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2020 (5) TMI 408 - AT - Income TaxRevision u/s 263 - claim allowed by the AO u/s 57 - PCIT held that for allowing the deduction u/s 57, nexus between the income earned and the expenditure incurred to earn this income is a mandatory requirement and this requirement has not been established during the assessment proceedings - HELD THAT - Loan has been an ongoing financial transaction with the assessee for a minimum period of three years. Confirmation has also been obtained the AO along with details of the cheques issued on account of interest payment. The details of TDS have also been filed before the AO. Assessee has also received salary bonus from BHL Forex Finlease Ltd. which has been duly offered to tax. Regarding the payment of interest, the details of opening balance, closing balance of the loans received have also been filed and examined by the AO. The opening balance with Multiplex Fincap Ltd. was ₹ 1,50,00,000/-. The interest received during the year is ₹ 12,00,000/- and the closing balance of ₹ 1,62,000/- has been reflected in the details filed by the assessee as examined by the AO. Thus, we find that this is also an ongoing transaction between the assessee and loanee. Both the parties are having regular transactions with the assessee over a period of time. Hence, the clause (a) of the Explanation II to Section 263 finds no application to the facts of the case. PCIT has not brought anything on record as to how the action of the Assessing Officer culminated in treating the assessment order as erroneous and prejudicial to the interest of the revenue. We find that the order of the AO is neither erroneous as it did not violate any provisions of Explanation II to Section 263 nor it is prejudicial to the interest of the revenue as no loss of revenue could be brought to light by the ld. PCIT in the revisionary proceedings - Decided in favour of assessee.
Issues Involved:
1. Jurisdiction under Section 263 of the Income Tax Act, 1961. 2. Deduction claim under Section 57 of the Income Tax Act, 1961. 3. Validity of the Principal Commissioner of Income Tax's (PCIT) revisionary proceedings. 4. Adequacy of the Assessing Officer's (AO) inquiry and examination during the assessment proceedings. Issue-wise Detailed Analysis: 1. Jurisdiction under Section 263 of the Income Tax Act, 1961: The primary issue raised by the assessee pertains to the jurisdiction assumed by the ld. PCIT under Section 263 of the Income Tax Act, 1961. The PCIT held that the AO did not make necessary inquiries or verification regarding the interest deduction claim of ?12,00,000/- under Section 57. The Explanation II of Section 263, introduced by the Finance Act, 2015, was cited, which states that an order passed by the AO shall be deemed erroneous and prejudicial to the interests of the revenue if it is passed without making inquiries or verification which should have been made. 2. Deduction claim under Section 57 of the Income Tax Act, 1961: The assessee claimed a deduction of ?12,00,000/- under Section 57 against the interest income of ?44,02,030/-. The PCIT argued that the AO allowed this deduction without establishing the mandatory nexus between the income earned and the expenditure incurred to earn this income. The assessee provided details of the interest earned and the interest paid, but the PCIT disregarded this explanation, leading to the setting aside of the AO's order. 3. Validity of the Principal Commissioner of Income Tax's (PCIT) revisionary proceedings: The PCIT's revisionary proceedings under Section 263 were based on the argument that the AO's order was erroneous and prejudicial to the interest of the revenue. The PCIT relied on several judgments, including the Supreme Court's decision in Deniel Merchants Pvt. Ltd. vs. ITO, where it was held that the AO's failure to make proper inquiries justified the exercise of revisionary powers under Section 263. Other cases cited included Malabar Industrial Co. Ltd. vs. CIT and Rajmandir Estates (P.) Ltd. vs. PCIT, where the lack of inquiry by the AO was deemed sufficient for invoking Section 263. 4. Adequacy of the Assessing Officer's (AO) inquiry and examination during the assessment proceedings: The assessee argued that the AO had made adequate inquiries and provided complete details regarding the loans and advances, interest received, and interest paid. The AO had requisitioned details of loans and advances received and given, and the assessee had furnished these details, including confirmations, cheque details, and TDS certificates. The AO examined these details and found the transactions to be ongoing financial dealings over a period of time. The Tribunal found that the AO had indeed made the necessary inquiries and verifications, and the PCIT failed to demonstrate how the AO's actions resulted in an erroneous and prejudicial order. Conclusion: The Tribunal concluded that the AO had made adequate inquiries and verifications during the assessment proceedings. The PCIT's assumption of jurisdiction under Section 263 was found to lack tangible justification as the AO's order was neither erroneous nor prejudicial to the interest of the revenue. Consequently, the appeal of the assessee was allowed, and the order of the AO was upheld. Order Pronounced in the Open Court on 13/05/2020.
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