2024 (1) TMI 1341 - HC - Income Tax

Assessee's personal guarantee payment to discharge mortgage debt upheld, section 263 revision order set aside

Gujarat HC upheld ITAT's decision setting aside revision order under section 263. Assessee paid amount to discharge mortgage debt through personal ... Validity of Revision u/s 263 - ITAT set aside revision order - Allowability of deduction for payment made to discharge mortgage debts - HELD THAT:- Assessee did not create any mortgage on the property but he had given a personal guarantee to Titco Ltd for discharge of the debt for which there was a charge over the property and for release of the mortgage on the personal guarantee of the assessee, the amount was paid by the buyer directly to the Titco Ltd. It is also not in dispute that the assessee did not avail any loan on mortgage of the property sold by him. Tribunal has rightly held that the assessment order by the Assessing Officer is neither erroneous nor prejudicial to the interest of the Revenue. No substantial question of law. Issues:1. Interpretation of section 263 of the Income Tax Act, 1961.2. Allowability of deduction for payment made to discharge mortgage debts.3. Application of judicial precedents in determining the tax liability.Analysis:Issue 1: Interpretation of section 263 of the Income Tax Act, 1961The Principal Commissioner of Income Tax initiated proceedings under section 263 of the Act against the respondent-assessee. The PCIT set aside the assessment order on the ground that it was passed without proper inquiry and verification, as required by Explanation 2 to section 263 of the Act. The Tribunal analyzed the scope of section 263 by referring to various judicial decisions, emphasizing that the PCIT cannot set aside an assessment order solely based on a difference of opinion unless the decision is wholly erroneous. The Tribunal held that the PCIT cannot substitute his judgment for that of the Assessing Officer unless the decision is found to be wholly erroneous.Issue 2: Allowability of deduction for payment made to discharge mortgage debtsThe dispute arose when the Assessing Officer disallowed a deduction of Rs. 1.5 crores claimed by the assessee for payment made to Titco Ltd to discharge a mortgage. The PCIT relied on a Supreme Court decision and set aside the assessment order, stating that the deduction was incorrectly allowed. The Tribunal, however, found that the assessee did not create any mortgage on the property but gave a personal guarantee to Titco Ltd. The buyer paid the amount directly to Titco Ltd for releasing the mortgage. The Tribunal concluded that the assessment order was neither erroneous nor prejudicial to the Revenue's interest, as the facts did not align with the Supreme Court decision cited by the PCIT.Issue 3: Application of judicial precedents in determining tax liabilityThe Tribunal considered the Apex Court's decision in a similar case involving mortgage debts and distinguished it from the present case. The Tribunal highlighted that the facts of the case before the Apex Court were different, as the mortgage in that case was created by the assessee himself. The Tribunal emphasized that the assessee in the present case did not create any mortgage but provided a personal guarantee. The Tribunal concluded that no substantial question of law arose from the impugned order and dismissed the appeal.In conclusion, the High Court upheld the Tribunal's decision, emphasizing that the assessment order was not erroneous or prejudicial to the Revenue's interest. The Court highlighted the distinction in facts from the Supreme Court decision cited by the PCIT, ultimately dismissing the appeal.