2013 (12) TMI 1600 - HC - Income Tax

Revision u/s 263 - Held that - Once the Tribunal had come to the conclusion that the loan advanced was on account of commercial expediency as well as in the orders of the BIFR, we do not find any ground to disturb the said finding. Rightly, the Revenue had not raised any question of law on this. Even though on the aspect of jurisdiction, the Revenue succeeds, yet, the further question on the merits being a pure question of fact and rightly not raised, we do not find, any useful purpose would be achieved in setting aside the order of the Tribunal and further remanding the matter. In the circumstances, except for holding that the Revenue is justified in its plea in invoking jurisdiction under Section 263 of the Act, we do not think, the order calls for any interference to remand the matter. Advancing of funds by the assessee into the sister concern was in terms of the BIFR s order. That being the case, no useful purpose would be served by again directing a remand on the merits of the claim of the assessee.

Summary

Issues:
1. Whether the Appellate Tribunal was right in holding that the exercise of power under Section 263 by the Commissioner of Income Tax was erroneous.

Analysis:
The High Court of Madras addressed the substantial question of law in a Tax Case Appeal concerning the Commissioner's power under Section 263 of the Income-tax Act. The Commissioner issued a show-cause notice to the assessee regarding the claim of interest payable on loans taken and interest-free advances made to a subsidiary company. The Commissioner contended that the interest claimed was not allowable under Section 36(1)(iii) as the borrowed funds were not fully utilized for business purposes. The Commissioner directed the Officer to examine the commercial expediency of the advances made by the assessee to the subsidiary company. The Commissioner emphasized that the amount advanced significantly impacted the assessee's financial liabilities. Referring to the decision in S.A Builders Ltd. v. CIT [2007] 288 ITR 1 (SC), the Commissioner held that the burden was on the assessee to prove the commercial expediency of the advances. The Tribunal, however, disagreed with the Commissioner's view, considering the rehabilitation scheme by the BIFR for the sister company, and allowed the appeal of the assessee.

The Court examined whether the issue of advances to the sister concern was considered during the original assessment stage. It was revealed that the Assessing Officer did not discuss this aspect, leading to the Commissioner invoking Section 263. The Court agreed with the Revenue that the Commissioner's jurisdiction under Section 263 was justified due to the lack of consideration of the commercial expediency of the advances by the Assessing Officer. While Section 263 cannot correct errors, the absence of consideration by the Assessing Officer justified the Commissioner's intervention. On the merits, the Court upheld the Tribunal's finding that the advances were made for commercial expediency, as supported by the BIFR's orders. Although the Revenue succeeded on jurisdictional grounds, no question of law was raised on the merits, leading the Court to refrain from interfering with the Tribunal's decision.

The Court referenced the S.A. Builders Ltd. case, emphasizing the need to assess the commercial expediency of advances made by the assessee. Given that the advances were made in compliance with the BIFR's order, the Court found no need to remand the matter for further review. Consequently, the Tax Case was allowed for statistical purposes, with no costs imposed.