AVON Cycles Ltd. Vs PCIT (ITAT Chandigarh)
ITAT Chandigarh held that initiation of revisionary proceeding under section 263 of the Income Tax Act for non-verification of notional interest cannot be justified since notional interest is not liable to be taxed in current year but is taxable only upon maturity hence there cannot be any evasion of tax.
Facts- The assessee is a limited company engaged in the manufacturing of cycles. Post completion of assessment, PCIT issued show cause notice mainly on issues like discrepancy in Professional/Technical fees (Rs. 2.84 Cr not claimed in P&L); outstanding credit of Rs. 41.63 Lakhs in the name of “District Magistrate”; notional interest of Rs. 1.84 Cr not verified; reconciliation of sales with Form 26AS (Sales to Govt of TN) and verification of Stock Valuation. PCIT, not being satisfied with the reply, passed the impugned order thereby asking AO to redo the assessment. Being aggrieved, the present appeal is filed.
Conclusion- Held that the notional interest income is taxable only upon maturity, which has not been disputed by the Ld. PCIT, furthermore, it has not been demonstrated on record that the non-examination of this issue, per se, resulted in any evasion of taxes. Consequently, once it is established that the notional interest is not liable to be taxed in the current year, the mere failure to raise a specific query cannot be characterised as an act prejudicial to the interest of the Revenue. Once it is established that the notional interest is not liable to be taxed in the current year (and is taxable only upon maturity), the mere failure of the AO to raise a query cannot be termed as an act “prejudicial to the interest of the Revenue. The AO is obliged to examine issues that have actual tax implications; non-examination of an issue / in nocuous issue that bears no immediate tax impact would not render the assessment order erroneous and prejudicial. Accordingly, we set aside the Ld. ‘s finding. PCIT with respect to notional interest of Rs. 1,84,15,696/- and held that the order of the PCIT on this issue is not sustainable.
