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TMI Blog2025 (1) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... me by Rs. 23,58,936/- by allowing excess deduction u/s 57 of the Act. The findings of Ld. PCIT is bad in law and bad on facts. The addition earlier made by AO is already under challenge in appeal. 3. The appellant craves liberty to add, alter, amend or vary from the above grounds of appeal at or before the time of hearing." 3. Brief fact of the case are that the case was selected for complete scrutiny assessment under the E-assessment Scheme, 2019 on the following issues of claim of deduction from Income from Other Sources. Return of income was e-filed by the assessee on 13-10-2018 at an income of Rs. 53,97,560/-. The return is processed by CPC after disallowing depreciation only. After that processing of ITR, the case of the assessee selected for Scrutiny Assessment under the e-Assessment Scheme, 2019 on the issue of " Large deduction claimed u/s 57." Accordingly notice u/s 143(2) of Income Tax Act, 1961 dated 23.09.2019 was issued and served upon the assessee electronically. Notice u/s 142(1) was also issued on 10/12/2020 for compliance on 25/12/2020. 3.1 During the year under consideration the assessee derives income from certain partnership firm in the form of Interest, rem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mati Ramkrishna vs. CIT (1981) 131 ITR 659, further noted that the assessee is notable to prove the co-relation between loan taken and loan advanced. Considering that the expenditure claimed u/s 57 of the act, cannot be claimed under the head "Income from other sources. In the submission assessee claimed that since, assessee is a partner in various concerns, and to attend the business, such vehicle is being use claimed expenses. There are various group involved in the firms. and partners, are normally using their own vehicle for the business of the firm. Further in his own reply assessee accepted that this Car was used "fully and exclusively for earning income from business but also failed to substantiate his claim regarding usage of such motor car in his business. Here, since the asset was claimed to be used for the benefit of firms and had no nexus in earning the interest income which has been shown by the assessee in the income from other sources, therefore depreciation, Interest paid & Motor Insurance on car was considered as allowable expenses under section 57 of Act. Mere change of claim by the assessee does not establish the allow ability of expense under the head Income fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment order, the Assessing Officer has mentioned the deduction claimed u/s 57 to be Rs. 48,94,926/- whereas the deduction claimed is of Rs. 72,53,862/-. In para 6 of assessment order, the Assessing Officer has mentioned that the Assessee was asked to explain the nexus of deductions claimed with the income earned under the head income from other sources along with the documentary evidences. The Assessing Officer has further noted that the submission of the Assessee have been carefully considered and the same have not been accepted. In Para 13 of the assessment order, the Assessing Officer has further mentioned that total deductions claimed u/s 57 are disallowed. However, the Assessing Officer has erroneously taken the figure of total deductions u/s 57 to be of Rs. 48,94,926/- whereas the total deductions are in fact of Rs. 72,53,862/-. The contention of Assessee is that in the computation of income, the Assessee had shown net negative income of Rs. 48,94,926/- being net of interest received and interest and other expenses paid and that the Assessing Officer in the assessment has taken a view that this nexus income cannot be allowed and he made the addition of this amount and this can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stances of the case are such as to provoke inquiry - If there is failure to make such enquiry, order is erroneous and prejudicial to revenue CIT need not prove that it is erroneous and he can revise it u/s 263. 4. In the case of CTT v/s. Nagesh KnitwearsPvt. Ltd., 345 ITR 135, the Hon'ble Delhi High Court has held that "The Revenue does not have any right to appeal to the first appellate authority against an order passed by the Assessing Officer. Section 263 has been enacted to empower the CIT to exercise power of revision and revise any order passed by the Assessing Officer, if two cumulative conditions are satisfied. Firstly, the order sought to be revised should be erroneous and secondly, it should be prejudicial to the interest of ht Revenue. The expression "prejudicial to the interest of the Revenue, is of wide import and is not confirmed to merely loss of tax. The term 'erroneous' means a wrong/incorrect decision deviating from law. This expression postulates an error which makes an order unsustainable in law. The Assessing Officer is both an investigator and an adjudicator. If the Assessing Officer as on adjudicator decides a question or aspect and makes a wr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all cases record his final conclusion on the points in controversy before him. The legislative intent to bring the amendment was to make clear the provisions of Explanation to section 263 and to reduce the litigations in this regard which is well supported in view of the clear words used in clause (a) of the Explanation 2 to section 263(1) wherein it is mentioned that the order passed by the AO shall be deemed to be erroneous in so far as it is prejudicial to the interest of revenue, if in the opinion of the PCIT the order is passed without making inquiries or verification which should have been made. If the order is passed without application of mind, such order will fall under the category of erroneous order". 8. Accordingly, by virtue of powers conferred on the undersigned under the provisions of section 263 of the Income Tax Act 1961, I hold that the order under Section 143(3) dated 13.04.2021 for 2018-19 passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of revenue as the said order has been passed by the Assessing Officer in a routine and perfunctory manner. The order of the Assessing Officer is therefore held erroneous in so far as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce assessee is partner in various concerns, and to attend the business, such vehicle is being used. There are various groups involved in the firms, and partners are normally using their own vehicle for the business of the firm. The assessee had derived remuneration and share of profits from these firms, which had been duly shown in the return of income submitted. The assessee had been using the vehicles for the purpose of his business which is allowable as deduction against this income from firm. Similarly the claim of insurance is on the said vehicle. Your kind attention is also invited towards the decision of Hon'ble Supreme Court in the case of CIT v. Ramniklal Kothari reported in 74 ITR 57 (SC) in which also it has been held as under: "Business Expenditure Allowability Expenditure incurred for earning share income by partner of firm Receipt of share income by partner is business income for purpose of section 10(1) of 1922 Act - Expenditure by way of salary and bonus to staff, maintenance of car and travelling expenses for the purpose of earning such income, therefore allowable as business expenditure." b. RAM MURTI SOOD vs. ITO (1982) 14 TT) (CHD) 352 Business Exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The share of profits of the assessee from various firms including the firm of M/s. Sood Bhandari and Cop. Therefore, constituted business income in his hands. Against this business income, the assessee is entitled to deduct the expenditure incurred actually for earning this income and depreciation on the car. It is found that the assessee had actually used the car for this purpose because the activities of the firm, the distance between the head office and the branch office and participation of the assessee in the business of the firm justify it." It is respectfully submitted that the Hon'ble Supreme Court in the case of CIT Vs. Ramlik Lal Kothari reported in 74 ITR 57 held that the expenditure incurred for the purpose of earning the share income from the firm is an allowable expenditure. In earlier years also similar claim was made and allowed except in one of the year for which the same has been challenged in appeal. Your kind attention is also invited towards the decision of Hon'ble Supreme Court in the case of CIT Vs. Excel Industries Limited reported in 358 ITR 395 and the decision in the case of Radha Soami Satsang Vs. CIT reported in 193 ITR 321 ne submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated that "I am of the considered view that the Assessing Officer has not taken the correct figure of deductions u/s 57 when he has categorically mentioned in the assessment order that total deductions u/s 57 are to be disallowed. Therefore, the order u/s 143(3) on 13.04.2021 is erroneous in so far as it is prejudicial to the interest of the revenue." Provision of 263 cannot be invoked to correct each and every mistake and not to correct the figure of disallowance. When the ld. AO has dealt with the issue in detailed based on the facts and he has disallowed the figure in his wisdom for which has exercised his judicial wisdom. Merely the ld.AO has not disallowed complete deduction the order cannot be revised by the PCIT. 8. Per contra, the ld. DR relied on the order of the ld. PCIT. Ld. DR vehemently argued that the decision cited by the ld. AR of the assessee is of the last year and not of the current year wherein the ld. PCIT noted that the figure of the gross amount is to be considered whereas the the same was not considered and therefore, as per power of the PCIT same has rightly been invoked and same should be sustained. 9. We have heard parties and perused the materials avai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee could not establish the direct nexus between the utilization of fund and income earned under the head of income from other source. The assessee shown Income; from salary of Rs. 4,77,500/- Income from Business & Profession of Rs. 93,42,762/ Income from capital gain of Rs. 3,24,783/- and Income from other sources of Rs. 2,97,436/-, Total comes to Rs. 1,04,42,481/-, Thereafter, deduction claimed under chapter VIA Rs. 1,50,000/- and deduction u/s 57 of the Act, of Rs. 48,94,926/-, total income shown is Rs. 53,97,555/-. Hence, deduction claimed u/s 57 of the I. T. Act, 1961, of Rs. 48,94,926/- was disallowed and added back to his total income by the ld. AO. As is evident that the case of the assessee was selected to verify the claim of the assessee as per provision of section 57 of the Act and accordingly ld. AO has applied his mind and determined the income. Ld. PCIT hold that the ld. AO should have disallowed further sum of interest income of Rs. 23,58,936/- and hold the order of the assessment liable to revised as per provision of section 263 of the Act. Thus, the only issue to be decided in this appeal is as to whether the Principal Commissioner of Income Tax (PCIT) was j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctional High Court or Supreme Court in the case of the assessee or any other person. 83[Explanation 3.-For the purposes of this section, "Transfer Pricing Officer" shall have the same meaning as assigned to it in the Explanation to section 92CA.] xxx xxx xxx xx As we note that even the Explanation 2 to section 263 does not confer blind powers and it is held that despite there being an amendment, enlarging the scope of the revisionary power of the ld. PCIT u/s 263 to some extent, it cannot justify the invoking of the Explanation 2 in the facts of the present case. Before referring to that Explanation, one has to understand what the true meaning of the Explanation in the context of application of mind by a quasi-judicial authority was. It is further noted that in the case of Narayan Tatu Rane Vs. ITO (2013) 7 NYPTTJ 1493 (Mum.),it was held that newly inserted Explanation 2(a) to Sec. 263 does not authorize or give unfettered powers to Commissioner to revise each and every order, if in his (subjective) opinion, same has been passed without making enquiries or verification which should have been made. Thus, in the totality of facts and circumstances, it is not at all a case where t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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