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TMI Blog2013 (1) TMI 260X X X X Extracts X X X X X X X X Extracts X X X X ..... itled for deduction u/s 36(1)(viii) and there was no error in the order of the AO in allowing such deduction to the assessee in the assessment completed u/s 143(3). Other income on account of fees, interest etc. was not in the nature of income from eligible business entitled for deduction u/s 36(1)(viii) - Held that:- Since there is no discussion in the assessment order passed by the AO u/s 143(3) on this aspect the assessment order suffers from an error to the extent of non-examination of this aspect and the same being prejudicial to the interest of the Revenue, the direction given by the CIT to the AO to the extent that he should examine this limited aspect of assessee’s claim for deduction u/s 36(1)(viii) afresh. Deduction on account of bond issue expenses - Held that:- There is nothing brought on record to show that the claim of the assessee for deduction on account of bond issue expenses was allowed by the AO in the assessment completed u/s 143(3) after making proper and adequate enquiry. There was a failure on the part of the AO to make such enquiry specifically as pointed by CIT in order to ascertain the nature of the said expenses whether capital or revenue, thus the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... truction of residential houses and continues to source the said loans and service the entire loan portfolio, including the old portfolio, which is still continued in their books. This is evident from the interest income of Rs.197.82 crores earned from the loan portfolio sanctioned and disbursed by 1-HFC and thus 1-HFC is entitled to deduction under section 36(1)(viii) of the Act. In its return of income, 1-HFC had claimed deduction of Rs.109,000,000 under section 36(1)(viii) @ 40% of its income derived from the business of long term finance from housing computed under the head Profit and gains from business or profession before making any deduction under the said clause. The said business income included fee income of Rs.30.92 crores and interest received from other sources of Rs.4.64 crores and other miscellaneous income of Rs.70.71 lakhs. Fee income comprises of processing fees in respect of loans disbursed during the year, which is a part of the Company s business of crores earned from fixed deposits with banks, Government, securities too forms a part of the housing business as 1-HFC as per NHB s regulations which mandates companies to invest in certain securities in ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nued the business of giving fresh housing loans could not be regarded as carrying on the business of providing housing loans merely on the basis of old housing loans being serviced by it or on the basis of housing loans sourced by it during the year under consideration through ICICI Bank. He held that the assessee thus was not carrying on the business of providing housing loans during the year under consideration so as to be eligible for deduction u/s 36(1)(viii) and there was an error in the order passed by the AO u/s 143(3) allowing such deduction to the assessee to the extent of Rs.10,90,00,000/-. As regards the claim of the assessee for deduction on account of bond issue expenses amounting to Rs.3.43 crores, the learned CIT held that the said claim was allowed by the AO without conducting proper and adequate enquiry inasmuch as he failed to examine the material and relevant aspects to ascertain whether bond issue expenses were capital or revenue in nature. He, therefore, treated the assessment order passed by the AO u/s 143(3) to be erroneous and prejudicial to the interest of the Revenue on these two issues and set aside the same by an order passed u/s 263 with a direction to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... miscellaneous income of Rs.4.64 represented interest on deposit made as per the requirement of NHB and the said income, therefore, was in the nature of profit derived from eligible business of providing long term finance for development of housing in India. 5. As regards the other error allegedly pointed out by the learned CIT regarding non-examination of certain aspects relating to allowability of bond issue expenses, the learned counsel for the assessee submitted that the said expenses were in revenue nature and the same were allowed by the AO after making necessary enquiry. She contended that there was thus no error in the order of the AO passed u/s 143(3) calling for revision u/s 263 by the learned CIT. 6. The learned DR, on the other hand, relied on the impugned order of the learned CIT passed u/s 263 in so far as the error committed by the AO in allowing deduction u/s 36(1)(viii) to the assessee is concerned. He submitted that other income in form of fees etc. received by the assessee was not in the nature of income derived from the eligible business and there was an error in the order of the AO in allowing deduction u/s 36(1)(viii) in respect of the said income. He submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of the AO in allowing such deduction to the assessee in the assessment completed u/s 143(3). 8. As regards the quantum of such deduction, it is observed that one of the errors pointed out by the learned CIT in this regard in the notice issued u/s 263 was that other income on account of fees, interest etc. was not in the nature of income from eligible business entitled for deduction u/s 36(1)(viii). However, keeping in view his conclusion that the assessee was not at all entitled for the said deduction, he appears to have not given any finding on these aspects. Since there is no discussion in the assessment order passed by the AO u/s 143(3) on this aspect or even any other material brought on record before us to show that this aspect was examined by the AO, we are of the view that the assessment order suffers from an error to the extent of non-examination of this aspect and the same being prejudicial to the interest of the Revenue, we uphold the direction given by the learned CIT to the AO to the extent that he should examine this limited aspect of assessee s claim for deduction u/s 36(1)(viii) afresh. 9. As regards the issue relating to assessee s claims for deduction on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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