2020 (1) TMI 162 - AT - Income Tax

Assessing Officer's Decision Upheld as Valid; Revision Attempt Deemed Invalid.

M/s. Asian Homes Private Limited Versus Pr. CIT-9, Mumbai

The Tribunal held that the Assessing Officer's decision to treat interest income as business income was a valid interpretation of the law and not ... Revision u/s 263 - exercise of revisional power in a situation where two views are possible - HELD THAT:- Hon’ble Supreme Court in CIT v/s Amitabh Bachchan [2016 (5) TMI 493 - SUPREME COURT] held that so long as the view taken by the AO is a possible view, the same ought not to be interfered with by the Commissioner u/s 263 merely on the ground that there is another possible view of the matter. Permitting exercise of revisional power in a situation where two views are possible would really amount to conferring some kind of an appellate power in the revisional authority. This is a course of action that must be desisted from. An Explanation-2 has been inserted by Finance Act 2015 in Section 263 with effect from 01/06/2015 to declare that order shall be deemed to be erroneous in so far as it is prejudicial to the interest of the revenue, if in the opinion of appropriate authority-(1) the order was passed without making inquiries or verifications which should have been made; (ii) the order is passed allowing any relief without inquiring into the claim; (iii) the order is not in accordance with any direction or instructions etc. issued by the Board u/s 119; or (iv) the order was not in accordance with binding judicial precedent. However, the said explanation would come into play only if the primary conditions i.e. order being erroneous and prejudicial to interest of revenue, were fulfilled. Applying the above principles to the case in hand, we find that a view was already taken by Ld. AO in the issues which from subject matter of revision u/s 263 and the said view could not be held to be illegal or unsustainable in law, in any manner and therefore, the exercise of jurisdiction u/s 263 would be invalid in such a case. If Ld. AO adopted one of the possible views, the Ld. Pr.CIT, in our considered opinion, would be ousted to exercise jurisdiction u/s 263. Therefore, by quashing the impugned order, we allow assessee’s appeal. Issues Involved:1. Validity of Order passed under section 263 of the Income Tax Act, 1961.2. Classification of interest income as 'Income from Other Sources' under section 56 of the Act.Detailed Analysis:1. Validity of Order passed under section 263 of the Income Tax Act, 1961:1.1. Erroneous and Prejudicial to Revenue:The assessee contested the invocation of revisional jurisdiction under Section 263 by the Principal Commissioner of Income Tax (Pr. CIT), who held that the assessment order dated 27.02.2016 was erroneous and prejudicial to the interest of revenue. The Pr. CIT argued that the Assessing Officer (AO) passed the order without making necessary inquiries and verifications. However, the assessee contended that the AO had made detailed inquiries and was satisfied before passing the order.1.2. Interest Income Classification:The Pr. CIT classified the interest income as 'Income from Other Sources', relying on case laws that the assessee claimed were not applicable to their facts. The assessee also pointed out that similar issues were decided in their favor by the CIT(A) for AY 2011-12 and AY 2012-13.1.3. Reliance on Malabar Industrial Co. Ltd. v. CIT:The Pr. CIT applied the decision of Malabar Industrial Co. Ltd. v. CIT without providing a basis or justification that the AO's view was unsustainable in law. The assessee argued that the AO's view was supported by judicial decisions and allowed by the CIT(A) in previous years.1.4. Detailed Enquiries by AO:The Pr. CIT failed to appreciate that the AO had passed the order after detailed inquiries and following the findings of the senior authority (CIT(A)) for AY 2011-12 and 2012-13. Thus, the Pr. CIT's decision to hold the order as erroneous and prejudicial to revenue was contested.1.5. Interpretation of Law:The Pr. CIT did not consider that an order based on an interpretation of law where two different views are possible should not be considered erroneous and prejudicial to revenue.2. Classification of Interest Income as 'Income from Other Sources':2.1. Pr. CIT's Error:The Pr. CIT erred in law and on facts by considering the interest income as 'Income from Other Sources' under section 56 of the Act, without appreciating the submissions of the assessee and the favorable CIT(A) orders for AY 2011-12 and AY 2012-13.Tribunal's Findings:3.1. Facts and Assessment:The assessee, a resident corporate entity engaged in building and development, was assessed for AY 2013-14 under section 143(3) with an income determination of Rs. 1.08 Lacs under normal provisions. The AO added Rs. 2.27 Lacs as interest income not credited in the Profit & Loss Account, following appellate orders for AY 2011-12. The interest on tax refund and excess provisions written back were taxed as 'Income from Other Sources'.3.2. Pr. CIT's Opinion:The Pr. CIT formed an opinion that the quantum assessment order was erroneous and prejudicial to revenue, requiring revisional jurisdiction under section 263. A show-cause notice was issued, pointing out that interest income of Rs. 27.13 Lacs credited as Other Income was accepted as business income, allowing set-off of brought forward business losses. The Pr. CIT argued that the AO failed to verify this during regular assessment, making the order erroneous and prejudicial to revenue.3.3. Assessee's Defense:The assessee defended that the AO raised specific queries regarding the interest income, which were duly responded to with detailed explanations and judicial decisions. The AO, after verification, accepted the interest income as business income. Thus, the order could not be termed erroneous or prejudicial to revenue.3.4. Pr. CIT's Reliance on Malabar Industrial Co. Ltd.:The Pr. CIT relied on the Malabar Industrial Co. Ltd. decision, stating that the AO accepted the interest income as business income based on the appellate order for AY 2011-12, which was not contested by the department due to low tax effect. The Pr. CIT argued that the AO failed to examine the chargeability of interest income, making the order erroneous and prejudicial to revenue.3.5. Assessee's Submissions on Loans:The assessee submitted that loans were granted temporarily pending market revival, and the interest income was accepted as business income based on the appellate order for AY 2011-12, which was not contested by the department. The Pr. CIT found that the AO failed to examine the chargeability of interest income, making the assessment order erroneous and prejudicial to revenue.4. Tribunal's Conclusion:4.1. Specific Queries Raised:The Tribunal found that specific queries were raised by the AO during regular assessment proceedings regarding the chargeability of interest income, which were duly responded to by the assessee. The AO accepted the assessee's claim after due consideration, making the order not erroneous.4.2. Application of Mind:The Tribunal noted that the AO applied his mind to the issue, and the interest on tax refund was specifically brought to tax under 'Income from Other Sources'. The AO's acceptance of the interest income as business income was after due consideration of the factual matrix.4.3. Legal Principles:The Tribunal referred to the Supreme Court's decision in Malabar Industrial Co. Ltd. and other judicial precedents, emphasizing that an order cannot be termed erroneous unless it is not in accordance with law. The AO's decision, being one of the possible views, could not be interfered with by the Pr. CIT under section 263.4.4. Explanation-2 to Section 263:The Tribunal acknowledged the insertion of Explanation-2 in Section 263 by the Finance Act 2015, but noted that it would apply only if the primary conditions of the order being erroneous and prejudicial to revenue were fulfilled.4.5. Validity of AO's View:The Tribunal concluded that the AO's view was a possible view and could not be held illegal or unsustainable in law. Therefore, the exercise of jurisdiction under section 263 by the Pr. CIT was invalid.Order:The appeal was allowed, and the impugned order was quashed. The Tribunal pronounced the order in the open court on 03rd January, 2020.