2022 (9) TMI 1556 - HC - Income Tax

Revision u/s 263 quashed by ITAT - netting off of interest expense with interest income - distinction between lack of enquiry and inadequate enquiry - Whether ITAT was correct in holding that the view taken by AO was not unsustainable in law, when, in fact, excess relief in contravention to Section 80IA involving the meaning of Profit derived from business was erroneously allowed by the Assessing Officer, causing prejudice to the Revenue? - HELD THAT - After having appraised itself about the legal position, more particularly the decision of Malabar Industries Ltd. v 2000 (2) TMI 10 - SUPREME COURT the tribunal took note of the contention of the assessee that the overdraft facility has been granted on the security of the fixed deposit and, therefore, the interest on the overdraft and the interest on the fixed deposits are inter-linked. Assessee has used its fixed deposits for taking overdraft facilities without encashing the fixed deposits and the interest on the overdraft has a direct nexus with interest accruing in the fixed deposit and, therefore, the interest on the overdraft has been adjusted with the fixed deposit interest and the net interest income has been shown as other income. Tribunal has noted that the assessing officer had enquired into this aspect and had taken one of the plausible view of netting off of interest expense with interest income, in the light of the decision of ACG Associated Capsules (P) ltd. 2012 (2) TMI 101 - SUPREME COURT . Tribunal after going through the entire records placed before it has recorded a finding that the assessing officer, after making proper enquiry and proper application of mind has framed the assessment under Section 143(3) of the Act and, therefore, the assessment order cannot be termed to be erroneous and prejudicial to the interest of revenue. The tribunal also noted the settled distinction between lack of enquiry and inadequate enquiry and if it is a case of an inadequate enquiry, the law is settled that an order u/s 263 cannot be passed. Tribunal on analysing the factual position has granted relief to the assessee. Thus, no substantial question of law arises.

Summary

Issues:
1. Whether the Tribunal erred in quashing the order under Section 263 of the Income Tax Act without applying its judicial mind?
2. Whether the Tribunal erred in not holding the Assessing Officer's order under Section 143(3) as erroneous and prejudicial to the Revenue?
3. Whether the ITAT was correct in holding that the Assessing Officer's view was not unsustainable in law regarding excess relief under Section 80IA?

Analysis:
1. The High Court considered the appeal filed by the revenue challenging the ITAT's order for the assessment years 2013-14 and 2014-15. The main issue was whether the Principal Commissioner of Income Tax was justified in invoking Section 263 of the Act. The Tribunal had analyzed the factual situation, considering the legal position and the decision in the case of Malabar Industries Ltd. vs. CIT. The Tribunal observed that the Assessing Officer had taken a plausible view regarding netting off interest expense with interest income, based on the Supreme Court decision in ACG Associated Capsules (P) Ltd. vs. CIT. The Tribunal found that the assessing officer had conducted a proper enquiry and application of mind while framing the assessment under Section 143(3), leading to the conclusion that the assessment order was not erroneous or prejudicial to the revenue. The distinction between "lack of enquiry" and "inadequate enquiry" was noted, emphasizing that a Section 263 order cannot be passed in the case of inadequate enquiry.

2. The High Court held that after analyzing the factual position, the Tribunal had correctly granted relief to the assessee. It was concluded that no question of law, let alone a substantial question of law, arose for consideration in the appeal. Consequently, the appeal of the revenue was dismissed.

3. The Court also mentioned that the connected application for stay was closed as a result of the dismissal of the appeal.