2016 (9) TMI 1341

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....turn stating income of Rs. 23,33,424/-. The Assessing Officer completed regular assessment inter alia making disallowances/additions under section 14A, depreciation of cellular phones and that of unabsorbed business losses amounting to Rs. 6,10,847/-, Rs. 56,512/- & Rs. 30,08,008/-; respectively. 3. It transpires from the case file that the CIT thereafter formed reason to believe that the above stated regular assessment framed in assessee's case was erroneous causing prejudice to the interest of the Revenue. He sought to revise the same under section 263 of the Act vide show cause notice dated 21.01.2015 as follows :- "2. On verification of assessment records, it is seen that for A.Y. 2010-11, the assessee company had paid the interest t....

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....nd without applying proper provisions of Income Tax Act and without due application of mind. Hence, the above assessment order is erroneous in so far as it is 'prejudicial to the interest of Revenue'. In this regard reliance is placed on the judgment of the Supreme Court in the case of Malabar Industrial Co. Ltd. Vs. CIT(SC) 243 ITR 83. I, therefore, propose to revise the said order u/s. 263 of the Act." 4. The assessee filed reply inter alia pleading that the Assessing Officer had made all enquiries, examined the relevant material qua the interest issue thereby choosing not to make section 40A(2)(b) disallowance, interest @ 18% paid to MPSEZ was out of business expediency not identical to that in case of Mr. Vasant S. Adani @ 10% under se....

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....easoning in section 263 show cause notice followed by his order under challenge is that the Assessing Officer accepted impugned interest claim of Rs. 81,07,398/- @ 18% paid to MPSEZ as against that @ 10% in case of Shri Vasant Adani amounting to Rs. 15,10,821/-. There is further no quarrel that all three of them are specified parties under section 40A(2)(b) of the Act. First we come to CIT's observation that the Assessing Officer did not examine the issue by making proper enquiries. It is an undisputed fact that the Assessing Officer had framed a regular assessment. He issued section 142(1) notice dated 23.12.2011. Page no.28 of the Paper Book is a copy thereof raising specific query seeking details of the impugned interest expenses. This q....

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....inserted in the Act by the Finance Act 2015 w.e.f. 01.06.2015 envisaging exercise of revision jurisdiction even when an assessment is framed without any enquires and verification which should have been, in the opinion of revisional authority, deemed to be erroneous in so far as prejudicial to the interest of the revenue. He cites a co-ordinate bench decision of Crompton Greaves Limited vs. CIT - ITA No.1994/Mum/2013 and 2836/Mum/2014 decided on 01.02.2016 holding the above explanation to section 263 of the Act as retrospective in nature. The assessee at this stage informs us that another coordinate bench in ITA nos.870 & 1234/Ahd/2014 decided on 20.05.2016 in the case of Jayanth Murthy vs. DCIT holds the above stated former decision as per ....

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....nterest outgo of 18% & 10% in question is very much distinguishable. We have already indicated in preceding paragraphs that assessee had incurred 10% interest qua a claim raised under section 36(1)(ii) of the Act in respect of capital borrowed as against that @ 18% in question arising from retention of booking advances of Rs. 5 crores. These two interest sums stand on different footings. We find that hon'ble jurisdictional high court in case of CIT vs. Sarjan Realties Limited (2014) 227 Taxman 225 (Guj) is of the view that section 40A(2)(b) disallowance does not arise because of the mere fact that an assessee has paid different interest rate to different payees thereby comparing the same in order to hold the higher outgo as excessive. There....