2021 (5) TMI 2 - AT - Income Tax

Revision u/s 263 - Difference in interest amount as per 26AS and as offered for taxation - HELD THAT - AO as well as CIT(A) erred in holding that the entire interest belongs to assessee whereas, the assessee has passed on its share in proportion to the actual beneficiaries. It is only the assessee s family members and group entities who have received the interest through the assessee and passed it to its real owner. The assessee has filed complete details before the AO and AO after going through the details of interest as is mentioned in letter dated 05.10.2016 filed before Pr.CIT, the AO framed the assessment originally. The PCIT without looking into these details passed Revision Order for verification purpose only. Even in AY 13-14, i.e. immediately succeeding year in assessee s own case the CIT(A) allowed the claim of the assessee in regard to distribution of proportionate interest received on account of Cadila Health Care Limited as well as Biochem Pharmaceutical industries Limited. Even the same Assessing Officer framed assessment in the hands of the assessee s brother Shri Sheyans Jaswantlal Shah while framing assessment under section 143(3) of the Act for AY 2012-13 and accepted the interest declared in the returned of income. Hence, we are of the view that the assessment framed by AO originally, under section 143(3) of the Act dated 30.01.2015 is neither erroneous nor prejudicial to the interest of the Revenue. Even on facts as discussed above, the assessee has rightly disclosed the interest proportionately in its returned of income for the relevant AY 2012-13. Hence, the Revision Order passed by PCIT is set aside and the appeal of the assessee is allowed.

Summary

Issues:
1. Revision order passed by PCIT under section 263 of the Act setting aside the assessment framed by the Assessing Officer.
2. Determining whether the assessment order was erroneous and prejudicial to the interest of the Revenue.

Analysis:
1. The appeal arose from the revision order of the Principal Commissioner of Income Tax (PCIT) under section 263 of the Act, setting aside the assessment framed by the Assessing Officer. The PCIT found discrepancies in the interest income reported by the assessee and directed the AO to conduct detailed inquiries. The PCIT set aside the assessment for fresh examination, leading to the appeal by the assessee before the Tribunal.

2. The key contention was whether the original assessment was erroneous and prejudicial to the Revenue's interest. The PCIT highlighted discrepancies in interest income reported by the assessee and directed detailed verification. However, the Tribunal noted that the interest income was proportionately distributed among beneficiaries as per agreements, and the assessee had correctly disclosed it in the returns. The Tribunal found that the assessment was not erroneous, as the income was disclosed proportionately and accepted by the AO in similar cases.

3. The Tribunal analyzed the complex structure involving an escrow account, where interest income was subject to agreements between parties. The escrow agreement dictated the distribution of interest based on liabilities and ownership. The Tribunal emphasized that the interest income belonged to the real owner, not the fiduciary holder. It clarified the principles behind the escrow scheme and how interest income was rightfully distributed among beneficiaries.

4. The Tribunal concluded that the AO and CIT(A) erred in attributing the entire interest income to the assessee. It recognized that the interest was passed on to actual beneficiaries by the assessee, his family members, and group entities. The Tribunal found that the assessment was not erroneous, as the assessee had provided complete details, and the interest distribution was in line with agreements and disclosures in the returns.

5. Ultimately, the Tribunal set aside the PCIT's revision order, emphasizing that the original assessment was not erroneous or prejudicial to the Revenue's interest. The Tribunal highlighted consistency in interest disclosure by the assessee and previous assessments in related cases. The appeal of the assessee was allowed, leading to the conclusion that the original assessment under section 143(3) of the Act was valid and appropriate.

In conclusion, the Tribunal's detailed analysis focused on the correct distribution of interest income, the principles of the escrow agreement, and the adequacy of disclosures made by the assessee. The judgment highlighted the importance of understanding complex financial structures and ensuring accurate assessments based on factual and legal considerations.