Latest - TMI e-Newsletter
New User/ Regiser
2022 (8) TMI 202 - Income Tax
Revision u/s 263 - Disallowance of interest u/s 36(1)(iii) in respect of loans and advances made to sister concerns - HELD THAT:- There is no gainsaying that the power of revision can be exercised by the ld. PCIT based on the opinion formed by himself. The revision based on the subjective opinion of PCIT cannot be sustained in the eyes of law. As observed by us, there was no existence of facts and circumstances on the base of which the PCIT had formed an opinion that an enquiry is warranted into the item appearing under the head “Advance for properties”.
The opinion formed by the PCIT that assessment order is erroneous for the fact that the Assessing Officer had not caused any enquiry into items “advance for purchase of properties” is based on no evidence. In such circumstances, it can be said that the ld. PCIT had not applied his mind or did not honestly form his opinion. Thus, the order of revision passed on this item by the ld. PCIT is unreasonable and not based on any material.
As regards to the issue of average rate of interest to be adopted for the purpose of computing amount of disallowance u/s 36(1)(iii) on the loans and advances made to the sister concern, it is an admitted position that the question of disallowance u/s 36(1)(iii) is not subject matter of revision, but the rate to be adopted for the purpose of computing the amount of disallowance u/s 36(1)(iii).
During the course of assessment proceedings, the appellant had categorically stated that the average rate of interest is only 14% as the appellant had borrowed the funds at the rate of interest ranging from 8% to 20%. The appellant had also filed the details such as name of the lenders and rate of interest etc. Therefore, it cannot be said that the Assessing Officer had adopted rate of interest @ 14% without making any enquiry as to the average rate of interest at which the loans were borrowed by the appellant company.
As things stand today, the question of disallowance u/s 36(iii) does not arise for the reason that the addition made by the Assessing Officer came to be deleted by the CIT(A) on appeal. Therefore, the issue as to what is the correct rate of interest to be adopted had become academic. In the circumstances, the order of revision passed by the ld. PCIT cannot be sustained in the eyes of law. Since, we held that the order of revision cannot be sustained in the eyes of law, we need not delve into the issue of doctrine of merger and the applicability in the case of Smt. Renuka Philip [2018 (12) TMI 129 - MADRAS HIGH COURT] and in the case CIT vs. Vam Resorts & Hotels (P.) Ltd. [2019 (8) TMI 1418 - ALLAHABAD HIGH COURT] - In the circumstances, the issue raised by the assessee-company in the present appeal stands allowed.