TMI Blog2021 (5) TMI 346X X X X Extracts X X X X X X X X Extracts X X X X ..... on u/s.263 of the Act for A.Y.2013-14 but did not initiate any action with reference to this issue of disallowance of interest u/s.36(1)(iii) of the Act though the borrowings and utilisation thereon by way of interest free advance to IHCL were made prior to A.Y.2013-14. All these assessment orders and order of ld. PCIT u/s.263 of the Act were indeed available before the ld. AO while framing the assessment for A.Y.2015-16 which drives home the principle of consistency as well as the stand taken by the department in assessee s own case for various years. While this is so, the ld. AO taking a consistent view thereof in A.Y.2015-16 i.e. the year under consideration, cannot be categorised as passing erroneous order. On the contrary the ld. PCIT has passed an erroneous order in the instant case. Hence, revision jurisdiction u/s.263 of the Act invoked by the ld. PCIT deserves to be quashed even on this count both on technicality as well as on merits. Since, we have already held that sufficient enquiries were indeed carried out by the ld. AO in the course of original assessment proceedings, the reliance placed by the ld. PCIT on the provisions of Explanation-2 to Section 263 of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6% equity stake in such JV company firm for execution of the project. Thus, the JV was created in the name of TRIL Infopark Ltd., The assessee formed consortium with Indian Hotel Company Ltd., (IHCL) for the said bid since development of luxury five star hotel was envisaged as part of the project. A Special Purpose Vehicle (SPV) named TRIL Inforpark Ltd., was formed wherein TIDCO was supposed to acquire 26% stake; IHCL to acquire 10% stake and assessee to hold 64% stake. However, the Board of Approvals refused to grant permission for construction of 5 star hotel as part of the project. Hence, IHCL wanted to exit consortium. Since, investment made in TRIL Infopark was of strategic nature for the assessee, it locked this opportunity to acquire 10% stake of IHCL by granting an advance of ₹ 71.10 Crores to IHCL. In this regard, an arrangement was agreed between the assessee and IHCL wherein assessee had to advance interest free sum of ₹ 71,10,00,000/- to IHCL in consideration of getting right to purchase equity investments of IHCL in TRIL Infopark. Accordingly, it was pleaded that advance of ₹ 71.10 Crores was given by the assessee to IHCL purely from strateg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of income is only to earn interest income on loans extended thereon. This in our considered opinion is factually incorrect in as much as assessee actually is a real estate company and not a company engaged in the business of financing. Hence, it could be safely concluded that earning interest income on loans extended is not a primary activity of the assessee company. Accordingly, we hold that the entire basic premise of the ld. PCIT about the nature of business is factually incorrect and consequential decision making process thereon would also become incorrect. 3.4. We find that with regard to the claim of interest on borrowed funds, the ld. PCIT in para 5.2. of his order says that this aspect was not at all examined by the ld. AO in the course of assessment proceedings. Whereas, we find from the detailed paper book furnished by the assessee, that proper enquiries were indeed conducted by the ld. AO in the course of original assessment proceedings. We find that the ld. AO vide letter dated 30/10/2017 during the course of original assessment proceedings had specifically issued show-cause to the assessee vide point No.4 thereon asking about as to why interest should not be d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On a query by the assessing officer as to why the interest expense corresponding to the interest free advance given to IHCL should not be disallowed u/s 36(1)(iii) of the Act, the assessee submitted that an arrangement was agreed between the assessee company and IHCL wherein the assessee company had to advance interest free sum of ₹ 71,10,00,000/- to IHCL in consideration of getting right to purchase equity investments of IHCL in TRIL Infopark. The assessing officer has failed to take into account that the assessee is in the business of investment advisory services, project management consultancy, development management services and real estate development software services. It is not justifiable that the assessee extended an interest free loan to IHCL using borrowed fund, when the assessee is in the business of investment, where the primary motive is to earn interest income on loans extended to the parties. Therefore, the payment of interest on the borrowed funds of ₹ 41,15,00,000/- should have been disallowed as the expense is not related to its business. It is also pertinent to note that building of a luxury 5 star hotel by forming consortium with IHCL was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act if he is required to deal with all issues which arose during the Assessment Proceedings. Thus, the Assessment Order primarily deal with only those issues in respect of which the Assessee has not been able to satisfy him and give reasons for his conclusion. This would enable the Assessee to challenge the same, if aggrieved. In fact the Gujarat High Court in CIT v. Nirma Chemical Works Ltd. [2009] 309 ITR 67/182 Taxman 183 has observed that if an assessment order were to incorporate the reasons for upholding the claim made by an assessee, the result would be an epitome and not an assessment order. In this case, during the assessment proceedings for both the Assessment Years, the Assessing Officer issued a query memos to the assessee, calling upon him to justify the genuineness of the gifts. The Respondent-Assessee responded to the same by giving evidence of the communications received from his father and his sister i.e. the donors of the gifts along with the statement of their Bank accounts. On perusal, the Assessing Officer was satisfied about the identities of the donors, the source from where these funds have come and also the creditworthiness/capacity of the donor. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer, the order of the Assessing Officer could be erroneous in two classes of situation. The first class would be where orders passed by the Assessing Officer are ex facie erroneous i.e. a decision rendered ignoring a binding decision in favour of the Revenue or where enquiry is per se mandated on the basis of the record available before the Assessing Officer and that is not done. In the second class of cases, where the order is not ex facie erroneous, then the CIT must himself conduct an enquiry and determine it to be so. The Court held that it is not permissible to the CIT while exercising power under Section 263 of the Act to remit the issue to the Assessing Officer to re-examine the same and find out whether earlier order of Assessment is erroneous. It is the CIT who must hold that the order is erroneous, duly supported by reasons. In the present facts, the CIT in exercise of its powers under Section 263 of the Act has merely restored the Assessment to the Assessing Officer to decide whether the gifts were genuine and, if not, then the Assessment could be completed on application of Section 68 of the Act. In this case, the order passed by the Assessing Officer is not pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. 2013-14 u/s.143(3) dated 23/03/2016, wherein no disallowance of interest u/s.36(1)(iii) was made. e. 2014-15 u/s.143(3) dated 29/12/2016, wherein no disallowance of interest u/s.36(1)(iii) was made. 3.9. We also find that the ld. PCIT invoked revision jurisdiction u/s.263 of the Act for A.Y.2013-14 but did not initiate any action with reference to this issue of disallowance of interest u/s.36(1)(iii) of the Act though the borrowings and utilisation thereon by way of interest free advance to IHCL were made prior to A.Y.2013-14. All these assessment orders and order of ld. PCIT u/s.263 of the Act were indeed available before the ld. AO while framing the assessment for A.Y.2015-16 which drives home the principle of consistency as well as the stand taken by the department in assessee s own case for various years. While this is so, the ld. AO taking a consistent view thereof in A.Y.2015-16 i.e. the year under consideration, cannot be categorised as passing erroneous order. On the contrary the ld. PCIT has passed an erroneous order in the instant case. Hence, revision jurisdiction u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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