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TMI Blog2021 (12) TMI 1163X X X X Extracts X X X X X X X X Extracts X X X X ..... 9-11-2021 - Shri Pawan Singh, JM And Dr. A.L.Saini, AM For the Assessee : Shri Sapnesh R Sheth, C.A For the Respondent : Shri Sreenivas T Bidari, CIT-DR ORDER PER DR. A. L. SAINI, ACCOUNTANT MEMBER: By way of this appeal, the assessee has called into question correctness of impugned order passed by the Learned Principal Commissioner of Income Tax under section 263 of the Income tax Act, 1961( in short the Act ), in the matter of assessment under section 143(3) of the Act, 1961, for the assessment year 2013- 14, on the following grounds: 1.On the facts and circumstances of the case as well as law on the subject, the learned Pr. Commissioner of Income-Tax has erred in passing revisionary order u/s 263 of the I.T. Act setting aside the order of ld. assessing officer passed u/s 143(3) of the Act dated 29.02.2016 for the year under consideration although said order is neither erroneous nor prejudicial to the interest of revenue. 2. On the facts and circumstances of the case as well as law on the subject, the learned Pr. Commissioner of income-tax has erred in observing that order passed by assessing officer u/s 143(3) of the Act is erroneous on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shri Sanjaybhai Naranbhai Patel admitted to undisclosed income of the assesses firm to the extent of ₹ 9,00,00,000/- for AY. 2013-14. (v).Theassessee firm has disclosed the admitted income in its Profit and Loss account for the year and has also offered net profit to the extent of ₹ 8,26,47,743/-after adjustment of payment of interest of ₹ 23,30,367/- and remuneration of ₹ 46,86,000/- to partners. (vi). The amended partnership deed of the firm has been executed on 26/05/2012,and as per this amended partnership deed, no interest shall be paid to the partners on the amount of capital brought in by them into the firm till then or on any further introduction of capital by the partners in the partnership firm. (vii). However, in violation of the said clauses of the partnership deed, the assessee firm has paid interest to its partners from the income admitted as undisclosed income and the same is not in accordance with the provisions of section 40 (b) r.w.s184 of the Act. (viii) In view of the above facts, the claim of interest payment of ₹ 23,30,367/- to partners was required to be disallowed. However, the same has not been disallowed by the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of provisions of section 40(b) read with section 184 and provisions of section 115BBE of the I.T. Act. 2. In this regard it is submitted that interest and remuneration paid to partners is duly authorized by partnership deed. As regards your observation in point no.3 (vi) of above referred notice, it is submitted that vide amended partnership deed executed on 26.05.2012only remuneration clause was amended whereas, interest clause was also amended by executing partnership deed on 01.06.2012. As per the same, it is provided that interest at the rate of 12% shall be payable to the partners of the firm. Copy of amended partnership deed dated 01.06.2012 is produced herewith for your reference. Thus, there is neither violation of interest clause of partnership deed nor provisions of section 40(b) r.w.s. 184 of the Act. Hence, the same has not been disallowed by assessing officer in the assessment order u/s 143(3) of the Act dated 29.12.2015. Further partner's interest remuneration is separately offered to tax by all the partners in their respective cases. As such there is no evasion of tax there isno loss to revenue. Hence, the assessment order passed u/s 143(3) of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the course of assessment proceedings has only relied on the replies given by the assessee without making independent verifications. Therefore, in absence of any documentary evidences to justify that Income declared is business income or not, the claim of the assessee that the unaccounted Income disclosed, is its business income, is not acceptable .The fact that the partner of the assessee Shri Sanjaybhai N Patel stated during the course of Survey Proceedings that they did not maintain any detail of cash received, when he was specifically asked in question No.9 to quantify the amount of cash received on account of booking of flats, clearly proves that the assessee does not have any detail to correlate these receipts with the actual persons to hold that these receipts pertain to the business of the assessee. In absence of these details, the Assessing Officer should have assessed the Income disclosed as income from other sources or income taxable under the provisions of section 68/69/69A of the Act, and the assessee was not entitled for deduction of interest and remuneration against such income. 6. Therefore, Ld. PCIT held that in the case of assessee, it was obliged to disclos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... about the incriminating materials found and seized during the course of survey proceedings and vehemently further stated that during the survey, the statement of Mr.Sanjaybhai N Patel, which was taken u/s 131 of the Act, wherein he has admitted the undisclosed income of ₹ 9 crores, the said undisclosed income does not relate to assessee`s business because the assessee did not submit the details from whom he collected ₹ 9 crores. Therefore all these issues were not examined by the Assessing Officer, hence order passed by the assessing officer is erroneous as well as prejudicial to the interest of revenue, therefore, order passed by Ld. PCIT, under section 263 of the Act, should be upheld. 10.We have heard both the parties and carefully gone through the submissions put forth on behalf of the assessee alongwith the documents furnished and the case laws relied upon and perused the facts of the case including the finding of Ld. PCIT. We note that Ld. PCIT has mainly raised two issues in his order u/s 263 of the Act, viz: (i). The undisclosed money of ₹ 9 crores, which were disclosed during the course of survey, has not been examined by the Assessing Officer i.e. its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... called for, examined, and placed on record. 3.2 The partners have been paid remuneration and interest. The provision of remuneration and interest is found to be provided under the Clause 7 8 of the Partnership Deed. 4. After examination and discussion, the total income declared in the returned income of the assessee is accepted. 11.From the above assessment order passed by Assessing Officer under section 143(3) of the Act, it is vivid that Assessing Officer has examined and discussed the undisclosed income of ₹ 9 crores in para-3 of his assessment order, as noted by us above. The Assessing Officer has also discussed and adjudicated the issue relating to remuneration to partners and interest paid to partners, vide para-3.2 of assessment order, as noted by us above. Therefore, it is abundantly clear from the above assessment order that during the assessment stage, the assessing officer has examined and verified both the issues which were raised by the ld PCIT in his order under section 263 of the Act. Hence, order passed by the assessing officer under section 143(3) of the Act is neither erroneous nor prejudicial to the interest of Revenue. 12.During the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business, but for expansion of the business inasmuch as the fixed assets of the assessee firm increased and investment in the building also increased substantially. Commissioner, therefore, was of the opinion that though the interest on borrowed funds utilize for expansion of running business deserves to be allowed, the Assessing Officer should examine the utilization of the borrowed funds for renovation of the building for capitalization. On these two grounds, the Commissioner was of the opinion that the powers under section 263 of the Act are required to be exercised. He accordingly, restored the proceedings to the Assessing Officer for re-framing the assessment after hearing the assessee. To do so, he came to the following conclusions: The assessee has adduced evidence that the interest bearing borrowing funds were not utilized for setting up of the business but the same were utilized for expansion of the business inasmuch as that fixed assets of the assessee increased from ₹ 57,49,512/- to ₹ 1,32,36,268/-.The investment in building increased from ₹ 37,65,831/- to ₹ 65,13,410/- and investment in the plant and machinery incurred by ₹ 25,4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s under section 263 of the Act giving cogent reasons and remanded the proceedings before the Assessing Officer for fresh consideration. Such order ought not to have been disturbed. Counsel further submitted that undisclosed income of ₹ 19, 91,000/- cannot be treated as the business income of the assessee and must be treated to be an income from other source. No deduction from this income can be made for incurring business expenditure. Counsel drew our attention to the decision of this Court in the case of Deputy CIT v Radhe Developers India Ltd. (Guj) 329 ITR 1. On the other hand, counsel for the assessee submitted that the Assessing Officer committed no error in the assessment order. The Commissioner could not have revised such order even without holding that the order passed by the Assessing Officer is erroneous and is prejudicial to the interest of the Revenue. He submitted that deduction towards interest on borrowed funds would be allowable deduction irrespective .of whether the borrowed funds have been utilized for revenue or capital expenditure. Counsel further submitted that the amount of ₹ 19,91,000/- was business income of the assessee. It may have be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te that the Act does not envisage taxing any income under any head not specified in section 14 of the Act. In the circumstances, there is no question of trying treat any conflict in the two judgments of this Court as submitted by the learned Counsel for the Revenue. In any case, we are convinced that the Tribunal was correct in holding that even if two views are possible, powers under section 263 of the .Act could not and ought not to have been exercised. The Apex Court in the case of Malabar Industrial Co. Ltd. observed as under: The phrase 'prejudicial to the interests of the revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view, with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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