2021 (5) TMI 388 - AT - Income Tax

Revision u/s 263 - unsecured loans addition - HELD THAT - As carefully perused the questionnaire issued by the assessing officer dated 31.08.2016 and find that in response to question No.15 of this questionnaire assessee filed details of unsecured loans appearing as on 31.03.2014 along with ledger accounts and in some cases copies of income tax returns of various cash creditors. As examined the documents filed by the assessee in response to point 16 of the questionnaire which contains details of loans and advances given to various parties along with ledger accounts of each of these parties and there income tax return. We have also perused written submission filed before the Ld. AO which contained various details of interest earned on loans and advances, party wise details of interest paid in the required format. Before the Ld. AO assessee had also filed submissions regarding unsecured loan, high interest expenditure, and allowability of interest expenditure. It was also claimed by the assessee that entire unsecured and secured loans taken during the year has only been utilized for the business of assessee. Reliance was also placed on the judgment of Hon'ble Apex Court in the case of S.A. Builders Ltd. 2006 (12) TMI 82 - SUPREME COURT contending that the interest on money borrowed and lent to sister concern without charging interest is allowable on the same test as that for allowance of business expenditure viz for the purpose of business allowable if made as a measure of commercial expediency . DR failed to controvert this fact that all these details were very much available before the assessing officer and submissions were duly made by the assessee supported by settled judicial precedence for the claim of interest expenditure - No new enquiry was conducted by Ld. Pr. CIT, in this regard at its own motion as required in the provisions of section 263 of the Act. Thus, this is a case where complete enquiry was conducted by the assessing officer with application of mind and in our considered view, it is not open for Ld. Pr. CIT to order for a fresh enquiry when adequate enquiry has already been done and one of the plausible view has been taken by the assessing officer as permissible under the law. Pr. CIT erred in assuming jurisdiction u/s 263 of the Act in order to substitute his view with that of the assessing officer. - Decided in favour of assessee.

Issues Involved:
1. Assumption of jurisdiction under section 263 of the Income Tax Act, 1961.
2. Examination and investigation of interest expenditure and interest charged on loans and advances.
3. Adequacy of the enquiry conducted by the Assessing Officer (AO).
4. Validity of the Principal Commissioner of Income Tax (Pr. CIT) invoking section 263 based on audit objections.
5. Application of judicial precedents and legal principles in the context of section 263.

Issue-wise Detailed Analysis:

1. Assumption of Jurisdiction under Section 263:
The appellant challenged the jurisdiction assumed by the Pr. CIT under section 263 of the Income Tax Act, 1961. The appellant argued that the assessment order passed by the AO under section 143(3) was not erroneous or prejudicial to the interest of the revenue. The appellant contended that the AO had conducted proper enquiries and applied his mind while completing the assessment.

2. Examination and Investigation of Interest Expenditure:
The Pr. CIT issued a show-cause notice alleging that the AO did not properly examine the interest expenditure claimed by the assessee. The notice highlighted that the assessee had debited interest paid of ?2,45,31,692/- against secured/unsecured loans of ?25,73,26,860/- but charged interest of ?83,82,561/- on loans and advances to associated concerns amounting to ?11,41,73,105/-. The Pr. CIT calculated a proportionate interest chargeable and noted a discrepancy of ?25,01,882/-. The appellant responded by stating that the AO had made appropriate enquiries and relied on judicial precedents to support the claim of interest expenditure.

3. Adequacy of the Enquiry Conducted by the AO:
The appellant provided detailed submissions and documentary evidence to demonstrate that the AO had conducted proper enquiries during the assessment proceedings. The AO had issued a detailed questionnaire under section 142(1) and the appellant had submitted party-wise details of interest paid and earned, confirmations of unsecured loans, and explanations for interest charged on loans and advances. The Tribunal noted that the AO had applied his mind and conducted adequate enquiries, and it was not a case of lack of enquiry.

4. Validity of Pr. CIT Invoking Section 263 Based on Audit Objections:
The appellant argued that the Pr. CIT had invoked section 263 based on audit objections, which is not a valid ground for revision. The Tribunal agreed with the appellant, stating that the Pr. CIT cannot invoke section 263 merely because he has a different opinion from that of the AO. The Tribunal emphasized that where the AO has taken one of the possible views after conducting proper enquiries, the Pr. CIT cannot exercise revisionary powers to direct a fuller enquiry.

5. Application of Judicial Precedents and Legal Principles:
The Tribunal relied on various judicial precedents to support its decision. It referred to the Hon'ble High Court of Bombay in the case of CIT vs. Nirav Modi and the Hon'ble Gujarat High Court in the case of Shri Prakash Bhagchand Khatri, which held that the Pr. CIT cannot invoke section 263 if the AO has conducted adequate enquiries and taken a possible view. The Tribunal also cited the Hon'ble Delhi High Court in the case of CIT vs. Anil Kumar, which stated that the Pr. CIT cannot substitute his own opinion for that of the AO.

Conclusion:
The Tribunal concluded that the AO had conducted proper enquiries and applied his mind while completing the assessment. The Pr. CIT erred in assuming jurisdiction under section 263 to substitute his view with that of the AO. The Tribunal set aside the order of the Pr. CIT and restored the assessment order passed by the AO under section 143(3). The appeal filed by the assessee was allowed, and the impugned order under section 263 was quashed.

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