2023 (11) TMI 988 - AT - Income Tax

Revision u/s 263 - As per CIT claim of interest expenses had been allowed erroneously by the AO and also has not examined genuineness and creditworthiness of the fund borrowed for advancing loan - HELD THAT - We find that the Ld. PCIT has no where asked for examination of the genuineness or creditworthiness of the funds borrowed for advancing. During the course of the hearing on 19.07.2013 and 24.08.2013, the Ld. DR was asked to furnish necessary evidence in support that opportunity of being heard was given to the assessee on the issue of genuineness of examination of the borrowed fund. During hearing dated 04.09.2023, the Ld. DR filed a copy of the relevant folder of the Ld. PCIT including order sheet and submitted that as per the record no such opportunity was appeared to be have given. In aforesaid circumstances of the case, the order u/s 263 passed by the Ld. PCIT cannot be sustained. Since, we find that on the first issue, the Assessing Officer has already made disallowance of the interest and therefore, order cannot be revised on that count . In absence of any opportunity provided by the Ld. PCIT on the second issue, the assessment order cannot be revised on the second issue also therefore, on both these counts, order of the Ld. PCIT cannot be sustained. Accordingly, we quash the order passed u/s 263 of the Act by the Ld. PCIT. Assessee appeal allowed.

Summary

Issues Involved:
The judgment involves issues related to the revision of an assessment order under section 263 of the Income Tax Act, 1961. The key issues raised in the appeal include the disallowance of expenses and interest, examination of genuineness and creditworthiness of borrowed funds, and the requirement of providing an opportunity to the assessee before revising the assessment order.

Disallowed Expenses and Interest:
The Assessing Officer disallowed expenses claimed by the assessee, including interest amounting to Rs. 73,18,356, in the assessment order under section 143(3). Subsequently, the Principal Commissioner of Income-tax (PCIT) issued a notice under section 263 proposing the disallowance of the interest expenses, as no interest income was shown against loans given. The PCIT held that the interest expenses should be disallowed and the assessment order was erroneous and prejudicial to the revenue's interest. The PCIT's decision was based on the failure to examine the genuineness and creditworthiness of the borrowed funds, leading to the conclusion that the assessment order needed revision.

Opportunity for Hearing and Revision Order:
The assessee contended that the disallowed expenses had already been addressed in the assessment order and no further disallowance was warranted. Additionally, the assessee argued that the PCIT did not provide an opportunity to address the issue of genuineness and creditworthiness of the borrowed funds before passing the revision order under section 263. The PCIT's notice for the hearing did not specifically mention the need to examine the genuineness of the borrowed funds. The absence of an opportunity to be heard on this crucial issue led the tribunal to quash the PCIT's order under section 263, emphasizing the importance of providing a fair hearing before revising an assessment order.

Judicial Interpretation and Decision:
In analyzing the requirement of providing an opportunity for a hearing before revising an assessment order, the tribunal referred to the Supreme Court's decision in the case of CIT v. Amitabh Bachchan. The Supreme Court clarified that while a show cause notice is not mandatory under section 263, the assessee must be given a full opportunity to present their case and address relevant facts before a final decision is made. As the PCIT did not afford the assessee the opportunity to address the issue of genuineness and creditworthiness of the borrowed funds, the tribunal ruled in favor of the assessee, quashing the PCIT's revision order under section 263.