9911796707
TMI Blog2012 (7) TMI 794X X X X Extracts X X X X X X X X Extracts X X X X ..... and after making additions the taxable income was determined at Rs.5,73,65,628/-. Thereafter Commissioner of Income tax issued a Show cause notice dated 16-12-2011(Page 8 & 9 of the Paper book) to assessee requiring the assessee to show cause as to why the assessment order u/s 143(3) should not be treated as "erroneous and prejudicial to the interest of the revenue" and accordingly be made subject matter of revision u/s 263 for the reason that the assessee had incurred interest expenses of Rs.1,49,85,496/- on secured and unsecured loans during the year and the assessee had also capital work in progress of Rs 13,17,94,960/-. The Work in progress was of assets of CR mills which was under implementation during the year. According to CIT as the interest paid on capital borrowed was for the acquisition of capital assets (WIP) the same was not allowable under proviso (iii) to section 36(1) and therefore the order of the AO was erroneous and prejudicial to the interest of the Revenue. 4. In response to the Show cause notice, the assessee replied vide letter dated 19.1.2012 (copies placed at page no 10 & 11 of the paper book) wherein interalia it was submitted that the assessee had huge f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) As per Para-1 of assessee's submission dated 27-3-2009 it was stated that the WIP (Rs.13,17,94,960/-) reflected in the balance sheet was with regard to the assets of CR Mills. The same was under implementation during the year and therefore, no depreciation had been claimed. Apparently the asset had not been put to use. (ii) It was further seen from Schedule 'O' to P & L account that Bank and other interest (Net) expenses debited was Rs.1,49,85,496/-.Obviously the same was with reference to secured/unsecured loans for the capital work. Under the above cited provision, interest paid in respect of capital borrowed for acquisition of asset for any period beginning from the date of capital borrowed for the acquisition of asset till the date on which such asset was first put to use is not an allowable deduction. Accordingly, the interest payment of Rs.1,49,85,496/- should not have been allowed as a deduction. Omission to do so, resulted in underassessment of income to that extent. The short levy of tax and interest works out to Rs.63,05,149/-. (3) The proceedings u/s.143(3) of the I.T. Act,1961 are totally distinct from the proceedings u/s.263 of the I.T. Act,1961 before the undersi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as having enough interest free funds, the increase in capital work in progress was met out of own interest free funds and no borrowed funds were used for financing the capital work in progress. He also placed on record the copy of the ledger account as appearing in its books of accounts. From the copy of ledger account he pointed out that there has been no payment of interest for the acquisition of assets. It was thus contended that since the assessee was having sufficient interest free funds for acquisition of assets the assessee had used the interest free funds for acquisition of capital assets and therefore there was no question of disallowance of interest on the presumption that interest bearing funds have been utilised for the purpose of purchase of fixed assets. He also relied on the decision of CIT vs Reliance Utilities and Power Ltd (2009) 313 ITR 340 (Bom) wherein it was held that if there were funds available both interest free and over draft and or loans taken, then a presumption would arise that that investments would be out of the interest free funds generated or available with the company if the interest free funds were sufficient to meet the investments. He also reli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct. (d) Nahar Polyfilms vs CIT (2011) 201 taxman 304 (P&H) for the proposition that the effect of proviso to s. 36(1)(iii) inserted by the Finance Act 2003 w.e.f. 1st April 2004 relating to AY 2004-05 and subsequent years is to disallow interest on moneys borrowed for acquiring a capital asset till the date on which the asset was brought to use even if it is for extension of existing business. 10. We have heard the rival contentions and perused the material on record. The issue before us is whether the CIT was justified restoring the issue of disallowance of interest to the A.O. by passing an order u/s. 263 of the Act. We observe that the CIT after verifying the assessment records was of the view that the assessee has used borrowed funds for acquisition of capital assets and accordingly the interest paid by the assessee cannot be allowed as revenue expenses but should have been capitalized. 11. The Bombay High Court in the case of CIT vs. Gaberiel India Ltd. [1993] 203 ITR 108 (Bom.) has discussed the exercise of pow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the Revenue, then the power of suo motto revision cannot be exercised. Any and every erroneous order cannot be the subjectmatter of revision because the second requirement must be fulfilled." 12. It is also well-settled that order passed by the Assessing Officer would be erroneous only if the Assessing Officer has not considered all materials or had not done proper examination or enquiry or verification or if the Assessing Officer had completely omitted the issue, in question, from consideration and made the assessment in an arbitrary manner. In the case of CIT vs. Hero Auto Ltd. (2012) 343 ITR 342 (Del.). the Hon'ble High Court has held as under:- (page 344) " Thereafter, he has referred to the second claim of the respondent assessee and has observed that there was lack of inquiry and this vitiated the assessment order. Reference was made to the decision of this court in Gee Vee Enterprise (1975) 99 ITR 375 (Del.).There is no discussion in the order of the Commissioner as to how and in what manner the enquiry was lacking and what was the fault and default committed by the A.O.The A.O. had examined the said aspect in the original assessment proceedings and accepted the stand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further inquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction u/s. 263 of the Act. In such matters, to remand the matter/issue to the A.O. would imply and mean the CIT has not examined and decided whether or not the order is erroneous but has directed the A.O. to decide the aspect/question. This distinction must be kept in mind by the CIT while exercising jurisdiction u/s. 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interest of the Revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged "inadequate investigation", it will be difficult to hold that the order of the A.O. who had conducted enquiries and had acted as an investigator, is erroneous, without the CIT conducting verification/inquiry. The order of the A.O. may be or may not be wrong. The CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the CIT to ask the A.O. to decide whether the order was erroneous. This is not permissible. An ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
