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TMI Blog2021 (9) TMI 602X X X X Extracts X X X X X X X X Extracts X X X X ..... reciating the commercial expediency involved, the AO s successor did not take any adverse view in AY 2017-18 even though debit balance in current account of these partners were M/s. P. S. Group Realty Ltd.and M/s. Srijan Realty Pvt. Ltd.- Having regard to the foregoing facts and applying the rule of consistency, we are of the opinion that the Ld. Pr. CIT ought not to have disturbed the assessment order for the relevant year on this issue of allowability of interest expenditure. The net withdrawal by the partners during the year was only to the tune of ₹ 15.37 crore and not ₹ 74 crore as wrongly assumed by the Ld. Pr.CIT. We thus find force in the argument of the Ld. AR that the impugned order was passed by the Ld. Pr.CIT without due application of mind to the facts of the case and material available on record. Pr.CIT wrongly asserted that AO did not examine the balance sheet of the assessee and did not enquire into the commercial expediency of withdrawal of fund by the partners. The facts and figures assumed by the Ld. Pr.CIT are also found to be erroneous. We find that the AO had discharged his duty as an investigator on this issue. And his view as an adjudica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income at the same sum as returned by the assessee. 4. Thereafter, the Ld. Pr. CIT-11 issued Show Cause Notice (hereinafter referred to as SCN ) u/s. 263 of the Act pointing out one fault on the part of the AO in allowing the deduction for the interest expenditure of ₹ 84,27,773/- debited to the P L Account on account of borrowed fund. According to the Ld. Pr. CIT, the assessee had allowed the partners to siphon its borrowed funds through their respective current account. The Pr. CIT was of the view that the AO had failed to examine the commercial expediency of the assessee in advancing interest free loan to the partners, when the assessee-firm was paying interest on the borrowed capital. 5. In response to the above SCN, the assessee objected to the exercise of revisional jurisdiction by the Ld. Pr. CIT by pointing out that AO had in fact enquired into this issue and therefore his allegation that the order of the AO lacked enquiry was not correct. The assessee brought to the notice of Ld. Pr. CIT that, the AO has sought explanation on items for which the case was selected under CASS inter alia including the claim of this interest expenditure, which was responded by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether the loan has been further lent as interest free or utilized otherwise is not material to determine the allowability of interest paid thereon. In support of this proposition, the assessee had placed reliance on the decision of this Tribunal in the case of ITO Vs. Snowtex Investment ltd. (ITA No. 356/Kol/2012) wherein it was held as under: It is further submitted that there is no bar against advancing of loan interest-free or at a low rate of interest. There may be very many considerations, including business considerations, for not charging interest or charging interest at a low rate. Dispute between the Revenue and the assessee often arises when money is borrowed with interest and loan is advanced interest-free or at a low rate of interest. In such a case the tendency of the A0 generally is to disallow the interest paid on the money borrowed either in full or proportionately depending upon the quantum of loan advanced and interest, if any, charged. But whether the assessee charged interest on loan advanced or not is not at all a relevant consideration for determining allowability of interest paid under section 36(1)(iii) of the Act. As already explained, the relevant c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents submitted and explanations put forth by the assessee, that the AO had accepted the claim. The Ld. AR pointed out that the assessee, which had undertaken real estate project titled Ozone , was promoted by two reputed real estate groups i.e. PS Group Srijan Group of Kolkata. Both these groups through their flagship companies, who were partners of the assessee company, were managing, supervising and executing the said project. The project Ozone was being marketed under their joint brand names. He submitted that the assessee firm had availed the loan from ICICI Bank in connection with the said business of real estate development. Referring to the audited accounts, the Ld. AR submitted that these two partners had withdrawn the monies from the current account in connection with and for the purpose of marketing business development the said project. He further submitted that, any advantage garnered by these two promoter groups resulted in corresponding advantage and indirect benefit to the assessee s project, which was being marketed under their brand name. Citing the principles of commercial expediency, supplemented by the fact that both these partners were engaged in the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Assessing Officer found fault by the Principal CIT is erroneous as well as prejudicial to the interest of the Revenue. For that, let us take the guidance of judicial precedence laid down by the Hon ble Apex Court in Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83(SC) wherein their Lordship have held that twin conditions needs to be satisfied before exercising revisional jurisdiction u/s 263 of the Act by the CIT. The twin conditions are that the order of the Assessing Officer must be erroneous and so far as prejudicial to the interest of the Revenue. In the following circumstances, the order of the AO can be held to be erroneous order, that is (i) if the Assessing Officer s order has passed on incorrect assumption of fact; or (ii) incorrect application of law; or (iii)Assessing Officer s order is in violation of the principle of natural justice; or (iv) if the order is passed by the Assessing Officer is without application of mind; or (v) if the AO has not investigated the issue before him; then the order passed by the Assessing Officer can be termed as erroneous order. Coming next to the second limb, which is required to be examined as to whether the actions of the AO ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 28.12.2017, which is available at page 48-50 of the paper book. It is noted that the assessee had explained to the AO that the loan had been sanctioned and borrowed for its business i.e. project Ozone and therefore the interest was allowable u/s 36(1)(iii) of the Act. On examination of these details furnished before the AO, we thus note that the assessee had furnished all relevant details and explanation, which enabled the AO to make enquiries into the nature and allowability of interest expenditure. Hence, we do not agree with the Ld. Pr. CIT that AO allowed the claim of interest expenditure without conducting enquiry. 10. The sheet anchor on which the Ld. Pr.CIT has found fault with the AO's order in the present case is the lack of enquiry on the part of the AO into the utilization of the borrowings and corresponding withdrawals by the partners so as to ascertain the allowability of interest cost. In this context, we find that the law is well settled that there is a clear distinction between lack of enquiry and inadequate enquiry . If there is an enquiry, even if inadequate, that would not by itself give occasion to the Ld. Pr.CIT to interfere by exercising his rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act could not have been formulated. 88. The Assessing Officer was required to examine the return filed by the assessee in order to ascertain his income and to levy appropriate tax on that basis. When the Assessing Officer was satisfied that the return, filed by the assessee, was in accordance with law, he was under no obligation to justify as to why was he satisfied. On the top of that the Assessing Officer by his order dated 28th March, 2008 did not adversely affect any right of the assessee nor was any civil right of the assessee prejudiced. He was as such under no obligation in law to give reasons. 89. The fact, that all requisite papers were summoned and thereafter the matter was heard from time to time coupled with the fact that the view taken by him is not shown by the revenue to be erroneous and was also considered both by the Tribunal as also by us to be a possible view, strengthens the presumption under Clause (e) of Section 114 of the Evidence Act. A prima facie evidence, on the basis of the aforesaid presumption, is thus converted into a conclusive proof of the fact the order was passed by the assessing officer after due application of mind. 90. The judgm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dicial proceeding between the State and the citizen. Therefore, the principles applicable to a proceeding before a judicial or a quasi-judicial authority where there are two contesting parties cannot be made applicable to the proceedings before an Assessing Officer. 97. Mr. Nizamuddin contended the judgments cited by Mr. Poddar indicate that the Assessing Officer is not required to write an elaborate judgment. He contended that the assessing officer may not have any such obligation but it cannot be said, according to him, that the Assessing Officer is under no obligation to record anything in his assessment order. It is not in the first place a fact that he has not recorded anything. From the assessment order, the following facts and circumstances appear:-- Return was filed on 29/11/06 showing total income of ₹ 3,80,66,940/-. In response to notices u/s. 143(2) and 142(1) of the I. T. Act, 1961, Sri P. R. Kothari, A/r appeared from time to time and explained the return. Necessary details and particulars were filed. The business of the assessee is manufacturing and trading of cosmetics and dental care products as in earlier years. In view of above total income is com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture then the purpose of the business (which necessarily be the business of the assessee itself) the revenue cannot justifiably claim to put itself in the arm chair of the businessmen and further that no businessmen can be compelled to maximize its profit was approved. In the decided case, the Hon ble Supreme Court held that, though the borrowed amount was not utilised by the assessee in its own business and had been advanced as an interest free loan to the sister concern, but that is not relevant. What is relevant is whether the assessee advanced such amount to its sister concern as a measure of commercial expediency. 12. Further, while explaining the meaning of the phrase for the purpose of business the Hon ble Supreme Court has used the word commercial expediency . By using this phrase Hon ble Supreme Court has given a new dimension and clarified the concept further. In the judgment the Supreme Court has defined commercial expediency as an expression of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. The expenditure may not have been incurred under any legal obligation, but yet it is allowable as a business expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,22,24,715/- and M/s. Srijan Realty Pvt. Ltd. to the tune of ₹ 1,39,72,204/-. Having regard to the foregoing facts and applying the rule of consistency, we are of the opinion that the Ld. Pr. CIT ought not to have disturbed the assessment order for the relevant year on this issue of allowability of interest expenditure. 16. We also note that the order of the Ld. Pr.CIT proceeded on erroneous assumption of facts. According to Pr.CIT, examination of the partner s current account revealed that that the assessee had given to (i) M/s P S Group Reality Ltd. ₹ 15,32,75,000/- and (ii) M/s Srijan Realty Pvt. Ltd. ₹ 59,05,57,694/- [Total ₹ 74,38,32,694/-]. However on examination of the audited financials submitted by the assessee at Page 78-86 of paper book, it is noted that the partner s had withdrawn monies on several dates which aggregated to ₹ 44.87 crores and at the same time they had remitted back ₹ 29.50 crores. We thus note that the net withdrawal by the partners during the year was only to the tune of ₹ 15.37 crore and not ₹ 74 crore as wrongly assumed by the Ld. Pr.CIT. We thus find force in the argument of the Ld. AR that the i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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