TaxTMI 
TaxTMI 
TaxTMI 
2025 (6) TMI 1446
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 of Income Tax ('PCIT'), Jaipur-1, had issued an order on March 28, 2023. Regrett....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he 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) of IT act, 1961, assessee company has duly submitted reply along with all required documents and clarification as required by the Ld. AO. Upon verification of the recor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 perusal of assessment records it is noted that the Assessing Officer (AO) has allowed the same in the assessment order under reference. 9. Perusal of the assessment order shows that an amount of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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 correct income of the assessee liable to tax for the A.Y.2018-19 after allowing reasonable opportunity to the assessee." 8. Feeling dissatisfied, with the above order of the PCIT passed u/s. 263 of the Act, the assessee filed the present appeal....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt 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 authority granted to the RBI by Section 45-JA of the Reserve Bank of India Act, 1934, the assessee duly created such provisions. 2. In this regard, appropriate disclosure was made by the assessee company, in its Audited Financial Statements, for the year under consideration. Same are referred as under: - No....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ways 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 the income of the assessee company. Accordingly, no error was committed by the ld. AO, in the original proceedings, while allowing the claim of the assessee company in relation to "Standard Assets Provision". VII. ISSUE NO. 2 1. Assessee company, during the year under consideration, paid Consultancy Fees in the form of Syndication Fees for raising Convertible Cumulative Preference Shares from Venture Capital "SCI Investme....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he 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 law arose from Tribunal's order - Held, yes Lok Advisory Services (P.) Ltd. Delhi)/[2019] 264 Taxman 39 (Delhi)[ Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of (Consultancy fee) - Assessment year 2012-13 - Assessee-company was engaged in providingmanagerial, technical, consultancy and investment research services to two overseas funds - Assessee-company entered into an agreement with its foreign associate entity 'LF' to help assessee in identifying potential i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sions 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 note that the assessment in the case of assessee for the year under consideration was carried out in the "faceless manner", by the NFAC. Any faceless assessment is carried out with Assessment unit, Technical unit, Review unit, Verification unit. Also, officers of level of Additional Commissioners are involved. The different units are headed by Principal Commissioner of Income tax. Accordingly, in a faceless regime, there cannot be a case of error of any kind being caused to the department, for the reason that there is application of mind by multiple officers of Department and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....place 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 enquiries or to go into the process of assessment again and again merely on the basis that more enquiry ought to have been conducted to find something." 4. Unless prejudice to the interest of the revenue is "established", any assumption of jurisdiction under Section 263, by the ld. PCIT, directing revision of order, is unjustified. 5. Above factual and legal position was submitted before ld. PCIT, during the course of proceedings before her. However, the same has been ignored by her in her order passed under Section 263. * Ld. PCIT simply mentioned at Page 8, of her order that NFAC/Assessing Officer, passed the order in a routine an....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 point no. v page 130 and 131. After considering that submission made by the assessee ld. AO has considered the claim of the expenses as revenue expenses. Whereas the ld. CIT(A) is propagating that the same are in the nature of capital expenditure. To drive home to this contention the ld. AR of the assessee relied upon the decision of Hon'ble Delhi High Court in the case of PCIT, Delhi-5 Vs. Lok Advisory Services(P) Ltd. [ 104 taxmann.com 67(Delhi) wherein the similar expenses were considered as revenue expense. Thus, the view adopted by the ld. AO was one of the view and therefore, the ld. PCIT cannot under the grab of 263 impose her view. 11. The ld DR is heard who relied on the findings recorded in the order of the ld. PCIT and submitted that though ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 subsequent assessment proceeding completed pursuant the revision proceeding. Thus, on that issue the order of the ld. AO is neither erroneous nor prejudicial to the interest of the revenue. So as regards the one issue of Syndication fees for CCPS issue (Convertible Cumulative preference shares), for an amount of Rs. 1,18,50,389/- which was claimed by the assessee as per provision of section 37(1) of the Act. On this issue the bench noted that the assessee has in detailed replied to the AO vide questionnaire dated 23.11.2020 wherein ld. AO called for the details of deduction and exemptions claimed by the assessee which was submitted vide reply dated 08.12.2020 point no. v page 130 and 131 in the paper book filed. After considering that submission made by the assessee ld. AO has considered the claim of the e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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 the expenditure is duly allowable and as such the view of the ld.AO is not prejudicial to the interest of the revenue also when the legal precedent on the same very issue shows that the view adopted by the ld. AO was one of plausible view. The bench noted that ld. PCIT, for the purpose of assuming jurisdiction 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 whereas the same is not case of the assessee as the expenditure sought to be disallowed by the Ld. PCIT is not in relation to the fees paid to the Registrar of Companies and there that....