2018 (12) TMI 1958

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....bsequently, on examination of records of assessment, Ld.PCIT noticed that assessee had claimed deduction of interest on housing loan amounting to Rs.2,99,67,586/- and at the same time, assessee had also taken interest free deposits over and above rental income. Ld.PCIT was of the view that interest free deposits would give the assessee the benefit of reducing the loan and thereby the interest thereon. According to him, assessee should have been allowed only net interest after considering the interest on deposits taken by the assessee from tenants. He was of the view that while passing the assessment order appropriate verification of the aforesaid aspect has not been done and therefore, the assessment order framed by AO u/s 143(3) has been rendered as erroneous and prejudicial to the interest of Revenue. He accordingly issued notice on 14.03.2015 and called upon the assessee to show cause as to why the order u/s 263 of the Act not be passed. In response to notice of Ld.PCIT, assessee inter-alia submitted that assessee had taken inspection of the file on 23.03.2016 and on verification, it was noticed that the notice u/s 263 of the Act was issued on the basis of audit objection by ....

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...., therefore the proceedings are bad in law and needs to be quashed. 3. On the facts and in the circumstances of the case and in law, the Learned Pr, Commissioner of Income Tax, 1 Nashik erred in passing order u/s 263 of the Income Tax Act, 1961 on the basis of proposal received from Assessing Officer in consequence to audit objection in light of the fact that Learned Assessing Officer while replying the audit objection justifies the Assessment order, and specify that there is no mistake, therefore such contrary stands are not permissible in the eyes of law." 3. All the grounds being inter-connected are considered together. 4. Before us, Ld.A.R. reiterated the submissions made before Ld.PCIT and further submitted that in the present case, the prerequisite conditions specified u/s 263 of the Act were not satisfied and since the proceedings lacks jurisdiction, the proceedings are bad-in-law. He further relying on the decision in the case of Hon'ble Apex Court in the case of Malabar Industrial Co. Ltd. Vs. CIT (2000) 243 ITR 83 submitted that Ld.PCIT has to be satisfied by two conditions namely (i) the order of AO is stated to be erroneous and (ii) it is prejudicial to t....

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....y deposit cannot be taken into account for determination of annual rental value." He submitted that similar view has been expressed by Hon'ble Bombay High Court in the case of CIT Vs. J K Investors (Bombay) Ltd., reported in (2001) 248 ITR 723 (Bom). He therefore submitted that in the present case, the order of Ld.PCIT passed u/s 263 of the Act be set aside both on the grounds of jurisdiction and on merits. 6. Ld.D.R. on the other hand, submitted that no enquiry on the aspect raised by Ld.PCIT in the revisionary proceedings was made by AO during the assessment proceedings and in such a situation, Ld.PCIT was fully justified in passing the order u/s 263 of the Act. He placed reliance on the decisions of Hon'ble Apex Court in the case of CIT Vs. Amitabh Bachchan reported in [2016] 384 ITR 200, CIT Vs. P.V.S. Beedies (P) Ltd. reported in [1999] 237 ITR 13 and the decision of Hon'ble Bombay High Court in the case of Jeevan Investment & Finance (P) Ltd., reported in [2017] 88 taxmann.com. 7. Ld.A.R. in the rejoinder submitted that the decision in the case of CIT Vs. P.V.S. Beedies (P) Ltd., (supra) relied upon by Ld.D.R. is on the issue of re-assessment u/s 147 of the Act and ther....

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....unsustainable in law. 9. In the present case, it is seen that Ld.PCIT has held that the order to be erroneous for the reason that assessee had claimed deduction of interest on housing loan and assessee had also taken interest free deposits over and above the rental income. According to Ld.PCIT since assessee had received deposits, assessee got the benefit in reducing the interest burden on housing loan, which fact was not considered by the AO while passing the assessment order. Before us, Ld.A.R. submitted that the proceedings u/s 263 of the Act has been initiated on the basis of audit objection and for which Ld.A.R. has referred to the proposal sent by AO to Ld.PCIT and the audit observation letter dt.04.02.2015. The contention of the assessee that the initiation of proceedings has been based on audit objection has not been controverted by Revenue. We find that on identical issue in the case of Inderchand Amarchand Chopda Vs. CIT (supra), the Co-ordinate Bench of the Tribunal after relying on the decision of Hon'ble Gauhati High Court in the case of B & A Plantation & Industries Ltd., (supra) has held that when Ld.PCIT assumed jurisdiction u/s 263 of the Act to give effect to t....