2015 (8) TMI 713 - AT - Income Tax

Revision u/s 263 - interest free advances and proportionate disallowance of interest - Held that - Assessing Officer conduct the assessment proceeding and passed impugned assessment order accepting the return of income of the assessee we clearly observe that the Assessing Officer has not made inquiry on the issue of interest free advances and proportionate disallowance of interest thereon, on the issue of verification on TDS and on the claim and calculation of the assessee for the purpose of deduction u/s 80IB(7A) of the Act specially on the issue of exclusion of income/receipt on sale of shop and FDR interest. In this situation, we have no hesitation to hold that the order of the AO which is apparently very precise and cryptic, was not passed after due examination and verification of certain or issue and therefore, there was an error on the part of AO which leads to a correct conclusion of the CIT with the order of the AO is not only erroneous or also prejudicial to the interest of Revenue. We may further point out that the assessment order suffers lack of necessary enquiry on certain important issues which have been raised by the CIT in the notice issued to the assessee and impugned order u/s 263 of the Act. Therefore, we reach to a conclusion that the assessment order is not sustainable and in accordance with the provisions of the Act which is not only erroneous but also prejudicial to the interest of the Revenue. Hence, we are inclined to hold that the issuance of notice u/s 263 of the Act and impugned order passed by the CIT u/s 263 of the Act is validly assumed jurisdiction of revisional powers u/s 263 of the Act which cannot be alleged as invalid assumption of jurisdiction or bad in law and we confirm the same. In the result, appeal of the assessee is dismissed. Notice and the impugned order of the CIT u/s 263 of the Act is upheld. - Decided against assessee.

Issues Involved:
1. Validity of notice issued under Section 263 of the Income Tax Act, 1961.
2. Jurisdiction of the Commissioner of Income Tax (CIT) to invoke provisions of Section 263.
3. Examination of the assessment order for errors and prejudice to the interest of revenue.
4. Directions for disallowance of proportionate interest on loans and advances.
5. Verification of TDS on payments made for building repairs and maintenance.
6. Disallowance of deduction under Section 80IB(7A) on profit from the sale of shopping area and interest on FDR.

Issue-wise Detailed Analysis:

1. Validity of Notice Issued under Section 263:
The assessee challenged the validity of the notice issued under Section 263, arguing that the assessment order dated 29.12.2010 was neither erroneous nor prejudicial to the interest of the revenue. The Tribunal examined the procedural aspects and found that the CIT had issued the notice based on specific grounds, indicating potential errors in the assessment order. The Tribunal upheld the validity of the notice, stating that the CIT was justified in issuing it to address the identified issues.

2. Jurisdiction of the CIT to Invoke Provisions of Section 263:
The assessee contended that the CIT lacked jurisdiction to invoke Section 263. The Tribunal referred to various judgments, including those from the Hon'ble Supreme Court and the Delhi High Court, which clarified that the CIT has the authority to revise any assessment order if it is erroneous and prejudicial to the interest of the revenue. The Tribunal concluded that the CIT had the jurisdiction to invoke Section 263, as the assessment order had apparent errors and lacked necessary inquiries.

3. Examination of the Assessment Order for Errors and Prejudice to Revenue:
The Tribunal noted that the assessment order was passed without making any disallowances or additions and lacked detailed verification on critical issues. The CIT identified three main issues: proportionate disallowance of interest on interest-free advances, verification of TDS on certain payments, and exclusion of income from the sale of shops and FDR interest from business income for deduction under Section 80IB(7A). The Tribunal found that the assessment order was erroneous and prejudicial to the interest of the revenue due to the lack of proper inquiries on these issues.

4. Directions for Disallowance of Proportionate Interest on Loans and Advances:
The CIT directed the Assessing Officer (AO) to disallow proportionate interest on loans and advances given by the assessee for non-business purposes. The Tribunal upheld this direction, noting that the AO had not made any inquiries or verifications regarding the interest-free advances and their business purposes. The Tribunal emphasized that the AO's failure to investigate this aspect rendered the assessment order erroneous and prejudicial to the revenue.

5. Verification of TDS on Payments Made for Building Repairs and Maintenance:
The CIT directed the AO to verify whether TDS was deducted on payments made for building repairs and maintenance. The Tribunal observed that there was no query or verification by the AO on this issue during the assessment proceedings. Despite the reassessment order not making any additions on this issue, the Tribunal upheld the CIT's direction, stating that the AO's failure to verify TDS compliance constituted an error in the assessment order.

6. Disallowance of Deduction under Section 80IB(7A) on Profit from Sale of Shopping Area and Interest on FDR:
The CIT directed the AO to disallow the deduction under Section 80IB(7A) proportionately on the profit from the sale of the shopping area and interest on FDR. The Tribunal noted that the AO had not raised any specific queries or made verifications regarding the inclusion of these incomes for the deduction calculation. The Tribunal upheld the CIT's direction, concluding that the AO's omission to examine this issue rendered the assessment order erroneous and prejudicial to the interest of the revenue.

Conclusion:
The Tribunal concluded that the CIT had validly assumed jurisdiction under Section 263 and that the assessment order was indeed erroneous and prejudicial to the interest of the revenue due to the lack of necessary inquiries and verifications on critical issues. The appeal of the assessee was dismissed, and the notice and order under Section 263 were upheld.

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