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TMI Blog2021 (5) TMI 346X X X X Extracts X X X X X X X X Extracts X X X X ..... ehicle (SPV) in the form of subsidiary or joint venture (JV) company. The return of income for the A.Y.2015-16 was electronically filed by the assessee on 28/11/2015 declaring loss of Rs. 15,99,62,735/- under normal provisions of the Act and book loss of Rs. 562,19,784/- u/s.115JB of the Act. The assessment was completed u/s.143(3) of the Act on 28/12/2017 determining total income at Rs. 22,50,66,210 under normal provisions of the Act and book profits of Rs. 27,61,79,513/- u/s. 115JB of the Act. This assessment was sought to be revised by the ld. PCIT by treating the order passed by the ld. AO as erroneous and prejudicial to the interest of the Revenue on the ground that the ld. AO had not disallowed the interest paid on borrowed funds u/s.36(1)(iii) of the Act. The brief facts pertaining to this issue are as under:- * Tamilnadu Industrial Development Corporation Limited (TIDCO) had released an offer inviting for a joint venture partner to develop Special Economic Zone (SEZ) for IT and ITES sector at Chennai ('the Project') and as per the terms of the bid document, it was essential for the assessee to set up a separate joint venture (JV) company in this project since TIDCO was su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial to the interest of the Revenue, if, in the opinion of the ld. PCIT, the order is passed without making enquiries or verification which should have been made, has not been made. He accordingly, held that the ld. AO did not examine the correctness of the claim in respect of claim paid by the assessee company on borrowed funds to advance interest free loans of Rs. 41.15 Crores to IHCL. 3.2. The ld. PCIT further on merits had observed in his 263 order that within the total sum extended to IHCL as interest free advance of Rs. 71.10 Crores, the assessee had used its own funds of Rs. 29.95 Crores and borrowed funds of Rs. 41.15 Crores. Accordingly, the ld. PCIT directed the ld. AO to disallow the interest on borrowed funds u/s.36(1)(iii) of the Act on the borrowings of Rs. 41.15 Crores which was utilised for advancing interest free loans to IHCL. 3.3. At the outset, we find that there is a complete incorrect assumption of fact by the ld. PCIT on the actual nature of business of the assessee company. We find that the ld. PCIT is of the opinion that assessee company is an investment company engaged in the business of investment and hence, the main source of income is only to earn int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n pages 15 to 18 of the paper book filed before us. The aforesaid facts would clearly reveal that adequate enquiries were indeed carried out by the ld. AO in the course of original assessment proceedings with regard to the impugned issue of borrowed funds being utilised for interest free advances to IHCL and consequential allowability of interest on borrowed funds u/s.36(1)(iii) of the Act. Infact, we also find that ld. PCIT himself states in para 6 page 6 of his order about the examination carried out by the ld. AO with regard to this impugned issue, which is totally contrary to his earlier stand taken in para 5.2 of his order wherein he says no enquiries were carried out by the ld. AO. For the sake of convenience, the relevant portion of order of ld. PCIT in para 6 page 6 is reproduced hereunder:- "6. Allowability of interest on borrowed funds: The assessee has extended an interest free loan to Indian Hotel Co. Ltd. (IHCL) amounting to Rs. 71,10,00,000/-. It is stated that for extending this loan the assessee has used its own funds of Rs. 29,95,00,000/- and the balance amount of Rs. 41,15,00,000/- was borrowed fund. On a query by the assessing officer as to why the interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reported in 390 ITR 292. The relevant operative portion of the said judgment is reproduced hereunder:- "7. Firstly, the Revenue contends that the exercise of powers under Section 263 of the Act is justified as in this case, as no inquiry in respect of the gifts received during the subject years was done by the Assessing Officer for the Assessment orders for Assessment Years 2007-08 and 2008-09. This according to the Revenue is evident from the Assessment Orders dated 31st December, 2009 and 30th December, 2010 which does not even make a mention of the gifts received much less discuss and/or deal with the same. This issue is no longer res integra as this Court in Idea Cellular Ltd. v. Dy. CIT [2008] 301 ITR 407 (Bom.) has held that if during Assessment proceedings queries were raised and the assessee responded to the same, then even if an Assessment order does not mention the same, it does not mean that the Assessing Officer has not applied his mind to the issues. It would be well-nigh impossible for an Assessing Officer to complete all assessments assigned to him under Section 143(3) of the Act if he is required to deal with all issues which arose during the Assessment Proceedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ber, 2013], by the Delhi High Court in CIT v. Vikas Polymers [2012] 341 ITR 537/194 Taxman 57 and in D.G. Housing Projects (supra). In fact the Delhi High Court in D.G. Housing Projects (supra) while so holding placed reliance upon the decision of this Court in Gabriel (India) Ltd. (supra). It is very important to note that the CIT in his order under Section 263 of the Act has recorded the fact that there has been no adequate inquiry. Thus, this is not a case of no inquiry, warranting order under Section 263 of the Act. Thus, this objection on the part of the Revenue, is also not sustainable. 10. The Revenue placed reliance upon the decision of the Delhi High Court in D.G. Housing Projects Ltd., (supra) that as the Assessing Officer had not enquired into the source of the source of the gifts received by the Assessee, the Assessment Order is erroneous. The aforesaid decision holds that the power of Revision under Section 263 of the Act would normally be exercised in case of no enquiry and not in cases of inadequate enquiry. However, even in case of inadequate enquiry by the Assessing Officer, the order of the Assessing Officer could be erroneous in two classes of situation. The fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces to IHCL were made in earlier years and not during the year under consideration. In earlier orders we find that the borrowings made by the assessee and its utilisation thereof by way of interest free advance to IHCL has been accepted by the Revenue in scrutiny assessment proceedings, as meant for business purposes. The details of various assessments completed in this regard are as under:- Sr. No. A.Y. Assessment Particulars a. 2010-11 u/s.143(3) dated 25/03/2013, wherein no disallowance of interest u/s.36(1)(iii) was made. Infact, in para 6 of this order, the ld. AO had specifically stated that lending of funds is not the business of the assessee b. 2011-12 u/s.143(3) dated 18/03/2015, wherein no disallowance of interest u/s.36(1)(iii) was made. c. 2012-13 u/s.143(3) dated 18/03/2016, wherein no disallowance of interest u/s.36(1)(iii) was made. d. 2013-14 u/s.143(3) dated 23/03/2016, wherein no disallowance of interest u/s.36(1)(iii) was made. e. 2014-15 u/s.143(3) dated 29/12/2016, wherein no disallowance of interest u/s.36(1)(iii) was made. 3.9. We also find that the ld. PCIT invoked revision jurisdiction u/s.263 of the Act for A.Y.2013-14 but did not initia ..... X X X X Extracts X X X X X X X X Extracts X X X X
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