TaxTMI 
TaxTMI 
2025 (1) TMI 26
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....bserving that the AO has erred in under assessing the income by Rs. 23,58,936/- by allowing excess deduction u/s 57 of the Act. The findings of Ld. PCIT is bad in law and bad on facts. The addition earlier made by AO is already under challenge in appeal. 3. The appellant craves liberty to add, alter, amend or vary from the above grounds of appeal at or before the time of hearing." 3. Brief fact of the case are that the case was selected for complete scrutiny assessment under the E-assessment Scheme, 2019 on the following issues of claim of deduction from Income from Other Sources. Return of income was e-filed by the assessee on 13-10-2018 at an income of Rs. 53,97,560/-. The return is processed by CPC after disallowing depreciation only. After that processing of ITR, the case of the assessee selected for Scrutiny Assessment under the e-Assessment Scheme, 2019 on the issue of " Large deduction claimed u/s 57." Accordingly notice u/s 143(2) of Income Tax Act, 1961 dated 23.09.2019 was issued and served upon the assessee electronically. Notice u/s 142(1) was also issued on 10/12/2020 for compliance on 25/12/2020. 3.1 During the year under consideration the assessee deri....
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....;" Ld. AO thus relying on the decision of Hon'ble Gujarat High Court in Virmati Ramkrishna vs. CIT (1981) 131 ITR 659, further noted that the assessee is notable to prove the co-relation between loan taken and loan advanced. Considering that the expenditure claimed u/s 57 of the act, cannot be claimed under the head "Income from other sources. In the submission assessee claimed that since, assessee is a partner in various concerns, and to attend the business, such vehicle is being use claimed expenses. There are various group involved in the firms. and partners, are normally using their own vehicle for the business of the firm. Further in his own reply assessee accepted that this Car was used "fully and exclusively for earning income from business but also failed to substantiate his claim regarding usage of such motor car in his business. Here, since the asset was claimed to be used for the benefit of firms and had no nexus in earning the interest income which has been shown by the assessee in the income from other sources, therefore depreciation, Interest paid & Motor Insurance on car was considered as allowable expenses under section 57 of Act. Mere change of claim by the asse....
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....tions ld. PCIT hold as under : 6. Perusal of assessment record shows that in the assessment order, the Assessing Officer has mentioned the deduction claimed u/s 57 to be Rs. 48,94,926/- whereas the deduction claimed is of Rs. 72,53,862/-. In para 6 of assessment order, the Assessing Officer has mentioned that the Assessee was asked to explain the nexus of deductions claimed with the income earned under the head income from other sources along with the documentary evidences. The Assessing Officer has further noted that the submission of the Assessee have been carefully considered and the same have not been accepted. In Para 13 of the assessment order, the Assessing Officer has further mentioned that total deductions claimed u/s 57 are disallowed. However, the Assessing Officer has erroneously taken the figure of total deductions u/s 57 to be of Rs. 48,94,926/- whereas the total deductions are in fact of Rs. 72,53,862/-. The contention of Assessee is that in the computation of income, the Assessee had shown net negative income of Rs. 48,94,926/- being net of interest received and interest and other expenses paid and that the Assessing Officer in the assessment has taken a vi....
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....ly in order but calls for further enquiry - It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke inquiry - If there is failure to make such enquiry, order is erroneous and prejudicial to revenue CIT need not prove that it is erroneous and he can revise it u/s 263. 4. In the case of CTT v/s. Nagesh KnitwearsPvt. Ltd., 345 ITR 135, the Hon'ble Delhi High Court has held that "The Revenue does not have any right to appeal to the first appellate authority against an order passed by the Assessing Officer. Section 263 has been enacted to empower the CIT to exercise power of revision and revise any order passed by the Assessing Officer, if two cumulative conditions are satisfied. Firstly, the order sought to be revised should be erroneous and secondly, it should be prejudicial to the interest of ht Revenue. The expression "prejudicial to the interest of the Revenue, is of wide import and is not confirmed to merely loss of tax. The term 'erroneous' means a wrong/incorrect decision deviating from law. This expression postulates an error which makes an order unsustainable in law. The Ass....
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....t to be revised was erroneous as well as prejudicial to the interest of the revenue. However, there is nothing in section 263 to show that the Commissioner should in all cases record his final conclusion on the points in controversy before him. The legislative intent to bring the amendment was to make clear the provisions of Explanation to section 263 and to reduce the litigations in this regard which is well supported in view of the clear words used in clause (a) of the Explanation 2 to section 263(1) wherein it is mentioned that the order passed by the AO shall be deemed to be erroneous in so far as it is prejudicial to the interest of revenue, if in the opinion of the PCIT the order is passed without making inquiries or verification which should have been made. If the order is passed without application of mind, such order will fall under the category of erroneous order". 8. Accordingly, by virtue of powers conferred on the undersigned under the provisions of section 263 of the Income Tax Act 1961, I hold that the order under Section 143(3) dated 13.04.2021 for 2018-19 passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of revenue....
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....y covered in favour of assessee by above decision in assessee own case. The assessee submitted details of interest payment made to various parties and car loan. Depreciation on car is also on old vehicle, and is not a new vehicle purchased during the year. Since assessee is partner in various concerns, and to attend the business, such vehicle is being used. There are various groups involved in the firms, and partners are normally using their own vehicle for the business of the firm. The assessee had derived remuneration and share of profits from these firms, which had been duly shown in the return of income submitted. The assessee had been using the vehicles for the purpose of his business which is allowable as deduction against this income from firm. Similarly the claim of insurance is on the said vehicle. Your kind attention is also invited towards the decision of Hon'ble Supreme Court in the case of CIT v. Ramniklal Kothari reported in 74 ITR 57 (SC) in which also it has been held as under: "Business Expenditure Allowability Expenditure incurred for earning share income by partner of firm Receipt of share income by partner is business inco....
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....ess activities of the firm from which he earned the profit. Applying the above laid down principles by the Hon'ble Courts, it is held that the expenditure of Rs. 2,000 incurred by the assessee was an expenditure wholly and exclusively laid out for carrying on the business and earning business income. The share of profits of the assessee from various firms including the firm of M/s. Sood Bhandari and Cop. Therefore, constituted business income in his hands. Against this business income, the assessee is entitled to deduct the expenditure incurred actually for earning this income and depreciation on the car. It is found that the assessee had actually used the car for this purpose because the activities of the firm, the distance between the head office and the branch office and participation of the assessee in the business of the firm justify it." It is respectfully submitted that the Hon'ble Supreme Court in the case of CIT Vs. Ramlik Lal Kothari reported in 74 ITR 57 held that the expenditure incurred for the purpose of earning the share income from the firm is an allowable expenditure. In earlier years also similar claim was made and allowed except in one of the yea....
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....AO has made a detailed discussion as to the computation of income and has made the disallowance of the expenditure. The ld. PCIT merely not founding any defect even has not discussed which of the conditions as to explanation 2 of the provision of section 263 is applicable in the case of the assessee. As is evident from the finding recorded in para 7 page 10 wherein the PCIT stated that "I am of the considered view that the Assessing Officer has not taken the correct figure of deductions u/s 57 when he has categorically mentioned in the assessment order that total deductions u/s 57 are to be disallowed. Therefore, the order u/s 143(3) on 13.04.2021 is erroneous in so far as it is prejudicial to the interest of the revenue." Provision of 263 cannot be invoked to correct each and every mistake and not to correct the figure of disallowance. When the ld. AO has dealt with the issue in detailed based on the facts and he has disallowed the figure in his wisdom for which has exercised his judicial wisdom. Merely the ld.AO has not disallowed complete deduction the order cannot be revised by the PCIT. 8. Per contra, the ld. DR relied on the order of the ld. PCIT. Ld. DR vehemently argued ....
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....s. Although the assessee is not able to prove the nexus between loan taken and loan advanced. Therefore, in the light of the provision of section 57 of the act, assessee was asked to submit a co-relation between interest bearing loans and interest earning advances. Assessee was issued a detailed show cause notice and after considering the submission of the assessee ld. AO held that assessee could not establish the direct nexus between the utilization of fund and income earned under the head of income from other source. The assessee shown Income; from salary of Rs. 4,77,500/- Income from Business & Profession of Rs. 93,42,762/ Income from capital gain of Rs. 3,24,783/- and Income from other sources of Rs. 2,97,436/-, Total comes to Rs. 1,04,42,481/-, Thereafter, deduction claimed under chapter VIA Rs. 1,50,000/- and deduction u/s 57 of the Act, of Rs. 48,94,926/-, total income shown is Rs. 53,97,555/-. Hence, deduction claimed u/s 57 of the I. T. Act, 1961, of Rs. 48,94,926/- was disallowed and added back to his total income by the ld. AO. As is evident that the case of the assessee was selected to verify the claim of the assessee as per provision of section 57 of the Act and acc....