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2020 (12) TMI 104 - AT - Income TaxRevision u/s 263 - AO did not verify whether the assessee has complied with the Guidelines issued by RBI or not - A.O. did not call for any details as to what are the Guidelines issued by RBI which are applicable to the NBFC and failed to verify whether all the conditions stipulated therein have been made - A.O. has not done the assessment in a proper manner and that was the short point which was being emphasized in the show cause notice - HELD THAT - As we note that there is no presumption that non-following of RBI guidelines in an assessment will result in an order which is prejudicial to the interest of revenue. The RBI guidelines and the prudential norms are not designed to pluck revenue leakage from income tax point of view. These are mandate to ensure that the assessee follows proper Banking norms. Hence, learned CIT s inference that non examination of adherence to RBI guidelines by the Assessing Officer has resulted in a order which is erroneous in so far as it is prejudice to the interest of revenue is liable to be set aside. Moreover as we have already noted the Explanation (2) in section 263 has been added from 1.6.2015 and the same is not operative in the period under consideration. Broken period interest and mark to market loss - on the touchstone of above Hon'ble Bombay High Court decision in State bank of India 2018 (6) TMI 1326 - BOMBAY HIGH COURT when the issues were given in note in the computation of income and case laws were referred, it cannot be said that Assessing Officer has not examined the issues and applied his mind. Assessee has duly explained the quantum of broken period interest being claimed and the basis for the same has been explained in the case of American Express Bank 2002 (9) TMI 96 - BOMBAY HIGH COURT .- CIT s view is that AO has not enquired and applied his mind in as much as the same is not dealt with in the assessment order. On the touchstone of Hon'ble Bombay High Court decision in the case of State Bank of India Vs. ACIT (supra) it cannot be said that the Assessing Officer has not applied his mind on this issue. Once it is held that the Assessing Officer has after application of mind taken a view, learned CIT cannot exercise his jurisdiction u/s. 263 of the Act unless the view is ex facie not tenable. As held in the case of M/s. Malabar Industrial Company Ltd 2000 (2) TMI 10 - SUPREME COURT if two views are possible and one view is adopted by the Assessing Officer with which learned CIT(A) does not agree with, the assessment cannot be held to be prejudicial and erroneous to the interest of the revenue. Broken period interest have to be allowed as revenue expense in the year. Mark to market loss - As computation of income the assessee has explained the accounting policy adopted for recognising mark to market loss and the assessee has quantified the amount also. On the touchstone of the Hon'ble Bombay High Court decision referred above State Bank of India Vs. ACIT (supra) it cannot be held that the Assessing Officer has not applied his mind or made enquiry on the issue. As held above once it is held that the Assessing Officer has applied his mind and has taken one of the possible view, learned CIT cannot invoke its jurisdiction u/s. 263 of the Act. Moreover, in the order u/s. 263 learned CIT(A) has nowhere dislodged the detail submission on this issue by the assessee. - Decided in favour of assessee.
Issues Involved:
1. Applicability of Section 263 of the Income Tax Act, 1961. 2. Setting aside of the assessment order by the CIT. 3. Direction to the AO to frame a fresh assessment order. 4. Examination of issues raised under Section 263. 5. Treatment of broken period interest. 6. Claim for debenture issue expenses. 7. Claim of deduction for Mark to Market losses in relation to Equity Linked Notes. Comprehensive, Issue-Wise Detailed Analysis: 1. Applicability of Section 263 of the Income Tax Act, 1961: The Commissioner of Income Tax (CIT) invoked Section 263, stating that the assessment order dated 15.12.2011 was erroneous and prejudicial to the interest of the revenue. The CIT argued that the Assessing Officer (AO) did not verify compliance with RBI guidelines applicable to the Non-Banking Financial Company (NBFC) status of the assessee. The CIT concluded that the AO failed to conduct a proper assessment by not calling for necessary details or verifying the conditions stipulated by RBI guidelines. 2. Setting Aside of the Assessment Order by the CIT: The CIT set aside the assessment order under Section 143(3) dated 15.12.2011, holding it erroneous and prejudicial to the interest of the revenue. The CIT directed the AO to frame a fresh assessment order after giving the assessee a reasonable opportunity of being heard. The CIT emphasized that the AO did not conduct relevant and meaningful inquiries, thus making the assessment order erroneous. 3. Direction to the AO to Frame a Fresh Assessment Order: The CIT directed the AO to conduct a de novo assessment, examining all the issues raised under Section 263 and taking appropriate action as warranted by the facts and circumstances of the case. This included examining whether the assessee complied with RBI guidelines and verifying the genuineness of claims for deductions and expenses. 4. Examination of Issues Raised Under Section 263: The CIT identified several issues that the AO failed to examine properly: - Compliance with RBI guidelines for NBFCs. - Treatment of broken period interest. - Examination of debenture issue expenses. - Verification of Mark to Market losses related to Equity Linked Notes. 5. Treatment of Broken Period Interest: The CIT held that the AO did not properly consider the broken period interest paid on securities. The CIT argued that the broken period interest should be included in the valuation of closing stock and allowed as a deduction only at the time of the sale of these securities. The CIT rejected the assessee’s reliance on case laws such as Citibank N.A. and American Express International Banking Corporation, stating they were not applicable to the facts of the present case. 6. Claim for Debenture Issue Expenses: The CIT found that the AO did not examine the details of debenture issue expenses before allowing the deduction. The CIT argued that the AO failed to call for relevant details and verify their genuineness, thus acting in a mechanical and perfunctory manner. 7. Claim of Deduction for Mark to Market Losses in Relation to Equity Linked Notes: The CIT noted that the AO did not conduct any inquiry before allowing the claim of deduction for Mark to Market losses. The CIT emphasized that the AO should have examined whether the loss was notional expenditure and followed the instructions issued by the Central Board of Direct Taxes (CBDT). Tribunal’s Findings: The Tribunal held that the CIT could invoke Section 263 only if the order passed by the AO was both erroneous and prejudicial to the interest of the revenue. The Tribunal found that the AO had applied his mind and conducted inquiries as required, referring to the computation of income and notes provided by the assessee. The Tribunal cited the Bombay High Court decision in the case of State Bank of India, which held that if the assessment order is passed after considering the computation of income, it cannot be held that the AO did not apply his mind. The Tribunal also noted that the CIT’s direction for further examination without pointing out specific errors was not sustainable. The Tribunal emphasized that the CIT’s inference that non-examination of adherence to RBI guidelines resulted in an erroneous order was not justified. The Tribunal concluded that the CIT could not exercise jurisdiction under Section 263 to direct a de novo examination without finding the order being erroneous and prejudicial to the interest of the revenue. Conclusion: The Tribunal quashed the CIT’s order, holding that the AO had adopted one of the possible views, and the CIT could not assume jurisdiction under Section 263 to direct a fresh assessment. The Tribunal allowed the appeal by the assessee, stating that the CIT’s order was not legally sustainable.
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