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2014 (7) TMI 946 - AT - Income TaxJurisdiction of CIT u/s 263 - revision of order - principle of merger - Levy of interest Held that - Assessee has advanced funds to the said 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 under section 263 of the Income Tax Act, 1961 regarding the assessment order passed by the A.O. under section 143(3) for A.Y. 2008-09. - Calculation and levy of interest on an advance made to M/s. Satyam Computer Services Limited. - Discrepancy in the total advances made by the assessee and the amount considered by the A.O. - Challenge to the CIT(C)'s order under section 263 on grounds of jurisdiction and levy of interest. - Dispute regarding the accrual of interest and the basis for bringing interest to tax. Analysis: 1. The appeal was filed against the Order of the CIT-(Central), Hyderabad invoking jurisdiction 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 dispute arose from the calculation and levy of interest on an advance made to M/s. Satyam Computer Services Limited, where the A.O. considered an amount of Rs. 10,00,00,000/- as an advance and brought to tax an amount of interest of Rs. 16,27,397/-. However, the Ld. CIT(C) noticed a discrepancy in the total advances made by the assessee, which was Rs. 25,00,00,000/-, leading to the invocation of jurisdiction under section 263. 2. The assessee contended that out of the total advance, Rs. 15,00,00,000/- was repaid, and there was no demand for interest at the time of the advance. The A.O. had already considered the interest on the outstanding amount of Rs. 10,00,00,000/- for bringing it to tax. The CIT(C) disagreed and set aside the assessment order, directing a re-computation of the income after considering the full amount of Rs. 25,00,00,000/- for interest calculation purposes. 3. The assessee challenged the CIT(C)'s order under section 263 on grounds of jurisdiction and levy of interest. The counsel argued that the basis of interest accrual was already under appeal, and therefore, the CIT(C) could not have invoked jurisdiction under section 263. It was contended that there was no requirement for interest levy during the year, making the CIT(C)'s directions unnecessary. 4. The ITAT had previously decided in favor of the assessee in a similar case, stating that interest could be brought to tax only after the City Civil Court decided on the liability to repay the advance and the rate of interest. Given this precedent, the ITAT set aside the CIT(C)'s order, stating that there was no basis for invoking jurisdiction under section 263. The A.O. was directed to examine the principal and interest as per the ITAT's previous order when the issue was resolved by the Court. 5. In conclusion, the appeal of the assessee was allowed, and the order of the CIT(C) was set aside due to the lack of jurisdiction under section 263. The A.O. was given the option to re-examine the principal and interest based on the ITAT's previous direction once the Court resolved the issue.
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