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Facts
The assessee received unsecured loans which were treated as unexplained cash credit by the AO. The CIT(A) deleted this addition. The PCIT invoked revision jurisdiction u/s 263 to disallow interest paid on these loans, considering the AO's order erroneous and prejudicial to revenue.
Held
The Tribunal held that the PCIT wrongly invoked revision jurisdiction u/s 263 of the Act because the issue of interest disallowance was an offshoot of the primary issue already under appeal before the CIT(A). The CIT(A) could have dealt with it using enhancement powers.
Key Issues
Whether the PCIT was justified in invoking revision jurisdiction u/s 263 when the issue was already pending before the CIT(A) and could have been dealt with by the CIT(A) using enhancement powers?
Sections Cited
263, 143(3), 68, 69C, 37(1), 54, 234A
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Income Tax Appellate Tribunal, DELHI BENCH “B”: NEW DELHI
Before: SHRI M. BALAGANESH & SHRI YOGESH KUMAR U.S.
O R D E R PER M. BALAGANESH, A. M.: 1. The appeals in 220, 221, 223, 240, 349 & 243/Del/2021 for AYs 2013-14 to 2019-20, arise out of the order of the Pr. Commissioner of Income Tax-1, New Delhi [hereinafter referred to as „ld. PCIT‟, in short] in Proceedings No. TBA/REV/F/REV5/2023- 24/1058852277(1) under section 263 of the Income Tax Act, 1961 (hereinafter referred to as the Act) dated 18.12.2023 against the order of assessment passed u/s 143(3) of the Act dated 21.04.2021 by the ACIT, Circle-4, New Delhi (hereinafter referred to as „ld. AO‟).
All the appeals are having identical issues and hence they are taken up together and disposed of by this common order for the sake of convenience. With the consent of both the parties, the appeal of the Page | 1 , 220, 221, 223, 240, 349 & 243/Del/2024 M/s. Corporate International Financial Services Ltd assessee for AY 2013-14 in is taken as the lead case and decision rendered thereon shall apply to other assessment years in respect of identical issues except with variance in figures.
The only effective issue to be decided in the appeal of the assessee is as to whether the ld Pr. CIT was justified in invoking revisionary jurisdiction u/s 263 of the Act in the facts and circumstances of the instant case.
We have heard the rival submissions and perused the material available on record. The assessment for the AY 2013-14 was completed u/s 153A read with Section 143(3) of the Act dated 20.04.2021 wherein, the unsecured loan received by the assessee company were sought to be treated as unexplained cash credit u/s 68 of the act by the ld AO. The assessee preferred an appeal against the said addition of unexplained cash credit before the ld CIT(A). The ld CIT(A) deleted the addition made on account of unexplained cash credit u/s 68 of the Act in respect of unsecured loan of Rs. 10,40,00,000/- received by the assessee company by categorically holding that assessee was indeed able to discharge all the three ingredients of Section 68 of the Act viz identity of the lenders, creditworthiness of the lenders and genuineness of the transactions. The said addition was originally made by the ld AO by treating the same as accommodation entry received by the assessee and consequentially commission expenditure was also sought to be added by the ld AO u/s 69C of the Act in the sum of Rs. 43,33,334/-. This addition made u/s 69C of the Act was also deleted by the ld CIT(A) since there was a categorical finding that the loans received by the assessee were not accommodation entries and they are genuine transactions. This order was passed by the ld CIT(A) on 24.04.2025. When the appeal was pending before the ld CIT(A), the ld PCIT invoked revision jurisdiction u/s 263 of the Act for , 220, 221, 223, 240, 349 & 243/Del/2024 M/s. Corporate International Financial Services Ltd the purpose of disallowing the interest paid on unsecured loans since the unsecured loans were sought to be treated as accommodation entries by the ld AO and added as unexplained cash credit u/s 68 of the Act. For this purpose, the ld PCIT passed a revision order u/s 263 of the Act by treating the order of the ld AO as erroneous inasmuch as it is prejudicial to the interest of the revenue. In the said revision order passed u/s 263 of the Act, the ld PCIT directed the ld AO to disallow the interest paid on bogus unsecured loans u/s 37(1) of the Act.
The ld AR before us vehemently argued that the ld PCIT grossly erred in assuming revision jurisdiction of the Act inasmuch as the issue of addition made on account of alleged bogus unsecured loan was already subject matter of appeal before the ld CIT(A). The interest paid on such unsecured loans is effectively an offshoot of the said transaction which is subject matter of appeal. Hence, the issue which is subject matter of dispute before the ld CIT(A) cannot be subjected to revision jurisdiction u/s 263 of the Act by the ld PCIT. Reliance in this regard was placed on the decision of the Hon‟ble Madras High Court in the case of Smt Renuka Philip Vs. ITO reported in 409 ITR 567 (Mad). Per contra, the ld DR vehemently supported the order of the ld PCIT and submitted that the ld PCIT was duly justified in assuming revision jurisdiction u/s 263 of the Act as the ld AO had committed a gross error by not disallowing the interest paid on unsecured loan after having decided to treat the unsecured loan as bogus and subjecting the same to an addition on account of unexplained cash credit u/s 68 of the Act.
At the outset, we find that the issue of addition made on account of unsecured loan treating the same to be bogus was subject matter of dispute before the ld CIT(A). Even if the interest paid on such alleged bogus unsecured loans was allowed as deduction by the ld AO, the same , 220, 221, 223, 240, 349 & 243/Del/2024 M/s. Corporate International Financial Services Ltd could be subjected to disallowance by the ld CIT(A) itself using his enhancement powers as the issue of interest disallowance emanates out of issue which is in dispute before the ld CIT(A). Hence, the disallowance of interest was well within the enhancement powers available to ld CIT(A) and the same cannot be construed as a new source of income. Had it been a new source of income, then the ld CIT(A) cannot make such disallowance using his enhancement powers. In that scenario, the ld PCIT would be justified in invoking revision jurisdiction u/s 263 of the Act for taking care of the omission made by the ld AO. But that is not the case in the present appeal. As stated earlier, the principal portion of the unsecured loans was already subject matter of dispute before the ld CIT(A) and interest portion could have been very well dealt by the ld CIT(A) himself using his enhancement powers. Accordingly, the same cannot be subject matter of revision proceedings u/s 263 of the Act by the ld PCIT. This proposition has been rightly addressed by Hon‟ble Madras High Court in the case of Smt Renuka Philip Vs. ITO 409 ITR 567(Mad) as under:-
“22. The above explanation makes it clear that when the appeal is pending before the Commissioner, the exercise of jurisdiction under Section 263 of the Act is barred. The Commissioner in the order dated 14.03.2012 states that the appeal pertains to the claim made by the assessee under Section 54 of the Act and it has got nothing to do with the order passed by the Assessing Officer under Section 54F of the Act. The said finding rendered by the Commissioner is wholly unsustainable, since the assessee went on appeal against the re- assessment order dated 31.12.2009 stating that his claim for deduction under Section 54 of the Act should be accepted.”
Respectfully following the aforesaid decision, we hold that the invocation of revision jurisdiction by the ld PCIT u/s 263 of the Act is wrong and hence revision order is to be quashed.
, 220, 221, 223, 240, 349 & 243/Del/2024 M/s. Corporate International Financial Services Ltd
In the result, the appeal of the assessee for AY 2013-14 is allowed.
For AY 2014-15, the facts are exactly identical and issue in dispute is also identical with AY 2013-14. Additionally, the ld PCIT had observed that there was a mistake in charging of interest u/s 234A of the Act by the ld AO. But we find that this issue was not subject matter of show cause notice issued by the ld PCIT to the assessee u/s 263 of the Act. Hence, it is clear case of violation of principle of natural justice. The issue which is not even put to the assessee in the initial show cause or in the subsequent show cause notice but had emanated directly only in the revision order passed u/s 263 of the Act. On this count itself, the invocation of revision jurisdiction u/s 263 of the Act qua the chargeability of interest u/s 234A of the Act does not survive and is hereby quashed.
In the result, the appeal of the assessee for AY 2014-15 is allowed.
Appeals for AY 2015-16 to 2019-20 are exactly identical with appeal for AY 2014-15.
In the result, the appeals of the assessee are allowed.
Order pronounced in the open court on 27/06/2025.