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2022 (7) TMI 156 - AT - Income TaxRevision u/s 263 by CIT - deduction for interest expenditure made by the Appellant and allowed by the AO under Section 57 - HELD THAT:- The conclusion drawn by the PCIT that “the claim of deduction has been allowed without investigating the matter or verifying the allowability of such claim” is contrary to material on record. Further, in letter dated 28.02.2016, the Appellant had submitted that the borrowed funds were kept in fixed deposits and the interest income earned was used for paying interest cost on borrowed funds, thus, explaining the nexus. The submission of the Appellant have been reproduced by the PCIT's order under heading ‘Written Submission’ However, the PCIT failed to consider the same and returned incorrect finding that no submission were made by the Appellant. In view of the aforesaid, we set aside the order of PCIT on issue no.1. Share application money received form AMR - Perusal of record shows that the Appellant had, during the assessment proceedings, as well as before PCIT, provided explanation about the source of funds being his capital of INR 3,02,33,407/- and secured loans from bank as reflected in Balance Sheet of Lakshmi Business Centre, proprietorship firm of AMR - Further, as per the computation of income for the Assessment Year 2013-14, AMR had net taxable income - The aforesaid information and supporting documents were filed during the assessment proceedings. The PCIT had, relying upon incorrect facts, proceeded to conclude that the AO had failed to carry out necessary reconciliation of bank loan with its utilization. Accordingly, in view of the aforesaid, we set aside the decision of the PCIT on this issue. Share application money received by the Appellant from WEPL - We find that on the examining of the bank statements submitted by the Appellant, the PCIT had pointed out that there were deposits/fund transfers immediately prior to transfer of funds to the Appellant as share application money and referred to one such instance of fund transfer from of INR 36,00,000/- credited to the account of the Appellant on 27.07.2012 in paragraph 3.3 of the impugned order. Perusal of the bank statements shows that the observations of PCIT are factually correct as there were deposit/fund transfers (including fund transfers from Anika Universal Pvt. Ltd.) credited to the bank account of the Appellant. In our view, in absence of an explanation, merely by going through the narration given in the bank statement one cannot form an opinion about the nature or source of funds received in terms of the proviso to Section 68 of the Act inserted by the Finance Act, 2012, with effect from 1.04.2013, AO was duty bound to carry out necessary verification in terms of proviso to Section 68 of the Act and more so, for the reason that the case was selected for scrutiny under CASS, inter alia, for large share application money received against un-allotted shares as noted by the AO in paragraph 1 of the Assessment Order. Further, at the relevant time AMR held 46% shareholding of the Appellant, whereas balance 54% shareholding was held by WEPL. As per annual accounts of WEPL filed by the Appellant, AMR was also one of the directors of WEPL. Therefore, the Appellant was in a position to gather information and provide explanation about the nature and source of funds used by WEPL for making payment towards share application money. We are of the view that neither the assessment order nor the material on record supports the contentions of the Appellant the AO had carried out necessary inquiries and verification during the assessment proceedings, and therefore, the provisions of Explanation 2(a) to Section 263 are attracted. Accordingly, in view of the above, we confirm the order of PCIT passed under Section 263 of the Act to the extent it sets aside the Assessment Order, dated 29.03.2013, holding the same to be erroneous and prejudicial to the interest of Revenue on account of failure of the AO to carry out necessary verification in relation to share application money of INR 2,56,64,000/- received by the Appellant from WEPL in terms of Section 68 - Revenue appeal is partly allowed.
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