TMI Blog2021 (7) TMI 347X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer proposed charging the interest amount received to tax, the very same explanation was offered by the assessee and was accepted by the Assessing Officer. We are, therefore, of the considered opinion that it is not a case of no enquiry and as a matter of fact, it was specifically brought to the notice of the Ld. 7 Assessing Officer that the interest earned was adjusted against the project expenditure. Whether or not an AO has carried out an enquiry or verification, all that the Court is required to ascertain is as to whether the AO applied his mind? - The fact that the AO has not given reasons in the assessment order is not indicative, always, of whether or not he has applied his mind. Therefore, scrutiny of the record, is necessary and while scrutinising the record the Court has to keep in mind the difference between lack of enquiry and perceived inadequacy in enquiry. Inadequacy in conduct of enquiry cannot be the reason based on which powers under Section 263 of the Act can be invoked to interdict an assessment order. Even the Commissioner conceded the position that the Assessing Officer made the inquiries, elicited replies and thereafter passed the assessment order. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RAJIV SHAKDHER AND HON'BLE MR. JUSTICE TALWANT SINGH Appellant Through: Ms. Vibhooti Malhotra, Senior the Respondent Through: Ms. Kavita Jha with Mr. Anant Man, Advocates for the respondent/assessee. Prefatory facts: - 1. The above-captioned appeals are directed against the common order dated 18.12.2019, passed by the Income Tax Appellate Tribunal [in short Tribunal ] in ITA Nos. 4341/Del/2019 and 4342/Del/2019, concerning assessment years [in short AYs] 2012-2013 and 2013-2014, respectively. 1.1. The Tribunal, via the impugned order, has in turn set aside two separate but similar orders dated 28.03.2019, passed by the Principal Commissioner of Income Tax [in short PCIT ] in the exercise of his powers under Section 263 of the Income Tax Act, 1961 [in short Act ] 1.2. The PCIT has, via his orders dated 28.03.2019, interfered with the assessment orders dated 31.01.2017 and 27.09.2017 passed by the assessing officer [in short AO ] concerning the respondent/assessee [hereafter referred to as assessee ] pertaining to AYs 2012-2013 and 2013-2014 respectively. The assessment orders were passed under Section 143(3) read with Section 144C of the Act, alth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tra as well. The arguments were, thus, advanced by counsel for the parties, keeping in perspective the record concerning the above-referred cases, which was made available to the Tribunal. Submissions on behalf of the appellant/revenue: 3. The submissions advanced by Ms. Malhotra can be, broadly, paraphrased as follows. i. The impugned order of the Tribunal was perverse insofar as it did not take into account the fact that there was no enquiry or verification carried out by the AO as to whether or not the interest earned by the assessee from fixed deposits was taxable. ii. The Tribunal had erred in holding that the PCIT had wrongly invoked powers under Section 263 1 of the Act. Explanation 2 appended to Section 263 of the Act, which was inserted via Finance Act, 2015 w.e.f. 01.06.2015, was declaratory, and therefore, contrary to what the Tribunal as held, would be applicable retrospectively even for the AYs in issue, i.e., AY 2012-13 and 2013-14. In other words, the argument was that Clause (a) and (b) of Explanation 2 appended to Section 263 of the Act, would apply to the aforementioned AYs, although the provision came into effect from 01.06.2015. [See: Judgemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d deposits had any nexus with the real estate project undertaken by it? 5.1. To answer this issue, one would have to bear in mind, the following aspects. i. Was there an enquiry carried out by the AO [and for this purpose, for the moment, we are assuming that Clause (a) and (b) of Explanation 2 appended to Section 263 of the Act would apply to the AYs in issue]? ii. To what standard should the enquiry carried out by the AO, measure up? iii. Whether the officer concerned [in this case, PCIT], while exercising powers under Section 263 of the Act, can supplant his views with those of the AO? iv. Was the view taken by the AO, in the given facts, a possible view? Issue no. (i): 6. It is not in dispute that the assessee was engaged, inter alia, in the business of promotion, construction and development of commercial projects. It is also not in dispute that the assessee had undertaken construction/development of a project allotted to it by the Haryana State Industrial and Infrastructure Development Corporation [in short HSIIDC ]. 7. To satisfy ourselves, we perused the record and inter alia discovered the following. 7.1. On 11.08.2016, chartered account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Development Pvt. Ltd. for the assessment year 2012-2013 completed after scrutiny u/s 143(3)/144 in January 2017 determining at an income of ₹ 9,47,04,585/-. Audit scrutiny revealed some Audit objection[s] in the assessment discussed as below: - a) Audit Scrutiny revealed that during the year the assessee has earned the interest of ₹ 9,47,04,585/- on FDRs ; however instead of crediting the same to the Profit Loss Account, this interest has been deducted by the assessee from the value of inventories (Schedule 15) as shown in the balance sheet. Audit scrutiny further revealed that as per point 13(d) of the 3CD Report the tax auditor as has also certified that an amount of ₹ 9,47,04,585/- pertaining to other income has not been credited to the profit Loss Account. Being the nature of other income, it should have been credited to P L A/c. the department had not taxed the amount of ₹ 9,47,04,585/- as interest income of FDRs . The mistake resulted in under assessment of income of ₹ 9,47,04,585/- involving short levy of tax effect of ₹ 4,85,48,507/- including interest. xxx xxx xxx 2. In view of the above, a rectification order is requi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, construction and development of commercial project land allotted by the Haryana State Industrial and Infrastructure Development Limited (HSIIDC). Consequent to the arrangement wit HSIIDC, the Company was required to make payment in instalments to HSIIDC towards acquisition of land. In this regard, the Company raised funds from non-resident shareholders/investors outside India through Compulsory Convertible Debentures (CCDs) to fulfil its payment obligation towards HSIIDC. It is further submitted that since the interest earned by the Company on fixed deposits has intrinsic and inseggregable nexus with the real estate project being undertaken, the interest earned by the Company was been adjusted against the project expenditure. This treatment is in accordance with applicable accounting policies and standards and numerous favourable judicial precedents on this issue. Yours faithfully, For Brahma Center Development Pvt. Ltd. Sd/- Authorised Signatory Notice dated 15.11.2014 issued to the assessee under Section 143(2) of the Act concerning AY 2012-2013: 8. Via this notice, the assessee was inter alia asked to reconcile the information given in i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the jurisdiction of the Company has changed from Circle 3(1) to Circle 5(1) on account of cadre restricting at the Income Tax Department, Delhi Region. The same is duly acknowledged by us. In this regard, the Company submits the following information/documents; xxx xxx xxx 3. Reconciliation of AIR Information With regard to difference in the amount as per Form 26AS and ITR, it is submitted that the interest received from banks has been duly accounted and considered in the financial statements of the Company for the financial year ending on March 31, 2012 and income-tax return for AY. Given that the real-estate project being undertaken by the Company is under construction, the interest received during construction period has been adjusted/reduced against cost of the project. 9. Having regard to the aforesaid documents, it cannot be said that the enquiry or verification was not carried out by the AO. A perusal of paragraphs 10 to 12 of the impugned orders passed by the Tribunal would show that findings of fact concerning the enquiry made by the AO have been recorded. For the sake of convenience, the same are extracted hereafter. 10. We have gone thr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceedings u/s. 148 were dropped. 12. In view of the above, we find it difficult to agree with the ld. DR that there was no enquiry conducted by the Ld. Assessing Officer by putting any specific question to the assessee as to the treatment given to the interest. As a matter of fact, the reason for the difference in the amount as per Form 26AS and ITR was due to the interest received from the banks that was duly accounted and considered in the financial statements of the company and was adjusted against the project expenditure. The very fact that pursuant to the scrutiny when the Ld. Assessing Officer proposed charging the interest amount received to tax, the very same explanation was offered by the assessee and was accepted by the Assessing Officer. We are, therefore, of the considered opinion that it is not a case of no enquiry and as a matter of fact, it was specifically brought to the notice of the Ld. 7 Assessing Officer that the interest earned was adjusted against the project expenditure. Issue no. (ii): 10. The standard to be adopted while dealing with the issue as to whether or not an AO has carried out an enquiry or verification, all that the Court is requi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;s case (supra), law on this aspect was discussed in the following manner : . . . From a reading of sub-section (1) of section, it is clear that the power of suo motu revision can be exercised by the Commissioner only if, on examination of the records of any proceedings under this Act, he considers that any order passed therein by the Income-tax Officer is 'erroneous insofar as it is prejudicial to the interests of the revenue'. It is not an arbitrary or unchartered power. It can be exercised only on fulfilment of the requirements laid down in sub-section (1). The consideration of the Commissioner as to whether an order is erroneous insofar as it is prejudicial to the interests of the revenue must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such actio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature of the expenditure incurred by the assessee. The assessee had given detailed explanation on that regard by a letter in writing. All these are part of the record of the case. Evidently, the claim was allowed by the Income-tax Officer on being satisfied with the explanation of the assessee. Such decision of the Income-tax Officer cannot be held to be erroneous simply because in his order he did not make an elaborate discussion in that regard . . . (pp. 113-117) xxx xxx xxx 15. Thus, even the Commissioner conceded the position that the Assessing Officer made the inquiries, elicited replies and thereafter passed the assessment order. The grievance of the Commissioner was that the Assessing Officer should have made further inquires rather than accepting the explanation. Therefore, it cannot be said that it is a case of 'lack of inquiry'. 10.2. This view was followed by another Division Bench of this Court in Commissioner of Income-tax vs. Anil Kumar Sharma, (2010) 194 taxman 504 (Delhi). Issue no. (iii): 11. The assessment order can be interdicted under Section 263 of the Act, if two conditions are met, i.e., that the order is erroneous and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgment of the Supreme Court in the case of Tuticorin Alkali Chemicals Fertilizers Ltd.'s case (supra) and that of Bokaro Steel Ltd. (supra). The test which permeates through the judgment of the Supreme Court in Tuticorin Alkali Chemicals Fertilizers Ltd.'s case (supra) is that if funds have been borrowed for setting up of a plant and if the funds are 'surplus' and then by virtue of that circumstance they are invested in fixed deposits the income earned in the form of interest will be taxable under the head 'income from other sources'. On the other hand the ratio of the Supreme Court judgment in Bokaro Steel Ltd.'s case (supra) to our mind is that if income is earned, whether by way of interest or in any other manner on funds which are otherwise 'inextricably linked' to the setting up of the plant, such income is required to be capitalized to be set off against pre-operative expenses. xxx xxx xxx 5.2 It is clear upon a perusal of the facts as found by the authorities below that the funds in the form of share capital were infused for a specific purpose of acquiring land and the development of infrastructure. Therefore, the interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or otherwise, for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use would not qualify as deduction. However, in all these cases, when the interest was received by the assessee towards interest paid for fixed deposits when the borrowed funds could not be immediately put to use for the purpose for which they were taken, this Court, and indeed the Supreme Court held that if the receipt is inextricably linked to the setting up of the project, it would be capital receipt not liable to tax but ultimately be used to reduce the cost of the project. By the same logic, in this case too, the funds invested by the assessee company and the interest earned were inextricably linked with the setting up of the power plant. It may be added that the Tribunal has not found that the deposits made as margin monies were not limited to the construction activity connected to the expansion of the business by way of setting up of a new power generation plant. 12.4. Also See Commissioner of Income Tax vs. Jaypee DSC Ventures Ltd., [2012] 17 taxmann.com 257 (Delhi) at paragraphs 19 to 21. 13. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re invested in a fixed deposit. The funds were received for the real estate project and while awaiting their deployment, they were invested in a fixed deposit which generated interest. This fits in with the dicta of the Supreme Court in Bokaro Steels Case and of this Court in Indian Oil Panipat Power Case, NTPC Sail Power Case, and Jaypee DSC Ventures Case. 15. Furthermore, in our view, we need not detain ourselves and examine as to whether Clause (a) and (b) of Explanation 2 appended to Section 263 of the Act could have been applied to the AYs in issue, since on facts, it has been found by the Tribunal that an enquiry was, indeed, conducted by the AO. Conclusion: - 16. Thus, for the foregoing reasons, the above-captioned appeals are dismissed as, according to us, no substantial question of law arises for our consideration. 17. There shall, however, be no order as to costs. --------------- Notes: 1. Section 263 Revision of orders prejudicial to revenue. (Income-tax Act, 1961-2015) (1) The [Principal Commissioner or] Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order pas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.] (2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed. (3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, [National Tax Tribunal,] the High Court or the Supreme Court. Explanation .-In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded. - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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