AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2017 (8) TMI 535
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....erest paid on Optionally Fully Convertible Debentures ("OFCD" for short) in terms of section 24(b) of the Income Tax Act, 1961 ("the Act" for short). In the order of assessment dated 21.3.2014, the Assessing Officer did not disturb this claim of the petitioner. To take such order in revision in exercise of powers under section 263 of the Act, the Commissioner issued impugned notice which reads as under : "Upon perusal of the assessment records of AY 201112 in your case, it is seen that an order u/s. 143(3) of the Act was passed by the Assessing Officer on 21.03.2014 without making any addition and the income was assessed at a loss of Rs. 5,09,33,735/as disclosed in the return of income. 2. On verification of the records, it is revealed that you have shown net rent receipt of Rs. 4,12,95,938/and out of the same, you have claimed deduction of municipal taxes of Rs. 1,00,00,000/deduction u/s. 2(i) at the rate of 30 per cent amounting to Rs. 93,88,691/and you have also claimed deduction of Rs. 7,28,00,166/towards payment of interest on debentures which is paid/payable to M/s. I.L.&F.S. Trust Company Limited (Milestone Real Estate Fund0. The I.L.&F.S. Trust Company Limited, to whom....
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.... : (a) The interest paid on loan taken for purchase of property in an allowable expenditure u/s. 24(ii) of the Act. In your case, it can be seen from the statement of fixed assets that no addition was made to the building during the year in which you had obtained loan of Rs. 14,89,68,078/by way new debentures. (b) The new optionally fully convertible debentures were not used for purchase of property and out of the total interest claimed as deduction, interest to the extent of Rs. 2,68,14,074/( 18% of Rs. 14,89,67,079/) was paid on the new optionally fully convertible debentures of Rs. 14,89,67,078/. 6. From the above discussion, it is clear that you have claimed the interest of Rs. 7,28,00,166/under the head of income from house property of which, interest expense of Rs. 2,68,14,074/pertained to debentures issued during FY 200910 during which there was no purchase or addition to the property. The interest expense to the extent of Rs. 2,68,14,074/therefore, is not in accordance with the provision of section 24(b) of the IT Act because the funds which have been raised by way of convertible debentures cannot be said to have been used for the purpose of construction of propert....
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.... of the assessee. It would therefore, not be open for another officer of the same rank to take a different view. Heavy reliance is placed on CBDT circular no. 28 dated 20.08.1969 in which in context of similar provision contained in section 24(1)(vi) of the Act, it was clarified that if second borrowing has really been used merely to repay the original loan and this fact is proved to the satisfaction of the Incometax Officer, the interest paid on the second loan would also be allowed as a deduction. 5. On the other hand, learned counsel Shri Pranav Desai for the department opposed the petition contending that the order of assessment does not refer to the controversy and, therefore, it cannot be stated that the Assessing Officer had taken any positive view in favour of the assessee. The applicability of section 24(b) of the Act is open to debate. At this stage, therefore, this Court should not interfere. The Commissioner has merely issued a show cause notice. The petitioner would have full innings to take all factual and legal contentions. The Court should therefore, not interfere in exercise of writ jurisdiction. He relied on the affidavit in reply filed by the respondent to conte....
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....l work in progress alongwith cost of land. The entire cost of land and construction was funded by JPIPL and the same was shown as current liabilities in the balance sheet. IL&FS Milestone Fund1 ( a scheme of SEBI registered Venture Capital FundMilestone Real Estate Fund) ("IL&FS") has purchased entire share capital of the assessee from JPIPL and its nominee shareholders to become the 100% shareholder by 29/03/2008. The construction of the mall was continued and the assessee had incurred further cost of construction. The additional cost of construction was funded by the assessee through issue of Optionally Fully Convertible Debentures (OFCDs) to its shareholder IL&FS. The assessee commenced its activity of renting of various units in the mall and earned rental income. During the financial year 200910, the assessee further issued OFCDs of Rs. 14,89,67,078/to its shareholder to repay the outstanding liability of JPIPL. The assessee submits that the unsecured loans obtained during the year on issue of OFCDs were utilized for the purpose of repayment of outstanding existing liability which was obtained for the purpose of construction of the building by the JPIPL. The assessee subm....
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....Act while computing the income from house property. The fact that the Assessing Officer did not elaborate this issue in the year of assessment would be of no consequence. 10. The Division Bench of this Court in case of Rayon Silk Mills v. Commissioner of Incometax reported in (1996) 221 ITR 155 was examining the challenge of the assessee to an order by the Commissioner in which in exercise of revisional powers, he had directed the Income Tax officer to hold certain inquiry on an issue which according to the Commissioner, the Income Tax officer had not examined. The assessee argued that merely because the order of assessment does not discuss the issue at length, would not mean that no inquiry was made. The Court accepted the contention and held that the Assessing Officer having made the inquiry but without detail reference in order, the Commissioner was not correct in directing fresh inquiry. It was however, clarified that the Court did not mean to lay down the law that whenever an inquiry into any aspect of the assessment has been made, that cannot be the subject matter of proceedings under section 263 of the Act. Even in such a case, if the Commissioner is of the opinion that the....
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....ry type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase "prejudicial to the interests of the Revenue" is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax." 13. In this context, we may revert back to the assessee's claim and objection of the Commissioner. Though in the affidavit in reply dated 11.3.2016, an angle of tax evasion is sought to be brought in, in the notice for revision the basic premise was simple, namely, that amount of Rs. 14.89 crores was raised by issuing the debentures during the financial year 2009-2010. During such period there was no purchase or addition to the property. According to the Commissioner, interest paid on such debentures would not fall within section 24(b) of the Act. He also referred to the proviso below the sa....