Manju Rakesh Jain Vs PCIT (ITAT Mumbai)
The Income Tax Appellate Tribunal, Mumbai Bench “A”, comprising Shri Om Prakash Kant, Accountant Member, and Shri Sandeep Singh Karhail, Judicial Member, heard the assessee’s appeal in ITA No. 2280/MUM/2025 for Assessment Year 2020-21. The appeal challenged the revision order dated 19.03.2025 passed by the Principal Commissioner of Income-tax, Mumbai-20 under Section 263 of the Income-tax Act, 1961. The Tribunal pronounced its order on 31.07.2025, after hearing the matter on 30.07.2025.
The assessee had filed her return of income on 05.01.2021, declaring total income of ₹1,78,02,520, comprising income under the heads Salary, House Property, Capital Gains and Income from Other Sources. The return was selected for scrutiny, and the assessment was completed under Section 143(3) read with Section 144B on 08.09.2022. The Assessing Officer accepted the returned income in toto.
The dispute concerned the assessee’s claim of ₹1,69,18,439 under Section 57(iii) towards interest expenditure against income offered under the head “Income from Other Sources”. The PCIT subsequently invoked revisionary jurisdiction under Section 263 after examining the assessment record. According to the PCIT, the Assessing Officer had allowed the interest deduction without making the inquiry and verification that should have been undertaken. The PCIT noted that the assessee had obtained loans from Bajaj Housing Finance and an HDFC overdraft facility, secured against house property, and had advanced funds to M/s Sanyam Realtors Pvt. Ltd., a company in which the assessee’s husband was a director.
The PCIT observed that the assessee had received ₹1,69,16,310 as interest from Sanyam Realtors Pvt. Ltd., besides ₹16,712 savings-bank interest from HDFC Bank and ₹2,116 from Central Bank of India, aggregating to ₹1,69,35,138. Against this, the assessee claimed interest expenditure of ₹1,61,86,047 paid to Bajaj Finance and ₹7,32,392 relating to HDFC overdraft accounts, aggregating to ₹1,69,18,439.
The PCIT took the view that the assessee had not substantiated that the expenditure was laid out or expended wholly and exclusively for earning the interest income. The PCIT further noted that the scrutiny had specifically examined the large deduction claimed under Section 57, but considered that the Assessing Officer had not made the requisite inquiry and verification. Relying upon Explanation 2 to Section 263, the PCIT treated the assessment order as erroneous insofar as it was prejudicial to the interests of the Revenue. The PCIT consequently cancelled the assessment order and set it aside to the Assessing Officer for a fresh assessment, directing the Assessing Officer to make necessary inquiry and verification and provide the assessee an opportunity of being heard.
Before the Tribunal, the assessee’s counsel submitted that the Assessing Officer had, in fact, conducted a detailed inquiry into the Section 57(iii) claim. The counsel referred to notices issued under Sections 143(2) and 142(1) and the assessee’s replies and supporting documents. In particular, a notice under Section 142(1) sought the details and documentary proof of the ₹1,69,18,439 deduction, its bifurcation, and substantiation of its allowability with reference to the specific subsection of Section 57.
The assessee furnished details of the income from other sources and the deduction claimed. The material showed savings-bank interest of ₹16,712 from HDFC Bank, ₹2,116 from Central Bank of India and ₹1,69,16,310 interest received on the loan advanced to Sanyam Realtors Pvt. Ltd., totaling ₹1,69,35,138. The deduction comprised ₹1,61,86,047 interest paid to Bajaj Finance and ₹7,32,392 interest paid to HDFC overdraft accounts.
The assessee also relied upon bank-account material to establish the movement of borrowed funds. The counsel referred to the HDFC Bank overdraft account and submitted that the loan from Bajaj Housing Finance had been received on 19.12.2018, while ₹1,70,00,000 was transferred to Sanyam Realtors Pvt. Ltd. on the same date. The counsel submitted that the loan received from Bajaj Housing Finance was directly advanced to Sanyam Realtors Pvt. Ltd.
Further, the Assessing Officer had specifically sought information regarding the interest received from Sanyam Realtors Pvt. Ltd., bank statements highlighting the interest receipt of ₹1,69,16,310, year-wise details of loans/advances, evidence of ₹3,52,96,965 advanced during FY 2019-20, evidence of ₹7,20,32,900 received back, Form 16A evidencing TDS of ₹16,91,631, the loan agreement, and the rate of interest paid by Sanyam Realtors Pvt. Ltd. to the assessee. The Assessing Officer also sought bank statements for the assessee’s various accounts, information concerning the co-borrowers named in the Bajaj Housing Finance loan sanction letter, and the assessee’s Balance Sheet and Profit & Loss Account for FY 2017-18 and FY 2018-19.
The assessee filed detailed submissions in response to these queries. The counsel accordingly contended that the assessment had been completed after thorough inquiry on the disputed issue. The assessment order itself recorded that the assessee had acquired loans aggregating to ₹17.25 crore from Bajaj Housing Finance and through the HDFC overdraft facility and had advanced the funds to Sanyam Realtors Pvt. Ltd. The assessment record also referred to Form 16A furnished by Sanyam Realtors Pvt. Ltd. and recorded that the assessee had advanced the loan at 10% per annum.
The Tribunal considered the rival submissions and the relevant material on record. It noted that the PCIT’s principal basis for exercising Section 263 jurisdiction was the alleged absence of inquiry by the Assessing Officer. However, according to the Tribunal, the assessment record demonstrated that the Assessing Officer had specifically raised queries concerning the allowability of the Section 57(iii) claim, and that the assessee had furnished detailed replies explaining the nexus between the borrowed funds and the income earned.
The Tribunal further recorded that the Assessing Officer had taken the relevant facts into account, examined the interest payments and verified the bank transactions. The Assessing Officer was satisfied that the interest expenditure had been incurred wholly and exclusively for earning the interest income offered under the head “Income from Other Sources”. The Tribunal therefore did not accept the Revenue’s contention that there had been no proper application of mind or that the assessment order suffered from a jurisdictional defect.
The Tribunal stated that where the view taken by the Assessing Officer is a plausible one, based on material on record and after due application of mind, Section 263 jurisdiction cannot be invoked merely because the Commissioner holds a different view. On the facts recorded in the assessment order and the material considered during assessment, the Tribunal concluded that the conditions precedent for invoking Section 263 were not satisfied.
The Tribunal accordingly held that, on the issue in question, the assessment order was neither erroneous nor prejudicial to the interests of the Revenue. It set aside the impugned revisionary order passed by the PCIT under Section 263 and restored the assessment order dated 08.09.2022. The assessee’s appeal was consequently allowed. The order was pronounced in the open Court on 31.07.2025.
Cases Discussed
- CIT Vs Amitabh Bachhan, (Supreme Court), 69 taxmann.com 170, 240 Taxman 221, 384 ITR 200, 286 CTR 113
- Rajmandir Estates (P.) Ltd. Vs PCIT, (Supreme Court), [2017] 77 taxmann.com 285 (SC)/[2017] 245 Taxman 127 (SC)
- Deniel Merchants Pvt. Ltd. vs. ITO, (Supreme Court), Appeal No. 2396/2017, dated 29.11.2017
- CIT Vs Ballarpur Industries Ltd., (Bombay High Court), [2017] 85 taxmann.com 10 (Bombay)
- BSES Rajdhani Power Ltd. Vs PCIT, (Delhi High Court), [2017] 88 taxmann.com 25 (Delhi)/[2017] 399 ITR 228 (Delhi)
- Rajmandir Estates (P.) Ltd. Vs PCIT, (Calcutta High Court), [70 taxmann.com 124 (Calcutta)/[2016] 240 Taxman 306 (Calcutta)/[2016] 386 ITR 162 (Calcutta)/[2016] 287 CTR 512]
- Delhi Surya Jyoti Software Pvt. Ltd. Vs PCIT, (ITAT Delhi), I.T.A. No.2158/DEL/2017
- Surya Financial Services Ltd Vs PCIT, (ITAT Delhi), I.T.A. No.2158/DEL/2017
- CIT Vs Ashok Logani, (Delhi High Court), 11 taxmann.com 208, 202 Taxman 201, 347 ITR 22
- Malabar Industrial Co. Ltd. Vs CIT, (Supreme Court), [2000] 109 Taxman 66 (SC)/[2000] 243 ITR 83 (SC)/[2000] 159 CTR 1 (SC)
- Shree Manjunathesware Packing Products & Camphor Works Vs CIT, (Supreme Court), [1998] 96 Taxman 1 (SC)/[1998] 231 ITR 53 (SC)/[1997] 143 CTR 406 (SC)
- Swarup Vegetable Products Vs CIT, (Allahabad High Court), [1991] 54 Taxman 175 (Allahabad)/[1991] 187 ITR 412 (Allahabad)/[1990] 90 CTR 113 (Allahabad)
- Lakshmi Vilas Bank Vs JCIT, (Madras High Court), 2018-TIOL-2284-HC-MAD-IT
