2024 (9) TMI 213 - AT - Income Tax

Revision u/s 263 - PCIT has revised the assessment-order passed by AO u/s 153C for the sole reason that the AO has not examined the claim of excess interest of 3% paid by assessee on loans taken in comparison to the interest received on loans given. HELD THAT - This premise taken by Ld. PCIT is not based on any incriminating material having been found in the search and transmitted to AO by the search-authorities. Undisputedly, the AY 2014-15 was a completed/ unabated year since no assessment relating to that year was pending as on the date of search and therefore the AO could examine only the incriminating material relating to assessee found during search and transmitted to him by search-authorities. AO had no jurisdiction to make any addition or disallowance de hors incriminating material. This is a settled proposition for assessment to be made u/s 153A/153C as per landmark judgement of Hon ble apex court in PCIT Vs. Abhishar Buildwell Pvt. Ltd 2023 (4) TMI 1056 - SUPREME COURT The facts of case shows that the PCIT has revised AO s order for the issue of disallowance of excessive interest paid by assessee on loans taken in comparison to the interest received on loans given. The issue raised by PCIT does not emanate from any of the incriminating material in possession of AO and therefore the AO did not have any jurisdiction or authority to enter into the issue raised by PCIT. When it is so, the PCIT is apparently wrong in revising AO s order and directing the AO to reframe assessment for such an issue. PCIT has directed the AO to do something which is not within the domain, jurisdiction or authority of AO while framing assessment u/s 153C. Faced with this situation, we straightaway hold that the impugned revision-order passed by PCIT is not a valid order. Assessee appeal allowed.

Summary

Issues:
Revision of assessment order u/s 263 of Income-tax Act, 1961 for Assessment Year 2014-15 based on excess interest paid by the assessee on loans taken compared to interest received on loans given.

Analysis:
The appeal was filed by the assessee against the revision-order dated 26.03.2024 passed by the Principal Commissioner of Income-Tax (Central), Bhopal under section 263 of the Income-tax Act, 1961. The revision-order arose from the assessment-order dated 30.03.2022 passed by the Assistant Commissioner of Income Tax, Central, Bhopal under sections 153C r.w.s. 143(3) for Assessment Year 2014-15. The issue stemmed from a search conducted on "P.N. Group, Guna" on 09.01.2020, leading to proceedings under section 153C against the assessee for six assessment years. The Principal Commissioner found the assessment order for AY 2014-15 erroneous as it did not address the excess interest paid by the assessee on loans taken compared to interest received on loans given. The Principal Commissioner issued a show-cause notice and subsequently passed the revision-order, prompting the assessee to appeal.

During the appeal, the Authorized Representative for the assessee argued that the revision was solely based on the interest rate disparity, where the assessee paid a higher rate of interest on loans taken compared to the interest received on loans given. The Principal Commissioner contended that this discrepancy led to an excess interest payment of Rs. 5,38,214 by the assessee, which should be added back to the income. The Authorized Representative highlighted that the assessing officer did not examine this issue during the assessment proceeding, making the assessment-order erroneous and prejudicial to the revenue's interest, warranting revision under section 263.

Upon hearing both sides, the Appellate Tribunal found that the Principal Commissioner revised the assessment order for AY 2014-15 solely due to the interest rate disparity issue, without any incriminating material found during the search. The Tribunal emphasized that for assessments under sections 153A/153C, only incriminating material found during the search can be considered. Referring to a landmark judgment, the Tribunal held that the assessing officer lacked jurisdiction to address issues not stemming from incriminating material. Consequently, the Tribunal deemed the revision-order invalid, as the Principal Commissioner directed the assessing officer to reframe the assessment on an issue beyond the search's scope. Ultimately, the Tribunal quashed the revision order and reinstated the original assessment-order passed by the assessing officer, ruling in favor of the assessee.

In conclusion, the appeal was allowed in favor of the assessee, with the Tribunal pronouncing the order in open court on 30.08.2024.