TMI Blog2022 (9) TMI 1184X X X X Extracts X X X X X X X X Extracts X X X X ..... ty incurred by the assessee. We are of the considered view that there is no legal basis for invocation of provisions of section 41(1) in respect of share application money which continues to remain outstanding pending allotment of shares and continues to remain reflected in the balance sheet of the assessee company as on 31/03/2016 and thus, we set-aside the findings of the ld PCIT in this regard where he says that the order so passed by the AO is erroneous and prejudicial to the interest of the Revenue for non-invocation of section 41(1) and carrying out requisite enquiries in this regard. TDS u/s 194A - Non-deduction of TDS on interest payment to PSIDC, on perusal of the balance sheet and the profit/loss of the assessee company for the financial year relevant to impugned assessment year - HELD THAT:- The application of relevant provisions have to be examined in its entirety including the relevant exemption provisions and tested based on facts and circumstances of each case and merely stating that certain provisions are applicable without establishing its applicability to the facts of the given case cannot be a basis to hold that the order passed by the AO is erroneous as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee, however not been satisfied with the same, the assessment order passed under section 143(3) was held to be erroneous as well as prejudicial to the interest of the Revenue on account of the fact the AO has failed to make proper inquiry and accordingly the assessment order was set aside to the file of the AO to pass a fresh order after making necessary inquiry / investigation and after giving due opportunity to the assessee. 3. Against the said findings and the order of the Ld. Pr. CIT, the assessee is in appeal before us. 4. During the course of hearing, the Ld. AR submitted that the case of the assessee was selected for limited scrutiny under CASS for verification of two transactions namely whether unsecured loans are genuine and from disclosed sources, and secondly, whether the share application money is genuine and from disclosed sources. It was submitted that during the course of assessment proceedings, the AO carried out necessary verification in respect of both these matters and has accepted the submissions of the assessee regarding both unsecured loans taken from disclosed sources as well as the fact that there is no introduction of share capital during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed scrutiny and accordingly, for the said reasons, the order so passed by the Ld. Pr. CIT cannot be sustained and the same deserves to be set aside. In support, reliance was placed on the decision of Coordinate Chandigarh Benches in case of Mr. Narender Kumar Sharma Vs. Pr. CIT (in ITA No.429/Chd/2018 dt. 18/07/2022). 4.3 Further, referring to the show cause issued by the Ld. Pr. CIT, it was submitted by the Ld. AR that in the said show cause, it has been stated that as per the balance sheet as on 31/03/2016, there is share application money amounting to Rs. 1,36,00,000/- and further on scrutiny of the assessment records, it is noticed that the share application money is pending prior to the year ending 31/03/2007. Thereafter referring to the provision of the Company Act, it was stated that the said amount was required to be returned back to the applicant within 90 days and since the company neither allotted the share nor returned back the share application money, there is cessation of liability and the provision of Section 41 are attracted which the AO has failed to verify in the instant case. 4.4 With regard to the aforesaid matter, our reference was drawn by the ld AR to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l statements of the assessee company for the year ended 31/03/2016 which are available at Paper Book pages nos. 66 to 82 and it was submitted that on perusal of the profit/loss account, it is crystal clear that no interest has been claimed in the P L Account and therefore the whole hypothesis and presumption of payment of interest during the year under consideration does not have a leg to stand and therefore the order so passed by the Ld. Pr. CIT deserves to be set aside. 4.6 Further, the assessee has relied on the findings of Hon ble Delhi High Court in case of PCIT Vs. Delhi Airport Metro (2018) 99 Taxmann 382 as well as decision of Coordinate Chandigarh Benches in case of M/s Aggarwal Promoters Vs. Pr. CIT (in ITA No. 1708/Chd/2017 dt. 16/04/2019). 5. Per contra, the Ld. CIT DR submitted that it is not in dispute that the case of the assessee was selected for limited scrutiny under CASS. In this regard, our reference was drawn to the one of the notices issued by the AO under section 142(1) dt. 04/06/2018 wherein it has been stated that the assessee is in receipt of large share application money pending for more than 1 year as compared to preceding year and the assessee was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egarding the issue of non deduction of TDS on the interest payment to PSIDC, the Ld. CIT DR relied on the findings of the Ld. Pr. CIT. 6. We have heard the rival contentions and purused the material available on record. It is not in dispute that the assessee has not received any share application money during the year under consideration. It is also not in dispute that the share application money amounting to Rs 1,36,00,000/- has been shown in the balance sheet of the assessee s company as on 01/04/2015 which continued to be shown as on 31/03/2016. It is also not in dispute that the share application money was received by the assessee company prior to the year 2007 and the same continues to be shown as share application money all these years right up to the end of the financial year relevant to impugned assessment year and no shares have been allotted. In this factual background, the limited issue for consideration is whether the provisions of section 41(1) are applicable as so held by the ld PCIT and where the answer to the same is in affirmative, whether the order so passed by the AO is erroneous and prejudicial to the interest of the Revenue for non-invocation of section 41(1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee. In light of the same, we are of the considered view that there is no legal basis for invocation of provisions of section 41(1) in respect of share application money which continues to remain outstanding pending allotment of shares and continues to remain reflected in the balance sheet of the assessee company as on 31/03/2016 and thus, we set-aside the findings of the ld PCIT in this regard where he says that the order so passed by the AO is erroneous and prejudicial to the interest of the Revenue for non-invocation of section 41(1) and carrying out requisite enquiries in this regard. 7. Now coming to the other issue of non-deduction of TDS on interest payment to PSIDC, on perusal of the balance sheet and the profit/loss of the assessee company for the financial year relevant to impugned assessment year, we find that no amount of interest has been debited in the profit/loss account and it has been stated at the Bar by the ld AR on behalf of the assessee that the assessee has not claimed any interest as an allowable deduction while filing its return of income. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come for the impugned assessment year and we find that the ld PCIT has not addressed the same as well. 7.2 In any case, we find that by virtue of repayment of PSIDC loan, there is a reduction rather than increase in secured loan during the year under consideration and one of the matters for which the case of the assessee was selected for limited scrutiny, even going by the phraseology employed by the ld PCIT in the show cause notice where he says that the case was selected for examining large increase in unsecured loans during the year, we find that matter of repayment of secured loan including the interest thereon was not a subject matter of limited scrutiny and the ld PCIT cannot enlarge the scope of assessment proceedings by invoking provisions of section 263 of the Act and in this regard, we refer to the decision of the Coordinate Chandigarh Benches in case of Narender Kumar Sharma (supra) where the relevant findings read as under: 7. It is a consistent stand across various Benches of the Tribunal that where the case of the assessee has been selected for limited scrutiny, the ld. Pr.CIT cannot enlarge the scope of the said assessment. In this regard, we refer to the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case. In the latest Instruction No. 5/ 2016 dated 14-07-2016, CBDT has again instructed the taxing authorities in para 2 to 4 as under:- 2. In order to ensure that maximum objectivity is maintained in converting a case falling under Limited Scrutiny into a Complete Scrutiny case, the matter has been further examined and in partial modification to Para 3(d) of the earlier order dated 29.12.2015, Board hereby lays down that while proposing to take up Complete Scrutiny in a case which was originally earmarked for Limited Scrutiny , the Assessing Officer ( AO ) shall be required to form a reasonable view that there is possibility of under assessment of income if the case is not examined under Complete Scrutiny . In this regard, the monetary limits and requirement of administrative approval from Pr. CIT/CIT/Pr.DIT/DIT, as prescribed in Para 3(d) of earlier Instruction dated 29.12.2015, shall continue to remain applicable. 3. Further, while forming the reasonable view, the Assessing Officer would ensure that: a. there exists credible material or information available on record for forming such view; b. this reasonable view should not be based on mere su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bility of under assessment of income if the case is not examined under Complete Scrutiny and after seeking approval from the competent authority, the case can be converted into complete scrutiny and that too, during the currency of assessment proceedings. Therefore, what is essential is the existence of credible material and basis examination thereof and formation of belief by the AO at first place during the course of assessment proceedings that there is a case of under assessment or escapement of income which is similar to provisions of section 147 of the Act. In the instant case, we find that the assessee, being in business of real estate development has followed percentage completion method of accounting and has accounted for actual costs incurred though after the end of the financial year as the project was substantially completed and revenues have been recognized. Therefore, we find that there is no infirmity in assessee following the accepted method of accounting and basis thereof, determination of income which is offered to tax and thus, we find that there was no tangible material or information available during the course of assessment proceedings basis which reasonable ..... X X X X Extracts X X X X X X X X Extracts X X X X
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