,23,416/- which is not allowable as per the provision of section 40(a) of the Act. Thus, ld. PCIT has raised three issues out of that two issue has already been considered even in the subseq....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... were also sought from the assessee company. In this regard, attention is drawn to the query letter issued during the assessment proceedings, which is placed at PB Page 125 to 127. When the ld. AO was made aware of the issue by placing cogent evidence and based on the submissions and records verified the claim and was considered the same. It is also clear from the record that fees paid to the consultant for different services, which inter-alia include, identify in potential investors, strategizing the investment, exploring the best possible opportunities for the assessee company, providing guidance to the assessee company, in relation to type of the strategic investor, providing guidance of the type of securities to be issued and its ramification for the future etc. all these aspects as contended were considered in the assessment proceedings along with the documentary evidence, the Ld. AO took a conscious decision to allow the expenditure as revenue in nature and we do not find that the said decision was erroneous and prejudicial to the interest of the revenue. Before us in support of the view taken by the ld. AO the assessee has relied upon the judgments in the that the claim of t....