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TMI Blog2022 (10) TMI 1255X X X X Extracts X X X X X X X X Extracts X X X X ..... that the entire expenditure of the financial expenditure made by the assessee has to be capitalized being pre-operative period expenditure. AO on the other hand has allowed the business expenditure to the extent of 70% and has restricted to 30% being violation of section 40(a)(ia) of the Act. Once the issue has been examined, it cannot be said that the AO has not examined the issue and therefore, the question of invocation of Explanation II of Section 263 of the Act does not arise. In the present case, AO has duly applied his mind and thereafter, restricted the disallowance to 30%. Merely because the AO has not applied the view as taken by the PCIT, it cannot be said that the order passed by the AO is erroneous as the view of the AO is also one of the possible views and when two possible views are available, then following one view will not make the order passed by the AO as an erroneous one. Decided in favour of assessee. - Shri R.K. Panda, Accountant Member And Shri Laliet Kumar, Judicial Member For The Assessee : Shri P. Murali Mohan Rao For The Revenue : Shri Vijay Bhaskar Reddy Cit-Dr ORDER Per Laliet Kumar, J.M. The appeal of the assessee for A.Y. 2017-18 arises from the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Pr. CIT erred in directing the Aa to set aside the assessment made u/s 143(3) which passed on 24.12.2019 passed by the assessing officer for the assessment year 2017-18. 10. The Ld. Pr. CIT erred in directing the AO to verify the aspect to the limited extent and pass the order by giving a proper opportunity of being heard to the assessee. 11. The Ld. Pr. CIT ought to have appreciated the fact that the expenditure incurred towards finance cost is an allowable expenditure u/s 37 of the Act. 12. The Ld. Pr. CIT ought to have appreciated the fact the expenditure is incurred wholly and exclusively for the purpose of business and thus it is an allowable expenditure u/s 37 of the Act. 3. The brief facts of the case are that assessee is engaged in real estate business, e-filed its return of income on 26.10.2017 for A.Y. 2017-18 admitting current year loss of Rs.2,21,17,226/- under normal provisions and book loss of Rs.2,13,71,262/- u/s 115JB of the Act. The case was selected for scrutiny under CASS and the assessment was completed u/s 143(3) of the Act on 24.12.2019 by assessing loss at Rs.1,30,49,499/- due to disallowance u/s 14A and u/s 40(a)(ia) of the Act. 4. The ld.PCIT on perusal o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ld.AR for the assessee has drawn our attention to the questionnaire issued by the Assessing Officer wherein at page 69, it was mentioned as under : 2. Further, you have debited an amount of Rs.2,31,07,667/- towards interest on loans (as per note no.15: finance cost). In this connection please clarify to whom the same was paid by you please confirm whether you have deducted TDs on this payment or not. In case if the interest amount has been offered to tax by the recipients, please furnish Form 26A duly signed by an Accountant. Otherwise, the same will be added back to the income of the assessee as per the provisions of Sec. 40(a)(ia) of the Income tax Act, 1961. 8. It was submitted by the ld.AR that after the Assessing Officer enquired from the assessee about the allowability of the expenditure, the assessee had replied to the said enquiry and thereafter, the Assessing Officer had passed assessment order whereby the Assessing Officer had restricted the disallowance to 30% of the amount i.e., Rs.2,31,07,667/-. The order of the Assessing Officer dealing with the above said issue is as under : 5. Disallowance of U/s.40(a)(ia). It is seen that during the year, the assessee has paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an amount of Rs.2,31,07,667/- was debited towards financial cost, clearly indicating that, the assessee has no revenue from operations, therefore. the expenditure towards financial cost was not an admissible as expenditure u/s.37 of the I.T.Act. 1961 which has been erroneously allowed by the Assessing Officer. 3. In view of the facts narrated above, the said order passed by the Assessing Officer dated 24-12-2019 is erroneous and prejudicial to the interest of revenue. 4. Explanation-2 of Section 263(1) says: For the purpose of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner. (a) The order is passed Without making inquiries or verification which should have been made; 11. The learned Authorised Representative has submitted that the assessee filed a detailed reply to the said show cause notice. However, the ld.PCIT was not convinced with the reply given by the assessee and therefore, the assessee is now before us for the reasons mentioned hereinabove. 12. The learned Authorised Representativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing a penalty, he may confirm or cancel such order or vary it so as either to enhance or to reduce the penalty; (c) in any other case, he may pass such orders in the appeal as he thinks fit. 14. On the basis of the above decision and provision, it was submitted that once the issue is pending for adjudication before the ld.CIT(A), it was not appropriate and is not in accordance with the scheme of the Act, for the ld.PCIT to exercise power u/s 263 of the Act. Lastly, it was submitted that the assumption of jurisdiction by the ld.PCIT was wrong as the ld.PCIT has wrongly concluded that the assessee has not started its operations. It was submitted that assessee is deriving income from the investment in real estate as well as from the rental income. The assessee has let out the property on 01.12.2011 and the assessee is drawing the rent from the same person namely, M/s. Vivid Labs. He had also drawn our attention to the activities of the assessee for the earlier year wherein the income from the rent have consistently been shown from A.Ys. 2014-15 to 2016-17. Learned Authorised Representative has drawn our attention to the note given by the assessee to the Assessing Officer wherein he ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above conditions have to be satisfied. It has been held that, A bare reading of section 263 of the Income-tax Act, 1961, makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent-if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue-recourse cannot be had to section 263(1) of the Act. The provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It is no longer res integra that the revisional jurisdiction available to a Commissioner under section 263 of the Act is essentially circumscribed by the determinant that the order of the Assessing Officer is erroneous so much so that it is prejudicial to the interests of the Revenue. This statutory enjoinment carves out an extremely constricted ambit of such discretionary jurisdiction. The word considers applied in the statutory provision involved, signifies a genuine satisfaction of that authority that the order of the Assessing Officer is erroneous and that the interests of the Revenue is prejudicing thereby. Any exercise of the revisional jurisdiction, bereft of such satisfaction and/or finding that the order of the Assessing Officer is erroneous and that it is prejudicial to the interests of the Revenue and that too, based on tangible materials on record, is impermissible rendering the resultant order void. 10. Judged on the above touchstone, we are of the unhesitant opinion, having regard to the materials on record, that no interference with the impugned order of the learned Tribunal is warranted, in the facts and circumstances of the case. No substantial question of law, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under section 263 of the Act. In such matters, to remand the matter to the Assessing Officer would imply and mean the Commissioner of Income tax has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question . Similar view has been expressed by Hon ble Madras High Court in the case of CIT Vs. Amalgamations Ltd (238 ITR 963). The law interpreted by the High Courts makes it clear that the Ld Pr. CIT, before holding an order to be erroneous, should conduct minimum enquiries or verification in order to show that the finding given by the assessing officer is erroneous. 17. On the basis of above discussed legal propositions on the revisional power of ld.CIT(A), we are required to examine whether the action of the ld.CIT(A) fulfills the twin test or whether the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, as the issue is pending for adjudication before ld.CIT(A). However, ld.CIT(A) can always modify, alter or vary the order passed by the Assessing Officer and for that purposes, he has all the powers even to enhance the additions by following the due process of law. Once the issue is already pending for adjudication, it is not appropriate for the ld. PCIT to exercise power in a hurried manner, without verifying the records. There should not be any over-lapping and overstepping of the jurisdiction by the authorities. Once the proceeding before ld.CIT(A) are in session and is deciding the issues as per section 250 / 251 of the Act, then it is not appropriate for the ld.PCIT to exercise powers u/ 263 of the Act. In paragraph 3 of the impugned order ld.PCIT acknowledged the pendency of appeal before the CIT(A) however the objection of the assessee have been rejected by the ld.PCIT, on the pretext that the issue pending adjudication before the CIT(A) is not the same issue for which the power under section 263 was exercised by him as mentioned by the ld.PCIT in Para 3 of his order, which was reproduced hereinabove. In our view the issue raised by the ld.PCIT is similar to that of the is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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