2022 (1) TMI 634 - AT - Income Tax

Revision u/s 263 by CIT- underassessment of income - CIT doubted the expense claimed u/s. 57(iii) - Expenses claimed under the head 'income from other sources' was not justified as the same was not incurred/utilized for earning the income under 'other sources' - as per CIT there was nothing on record to show that the said expenses were incurred wholly and exclusively for the purpose of making or earning such income - HELD THAT - Issue of interest income, assessed under the head 'income from other sources', has not been discussed/examined in the assessment order passed by Assessing Officer under section 143(3) dated 23.11.2016. Besides, the amount claimed as deduction on account of expenses has not been discussed/examined by Assessing Officer in his order. There is no opinion expressed by the Assessing Officer on expenses claimed under the head income from other sources. In the assessment order, only issue relating to section 14A has been brought on record and examined by the assessing officer. Therefore, we note that there is no whisper in the assessment order that assessing officer has examined the issues raised by the ld PCIT. Thus, the order passed by the Assessing Officer is erroneous and prejudicial to the interest of revenue. Counsel did not submit the details of interest with reference to under the head 'income from other sources' nor expenses details which were mentioned with reference to section 57 - there is no any working submitted by the assessee in respect of general expenses that against which interest income such general expenses were incurred by the assessee. That is, nexus is absent. To earn the interest income the assessee has claimed to have incurred general expenses which is not believable. To collect the interest income from customers only some collection charges to be incurred, such as transportation charges, postal charges if interest cheques were received by post etc, thus, some small expenses may be incurred. Thus, to claim the general expenses against the interest income is not justifiable, particularly when assessee has not demonstrated that on which activities the assessee has spent ₹ 37,04,113/- to earn such interest income. Thus, it is clear that Assessing Officer did not make enquiry to examine expenditure incurred to earn such interest income. Hence, order passed by the assessing officer is erroneous as well as prejudicial to the interest of Revenue. No doubt, assessee has filed some details during the assessment proceedings, but the AO did not raise query to dig the truth. The assessing officer should examine the details filed by the assessee and must reach on right conclusion, which the AO has failed to do so in the assessee's case under consideration. Therefore, order passed by the assessing officer is erroneous as well as prejudicial to the interest of Revenue, hence, the jurisdiction exercised by ld PCIT under section 263 of the Act is upheld. - Decided against assessee.

Summary

Issues Involved:
1. Validity of the order passed under section 263 of the Income Tax Act, 1961.
2. Justification of expenses claimed under section 57(iii) of the Income Tax Act, 1961.
3. Examination and verification of expenses by the Assessing Officer (AO).

Issue-Wise Detailed Analysis:

1. Validity of the Order Passed Under Section 263 of the Income Tax Act, 1961:

The assessee challenged the correctness of the order passed by the Principal Commissioner of Income Tax (PCIT) under section 263 of the Income Tax Act, 1961, arguing that the PCIT wrongly set aside the assessment order under section 143(3) due to a perceived lack of enquiry by the AO. The PCIT noticed that the assessee claimed expenses of ?37,04,113 under the head "income from other sources" without sufficient evidence showing that these expenses were incurred wholly and exclusively for earning such income. Consequently, the PCIT issued a notice under section 263, deeming the original assessment order erroneous and prejudicial to the interest of the Revenue due to the AO's failure to conduct necessary enquiries.

2. Justification of Expenses Claimed Under Section 57(iii) of the Income Tax Act, 1961:

The assessee argued that the expenses claimed under section 57(iii) were justified and supported by evidence submitted during both the assessment and section 263 proceedings. The PCIT, however, found no merit in this submission, noting that there was no record showing that the expenses of ?37,04,113 were incurred wholly and exclusively for earning the interest income of ?29,90,030. The PCIT emphasized that the AO should have disallowed these expenses under section 57(iii) as they were not justified.

3. Examination and Verification of Expenses by the Assessing Officer (AO):

The Tribunal examined whether the AO had scrutinized the expenses claimed by the assessee. The Tribunal found that the AO's assessment order did not discuss or examine the interest income of ?29,90,030 or the expenses of ?37,04,113 claimed under the head "income from other sources." The AO only addressed issues related to section 14A in the assessment order, indicating a lack of enquiry into the expenses claimed under section 57(iii). The Tribunal noted that the AO did not ask for specific details regarding the expenses of ?37,04,113 during the assessment proceedings, nor did the assessee provide a detailed breakdown of these expenses. The Tribunal concluded that the AO's failure to investigate these expenses rendered the assessment order erroneous and prejudicial to the interest of the Revenue.

Conclusion:

The Tribunal upheld the jurisdiction exercised by the PCIT under section 263, agreeing that the AO's assessment order was erroneous and prejudicial to the interest of the Revenue due to the lack of proper enquiry into the expenses claimed under section 57(iii). The appeal of the assessee was dismissed, reinforcing the necessity for thorough examination and verification of claims made in tax assessments to ensure compliance with the Income Tax Act.

Order Pronouncement:

The order was pronounced on 04/01/2022 by placing the result on the notice board.