2015 (10) TMI 2246 - AT - Income Tax

Revision u/s 263 - assessee company is not eligible for deduction u/s 35D - Held that - CIT(A) has proceeded on wrong assumption of facts. The CIT has held that the preliminary expenditure claimed by the assessee were incurred during the financial year 2008-09 whereas the business has commenced from 10.07.2007 relevant to assessment year 2008-09 therefore the claim of the expense as prior period expense and allowable u/s 35D carries no weightage. This entire finding of the CIT is based on the wrong assumption of fact that the assessee s business has commenced from 10.07.2007. The correct fact is that the assessee company was incorporated on 10.07.2007. The business has been commenced only during the year under consideration. Our view is also fortified by the fact that in the Balance sheet under the head current assets loans and advances project work-in-progress as on 31.03.2008 was only Rs. 13, 373/- and as on 31.03.2009 which is the impugned financial year WIP is shown at Rs. 1, 47, 77, 27, 412/- which means that the entire purchase of land was done during the year which also means that the business has been commenced during the year under consideration and the expenditures claim as prior period expenditure are allowable u/s 35D of the Act. - Decided in favour of assessee. Taxability of interest income - Held that - Assessing Officer has taken a view which may be different from the view of the Ld. Commissioner and assuming that the view taken by the Assessing Officer is a loss to the revenue but the Hon ble Supreme Court in Malabar Industrial Co. (2000 (2) TMI 10 - SUPREME Court) has held that every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of the revenue for example when an ITO adopted one of the courses presumably in law and it has resulted in loss of revenue or where two views are possible and the ITO has taken one view with which the Ld. Commissioner does not agree it cannot be treated as an order which is erroneous or prejudicial to the interest of the revenue unless the view taken by the ITO is unsustainable in law. Thus the assessment order is neither erroneous nor prejudicial to the interest of the revenue. We therefore set aside the impugned order passed by Ld. Commissioner u/s 263 and restore that of the Assessing Officer passed u/s 143(3) of the Act. - Decided in favour of assessee.

Summary

Issues:
Challenging correctness of CIT order invoking section 263 - Preliminary expenses claim - Taxability of interest income.

Analysis:
1. The appellant challenged the CIT-3, Mumbai's order invoking section 263, arguing that the assessment order was not erroneous or prejudicial. The appellant, engaged in real estate construction, filed a return declaring a loss. The Assessing Officer accepted the returned loss after scrutiny. The CIT issued a notice citing discrepancies, including preliminary expenses and interest income. The appellant contended that all details were provided during assessment proceedings. The CIT, however, found the assessment erroneous and prejudicial, directing a fresh assessment.

2. The ITAT Mumbai, upon appeal, found the CIT's assumptions incorrect. The CIT wrongly assumed the commencement date of the business, leading to incorrect findings on preliminary expenses. The ITAT clarified that the business commenced during the relevant year based on financial data. Regarding interest income taxability, the ITAT noted conflicting judgments and emphasized the Assessing Officer's discretion in choosing a view. The ITAT referenced the Malabar Industrial Co. case, highlighting that not every revenue loss is prejudicial.

3. Citing the Gabriel India Ltd case, the ITAT emphasized that an ITO's decision isn't erroneous merely due to lack of detailed discussion. Considering legal precedents and the facts, the ITAT concluded that the assessment order was neither erroneous nor prejudicial to revenue. Consequently, the ITAT set aside the CIT's order under section 263 and reinstated the Assessing Officer's order under section 143(3).

Judgment:
The ITAT allowed the appeal, pronouncing the order on 23.9.2015.