2013 (7) TMI 321 - HC - Income Tax

Revision u/s 263 - Assessee advanced more than 46% of capital to its sister concern company - Commissioner ordered re-assessment owing that borrowing was made by the assessee company in its own name for investing it in sister concern company - Held that - issue on the borrowed money given to the sister concern was not a subject matter of consideration by the Assessing Officer - purpose of invoking jurisdiction under Section 263 of the Income Tax, the Commissioner has to have some material to enable him to form a prima facie view that the order passed by the Officer was erroneous and was prejudicial to the interest of the Revenue - No justifiable ground to hold that there was no error in the order of the Assessing Officer to justify the invoking of the jurisdiction under Section 263 - Decided in favour of Revenue. whether the amount advanced was a measure of commercial expediency - Held that - authorities and the Courts should examine the purpose for which the assessee advanced the money and what the sister concern did with the money - in considering the question that the borrowed amount was not utilized by the assessee in its own business but had been advanced as interest free loan to its sister concern is not relevant, what is relevant is whether the amount was advanced as a measure of commercial expediency and not from the point of view whether the amount was advanced for earning profits - advancing of funds by the assessee into the sister concern was in terms of the BIFR s order - Matter not remanded back - Decided in favour of Revenue.

Summary

Issues:
1. Whether the exercise of power under Section 263 by the Commissioner of Income Tax was erroneous.

Detailed Analysis:

Issue 1: Whether the exercise of power under Section 263 by the Commissioner of Income Tax was erroneous.
The Tax Case Appeal was filed against the Tribunal's order questioning whether the Appellate Tribunal was correct in holding that the Commissioner's exercise of power under Section 263 was erroneous. The Commissioner issued a show-cause notice under Section 263, challenging the interest claimed by the assessee on loans given to a subsidiary company. The Commissioner contended that the interest was not allowable under Section 36(1)(iii) as the borrowed funds were not utilized for business purposes. The Commissioner directed the Officer to examine the commercial expediency of advancing funds to the subsidiary company. The Commissioner emphasized that the borrowing company had become financially burdened after the assessee acquired 83% shares. The Commissioner held that the onus was on the assessee to prove commercial expediency, citing a previous decision. The Tribunal, however, disagreed with the Commissioner, noting that the advance was made under a rehabilitation scheme by the BIFR for the sister company. The Tribunal found the claim allowable as a deduction, leading to the Revenue's appeal.

The Revenue argued that the Commissioner rightfully exercised jurisdiction under Section 263, as the loan to the sister company lacked commercial expediency due to the assessee's financial state. The assessee's counsel countered, pointing to the Tribunal's findings and BIFR orders obligating the assessee to infuse funds for the sister concern's revival. The Court examined the assessment records and noted the absence of consideration by the Assessing Officer on the loan issue, leading to the Commissioner's intervention. While acknowledging that Section 263 cannot correct mere errors, the Court upheld the Commissioner's jurisdiction due to the unaddressed commercial expediency aspect. On the merits, the Court agreed with the Tribunal's findings and declined to disturb them, emphasizing the commercial expediency and BIFR's involvement. The Court cited a Supreme Court decision emphasizing the purpose of fund advancement for commercial expediency. Ultimately, the Court allowed the Tax Case for statistical purposes, without remanding the matter, as the Revenue's jurisdictional plea was justified, and the loan's commercial expediency was established.

In conclusion, the Court upheld the Commissioner's jurisdiction under Section 263 based on unaddressed commercial expediency, supported by the Tribunal's findings and BIFR's orders, ultimately allowing the Tax Case for statistical purposes without remand, as the loan's commercial expediency was established, and the Revenue's jurisdictional plea was justified.