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Income Tax Appellate Tribunal, “D” BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED&
PER Ms. MADHUMITA ROY - JM:
The instant appeal filed by the assessee is directed against the order dated 17.03.2021 passed by the Principal Commissioner of Income Tax (Appeals)-1, Ahmedabad under Section 263 of the Income Tax Act, 1961 (hereinafter referred as to “the Act”) for the Assessment Year (A.Y.) 2012-13.
There is a delay of 4 days in filing the instant appeal before us due to the situation arisen out of the Covid-19 pandemic. They have relied upon the order passed by the Hon’ble Apex Court in Writ Petition (Civil) No. 3 of 2020 regarding the extension of limitation. Considering this aspect we condone the delay.
ITA No.104/Ahd/2021 Rajesh Shantilal Sanghvi vs. PCIT Asst.Year –2012-13 - 2 - 3. The Ld. PCIT is of the opinion that the order passed under Section 143(3) r.w.s. 147 of the Act dated 21.12.2017 was made without examining the provision of Section 57 of the Act in correct perspective and non-examination/verification of the aforesaid issues appropriately by the Ld. AO has made the order under Section 143(3) r.w.s. 147 of the Act erroneous in so far as prejudicial to the interest of revenue within the meaning of Section 263 of the Act.
The brief facts leading to the case is this that the assessee filed its return of income on 30.09.2012 declaring total income of 39,42,875/- which was subsequently revised on 16.10.2012 declaring total income of Rs. 39,42,875/- followed by another revised return declaring total income at Rs. 40,04,804/-. The assessment under Section 143(3) of the Act was completed on 13.03.2014 whereby disallowance inter alia under Section 57 of the Act to the tune of Rs. 1,23,991/- was made. Subsequently the said assessment was reopened under Section 147 of the Act and finalized on 21.12.2017 with additions including short term capital gain to the tune of Rs. 54,37,086/-. Finally by and under an order under Section 263 of the Act dated 17.03.2021 the Ld. PCIT has been pleased to set aside the order dated 21.12.2017 passed under Section 143(3) r.w.s 147 of the Act with a further direction upon the Ld. AO to pass a fresh assessment order after allowing adequate opportunities of being heard to the assessee in accordance with law upon examining and/or verifying the issues relating to the provision of Section 57 of the Act as the Ld. PCIT was of the opinion that the order under Section 143(3) r.w.s. 147 of the Act dated 21.12.2017 was made without examining the provision of Section 57 of the Act in its proper
ITA No.104/Ahd/2021 Rajesh Shantilal Sanghvi vs. PCIT Asst.Year –2012-13 - 3 - perspective; non-examination/verification of the said issues appropriately by the Ld. AO has made the order under Section143 r.w.s 147 of the Act erroneous in so far as prejudicial to the interest of Revenue within the meaning of Section 263 of the Act.
We have heard the rival submissions made by the respective parties and we have also perused the relevant materials available on record.
It appears from the record that the original assessment order dated 13.03.2014, which is wrongly mentioned as 13.03.2015 passed under Section 143(3) of the Act has considered the issue under Section 57 of the Act. The relevant portion of the same is reproduced hereinbelow:-
“5. Disallowance of deduction under section 57: 5.1 The assesses has shown income from other sources at Rs 13.76.009/- and has claimed deduction of Rs 15,00,000/- u/s 57 and thereby loss under the head other sources was shown as Rs 1,23,991/- and the same was set off by the assessee against income from salaries. Hence vide questionnaire dated 24/12/2014, point 34, the assessee was asked the following: "Give proof of deductions claimed u/s 57. Give details of when the loan was taken and the purpose for which it was utilized. Furnish copy of loan account for the period relevant to AY 2012-13. You are required to establish that these borrowed funds- were utilized for earning income from other sources as declared by you, in order to justify your claim" 5.2 In response vide reply dated 30/1/2015, the assessee submitted that he had incurred expenses of Ra 50,03,217/- and has claimed Rs 15,00,000/- as deduction on "ad hoc basis" against interest income of Rs 13,76,009/-. However as per section 57(iii)of the Act, ''Deductions:- 57. The income chargeable under the head "Income from other sources" shall be computed after making the following deductions, namely :— …….
ITA No.104/Ahd/2021 Rajesh Shantilal Sanghvi vs. PCIT Asst.Year –2012-13 - 4 -
(iii) any other expenditure (not being in the nature of capital expenditure) laid out or pended wholly and exclusively for the purpose of making or earning such income. Hence, vide order sheet entry dated 3/2/2015 and questionnaire dated 20/2/2015 and 27/2/2015, the assessee was once again asked to give explanation on this point. 5.3 In response the assessee once again submitted the following: "Please note that during the year under assessment I have incurred interest expense of Rs.50,03,217/-, whereas I have claimed interest expense of Rs.1500000/- only as deduction u/s 57 of the Act against the interest income of Rs.1376009/- on ad hoc basis, in view of the facts that part of interest expenses incurred for loans utilized for investment purpose and is not claimed as deduction u/s 57 of the Act." 5.4 The following conditions should be satisfied for claiming deduction u/s 57; a. the expenditure should be incurred solely for earning such income i.e. to such deduction can be claimed only against the income taxable under the head of other sources b. it should not be in the nature of capital expenditure. c. it should not be in the nature of personal expense. d. it should be incurred in the relevant accounting year. Section 57(iii) is the residuary clause of sec.57. Sec. 57(iii) states that the expenditure should not be in the nature of capital expenditure and should be laid out or expended wholly and exclusively for the purpose of making or earning such income. Thus the mandate of sec.57(iii) is very clear and limited in its operation. The only crucial and critical question that would determine whether the interest expenditure is an allowable expenditure would be whether the assessee has laid out or expended the expenditure wholly and exclusively for the purpose of making or earning such income. Wholly refers to the quantum of expenditure and the word exclusively refers to the purpose of the expenditure. The aforementioned conditions are not satisfied and the assessee could not establish that against which income the said expenditure is claimed as deduction. 5.5 Reliance is also placed on the case of Seth K. Dalmia v. CIT [1977J110 JTR 644 (SC) wherein the Apex Court held that for claiming deduction u/s 57, there must be a clear nexus between the expenditure incurred and the income ought to be earned. The extract of the said judgment is reproduced below: "An analysis of this sub-section would show that in computing the income under this head the assessee is entitled to deduction in respect of the expenditure incurred solely for the purpose of earning such income, provided the expenditure is not of a capital nature and does not include any personal expenses incurred by the assessee " 5.6 The assessee has failed to prove any nexus between the sources of funds and their utilization of funds. Accordingly deduction claimed under section 57 is limited to Rs 13,76,009/- and the excess deduction of Rs l,23,991/- (being Rs 15,00,000 - Rs 13,76,009) is disallowed and added to the total income of the assessee. Penalty
ITA No.104/Ahd/2021 Rajesh Shantilal Sanghvi vs. PCIT Asst.Year –2012-13 - 5 - proceedings are initiated for concealment of income and furnishing of inaccurate particulars of income. (Disallowance u/s 57 of Rs. 1,23,991/-)”
The Ld. Advocate appearing for the assessee joints issue on this aspect that once the issue has been examined in the order passed under Section 143(3) in the order passed under Section 143(3) r.w.s. 147 of the Act the Ld. AO is not further required to revisit the same issue and, thus, the Ld. PCIT has wrongly passed order setting aside the order passed under Section 143(3) r.w.s. 147 of the Act which is impugned before us. It appears from the order dated 13.03.2015 passed by the Ld. AO that the disallowance under Section 57 of the Act for interest of Rs. 1,23,991/- has been made upon verification of the records and upon due application of mind.
Apart from that the preliminary objection as made by the Ld. AR to this effect that since the original order of assessment under Section 143(3) of the Act was passed on 13.03.2015 the revision thereof could have been taken up by 31.03.2016. In this regard, he has also relied upon the order passed by the Hon’ble ITAT-Delhi in the matter of Jindal Steel and Powers Ltd. vs. PCIT (in ITA No. 4607/Del/2019).
We have further considered the argument advanced by the Ld. AR to this effect that the order impugned under Section 263 of the Act passed by the Ld. PCIT is barred by limitation in view of the particular fact that the original assessment order under Section 143 of the Act was passed on 13.03.2014 and the revision thereof could have been taken by 31.03.2016 within two years from the end of the Financial Year. However, the order impugned was passed much after that. The order is non-est in the eye of
ITA No.104/Ahd/2021 Rajesh Shantilal Sanghvi vs. PCIT Asst.Year –2012-13 - 6 - law and, thus, liable to be quashed as also the submissions made by the Ld. AR. We find substance on such submissions made by the Ld. AR. On this issue he has relied upon the order passed by the Hon’ble Delhi ITAT-Delhi Bench, in the matter of Jindal Steel and Powers Ltd. vs. PCIT (in ITA No. 4607/Del/2019) which has been further considered by us. The relevant portion of the judgment is as follows:- “19. As in the present case before us, issues subject to revision were pertaining to original assessment and not the reopened assessment; the limitation should also start from the original assessment. In this case as original assessment order u/s 143(3) of the act was passed on 16.01.2014, the revision thereof could have been taken up to 31.3.2016. Impugned order u/s 263 of the act was passed on 26/2/2019, therefore it is clearly beyond the limitation prescribed u/s 263 (2) of the act.”
In view of the ratio laid down by the Hon’ble Delhi Bench and as per provision of law the re-opening under Section 263 of the Act could have been taken up on or before 31.03.2016 which admittedly has not been done rather the impugned order under Section 263 has been passed by the Ld. PCIT only on 21.12.2017. Therefore, respectfully relying upon the judgment passed by the Hon’ble Delhi Bench we find no merit in issuing the impugned order passed by the Ld. PCIT, the said is, thus, bad in law and hence quashed.
In the result, the appeal preferred by the assessee is allowed. This Order pronounced in Open Court on 16/09/2021
Sd/- Sd/- (WASEEM AHMED) (Ms. MADHUMITA ROY) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 16/09/2021 TRUE COPY TANMAY, Sr. PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent.
ITA No.104/Ahd/2021 Rajesh Shantilal Sanghvi vs. PCIT Asst.Year –2012-13 - 7 -
संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)- 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER,
उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation 03.08.2021&01.09.2021 2. Date on which the typed draft is placed before the Dictating Member 03.08.2021 3. Other Member………………… 4. Date on which the approved draft comes to the Sr.P.S./P.S 01.09.2021 5. Date on which the fair order is placed before the Dictating Member for pronouncement .09.2021 6. Date on which the fair order comes back to the Sr.P.S./P.S 16 .09.2021 7. Date on which the file goes to the Bench Clerk 17 .09.2021 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Despatch of the Order……………………………………