IN INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH,CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA No.426/CHD/2016 Assessment Year : 2011-12 M/s H.P. Infrastructure Vs Pr.CIT, Development Board, Shimla. New Himrus Building, Cart Road, Shimla. PAN: AAALH0040D (Appellant) (Respondent) Appellant by : Shri Vishal Mohan Respondent by : Shri Ravi Sarangal Date of Hearing : 28.09.2016 Date of Pronouncement : 05.10.2016 O R D E R PER BHAVNESH SAINI, JM This appeal by assessee has been directed against order of ld. CIT, Shimla dated 16.03.2016 for assessment year 2011-12 challenging order under section 263 of Income Tax Act. 2. Briefly facts of case are that assessee filed return of income at nil income which was subjected to scrutiny assessment under section 143(3) of Act vide order dated 10.02.2014 accepting nil income. While reviewing assessment order and 2 examining assessment records, CIT noticed that assessee had advanced sum of Rs. 67 Crores on 16.11.2005 to Himachal Road Transport Corporation to discharge its liability and closing balance on 31.03.2011 was Rs. 58.79 Crores. This loan was approved with following conditions : i) inter corporate transfer/loan of Rs. 67 Cr. from IDB to HRTC on behalf of state Government has been approved. ii) That loan will be paid by HRTC in ten years regularly with no moratorium, iii) that interest on this loan for first three years will be paid by State Govt. and after that by HRTC regularly. 3. CIT further noted that assessee was completed without making proper inquiry and investigation into issue and facts. show cause notice under section 263 was issued as to why assessment order so framed under section 143(3) of Act should not be modified. reason in issue of notice under section 263 was that assessee was local authority, had followed mercantile system of account but no interest was charged from HRTC on outstanding loan of Rs. 58.79 Cr for year ending on 31.03.2011. interest was required to be added to income of assessee. 4. assessee filed written reply before CIT and it was submitted that sum of Rs. 67 Cr was advanced to HRTC on behalf of State Government vide sanction 3 letter dated 30.11.2005. HRTC shall pay interest directly to State Government, therefore, recipient was Government and no interest accrued to assessee. Therefore, there is no question of making any addition against assessee. same view have been acknowledged by ITAT Chandigarh Bench in assessee's case for assessment year 2007-08, copy of which is already placed on record, therefore, no adverse inference is called for in matter. 5. CIT, however, did not accept contention of assessee and noted that CIT has jurisdiction to interfere when two conditions are satisfied i.e. order passed is erroneous and in so far as prejudicial to interest of revenue. Since Assessing Officer has taken mistaken view of law and has not applied his mind, therefore, order is liable to be set aside. It was further noted that order of ITAT for assessment year 2007-08 have been challenged by Revenue before Hon'ble High Court and matter is still pending. appeal for assessment year 2009-10 has also been filed by revenue which is also pending. It was, therefore, noted that since Assessing Officer failed to make proper inquiry and investigation into issue, therefore, issue remained unverified. assessment order was, therefore, set aside Assessing Officer was directed to make assessment afresh in accordance with law. 4 6. We have considered rival submissions and perused material available on record. CIT issued show cause notice on fact that assessee had advanced sum of Rs. 67 Cr to HRTC on certain conditions mentioned above. Assessing Officer did not make proper enquiry on this issue and interest income was not added back to income of assessee. However, assessment order under section 143(3) of Act dated 10.02.2014 clearly revealed that Assessing Officer had taken up similar issue in assessment proceedings after calling for explanation of assessee and verifying conditions of grant of amount in question to HRTC. assessee stated before Assessing Officer that vide Board Resolution dated 15.07.2010, it was further decided that HRTC shall pay interest directly to State Government. As recipient and payer were Government, no interest accrued to assessee, whatever and as such no question of crediting, same arose at all. Assessing Officer, after considering reply of assessee and material on record, accepted explanation of assessee and did not make any addition on account of accrual of interest on loan to HRTC. nil income was accepted. 6(i) assessee submitted before CIT that similar matter in case of assessee was considered by ITAT Chandigarh Bench in ITA 1434/2010 for assessment year 2007-08 vide order dated 30.03.2011, 5 copy of which is filed at page 40 of Paper Book. Tribunal in case of same assessee, considered issue of accrual of interest on same amount and has g i v e n t h e f o l l o w i n g f i n d i n g , W e f i n d me r i t i n t h e c l i m o f assessee th at said in terest, if any, accrued to S t t e G o v e r n me n t s i n c o me o f t h e s s e s s e e B o r d af t e r e x p e n d i t u r e wa s t h e i n c o me o f t h e S t t e G o v e r n m e n t n d wh e r e same is to be received by State G o v e r n me n t , n d l s o p i d b y t h e S t t e G o v e r n m e n t , n o such interest accrues or is to be accounted f or by assessee Board. Hence, no such interest is assessable i n t h e h n d s o f th e s s e s s e e . Tribunal allowed appeal of assessee and deleted entire addition on account of interest on advance to HRTC. order of Tribunal have not been accepted by revenue because appeal is filed before Hon'ble High Court which is still pending. Hon'ble Madhya Pradesh High Court in case of Govindram Seksaria Charity Trust V ITO 168 ITR 387 held as under : Held, that till order passed by Tribunal was set aside, revenue wa s b o u n d b y t h e order passed by Tribunal. Theref ore, n o t i c e n d t h e d r af t s s e s s me n t o r d e r s i s s u e d b y t h e i n c o me - t x O f f i c e r we r e l i b l e t o b e q u s h e d . and in case of CIT Vs Darshan Talkies 217 ITR 744 held as under : 6 decision of High Court is binding and pendency of petition f or special leave to appeal t o t h e S u p r e me C o u r t f r o m s u c h d e c i s i o n c n n o t obliterate its impact. It is binding until it is reversed or overruled. 7. It is admitted fact that order of Tribunal for assessment year 2007-08 (supra) have not been reversed by Hon'ble High Court till date, therefore, order of Tribunal on identical fact and issue is binding on income tax authorities. Till order passed by Tribunal was set aside, revenue was bound by order passed by Tribunal. 8. In this case, Tribunal passed order on 30.03.2011 which is still in favour of assessee on identical issue and Assessing Officer passed assessment order on 10.02.2014 which was on similar line as have been directed by Tribunal that no interest accrued to assessee. Therefore, order passed by Assessing Officer was strictly in accordance with law and as such, assessment order cannot be treated as erroneous in so far as it is prejudicial to interest of revenue. Further, CIT is not justified in holding that Assessing Officer has not applied his mind to facts of case and hence also passed assessment order without making proper inquiries. Assessing Officer examined issue in detail and findings have been given by Assessing Officer on similar way as have been considered by 7 Tribunal. Mere pendency of departmental appeal before Hon'ble High Court is no ground to take contrary view. Since no interest income is assessable in hands of assessee, therefore, CIT was not justified in initiating proceedings under section 263 of Act. proceedings under section 263 of Act in facts and circumstances of case are clearly abuse of process of law and cannot be sustained in law. 9. In this view of matter, we set aside impugned order under section 263 of Act and restore assessment order under section 143(3) dated 10.02.2014. 10. In result, appeal of assessee is allowed. Order Pronounced in Open Court. Sd/- Sd/- (ANNAPURNA GUPTA) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 5th October, 2016. Poonam Copy to: 1. Appellant 2. Respondent 3. CIT(A) 4. CIT,DR Assistant Registrar, ITAT/CHD M/s H.P. Infrastructure Development Board v. Pr.CIT, Shimla