2018 (2) TMI 1142 - AT - Income Tax

Tribunal Invalidates Revision Proceedings on Land Charges & Interest Expenditure

The Tribunal held that the revision proceedings under Section 263 of the IT Act concerning both land development charges and interest expenditure were ... Revision u/s 263 - allowability of land development expenses - Held that:- Proper enquiries have been made by the Assessing Officer while accepting the claim of the assessee. Enquiries have also been made u/s. 133(6} of the Act and the details filed by the assessee have not been accepted summarily by the Assessing Officer. Thus, due application of mind was made and pursuant to the enquiries made, claim of the assessee was accepted by the Assessing Officer after fully satisfying that the land development expenses are genuine.- Decided in favour of assessee Addition u/s 14A - Held that:- During the course of the assessment proceedings, specific query was raised by the Assessing Officer as to why the interest was not received on the loans given to the related parties and also as to why disallowance of interest should not be made u/s. 14A. In response to the said query, vide letter dated 28.11.2014, the assessee filed detailed explanation on the aforesaid issue duly supported by judicial precedents. Thus the issue with respect to the claim of interest expenditure had been thoroughly examined by the Assessing Officer by calling for the specific details and the explanations on the issue involved - the revision proceedings u/s. 263 of the Act even with respect to the interest expenditure directing the AO to re-examine the same is incorrect and unjustified. - Decided in favour of assessee Issues Involved:1. Legitimacy of the revision under Section 263 of the IT Act concerning land development charges.2. Legitimacy of the revision under Section 263 of the IT Act concerning interest expenditure.Issue-wise Detailed Analysis:1. Legitimacy of the revision under Section 263 of the IT Act concerning land development charges:The assessee challenged the revision by the CIT on the issue of land development charges amounting to Rs. 50,60,000/- paid to Smt. Sumitraben Chauhan. The CIT directed the Assessing Officer (AO) to re-examine the matter. The assessee contended that the issue had been thoroughly examined by the AO during the original assessment proceedings. The payment towards land development expenses was included in the cost of land purchased and claimed as a deduction while determining Short Term Capital Gains (STCG).The AO had issued a notice under Section 142(1) and queried the details of STCG, which the assessee had duly provided, including the land development expenses and invoices from Smt. Sumitraben Chauhan. The AO verified the genuineness of the transactions by issuing a notice under Section 133(6) to Smt. Sumitraben Chauhan, who confirmed the transactions and provided the necessary documents.The assessee relied on the decision of the Hon’ble Bombay High Court in the case of CIT v. Nirav Modi, which held that the powers under Section 263 can only be exercised if the assessment order is erroneous and prejudicial to the revenue. The court observed that where the AO has taken one of the possible views after inquiry, the CIT cannot direct a fuller inquiry unless no inquiry was conducted.The Tribunal noted that the AO had made detailed inquiries regarding the land development charges, including issuing notices and verifying documents. The Tribunal found that the AO had applied his mind to the issue and was satisfied with the correctness of the claim. The Tribunal concluded that the CIT had not conducted any further inquiry to establish that the AO’s order was erroneous. Therefore, the Tribunal held that the revision proceedings under Section 263 were invalid and quashed the order passed by the CIT.2. Legitimacy of the revision under Section 263 of the IT Act concerning interest expenditure:The assessee objected to the revision proceedings on the issue of interest expenditure of Rs. 18,81,000/-. The CIT observed that the assessee had not explained the rate of interest paid and alleged that the interest expenditure was capital in nature since the borrowed funds were used for purchasing land. The CIT held that the AO had not examined whether the interest expenditure was allowable as business expenditure and concluded that there was non-application of mind by the AO.The Tribunal noted that the assessment was taken up under CASS to verify the issue of large interest expenses related to exempt investments under Section 14A. The AO had issued a notice under Section 142(1) and specifically queried the details of interest paid. The assessee provided complete details, including the name and address of the party, PAN, rate of interest, amount of loan, interest paid, and TDS deducted. The AO also raised specific queries regarding the interest not received on loans given to related parties and the disallowance of interest under Section 14A. The assessee provided detailed explanations supported by judicial precedents.The Tribunal concluded that the AO had thoroughly examined the issue of interest expenditure by calling for specific details and explanations. The AO allowed the deduction after being satisfied with the claim. Therefore, the Tribunal held that the revision proceedings under Section 263 concerning the interest expenditure were incorrect and unjustified.Conclusion:The Tribunal allowed the appeal of the assessee, holding that the revision proceedings under Section 263 of the IT Act concerning both the land development charges and interest expenditure were invalid and unjustified. The order pronounced in the open court on 19/01/2018.