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2022 (10) TMI 1088 - AT - Income TaxRevision u/s 263 by CIT - direction to reassess the loan outstanding as on 31/03/2011 - disallowance u/s 40(a)(i) of interest paid on loan - HELD THAT - We find substance in the claim of the Ld. AR, that now when the AO while framing the re-assessment u/s. 143(3) r.w.s 147 of the Act, dated 23.11.2018 had not made any addition as regards the very reason on the basis of which the case of the assessee was reopened i.e., source of cash deposits in the assessee s Saving bank account with State Bank of Bikaner Jaipur, therefore, in absence of any addition on the said count, it was not permissible for him to have made any independent verifications and/or additions/disallowances in the hands of the assessee. Now when in absence of any addition having been made as regards the issue on the basis of which the case of the assessee was reopened, the AO stood divested of his jurisdiction of making any independent additions/disallowances, therefore, no infirmity could be related to the order passed by him under Sec. 143(3) r.w.s 147 for the reason, that he had failed to have carried out verifications as regards the unsecured loans that were raised by the assessee during the year from seven parties, and also failed to disallow under Sec. 40(a)(ia) her claim for deduction of interest that was paid to the aforesaid lenders i.e, without deduction of tax at source, as both of the said issues were independent issues that were unconnected with the reason on the basis of which her case was reopened under Section 147. In sum and substance, as the view taken by the AO i.e., not making of any independent addition/disallowance in the absence of any addition as regards the issue on the basis of which the case of the assessee was re-opened, is found to be in conformity with the judgment in the case of Jet Airways (I) Ltd. 2010 (4) TMI 431 - HIGH COURT OF BOMBAY therefore, we are unable to concur with the view taken by the Pr. CIT that the failure on the part of the AO to carry out verifications and/or make addition/disallowance as regards such independent and unconnected issues would render the order passed by him under Sec. 143(3) r.w.s 147, dated 23.11.2018 as erroneous in so far as it was prejudicial to the interest of the revenue under Sec. 263 - We, thus, in terms of our aforesaid observations set-aside the order passed by the Pr. CIT u/s 263 of the Act, dated 22.02.2021 and restore the order passed by the Assessing Officer u/s.143(3) r.w.s.147, dated 23.11.2018. Thus, the appeal filed by the assessee is allowed in terms of our aforesaid observations.
Issues:
1. Jurisdiction of Principal Commissioner of Income Tax under Section 263 of the Income-tax Act, 1961. 2. Validity of the order passed under Section 263 by the Principal Commissioner of Income Tax. 3. Consideration of detailed replies by the assessee in response to the notice issued under Section 263. 4. Legality of the notice issued under Section 263 and the order passed by the Principal Commissioner of Income Tax. 5. Reassessment of outstanding loan and disallowance of interest under Section 40(a)(i). 6. Legal validity of the order passed under Section 263 against the facts of the case. 7. Error in directing the assessing Officer to reassess the income of the assessee. 8. Interpretation of Section 147(1) of the Income-tax Act. Analysis: 1. The appeal challenged the order passed by the Principal Commissioner of Income Tax (Pr. CIT) under Section 263 of the Income-tax Act, 1961, which arose from the order passed by the Assessing Officer (AO) under Section 143(3) read with Section 147 for the assessment year 2011-12. The assessee contended that the issues raised by the Pr. CIT for revision were not part of the reassessment order and were beyond the jurisdiction of the Pr. CIT. 2. The assessee, engaged in trading of electrical wires and cables, had cash deposits in her bank account, leading to the reopening of her case by the AO under Section 147. The assessee explained the source of cash deposits during the reassessment proceedings, resulting in no additions made by the AO in the reassessment order. 3. Subsequently, the Pr. CIT found errors in the AO's assessment related to unsecured loans and interest deduction, leading to a notice under Section 263. The Pr. CIT held the assessment order as erroneous and prejudicial to revenue, prompting the assessee to appeal. 4. The Tribunal analyzed the jurisdiction of the AO in making additions/disallowances independent of the issues for which the case was reopened. Referring to the judgment in CIT Vs. Jet Airways, the Tribunal concluded that in the absence of additions on the specific issue for reopening, the AO lacked jurisdiction to verify and make independent additions. 5. Based on the interpretation of Section 147(1) and the precedent, the Tribunal held that the AO's failure to verify unsecured loans and disallow interest deduction did not render the assessment order erroneous. Consequently, the Tribunal set aside the order passed by the Pr. CIT under Section 263 and restored the AO's order under Section 143(3) read with Section 147. 6. Ultimately, the Tribunal allowed the appeal of the assessee, emphasizing that the AO's actions were in line with legal requirements, and the Pr. CIT's order under Section 263 was not justified based on the facts of the case and legal provisions. This detailed analysis highlights the legal intricacies involved in the judgment, focusing on jurisdictional issues, validity of orders, and interpretation of relevant sections of the Income-tax Act.
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