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TMI Blog2022 (5) TMI 666X X X X Extracts X X X X X X X X Extracts X X X X ..... [ 2015 (9) TMI 1304 - BOMBAY HIGH COURT] CIT Vs. Tata Teleservices (Mah) Ltd. [ 2014 (7) TMI 175 - BOMBAY HIGH COURT] , CIT Vs. Fine Jewellery (India) Ltd. [ 2015 (2) TMI 732 - BOMBAY HIGH COURT] . Therefore, taking into account of all the above mentioned facts and circumstances, we are of the view that the order u/s 263 of the Act is wrong against law and facts, therefore, the same is hereby ordered to be set aside. X X X X Extracts X X X X X X X X Extracts X X X X ..... the case and in law, the Appellant prays that the impugned Order passed u/s. 263 of the Act by the PCIT is to be struck down. Without prejudice to the aforesaid grounds: Re: Disallowance of deduction in respect of premium on redemption of debentures under section 36(1 (iii) of the Act 2.1 On the facts and in circumstance of the case and in law, the learned PCIT has erred in disallowing deduction claimed by the Appellant in respect of premium on redemption of debentures under section 36(1 iii) of the Act. 2.2 On the facts and in circumstance of the case and in law, the learned PCIT erred in not appreciating the fact that the premium paid on redemption of debentures was claimed by the Appellant as deductible expenses over the debenture tenure and the same has been consistently accepted by the tax department after making due inquiries at the time of regular assessments. 2.3 On the facts and in circumstance of the case and in law, the learned PCIT erred in not following the decision of the Supreme Court in case of Madras Industrial Investment Corporation Ltd v. CIT (225 ITR 802), relied on by the Appellant and erred in passing the revisionary order on the issues disregarding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l or any of the foregoing grounds of appeal at or before the hearing of the appeal." 3. The brief facts of the case are that the assesse filed its return of income on 30.11.2014 declaring total income to the tune of Rs.105,09,25,133/- for the A.Y.2014-15 under the normal provision of the Act. After passing the DRP order, the assessment was completed determining the total income to the tune of Rs.420,50,94,506/- under the normal provision of the Act and an amount of Rs.174,56,97,810/- u/s 115JB of the Act u/s 143(3) r.w.s. 144C(13) of the Act on 30.10.2018. On verification, the Ld. PCIT has invoked the revisional power u/s 263 of the Act on following grounds: - "(i) On examination of records it is seen that disallowance of interest on account of diversion of funds for non-business purpose is in the ratio of 3113.08 cr./6766.37 cr. Assessee claimed premium on redemption of debentures, which is in the nature of interest/cost of borrowings only. The claim of the assessee in the computation of income should have been disallowed in the same ratio on which nterest was disallowed. In its reply dated 28.11.2017, assessee admitted that it is also a form of interest that is return on inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Barclays Bank PLC vs. CIT(IT) in ITA. No.827/Mum/2021 for the A.Y. 2013-14 dated 03.01.2022. However, on the other hand, the Ld. Representative of the Department has refuted the said contention. The copy of assessment order passed by AO in view of the provision u/s 143(3) r.w.s. 144C(13) of the Act dated 30.10.2018 is on the file in which the said issue has already been considered by DRP and accordingly followed by AO. The relevant finding is hereby reproduced as under: - "4 Disallowance u/s 36(1)(iii) for investment is overseas entities: 4.1 During the course of assessment proceedings it was observed that the assessee has made investment in overseas entities of Rs. 3,113.08 Crores, the details of which are as under: Sr. No Particulars Amount in Crores 1 International Hotels Management Services Inc. 2002.03 2 Taj International Hotels HK Ltd. 1111.05 Total 3113.08 4.2 The assessee was asked why proportionate interest in respect of above - investments should not be disallowed u/s 36(1)(iii) of the I.T. Act, 1961 4.3 In response to the above, the assessee submitted its reply dated 28% November 2017, as under: "The learned AO has disallowed interest amountin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which acts as a key feeder to Taj group's Indian operations - To obtain new management contracts in the international markets (details of 'management fees received during AY 2013-14 including from domestic companies and foreign JVs is enclosed. The assessee would like to bring to your notice that it has entered into management contracts for several properties in Marrakech, Qatar, Dubai, Saraya Islands, UAE, China which are expected to fructify in next few years. The assessee became the first Indian hospitality group to receive permission to operate hotels in China. It is due to the presence in various countries that the assessee is able to achieve increase in management contracts, - Enhanced networking, market reach in countries where [HCL does not have formidable presence Recognition on an international level, which in turn enables to gain business experience from the acquired property for positioning its brand at a global level using its image abroad and capitalize on associated brand value at a domestic level Acquainted with use of high end and quality techniques in India thereby attracting foreign tourists - Assistance from companies operating as sale offices (eg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... '. Reliance is further placed upon other decisions on this aspect : - S.A, Builders Ltd. (158 Taxman 74) (SC) - In this case, interest on cash credit which was given as interest free funds to subsidiary was allowed observing that where holding company, has a deep interest in its subsidiary, and the holding interest in investing in overseas companies, one any advances borrowed money to a subsidiary which is used by the diary for some business purposes, the holding company would be entitled to deduction of interest on its borrowed loans as a ordinarily expenditure, if it was incurred on grounds of commercial expediency. The above decision has been relied upon by Hon'ble Chennai Tribunal in case of Toll (india) Logistics (P) Limited (ITA No. 677/Mds/2012) wherein it observed that "the loans had been advanced as a measure of commercial expediency and that the funds were used by the subsidiary for the purpose of business only." Reliance Communications Infrastructure Ltd (207 Taxmann 219) (Bom) - In this case, advances given to subsidiary in consideration to execute counter guarantees on behalf of the assessee was held to be out of commercial expediency for furthering the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n view of above, it is submitted that acquiring controlling interest in group by investing in overseas companies / JVs is nothing but for the purpose of business. Without prejudice to the aforesaid submission that disallowance of interest in respect of investments made in overseas subsidiaries / JVs should is allowable under Section 36(1)(iii), it is submitted that if interest is disallowed under the head "business income", the same being wholly and exclusively for the purpose of making or earning income (eg dividend), it would be allowable under the head "income from other sources" u/s 57(iii) as dividend from these companies would be taxable under this head. It is further submitted that it is not necessary that income should have actually earned during the year under consideration to determine allowability of expenses. In this connection, reliance is placed on the Hon'ble Supreme Court's decision in case of CIT vs Rajendra Prasad Moody (supra). In this case, the Hon'ble Supreme Court held that to claim deduction u/s 57(iii), it is not even necessary that any income should in fact have been earned as a result of the expenditure. The Hon'ble Apex Court allowed deduction o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stment have been made out of consolidated fund available with the assessee, therefore, proportionate disallowance of interest need to be made u/s 36(1) (iii) of the L T. Act, 1961. Accordingly, the disallowance u/s 36 (1)(iii) is computed as under: Particulars Amount (Rs.) Interest Paid 98.82 crore Disallowance 98.82 crore * 3113.08 crore/6766.37 crore 45.47 crore Disallowance of Rs. 45,46,52,295 4.8 In view of above, an amount of Rs.45,46,52,295/is disallowed u/s 36(1)(iii) and added back to the income of the assessee. Penalty proceeding u/s 271(1) (c) of the LT. Act, 1961 is initiated for furnishing inaccurate particulars of income. 4.9 The assessee filed objection before the DRP against the draft order passed on 29.12.2017. The DRP-2(W2Z) in his direction passed u/s 144C (5) of the IT Act, 1961 dated 28.09.2018 sustained the additions proposed by placing reliance in assessee's own case for previous years. Hence, disallowance u/s 36(1)(iii) of the Act amounting to Rs.45,46,52,295/- is made and added to the total income of the assessee. Penalty proceeding u/s 271(1)(c) of the I. T. Act, 1961 is initiated for furnishing inaccurate particulars of income." 5. Since the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s. 143(3) r.w.s. 144C(13), on the basis of the directions of the Dispute Resolution Panel(DRP). 15. We may gainfully refer to the provision of section 263 in this regard. "263. (1) The Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the [Assessing] Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. Explanation 1.-For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,- (a) an order passed [ on or before or after the 1st day of June, 1988] by the Assessing Officer shall include (i) an order of assessment made by the Assistant Commissioner [or Deputy Commissioner] or the Income tax officer on the basis of the directions issued by the [Joint] Commissioner under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ised. This is a case where final assessment order passed pursuant to the direction of DRP u/s. 144(3) is being revised by Ld.CIT. Ld. Counsel of the assessee in this regard submits that from the Finance Act, 2009, memorandum explaining the rationale behind the insertion of section 144C of the Act by the Finance Bill, 2009 as also the CBDT Circular No. 5 of 2010 dated 3 June 2010 issued explaining the said insertion, the notes on clauses, etc., it can be seen that consequential amendments have been made to various provisions of the Act as a result of insertion of section 144C in the Act. Such consequential amendments have been made to section 13 1, section 246A and section 253 of the Act. That however, no amendment is made in section 263 of the Act as a consequence of insertion of section 144C of the Act to deem such orders being capable of being revised. That therefore, the memorandum, circular, etc. support the Assessee's stand that once the Assessing Officer passes an order in accordance with the Directions issued by a superior authority (being DRP) the same cannot be revised by the CIT under section 263 of the Act. The above submission has sufficient cogency as our following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as it thinks fit; or (b) cause any further enquiry to be made by any income-tax authority and report the result of the same to it. (8) The Dispute Resolution Panel may confirm, reduce or enhance the variations proposed in the draft order so, however, that it shall not set aside any proposed variation or issue any direction under sub-section (5) for further enquiry and passing of the assessment order. [Explanation.- For the removal of doubts, it is hereby declared that the power of the Dispute Resolution Panel to enhance the variation shall include and shall be deemed always to have included the power to consider any matter arising out of the assessment proceedings relating to the draft order, notwithstanding that such matter was raised or not by the eligible assessee.] (9) If the members of the Dispute Resolution Panel differ in opinion on any point, the point shall be decided according to the opinion of the majority of the members. (10) Every direction issued by the Dispute Resolution Panel shall be binding on the Assessing Officer. (11) No direction under sub-section (5) shall be issued unless an opportunity of being heard is given to the assessee and the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... collegium comprising of three Commissioners of Income-tax constituted by the Board for this purpose; (b) "eligible assessee" means,- (i) any person in whose case the variation referred to in sub-section (1) arises as a consequence of the order of the Transfer Pricing Officer passed under sub-section (3) of section 92CA; and (ii) any non-resident not being a company, or any foreign company.] 18. A reading of the said section brings to the fore following:- The assessee has option to go to the DRP by filing objection before it. As per the provisions of section 144C(5) of the Act, the Dispute Resolution Panel (DRP) shall in a case where any objection is received under sub-section (2), issue such directions, as it thinks fit, for the guidance of the Assessing Officer to enable him to complete the assessment. Further, the provisions of sub-section (7) of section 144C empowers the DRP to make any further enquiry or cause any further enquiry to be made by the Income-tax authority as it thinks fit. Explanation to sub-section (8) of section 144C duly provides that DRP has power to enhance the variation and the power includes to consider any matter arising out of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion given in this order u/s. 263 by the Ld.CIT to the AO to call for the details of allowability of various deductions claimed by the assessee, in light of the observations discussed by him is quiet contrary to the sanguine provisions of law. Even otherwise, the order passed by the Ld.CIT is an exercise in futility inasmuch as, if the AO proceeds to pass an order by giving the assessee an opportunity of being heard, the same will be against the mandate of section 144C(13). Furthermore, it is also settled law that in assessment u/s. 144C, AO has to invariably pass a draft assessment order and give the same to the assessee for filing objection before DRP. Hence, the direction by the Ld.CIT to the AO to pass an order by-passing the provisions of passing the draft assessment order is also not sustainable in law. 20. Now, we examine the constitution of DRP. As evident from the above, the DRP constitutes a collegium comprising of three Principal Commissioners or Commissioners of Income-tax, the directions given by them is binding upon by the AO. Hon'ble Bombay High Court in the case of Vodafone India Services Pvt.Ltd. vs Union of India & Others 2013 SCC online Bom 1534 has expounded up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsequent CIT under section 263. 24. In light of the above discussion and case laws, the case laws referred by the Ld.CIT-DR are not applicable on the facts of the case. As, we have already noted that the submission of Ld.CIT-DR are at variance with the exposition by Hon'ble Bombay High Court in Vodafone India Services Pvt.Ltd.(supra). The Ld.CIT-DR in his submission has emphasized that proceeding before DRP is akin to appeal before Ld.CIT(A). This is quiet contrary to the Hon'ble Bombay High Court exposition noted above and the other decisions of Hon'ble Jurisdictional High court referred above. 25. The case of Devas Multimedia Pvt.Ltd.(supra) by the Hon'ble Karnataka High Court was in connection with the writ petition filed by the assessee, where assessee has objected to the notice issued u/s. 263 of the Act. Furthermore, Hon'ble High Court has expounded that writ court cannot examine the validity of notice on merits. Furthermore, the said decision has distinguished following decision of Hon'ble Bombay High Court, i) Vodafone Services Pvt.Ld.(supra) wherein Hon'ble Bombay Court has expounded that proceedings before the DRP is not an appeal proceedings, but correction mechanis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 16.10.2017 lies at page no. 148 of the paper book in which the relevant query was explained, however, for ready reference the para no. 4 is reproduced as under: - "4. Expenditure on a discontinued project at Lake End, Udaipur is charged off for commercial reasons-Rs.8.90 crores The assessee contends that expenditure of Rs.8.90 crores, incurred in relation to prospective hotel project, aborted and written off during the year being in the nature of extension/expansion of existing business is of revenue in nature. The assessee has relied on various rulings in this regards. Some of them are: (i) Priya Village Road shows Ltd. (185 Taxman 44) (Del HC) (ii) Modi Industrial (200 ITR 341) (Del HC) (iii) CIT Vs. Woodcraft Products Ltd. (1993) 217 ITR 862 (Cal HC) (iv) Assam Asbestos Ltd. (132 Taxman 808) (HC) (v) CIT Vs. Tata Robins Fraser Ltd. (2012) 253 CTR 227 (Jharkhand HC) (vi) Reliance Footprint Ltd. Vs. ACIT (2014) 29 ITR 82 (Mum-Trib) (vii) Dotex International Limited Vs. ACIT (2008) ITA. No.3214/Mum/2008 (Mum-Trib) (viii) Enpro India Ltd. Vs. DCIT (2000) 113 Taxman 132 (Del-Trib) (ix) Gujarat Green Revolution Co. Ltd. V ACIT (2013) 26 ITR 567 (x) F ..... X X X X Extracts X X X X X X X X Extracts X X X X
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