2022 (12) TMI 645 - AT - Income Tax

Revision u/s 263 - Interest disallowance u/s.36(1)(iii) - HELD THAT - As assessee s arguments fail to evoke our acceptance since we do not find even a single question or enquiry from the AO s side alleging diversion of interest bearing funds for non-business purposes, attracting section 36(1)(iii) interest disallowance. We conclude that the PCIT herein has rightly termed the AO s assessment completed without making the adequate enquiries in light of section 263 Explanation (2) inserted in the Act by Finance Act, 2015 w.e.f. 01.06.2011 as well as Malabar Industrial Company Ltd., 2000 (2) TMI 10 - SUPREME COURT . Applicability of section 14A r.w.r. 8D - From perusal of the PCIT's revision directions that he has already directed the AO to examine the issue of applicability of section 14A r.w. Rule 8D in his findings of the revision order. Revenue could hardly dispute that the AO had duly disallowed an amount in his assessment and, therefore, the same could not be termed an instance of lack of enquiry as it is alleged at the PCIT s behest. PCIT s revision directions to the limited extent of applicability of section 14A r.w.r. 8D disallowance therefore. Deemed rent computation issue raised in the learned PCIT s revision directions - We note from a perusal of the relevant discussion in page-9 para-3 that neither the assessee could clarify before us about the number of house properties owned in the relevant previous year nor could he rebut his computation in the subsequent assessment year 2015-16 qua the same. Faced with the situation, we upheld the PCIT s revision directions that the AO had neither enquired nor examined the issue of assessee s rental income from house property u/s. 23 of the Act. The assessee s arguments to this effect are rejected accordingly. Section 56(2)(vii) made applicable in assessee s case on account of alleged difference between stamp valuation and actual purchase consideration qua the sale deed executed in the relevant previous year - A perusal of the said sale deed dated 31.12.2013, and more particularly, the schedule of payment therein at page-16 indicates that the assessee had already paid an amount of Rs.50,000/- on 20.09.2016 by way of bank cheque which followed the agreement itself dated 05.10.2006. Faced with the situation, we quote 1st and 2nd proviso to sec.56(2)(viib) that the consideration amount in such a transfer of immovable property at the time of agreement could also be accepted in case whole or part thereof had been paid in any mode other than cash on or before the date of the agreement, for the transfer of such immovable property. CIT-DR could hardly dispute that the legislature had introduced similar provision(s) in sec.50C(1) vide Finance Act 2016 w.e.f. 01.04.2017 which have already been held as carrying retrospective effect being curative in nature in Dharmashibhai Sonani 2016 (9) TMI 1259 - ITAT AHMEDABAD We, therefore, are of the opinion that the only difference in sec.50C vis- -vis sec.56(2)(vii) is that the former applies in case of transfer of a capital asset in the hands of the vendor whereas the latter one gets attracted in the purchaser/vendee s case, respectively. We thus conclude that the PCIT has erred in law and on facts in directing the Assessing Officer to frame his assessment afresh in light of section 56(2)(vii) in very terms. His directions to this limited extent are reversed accordingly. The assessee s instant former substantive ground succeeds in part therefore.

Summary

Issues Involved:
1. Jurisdictional validity of the order passed by the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act, 1961.
2. Applicability of interest disallowance under Section 36(1)(iii) of the Act.
3. Deemed rent computation issue under Section 23 of the Act.
4. Alleged difference between stamp valuation and actual purchase consideration under Section 56(2)(vii) of the Act.

Issue 1 - Jurisdictional Validity of PCIT's Order under Section 263:
The appellant challenged the PCIT's order on various grounds, including issues related to tax calculations, investments, advances, disallowances, and TDS claims. The Tribunal rejected the appellant's general ground but considered the substantive issue of the PCIT's revision directions. The Tribunal found that the PCIT rightly termed the Assessing Officer's assessment as erroneous due to insufficient inquiries, as required by Section 263 Explanation (2) of the Act. The Tribunal referred to relevant case law and concluded that the PCIT's directions were justified.

Issue 2 - Applicability of Interest Disallowance under Section 36(1)(iii):
The Tribunal examined the PCIT's revision directions regarding interest disallowance under Section 36(1)(iii) of the Act. The appellant's arguments, based on the Assessing Officer's scrutiny process, were rejected as the Tribunal did not find any evidence of diversion of interest-bearing funds for non-business purposes. The Tribunal upheld the PCIT's decision that the Assessing Officer's assessment lacked adequate inquiries, as mandated by the Act and relevant case law.

Issue 3 - Deemed Rent Computation under Section 23:
The Tribunal considered the PCIT's revision directions concerning the computation of deemed rent under Section 23 of the Act. Despite the appellant's submissions, the Tribunal found that the Assessing Officer had not adequately examined the issue of rental income from house property. The Tribunal upheld the PCIT's directions, emphasizing the lack of inquiries by the Assessing Officer.

Issue 4 - Alleged Difference in Stamp Valuation and Purchase Consideration under Section 56(2)(vii):
The Tribunal analyzed the issue of alleged differences between stamp valuation and actual purchase consideration under Section 56(2)(vii) of the Act. Referring to specific provisions and case law, the Tribunal determined that the PCIT erred in directing a fresh assessment based on this issue. The Tribunal reversed the PCIT's directions in part, highlighting the legislative provisions and retrospective effects of similar laws.

Conclusion:
The Tribunal partially allowed the appellant's appeal, reversing some of the PCIT's directions while upholding others. The order was pronounced on 13.12.2022, addressing the various issues raised by the appellant regarding the PCIT's revision directions and the Assessing Officer's assessments under different sections of the Income Tax Act.