2022 (5) TMI 666 - AT - Income Tax

Revision u/s 263 - Disallowance u/s 36(1)(iii) for investment is overseas entities - HELD THAT - PCIT is not entitled to invoke the revisional power u/s 263 of the Act regarding the issue mentioned above. So far as the other issue regarding expenses of Rs.8.90 crores is concerned, we find that the AO issued the notice u/s 142(1) of the Act dated 02.10.2017 in which the relevant enquiry has been raised. Subsequently, after the reply of the assessee, the AO passed the order u/s 143(3) r.w.s. 144C(13) of the Act. In the said order, one possible view has already been taken. Examining the issue again and again nowhere seems justifiable. When a possible view has been taken by AO then the assessment is not liable to be reopened again on the basis of the second view if any taken by Ld. PCIT. In this regard, we also find support of the decision in the case of Malabar Industrial Co. Ltd. 1997 (4) TMI 5 - SUPREME COURT , CIT Vs. Nirav Modi 2016 (6) TMI 1004 - BOMBAY HIGH COURT , Aditya Builders 2015 (9) TMI 1304 - BOMBAY HIGH COURT CIT Vs. Tata Teleservices (Mah) Ltd. 2014 (7) TMI 175 - BOMBAY HIGH COURT , CIT Vs. Fine Jewellery (India) Ltd. 2015 (2) TMI 732 - BOMBAY HIGH COURT . Therefore, taking into account of all the above mentioned facts and circumstances, we are of the view that the order u/s 263 of the Act is wrong against law and facts, therefore, the same is hereby ordered to be set aside.

Issues Involved:
1. Validity of the Order under Section 263.
2. Disallowance of deduction in respect of premium on redemption of debentures under Section 36(1)(iii).
3. Disallowance of expenses incurred in relation to a discontinued project under Section 37(1).

Issue-wise Detailed Analysis:

1. Validity of the Order under Section 263:

The assessee contended that the Principal Commissioner of Income Tax (PCIT) erred in invoking revisional power under Section 263 of the Income Tax Act, 1961. The PCIT held that the order dated 30.10.2018 passed by the Assistant Commissioner of Income Tax (ACIT) under Section 143(3) read with Section 144C(13) was erroneous and prejudicial to the interests of revenue. The assessee argued that the ACIT had made adequate inquiries and verifications during the assessment proceedings, and thus, the order was neither erroneous nor prejudicial to the revenue. The assessee further contended that the PCIT's order amounted to a change of view and disregarded binding judicial precedents, leading to unwarranted litigation.

The Tribunal found that the issues had already been considered by the Dispute Resolution Panel (DRP) and the ACIT, and thus, the PCIT did not have the power to invoke revisional jurisdiction under Section 263. The Tribunal cited several judicial precedents, including the case of Barclays Bank PLC vs. CIT, to support the view that the PCIT could not revise issues already considered by the DRP and the AO. The Tribunal concluded that the PCIT's invocation of Section 263 was not sustainable in law.

2. Disallowance of Deduction in Respect of Premium on Redemption of Debentures under Section 36(1)(iii):

The PCIT disallowed the deduction claimed by the assessee for the premium on redemption of debentures, treating it as interest or cost of borrowings. The PCIT held that the claim should have been disallowed in the same ratio as the disallowance of interest on account of the diversion of funds for non-business purposes.

The assessee argued that the premium paid on the redemption of debentures was claimed as a deductible expense over the debenture tenure and had been consistently accepted by the tax department in previous assessments. The assessee relied on the Supreme Court decision in Madras Industrial Investment Corporation Ltd v. CIT, which supported the deductibility of such expenses.

The Tribunal found that the AO had already considered and decided the issue, and the PCIT's order amounted to a change of view. The Tribunal held that the PCIT's direction to re-examine the issue was not tenable, as similar issues had been decided in favor of the assessee in earlier assessment years by the ITAT, DRP, and CIT(A). The Tribunal concluded that the disallowance of the premium expense under Section 36(1)(iii) was not justified.

3. Disallowance of Expenses Incurred in Relation to a Discontinued Project under Section 37(1):

The PCIT disallowed expenses amounting to Rs. 8.90 crores incurred by the assessee in relation to a discontinued hotel project, treating them as capital expenses. The PCIT held that these expenses were not related to the existing business and should have been disallowed.

The assessee argued that the expenses were incurred for a prospective hotel project that was aborted and written off during the year. The assessee contended that the expenses were in connection with the regular hotel business and should be allowed as a deduction under Section 37(1). The assessee relied on various judicial precedents to support the claim.

The Tribunal found that the AO had issued a notice under Section 142(1) and the assessee had provided a detailed explanation regarding the expenses. The Tribunal held that the AO had taken a possible view, and the PCIT's order to re-examine the issue was not justified. The Tribunal concluded that the expenses incurred for the discontinued project were allowable as a deduction under Section 37(1).

Conclusion:

The Tribunal set aside the PCIT's order under Section 263, holding that the PCIT did not have the power to revise issues already considered by the DRP and the AO. The Tribunal allowed the assessee's appeal, concluding that the disallowance of the premium on redemption of debentures and the expenses incurred for the discontinued project were not justified. The Tribunal's decision was based on the principle that a possible view taken by the AO should not be revised by the PCIT, and the PCIT's order amounted to a change of view and disregarded binding judicial precedents.

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