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2021 (9) TMI 602 - AT - Income TaxRevision u/s 263 - allowability of interest expenditure - AO issued statutory notices calling for details in respect of the items selected for Limited Scrutiny - deduction of interest incurred in the course of business - As per CIT AO had failed to examine the commercial expediency of the assessee in advancing interest free loan to the partners, when the assessee-firm was paying interest on the borrowed capital - HELD THAT - Assessee had demonstrated before the AO that the loan was availed from ICICI Bank for business purpose and in connection and for the benefit of their project Ozone . Having regard to the facts as discussed in the foregoing, it thus cannot be said that arrangement carried out by the assessee with these two partners lacked commercial expediency. AO, after being satisfied with the explanation/ submission/documents, had allowed the deduction of interest incurred in the course of business. Such view taken by the AO was indeed a plausible view and cannot be said to be unsustainable in law . Appreciating the commercial expediency involved, the AO s successor did not take any adverse view in AY 2017-18 even though debit balance in current account of these partners were M/s. P. S. Group Realty Ltd.and M/s. Srijan Realty Pvt. Ltd.- Having regard to the foregoing facts and applying the rule of consistency, we are of the opinion that the Ld. Pr. CIT ought not to have disturbed the assessment order for the relevant year on this issue of allowability of interest expenditure. The net withdrawal by the partners during the year was only to the tune of ₹ 15.37 crore and not ₹ 74 crore as wrongly assumed by the Ld. Pr.CIT. We thus find force in the argument of the Ld. AR that the impugned order was passed by the Ld. Pr.CIT without due application of mind to the facts of the case and material available on record. Pr.CIT wrongly asserted that AO did not examine the balance sheet of the assessee and did not enquire into the commercial expediency of withdrawal of fund by the partners. The facts and figures assumed by the Ld. Pr.CIT are also found to be erroneous. We find that the AO had discharged his duty as an investigator on this issue. And his view as an adjudicator on this issue is based on the relevant material placed on record, which we find to be in consonance with the decision of the Hon ble Apex Court in S. A. Builders vs. CIT 2006 (12) TMI 82 - SUPREME COURT - Following the decision of Apex Court in Malabar Industries Ltd. 2000 (2) TMI 10 - SUPREME COURT we are thus of the considered opinion that, while passing the assessment order the AO did not follow a view which can be said to be 'unsustainable in law'. The jurisdictional facts for usurping the jurisdiction, being absent, we hold that the action of Ld. Pr. CIT was without jurisdiction and therefore null in the eyes of law. We accordingly quash the order of Ld. Pr. CIT impugned before us - Appeal of the assessee is allowed.
Issues Involved:
1. Invocation of revisional jurisdiction under Section 263 of the Income-tax Act, 1961 by the Principal Commissioner of Income Tax (Pr. CIT). 2. Examination of the allowability of interest expenditure claimed by the assessee. 3. Adequacy of the Assessing Officer’s (AO) enquiry into the interest expenditure and its commercial expediency. 4. Determination of whether the AO’s order was erroneous and prejudicial to the interest of the revenue. Issue-wise Detailed Analysis: 1. Invocation of Revisional Jurisdiction under Section 263: The appeal challenges the order of the Pr. CIT invoking Section 263 of the Income-tax Act, 1961, which allows for revisional jurisdiction if the AO’s order is deemed erroneous and prejudicial to the interest of the revenue. The assessee contended that the Pr. CIT did not satisfy the condition precedent for invoking this jurisdiction, as the AO’s order was neither erroneous nor prejudicial to the revenue. 2. Examination of the Allowability of Interest Expenditure: The assessee, engaged in real estate development, claimed an interest expenditure of ?84,27,773/- for the AY 2015-16. This included interest on secured loans from ICICI Bank, loan processing fees, and interest on delayed payment of service tax. The Pr. CIT issued a Show Cause Notice (SCN) questioning the commercial expediency of the assessee in advancing interest-free loans to partners while incurring interest on borrowed capital. 3. Adequacy of the AO’s Enquiry: The AO conducted a detailed enquiry into the interest expenditure claimed by the assessee. The assessee provided comprehensive details, including the breakup of interest expenses, bank statements, and the ICICI Bank’s sanction letter. The AO examined these documents and accepted the assessee’s claim, concluding that the interest expenses were incurred for business purposes related to the project ‘Ozone’. 4. Determination of Whether the AO’s Order was Erroneous and Prejudicial: The Pr. CIT argued that the AO’s enquiry was inadequate and that the AO failed to properly examine the commercial expediency of the interest-free loans to partners. However, the Tribunal noted that the AO had conducted sufficient enquiry and had taken a plausible view supported by judicial precedents. The Tribunal emphasized the distinction between “lack of enquiry” and “inadequate enquiry,” stating that the latter does not justify revisional jurisdiction under Section 263. Conclusion: The Tribunal concluded that the AO had conducted a thorough enquiry into the interest expenditure and had made a reasoned decision based on the facts and applicable law. The Pr. CIT’s assumption of facts was found to be erroneous, and the AO’s order was not unsustainable in law. Therefore, the invocation of Section 263 by the Pr. CIT was deemed without jurisdiction and null in the eyes of the law. The appeal of the assessee was allowed, and the order of the Pr. CIT was quashed.
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