TaxTMI 
TaxTMI 
2022 (5) TMI 666
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....dated 31 March 2021 u/s. 263 of the Act. 1.2.1. On the facts and circumstances of the case and in law, the PCIT has erred in holding that the Order dated 30 October 2018 passed by the Assistant Commissioner of Income-tax, Circle 2(3X2) (""ACIT") u/s. 143(3) r.w.s 144C(13) of the Act was erroneous and prejudicial to the interests of revenue and therefore the revision of the same by the PCIT u/s. 263 of the Act is bad in law. 1.2.2 On the facts and circumstances of the case and in law, the Appellant submits that, ACIT had not only made adequate inquires, but had also undertaken necessary verification basis the details/ documents sought from the Appellant during the course of assessment proceedings, and hence, the assessment order passed by ACIT is neither 'erroneous' nor 'prejudicial' to the interest of the revenue. 1.2.3 On the facts and circumstances of the case and in law, the Appellant submits that the order passed by the Id. ACIT do not fall within the requirements of Explanation 2 to Section 263 and hence said order cannot be deemed to be erroneous or prejudicial to the interest of the revenue. 1.2.4 On the facts and circumstances of the case....
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....o unwarranted litigation. 2.4 On the facts and in circumstance of the case and in law, the Order of the PCIT directing the AO to re-examine the issue needs to be struck down. Without prejudice to the above, 2.5 On the facts and in circumstance of the case and in law, the learned PCIT has ignored the fact that the similar issue pertaining to disallowance under section 36(1\iii) of the Act has already been decided in favor of the Appellant in its own case in various earlier assessment years by the orders of Hon'ble ITAT, DRP and CIT(A). 2.6 On the facts and in circumstance of the case and in law, no disallowance of premium expense under section 36(I\iii) since the proceeds realized from debenture issue was utilized for the purpose of business of the Appellant. 2.7 On the facts and in circumstance of the case and in law, no disallowance of premium expense under section 36(1 iii) since the proceeds realized from debenture issue formed part of mixed pool of funds of the Appellant and hence a presumption would arise that the said investments would have been made first out of own funds. 3. Disallowance of expenses incurred in relation to discon....
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....r. Failure of the assessing officer to consider the above for disallowance has rendered the order dated 30.10.2018 as erroneous in so far as it is prejudicial to the interest of the revenue. (ii) The assessee has claimed an amount of Rs.8.90 crs as exceptional item on expenses on discontinued project at Lake End Udaipur. The expenses was not related to existing business and capital, hence should have been disallowed. The expenses claimed under the head was related to lease rent, registration fees, design fees etc. These expenses are not related to its existing business. Failure of the assessing officer to disallow the same has rendered the order erroneous in so far as it is prejudicial to the interest of the revenue." 4. Thereafter, the notice was given and after the reply of the assessee, the PCIT invoked the revisional power u/s 263 of the Act. The PCIT was of the view that the order passed by AO was erroneous and prejudicial to the interest of the revenue and accordingly invoked the revisional power u/s 263 of the Act to pass the re-assessment order on the above mentioned points by set aside order dated 30.10.2018. The assessee was not satisfied, therefore, filed the....
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.... "The learned AO has disallowed interest amounting to Rs.44,53,94,138 in AY 2012-13 and Rs.42,63,65,851 in AY 2013-14, u/s 36(1)(iii) of the Act in respect of investments in overseas subsidiaries. We submit that no disallowance u/s 36(1)(iii) is called for in the year under consideration due to following reasons: The assessee is engaged in the business of hotelering including operating hotels in India as well as internationally. It is recognized as India's premiere hospitality provider, owning/operating hotels under the brand name 'Taj' 'Vivanta by Taj' and 'Gateway'. To create a strong image of is brand in international markets, it had made investment in its overseas subsidiaries / Joint Venture ('JVs') to the tune of Rs. 3,113.08 crores as of 31 March 2014 as under: Particulars Rs./Crores Investment in TIHK 1111.05 Investment in IHMS Inc. 2002.03 Total 3113.08 These investments have strategic significance for the assessee, which is explained as under: These investments were made in connection with acquisition of hotel properties in UK, USA, Australia and Sri Lanka which resulted into a strategic presence and also furtherance of....
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....quality techniques in India thereby attracting foreign tourists - Assistance from companies operating as sale offices (eg IHMS, AHMS) to promote IHCL's business worldwide which would promote flow of foreign tourists in India - Getting occasion to touch base the overseas customers with Indian Company brand experience. This would result in higher revenue for assessee which would be offered Co tax. - Showcasing the salient features of the select properties of India by overseas properties attracts the foreign tourist to assessee's hotel and in turn augments the business of the assessee. The Information about Taj properties is generally provided through in room television set and the advertisement / article in the Taj magazine / Coffee Table magazine kept in the rooms of overseas hotel units. - It is further submitted that in competitive industry like hospitality, apart from retaining existing customers, it is must to reach out the customers to widen its customer base in best possible manner and thereby expand the horizons of its revenue. This is achieved by assessee by using touch base the overseas customers associated with foreign hotels, by virtue ....
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.... - In this case, advances given to subsidiary in consideration to execute counter guarantees on behalf of the assessee was held to be out of commercial expediency for furthering the business of the assessee shall not attract disallowance of interest. SP. Jaiswal Estates (P.) Ltd (147 TT] 649) (Kol) - In this case, the assessee advanced secured loans as interest free funds to subsidiary, which was used by it for purpose of business i.e. hospitality business / construction of hotels. The interest on secured loan was denied by AO. The Tribunal, while relying on S. A. Builders Ltd (supra), held that once commercial expediency is established, interest on borrowed funds is to be allowed. It observed that when an assessee gives an interest free advance to a wholly owned subsidiary for its business purposes, it cannot but ordinarily be said to be commercially expedient. Sitsons India (P.) Ltd. (63 SOT 37 )(Mum - Trib.) - In this case, the assessee formed a SPV with a third party, in order to fulfill a contractual commitment. The assessee invested certain sum in the SPV and also supplied certain materials to it. It incurred interest expenses on loans taken from its directo....
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....s Rajendra Prasad Moody (supra). In this case, the Hon'ble Supreme Court held that to claim deduction u/s 57(iii), it is not even necessary that any income should in fact have been earned as a result of the expenditure. The Hon'ble Apex Court allowed deduction of interest paid on money borrowed for investment in shares, which had not yielded any dividend u/s 57(iii). In view of above, it is submitted that interest is allowed u/s 36(1)(iii) on account of commercial expediency or without prejudice to it, same is also allowable u/s 57(iii). 4.4The submission of the assessee 'is considered. However, the same is not found acceptable. The contention of the assessee that the dividend from above entities are taxable therefore either deduction should be allowed u/s 36 (1) (iii) or u/s 57 (iii). The declaration of dividend is depend upon the wish of the foreign entity if they want to declare dividend they may do so or if they do not want they may avoid the same, merely because dividend is taxable -deduction of interest cannot be allowed. If the assessee has to claim interest expenditure the funds must have been utilized for the purpose of business. Instead of making investment in JV....
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....reliance in assessee's own case for previous years. Hence, disallowance u/s 36(1)(iii) of the Act amounting to Rs.45,46,52,295/- is made and added to the total income of the assessee. Penalty proceeding u/s 271(1)(c) of the I. T. Act, 1961 is initiated for furnishing inaccurate particulars of income." 5. Since the said issue has already been considered by DRP as well as AO, therefore, the said issue is not liable to be revised in accordance with law subsequently by invoking the revisional power u/s 263 of the Act. In this regard, we also find support of the law settled in the case of Malabar Industrial Co. Ltd. (243 ITR 83), CIT Vs. Nirav Modi (390 ITR 292), Aditya Builders (2017) 79 taxmann.com 394, CIT Vs. Tata Teleservices (Mah) Ltd. (2014) 47 taxmann.com 238, CIT Vs. Fine Jewellery (India) Ltd. (2015) 55 taxmann.com 514 & MOIL Ltd. vs. CIT (2017) 81 taxmann.com 420. Accordingly, we are of the view that this issue is not liable to be revised u/s 263 of the Act. We further found that the issue has considered and decided by Hon'ble DRP which was subsequently considered by AO. The PCIT has no power to invoke the revisional power u/s 263 of the Act on the issues which have been c....
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....ared that, for the purposes of this sub-section,- (a) an order passed [ on or before or after the 1st day of June, 1988] by the Assessing Officer shall include (i) an order of assessment made by the Assistant Commissioner [or Deputy Commissioner] or the Income tax officer on the basis of the directions issued by the [Joint] Commissioner under section 144A. (ii) an order made by the [Joint] Commissioner in exercise of the powers or in the performance of the functions of an Assessing officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the [Principal ] Chief Commissioner or] Chief Commissioner or[Principal Director General or] Director General or[ Principal Commissioner or] Commissioner authorized by the Board in this behalf under section 120. (b) "record" [ shall include and shall be deemed always to have included] all records relating to any proceeding under this Act available at the time of examination by the [Principal [Chief Commissioner or Chief Commissioner or Principal] Commissioner or] Commissioner; (c) where any order referred to in this sub-section and passed by the Assessing Officer....
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....of the Act to deem such orders being capable of being revised. That therefore, the memorandum, circular, etc. support the Assessee's stand that once the Assessing Officer passes an order in accordance with the Directions issued by a superior authority (being DRP) the same cannot be revised by the CIT under section 263 of the Act. The above submission has sufficient cogency as our following discussion will further oxygenate the same. 17. It will also be gainful to refer to the provision of section 144C dealing with the reference to DRP (1) The Assessing Officer shall, notwithstanding anything to the contrary contained in this Act, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the eligible assessee if he proposes to make, on or after the 1st day of October, 2009, any variation in the income or loss returned which is prejudicial to the interest of such assessee. (2) On receipt of the draft order, the eligible assessee shall, within thirty days of the receipt by him of the draft order,- (a) file his acceptance of the variations to the Assessing Officer; or (b) file his ob....
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....he assessment proceedings relating to the draft order, notwithstanding that such matter was raised or not by the eligible assessee.] (9) If the members of the Dispute Resolution Panel differ in opinion on any point, the point shall be decided according to the opinion of the majority of the members. (10) Every direction issued by the Dispute Resolution Panel shall be binding on the Assessing Officer. (11) No direction under sub-section (5) shall be issued unless an opportunity of being heard is given to the assessee and the Assessing Officer on such directions which are prejudicial to the interest of the assessee or the interest of the revenue, respectively. (12) No direction under sub-section (5) shall be issued after nine months from the end of the month in which the draft order is forwarded to the eligible assessee. (13) Upon receipt of the directions issued under sub-section (5), the Assessing Officer shall, in conformity with the directions, complete, notwithstanding anything to the contrary contained in section 153 [or section 153B], the assessment without providing 29 any further opportunity of being heard to the assessee, within o....
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....n 144C(5) of the Act, the Dispute Resolution Panel (DRP) shall in a case where any objection is received under sub-section (2), issue such directions, as it thinks fit, for the guidance of the Assessing Officer to enable him to complete the assessment. Further, the provisions of sub-section (7) of section 144C empowers the DRP to make any further enquiry or cause any further enquiry to be made by the Income-tax authority as it thinks fit. Explanation to sub-section (8) of section 144C duly provides that DRP has power to enhance the variation and the power includes to consider any matter arising out of the assessment proceedings relating to the draft order, notwithstanding that such matter was raised or not by the eligible assessee. Section 144C(13) provides that upon receipt of the directions issued by DRP, the Assessing Officer shall, in conformity with the directions, complete the assessment without providing any further opportunity of being heard to the Appellant. As noted above, it is now nobody's case that the Assessing Officer has not followed the direction of the DRP and completed the assessment not in conformity with the direction of the DRP. Therefore, the final Assessment....
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.... order and give the same to the assessee for filing objection before DRP. Hence, the direction by the Ld.CIT to the AO to pass an order by-passing the provisions of passing the draft assessment order is also not sustainable in law. 20. Now, we examine the constitution of DRP. As evident from the above, the DRP constitutes a collegium comprising of three Principal Commissioners or Commissioners of Income-tax, the directions given by them is binding upon by the AO. Hon'ble Bombay High Court in the case of Vodafone India Services Pvt.Ltd. vs Union of India & Others 2013 SCC online Bom 1534 has expounded upon the proceedings at DRP as under:- "The proceeding before the DRP is not an appeal proceeding but a correcting mechanism in the nature of a second look at the proposed assessment order by high functionaries of the revenue keeping in mind the interest of the assessee. It is a continuation of the Assessment proceedings till such time a final order of assessment which is appelable is passed by the Assessing Officer. This also finds support from Section 144C(6) which enables the DRP to collect evidence or cause any enquiry to be made before giving directions to the As....
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.... Hon'ble Jurisdictional High court referred above. 25. The case of Devas Multimedia Pvt.Ltd.(supra) by the Hon'ble Karnataka High Court was in connection with the writ petition filed by the assessee, where assessee has objected to the notice issued u/s. 263 of the Act. Furthermore, Hon'ble High Court has expounded that writ court cannot examine the validity of notice on merits. Furthermore, the said decision has distinguished following decision of Hon'ble Bombay High Court, i) Vodafone Services Pvt.Ld.(supra) wherein Hon'ble Bombay Court has expounded that proceedings before the DRP is not an appeal proceedings, but correction mechanism in the nature of a second look at the proposed assessment order by high functionaries of revenue (ii)Vodafone India Services Pvt.Ltd. vs. Union of India (2014) 368 ITR 1(Bom.). In the present case, this Tribunal is under the jurisdiction of Hon'ble Bombay High Court. Hence, we do not have any authority whatsoever to deviate from the exposition of the Hon'ble jurisdictional High Court that the proceedings at DRP is not an appeal proceedings, but a correcting mechanism. Furthermore, the ratio from the Hon'ble Bombay High Court in the case of ....