TMI Blog2014 (5) TMI 1001X X X X Extracts X X X X X X X X Extracts X X X X ..... to hold that the implied view of the AO is unsustainable in law and therefore erroneous and prejudicial to the interest of the Revenue, which exercise has not been found to have taken place - the order of the CIT without recording the reason to demonstrate that the view of the AO after enquiry as incorrect, unsustainable in law and consequently ought to have recorded a finding that the implied view of the AO was erroneous and prejudicial to the interest of Revenue, which is absent in the order and therefore vitiates the revisional order – thus, the order of the CIT is set aside – Decided in favour of Assessee. - ITA No. 3055/Del/2013 - - - Dated:- 15-5-2014 - Shri B. C. Meena And Shri A. T. Varkey,JJ. For the Appellant : Kapil Goel, Adv For the Respondent : R. S. Gill, CIT DR ORDER Per A. T. Varkey, Judicial Member This is an appeal preferred by the assessee against the order of the ld Commissioner of Income Tax, IV, New Delhi dated 14.03.2013 for the Assessment Year 2008-09. 2. The grounds of appeal are as follows:- 1. That on the facts and in the circumstances of the case and in law, learned CIT erred in the assuming jurisdiction u/s 263 of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oan of Rs. 2,40,71,000/- to its overseas subsidiary company on which no interest has been charged which is evident from Schedule-O of the profit and loss account. However, interest has been paid on borrowed funds which is evident from Schedule-V of the Profit and Loss account. The matter is to be examined whether the assessee has diverted its interest bearing funds towards interest free loan and advances. 5. Thereafter, the ld CIT(A) pointed out that the aforesaid lack of enquiry/ investigations on the part of the Assessing Officer resulted in under- assessment of the income, and has held that the order of the Assessing Officer s order both as erroneous as well as prejudicial to the interest of the revenue. Thereafter, after hearing the assessee , an order u/s 263 was passed wherein, the ld CIT held that he was not satisfied with the explanation of the assesse in respect of advancing loan interest free to overseas subsidiary company and was of the opinion that since the assessee company has utilized its borrowed fund to advance the loan to subsidiary company and remitting interest on the borrowed funds, proportionate interest is liable to be disallowed and was pleased to set a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Assessing Officer, as held by jurisdictional High Court in Income Tax v. Sunbeam Auto Ltd. (2011) 332 ITR 167 (Del). According to the ld AR the ld CIT could not have assumed jurisdiction u/s 263 of the Act, without a clear finding that the assessment order was erroneous and prejudicial to the interest of revenue and in the present case finally the CIT ordered only setting aside the assessment order for a limited purpose, and the issue in respect of interest on loan to subsidiary company was left open to the Assessing Officer for enquiry and was directed to pass fresh order on this said limited issue, which according to the ld AR is not permissible. According to the ld AR, therefore this order is bad in law as was held by the jurisdictional High Court in ITO Vs. DG Housing Projects Ltd. 343 ITR 329. The ld AR stated that CIT erred in ignoring the assessee‟s explanation on non-charging of interest (on adoption of the loans originally advanced by Petersen family to the company acquired by assessee) as non-satisfactory and wrongly directed the ld Assessing Officer to re-examine the issue, which according to the ld AR was not permissible under the law and therefore the assump ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee has given a loan of Rs. 2,40,71,000/- to its overseas subsidiary company on which no interest has been charged which is evident from Schedule-O of the profit and loss account. However, interest has been paid on borrowed funds which is evident from Schedule-V of the Profit and Loss account. The matter is to be examined whether the assessee has diverted its interest bearing funds towards interest free loan and advances. iii) It is further seen that during the year under consideration the assessee has deduction u/s 80IC of the IT Act to the extent of Rs. 1,45,02,276/- and as per 10CCB Certificate this is the first year of the commencement of the business and claim of deduction. On perusal of the case records and details filed by the assessee during the course of assessment proceedings, it is found that the Assessing Officer has not examined the allowability of the claim by conducting enquiries to ascertain as to whether the assessee has fulfilled all the conditions laid down in the aforesaid section. It is settled position of law that the aforesaid lack of inquiry/ investigation apart from the under assessment of income pointed out in above paragraph has made the order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the ld CIT has been provided because, against the order of the Assessing Officer, the revenue will not able to file appeal before the ld CIT(A). Against an order of assessment passed by Assessing Officer, the revenue cannot file an appeal that is why the revisional powers are given to the CIT u/s 263. As per the judicial pronouncements, it is clear that the ld CIT before exercising the revisional jurisdiction in a case, has to record a finding that the Assessing Officer s order under revision is an erroneous order and prejudicial to the interest of revenue. It has been also held that non-investigation/ inquiry on an issue relevant in the case, if not investigated by the Assessing Officer, then that itself will amount to an erroneous order and the CIT can exercise his revisional jurisdiction. However, if an enquiry was undertaken by the Assessing Officer, and after considering the explanation or materials adduced by the assessee, if the Assessing Officer, after application of mind finds the explanation plausible and is correct and valid in the eyes of law decides an issue, then the ld CIT after evaluating the materials on records which were before the Assessing Officer and any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... planation and supporting documents were furnished by the assessee, then the CIT has to examine whether the view taken by the Assessing Officer after examination of explanation and documents are a plausible, correct view, legally tenable as per the Act. If the answer is in the affirmative, then he cannot pass an order u/s 263 even if he does not agree. But if the answer is in the negative, then the CIT has to demonstrate that the view of the Assessing Officer in the facts and circumstances of the case, is wrong, incorrect, invalid and legally unsustainable in the eyes of law, then after recording the said reasons and after recording the finding that the Assessing Officer s order is erroneous and prejudicial to the interest of the Revenue, can proceed and pass orders u/s 263. 15. Coming to the case on hand we see that the ld CIT has taken note of 3 issues of which 1st and 3rd issue he records his satisfaction and agrees with the Assessing Officer. However in respect of the 2nd issue the ld CIT records his initial reasoning to initiate the revisional jurisdiction that the assessment order on the 2nd issue was erroneous and prejudicial to the interest of Revenue and he assumed the j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest does not arise. 17. The reason given by the ld CIT for finally setting aside the assessment on limited issue is as follows:- As regards to the issue of advancing loan to its overseas subsidiary company on which on interest is charged which is evident from the Schedule-O of the P L A/c. I find that the explanation offered by the assessee is not satisfactory. Since the assessee company has utilized its borrowed fund advancing loan to the subsidiary company and paying interest on the borrowed fund, proportionate interest is liable to be disallowed. In view of the same the assessment is set aside on this limited issue to be reframed by the Assessing Officer after detailed enquiry and examination and after giving opportunity of being heard to the assessee. 18. So from a perusal of the reasons given by the ld CIT, we find that, after enquiry conducted by the ld CIT, he has recorded a bald statement that he was not satisfied with the explanation offered by the assessee. During the revisional proceedings the assessee has brought to the notice of the ld CIT, that the said issue was inquired into by the Assessing Officer and it has filed the said reply before the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore it is a case wherein, the ld CIT, finding that on the 3rd issue no inquiry was conducted was justified in invoking revisional jurisdiction u/s 263 and therefore is valid. 19. However we find that in respect to the sole issue which was sent back to the Assessing Officer to be reframed, we find that the Assessing Officer though had not mentioned the same in the assessment order still have called upon the assessee to furnish documents and explain the said transaction. We find that the assessee had furnished its explanation and the share purchase agreement was also duly filed by the assessee to support its claim that the purchase price consisted of Rs.31 lakhs CHF against equity capital and 6 lakhs CHF against purchase/ replacement of interest-free loan extended by Petersen Family to the above said companies; And explained that since the acquiring company (Assessee Company) was under an obligation to replace the interest free loan extended by Petersen (vendor) on the agreed terms and conditions and it was also part of the acquisition cost and therefore no interest has been charged with. Though the Assessing Officer has not mentioned anything about this issue, however, we find ..... X X X X Extracts X X X X X X X X Extracts X X X X
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