TMI Blog2021 (9) TMI 402X X X X Extracts X X X X X X X X Extracts X X X X ..... d by him is not found tenable at the facts of the present case. Therefore, we found no error or illegality in the order passed by the ld. Pr.CIT U/s 263 of the Act and we uphold the same. - Decided against assessee. - ITA No. 25/JP/2021 - - - Dated:- 6-9-2021 - Shri Sandeep Gosain, JM And Shri Vikram Singh Yadav, AM For the Assessee : Shri P.C. Parwal (CA) For the Revenue : Shri B.K. Gupta (PCIT-DR) ORDER PER: SANDEEP GOSAIN, J.M. The present appeal has been filed by the assessee against the order of the ld. Pr.CIT, Jaipur-1, Jaipur dated 28/03/2021 passed U/s 263 of the Income Tax Act, 1961 (in short, the Act) for the A.Y. 2016-17. The assessee has raised following grounds of appeal: 1. Under the facts and circumstances of the case, order passed by the Ld. PCIT u/s 263 is illegal bad in law and the same be quashed. 2. The Ld. PCIT has erred on facts and in law in holding that the order passed by the AO allowing the loss on account of differential interest under the head income from other sources in the absence of Balance Sheet/ bank statement of relevant period is erroneous and prejudicial to the interest of revenue ignoring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B 5-13) and 04.09.2018 (PB 17-18). Thus, when AO has examined this issue and taken a plausible view, only because Ld. CIT entertained a different view, cannot be a ground for issuing notice u/s 263. In this connection reliance is placed on the following cases:- i. CIT Vs. International Society for Krishna Consciousness (2020) 272 Taxman 534 (Kar.) (HC) ii. Torrent Pharmaceuticals Ltd. Vs. DCIT ITA No.164/Ahd/2018 order dt. 08.08.2018 (Ahd.) (Trib.) iii. PCIT Vs. Om Rudra Priya Holiday Resort Pvt. Ltd. (2019) 184 DTR 378 (Raj.) (HC) iv. CIT Vs. Chemsworth Pvt. Ltd. (2020) 275 Taxman 408 (Kar.) (HC) v. Mudhol Land Holding Company (P) Ltd. Vs. CIT (2014) 110 DTR 209 (Pune) (Trib.) vi. Ambo Agro Products Ltd. Vs. PCIT (2017) 160 DTR 25 (Kol.) (Trib.) 2. It may also be noted that on this issue, AO issued notice u/s 154 dt. 06.03.2020 (PB 19-20) against which assessee filed reply dt. 13.03.2020 (PB 21-23). It appears that AO has not passed any order against this notice. Thus, when this issue was pending u/s 154 before the AO, on the same issue notice u/s 263 issued on 13.03.2021 is bad in law as on the same issue there cannot be two parall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... violation of condition of Companies Act or not has no relevance with the computation of total income of assessee or for that matter holding the order of AO erroneous. Further paying interest @ 16% to M/s Oswal Electrical Conductors and charging interest @ 9% from M/s Oswal Cables Pvt. Ltd. has no adverse impact in as much as M/s Oswal Cables Pvt. Ltd. has declared loss in the return even after paying lower interest to the assessee and M/s Oswal Electrical Conductors has declared income in the return after receiving higher interest from the assessee. There is no provision in the law for the tax authority to decide at what rate assessee should charge interest or at what rate it should pay interest as they cannot sit in the arm chair of assessee to direct as to how the assessee should conduct its activities. In this connection reliance is placed on the decision of Hon ble Supreme Court in case of S.A. Builders 288 ITR 1 and Hero Cycles Pvt. Ltd. vs. CIT 379 ITR 347 where it was held that the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the Board of Directors and assume the role to decide how much is reasonable expenditure ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocuments. The AO again vide notice dated 28.08.2018 issued u/s 142(1) of the Act required the assessee to furnish detailed reply on whether the deduction against income from other sources has been correctly shown in the return of income. The same was replied by the assessee vide letter dated 04.09.2018. The AO after examining all these details/ explanation furnished by the assessee accepted the income declared by the assessee u/s 143(3) dated 15.11.2018. Thereafter, the AO issued notice u/s 154 r.w.s. 143(3) of the Act dated 06.03.2020 which are available at page Nos. 19-20 of the paper book, on the ground that assessee has paid interest of ₹ 30,08,138/- @ 16% p.a. whereas he has received interest of ₹ 17,46,777/- @ 9% p.a. on the same amount. Thus, excess claim of interest paid of ₹ 12,61,361/- is disallowable. In response to same assessee file detailed reply vide letter dated 13.03.2020 which are available at page Nos. 21-23 of the paper book. 8. We observed that the AO has not passed any order against notice issued by him u/s 154 of the Act. However, Ld. PCIT issued show cause notice u/s 263 dated 13.03.2021 on the same issue stating that there are no deta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the hands of assessee which needs to be disallowed. 9. From perusal of the record, we observed that the ld. Pr.CIT has dealt with the issue in para No. 5 of his order and for ready reference, we reproduce the same as under: 5. I have gone through the reply filed by the AR as well as material available on record. It is seen that the return of income was filed in this case on 27.07.2016 declaring therein total Income of ₹ 9,93,060/-. Assessee has declared income from salary at ₹ 24,00,000/- and income from other sources at (-) ₹ 12.56,942/-. Besides, interest form SB account at ₹ 1,275/- and interest from IT refund at ₹ 3,144/-. Assessee has shown interest income from Oswal Cables Pvt. Ltd. at ₹ 17,46,777/-. Against total interest income of ₹ 17,51,196/- assessee has claimed interest expenses being interest paid to Oswal Electrical Conductor @ 16% amounting to ₹ 30,08,138/-. Thus net loss of ₹ 12,56,942/-has been declared under the head income from other sources. The said loss has been set off against salary income and total income is declared after claiming deduction under Chapter VIA at ₹ 9,93,060/-. It is see ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ight way reduced the total income to the extent of ₹ 12,56,942/-. Thus, there does not appear any justification for the transaction under reference, as to why funds were routed through assessee. By borrowing funds at 16% and advancing the same at 9% by no rationale establishes that the amounts were borrowed for the purpose of earning any income. Admittedly interest differential has lead to the lowering of tax liability in the hand of the assessee. Such type of arrangement which is devoid of any sound business rationale cannot be accepted on face value. The interest differential therefore needs to be disallowed. Since, there is no balance sheet/ Bank statement of the assessee for the relevant period and utilization of the funds borrowed from Oswal Electrical Conductor are not discernible from the details available on record, AO shall carry out this exercise and quantify the interest allowable/disallowable accordingly. 10. We observed from perusal of the impugned order that the assessee has declared income from salary at ₹ 24,00,000/- and income from other sources at (-) ₹ 12,56,942/-. Besides, interest form SB account at ₹ 1,275/- and interest from IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11. Admittedly, Oswal Cables Pvt. Ltd. is having losses and in the year under reference loss is declared at ₹ 2,72,96,742/- whereas Oswal Electrical Conductor has declared total income at ₹ 1,21,826/- only and profit as per P L account at ₹ 77,417/- only. It is, thus, evident that even after receipt of interest of ₹ 30,08,138/- from the assessee the profit as per P L account is shown at ₹ 77,417/- and taxes are paid on total income of ₹ 1,21,826/- only by the firm M/s Oswal Electrical Conductor. Whereas, assessee has straight way reduced the total income to the extent of ₹ 12,56,942/-. Thus, there does not appear any justification for the transaction under reference, as to why funds were routed through assessee. By borrowing funds at 16% and advancing the same at 9% by no rationale establishes that the amounts were borrowed for the purpose of earning any income. Admittedly interest differential has led to the lowering of tax liability in the hand of the assessee. Such type of arrangement which is devoid of any sound business rationale cannot be accepted on face value. The interest differential therefore needs to be disallowed. Since, th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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