2023 (3) TMI 350 - AT - Income Tax

Revision u/s 263 by CIT - reporting of correct income of interest received from bank vis-a-vis. as appearing in Form 26AS - Finance cost paid by the assessee to bank on various credit facilities vis-a-vis. the quantum of borrowings - HELD THAT - On the first issue relating to high borrowing cost vis-a-vis. the amount of borrowed money, admittedly, it is a fact on record that assessee has made detailed disclosure of its finance cost during the year under consideration by way of Note No. 24 forming part of the financial statement for the year. We note that this finance cost of Rs. 3.92 Cr. has two components, (a) interest expenses of Rs. 98.94 Cr. (b) bank charges and commission for Rs. 2.94 Cr. The component of bank charges and commission are all in respect of buyers' credit, availed by the assessee against the issue of LCs for its import purchase. The import purchase outstanding as on 31.03.2017 are reported as sundry creditors/trade payables which forms part of current liabilities and not the borrowed money. We also take note of the fact that assessee has furnished all the details in respect of expenses incurred by it on letter of credits against its import purchase, which the Ld. Pr. CIT has failed to consider and examine or caused to have examined them before arriving at the conclusion to pass the impugned revisionary order. The long term and short term borrowings outstanding at the end of the year as reported in the audited financial statements at Rs. 2.90 Cr. and the trade payables are at Rs. 40.45 Cr. Against these two components, the total finance cost claimed by the assessee is of Rs. 3.92 Cr. All these facts are verifiable from the material placed on record. In respect of second issue relating to reporting of interest income by the assessee wherein the bank itself has done the netting of interest income against the interest expenses though the assessee has reported the interest income of Rs. 1,12,15,593/-. There is no under assessment of the interest income as observed by the assessee since interest income earned has been reconciled with Form 26AS. Thus we find that PCIT has not applied his mind to arrive at a consideration which is erroneous in so far as prejudicial to the interest of the revenue, for passing the impugned order u/s. 263 - in the course of proceedings u/s. 263 of the Act before the Ld. PCIT, assessee had furnished the relevant details and explained the issues raised through the show cause notice issued by the Ld. PCIT, supporting its contentions by corroborative documentary evidences. It is well settled law that for invoking the provisions of section 263 of the Act, both the conditions that the order must be erroneous and prejudicial to the interest of revenue needs to be satisfied. This ratio stands laid down by various Hon'ble Courts. We find that the issue in the present case is purely on facts which are verifiable from the records of the assessee placed on record. Examination and verification of the audited financial statement i.e. Balance sheet and P L Account of the assessee. Perusal of the ledger account and the details of imports made by the assessee tabulated in the paper book, reveals the correct state of affairs in respect of the two issues raised in the impugned revisionary proceeding for which, both the Ld. Pr. CIT and the Ld. CIT, DR could not bring any material to controvert the said verifiable factual position. Accordingly, on the two issues raised by the Ld. Pr. CIT in the revisionary proceeding, no action u/s. 263 of the Act is justifiable - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of the revision order passed by the Principal Commissioner of Income Tax (PCIT).
2. Erroneous and prejudicial nature of the assessment order concerning the interest income received from the bank.
3. Erroneous and prejudicial nature of the assessment order concerning the finance cost paid to the bank.

Issue-wise
Detailed Analysis:

1. Legality of the Revision Order Passed by the PCIT:
The appellant argued that the revision order by the PCIT was "bad in law as well as on facts." The tribunal noted that the PCIT must establish that the assessment order is erroneous and prejudicial to the interest of the revenue to invoke jurisdiction under Section 263 of the Income-tax Act, 1961. The tribunal referenced the Hon'ble High Court of Delhi's decision in the case of ITO Vs. D.G. Housing Projects Ltd., which emphasized that the PCIT must conduct necessary inquiries and record a clear finding that the order is erroneous. The tribunal concluded that the PCIT failed to apply his mind and directed a fresh assessment order without a clear finding, thus making the revision order unsustainable.

2. Erroneous and Prejudicial Nature of the Assessment Order Concerning the Interest Income Received from the Bank:
The PCIT observed that the interest income reported by the assessee might be incorrect due to netting off interest income with interest expenses. The tribunal found that the assessee had reported the total interest income of Rs. 1,12,15,593/- as reconciled with Form 26AS. The tribunal noted that the PCIT did not make inquiries or verification to substantiate the claim of erroneous reporting. Therefore, the tribunal concluded that the assessment order was not erroneous or prejudicial to the interest of the revenue concerning the interest income.

3. Erroneous and Prejudicial Nature of the Assessment Order Concerning the Finance Cost Paid to the Bank:
The PCIT contended that the finance cost reported by the assessee was disproportionately high compared to the borrowings. The tribunal examined the detailed disclosure of finance costs in the audited financial statements, which included interest expenses and bank charges related to letter of credit facilities. The tribunal noted that the PCIT failed to consider these details and did not verify the facts before concluding that the assessment order was erroneous. The tribunal emphasized that the PCIT must establish that the order is unsustainable in law, which was not done in this case.

Conclusion:
The tribunal quashed the revision order passed under Section 263 of the Income-tax Act, 1961, as the PCIT failed to establish that the assessment order was erroneous and prejudicial to the interest of the revenue. The appeal of the assessee was allowed, and the tribunal concluded that no action under Section 263 was justifiable based on the facts and circumstances of the case.