2022 (6) TMI 1107 - AT - Income Tax

Revision u/s 263 by CIT - assessment proceedings were reopened on limited scrutiny basis to analyse (a) Interest income mismatch and (b) deduction from income from other sources - HELD THAT - As in our considered view, Pr. CIT has erred in facts in observing that the assessing officer did not verify the nexus between interest-bearing borrowed funds obtained and the interest-bearing loans and advances given by the assessee. In fact, it is observed that while setting aside the assessment order, the Pr. CIT has asked the AO to also examine the issue of disproportionate credit of dividend income with reference to investments in shares and also directed the AO to work out the disallowance u/s 14A in respect of dividend income, though the same did not form part of either the show cause notice issued u/s 263 and also it was beyond the scope of original assessment proceedings which were opened on limited scrutiny basis to examine issues specified above. During the course of assessment proceedings, we note that the Ld. AO made detailed enquiries on these issues and after consideration of time-to-time written submissions filed by the assessee and documents / evidence placed on record, the Ld. AO accepted the return of income filed by the assessee. The Gujarat High Court in the case of CIT v. Nirma Chemical Works 2008 (2) TMI 373 - GUJARAT HIGH COURT held that when the assessing officer after making due enquiries had adopted one view and granted partial relief, merely because the Commissioner took a different view of the matter, it would not be sufficient to permit Commissioner to exercise powers under section 263 of the Act. The Gujarat High Court in the case of CIT v. Kamal Galani 2018 (6) TMI 1052 - GUJARAT HIGH COURT has held that once assessing officer carried out detailed enquiries, it was not open for the Commissioner to reopen issues on mere apprehensions and surmises. In the instant case, detailed enquiries were made during the course of assessment proceedings by the Ld. Assessing Officer to enquire about the claim of expenses u/s 57 of the Act, to which the assessee filed time to time replies. Hence, in the instant facts, we are of the considered view that the assessment order was not erroneous or prejudicial to the interest of the revenue. In the result, the appeal of the assessee is allowed.

Summary

Issues:
- Appeal against order u/s 263 of the Income Tax Act, 1961 for AY 2015-16.
- Whether the assessing officer's order was erroneous and prejudicial to the revenue's interest.
- Condonation of delay in filing the appeal.
- Verification of interest expenses against interest income.
- Directions given by Ld. Pr. CIT regarding interest expenses and disallowance u/s 14A.

Analysis:
1. The appeal was filed against the order u/s 263 of the Income Tax Act, 1961 for AY 2015-16. The assessing officer had accepted the returned income of the assessee, but the Ld. Pr. CIT found the assessment order to be erroneous and prejudicial to the revenue's interest due to interest expenses claimed under "income from other sources." The Ld. Pr. CIT issued a show cause notice, and after considering the response, set aside the assessment order. Directions were given to examine the nexus between interest-bearing borrowed funds and loans given, and to work out disallowances u/s 14A.

2. The appeal was time-barred, but the delay was condoned due to exceptional circumstances. On the merits, the counsel argued that the assessing officer had conducted detailed inquiries during the limited scrutiny assessment regarding interest expenses and income. The Ld. Pr. CIT's observations were challenged, stating that the assessing officer had indeed verified the nexus between interest expenses and income, as evidenced by various submissions and documents provided by the assessee.

3. The Tribunal noted that the assessment was reopened on a limited scrutiny basis for specific issues. Detailed inquiries were made by the assessing officer, and the assessee provided necessary clarifications and documents. The Tribunal cited relevant case law where it was held that if the assessing officer had conducted proper inquiries and arrived at plausible conclusions, the revisionary powers under section 263 should not be invoked. In this case, since detailed inquiries were conducted, the assessment order was deemed not erroneous or prejudicial to the revenue's interest, leading to the allowance of the appeal.

4. The Tribunal concluded that the appeal of the assessee was allowed, indicating that the assessing officer's order was not erroneous or prejudicial to the revenue's interest. The order was pronounced in the open court on 17-06-2022.