2013 (1) TMI 205 - AT - Income Tax

Jurisdiction power u/s 263 by CIT(A) - assessee using borrowed funds for the purpose of business has diverted the same for the purpose of investment in shares and has claimed an interest towards interest on loan - assessee received Rs. 1.55 crores as advance from Sri S.V. Sriramulu towards the facilitator for the purchase of land - AO has not examined whether there was any transfer in accordance with the provisions of section 2(47) - Held that - Perusal of the assessment order passed by the AO does not show any application of mind on his part as there is no enquiry by the AO while passing assessment order u/s. 143(3). He simply accepted the income declared by the assessee mechanically accepting what the assessee wanted him to accept without any application of mind or enquiry. The evidence available on record is not enough to hold that the return of the assessee was objectively examined or considered by the AO. It is because of such non-consideration of the issues on the part of the AO that the return filed by the assessee stood automatically accepted without any proper scrutiny. The assessment order is clearly erroneous as it was passed without proper examination or enquiry or verification or objective consideration of the claim made by the assessee. The AO has completely omitted to examine the issues in question from consideration and made the assessment in an arbitrary manner. His order is a completely non-speaking order. Thus it was a fit case for the learned Commissioner to exercise his revisional jurisdiction under section 263 which he rightly exercised by cancelling the assessment order and directing the Assessing Officer to pass a fresh order considering the issues raised by the CIT. The assessee should have no grievance in the action of learned Commissioner in exercising the jurisdiction u/s. 263 as the view so taken by the Assessing Officer without making the requisite inquiries or examining the claim of the assessee will per se be an erroneous view and hence will be amenable to revisional jurisdiction under Section 263. Second reason is that it is not taking of any view that will take the matter under the scope of Section 263 - against assessee.

Issues Involved:
1. Delay in filing the appeal.
2. Validity of invoking Section 263 of the Income-tax Act, 1961 by the CIT.
3. Investment in shares and the use of borrowed funds.
4. Examination of transfer of land and applicability of Section 2(47) of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Delay in Filing the Appeal:
The appeal by the assessee was delayed by 7 days. The assessee filed a petition explaining the reasons for the delay. The tribunal was satisfied with the explanation provided and condoned the delay, admitting the appeal for adjudication on merit.

2. Validity of Invoking Section 263 by the CIT:
The main grievance of the assessee was the invocation of Section 263 by the CIT. The CIT directed the Assessing Officer (AO) to re-examine certain issues, considering the AO's order as erroneous and prejudicial to the interests of the revenue. The tribunal emphasized that the CIT can exercise revision jurisdiction under Section 263 if the order of the AO is both erroneous and prejudicial to the interests of the revenue. The tribunal referenced the case of Malabar Industrial Co. Ltd. v. CIT, highlighting that an order is erroneous if it involves an incorrect assumption of facts, incorrect application of law, or non-application of mind.

3. Investment in Shares and Use of Borrowed Funds:
The assessee invested Rs. 1,72,97,822 in shares, claiming an interest of Rs. 14,92,478 on borrowed funds. The CIT observed that the AO did not examine whether the borrowed funds were used for investment in shares and directed further examination under Section 263. The assessee argued that the investment was for business purposes and no interest-bearing funds were utilized. The tribunal noted that the AO failed to verify the sources of investment and the applicability of Section 14A of the IT Act. The tribunal supported the CIT's direction to re-examine whether borrowed funds were diverted for investment in equity shares and whether any commercial expediency was involved.

4. Examination of Transfer of Land and Applicability of Section 2(47):
The assessee received Rs. 1.55 crores as an advance for the purchase of land, which was facilitated by Sri S.V. Sriramulu. The CIT noted that the AO did not examine whether there was any transfer in accordance with Section 2(47) of the IT Act. The assessee contended that the land was sold later and capital gains would be accounted for in the year of transfer. The tribunal found that the AO did not verify the transfer in terms of Section 2(47) and supported the CIT's direction to re-examine this issue.

Conclusion:
The tribunal concluded that the AO's order was erroneous and prejudicial to the interests of the revenue due to the lack of proper examination and enquiry into the issues raised by the CIT. The tribunal upheld the CIT's invocation of Section 263, directing the AO to re-examine the issues. The appeal of the assessee was dismissed.

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