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2022 (10) TMI 969 - AT - Income TaxRevision u/s 263 - interest disallowance u/s 36(1)(iii) - PCIT took the view that the AO has not examined the issue of non-charging of interest on the loan given by the assessee - HELD THAT - Pr. CIT, before holding an order to be erroneous, should conduct necessary enquiries or verification in order to show that the finding given by the assessing officer is erroneous or the Ld. Pr. CIT should show that the view taken by the AO is unsustainable in law. In the instant case, we noticed that the Assessing Officer has called for the details of loan taken by the assessee as well as given by the assessee in a particular format which included a specific column for mentioning rate of interest charged. The Ld. A.R. submitted that the details called for by the Assessing Officer were duly furnished before him and hence the Assessing Officer is very much aware of the fact that the assessee has not charged interest on certain loans aggregating to Rs. 16.42 crores. In the instant case, a cursory glance of the Balance sheet as on 31.3.2017 of the assessee would show that the assessee is having own funds, i.e., Capital balance of Rs. 75.74 crores as on 31.3.2017, whereas interest free loan given by the assessee was to the tune of the Rs. 16.42 crores only. Since own funds available with the assessee far exceeds amount of interest free loan, no interest disallowance under section 36(1)(iii) is called for, as per the decision rendered in the case of Reliance Utilities and Power Ltd 2009 (1) TMI 4 - BOMBAY HIGH COURT Admittedly the learned PCIT has failed to examine these factual aspects and has also failed to follow binding decision of Hon'ble Jurisdictional High Court. When the case of the assessee is covered by the binding decision of the jurisdictional High Court, then there is no scope for holding the assessment order to be erroneous and prejudicial to the interest of revenue. Non-examination of these factual aspects and non-application of the binding decision of jurisdictional High Court on the issue sought to be revised by Ld. PCIT would make the impugned revision order unsustainable in law - Appeal filed by the assessee is allowed.
Issues Involved:
1. Validity of the revision order passed by the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act. 2. Examination of the adequacy of the Assessing Officer's (AO) enquiry into the non-charging of interest on loans given by the assessee. 3. Applicability of the decision of the Hon'ble Bombay High Court in the case of Reliance Utilities and Power Ltd. regarding interest-free loans. Issue-wise Detailed Analysis: 1. Validity of the Revision Order Passed by PCIT: The assessee challenged the revision order dated 29.03.2022 passed by the PCIT, which related to the assessment year 2017-18. The PCIT initiated revision proceedings under Section 263 of the Income Tax Act, stating that the AO had not examined the issue of non-charging of interest on a loan of Rs. 16.42 crores given by the assessee. The PCIT argued that the AO should have charged interest at 12% on this loan and that there was a complete non-application of mind by the AO in not examining this issue. The PCIT concluded that the assessment order was erroneous and prejudicial to the interests of revenue and set aside the assessment order for further examination. 2. Examination of the Adequacy of AO's Enquiry: The assessee contended that the AO had verified the loans received and given by the assessee during the assessment proceedings. The assessee provided all relevant details, including the non-charging of interest on certain loans, and argued that the AO had passed the assessment order after examining these details. The assessee submitted notices and letters to support their claim that the AO was aware of the non-charging of interest. The PCIT, however, was not convinced and held that the AO had not properly examined and verified the issue, citing various judicial decisions to support this view. 3. Applicability of the Decision of the Hon'ble Bombay High Court: The assessee argued that the revision order was not sustainable as the PCIT failed to follow the binding decision of the Hon'ble Bombay High Court in the case of Reliance Utilities and Power Ltd. (313 ITR 340). The assessee highlighted that they had sufficient interest-free funds (Rs. 74.73 crores) compared to the interest-free loans given (Rs. 16.42 crores). According to the Bombay High Court's decision, the interest-free loan should be considered as given out of the assessee's own capital, and no disallowance of interest expenditure should be made. The PCIT's failure to consider this decision rendered the revision order unsustainable. Tribunal's Decision: The Tribunal examined the rival contentions and relevant records. It noted that the AO had called for details of loans taken and given by the assessee, including the rate of interest charged. The Tribunal found that the AO was aware of the non-charging of interest on certain loans, and the assessee had furnished all relevant details. The Tribunal referenced the Hon'ble Bombay High Court's interpretation of Section 263, emphasizing that the PCIT must conduct necessary enquiries to show that the AO's findings were erroneous or unsustainable in law. The Tribunal concluded that the assessee had sufficient own funds to cover the interest-free loans, aligning with the Bombay High Court's decision in Reliance Utilities and Power Ltd. The PCIT's failure to examine these factual aspects and apply the binding decision of the jurisdictional High Court rendered the revision order unsustainable. Consequently, the Tribunal quashed the revision order passed by the PCIT. Conclusion: The appeal filed by the assessee was allowed, and the revision order passed by the PCIT was quashed. The Tribunal emphasized the importance of following binding judicial decisions and conducting thorough enquiries before holding an assessment order erroneous and prejudicial to the interests of revenue.
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