2013 (6) TMI 336 - HC - Income Tax

Jurisdiction power u/s 263 by CIT(A) - the assessment made with reference to the claim under Section 14A was erroneous and prejudicial to the interest of the Revenue - Tribunal set aside the order of the CIT - assessee had borrowed secured loans by issue of redeemable non-convertible debentures to the tune of Rs.60 crores but utilized the same towards investment in shares - Held that - It is clearly pointed out that the notice issued u/s 263 made no specific reference to materials showing the assessment as erroneous and prejudicial to the interest of the Revenue warranting revision of the order of assessment. Thus unless the basis of revision satisfying the twin conditions namely erroneous and prejudicial to the interest of the Revenue are pointed out by the CIT in invoking Section 263 certainly the asssessee is entitled to raise the question of jurisdiction. As in present case Tribunal as a matter of fact found that the redeemable non-convertible debentures were issued between 17.3.2004 and 31.3.2004 and there were no investments made during this period. Being pure and simple factual finding which has not been denied by the Revenue there exists no ground to accept the case of the Revenue to dislodge the findings of the Tribunal. No basis for revision and that the factual finding as regards the issuance of redeemable non-convertible debentures is not correlated to any investment made during this period no hesitation in rejecting appeal of revenue.

Summary

Issues:
1. Revision of assessment under Section 263 of the Income Tax Act based on claim under Section 14A.
2. Jurisdiction of the Commissioner of Income Tax to revise the assessment.
3. Applicability of Section 14A of the Income Tax Act to the case.
4. Validity of the notice issued under Section 263 of the Income Tax Act.
5. Interpretation of the order of assessment and its correlation to investments made.

Analysis:

1. The case involved the revision of assessment under Section 263 of the Income Tax Act based on the claim under Section 14A. The Commissioner of Income Tax revised the assessment, alleging that the assessment made was erroneous and prejudicial to the interest of the Revenue. The assessee had borrowed secured loans but utilized them for investments in shares, claiming interest and finance charges. The Commissioner held that the interest claimed was not related to the funds deployed in income-generating activities, leading to the revision of the assessment.

2. The issue of jurisdiction of the Commissioner of Income Tax to revise the assessment was raised before the Income Tax Appellate Tribunal. The Tribunal found that the notice issued under Section 263 failed to specify any error in the assessment order warranting revision. It was emphasized that the exercise of revisional jurisdiction must be based on materials indicating the assessment as erroneous and prejudicial to the Revenue's interest. The Tribunal concluded that the revisional proceedings lacked a proper basis, and the Commissioner had overlooked the objections raised by the assessee.

3. The applicability of Section 14A of the Income Tax Act to the case was a crucial aspect. The assessee contended that Section 14A was not applicable as it had utilized its funds, including borrowed funds, for specific project-related services and had not made any investments during the period in question. The Tribunal agreed with the assessee, highlighting that the debentures issued were not correlated to any investments made during the relevant period, thus rejecting the Commissioner's revision of the assessment.

4. The validity of the notice issued under Section 263 of the Income Tax Act was challenged by the assessee. It was argued that the notice did not specify the grounds on which the assessment order was found to be erroneous and prejudicial to the Revenue's interest. The Tribunal concurred with the assessee, emphasizing that the notice lacked specific references to errors in the assessment, rendering the revisional proceedings baseless.

5. The interpretation of the order of assessment and its correlation to investments made was a significant point of contention. The Tribunal found that the debentures issued by the assessee were not utilized for non-tax investments, as assumed by the Commissioner. The factual finding that no investments were made during the period in question was crucial in rejecting the Revenue's appeal and confirming the Tribunal's decision, ultimately dismissing the Tax Case (Appeal).

In conclusion, the High Court upheld the decision of the Income Tax Appellate Tribunal, emphasizing the importance of proper jurisdiction, specific grounds for revision, and factual findings in revising assessments under the Income Tax Act.