Manjri Stud Farm Pvt Ltd Vs ACIT (ITAT Mumbai)
ITAT Mumbai held that invocation of provisions of section 263 of the Income Tax Act without satisfying the twin condition i.e. erroneous and prejudicial to the interest of revenue not satisfied. Hence, order passed u/s 263 set aside.
Facts- Post completion of assessment, Pr.CIT invoked provisions of section 263. Pr.CIT mentioned that assessee has claimed deduction u/s. 24(b) of the Act of ₹.11,83,44,908/- and assessee has not furnished documentary evidences in support of its claim during the assessment proceedings. Further, he mentioned that on perusal of notices issued u/s 142(1) dated 30.09.2019 and 10.12.2019, that AO has not raised any query on deduction claimed u/s 24(b) in its return of income. AO did not make any further verification on this issues. He also mentioned that as per the provisions of section 24(b) no deduction is to be allowed to an assessee in absence of the requisite certificate. During assessment proceedings, AO has not made enquiry on account of deduction claimed u/s 24(b) of the Act although the assessee did not furnish a certificate from the person to whom any interest is payable on the capital borrowed, specifying the amount of interest payable by the assessee.
Conclusion- The proviso contained in section 24(b) is not applicable to assessee who borrows the capital for the purpose of earing income by letting out the property under the head “income from house property”. Therefore, the interpretation of third proviso to 24(b) in isolation is not proper and we are not inclined to agree with the findings of the Ld. Pr.CIT u/s. 263 of the Act. As per the facts on record, we observe that assessee is in business of construction and letting of the property as well as maintenance of the property, in such combined business, it is normal in the construction business to borrow the capital for the overall business and apportion the same based on the head of income. It is not in dispute that assessee has paid the relevant interest to the bank.
Held that in order to invoke provisions of section 263 of the Act, both conditions has to be satisfied, not just erroneous, even the condition, prejudicial to the revenue. But as per the discussion in the above paragraph we do not agree with the Ld. Pr.CIT that the condition of prejudicial to the interest of the Revenue is satisfied. Therefore, twin conditions as per provisions of section 263 are not satisfied in this case. Hence the order passed u/s.263 is set aside.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
1. This appeal is filed by the assessee against the order of Learned Principal Commissioner of Income Tax, Mumbai – 2 [hereinafter in short “Ld. Pr.CIT”] dated 29.03.2022 for the A.Y.2017-18 passed u/s. 263 of Income-tax Act, 1961 (in short “Act”).
2. Brief facts of the case are, assessee filed its Return of income for A.Y. 2017-18 on 31.10.2017 declaring total loss at ₹.22,99,52,110/-. The case was selected for complete scrutiny under CASS and notices u/s.143(2) and 142(1) of the Act were issued and served on the assessee. In response, Authorised Representative of the assessee uploaded the details on the Income Tax E-Proceeding Portal from time to time.
3. Assessee is engaged in the business of Commercial leasing which includes IT Park an IT/ITES SEZ, Construction of Residential Flats and Sales, Hospitality Business. Assessing Officer passed the Assessment Order u/s. 143(3) of the Act on 25.12.2019 accepting the return of income filed by the assessee. Ld. Pr.CIT, Mumbai -2, while examining the records, observed that assessment order dated 25.12.2019 passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the revenue, and requires revision. Accordingly, he issued show cause notice to the assessee and recorded the reasons for revision. In the reasons recorded Ld. Pr.CIT mentioned that assessee has claimed deduction u/s. 24(b) of the Act of ₹.11,83,44,908/- and assessee has not furnished documentary evidences in support of its claim during the assessment proceedings. Further, he mentioned that on perusal of notices issued u/s 142(1) dated 30.09.2019 and 10.12.2019, that Assessing Officer has not raised any query on deduction claimed u/s 24(b) in its return of income. The Assessing Officer did not make any further verification on this issues. He also mentioned that as per the provisions of section 24(b) no deduction is to be allowed to an assessee in absence of the requisite certificate. During assessment proceedings, Assessing Officer has not made enquiry on account of deduction claimed u/s 24(b) of the Act although the assessee did not furnish a certificate from the person to whom any interest is payable on the capital borrowed, specifying the amount of interest payable by the assessee.
4. In response, assessee has filed written submissions vide letter dated 15.03.2022, for the sake of clarity, same is reproduced below: –
“….We now proceed to firstly explain the brief factual background to the matter.
1. The Company has taken a term loan of approx. Rs. 200 crores and an Overdraft facility of Rs. 100 crores from Hongkong & Shanghai Banking Corporation Ltd. [HSBC Bank] against the hypothecation of property at ‘S.P. Infocity, Pune ‘
• a copy of term loan agreement dated 28 July 2015 with HSBC Bank – refer “Appendix-A”,
• a copy of the Overdraft facility agreement dated 28 July 2015 with HSBC Bank – refer “Appendix-B”.
• a copy of Facility Advise Letters dated 03 May 2016 issued by the HSBC Bank- refer “Appendix-C”;
• a copy of sanction letter dated 13 December 2016 issued by HSBC Bank – refer “Appendix-D
The term loan/ overdraft facility is mainly to meet the day-to-day business requirements.
2. A statement giving the details vis-a-vis interest paid on term loan and overdraft facility is forwarded herewith-refer “Appendix-E”.
3. Further, we also forward the bank statements highlighting all the entries towards payment of interest for your Honour’s ready reference-refer “Appendix-F”.
4. The fact about the term loan and the overdraft facility from HSBC Bank is also forming part of the Notes to our Audited Annual Account for the year [refer Note S(0) a photocopy of our Audited Annual Accounts is forwarded herewith refer “Appendix G”.
5. Further, we submit that, we have made an application to HSBC Bank to re-issue the interest certificate, since we are unable to trace the original interest certificate from HSBC Bank which was on our records. The Bank has informed us that the interest certificate will be provided in 7 working days from 14 March 2022- a copy of email from the HSBC Bank is also forwarded herewith for your Honour’s ready reference- refer “Appendix- H”. Accordingly, we have to request your Honour to grant us a period of around 8-9 days to furnish the same.
6. Be that as it may, we invite your Honour’s attention to the fact that the finance cost debited to the profit and loss account is Rs. 20,19,03,981/-.
The said amount alongwith other expenses have been apportioned between the income from house property’ and ‘income from business and profession’ – a detailed working of apportionment of expenditure between various heads of income forms part of our statement showing computation of total income, which was filed with the Assessing Officer during the course of the assessment proceedings vide letter dated 03 October 2019- a copy of the said letter alongwith the statement showing computation of total income is also forwarded herewith for your Honour’s ready reference- refer “Appendix-I”.
7. For your Honour’s ready reference, we reproduced hereunder the apportionment of the finance cost from the aforesaid statement showing computation of total income
