TMI Blog2010 (1) TMI 1191X X X X Extracts X X X X X X X X Extracts X X X X ..... est under s. 24(b) and applicability of Explanation to s. 24 was required to be considered before allowing such deduction on account of interest which has escaped the notice of the AO and he has failed to carry out proper enquiries in this case leading to assessment which is prejudicial to the interest of Revenue. 3. The assessee during the course of proceedings under s. 263 of the Act was further asked to file various details/clarification as detailed at p. 2 of the order passed under s. 263 of the Act. 4. The CIT noted that some of the issues were satisfactorily explained by the learned Authorised Representative for the assessee but in respect of some further queries, details were asked for. On the perusal of the reply filed by the assessee, the CIT was of the view that the rental income from the property had been declared under the wrong head of Income from house property though as per the partnership deed of the assessee, the business of partnership was that of real estate i.e., buying and selling of plots, properties, giving it on rent etc. The CIT noted that the assessee had been allotted SCO Nos. 114-115, Sector 34, Chandigarh, which was a commercial site and was of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssued under ss. 143(2) and 142(1) of the IT Act, issued letter dt. 25th July, 2007 asking the assessee to furnish the following information with supporting evidence : (a) Details of property along with copy of rent; (b) Proof of payment of house tax; (c) Details of loans taken and the purpose of loan; (d) Names and addresses of sundry creditors exceeding ₹ 50,000; (e) Details of unsecured loans outstanding; (f) Confirmation from National Agro Industry regarding advance against construction; (g) Source of capital introduction in the partner's capital account; (h) Details of bank account numbers along with copies of statements. 11. The copies of the notices and letter are enclosed at pp. 64 to 67 of the paper book. Further, the AO vide letter dt. 19th Nov., 2007 requisitioned the assessee to provide the information including the copy of partnership deed, evidence regarding tax deduction at source, furnishing of details regarding loans taken including the list of loans taken from relatives and friends. The AO also requisitioned the assessee to furnish the details and evidences regarding ownership of land and the benefits arising therefrom. The deta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss of previous year with the profits during the year. 13. The CIT was of the view that the building was still under construction. In view of the above query of CIT, it was explained by the assessee that the building was competed during the financial year 2003-04 and the completion certificate issued by the Estate Officer, Chandigarh, was also filed as Annex. 5 to the said letter. The copies of the rent agreement for giving the said property on rent since 1st Aug., 2003 were also filed on record. The second objection of the CIT was that the lift was not installed and hence the building was still under construction was also explained by the assessee that an extra facility was being provided to the tenants and it was not part of the main construction completed in the earlier years. It is also explained that during the assessment proceedings, the claim of interest on loans was explained by the assessee and this interest on loan was claimed only after the completion of the building and after the tenants were in possession. The learned Authorised Representative also explained that similar expenditure of interest on the loans raised for construction was allowed in the earlier years. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under s. 263, vide order sheet entry dt. 16th Dec., 2008, the counsel of the assessee, inter alia, was asked to give details of loans from relatives and friends for ₹ 68.54 lacs and the details as to when these loans were taken and copy of accounts. However, during the proceedings, the counsel of the assessee furnished only old balance sheets and that too of last two years and submits that the loans are old. It is surprising that the loans are very old. In ordinary course these loans should have been paid back by the assessee. However, this has not been done. The AO did not examine the issue in detail. He should have taken it as cessation of liability and taxed it accordingly. The AO has failed to carry out proper investigations in this regard. Thus, the assessment order is not only erroneous but also prejudicial to the interest of Revenue. 15. In view of the abovesaid observation the assessment framed under s. 143(3) of the Act was cancelled by the CIT under s. 263 of the Act holding it to be not only erroneous but also prejudicial to the interest of Revenue and the AO was directed to frame fresh assessment after carrying out proper investigation and affording a reasonab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Revenue'. The High Court held (p. 138) : 'In this context, it must be regarded as involving a conception of acts or orders which are subversive of the administration of Revenue. There must be some grievous error in the order passed by the ITO, which might set a bad trend or pattern for similar assessments, which on a broad reckoning, the CIT might think to be prejudicial to the interests of revenue administration'. In our view, this interpretation is too narrow to merit acceptance. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the ITO, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. The phrase 'prejudicial to the interests of the Revenue' has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue as a consequence of an order of the AO cannot be treated as prejudicial to the interests of the Revenue. For example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... risdiction under s. 263, must have material on record to arrive at a satisfaction. (ix) If the AO has made enquiries during the course of assessment proceedings on the relevant issues and the assessee has given detailed explanation by a letter in writing and AO allows the claim on being satisfied with the explanation of the assessee, the decision of the AO cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in that regard. (d) The Mumbai Bench of the Tribunal in F.A.A. Jasdanwalla vs. CIT (2007) 18 SOT 1 (Mumbai) has held as under : The power of revision under s. 263 being a supervisory jurisdiction conferred on the CIT is to be exercised with due care. In order to exercise the power under s. 263, two conditions are prescribed i.e., the order of the AO should be erroneous and also prejudicial to the interest of the Revenue. Both the conditions have to be simultaneously fulfilled before invoking the jurisdiction under s. 263. (e) Their Lordships in CIT vs. Max India Ltd. (2007) 213 CTR (SC) 266 : (2007) 295 ITR 282 (SC) has held as under : The phrase 'prejudicial to the interest of Revenue' in s. 263 of the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id down by the apex Court in Malabar Industrial Co. Ltd. vs. CIT (supra). Only when the order is erroneous, the revisionary powers can be exercised by the CIT under s. 263 of the Act. The order passed by the AO has also to be prejudicial to the interest of Revenue but every loss of revenue consequent to an order passed by AO cannot be treated as prejudicial to the interest of Revenue. It is further held by the apex Court in Malabar Industrial Co. Ltd. vs. CIT (supra) that where two views are possible and the AO had taken one view with which the CIT does not agree, the order of the AO would not be treated as an erroneous order prejudicial to the interest of Revenue, unless the view taken by the AO is unsustainable in law. The AO had made enquiries and taken a view, on the issues raised by CIT under s. 263 of the Act and the said view is a plausible view. The CIT in the present case while passing the order under s. 263 has failed to establish that how the order of the AO is erroneous and prejudicial to the interest of Revenue. 19. The Hon'ble Delhi High Court in CIT vs. Ashish Rajpal (2009) 23 DTR (Del) 266 held as under : The fact that a query was raised during the course ..... X X X X Extracts X X X X X X X X Extracts X X X X
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