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2017 (1) TMI 252 - HC - Income TaxRevision u/s 263 - whether the order of the Assessing Officer is erroneous on the ground of not being in accordance with law? - absence of actual business activity - Held that - CIT in his order has held that the Assessing Officer has not taken into account the relevant consideration of absence of actual business activity of the appellant for the purpose of treating the expenditure claimed as an allowable expenditure. Perusal of the assessment order quoted above substantiates these observations of the CIT. Therefore, in our opinion, the first requisite of law stands satisfied. Loss to the revenue on account of the error in the assessment order - Held that - The impugned orders observe that the Assessing Company during the previous year, relevant to the Assessment Year 2009-10, has not commenced the business of development of SEZ/Real Estate and that the Company had merely obtained loan from the holding company amounting to ₹ 49,81,00,000/- in the financial year 2007-08 and utilized it for investing in share of subsidiary company M/s. Zuari Developers Pvt. Ltd., to the extent of ₹ 8,26,75,564/- and giving loans to subsidiary company to the extent of ₹ 42,16,40,630/-. The interest paid on the loans amounted to ₹ 3,56,51,678/- and other incidental expenses, amounting to ₹ 4,69,544/- were charged to the Profit and Loss Account as expenses incurred during the P.Y. relevant to the assessment year 2009-10. On the basis of this business loss of ₹ 36,10,09,708/- was computed and claimed as loss to be carried forward to subsequent years. In the opinion of the CIT and ITAT since the Company had not commenced its business of development of SEZ/Real Estate, the expenditure claimed could not have been treated as the expenditure incurred for the purpose of business. As such, it was denied. Since the expenditure was not allowable expenditure, it amounted to irregular allowances of loss. Such loss was allowed to be carried forward to the extent of ₹ 1,78,57,950/- and involved notional tax effect of ₹ 60,69,917/- (33.99% of ₹ 1,78,57,950/-). This notional tax effect is directly attributable to the error in the assessment order. Therefore, even the second requisite is satisfied.
Issues:
1. Jurisdiction under Section 263 of the Income Tax Act 2. Assessment Order for the Assessment Year 2009-10 3. Invocation of jurisdiction under Section 263 by the CIT 4. Challenging the order of CIT before the ITAT 5. Grounds of challenge before the High Court Issue 1: Jurisdiction under Section 263 of the Income Tax Act: The appeal challenged the order passed by the Commissioner of Income-tax (CIT) under Section 263 of the Income Tax Act, along with the subsequent order by the Income Tax Appellate Tribunal (ITAT). The substantial question of law raised was whether the authorities were justified in upholding the powers exercised under Section 263 without recording a finding that the Assessment Order was erroneous and prejudicial to the interest of Revenue. The appellant company contended that the assessment order was not erroneous or prejudicial to the revenue's interest, as detailed inquiries were made during the assessment proceedings. Issue 2: Assessment Order for the Assessment Year 2009-10: The dispute in the present appeal pertained to the Assessment Year 2009-10. The appellant company, initially incorporated as "M/s. Zuari SEZ Ltd.," underwent name changes to "M/s. Zuari Infrastructure and Developers Ltd." and finally to "Zuari Management Services." The company filed a return of income for the A.Y. 2009-10, declaring a total income of Nil and claiming losses under different heads, including business loss and long-term capital loss. Issue 3: Invocation of jurisdiction under Section 263 by the CIT: The CIT passed an order under Section 263, setting aside the assessment order and directing the Assessing Officer to verify the claim of the appellant regarding carrying forward losses. The CIT found the assessment order erroneous and prejudicial to the interest of revenue due to the company not commencing its business activities and claiming expenses that were not related to its business objectives. The CIT's order was challenged before the ITAT, which dismissed the appeal. Issue 4: Challenging the order of CIT before the ITAT: The appellant company challenged the CIT's order before the ITAT, arguing that the jurisdiction under Section 263 was erroneously invoked. The company contended that its business had commenced during the previous assessment year and that the CIT failed to consider this aspect. The ITAT upheld the CIT's order, leading to the present appeal before the High Court. Issue 5: Grounds of challenge before the High Court: Before the High Court, the appellant raised additional grounds, alleging a lack of independent decision-making by the CIT and that the order was non-speaking. The High Court found no merit in these contentions, stating that the CIT had applied independent judgment and provided reasons for setting aside the assessment order. The High Court also emphasized the importance of the order being in accordance with the law and not prejudicial to the revenue's interest, citing relevant legal precedents. In conclusion, the High Court dismissed the appeal, affirming the CIT's jurisdiction under Section 263 and the decision to set aside the assessment order for the Assessment Year 2009-10. The Court found that the assessment order was erroneous as it did not consider the absence of actual business activity by the appellant, leading to irregular allowances of losses and notional tax effects. The High Court upheld the CIT's order as being in line with the law and in the interest of revenue.
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