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2014 (7) TMI 797 - AT - Income TaxJurisdiction of CIT u/s 263 to revise an order - principle of merger - omission in calculation of interest income assessee contended that, the very levy of interest as was done by the A.O. was subject matter of appeal before the Ld. CIT(A) and subsequently by the ITAT. - Held that - Assessee has advanced funds to Satyam Computers Services Ltd. - assessee has not advanced the funds on interest basis and subsequently, it filed recovery of principal amount with interest at 18% by filing a suit in City Civil Court, Hyderabad - the amount of interest can be brought to tax in the year in which the City Civil Court considered and decided the liability to repay the amounts of advance and interest and also rate of interest on which, advance should be repaid - the question of bringing to tax interest on different amounts as directed by the CIT does not arise - when the very basis of levy is subject matter of appeal, the CIT could not have invoke the jurisdiction u/s 263 in opining that higher amount should have been considered for levy of interest - there is no basis for CIT invoking jurisdiction u/s 263 - thus, the order of the CIT is set aside Decided in favour of Assessee.
Issues:
- Jurisdiction and setting aside of assessment order under section 263 of the Income Tax Act, 1961 for A.Y. 2008-09. - Calculation and levy of interest on advances made to M/s. Satyam Computer Services Limited. - Discrepancies in the calculation of interest amount by the Assessing Officer. - Challenge to the order of the CIT under section 263 by the assessee. - Applicability of interest income on advances and the basis of accrual of interest. Detailed Analysis: Issue 1: Jurisdiction and Setting Aside of Assessment Order The appeal was against the Order of the CIT-(Central), Hyderabad under section 263 of the Income Tax Act, 1961, which set aside the assessment order passed by the A.O. under section 143(3) for A.Y. 2008-09. The CIT-(C) invoked jurisdiction based on discrepancies in the calculation of interest on advances made by the assessee to M/s. Satyam Computer Services Limited. The CIT-(C) directed a re-computation of the income after necessary verification. Issue 2: Calculation and Levy of Interest The Assessing Officer had calculated interest on the advance amount made to M/s. Satyam Computer Services Limited and brought to tax an amount of interest. However, discrepancies were found in the total advances made by the assessee, leading to under-assessment of interest. The CIT-(C) observed errors in the calculation of interest, leading to the setting aside of the assessment order for re-computation. Issue 3: Discrepancies in Interest Calculation The discrepancies in the calculation of interest included an omission in considering the full amount of advances made, as well as errors in the amounts advanced through a bank. The CIT-(C) highlighted the need for accurate calculation and charging of interest on the correct amounts advanced by the assessee. Issue 4: Challenge to CIT's Order The assessee challenged the CIT-(C)'s order under section 263, raising grounds related to jurisdiction and the levy of interest. The challenge was based on the argument that the very basis of accrual of interest was already under appeal, making the CIT-(C)'s directions unnecessary and superfluous. Issue 5: Applicability of Interest Income The ITAT had previously decided in favor of the assessees regarding the interest income on advances made to M/s. Satyam Computer Services Limited. The ITAT held that interest could only be brought to tax once the liability to repay the advances and the rate of interest were determined by the Civil Court. The ITAT's decision was cited to argue against the CIT-(C)'s jurisdiction under section 263. In conclusion, the ITAT set aside the CIT-(C)'s order, emphasizing that the basis for the levy of interest was already under appeal and that the CIT-(C) had no grounds to invoke jurisdiction under section 263. The Assessing Officer was directed to re-examine the issue of interest calculation in accordance with the ITAT's previous decision when the liability to repay the advances was determined by the Court.
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