TMI Blog2004 (5) TMI 236X X X X Extracts X X X X X X X X Extracts X X X X ..... s per agreement made on 12-5-1992 with the land developer, Mr. Pramod Navalkar for construction of office premises, admeasuring about 27,000 sq.ft., and development of land surrounding the building. The total consideration fixed as per agreement was Rs. 5.67 crores. This was to be paid as per clauses 2(a), (b), (c) of the said agreement. It was mentioned in the said agreement that the failure to pay any of the instalments shall attract interest at the rate of 27% p.a. as per the prevalent rate of interest. The Assessing Officer had allowed it as revenue expenditure and hence, the proceeding under section 263. 3. The learned CIT dealt with this issue under section 36(1)(iii) although it was submitted before her that it could be allowed either under section 36(1)(iii) or under section 28 or section 37 of the Act. The conclusion of the learned CIT was that the provisions of section 43(1), with Explanation 8 were very clear that interest in connection with acquisition of an asset has to be considered as cost of the asset. The CIT, accordingly, concluded as under:- "The assessee was in the process of acquiring office premises at Pune and he had defaulted towards the payment of insta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eement dated 12-5-1992. The Agreement consisted of three parts, namely (1) availing of the lease as per the provisions of the Agreement, (2) financing the subject sum of Rs. 5.67 crores by the developer in case the appellant could not provide funds and (3) option to purchase or lease was to start from the date of completion of the building or exercising of purchase option during the stipulated time. The agreement starts with the right to lease followed by the option to purchase, whichever is suitable to the assessee. The learned Counsel for the assessee admitted that it is a fact that when the building was completed, the assessee-company exercised the option to purchase rather than lease, as at that time the company's financial position had improved from its earlier position where exports to Soviet Russia, main client, was affected due to political changes in that country as also due to non-receipt of Duty drawback incentives from the Government. He further submitted that the arrangement is also for financing though, of course, by the developer himself, which is evident from the lease agreement and for this statement, he drew our attention to clauses 2 3 thereof. 5. The learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht to be revised and, therefore, the Assessing Officer could have requested the CIT (Appeals) for making an enhancement as per the provisions of the Act. The learned Counsel for the assessee concluded that the CIT made a grievous error by assumption of jurisdiction under section 263 not vested in her by law. 7. Shri Shah, the learned Departmental Representative strongly supported the order of the learned CIT. He submitted that the CIT rightly assumed jurisdiction under section 263 of the Act, as the interest paid by the assessee was part of acquisition and was clearly capital expenditure. 8. We have considered the rival submissions and perused the facts on record. It is now well settled position of law that in order to assume jurisdiction under section 263 of the Act, the CIT must satisfy herself prima facie that the order of the Assessing Officer is erroneous and prejudicial to the interests of Revenue. Such satisfaction must be based on the material on record. The assumption of jurisdiction under section 263 cannot be made in a casual and arbitrary manner and if there is no material on record to satisfy prima facie that the aforesaid two conditions are present then provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Gabrial India Ltd. and have impliedly approved the observations of the Bombay High Court in the aforesaid judgment. 10. The basis of the impugned order of the learned CIT is that while passing the orders under section 143(3), the Assessing Officer has held the interest paid by the assessee as revenue expenditure. The learned CIT has gone by the agreement dated 12-5-1992, but it is clear that he did not take into consideration the entirety of the subject agreement, the salient features of which have been reproduced supra It is evident that the agreement consisted of three parts viz., (1) availing of the lease as per the provisions of the agreement; (2) financing the subject sum of Rs. 5.67 crores by the developer in case the assessee could not provide funds; and (3) option to purchase or lease was to start from the date of completion of the building or exercising of purchase option during the stipulated time. The agreement starts with the right to lease followed by the option to purchase, whichever is suitable to the assessee. The essence of the agreement is lease and the arrangement is also for financing though, of course, by the developer himself, which is evident from the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest could never be disallowed being an expenditure of capital nature. 12. As pointed out by the learned Counsel for the assessee, the Department has already completed the re-opened assessment orders under section 147 for the assessment years 1993-94 and 1994-95 and, therefore, it has taken a stand that the disallowance of interest which was originally allowed comes within the jurisdiction of section 147 of the Act and not under section 263. In this connection, the relevant observations made in page 8192 of Chaturvedi Pithisaria's Book, reproduced in para 5 above are very relevant, because revisionary power under section 263 cannot be exercised in respect of matter which falls within the powers to assess escaped income. The revising authority, in other words, should not trench upon the powers which are expressly reserved to the Assessing Officer under section 147. 13. In the light of the above discussion, we see no justification for the impugned orders under section 263. The same are accordingly quashed. 14. In the result, the appeals filed by the assessee are allowed. Per N. Vijayakumaran , JM (Dissenting). - Regretting my inability to persuade myself to the vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s when the order of the Assessing Officer is erroneous and the second one is that it should be prejudicial to the interest of Revenue. Both ingredients must be present for exercising power under section 263 of the Income-tax Act. Here in the case present before us is that the assessee paid interest for alleged delayed payment of instalment to the builder. There is no borrowal of fund, the section 36(1)(iii) deduction was not available. Therefore, the order of the Assessing Officer in allowing the deduction of interest is erroneous and prejudicial to the interest of the Revenue. In my opinion the Income-tax Commissioner has exercised her power rightly and she acted according to law. This exercise of power under section 263 was also upheld by the ratio of Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. 21. On the direction of the Commissioner of Income-tax to the Assessing Officer to verify the section 80-I deduction claim, my learned brother has not discussed the issue in his order. I am of the firm view that it also comes under the power vested under section 263 as granting deduction under section 80-I without verification of material is itself erroneous and pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pos the deposit of Rs. 5.67 crores, the assessee was required to make the payment as under:- (a) Rs. 1.856 crores to be paid at the time of execution of these presents. (b) Rs. 1.857 crores to be paid 12 months from the execution of these presents at the time of completion of the Reinforced Cement Concrete (RCC). (c) Rs. 1.857 crores to be paid 30 months from the execution of these presents within one week of the receipt of completion certificate from Pune Municipal Corporation and premises are ready for occupation in all respects. d) Rs. 10 lakhs to be paid within one year of receiving completion certificate from PMC being the amount retained for a period of 1 year in order to ensure specified quality of construction. 5. Assessee did not make deposit. It agreed to pay interest at the rate of 27% per annum on the amount financed by the land developer. Resultantly, the assessee made the payment of interest to the tune of Rs. 96,57,346 for the assessment year 1995-96 and Rs. 39,42,230 for the assessment y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, correct in assuming the jurisdiction under section 263 of the Act. 11. In regard to deduction under section 80-I of the Act, relevant for the assessment year 1996-97, it was stated that the learned Accountant Member did not discuss this issue in his order. It was incumbent on the Assessing Officer to make proper verification of material before granting the deduction claimed by the assessee under section 80-I of the Act. This was not done. As such, the CIT directed the Assessing Officer to verify the claim. Where the law prescribes conditions for the allowability of claim and the claim is not tested on the touch-stone of such conditions, it amounts to an error. This error can be said to be prejudicial to the interest of the revenue. As such, the CIT was correct in assuming the jurisdiction under section 263 of the Act on this count. 12. In the case of Metro Theatre Bombay Ltd. the assessee entered into an agreement for the purchase of building on lease. It was stipulated in the agreement that the consideration shall be paid in six monthly instalments with interest on the instalments outstanding from time to time. The assessee made default in the payment of instalment. Inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at pages 1467-68 has held - "it is trite that a ruling of superior court is binding law. It is not of scriptural sanctity but is of ratio-wise luminosity within the edifice of facts where the judicial lamp plays the legal flame." 16. In the case of CIT v. Associated Fibre Rubber Industries (P.) Ltd. [1999] 236 ITR 471 (SC), money was borrowed for the purchase of machinery. The machinery was treated as business asset. On this factual backdrop the Hon'ble Supreme Court has held that such machinery was treated as business asset and it was purchased only for the purposes of business, the interest paid on the amount borrowed for purchase of machinery was deductible amount. The facts of this case are different from the facts of the present case. 17. In the case of CIT v. Tata Chemicals Ltd. [2002] 256 ITR 395 (Bom.), the borrowed capital was invested in tax free bonds. It was found that such investment was in the course of business. As such, the interest was held to be deductible. This case also deals with different situation not akin to that of the present case. 18. In the case of CIT v. Laxmi Mills Co. Ltd. [2000] 242 ITR (St.) 186, the Hon'ble Apex Court dismissed the SLP file ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore closely akin to the concept of securing something, tangible or intangible property, or corporeal or incorporeal right, so that they could be of a lasting or enduring benefit to the enterprise in issue. Revenue expenditure, on the other hand, is operational in its perspective and solely intended for the furtherance of the enterprise. To put it differently, capital means an asset which has an element of permanency about it and which is capable of being a source of income and capital expenditure must, therefore, generally mean acquisition of an asset and the asset must be intended to be of a lasting value, while revenue expenses are generally running expenses incurred in earning profit or expenses incurred with the primary object of an immediate return or acquisition of assets which are not of lasting value and are likely to get exhausted or consumed in the process of the return or a very limited number of returns. 22. Indisputably the expenditure in question was incurred for the acquisition of the property. No other purpose can be ascribed for the payment of such interest. As such, I fail to understand that how this can be construed to be an expenditure of revenue nature. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the view taken by the learned Judicial Member. 28. The matter will now go before the regular Bench for deciding the appeal in accordance with the opinion of the majority. M.A. NO. 36 (MUM.) OF 2004, ORDER DATED 10-5-2004 M.K. Chaturvedi, VP. - By this Miscellaneous Petition, the assessee claims that a mistake has crept into the order of the Third Member of the Tribunal in ITA Nos. 2999 3000/Mum./1999, dated 15-7-2003, and requests that the mistake may appropriately be rectified either by recalling the order or otherwise. 2. We have heard the rival submissions in the light of material placed before us and precedents relied upon. It was submitted that the order passed by the Third Member expressing an opinion on an aspect on which there was no difference of opinion constitutes a mistake of fact and law that is apparent from record. Reference was made to Para 21 of the impugned order. It was submitted that these observations are likely to unnecessarily prejudice the minds of the revenue authorities while giving effect to the order of the Tribunal for the earlier assessment years for which assessments have been reopened by the Assessing Officer. These observations al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence. The finding was rendered only to resolve the difference. These cannot be construed to be uncalled observations. Observations contained in Para 21 were made after taking into consideration the totality of facts. As per the mandate of section 254(2) of the Act, scope and extent of power of rectification is limited. Only apparent errors can be corrected within the ken of this section. It is well settled that section 254(2) of the Act, which empowers the Tribunal to amend any order passed by it under section 254(1) with a view to rectify a mistake apparent from the record, does not authorise the Tribunal to review its order or even worse, to sit in appeal over its earlier order. The Tribunal is a creature of the statute. It has not been vested with the review jurisdiction by the statute creating it. The Tribunal does not have any power to review its own judgment or orders. The prayer of the learned counsel is for reviewing the decision of the Tribunal. No apparent error was pointed out. In the circumstances, we find that this application is inutile and futile and suffers summary rejection. Ex consequenti, we hold that there is no merit in the application, as such we reject the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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