2013 (1) TMI 260 - AT - Income Tax

Revision of orders prejudicial to revenue - Jurisdiction u/s 263 of CIT(A) - deduction u/s 36 - Held that - Persuing the Schedule X filed by assessee it shows that interest income of Rs.197.82 crores was received by the assessee during the year under consideration of which major amount was relating to housing loans given to the individuals and corporate. A copy of return filed by the assessee to NHB is also placed on record and a perusal of it shows that the principal business transacted by the assessee company during the year under consideration was clearly indicated as financing housing loans and sourcing and servicing home loans for ICICI Bank. The details of disbursement of housing loans during the year were also given which shows that 709 new housing loans were disbursed by the assessee during the year under consideration involving total amount of Rs.15.06 crores. Thus it can be concluded assessee s case are sufficient to show that it was very much carrying on the business of providing long term finance for development of housing in India making it entitled for deduction u/s 36(1)(viii) and there was no error in the order of the AO in allowing such deduction to the assessee in the assessment completed u/s 143(3). Other income on account of fees, interest etc. was not in the nature of income from eligible business entitled for deduction u/s 36(1)(viii) - Held that - Since there is no discussion in the assessment order passed by the AO u/s 143(3) on this aspect the assessment order suffers from an error to the extent of non-examination of this aspect and the same being prejudicial to the interest of the Revenue, the direction given by the CIT to the AO to the extent that he should examine this limited aspect of assessee s claim for deduction u/s 36(1)(viii) afresh. Deduction on account of bond issue expenses - Held that - There is nothing brought on record to show that the claim of the assessee for deduction on account of bond issue expenses was allowed by the AO in the assessment completed u/s 143(3) after making proper and adequate enquiry. There was a failure on the part of the AO to make such enquiry specifically as pointed by CIT in order to ascertain the nature of the said expenses whether capital or revenue, thus the order of the AO was erroneous and prejudicial to the interest of the Revenue on this issue as rightly pointed out by the CIT.

Summary

Issues Involved:
1. Eligibility of deduction under section 36(1)(viii) of the Income Tax Act.
2. Nature and allowability of bond issue expenses.

Issue-wise Detailed Analysis:

1. Eligibility of Deduction under Section 36(1)(viii):

The assessee, a Housing Finance Company, filed its return declaring a total income of Rs. 28,55,51,580/-. The Assessing Officer (AO) computed the total income at Rs. 28,60,04,490/- after making an addition/disallowance of Rs. 4,52,908/- under section 14A. Upon examination, the Commissioner of Income Tax (CIT) identified errors in the AO's order, particularly regarding the deduction of Rs. 10,90,00,000/- allowed under section 36(1)(viii) for reserves created from the business of providing long-term finance for residential house construction. The CIT contended that the assessee, having discontinued the business of giving fresh housing loans, was not eligible for this deduction.

In response, the assessee argued that it continued to provide finance for residential houses and serviced the entire loan portfolio, including old loans, earning significant interest income from these activities. The assessee claimed that even if certain incomes were excluded, the deduction under section 36(1)(viii) would remain unchanged. The Tribunal examined the balance sheet and income details, noting substantial interest income from housing loans and disbursement of new housing loans during the year. It concluded that the assessee was engaged in providing long-term finance for housing, making it eligible for the deduction. However, the Tribunal found that the AO did not examine whether other incomes like fees and interest were from eligible business and directed the AO to re-examine this aspect.

2. Nature and Allowability of Bond Issue Expenses:

The CIT also identified an error regarding the deduction of bond issue expenses amounting to Rs. 3.43 crores. The CIT argued that the AO allowed this deduction without proper enquiry into whether these expenses were capital or revenue in nature. The assessee contended that these expenses were revenue in nature and allowable based on precedents. However, the Tribunal found no evidence that the AO conducted a proper enquiry before allowing the deduction. It upheld the CIT's view that the AO's failure to examine this aspect rendered the order erroneous and prejudicial to the Revenue's interest.

Conclusion:

The Tribunal partly allowed the assessee's appeal. It upheld the CIT's direction to re-examine the eligibility of certain incomes for deduction under section 36(1)(viii) and confirmed the need for a proper enquiry into the nature of bond issue expenses. The Tribunal's decision ensures that the AO conducts a thorough examination to ascertain the correctness of deductions claimed, thereby safeguarding the interests of the Revenue.