TaxTMI 
TaxTMI 
2023 (7) TMI 646
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....ommon Area Maintenance Charges (CAM). Assessee offered Rental income as income from house property and CAM as business income. From the Computation of Income submitted during assessment proceedings, he observed that an amount of Rs.. 16,85,58,828/- received as rent was shown under the head Income from House property and claimed 30% standard deduction on the rental income declared after deduction of Rs.. 1.5 Crores as House Tax Paid and further, interest and finance charges of Rs.. 12,57,18,936/- were also deducted from the income declared under the head house property and claimed the loss declared at Rs.. 1,82,27,756/-. Further, he observed that assessee added an amount of Rs.. 14,26,67,285/- while computing the income from business as expenses considered separately. 4. Ld. Pr.CIT is of the opinion that Assessing Officer did not ask for bifurcation of expenses added as expenses considered separately to find out whether all expenses related to house property have been added including interest and finance charges which have been reduced while computing income from house property. According to him, it appears that some of the expenses related to house property, leaving a clear poss....
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.... on Furniture & Fixtures of Rs. 5,27,133/-stands disallowed as these expenditure are not allowable under the head Income From House Property. Thus, the Computation of Income discloses all allowable/disallowable which are correctly computed and offered for income. 2. Interest paid to Partners B. It is mentioned in the notice that the assessee firm has paid interest to partners at the rate of 18% pa. whereas as per the Partnership Deed, para 17 mentions that it is agreed by and between the parties here to that simple interest at the rate of 12% pa. or at such other rate as may be mutually agreed upon or prescribed u/s 40(b) shall be payable by partnership on the amount standing to the credit of the capital, current, loan A/C of the partners. It is also mentioned that the assessing officer has allowed the assessee's claim of interest to partners at the rate of 18% p.a. without considering the above terms mentioned in the Partnership Deed and without verifying the facts in this regard. In nutshell, in your opinion, the Assessing officer allowed interest at the rate of 18% p.a. on partners capital instead of 12% p.a. as provided in the Partnership....
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....me at a loss of Rs. 3,39,49,742/- after making additions of Rs. 58,014/- on account of accrued interest. 7. On perusal of the Balance Sheet and Profit and Loss Account as on 31-03-2017, the following details are relevant:- Interest Bearing Funds Secured Loans : Rs. 122,14,31,950/- Interest paid Rs. 12,03,52,935 Unsecured Loans: Rs. 11,99,98,378/- Interest paid: Rs. 2,19,87,071 Rs. 134,14,30,328/- Rs. 14,23,40,006/- Interest Free Funds Security Deposit Rs. 12,31,62,476/- Loans given to Outsiders Unsecured Loans: Rs. 4,94,18,449/- Interest Recd.: Rs. 49,39,921/- 8. From the Computation it can be seen that from the head 'Business Income', the Assessee has voluntarily added back a sum of Rs. 14,26,67,285/-, and the same has been claimed under the head House Income. The details of which are filed herewith. 9. The Assessee has fully and truly disclosed all material facts necessary at the time of assessment. Thus it was very clear that the Assessing Officer was well aware about the primar....
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....he assessment order suffers from above infirmity and the same is erroneous in so far as it is prejudicial to the interest of the revenue." SUBMISSIONS: ERRONEOUS Order+ PREJUDICIAL to Interest of Revenue 13. S.263 of the Income Tax Act confers powers on the CIT which are in the nature of supervisory powers in order to protect the interest of the Revenue. The CIT is empowered to call for and examine the records of any proceeding under the Act. He can then exercise his powers in revision, if he is satisfied that any order passed by the AO is erroneous and prejudicial to the interest of the Revenue. The Supreme Court has held that both these elements 'erroneous' and 'prejudicial to the interests of the Revenue' - must be satisfied for having recourse to S.263 (Malabar Industrial Co. 243 ITR 83). 14. An order is said to be 'erroneous' when it is passed without application of mind, and where the AO, accepts what is stated in the return of the assessee without making any enquiry called for in the circumstances of the case and proceeds with undue haste CIT v. Jawahar Bhattacharjee [2012] 341 ITR 434 (Gauhati) (HC) (FB). ....
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.... that the rate of interest paid to the bank against the security is 10% and, hence, interest to the related party to 18% without any security, cannot be considered excessive keeping in view the market condition. (iii) The Assessee has paid interest @18% to other non- related parties also which please note. Details of Interest paid along with rate of interest are resubmitted for your reference. 20. It is for these reasons mentioned above that, it does not in any manner whatsoever prove that the Order passed by the AO is PREJUDICIAL TO THE INTEREST OF THE REVENUE, as it would not result in any addition even if the matter is sent back to the Assessing Officer. 21. In absence of any finding that there is loss of revenue, interference under section 263 is not justified. CIT v. G. R. Thangamaligai [2003] 259 ITR 129 (Mad.) (HC). 22. It is hereby submitted that the Order of the Assessing Officer is neither erroneous nor prejudicial to the interests of the Revenue and hence, the Commissioner of Income Tax cannot assume jurisdiction under section 263 (1) of the Act. 23. The department is not entitled to reopen an assessment based on a fresh infer....
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....pected to make in view of facts and circumstances discussed above. Accordingly, he directed the Assessing Officer to carry out due verification of (i) allowability of expenses claimed out of Income from House Property (ii) Payment of interest at higher rates to persons specified u/s 40A(2)(b) of the Act and pass the assessment order denovo after due verifications after giving proper opportunity of being heard to the assessee and pass a speaking order. 11. Aggrieved, assessee preferred appeal before us raising following grounds in its appeal: - "On the facts and circumstances of the case and in law: Erroneous & Prejudicial Order: A. Bifurcation of Expenses amongst different heads (i) The learned CIT has erred in issuing a notice u/s. 263 with respect to the bifurcation of expenditures claimed under the head Business Income' and 'Income from House Property', although the expenses incurred are genuine in nature and the bifurcation between the two heads would not in any manner whatsoever make the Assessment Order, erroneous and prejudicial to the interest of the revenue. (ii) The learned CIT failed to take into consideration t....
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....ous and prejudicial to the interest of the Revenue. 13. With regard to first issue where assessee has disallowed certain expenditure under the head income from house property and claimed certain expenditure to determine income from business. In this regard he brought to our notice Page No. 7 of the Ld. Pr.CIT order wherein assessee has explained the voluntary disallowance made in the computation of income and Ld. Pr.CIT itself has accepted that the claim made by the assessee is as per law and at the same Ld. Pr.CIT has not brought on record what is the prejudicial to the interest of the Revenue. 14. With regard to second issue raised by the Ld. Pr.CIT he brought to our notice Page No. 45 of the Paper Book which is the notice issued u/s. 142(1) of the Act and in Page No. 48 subsequently Assessing Officer has asked the assessee to provide various bank statements with narration, furnish reconciliation of TDS credit as per 26AS and also asked the assessee to furnish details of loans (unsecured loans and interest free loans) outstanding at the beginning of the year, loans taken during the year including squared up loans in the format specified by him. Further, he brought to our no....
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.... being of proper investigations on the aspects of the claim of the assessee particularly he brought to our notice page no. 8 of the Ld. Pr.CIT order in which Ld. Pr.CIT has clearly highlighted that certain informations were filed before the Assessing Officer and on explanation to the show cause notice issued u/s. 263 of the Act assessee has filed various factual informations which clearly shows that Assessing Officer has not made any verification. Further, he brought to our notice Page No. 25 of the Paper Book and he brought to our notice the opening balance of unsold units and closing balance of unsold units remain the same amount and assessee has declared income from CAM @ Rs.. 2.18 crores and he submitted that assessee has claimed various expenses which are common in nature and Assessing Officer has allowed all those expenditures without proper verification particularly he brought to our notice interest paid expenditure which is one of the major expenditure claimed by the assessee and no enquiry was conducted by the Assessing Officer. He relied on the orders passed u/s. 263 of the Act. 19. Considered the rival submissions and material placed on record, we observe that Ld. Pr.....
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....provisions of section 263 of the Act. 20. With regard to interest paid to partners, it is the fact on record that assessee has paid interest @18% to the related parties and which comes under the provisions of section 40A(2)(b) of the Act. At the same time, we observe that assessee has also taken several loans from unrelated parties and paid interest in the range of 12% to 18% to unrelated persons. With regard to related parties assessee has paid standard rate of 18%. We also observed that all these informations were submitted before the Assessing Officer (as per the declaration made before us in the Paper Book) it clearly shows that assessee has paid various rate of interest to unrelated persons the average may come to less than 18%, however, it maintains to pay @18% to the related parties. It clearly indicates that Assessing Officer has not verified or even asked the assessee the reasons for such excess payment of interest more than the market rate. Ld. AR brought to our notice that assessee has regularly paying above said rate to the related persons and he brought to our notice Assessment Orders for the A.Y. 2014-15 and 2015-16 wherein no disallowances were made by the Assessi....