ACCESS BUILDCON EQUIPMENTS PVT LTD,MUMBAI vs. INCOME TAX OFFICER, WD-9(1)(1), MUMBAI

आदेश / ORDER PER BEENA PILLAI, JUDICIAL MEMBER: Present appeal filed by assessee arises out of the order passed by the Learned Principal Commissioner of Income Tax, Mumbai - 1 [hereinafter referred to as “PCIT”] dated 20/02/2026, for A.Y. 2022-23, on the following grounds of appeal:-

“1) On facts and circumstances of the case and in law, Ld. Pr.CIT erred in passing the revision order u/s.263, though the assessment order 1 passed u/s.143(3) is not erroneous and in so far is not prejudicial to interest of the revenue. 2) The Ld. Pr.CIT erred in passing the revision order u/s. 263(1), on ignoring the fact that the Order cannot be revised merely on the basis of the revenue audit objections. 3) The Ld. Pr.CIT, before invoking the Explanation-2 to Sec.263(1) and directing the AO to examine the disallowance of interest paid on interest bearing loans allegedly utilized for non-interest bearing activity, ought to have considered the understated vital facts, being- a) The Ld. AO, upon raising specific queries and issuing notices u/s 142(1), had examined the allowability of interest expense and upon application of judicial mind, had adopted the legally sustainable view in the assessment order. b) The assessee had not utilized any interest bearing loans towards non-interest bearing activities and in support, had furnished exhaustive documentary evidences as called by the Ld. AO. c) The documentary evidences, being party-wise details of loans given and taken, ledger accounts of borrowers and lenders, confirmations of account, bank statements, party-wise details of interest income and interest paid, etc to justify the allowability of interest had been carefully examined by the AO.”

Assessee company is engaged in the business of lending and investment activities. For A.Y. 2022-23, it filed its return of income on 29/10/2022 declaring loss of Rs.1,34,95,760/-. The return was processed u/s.143(1) of the Income Tax Act, 1961 and thereafter the case was selected for complete scrutiny under CASS on the issues of “Investment/Advances/Loans” and “High Creditors/Liabilities”.

2.1. During the course of assessment proceedings, notices u/s.142(1) of the Income Tax Act, 1961 dated 26/07/2023 and 05/02/2024 were issued calling upon the assessee to furnish various details. In response thereto, the assessee furnished the requisite details as called for by the Ld.AO, including audited financial statements, computation of income, party-wise details of loans advanced and loans received, confirmations, ledger accounts, bank statements and details of interest income and expenditure.

2.2. Subsequently, another notice u/s.142(1) of the Act, dated 16/02/2024 was issued by the Ld.AO seeking further details regarding interest received and interest paid. The assessee furnished its response on 17/02/2024 along with the requisite details and explanations. Based on the material available on record and the submissions furnished by the assessee, the Ld.AO proceeded to complete the assessment, inter alia, observing as under:-

“3.3 Reasons for inference drawn that no variation is required on this issue. The assessee company is engaged in the business of lending and investments activities. During the course of assessment proceedings, the assessee was asked vide notice u/s 142(1) dated 05.02.2024 to furnish the details of loans and advances and creditors. In response to above notice, the assessee has furnished its rely on 12.02.2024 alongwith confirmation, PAN, copy of ledger a/c of creditors and loans and advances. On perusal of the same, it was observed that the assessee has taken total loan of Rs.1,64,90,00,000/- from Naman Finance and Investment (P) Ltd @ of interest of 10.75%, out of which the assessee has taken loan of Rs.51,50,00,000/- during the under consideration. The assessee has given interest of Rs.13,60,84,897/- to M/s Naman Finance and Investment (P) Ltd. On the other hands, the assessee has given loan to other parties at Rs.127,48,83,198/- and charged interest @ 11.75% and received interest at Rs.12,25,90,736/-. However, the assessee has short interest recovery of Rs.1,34,94,161/- (Rs.13,60,84,897 – Rs.12,25,90,736). It was also observed that all transactions have been made through Banks. The identity, creditworthiness and genuineness have been verified. The assessee has submitted all relevant documents in respect of high creditors and loan & advances. Therefore, the contention of the assessee is found correct.”

2.3. On verification of the assessment records, the Ld.PCIT observed that, the assessee did not recovered interest on loans advanced to the extent of Rs.1,34,94,161/- and that there was a shortfall on account of interest-bearing borrowed funds being utilized to finance business losses of earlier years. According to Ld.PCIT, excess interest expenditure of Rs.1,34,94,161/- claimed by the assessee therefore ought to have been disallowed u/s.36(1)(iii) of the Income Tax Act, 1961 and added back to its income.

2.4. The Ld.PCIT further observed that, the Ld.AO failed to examine the increase in loans advanced during the year amounting 3 to Rs.51.50 crore (Rs.164.90 crore less Rs.113.40 crore). According to the Ld.PCIT, while the assessee claimed interest expenditure on the entire borrowed funds, no proper examination was carried out regarding the interest income attributable to the fresh loans advanced during the year. The Ld.PCIT was of the view that interest income on the incremental loan of Rs.51 crore had not been properly computed and offered to tax, resulting in under- assessment of income.

2.5. Accordingly, Ld.PCIT was of the view that, the assessment order passed u/s.143(3) of the Act, was erroneous insofar as it was prejudicial to the interests of the revenue. The Ld.PCIT thus issued a show-cause notice u/s.263 of the Act, dated 15/10/2025, which is reproduced hereunder:-

2.6. In response to the said notice, assessee submitted as under:-

“3. In response to the notice u/s 263 of the Act, assessee submitted details of loans taken and loan given, interest received and interest paid, rate of interest. During the year, assessee had incurred the interest expense of Rs.13,60,84,897/- and had earned interest of Rs.12,25,90,736/- i.e. there is short recovery of interest of Rs.1,34,94,161/-. The short recovery of Rs.1,34,94,161/- (13,60,84,897/- 12,25,90,736/-) is on account of interest bearing loans utilized to fund the interest due from related parties.

3.1. The assessee further submitted that new loans received during the year of Rs.51,50,00,000/- had also been utilized to provide the interest bearing loans. The assessee had paid the interest on such loan @ 10.75% per annum and had recovered the interest @ 11.75% per annum. During the assessment proceedings, assessee had submitted that there is no interest bearing loans have been utilized to provide non-interest bearing loans and therefore, the assessee is eligible to claim the interest as debited in audited profit and loss account.”

2.7. From the details furnished by assessee, the Ld.PCIT observed as under:-

“4.3 The assessee has submitted that the Osiris Infotech Pvt Ltd is the major recipient of the new loan given to the tune of Rs 42,83,79,000 during the year. Further, opening balance of loan given was Rs 34,45,22,999. Therefore, the total loan given to M/s Osiris Infotech Pvt Ltd is Rs 77,29,01,999.

2.8. The Ld.PCIT thus was of the opinion that it was a case of lack of enquiry by Ld.AO and, therefore, the assessment order dated 26/02/2024 was erroneous insofar as prejudicial to the interest of the revenue. The Ld.PCIT thus invoked Explanation 2 to Section 263 of the Act, and directed the Ld.AO as under:-

“10. In view of the above facts of the case and legal position, in exercise of powers conferred u/s 263 of the income-tax Act, 1961, I set aside the order of the AO, dated 26.02.2024, on the limited issue of short recovery of interest back to the file of AO. The AO is required to verify the opening balances of the loans to the related parties, new loans advanced during the year along with the interest received and receivable on the total loans. The A.O. is directed to reframe the assessment on the above limited issue after giving due opportunity to the assessee of being heard. The AO will complete the assessment in the light of the discussion made in this order after considering the prevailing Law and the submissions of the assessee.”

Aggrieved by the order of Ld.PCIT, the assessee is in appeal before this Tribunal.

“1.0 In respect of loans and advances given (assets), the understated documents are enclosed herewith, stated as under :- a) Party-wise details of loans given alongwith their PAN and address;

b) Ledger accounts of the parties as per audited books of accounts to whom the loan/ advances had been given;

c) Bank statements highlighting the payments made to such parties along with corresponding source of funds;

d) The entire loans had been provided to the parties only through banking channel by A/c payee cheques/RTGS;

2.0 Party-wise details of interest income;

3.0 In respect of loan received (liability) during the year, the understated documents are enclosed herewith, as under :-

a) Party-wise details of the loan taken along with their PAN and address;

b) Ledger of lenders as per audited books of accounts;

c) Confirmation of loan accounts;

d) Bank statements highlighting the receipts from such parties;

e) The entire loans had been received only through banking channel by A/c payee cheques/RTGS;

4.0 Party-wise details of interest paid along with TDS u/s.194A deducted thereon;

5.0 Challans of TDS on interest paid u/s.194A;

6.0 The assessee, in the return of income, had suo-moto made the disallowance of entire expenses of Rs.6,63,689/- (1,41,066 + 5,22,623);

7.0 During impugned year, the assessee had earned the interest income of Rs.12,25,90,736/- and had incurred the interest expense of Rs.13,60,84,897/- . The short interest recovery is mainly on account of interest bearing loans utilized to fund the allowed business loss of earlier years;

8.0 The assessee has not sold any long-term investments during the impugned year.

9.0 The assessee had not earned any exempt income during the year;

10.0 The assessee had disclosed the brought forward business loss of earlier years of Rs.1,30,40,649/- and had disclosed the business loss during impugned year of Rs.1,34,95,790/- ad therefore any additions/disallowance would stand adjusted with the brought forward and current year’s business loss.”

3.1. The Ld.AR submitted that, all the relevant details to verify the loans and advances was furnished by assessee on a specific query 7 being raised by Ld.AO and, therefore, it cannot be said that proper verification has not been carried out by the Ld.AO for the year under consideration. It is submitted that, Ld.AO conducted adequate enquiries and the submissions filed by assessee alongwith the documentary evidence are a part of assessment record. He submitted that observation of Ld.PCIT regarding the reconciliation of interest calculation, party-wise details being not verified by the Ld.AO is factually incorrect.

3.2. The Ld. AR submitted that during the course of assessment proceedings, the Ld.AO specifically raised queries regarding the allowability of interest expenditure and the issue relating to section 36(1)(iii) of Act. It was contended that the assessment order itself contains a categorical discussion on this aspect, which demonstrates that the issue sought to be revised by the Ld.PCIT was subject matter of inquiry and examination by the Ld.AO. The Ld.AR, therefore, submitted that the Ld.AO thereafter took a plausible view on the basis of material placed on record. He submitted that merely because the Ld.PCIT holds a different view, the assessment order cannot be treated as erroneous and prejudicial to the interests of the revenue. In support of the aforesaid contention, reliance was placed on various judicial precedents.

3.3. The Ld.AR further submitted that, the revisionary proceedings initiated u/s.263 of the Act are contrary to the mandate of law. Referring to the show-cause notice issued by the Ld.PCIT, it was argued that, the proceedings have been initiated primarily on the basis of audit objections and not on account of any independent satisfaction that the assessment order is 8 erroneous insofar as prejudicial to the interests of the Revenue due to lack of inquiry. According to the Ld.AR, once the Ld.AO made inquiries on the issue and took a conscious view, the provisions of Explanation 2 to section 263 of the Act, would have no application to the facts of the present case.

3.4. Per contra, the Ld.DR supported the impugned order passed by the Ld.PCIT. The Ld.DR submitted that, there was apparent discrepancy in the computation of interest income and interest expenditure, which had not been properly examined by the Ld.AO. It was contended that the Ld.PCIT merely directed verification of the outstanding loan balances, opening balances of loans advanced to related parties, fresh loans advanced during the year and the corresponding interest received or receivable thereon. According to the Ld.DR, merely calling for details and documents during assessment proceedings would not, by itself, establish that proper verification and application of mind had been carried out by the Ld.AO. The Ld. DR, therefore, submitted that the assessment order suffered from lack of adequate inquiry and consequently justified invocation of jurisdiction u/s.263 of the Act.

We have perused the submissions advanced by both sides in light of the record placed before us.

4.1. It is further observed that the Ld.AO examined the fact that the assessee paid interest at the rate of 10.75% on borrowed funds and had charged interest at the rate of 11.75% on loans advanced. Therefore, prima facie, it cannot be said that there was short recovery of interest on account of any difference in the rate of interest charged and paid. To that extent, we are unable to concur with the observations of the Ld.PCIT that no verification whatsoever was carried out by the Ld.AO regarding the interest expenditure claimed and interest income disclosed by the assessee.

4.2. However, at the same time, we find merit in the observation of the Ld. PCIT that the arithmetical working relating to the opening balance of loans, fresh loans advanced during the year, closing balances and the corresponding interest received or receivable thereon has not been specifically verified by the Ld.AO. The assessment records do not reveal any examination of the mathematical correctness of the computation with reference to the loan balances and interest figures furnished by the assessee.

4.3. Accordingly, while holding that the issue had been subjected to inquiry by the Ld.AO, we deem it fit to modify the directions issued by the Ld.PCIT. We direct the Ld.AO to verify the arithmetical correctness of the computation relating to the opening and closing balances of loans advanced, fresh loans granted during the year and the interest received or receivable thereon. The Ld.AO shall carry out the aforesaid limited verification after affording reasonable opportunity of being heard to the assessee.

Accordingly, the grounds raised by the assessee are partly allowed.

In the result, appeal filed by assessee stands partly allowed for statistical purposes.

Order pronounced in the open court on 25/06/2026.

Sd/- Sd/-

JAGADISH BEENA PILLAI ACCOUNTANT MEMBER JUDICIAL MEMBER

Mumbai Dated: 25/06/2026 SC, Sr. P.S. Copy to: ACCESS BUILDCON EQUIPMENTS PVT LTD, 609, 6TH FLOOR, INZIO OPP. P AND G PLAZA, CHAKALA, CARDINAL GRACIAS 1 ROAD, ANDHERI EAST, MUMBAI-400099, MAHARASHTRA

INCOME TAX OFFICER, WD-9(1)(1), 2 AAYAKAR BHAWAN, M.K. ROAD, MUMBAI-400020, MAHARASHTRA

3 THE PCIT / CIT, 4 THE D.R., ITAT, MUMBAI BENCH 5 GUARD FILE