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TMI Blog2024 (2) TMI 1333X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. The learned Principal Commissioner of Income-tax, Rajkot -1, Rajkot erred in setting aside the assessment order framed u/s 143(3) of the Act by holding that assessment order is passed by the assessing officer without making any inquires or verification in respect of allowability of interest expenses as a deduction u/s 57 of the Act. 3. The learned Principal Commissioner of Income-tax, Rajkot -1, Rajkot erred in holding that no deduction u/s 57(ii) is allowable to the assessee and that no question was raised by the A.O. as regard nexus of interest expenses with interest income earned by the Appellant. 4. The learned Principal Commissioner of Income-tax, Rajkot -1, Rajkot failed to appreciate that the impugned issue was duly examined by the assessing officer by way of specific inquiries/notices and replies thereto, while finalizing assessment proceedings u/s 143(3) of the Act. 5. The appellant craves leave to add, amend, alter and withdraw any ground of appeal anytime up to the hearing of this appeal." 3. The brief facts of the case are that the assessee filed return of income for A.Y. 2016-17 on 02.08.2016 declaring income of Rs. 9,50,750/-. The case of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,24,00,000/- (i.e. approximately 45%) has been utilized for lending to other parties to earn interest income. Therefore, out of the total interest paid on the total mortgaged loan of Rs. 25,35,523/-, the assessee as claimed only a sum of Rs. 11,40,985/- (i.e. approximately 45%) under Section 57 of the Act, since the same was expended wholly and exclusively for earning interest income and the balance interest amount (i.e. approximately 55%) has not been claimed by the assessee at all under Section 57 of the Act. The assessee submitted before PCIT that the mortgaged loan from ICICI Bank has been utilized for lending and earning interest income and the assessee has claimed only that portion of interest relatable to earning interest income under Section 57 of the Act and the balance amount has not been claimed by way of deduction under Section 57 of the Act. Accordingly, it was submitted that the assessment order is not erroneous and prejudicial to the interest of the Revenue. 6. However, Ld. PCIT rejected the arguments of the Ld. Counsel for the assessee and held that the assessment order is erroneous and prejudicial to the interest of the Revenue with the following observations:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the balance of Rs. 1,24,00,000/- (approx. 45% approx.) have been utilized for lending to other parties to earn interest. Therefore out of the total interest accrued and paid on the total mortgage loand was Rs. 25,35,523/-, the assessee has claimed only Rs. 11,40,985/- (i.e. 45% approx.) under sec. 57 of the Act as the same was expended wholly and exclusively for earning interest income and balance interest have not been claimed at all. 11. The appellant's argument that he has claimed deduction on a proportionate- basis and not in full, does not help his cause. This is so because such an argument does not have any bearing in the context of deducibility under the provisions of section 57(iii). If the intention to earn income is missing in any such expenditure, no deduction under section 57(iii) can be allowed even if it is not claimed in full. It will be prudent to note that the mortgage loan of Rs. 2,74,00,000/- from ICICI Bank, out of which Rs. 1,50,00,000/- (i.e. 55% approx..) have been invested in Amee Reality Investment as long term investment and hence the assessee has not been able to establish the purpose of acquiring the loan whether for long term investment or for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Associates Vs CIT 2015 Tax Pub (DT) 2931(Mum.'A' Trib) 69 SOT 188 (Mum.) (x) Swadeshi Vilas Private Ltd Vs. ACIT ITA No.599/Hyd/2013 dt: 25- 09-2013 15. The above discussion makes it clear that the assessment order is passed without making inquiries or verification which should have been made. Resultantly, the order passed by the Assessing Officer is left erroneous in so far as it is prejudicial to the interests of the revenue. Thus, the order deserves to be revised as per the provisions of section 263 of the Income-tax Act, 1961. 16. As per the Explanation 2, the order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interest of the revenue if the order is passed without making inquiries or verification which should have been made by the AO and/or the order is passed allowing any relief without inquiring into the claim. In the present case, the Assessing Officer had accepted the version of the assessee regarding the claim of deduction u/s. 57 of the IT Act i.e. interest expenses of Rs. 10,34,9607- and 11,40,9857-without conducting any inquiry. The AO was required to disallow interest expenses to the tune of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on under Section 57 of the Act. It was further submitted before us that specific submission was made with respect to interest expenditure amounting to Rs. 10,34,960/- and Rs. 11,40,985/- vide reply dated February 19, 2021 submitted before the Ld. PCIT. However, the submissions made by the assessee with respect to claim of deduction of the aforesaid amount have not been controverted by the Ld. PCIT while passing order under Section 263 of the Act. It was submitted before us that Ld. PCIT while holding that the assessment order is erroneous and prejudicial to the interest of the Revenue has not controverted the submissions made by the assessee justifying the deductibility of interest paid and claim under Section 57 of the Act. Accordingly, it was submitted that firstly, the Assessing Officer during the course of assessment proceedings had made due enquiries on allowability of claim of deduction under Section 57 of the Act with respect to interest expenses incurred by the assessee and secondly, it was submitted that the Ld. PCIT has not controverted the factual submissions made by the assessee during the course of 263 proceedings giving the basis of claim of deduction of interest expe ..... 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