Case Law Details
Brahmaputra Property Hub Private Limited Vs ITO (ITAT Guwahati)
Appeal filed at the instance of the assessee is directed against the order of the Learned Principal Commissioner of Income Tax, Guwahati – 1, passed u/s 263 of the Income Tax Act, 1961 (in short ‘the Act’) dt. 30/03/2023, for Assessment Year 2018-19.
During the course of revisionary proceedings, it was stated by the assessee that secured loan was taken from SREI Infrastructure Finance Ltd. (in short “SREIIFL”) for the purpose of executing real estate and commercial business. Since the business was in the initial stage, the borrowed funds were advanced to M/s. M.L. Singhi, so as to avoid NPA account and generated interest income which gave effect to 95% of the interest repayment liability towards SREIIFL. It was also claimed by the assessee that the interest payments was @ 14.21% and the interest income from M.L. Singhi was @ 13.96% and in view of the commercial expediency as held by the Hon’ble Apex Court in the case of S.A. Builders Ltd. Vs. Commissioner of Income Tax (Appeals)” (2007) 288 ITR 0001, claim of expenditure was rightly allowed by ld. Assessing Officer.
Pr. CIT after dealing with the issue elaborately came to the conclusion that since there was no business activity during the year and the borrowed funds were utilized to the third party without any commercial expediency, interest expenditure claimed at Rs.1,04,83,749/- should not have been allowed by the Assessing Officer. He thus held the order of the Assessing Officer to be erroneous, so far as prejudicial to the interest of the revenue.
Counsel for the assessee submitted that the issue has been examined by the Assessing Officer and a plausible view has been taken and consequently he submitted that for commercial expediency, the idle funds were utilised for reducing the loss of the company. He thus prayed that the impugned order deserves to be quashed as the order of the Assessing Officer dt. 23/02/2021 is neither erroneous nor prejudicial to the interest of the revenue.
heard the rival contentions and perused the material placed on record. The assessee has raised various grounds challenging the assumption of jurisdiction by ld. Pr. CIT u/s 263 of the Act holding that the assessment order for Assessment Year 2018-19 is erroneous and prejudicial to the interest of the revenue. But the only issue raised in the revisionary proceedings is regarding allowability of interest expenditure of Rs.1,04,83,749/- paid to SREIIF A perusal of the above settled judicial precedents and the provisions of Section 263 of the Act and on going through the facts, we notice that the assessee took funds from ld. Pr. CIT for project work. The interest burden started from the date of borrowing the secured loan at that point of time, the commercial project did not pick up but looking at the interest burden, the assessee advanced the funds to M.L. Singhi and Associates Private Limited. Admittedly, the funds were borrowed funds carrying the interest rate of 14.21 % but the funds were advanced to M.L. Singhi Associates were at a lower interest rates at 13.96%. The observation of the ld. Pr. CIT is that funds which were borrowed from SREIIFL has not been utilized for the purpose of business and, therefore, the interest expenditure incurred on the loan from SREIIFL should not be allowed. 9. Now, we are presently dealing with the revisionary proceedings and firstly, we have to examine whether this issue has been examined by the Assessing Officer and a plausible view has been taken. We find that the in the notice issued u/s 142(1) of the Act in the annexure placed at page 19 to21, specific questions have been raised in point 6 with regard to the investments/loans appearing in the balance sheet and justification regarding interest paid to others amounting to Rs.1,04,83,709/- has been asked for. The assessee had made detailed submissions and after considering the same, the assessment has been completed and in the body of the assessment order, this issue has been dealt by the Assessing Officer.
Perusal of the above portion of the assessment order, we find that the ld. Assessing Officer has extensively examined this issue and has taken a plausible view after proper application of mind. It is not the case of no enquiry or incomplete enquiry. The ld. Assessing Officer has carried out a detailed enquiry and after considering the fact that the assessee being into real estate project has borrowed funds from SREIIFL for the business purpose and for short term when the funds were idle as a prudent business man and for commercial expediency, the funds were utilized for giving loan to another concern. The ld. Assessing Officer fairly dealt with this issue and on observing that interest expenditure has been claimed in the interest of business has allowed the said claim.
Under these given facts and circumstances, we firstly find that the assessment order is not erroneous as a detailed enquiry has been conducted and secondly not prejudicial to the interest of the revenue as the assessee has set off the interest expenditure against the interest income earned from applying the short term loans and advances. We thus, quash the revisionary proceedings u/s 263 of the Act and restore the assessment order dt. 03/05/2023 and allow the grounds of appeal raised by the assessee are allowed.
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FULL TEXT OF THE ORDER OF ITAT GUWAHATI
The present appeal filed at the instance of the assessee is directed against the order of the Learned Principal Commissioner of Income Tax, Guwahati – 1, passed u/s 263 of the Income Tax Act, 1961 (in short ‘the Act’) dt. 30/03/2023, for Assessment Year 2018-19.
2. The assessee has raised the following grounds of appeal:-
“1. The learned Principal Commissioner of Income-tax – Guwahati – 1, Assam erred in assuming jurisdiction u/s 263 of the Act, particularly in the light of reasons stated by him in the show cause notice and in the order passed u/s 263 of the Act and hence the impugned order is bad in law.
2. The learned Principal Commissioner of Income-tax, Guwahati – 1, Assam erred in setting aside the assessment order framed u/s 143(3) of the Act by holding that the assessing officer has not conducted any inquiries/verification in respect of genuineness of the expenses and that there is incorrect application of law by the A.O.
3. The learned Principal Commissioner of Income-tax, Guwahati – 1, Assam failed to appreciate that the impugned issue was duly examined by the assessing officer by way of specific inquiry/notice and reply thereto, while finalizing assessment proceedings u/s 143(3) of the Act.
4. The learned Principal Commissioner of Income-tax, Guwahati – 1, Assam failed to appreciate that the first appeal of the Appellant against addition made in the assessment order on impugned issue was pending before the Commissioner (Appeals) and therefore the order u/s 143(3) could not be revised u/s 263 of the Act.
5. The learned Principal Commissioner of Income-tax, Guwahati – 1, Assam failed to understand the circumstances and business nature and did an addition of a total amount Rs. 10,483,749 on allegation that respective expense has not fulfilled the condition of Section 36 (1) (iii) of act, 1961.
6. That on the facts and circumstances of the case and in law, the order passed by the Principal Commissioner of Income-tax -Guwahati – 1, u/s 263 of the Income-tax Act, 1961 (‘the Act’) setting aside the assessment framed u/s 143(3) of the Act as erroneous and prejudicial to the interest of the revenue is without jurisdiction, bad in law and void ab-initio.
7. That on the facts and circumstances of the case and in law, the Principal Commissioner of Income-tax – Guwahati – 1 erred in holding that the assessment order is erroneous and prejudicial to interest of revenue on the issue the interest paid by assessee does not fulfill the conditions no (i) and (ii) above laid down in Section 36(1)(iii) of the Act.”
8. That on the facts and circumstances of the case and in law, the Principal Commissioner of Income-tax – Guwahati – 1 erred in exercising jurisdiction u/s 263 by setting aside the aforesaid issue even though the same had been discussed and scrutinized by the Assessing Officer in detail while framing the assessment u/s 143(3) of the Act.
9. That on the facts and circumstances of the case and in law, the Principal Commissioner of Income-tax – Guwahati – 1 failed to point out any error in the order of the Assessing Officer in disallowing of interest respective company is core investment company, which is sine qua non for initiation of proceedings u/s 263 of the Act.
10. The appellant craves leave to add, amend, alter and withdraw any ground of appeal anytime up to the hearing of this appeal.”
3. Through this appeal the assessee has challenged the assumption of jurisdiction u/s 263 of the by ld. Pr. CIT.
4. Facts in brief are that the assessee is a private limited company engaged in the property business. Return of income for Assessment Year 2018-19 furnished on 30/10/2018 declaring total loss of Rs.7,01,107/-. Case selected for scrutiny followed by validly serving notice u/s 143(2) & 142(1) of the Act. Various details were called for vide questionnaire to which a detailed reply has been filed along with relevant annexure. Assessment proceedings completed on 22/03/2021, assessing total income at Rs.15,770/-. Thereafter, the ld. Pr. CIT called for the assessment records and on observing that the Assessing Officer has not examined the issue of interest expenditure claimed against interest from third party, showcause notice was issued relating to advancing of borrowing funds to the third parties without utilizing the funds for assessee’s own business.
4.1. During the course of revisionary proceedings, it was stated by the assessee that secured loan was taken from SREI Infrastructure Finance Ltd. (in short “SREIIFL”) for the purpose of executing real estate and commercial business. Since the business was in the initial stage, the borrowed funds were advanced to M/s. M.L. Singhi, so as to avoid NPA account and generated interest income which gave effect to 95% of the interest repayment liability towards SREIIFL. It was also claimed by the assessee that the interest payments was @ 14.21% and the interest income from M.L. Singhi was @ 13.96% and in view of the commercial expediency as held by the Hon’ble Apex Court in the case of S.A. Builders Ltd. Vs. Commissioner of Income Tax (Appeals)” (2007) 288 ITR 0001, claim of expenditure was rightly allowed by ld. Assessing Officer.
4.2. However, the ld. Pr. CIT after dealing with the issue elaborately came to the conclusion that since there was no business activity during the year and the borrowed funds were utilized to the third party without any commercial expediency, interest expenditure claimed at Rs.1,04,83,749/- should not have been allowed by the Assessing Officer. He thus held the order of the Assessing Officer to be erroneous, so far as prejudicial to the interest of the revenue.
5. Aggrieved the assessee has preferred an appeal before the Tribunal.
6. The ld. Counsel for the assessee submitted that the issue has been examined by the Assessing Officer and a plausible view has been taken and consequently he submitted that for commercial expediency, the idle funds were utilised for reducing the loss of the company. He thus prayed that the impugned order deserves to be quashed as the order of the Assessing Officer dt. 23/02/2021 is neither erroneous nor prejudicial to the interest of the revenue.
On the other hand, the ld. D/R vehemently argued supporting the order of the ld. Pr. CIT.
7. We have heard the rival contentions and perused the material placed on record. The assessee has raised various grounds challenging the assumption of jurisdiction by ld. Pr. CIT u/s 263 of the Act holding that the assessment order for Assessment Year 2018-19 is erroneous and prejudicial to the interest of the revenue. But the only issue raised in the revisionary proceedings is regarding allowability of interest expenditure of Rs.1,04,83,749/- paid to SREIIFL.
8. We find that the provisions of Section 263 of the Act has a direct bearing on the issue raised before us, therefore, it is pertinent to take note of this Section which reads as under:
“263(1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.
Explanation- For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,-
(a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include-
(i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income-tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A;
(ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief Commissioner or Director General or Commissioner authorized by the Board in this behalf under section 120;
(b) record shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Commissioner;
(c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal.
(2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed.
(3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, National Tax Tribunal, the High Court or the Supreme Court.
Explanation- In computing the period of limitation for the purposes of subsection (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded.”
8.1. A bare perusal of the sub section-1 would reveal that powers of revision granted by section 263 to the learned Principal Commissioner of Income Tax (in short ‘the ld. Pr. CIT’) have four compartments. In the first place, the learned Commissioner may call for and examine the records of any proceedings under this Act. For calling of the record and examination, the ld. Pr. CIT was not required to show any reason. It is a part of his administrative control to call for the records and examine them. The second feature would come when he will judge an order passed by an Assessing Officer on culmination of any proceedings or during the pendency of those proceedings. On an analysis of the record and of the order passed by the Assessing Officer, he forms an opinion that such an order is erroneous in so far as it is prejudicial to the interests of the Revenue. By this stage the ld. Pr. CIT was not required the assistance of the assessee. Thereafter the third stage would come. The ld. Pr. CIT would issue a show cause notice pointing out the reasons for the formation of his belief that action u/s 263 is required on a particular order of the Assessing Officer. At this stage the opportunity to the assessee would be given. The ld. Pr. CIT has to conduct an inquiry as he may deem fit. After hearing the assessee, he will pass the order. This is the 4th compartment of this section. The ld. Pr. CIT may annul the order of the Assessing Officer. He may enhance the assessed income by modifying the order. He may set aside the order and direct the Assessing Officer to pass a fresh order. At this stage, before considering the multi-fold contentions of the ld. Representatives, we deem it pertinent to take note of the fundamental tests propounded in various judgments relevant for judging the action of the ld. Pr. CIT taken u/s 263.
8.2. Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT (2000) 243 ITR 83 (SC) has laid down following ratio with regard to provisions of section 263 of the Act:
“There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer; it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase ‘prejudicial to the interests of the revenue’ has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the ITO is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the revenue – Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 (SC) and in Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC).”
8.3. A perusal of the above settled judicial precedents and the provisions of Section 263 of the Act and on going through the facts, we notice that the assessee took funds from ld. Pr. CIT for project work. The interest burden started from the date of borrowing the secured loan at that point of time, the commercial project did not pick up but looking at the interest burden, the assessee advanced the funds to M.L. Singhi and Associates Private Limited. Admittedly, the funds were borrowed funds carrying the interest rate of 14.21 % but the funds were advanced to M.L. Singhi Associates were at a lower interest rates at 13.96%. The observation of the ld. Pr. CIT is that funds which were borrowed from SREIIFL has not been utilized for the purpose of business and, therefore, the interest expenditure incurred on the loan from SREIIFL should not be allowed. 9. Now, we are presently dealing with the revisionary proceedings and firstly, we have to examine whether this issue has been examined by the Assessing Officer and a plausible view has been taken. We find that the in the notice issued u/s 142(1) of the Act in the annexure placed at page 19 to 21, specific questions have been raised in point 6 with regard to the investments/loans appearing in the balance sheet and justification regarding interest paid to others amounting to Rs.1,04,83,709/- has been asked for. The assessee had made detailed submissions and after considering the same, the assessment has been completed and in the body of the assessment order, this issue has been dealt by the Assessing Officer and the relevant portion of the said discussion is reproduced below:-
“During the course of assessment proceedings it has been submitted by the assessee that the assessee company has taken loan for its real estate project from M/s SREI Equipments Finance Ltd. And paid interest of Rs. 1,04,83,749/-. But due to some legal and market unforeseen circumstances, project was not take off. The assessee company has lend the same fund on short term basis to other company and earned interest income of Rs. 97,89,770/- from M/s M.L. Singhi & Associates (P) Ltd. Assessee was asked to furnish the documentary evidence regarding payment of interest to M/s SREI Equipments Finance Ltd. Amounting to Rs. 1,04,83,749/-and receipt of interest of Rs. 97,89,770/- to M/s M.L. Singhi & Associates (P) Ltd. On perusal of ledger account of M/s M.L.Singhi & Associates (P) Ltd. It was noticed that an amount of Rs. 1,05,12,707/- as interest was paid by M/s M.L. Singhi & Associates to the assessee instead of Rs. 97,89,770/-. Therefore, assessee was asked vide notice u/s 05.03.2021 to re-concile the same. It was specifically mentioned in the letter that this is a time barring matter and no further opportunity will be given. In case of non compliance assessment will be completed by making addition of Rs. 7,22,937/-. Vide reply dated 10.03.2021 assessee stated that the information/reply will be submitted on or before 15th March 2021 but till date no reply received from the assessee. Thus, it is clear that the assessee has nothing to say in the. matter. Therefore, an addition of Rs. 7,22,937/- is made to the income of the assessee. Penalty proceedings u/s 270A for under reporting the income has also been initiated.
10. Perusal of the above portion of the assessment order, we find that the ld. Assessing Officer has extensively examined this issue and has taken a plausible view after proper application of mind. It is not the case of no enquiry or incomplete enquiry. The ld. Assessing Officer has carried out a detailed enquiry and after considering the fact that the assessee being into real estate project has borrowed funds from SREIIFL for the business purpose and for short term when the funds were idle as a prudent business man and for commercial expediency, the funds were utilized for giving loan to another concern. The ld. Assessing Officer fairly dealt with this issue and on observing that interest expenditure has been claimed in the interest of business has allowed the said claim.
11. Under these given facts and circumstances, we firstly find that the assessment order is not erroneous as a detailed enquiry has been conducted and secondly not prejudicial to the interest of the revenue as the assessee has set off the interest expenditure against the interest income earned from applying the short term loans and advances. We thus, quash the revisionary proceedings u/s 263 of the Act and restore the assessment order dt. 03/05/2023 and allow the grounds of appeal raised by the assessee.
12. In the result, appeal of the assessee is allowed.
Order pronounced in the Court on 11th March, 2024.
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