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TaxTMI 
TaxTMI 
TaxTMI 
2021 (9) TMI 602
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....project titled 'Ozone'. For the relevant AY 2015-16, the assessee had filed return of income by declaring income of Rs. 5,70,900/-. The case was selected for scrutiny under CASS. Thereafter the AO issued statutory notices calling for details in respect of the items selected for 'Limited Scrutiny'. The AO acknowledged in the assessment order that, the Ld. AR of the assessee appeared from time to time and complied with the requisition issued by him, by filing the documents, details and relevant explanations. After having examined the details called for and after hearing the Ld. AR, the AO assessed the total income at the same sum as returned by the assessee. 4. Thereafter, the Ld. Pr. CIT-11 issued Show Cause Notice (hereinafter referred to as "SCN") u/s. 263 of the Act pointing out one fault on the part of the AO in allowing the deduction for the interest expenditure of Rs. 84,27,773/- debited to the P&L Account on account of borrowed fund. According to the Ld. Pr. CIT, the assessee had allowed the partners to siphon its borrowed funds through their respective current account. The Pr. CIT was of the view that the AO had failed to examine the commercial expediency of the assessee in....
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....ank was in connection with the loan taken for business purpose viz., Project 'Ozone', which was self-evident from the copy of sanction letter of the ICICI bank. With regard to the allowability of the same, it was submitted that once the loan is shown to have been obtained for business purpose, then irrespective of whether the loan has been further lent as interest free or utilized otherwise is not material to determine the allowability of interest paid thereon. In support of this proposition, the assessee had placed reliance on the decision of this Tribunal in the case of ITO Vs. Snowtex Investment ltd. (ITA No. 356/Kol/2012) wherein it was held as under: "It is further submitted that there is no bar against advancing of loan interest-free or at a low rate of interest. There may be very many considerations, including business considerations, for not charging interest or charging interest at a low rate. Dispute between the Revenue and the assessee often arises when money is borrowed with interest and loan is advanced interest-free or at a low rate of interest. In such a case the tendency of the A0 generally is to disallow the interest paid on the money borrowed either in full or p....
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....not agreeable to the contentions put forth by the assessee and set aside the assessment order dated 29.12.2017 for de-novo assessment. 6. Assailing the action of the Ld. Pr.CIT, the Ld. AR of the assessee submitted that the AO made several enquiries as afore-stated and after going through the documents submitted and explanations put forth by the assessee, that the AO had accepted the claim. The Ld. AR pointed out that the assessee, which had undertaken real estate project titled 'Ozone', was promoted by two reputed real estate groups i.e. PS Group & Srijan Group of Kolkata. Both these groups through their flagship companies, who were partners of the assessee company, were managing, supervising and executing the said project. The project 'Ozone' was being marketed under their joint brand names. He submitted that the assessee firm had availed the loan from ICICI Bank in connection with the said business of real estate development. Referring to the audited accounts, the Ld. AR submitted that these two partners had withdrawn the monies from the current account in connection with and for the purpose of marketing & business development the said project. He further submitted that, any ad....
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.... his revisional powers enjoyed u/s 263 of the Act. Therefore, first we have to see whether the requisite jurisdiction necessary to assume revisional jurisdiction was existing before the Pr. CIT to exercise his power. For that, we have to examine as to whether in the first place the order of the Assessing Officer found fault by the Principal CIT is erroneous as well as prejudicial to the interest of the Revenue. For that, let us take the guidance of judicial precedence laid down by the Hon'ble Apex Court in Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83(SC) wherein their Lordship have held that twin conditions needs to be satisfied before exercising revisional jurisdiction u/s 263 of the Act by the CIT. The twin conditions are that the order of the Assessing Officer must be erroneous and so far as prejudicial to the interest of the Revenue. In the following circumstances, the order of the AO can be held to be erroneous order, that is (i) if the Assessing Officer's order has passed on incorrect assumption of fact; or (ii) incorrect application of law; or (iii)Assessing Officer's order is in violation of the principle of natural justice; or (iv) if the order is passed by the Assess....
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....tement, which is found placed at pages 27-47 of the paper book. The AO vide notice dated 01.08.2017 issued u/s 142(1) of the Act had required the assessee to explain as to why the interest expenditure should not be disallowed, to which the assessee had furnished its explanation dated 28.12.2017, which is available at page 48-50 of the paper book. It is noted that the assessee had explained to the AO that the loan had been sanctioned and borrowed for its business i.e. project 'Ozone' and therefore the interest was allowable u/s 36(1)(iii) of the Act. On examination of these details furnished before the AO, we thus note that the assessee had furnished all relevant details and explanation, which enabled the AO to make enquiries into the nature and allowability of interest expenditure. Hence, we do not agree with the Ld. Pr. CIT that AO allowed the claim of interest expenditure without conducting enquiry. 10. The sheet anchor on which the Ld. Pr.CIT has found fault with the AO's order in the present case is the lack of enquiry on the part of the AO into the utilization of the borrowings and corresponding withdrawals by the partners so as to ascertain the allowability of interest c....
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....questions and to file documents in regard thereto. It is difficult to proceed on the basis that the 17 questions raised by him did not require application of mind. Without application of mind the questions raised by him in the annexure to notice under Section 142 (1) of the Act could not have been formulated. 88. The Assessing Officer was required to examine the return filed by the assessee in order to ascertain his income and to levy appropriate tax on that basis. When the Assessing Officer was satisfied that the return, filed by the assessee, was in accordance with law, he was under no obligation to justify as to why was he satisfied. On the top of that the Assessing Officer by his order dated 28th March, 2008 did not adversely affect any right of the assessee nor was any civil right of the assessee prejudiced. He was as such under no obligation in law to give reasons. 89. The fact, that all requisite papers were summoned and thereafter the matter was heard from time to time coupled with the fact that the view taken by him is not shown by the revenue to be erroneous and was also considered both by the Tribunal as also by us to be a possible view, strengthens the presumption u....
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....s to estimate the income of the assessee and to recover tax on the basis of such estimate as laid down by the Apex Court in the case of S.S Gadgil (supra). Their Lordships opined that the income tax proceedings do not partake the character of a judicial proceeding between the State and the citizen. Therefore, the principles applicable to a proceeding before a judicial or a quasi-judicial authority where there are two contesting parties cannot be made applicable to the proceedings before an Assessing Officer. 97. Mr. Nizamuddin contended the judgments cited by Mr. Poddar indicate that the Assessing Officer is not required to write an elaborate judgment. He contended that the assessing officer may not have any such obligation but it cannot be said, according to him, that the Assessing Officer is under no obligation to record anything in his assessment order. It is not in the first place a fact that he has not recorded anything. From the assessment order, the following facts and circumstances appear:-- "Return was filed on 29/11/06 showing total income of Rs. 3,80,66,940/-. In response to notices u/s. 143(2) and 142(1) of the I. T. Act, 1961, Sri P. R. Kothari, A/r appeared from t....
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..... Builders Vs. CIT 288 ITR 1 (SC) wherein the view of the Hon'ble Delhi High Court in CIT v. Dalmia Cement (B.) Ltd. [2002] 254 ITR 377 was upheld by observing that, once it is established that there was nexus between the expenditure then the purpose of the business (which necessarily be the business of the assessee itself) the revenue cannot justifiably claim to put itself in the arm chair of the businessmen and further that no businessmen can be compelled to maximize its profit was approved. In the decided case, the Hon'ble Supreme Court held that, though the borrowed amount was not utilised by the assessee in its own business and had been advanced as an interest free loan to the sister concern, but that is not relevant. What is relevant is whether the assessee advanced such amount to its sister concern as a measure of commercial expediency. 12. Further, while explaining the meaning of the phrase "for the purpose of business" the Hon'ble Supreme Court has used the word "commercial expediency". By using this phrase Hon'ble Supreme Court has given a new dimension and clarified the concept further. In the judgment the Supreme Court has defined commercial expediency as "an expressio....
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....diency involved, the AO's successor did not take any adverse view in AY 2017-18 even though debit balance in current account of these partners were M/s. P. S. Group Realty Ltd. was to the tune of Rs. 1,22,24,715/- and M/s. Srijan Realty Pvt. Ltd. to the tune of Rs. 1,39,72,204/-. Having regard to the foregoing facts and applying the rule of consistency, we are of the opinion that the Ld. Pr. CIT ought not to have disturbed the assessment order for the relevant year on this issue of allowability of interest expenditure. 16. We also note that the order of the Ld. Pr.CIT proceeded on erroneous assumption of facts. According to Pr.CIT, examination of the partner's current account revealed that that the assessee had given to (i) M/s P S Group Reality Ltd. Rs. 15,32,75,000/- and (ii) M/s Srijan Realty Pvt. Ltd. Rs. 59,05,57,694/- [Total Rs. 74,38,32,694/-]. However on examination of the audited financials submitted by the assessee at Page 78-86 of paper book, it is noted that the partner's had withdrawn monies on several dates which aggregated to Rs. 44.87 crores and at the same time they had remitted back Rs. 29.50 crores. We thus note that the net withdrawal by the partners during the....