2020 (3) TMI 627 - AT - Income Tax

Revision u/s 263 - Default in computation of amount eligible for deduction u/s 80IA - assessee company had set off interest on Bank Overdraft account against FD interest income and the resultant interest income had been shown as other income chargeable to tax - HELD THAT - AO has examined the issue of deduction claimed u/s 80IA for the power unit of the company. AO had examined the documents and explanations submitted before him.Thereafter the AO had taken one of the plausible view of netting up of interest expenses with interest income in view of the Supreme Court judgment in the case of ACG Associated Capsules (P) Ltd 2012 (2) TMI 101 - SUPREME COURT .Therefore, under these circumstances it cannot be said that the order of the AO is erroneous. There is an application of mind and a decision has been taken by the A.O., the assessment order cannot be said to be erroneous unless the same is potentially wrong or unlawful. For that we rely on the judgment of M/s. Malabar Industrial Co. Ltd. Vs CIT 2000 (2) TMI 10 - SUPREME COURT Hon'ble Delhi High Court in the case of CIT Vs. Sunbeam Auto Ltd. 2009 (9) TMI 633 - DELHI HIGH COURT drew the thin line of difference between lack of inquiry and inadequate inquiry and held that in the case of inadequate inquiry there cannot be 263 order. Therefore, without prejudice, even it is held that the AO had made inadequate inquiry then also powers under section 263 of the Act cannot be invoked under the facts and circumstances of the case. It is well established that the impugned order passed u/s. 143(3) dated 07.01.2016 was passed after calling for relevant information and after detailed examination of the same. The AO has passed the assessment order after calling for details on the issue and after considering the reply and documents after verification of the same and after due application of mind passed the assessment order, so it cannot be termed as erroneous and prejudicial to the interest of the revenue. So, the Ld. CIT s finding fault with the order of the AO is erroneous as well as prejudicial to the interest of revenue on account of lack of inquiry has to fail. AO has adopted one of the courses permissible in law and even if it has resulted in loss to the revenue, the said decision of the AO cannot be treated as erroneous and prejudicial to the interest of the revenue as held by Hon ble Supreme Court in Malabar Industries Ltd. vs. CIT 2000 (2) TMI 10 - SUPREME COURT . Since the order of the Assessing Officer cannot be held to be erroneous as well as prejudicial to the interest of the revenue, in the facts and circumstances narrated above, the usurpation of jurisdiction exercising revisional jurisdiction by the Principal CIT is not sustaining in the eyes of law and, therefore, we are inclined to quash the very assumption of jurisdiction to invoke revisional jurisdiction u/s 263 by the Principal CIT. Therefore, we quash the order of the Principal CIT dated 06.03.2018, being ab initio void. - Decided in favour of assessee.

Summary

Issues Involved:
1. Exercise of revisionary power under section 263 of the Income Tax Act.
2. Adjustment of interest on Bank Overdraft (OD) against Fixed Deposit (FD) interest income.
3. Eligibility for deduction under section 80IA of the Income Tax Act.
4. Adequacy of Assessing Officer's (AO) inquiry and application of mind during assessment.

Issue-wise Detailed Analysis:

1. Exercise of Revisionary Power under Section 263:
The Pr. Commissioner of Income Tax (PCIT) exercised revisionary power under section 263 of the Income Tax Act, setting aside the assessment order passed under section 143(3) as erroneous and prejudicial to the interest of the revenue. The PCIT's action was contested by the assessee on the grounds that the AO had made proper inquiries and applied the law correctly. The tribunal referred to the judicial precedence set by the Hon’ble Supreme Court in Malabar Industries Ltd. vs. CIT, which mandates that an order can only be revised if it is both erroneous and prejudicial to the interest of the revenue.

2. Adjustment of Interest on Bank Overdraft (OD) Against Fixed Deposit (FD) Interest Income:
The PCIT observed that the assessee had set off interest on Bank Overdraft against FD interest income, showing the resultant net interest income as other income chargeable to tax. The PCIT argued that this adjustment was not examined by the AO during the assessment and that the interest on Bank OD should have been adjusted with business income, not with FD interest. The assessee contended that the OD facility was granted on the security of the FD, making the interest on OD and FD interlinked. The tribunal found that the AO had taken a plausible view of netting interest expenses with interest income, supported by the Supreme Court judgment in ACG Associated Capsules (P) Ltd vs. CIT, which allows for net interest to be considered for deductions under section 80HHC.

3. Eligibility for Deduction Under Section 80IA:
The PCIT noted that if the interest on FD was not adjusted with interest on Bank Overdraft, the total other income and the income from business and profession would have been different, affecting the deduction eligibility under section 80IA. The tribunal found that the AO had allowed the deduction under section 80IA after proper inquiry and application of mind, and the adjustment made by the assessee was in line with the legal precedent, thus not erroneous.

4. Adequacy of Assessing Officer's (AO) Inquiry and Application of Mind:
The tribunal emphasized that the AO had conducted a proper inquiry and made a decision based on the information and documents submitted by the assessee. The tribunal cited several judicial pronouncements, including the Delhi High Court's judgment in CIT Vs. Sunbeam Auto Ltd., which differentiates between "lack of inquiry" and "inadequate inquiry," stating that inadequate inquiry does not justify revision under section 263. The tribunal concluded that the AO had taken one of the permissible views, and the assessment order could not be deemed erroneous merely because the PCIT had a different opinion.

Conclusion:
The tribunal quashed the order of the Principal CIT, stating that the AO's order was neither erroneous nor prejudicial to the interest of the revenue. The appeals filed by the assessee were allowed, and the tribunal emphasized that the AO had made a valid and lawful assessment after proper inquiry and application of mind. The tribunal's decision was pronounced on 26.02.2020, allowing the assessee's appeals in ITA No.1071 and 1072/kol/2018.