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TMI Blog2017 (12) TMI 569X X X X Extracts X X X X X X X X Extracts X X X X ..... me Tax Act, 1961 was neither erroneous nor prejudicial to the interest of Revenue within the meaning of section 263 of the Act and therefore Ld. Principal Commissioner of lncome Tax - 21, Kolkata erred in assuming jurisdictionunder section 263 of the lncome Tax Act, 1961 setting aside the aforesaid order dated 27th March, 2015 passed under section 143(3) of the Act. 3.That the Ld. Principal Commissioner of lncome Tax - 21, Kolkata erred in setting aside the order dated 27th March, 2015 passed under section 143(3) of the lncome Tax Act, 1961 by invoking the provisions of section 263 of the Act arbitrarily alleging that the lncome Tax Officer allowed relief without making inquiries and verification which should have been made by him. 4.That, on the facts and in the circumstances of the case, the impugned order passed by the Ld. Principal Commissioner of lncome Tax - 21, Kolkata is perverse and is liable to be quashed." 3.The brief facts qua the issue are that assessee had filed its return of income for Assessment Year 2012-13 on 14/02/2013, declaring a total income of Rs. 4,89,890/-. The said return was processed u/s 143(1) of the I. T. Act on 15.01.2014. Thereafter, the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as failed to examine and disallowed the appropriate amount of interest out of claim of Rs. 5,75,812/- U/s 57 of the I.T. Act, 1961. 5. Since, as per the CIT, the order passed by the Assessing Officer was erroneous and prejudicial to the interest of revenue, therefore he issued a show cause notice to the assessee requiring him to submit clarification or explanation to the above issues. In response, the assessee submitted written explanation to the show cause notice. The assessee explained to CIT that the order passed by Income Tax Officer under section 143(3) was neither erroneous nor prejudicial to the interest of Revenue within the meaning of section 263 of the Income Tax Act, 196I and therefore there is no scope for assumption of jurisdiction under section 263. The assessee explained that in course of assessment proceedings the Assessing Officer issued Notice under section 142(1) of the Act for making inquiry to verify the income declared in the return of income. The aforesaid Notice contained various items of inquiry which inter alia included the details of House Property, the details of all bank accounts to show the amounts of interest received and paid and also the details o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... house cannot be occupied by specified in sec. 23(2)(b); iii).the house is not let out during the year - Sec, 23(3)(a) iv).the assessee did not derive any benefit from the said house(s) - Sec.23 (3) (b). the "Annual Value" of such house shall be taken at Nil. Admittedly, assessee was in occupation of more than one house and therefore the provisions of sec.23(2) are applicable in this case and the ALV of other house is to be taken to be Nil as provided in section 23 (4)(a) read with section 23(2) of the Act. Assessee was the owner and in possession of two houses only and therefore the provisions of sec.23(4) are applicable which provides that the Annual Value of one house, at the option of the Assessee shall be taken to be Nil. Thus the ALV of the other house was rightly taken to be Nil by the Assessing Officer and there is no error in the assessment order sought to be revised under section 263 of the Act. It may be noted that the other house owned by assessee was admittedly occupied by assessee for his residence and therefore the ALV has to be taken to be Nil as provided in section 23(2)(a) of the Act. With regard to the ALV of the property let out by assessee, it was submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of rental income from the property let out to tenants and which is assessable to tax. However, the amount of interest on borrowed funds utilised for self-occupied property was to the extent of Rs. 1,50,000 vide second proviso to section 24 of the Act. Thus there was no discrepancy in the amount of interest claimed and interest allowed by the Assessing Officer. The assessment order, therefore, could not be said to be erroneous on account of interest allowed by the Assessing Officer under section 24 of the Act. 9. Regarding the issue related to interest free loans granted to assessee's HUF and two relatives. The assessee submitted before the CIT that these loans were brought forward from earlier years. The loans were granted out of own funds and no amount of interest bearing loans and therefore no amount could be disallowed out of the interest paid by the assessee. The copy of the Loan confirmation letters of the three parties were submitted. It would also be found that although, assessee paid interest of Rs. 8,50,00,00 on the loan of Rs. 50,00,000 borrowed by assessee from Mahesh Pal Arora, the assessee claimed deduction of Rs. 5,75,812 only against receipt of interest of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcumstances of the instant case, the assessment order passed by the Assessing Officer was found to be erroneous and prejudicial tothe interest of revenue because the assessment order has been passed and relief has been allowed without making inquiries or verification into the claim of the assessee which should have been made by the Assessing Officer. Therefore the CIT held that the assessment order passed by the Assessing Officer was erroneous in so far as it was prejudicial to the interest of revenue in accordance with the Explanation 2 below section 263(1) of the Act. 11. The ld Counsel for the assessee has submitted before us that in course of assessment proceedings the Assessing Officer issued Notice under section 142(1) of the Act for making inquiry to verify the income declared in the return of income. The aforesaid Notice contained various items of inquiry which inter alia included the details of House Property, the details of all bank accounts to show the amounts of interest received and paid and also the details of losses carried forward and deduction claimed under section 57 of the Act. In response to the notice U/s 142(1), the assessee submitted to AO full and complete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income chargeable to tax under the head 'House Property' subject to statutory deductions permitted under the Act. Therefore, the assessee submitted that under these the facts and circumstances of the case and the law relating to assessment of income under the head House Property, there was no error in the assessment order passed under section 143(3) of the Act. Regarding the second issue relating to claim of interest, raised by CIT U/s 263, the Counsel submitted that the claim of interest was within the provisions of section 24 of the Act, because there is no limit for interest on borrowed Loans in respect of rental income from the property let out to tenants and which is assessable to tax. However, the amount of interest on borrowed funds utilised for self-occupied property was to the extent of Rs. 1,50,000 vide second proviso to section 24 of the Act. Thus there was no discrepancy in the amount of interest claimed and interest allowed by the Assessing Officer.The assessment order, therefore, could not be said to be erroneous on account of interest allowed by the Assessing Officer under section 24 of the Act.Regarding the issue related to interest free loans granted to assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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