TMI Blog2017 (8) TMI 1179X X X X Extracts X X X X X X X X Extracts X X X X ..... ture on TDR, which is not otherwise allowable to the assessee. Disallowance of interest for diversion of interest bearing funds - Held that:- A.O has examined the issue at the time of 143(3) assessments and also initiated rectification proceedings under section 154 of the Act, for the specific purpose of disallowance of proportionate interest paid on loans for diversion of interest bearing funds to group concerns. However, after satisfied with the explanation given by the assessee dropped 154 proceedings, therefore the CIT was incorrect in observing that there is a lack of enquiry on the part of the A.O in examining the issue of disallowance of interest. We find force in the arguments of the assessee, for the reason that although the audit reports states that the assessee has advanced interest free loans, the assessee categorically proved that the loan is advanced out of commercial expediency in the normal course its business which has been repaid over a period of time. The A.O has followed the ratio in the case of S.A Builders Ltd [2006 (12) TMI 82 - SUPREME COURT] to decide the issue of disallowance of interest which cannot be said to be erroneous and also prejudicial to the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e A.O not only failed to examine the issues, but also failed to apply his mind to the facts of the case, which caused prejudice to the interest of the revenue, therefore opined that the assessment order passed by the A.O needs to be revised u/s. 263 of the Act. 4. In response to show cause notice, the assessee submitted that the assessment order passed by the A.O u/s. 143(3) of the Act, dated 29.12.2011, neither erroneous nor prejudicial to the interest of the revenue, as the A.O has examined two issues pointed out in the show cause notice at the time of completion of assessment. The assessee further submitted that the A.O has called for necessary details of project expenses of Asha Kiran including agreements with the parties and after satisfied with the explanation of the assessee regarding its obligation to load TDR on the project accepted the explanation and completed assessment. As regards interest on loans, it was submitted that the assessee has advanced loans to its group concern in the normal course of business and which has been repaid in the subsequent financial year. The A.O has verified the details filed by the assessee and after satisfied with the explanation, droppe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... record, the assessee is only a facilitator between the flat owners of Asha kiran and the builder for loading TDR. The agreement for purchase of TDR between M/s. Eversmile Construction Ltd. and M/s. Kamanwala Lakshchandi Todays Developers, indicates that M/s. Kamanwala Lakshchandi Todays Developers has purchased TDR directly from Eversmile Construction Co. Ltd., therefore, there is no merits in the argument of the assessee that it has purchased TDR from M/s. Eversmile Construction Co. Ltd. In view of the above, it was not liability of the assessee company to purchase TDR and transfer the same to M/s. Kamanwala Lakshchandi Todays Developers as claimed by the assessee. The A.O has not verified these facts and has not applied his mind, therefore expenditure of ₹ 1,42,03,098/- on account of TDR purchases has been erroneously allowed by the A.O which caused prejudice to the interest of the revenue. As regards interest on loan for diversion of interest bearing fund, the CIT observed that the assessee has taken interest bearing loan and paid interest of ₹ 31,09,526/-. It is also seen that the assessee has granted interest free loan of ₹ 2,37,58,057/-.Since, the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on one issue and passed revision order on different issue which is not permissible u/s. 263 of the Act. The observations of the CIT are contrary to the intention of the parties manifested in the MOU particularly with reference to TDR. As per Clause (c) of the recital and Clause (2)(d) it is clear that arranging TDR was responsibility of the assessee for which total consideration payable was to ₹ 4.5 crores. The CIT, ignoring all the evidences observed that it was not liability of the assessee to purchase TDR without understanding the terms and condition of agreement. The A.R further submitted that revenue cannot substitute the terms of the contract agreed between the parties and set aside the said terms. It is for the businessman to deal in its matters considering their relevancy or otherwise of incurring expenditure. In this case, the assessee has received consideration of ₹ 4.5 crore for transfer of TDR for which it has spend ₹ 1.42 crore for purchases and this fact was not disputed by the CIT, which is evident from the fact that the CIT in his order at paragraph 4.1 has specifically accepted that the assessee received consideration of ₹ 4.5 crore for tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso applying his mind which caused prejudice to the interest of the revenue on these two counts. Therefore, the CIT has rightly invoked jurisdiction u/s. 263 to set aside the order passed by the A.O and CIT, order should be upheld. 10. We have heard both the parties, perused the material available on records and gone through the orders of the authorities below. The CIT invoked jurisdiction to revise the assessment order u/s. 263 for the reason that the A.O has not conducted proper enquiry before completion of assessment, thereby the assessment order passed by the A.O u/s. 143(3) dated 29.12.2011 is erroneous in so far as it is prejudicial to the interest of the revenue. The CIT revised assessment order on two counts, i.e expenses incurred for purchase of TDR and disallowance of proportionate interest paid on loans for diversion of interest bearing funds. The CIT was of the opinion that the A.O has completed the assessment without verifying documents in proper prospective which caused prejudice to the interest of the revenue. The CIT, further, was of the opinion that document furnished by the assessee indicates that the liability for purchase of TDR was not on the assessee, as it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls filed before the A.O. On perusal of paper book filed by the assessee, we find that the assessee filed three letters on 16.09.2011, 10.10.2011 and 19.10.2011 and furnished various details in respect of expenditure incurred for TDR purchase as well as interest paid on loans. The assesse has filed copies of MOU between the assessee and M/s. Kamanwala Construction Co. and also agreement for purchase of TDR between M/s. Kamanwala Construction Co. and M/s. Eversmile Construction Co. P. Ltd. On perusal of MOU filed by the assessee, we find that as per Clause (c) and (2)(d) of MOU, the assessee has arrived at an understanding with the society and members and with developer for redevelopment of the said property after demolishing existing structure and cause loading transferable developer rights thereon as permitted under municipal rules. The MOU further states that the assessee shall facilitate loading on the project 100% TDR. We further observed from the MOU, M/s. Kamanwala Construction Co. has paid a sum of ₹ 4,50,00,000/- for the assessee for the said purpose which has not been disputed by the CIT, which is evident from the fact from his order at paragraph 4.1. Therefore, from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of S.A Builders Ltd. (supra), therefore, the law laid down by the Hon ble Supreme Court still prevails and also binding on lower authorities. The A.O has followed the ratio of the Hon ble Supreme Court to decide the issue of disallowance of interest which cannot be said to be erroneous and also prejudicial to the interest of the revenue. Therefore, we are of the considered view that the order passed by the A.O is neither erroneous nor prejudicial to the interest of the revenue. 14. The CIT is empowered with suo motto revision of assessment order u/s 263 of the Act, if he finds that the order of passed by the A.O is erroneous in so far as it is prejudicial to the interest of the revenue. But, to invoke the provision of section 263 of the Act, twin conditions must be satisfied, i.e. (i) the order of the A.O is erroneous, and (ii) further it must be prejudicial to the interest of the revenue. Unless, both conditions are satisfied, the CIT cannot assume jurisdiction to revise the assessment order. It is not necessary that every order which is erroneous may be prejudicial to the interest of the revenue or vice versa. In some cases, the order passed by the AO may be erroneous, but ..... X X X X Extracts X X X X X X X X Extracts X X X X
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