2017 (5) TMI 1803 - AT - Income Tax

Revision u/s 263 by CIT - allowability of interest u/s 36(1) (iii) and 14A - HELD THAT - The issue of allowability of interest u/s 36(1) (iii) and 14A was exhaustively examined in the course of regular assessment proceedings including issue of capitalization and revenue expenditure and the AO after examining in detailed all the aspects disallowed part of interest expenditure u/s 14A and in computing capital gains and allowed balance expenditure u/s 36(1)(iii) of the Act. It is an undisputed fact that the assessee has already challenged the interest disallowance by filing an appeal which is still pending as on date. From the records it is also reflected that the AO has examined all the aspects including source and utilization of funds for land transaction and in this respect the AO had issued summons u/s 133(6) of I.T. Act to Americorp which was duly responded with all details. Therefore in the light of above facts and circumstances it cannot be concluded by Ld. Pr.CIT that no inquiry was done or enquiry done was inadequate. However as per the facts of the present case it is a case of detailed inquiry by partly disallowing and partly allowing the same. It is a settled law that the power conferred u/s 263 of the I.T. Act upon the Commissioner cannot be invoked for reactivating stale issues. Therefore after considering the above facts and circumstances of the present case we allow these grounds of appeal filed by the assessee as the order of Pr. CIT u/s 263 is not sustainable. Decided in favour of assessee.

Summary

Issues involved:
1. Exercise of Jurisdiction u/s 263 of the Act
2. Allowability of Claim u/s 36(1)(iii)

Detailed Analysis:
1. Exercise of Jurisdiction u/s 263 of the Act:
The appeal was filed against the order of the Principal Commissioner of Income Tax-3, Mumbai for AY 2013-14. The appellant challenged the jurisdiction exercised under section 263 of the Act, arguing that there was no inadequate enquiry on the allowability of interest under section 36(1)(iii). The appellant contended that there was a complete application of mind during the regular assessment proceedings, supported by the Assessing Officer and the jurisdictional High Court. The appellant sought relief, questioning the PCIT's jurisdiction and the allowability of interest under section 36(1)(iii).

The Tribunal noted that the order of assessment was initially passed by the Assessing Officer, determining the total income. However, the Principal CIT revised the order, directing the disallowance of interest expenses claimed under section 36(1)(iii) and capitalizing the same as work in progress. The appellant argued that the AO had thoroughly examined the issue during the assessment, including the source and utilization of funds for a land transaction. The appellant maintained that the order under section 143(3) was not erroneous and prejudicial to the revenue's interest. The Tribunal examined the facts and concluded that the PCIT's revision was not sustainable, as there was a detailed inquiry conducted by the AO, leading to a partly disallowed and partly allowed claim.

Therefore, the Tribunal allowed the grounds of appeal filed by the assessee, ruling that the order of the Principal CIT under section 263 was not sustainable.

2. Allowability of Claim u/s 36(1)(iii):
Given the decision on the jurisdiction issue, the grounds related to the allowability of the claim under section 36(1)(iii) became infructuous. The Tribunal, having quashed the order of revision by the Principal CIT under section 263, rendered these grounds irrelevant.

In conclusion, the appeal filed by the assessee was allowed, and the order was pronounced in the open court on 17th May 2017.