2019 (12) TMI 909 - AT - Income Tax

Tribunal quashes orders under section 263 for 2012-13 and 2013-14 assessments, citing lack of independent inquiry.

The Tribunal allowed the assessee's appeals, quashing the orders passed under section 263 for the assessment years 2012-13 and 2013-14. The Tribunal found ... Revision u/s 263 - Characterization of interest earned on funds primarily brought for infusion in the business - HELD THAT:- PCIT while reading the provisions of section 263 of the Act and the decision of Hon’ble Apex Court in the case of M/s. Tuticorin Alkali Chemicals and Fertilizers Ltd [1997 (7) TMI 4 - SUPREME COURT] reached a conclusion that inasmuch as there was no specific inquiry by the Assessing Officer, the assessment order was erroneous in so far as it is prejudicial to the interest of Revenue. He does not conduct any independent enquiry to reach the conclusion that the assessment order was erroneous in so far as it is prejudicial to the interest of Revenue. If we accept the submission of the ld. DR that since all the material was available on record, there was no need for the PCIT to conduct any further inquiry, it also inures to the benefit of the assessee because all these things are available on record and the assessee specifically submitted that the difference in the ITR and 26AS occurred because of the adjustment of the interest received against the project expenditure. Admittedly, this is the only project conducted by the assessee and there is no other project. In such an event, it is not the passive submission to be recorded to the AO, but also actively pleading before him that the interest received was adjusted against the project expenditure. Hon’ble jurisdictional High court considered the decision of the Hon’ble Apex Court in the case of M/s. Tuticorin Alkali Chemicals and Fertilizers Ltd.(supra) and Bokaro Steel Ltd. [1998 (12) TMI 4 - SUPREME COURT] in Indian Oil Panipat Power Consortium Ltd. Vs. ITO [2009 (2) TMI 32 - DELHI HIGH COURT] and held that the interest earned on funds primarily brought for infusion in the business could not have been classified as income from other sources. Further, unlike in the case of M/s. Tuticorin Alkali Chemicals and Fertilizers Ltd.(supra), in the case on hand, the assessee had already commenced business. Viewing from another angle, we are of the considered opinion that the ld. PCIT is not justified in invoking the jurisdiction u/s. 263 of the Act or to hold that the assessment order is erroneous or prejudicial to the interest of Revenueand we find it difficult to sustain the same. Hence, we allow the ground appeal. Issues Involved:1. Whether the assessment order passed under section 143(3) read with section 144C of the Income Tax Act, 1961 was erroneous and prejudicial to the interest of Revenue.2. Whether the interest earned on fixed deposits should be treated as income from other sources or adjusted against the project expenditure.3. The applicability of the Supreme Court decision in the case of M/s. Tuticorin Alkali Chemicals and Fertilizers Ltd.4. The scope and application of Explanation 2 to section 263 of the Income Tax Act.Issue-wise Detailed Analysis:1. Erroneous and Prejudicial Assessment Order:The Principal Commissioner of Income-tax (PCIT) examined the assessment order for the years 2012-13 and 2013-14 and found that the assessee earned interest on fixed deposits amounting to Rs. 9,47,04,585/-. Instead of crediting this interest to the Profit & Loss account, the assessee deducted it from the value of inventory. The PCIT held that this non-consideration constituted the assessment order erroneous and prejudicial to the interest of Revenue. The assessee contended that the Assessing Officer (AO) had made necessary inquiries and verification regarding the taxability of the interest income and had taken a plausible view.2. Treatment of Interest Earned on Fixed Deposits:The assessee argued that the interest earned on fixed deposits was intrinsically linked to the real estate projects and hence should be adjusted against the project expenditure. The Revenue, however, contended that the interest should be treated as income from other sources as per the Supreme Court decision in M/s. Tuticorin Alkali Chemicals and Fertilizers Ltd. The Tribunal noted that the AO had inquired about the interest and accepted the assessee's explanation during the scrutiny proceedings.3. Applicability of the Supreme Court Decision:The assessee argued that the decision in M/s. Tuticorin Alkali Chemicals and Fertilizers Ltd. was not applicable as the business in that case had not commenced, whereas in the present case, the business had already commenced. The Tribunal agreed with the assessee, noting that the business had indeed commenced, distinguishing it from the Tuticorin case.4. Explanation 2 to Section 263:The assessee contended that Explanation 2 to section 263 of the Act, inserted by the Finance Act, 2015, was not applicable retrospectively. The Tribunal supported this view, citing previous decisions that held the explanation to be prospective in nature.Conclusion:The Tribunal concluded that the AO had conducted inquiries and accepted the assessee's explanation regarding the interest adjustment against project expenditure. The Tribunal found that the PCIT did not conduct any independent inquiry to substantiate the claim that the assessment order was erroneous and prejudicial to the Revenue's interest. The Tribunal also noted that the business had commenced, making the Tuticorin decision inapplicable. Consequently, the Tribunal quashed the orders passed under section 263 for the assessment years 2012-13 and 2013-14, allowing the assessee's appeals.Order Pronouncement:The appeals of the assessee were allowed, and the orders passed under section 263 for the assessment years 2012-13 and 2013-14 were quashed. The order was pronounced in the open court on 18th December 2019.