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2017 (8) TMI 535

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..... sioner to take such order in revision. - Decided in favour of assessee. - SPECIAL CIVIL APPLICATION NO. 2914 of 2016 - - - Dated:- 10-8-2017 - MR. AKIL KURESHI AND MR. BIREN VAISHNAV, JJ For The Petitioner : Mr Tushar P Hemani, Advocate And Ms Vaibhavi K Parikh, Advocate For The Respondent : Mr Pranav G Desai, Advocate ORAL JUDGMENT ( PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. The petitioner has challenged a notice dated 23.11.2015 issued by the Commissioner of Incometax seeking to take the petitioner's assessment for the assessment year 2011-2012 in revision. 2. Brief facts are as under. The petitioner is a company registered under the Companies Act and is engaged in the business of developing and renting the immovable property including shopping complex and malls. For the assessment year 2011-2012, the petitioner had filed return of income declaring loss of ₹ 5.08 crores (rounded off). The petitioner's case was taken in scrutiny. One of the issues discussed during the assessment was with respect to the petitioner's claim of deduction for interest paid on Optionally Fully Convertible Debentures ( OFCD for short) in terms of sec .....

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..... Infrastructure Private Ltd (JPIPL). The entire cost of Construction alongwith cost of land was borne by JPIPL. ( ii) IL FS Milestone Fund1 (a Venture Capital Fund) purchased entire shares from JPIPL on 29.03.2008 and trustees of the Fund become owner of the assessee company. ( iii) Your company had issued ₹ 2,54,783/18% Optionally Fully Convertible Debentures of 100 fully paid raising ₹ 25,54,78,300/. ( iv) Thereafter, in FY 200910 (AY 201011), your company again issued 14,89,67,078/18% optionally Fully Convertible Debentures of ₹ 1/raising ₹ 14,89,67,079/. The proceeds of these debentures were utilised for repayment of outstanding liability of JPIPL. ( v) During the year under consideration, your company has paid/claimed ₹ 7,28,00,166/as interest paid/payable to the fund which has been claimed as expenditure under the head of income from house property. This included interest of ₹ 2,68,14,074/payable on debentures of ₹ 14,89,67,078/issued during FY 200910. 5. The deduction of interest on optionally fully convertible debentures each fully paid of ₹ 1/was not an allowable expenditure due to followin .....

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..... ercise of revisional powers. They have also contended that the claim of deduction under section 24(b) of the Act was clearly allowable. The amount raised through debentures were utilised for repaying the old loans obtained for the purpose of construction of building and the interest paid on such debentures were therefore, well within the purview of section 24(b) of the Act. Reference was made to various decisions of this Court as well as Supreme Court. When the Commissioner did not drop the revisional proceedings, the petitioner filed this petition. 4. Learned counsel for the petitioner submitted that the Assessing Officer had examined the claim minutely during the scrutiny assessment. He having made the necessary inquiries and come to the conclusion which was plausible, the Commissioner could not have exercised revisional powers. Counsel further submitted that facts on record would suggest that the amounts raised through issuance of debentures were utilised for repaying the old loans. These loans were utilised for the purpose of construction of building. The interest on debentures was therefore, clearly covered in section 24(b) of the Act. For earlier years, in case of this ver .....

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..... to the Commissioner, the debentures were not used for the purpose of purchase of property and, therefore, the interest of ₹ 2.68 crores paid on such debentures was not an allowable deduction. He pointed out that such debentures were raised during the financial year 2009-2010 during which there were no purchase or addition to the property. According to him therefore, the claim was not in accordance with section 24(b) of the Act since the funds could not be said to have been used for the purpose of construction of property. 7. The fact that this issue was examined by the Assessing Officer during the scrutiny assessment, is not possible to doubt. The petitioner has produced a note filed before the Assessing Officer during such assessment in which it was stated as under : Short note on borrowed fund utilized for construction of house property and interest paid thereon is allowable as deduction under section 24(ii) of Income Tax Act, 1961 (the Act). The assessee company was incorporated on 04th November, 2004. The entire share capital of the assessee company was owned by J.P. Infrastructure Pvt. Ltd (JPIPL). The assessee purchased land at Rajkot and started constr .....

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..... ving that : 2. The assessee company is engaged in the business of renting of immovable property in a shopping mall i.e. Central Stage Mall, Rajnagar Cross Road, Nana Mauva main road, Rajkot. During the year under consideration the assessee company has shown income of ₹ 5.44 crores including rental income of ₹ 4.12 crores whereas the company paid interest of ₹ 7,28,00,166/. Details regarding income received, details of TDS in the form of 26As expenses incurred, unsecured loan, etc. have been verified during the course of assessment proceedings. Confirmation of depositors, ledger of interest expenses, copy of bank account statements, contra accounts of sundry creditors and debtors etc are filed. 9. It can thus be seen that the Assessing Officer did examine this claim during the assessment. He accepted the assessee's stand canvased through the note that sum of ₹ 14.89 crores raised by issuing the debentures was utilised to repay the outstanding liability of JP Infrastructure Private Ltd. Thus the unsecured loans obtained during the year by issuance of debentures were utilised for the purpose of repayment of outstanding existing liability. It wa .....

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..... disallowances which an assessee feels aggrieved with. 12. Thus when the Assessing Officer had made proper inquiry and taken a definite view, it would be open for the Commissioner to exercise revisional powers only if it is found that the order is erroneous and prejudicial to the interest of the Revenue. If the view adopted by the Assessing Officer is a plausible view, the Commissioner would not substitute his opinion with that of Assessing Officer. In case of Malabar Industrial Co. Ltd. v. Commissioner of Income Tax reported in (2000) 243 ITR 83, the Supreme Court observed as under : A bare reading of this provision makes it clear that the prerequisite to the exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the Incometax 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 er .....

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..... he Finance Act of 2000 with effect from 1.4.2001, similar provision was found in clause (vi) of subsection( 1) of section 24. The language of the existing clause (b) of section 24 and clause (vi) of subsection( 1) of section 24 are paramateria. It was in this context that the CBDT in its abovenoted circular dated 20.8.1969 had clarified the position as under : 1. Section 24(i)(vi) provides that where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital shall be allowed as an admissible deduction in the compensation of income from the said property. 2. A question has been raised whether in a case where a fresh loan has been raised to repay the original loan taken for the above purpose, the interest payable in respect of the second loan would also be admissible as a deduction under section 24(1)(vi). 3. The matter has been considered by the Board and it has been decided that if the second borrowing has really been used merely to repay the original loan and this fact is proved to the satisfaction of the Incometax officer, the interest paid on the second loan would al .....

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