2013 (2) TMI 423 - AT - Income Tax

Interest on loan for ESOP Employee of the assessee availed bank loan to acquire ESOP shares Assessee paid this interest - Employees at the first instance opted for ESOP, later on, the employees declined to subscribe to the ESOP therefore, the loan had to be repaid along with interest Whether this interest should be allowed as expenditure Held that - CIT was of the view that the loan was not availed for the purpose of business of the assessee and, therefore, such interest could not be allowed as a deduction - However he has remitted the matter back to AO - order of CIT remanding back the issue to AO sustained - Decided against assessee. Revision u/s 263 - The contention of the assessee was that CIT has not dealt with any issue that was subject matter of adjudication and exceeded his jurisdiction Held that - Section 263 authorises a Commissioner of Income-tax to revise any order passed by any subordinate authority, which is found to be erroneous and prejudicial to the interests of the Revenue. The order passed by the assessing authority to give effect to the orders of the Tribunal is any order passed by an assessing authority, who is subordinate to the Commissioner of Income-tax - In that way the Commissioner of Income-tax has not exceeded his jurisdiction available to him under section 263 of the Act Against the assessee.

Summary

Issues:
1. Revision of assessment order for assessment year 2002-03 under section 263 of the Income-tax Act, 1961.
2. Revision of assessment order for assessment year 2003-04 under section 263 of the Income-tax Act, 1961.

Issue 1: Assessment Year 2002-03 - Revision under Section 263:
The Commissioner of Income-tax revised the assessment order for the year 2002-03, finding errors in the assessing authority's treatment of depreciation allowance. The assessing authority granted depreciation allowance twice, once under the Companies Act and again under the Income-tax Act, resulting in excessive benefit to the assessee. Additionally, the division of depreciation allowance for the benefit under section 10B was not done correctly. The Commissioner found the original order erroneous and prejudicial to the Revenue's interests. The Tribunal upheld the revision order, stating that the Commissioner acted within the permissible limits of section 263 and did not exceed jurisdiction.

Issue 2: Assessment Year 2003-04 - Revision under Section 263:
For the year 2003-04, the Commissioner revised the assessment order concerning interest paid on loans taken by employees for ESOP shares. The Commissioner disallowed the interest deduction, stating it was not for the business purpose of the assessee. The assessee argued that the interest was a legitimate business expenditure under section 36(1) of the Act. The Tribunal acknowledged the arguments but upheld the revision order, directing the Assessing Officer to re-determine the issue after hearing the assessee. The Tribunal advised the assessee to present its contentions before the assessing authority during the re-determination process. The revision order for the year 2003-04 was upheld, and the appeals filed by the assessee were dismissed.

This detailed analysis of the judgment highlights the issues involved, the errors found in the original assessment orders, the legal arguments presented, and the Tribunal's decisions regarding the revisions made under section 263 of the Income-tax Act, 1961 for the assessment years 2002-03 and 2003-04.