TMI Blog2022 (5) TMI 666X X X X Extracts X X X X X X X X Extracts X X X X ..... 175 - BOMBAY HIGH COURT] , CIT Vs. Fine Jewellery (India) Ltd. [ 2015 (2) TMI 732 - BOMBAY HIGH COURT] . Therefore, taking into account of all the above mentioned facts and circumstances, we are of the view that the order u/s 263 of the Act is wrong against law and facts, therefore, the same is hereby ordered to be set aside. - I.T.A. No. 950/Mum/2021 - - - Dated:- 12-4-2022 - SHRI AMARJIT SINGH , JM AND SHRI S. RIFAUR RAHMAN , AM Assessee by : Shri K. K. Ved Revenue by : Shri Surendra Kumar (DR) ORDER PER AMARJIT SINGH , JM : The assessee has filed the present appeal against the order dated 31.03.2021 passed by the Principal Commissioner of Income Tax-01, Mumbai [hereinafter referred to as the PCIT ] relevant to the A.Y.2014-15 in which the Principal Commissioner of Income Tax-01 has invoked the revisional power u/s 263 of the I.T. Act, 1961. 2. The assessee has raised the following grounds of appeal: - Re.: Validity of Order u/s, 263; On the facts and in the circumstances of the case and in law, the impugned Order dated 31 March 2021 passed under section 263 of the Act is without jurisdiction and bad in law. Without prejudice to the ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cumstances of the case and in law, the Appellant prays that the impugned Order passed u/s. 263 of the Act by the PCIT is to be struck down. Without prejudice to the aforesaid grounds: Re: Disallowance of deduction in respect of premium on redemption of debentures under section 36(1 (iii) of the Act 2.1 On the facts and in circumstance of the case and in law, the learned PCIT has erred in disallowing deduction claimed by the Appellant in respect of premium on redemption of debentures under section 36(1 iii) of the Act. 2.2 On the facts and in circumstance of the case and in law, the learned PCIT erred in not appreciating the fact that the premium paid on redemption of debentures was claimed by the Appellant as deductible expenses over the debenture tenure and the same has been consistently accepted by the tax department after making due inquiries at the time of regular assessments. 2.3 On the facts and in circumstance of the case and in law, the learned PCIT erred in not following the decision of the Supreme Court in case of Madras Industrial Investment Corporation Ltd v. CIT (225 ITR 802), relied on by the Appellant and erred in passing the revisionary order on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and/or modify in any manner whatsoever modify all or any of the foregoing grounds of appeal at or before the hearing of the appeal. 3. The brief facts of the case are that the assesse filed its return of income on 30.11.2014 declaring total income to the tune of Rs.105,09,25,133/- for the A.Y.2014-15 under the normal provision of the Act. After passing the DRP order, the assessment was completed determining the total income to the tune of Rs.420,50,94,506/- under the normal provision of the Act and an amount of Rs.174,56,97,810/- u/s 115JB of the Act u/s 143(3) r.w.s. 144C(13) of the Act on 30.10.2018. On verification, the Ld. PCIT has invoked the revisional power u/s 263 of the Act on following grounds: - (i) On examination of records it is seen that disallowance of interest on account of diversion of funds for non-business purpose is in the ratio of 3113.08 cr./6766.37 cr. Assessee claimed premium on redemption of debentures, which is in the nature of interest/cost of borrowings only. The claim of the assessee in the computation of income should have been disallowed in the same ratio on which nterest was disallowed. In its reply dated 28.11.2017, assessee admitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iance upon the decision of the Hon ble ITAT Mumbai Bench in the case of Barclays Bank PLC vs. CIT(IT) in ITA. No.827/Mum/2021 for the A.Y. 2013-14 dated 03.01.2022. However, on the other hand, the Ld. Representative of the Department has refuted the said contention. The copy of assessment order passed by AO in view of the provision u/s 143(3) r.w.s. 144C(13) of the Act dated 30.10.2018 is on the file in which the said issue has already been considered by DRP and accordingly followed by AO. The relevant finding is hereby reproduced as under: - 4 Disallowance u/s 36(1)(iii) for investment is overseas entities: 4.1 During the course of assessment proceedings it was observed that the assessee has made investment in overseas entities of Rs. 3,113.08 Crores, the details of which are as under: Sr. No Particulars Amount in Crores 1 International Hotels Management Services Inc. 2002.03 2 Taj International Hotels HK Ltd. 1111.05 Total 3113.08 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereby benefiting India and IHCL. This obviously results in larger customer base. - These investments are made keeping in mind the international presence and the flow of benefits to Indian company ie. IHCL. Considering the. commercial and economic rationale, this gives a company an advantage of international presence and the flow of benefits in form of operating fees. The other strategic benefits derived by the assessee from such acquisition includes; - Visibility in the international market which acts as a key feeder to Taj group's Indian operations - To obtain new management contracts in the international markets (details of management fees received during AY 2013-14 including from domestic companies and foreign JVs is enclosed. The assessee would like to bring to your notice that it has entered into management contracts for several properties in Marrakech, Qatar, Dubai, Saraya Islands, UAE, China which are expected to fructify in next few years. The assessee became the first Indian hospitality group to receive permission to operate hotels in China. It is due to the presence in various countries that the assessee is able to achieve increase in managemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of commercial expedience and therefore, interest should be allowed. In this connection, attention is invited to judicial precedent in case of EIH Associated Hotels vs, DCIT (ITA no. 1503/Mds/ 2002)(Che) (PB pages 1006 to 1011) on the aspect of investments in subsidiary are for the purpose of business. The Tribunal in this case observed that This fact supports the case of the assessee that the assessee is not into the business of investment and the investments made by the assessee are on account of business expediency . Reliance is further placed upon other decisions on this aspect : - S.A, Builders Ltd. (158 Taxman 74) (SC) - In this case, interest on cash credit which was given as interest free funds to subsidiary was allowed observing that where holding company, has a deep interest in its subsidiary, and the holding interest in investing in overseas companies, one any advances borrowed money to a subsidiary which is used by the diary for some business purposes, the holding company would be entitled to deduction of interest on its borrowed loans as a ordinarily expenditure, if it was incurred on grounds of commercial expediency. The above decision has been r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest is an allowable expenditure: Phil Corporation Ltd. (202 Taxman 368)(Bom) CIT vs Anand Technology Resource Park (P.) Ltd (202 Taxman 654)(Kar) ATE Enterprise Ltd vs JCIT (102 ITD 110) (Mum) CIT v Rajeeva Lochan Kanoria (80 Taxman 572) (Cal) CIT Vs. Jardine Henderson Ltd. (70 Taxman 36 we would also like to bring to your notice that similar disallowances for AY 2009Ay 201 0-11, AY 2011-12 have been deleted by the DRP. However, as the revenue has 10 erred an appeal, the DRP has not given this relief for AY 2012-13. In view of above, it is submitted that acquiring controlling interest in group by investing in overseas companies / JVs is nothing but for the purpose of business. Without prejudice to the aforesaid submission that disallowance of interest in respect of investments made in overseas subsidiaries / JVs should is allowable under Section 36(1)(iii), it is submitted that if interest is disallowed under the head business income , the same being wholly and exclusively for the purpose of making or earning income (eg dividend), it would be allowable under the head income from other sources u/s 57(iii) as dividend from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same is also without any merit. In the case of Rajendra Prasad Modi the dividend was receivable from Indian Company whereby any tax duty or cess etc. if any paid by the company which declares dividend is vested with Indian Govt. In the present case investment is made in foreign JV s and subsidiaries whereby Indian Govt. has not right to receive any tax therefore deduction is not allowable even u/s 57 (iii) of the I. T. Act, 1961. 4.7 Since, the assessee has not proved the entire investment in foreign JV s and subsidiaries have been made out of own funds, it is held that the Investment have been made out of consolidated fund available with the assessee, therefore, proportionate disallowance of interest need to be made u/s 36(1) (iii) of the L T. Act, 1961. Accordingly, the disallowance u/s 36 (1)(iii) is computed as under: Particulars Amount (Rs.) Interest Paid 98.82 crore Disallowance 98.82 crore * 3113.08 crore/6766.37 crore 45.47 crore Disallowance of Rs. 45,46,52,295 4.8 In view of above, an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 144C(13). 14. As against the above, Ld.CIT has noted that in this case TPO has not proposed any adjustment. This is contrary to the facts in this case, the above shows that Ld.CIT has exercised his jurisdiction u/s 263 without properly appreciating the assessment order passed. He also seems to be ignoring the fact that assessee has chosen to file objection before the DRP. When the assessment order has been passed pursuant to the direction of DRP, the appeal from the said assessment order does not lie with the ld.CIT(A), but lies directly to the ITAT as per provision of section 253(d). Now, the issue to be addressed in this case is whether, the Ld.CIT has erred in initiating proceedings u/s. 263 of the Act, when the original assessment order has been passed u/s. 143(3) r.w.s. 144C(13), on the basis of the directions of the Dispute Resolution Panel(DRP). 15. We may gainfully refer to the provision of section 263 in this regard. 263. (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 passed therein by the [Assessing] Officer is erroneous in so far as it is prejudi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... officers can also be subject matter of section 263. The above explanation does not include the order passed under the direction of DRP u/s. 144C(13) of the Act. The legislature in its wisdom has thought it appropriate to include orders passed by the AO under direction u/s. 144A, but not under direction u/s. 144C(13). This is also in accordance with the provisions of the Act contained in section 144C, which we shall detailed at a later stage. The Ld.CIT in this case seems to be quiet conscious of this fact as he has mentioned on one of the issues, that AO has not properly followed the direction u/s. 144A. But, he is quiet silent and has nowhere mentioned that the final assessment order is passed after the direction of DRP. Admittedly, this is not a case, where draft assessment order is being revised. This is a case where final assessment order passed pursuant to the direction of DRP u/s. 144(3) is being revised by Ld.CIT. Ld. Counsel of the assessee in this regard submits that from the Finance Act, 2009, memorandum explaining the rationale behind the insertion of section 144C of the Act by the Finance Bill, 2009 as also the CBDT Circular No. 5 of 2010 dated 3 June 2010 issued explai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion is received under sub-section (2), issue such directions, as it thinks fit, for the guidance of the Assessing Officer to enable him to complete the assessment. (6) The Dispute Resolution Panel shall issue the directions referred to in sub-section (5), after considering the following, namely:- (a) draft order; (b) objections filed by the assessee; (c) evidence furnished by the assessee; (d) report, if any, of the Assessing Officer, Valuation Officer or Transfer Pricing Officer or any other authority; (e) records relating to the draft order; (f) evidence collected by, or caused to be collected by, it; and (g) result of any enquiry made by, or caused to be made by, it. (7) The Dispute Resolution Panel may, before issuing any directions referred to in sub-section (5),- (a) make such further enquiry, as it thinks fit; or (b) cause any further enquiry to be made by any income-tax authority and report the result of the same to it. (8) The Dispute Resolution Panel may confirm, reduce or enhance the variations proposed in the draft order so, however, that it shall not set aside any proposed variation or issue any dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ically feasible; (b) optimizing utilization of the resources through economies of scale and functional specialization; (c) introducing a mechanism with dynamic jurisdiction for issuance of directions by dispute resolution panel (14C) The Central Government may, for the purpose of giving effect to the scheme made under sub-section(14B), by notification in the Official Gazette direct that any of the provisions of this act shall not apply or shall apply with such exceptions, modifications and adaptations as may be specified in the notifications. Provided that no direction shall be issued after the 31st day of March, 2022 (14D) Every notification issued under sub-section(14B) and sub-section (14C) shall, as soon as may be after the notification issued, be laid before each House of parliament] (15) For the purposes of this section,- (a) Dispute Resolution Panel means a collegium comprising of three Commissioners of Income-tax constituted by the Board for this purpose; (b) eligible assessee means,- (i) any person in whose case the variation referred to in sub-section (1) arises as a consequence of the order of the Transfer Pricing Officer passed un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obiiquum] If the AO could not have directly made any change in the final assessment order after the direction of the DRP, then the PCIT also cannot indirectly make any change so as to circumvent the provision of section 144C(13) of the Act. Reliance in this regard is placed on the decision of the Apex Court in the case of Supertech Limited v Emerald Court Owner Resident Welfare Association and Ors. (MANU/SC/08643/2021). 19. Further, the scheme of the Act itself does not provide any interference in the direction of the DRP as the law containing section 144C(13) directs that the AO shall pass an order inconformity with the directions of the DRP without providing any further opportunity of being heard to the assessee. When the Act itself provide, that order has to be passed by the AO without providing any opportunity to the assessee pursuant to the direction of the DRP, the direction given in this order u/s. 263 by the Ld.CIT to the AO to call for the details of allowability of various deductions claimed by the assessee, in light of the observations discussed by him is quiet contrary to the sanguine provisions of law. Even otherwise, the order passed by the Ld.CIT is an exercis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hree persons. Hence, it is abundantly clear that the DRP stands at a higher pedestal than the CIT passing an order alone. 23. Furthermore, we may refer to the decision of Hon ble Bombay High court in the case of Virendra Kumar Jhamb vs. N.K.Vohra (supra). In this case, the Jurisdictional High Court held that the assessee had approached the DDIT (investigation) under the Direct tax Amnesty Scheme. The CIT had accepted that the taxable income be computed at 8 percent of the total receipts. A second CIT, on scrutiny and verification of the assesses records, found the decision of the earlier CIT to be fair and justifiable. A subsequent CIT, sought to revise the order under section 263, and tax income at 9 percent of the receipts. The Bombay High Court inter alia held that the assessment orders were solely based on the directives of the earlier CITs, and the same could not be revised by the subsequent CIT under section 263. 24. In light of the above discussion and case laws, the case laws referred by the Ld.CIT-DR are not applicable on the facts of the case. As, we have already noted that the submission of Ld.CIT-DR are at variance with the exposition by Hon ble Bombay High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns and precedents from Hon ble jurisdictional High Court, we set aside the orders of Ld.CIT and hold that he cannot legally assume jurisdiction u/s. 263 of the act on an order passed by the AO pursuant to the direction of DRP. This is over and above our other observations in para 14 of this order, where we have noted that Ld.CIT has passed this order without properly appreciating the assessment order. Since, we have quashed assessment order on jurisdiction itself, we are not dealing with the merits of the case. 6. Accordingly, it is quite clear that the PCIT is not entitled to invoke the revisional power u/s 263 of the Act regarding the issue mentioned above. So far as the other issue regarding expenses of Rs.8.90 crores is concerned, we find that the AO issued the notice u/s 142(1) of the Act dated 02.10.2017 in which the relevant enquiry has been raised. The assessee also replied to the notice dated 16.10.2017 lies at page no. 148 of the paper book in which the relevant query was explained, however, for ready reference the para no. 4 is reproduced as under: - 4. Expenditure on a discontinued project at Lake End, Udaipur is charged off for commercial reasons-Rs.8.90 c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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