TaxTMI 
TaxTMI 
2026 (9) TMI 112
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....pplication of income. The CIT(E) was of the view that the AO failed to conduct proper verification and examination before allowing the deduction towards the said amount claimed as application. The CIT(E) therefore issued a show cause notice u/s. 263 of the Act. The assessee in response submitted that the A.O has already carried out verification of the loan amounts repaid claimed as application and that borrowal made originally were utilized to repay old once borrowed earlier and towards the objects of the trust. The assessee further submitted the prohibition to allow expenses incurred out of borrowals once again when they are repaid was inserted into Section 11 only in respect of borrowals made on or after 01.04.2021 and not to those prior to the said date. Accordingly, the assessee submitted that the AO has taken a plausible view after application of mind accepting income returned by the assessee. The CIT(E) however did not accept the submissions of the assessee and held that the order u/s. 143(3) of the Act passed by the A.O is erroneous and prejudicial to the interest of the Revenue. The relevant observations of the CIT(E) in this regard are extracted below: "5. The ass....
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....hat, as per clause (ii) of Explanation 4, application made out of borrowed funds is not allowed as application of income. This clause was inserted by the Finance Act, 2021, and the assessee has contended that since the loans were borrowed prior to the insertion of this provision, the same should not be applicable in its case. 9. However, at the same time, the assessee, relying on the latter part of the first proviso to clause (ii) of explanation 4, which was also inserted by the Finance Act, 2021, claimed repayment of loans as application of income. However, the said proviso starts with wordings: "Provided that the amount not so treated as application, or part thereof, shall be treated as application". This clearly implies that the repayment of the loan can be treated as application of income only if the original expenditure incurred out of borrowed funds was not claimed as application of income at the time it was incurred. In the present case, the assessee has failed to demonstrate that the amount spent out of borrowed funds was not claimed as application of income in the year the expenditure was incurred. Therefore, in the absence of such proof, the benefit of the provis....
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....f a questionnaire or calling for details does not amount to proper or adequate enquiry. In this regard, In this regard reliance is pleaced on the Hon'ble Supreme Court decision in the case of M/s. Daniel Merchants Pvt. Ltd. vs. ITO (Appeal No. 2396/2017) dated 29.11.2017, wherein it was held that it was entirely permissible for the PCIT/CIT under section 263 to set aside the assessment and direct the AO to make necessary enquiries, where the proper enquiry had not been made while making the assessment. 17. The assessment order is squarely covered by the decision of the Hon'ble Delhi High Court in the case of CIT v. Toyota Motor Corporation [2008] 174 Taxman 395 (Del.) holding that order being cryptic is erroneous and prejudicial to interest of revenue. In the instant case as the order dated 09.03.2024 is a non-speaking one and sheds no light in respect of impugned issues. In view of the above, the order is definitely erroneous and prejudicial within the meaning of section 263. 18. Examination of the order sheet entries, case history notings, and other materials available on the assessment records does not reveal any discussion, verification, or finding regardi....
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....he Assessing Officer is directed to pass a fresh assessment order in accordance with the law within the time prescribed under the Act, after conducting necessary inquiries and verifications as discussed in the preceding paragraphs, and after affording the assessee a reasonable and adequate opportunity of being heard. The assessee is in appeal before the Tribunal against the order of the CIT(A). 3. The primary contention of the Ld. AR is that the AO has already verified the details pertaining to the repayment of loan since the assessee's case was selected for scrutiny in order to verify the large amount of repayments claimed as application by the assessee. The Ld. AR drew our attention to the notices issued u/s. 142(1) of the Act by the A.O calling for various details pertaining to the loans and the reply filed by the assessee. The Ld. AR further drew our attention to the details submitted with regard to the loans such as the date of borrowal, interest and repayment, utilization of the amount borrowed etc. The ld. AR argued that the A.O in the assessment order has extracted the details submitted by the assessee and after considering the said details has allowed the claim o....
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....n of jurisdiction under section 263. 6. At the outset, it would be apposite to examine the statutory scheme as it existed for the assessment year under consideration. Explanation 4(ii) to section 11(1) of the Act, as applicable for the assessment year 2022-23, provided that application for charitable or religious purposes made out of any loan or borrowing shall not be treated as application of income and that the amount so not treated shall be regarded as application in the previous year in which such loan or borrowing is repaid out of the income of that year. Thus, under the statutory framework prevailing during the relevant assessment year, the Legislature expressly recognised the repayment of loan out of the income of the year as application of income. We notice that the provision, as it stood for the assessment year under consideration, did not prescribe any further condition requiring the A.O to examine whether the expenditure incurred out of such borrowing had already been treated as application in an earlier year before allowing the repayment as application. Likewise, Explanation 4(ii) to section 11(1) of the Act did not require the A.O, while considering the claim in the....
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....t order cannot be regarded as erroneous merely because the Commissioner prefers another view. The revisional jurisdiction under section 263 of the Act can be exercised only when the view adopted by the A.O is unsustainable in law. In the present case, the view adopted by the A.O. is not only in consonance with the statutory provisions as they stood for the assessment year under consideration but also constitutes a legally plausible view. Consequently, the assumption of jurisdiction under section 263 on the premise that the assessment order is erroneous in law is not tenable. 8. The second reason assigned by the CIT(E) is that the A.O had not verified whether the borrowed funds were utilised for charitable purposes. As already discussed, Explanation 4(ii) to section 11(1) of the Act, as applicable for the assessment year under consideration, did not require the A.O. to undertake a fresh examination regarding the utilisation of the borrowed funds while considering the claim of repayment as application in the subsequent year. We notice that the case was selected for limited scrutiny specifically for examining the assessee's claim of repayment of loan treated as application of i....
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....rs, considered the detailed explanation furnished by the assessee and thereafter accepted the claim. Therefore, even on facts, it cannot be said that the assessment order suffers from lack of enquiry so as to warrant invocation of revisionary jurisdiction under section 263 of the Act. Having regard to the aforesaid discussion, we are of the considered view that neither of the two grounds on which the CIT(E) has assumed jurisdiction under section 263 of the Act can be sustained. The first ground proceeds on importing into the assessment year 2022-23 statutory restrictions which came to be enacted only by the Finance Act, 2023. The second ground is contrary to the factual position emerging from the assessment records, which clearly demonstrate that the A.O had conducted the necessary enquiries and accepted the assessee's explanation after due consideration. The view adopted by the A.O is a legally plausible view based on the provisions applicable to the relevant assessment year and cannot be characterised as erroneous merely because the CIT(E) entertains a different opinion. Consequently, the twin conditions stipulated under section 263 of the Act, namely, that the assessment ord....