2021 (9) TMI 593 - AT - Income Tax

Revision u/s 263 - As per PCIT deduction of interest and bank commission against income from other sources and there was no income under the head income from other sources and as such the deduction was not allowable u/s. 57 - PCIT directed the AO to reexamine the issue after affording due opportunity of the hearing to the assessee - HELD THAT - PCIT is also not of the firm view whether the deduction so claimed is correct or not and directed to re examine the issue afresh - AO during the course of the assessment proceedings had duly examined this issue and had found that the funds were used for the purpose of the business carried on under her proprietorship business. The utilization of the these funds in the business is also shown from the Audited Balance Sheet of the business concerns as well as per personal Balance Sheet which were duly examined by the AO during the course of the assessment proceedings. The funds in question are also from the family members, and are duly accepted deposits. The unsecured loans are also genuine and accepted deposits. The payment of interest is also not disputed only the head of income under which such deduction is to be allowed is being disputed - in relation to the query letter issued by the AO reply was duly submitted to the AO on these issues which were raised and filed the detailed replies to all the query raised - PCIT has failed to specify as to how and on what ground the said order is erroneous and how the same is prejudicial to the interest of revenue - order u/s. 263 cannot be sustained as we find that the assessment order passed by the AO cannot be said to be erroneous or prejudicial to the interest of revenue - Decided in favour of assessee.

Summary

Issues:
1. Validity of order passed u/s. 263 by the ld. Pr. CIT
2. Opportunity of hearing not granted properly
3. Allowability of interest and bank commission claimed by the appellant

Analysis:

Issue 1: Validity of order passed u/s. 263 by the ld. Pr. CIT
The appellant challenged the order passed u/s. 263 by the ld. Pr. CIT, contending it to be bad in law and fact, arguing that the order u/s. 143(3) was not erroneous or prejudicial to revenue. The appellant claimed the order u/s. 263 lacked proper jurisdiction. The ITAT observed that the ld. PCIT directed the AO to reexamine the issue of deduction claimed by the appellant. The ITAT further noted that during the assessment proceedings, the AO had examined the issue of funds used for the business under the proprietorship business of the assessee. The ITAT held that the order u/s. 263 could not be sustained as the assessment order was not found to be erroneous or prejudicial to revenue.

Issue 2: Opportunity of hearing not granted properly
The appellant argued that the ld. CIT did not provide a proper opportunity of hearing due to an epidemic situation. However, the ITAT did not find this argument justifiable, as the appellant had submitted detailed replies to all queries raised during the assessment proceedings. The ITAT concluded that the appellant had been given due opportunity to present their case, and the order u/s. 263 was quashed based on the lack of error or prejudice in the assessment order.

Issue 3: Allowability of interest and bank commission claimed by the appellant
The main contention revolved around the deduction claimed by the appellant for interest and bank commission against income from other sources. The ld. PCIT contended that since there was no income under the head "income from other sources," the deduction was not allowable u/s. 57 of the Act. However, the appellant argued that the funds were invested in her proprietorship business, supported by the Audited Balance Sheet and Personal Balance Sheet. The ITAT found that the funds were genuinely invested in the business, as confirmed by the AO during assessment proceedings. The ITAT held that the deduction was allowable as the funds were utilized for business purposes, and the order u/s. 263 was quashed accordingly.

In conclusion, the ITAT allowed the appeal of the assessee, finding that the order u/s. 263 lacked merit as the assessment order was not erroneous or prejudicial to the revenue.