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Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
Before: SHRI KULDIP SINGH, HONBLE & SHRI S. RIFAUR RAHMAN, HONBLEShri Jagadish Jangid
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “A”, MUMBAI BEFORE SHRI KULDIP SINGH, HON'BLE JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER ITA NO.862/MUM/2022 (A.Y: 2017-18) M/s. Arena Enterprise v. PCIT –Mumbai-17 CTS No. 20, Arena Space, Village MAJAS Room No. 120, 1st Floor JVLR, Behind MAJAS Depot Kautilya Bhavan, C-41 to C-43 Jogeshwari (E), Mumbai - 400060 G-Block, Bandra Kurla Complex Bandra(E), Mumbai - 400051 PAN: AANFA3473E (Appellant) (Respondent) Assessee Represented by : Ms. Mrugakshi Joshi Department Represented by : Shri Jagadish Jangid
Date of Hearing : 06.09.2022 Date of Pronouncement : 01.12.2022
O R D E R PER S. RIFAUR RAHMAN (AM) 1. This appeal is filed by the assessee against order of the Learned Principal Commissioner of Income Tax, Mumbai-17 [hereinafter in short “Ld. Pr.CIT”] dated 23.03.2022 for the A.Y.2017-18 passed u/s.263 of the Income-tax Act, 1961 (in short “Act”).
Brief facts of the case are, Assessing Officer passed the Assessment Order u/s 143(3) of the Act for A.Y.2017-18 on 30.12.2019
2 ITA NO.862/MUM/2022 (A.Y: 2017-18) M/s. Arena Enterprise determining the total assessed income at a loss of ₹.3,39,49,742/- after making additions of ₹.58,014/- on account of accrued interest.
While perusing the assessment records for the present assessment year under consideration, he observed that as per Profit and Loss Account, assessee's main source of income are Rent and receipts against Common Area Maintenance Charges (CAM). Assessee offered Rental income as income from house property and CAM as business income. From the Computation of Income submitted during assessment proceedings, he observed that an amount of ₹.16,85,58,828/- received as rent was shown under the head Income from House property and claimed 30% standard deduction on the rental income declared after deduction of ₹.1.5 Crores as House Tax Paid and further, interest and finance charges of ₹.12,57,18,936/- were also deducted from the income declared under the head house property and claimed the loss declared at ₹.1,82,27,756/-. Further, he observed that assessee added an amount of ₹.14,26,67,285/- while computing the income from business as expenses considered separately.
Ld. Pr.CIT is of the opinion that Assessing Officer did not ask for bifurcation of expenses added as expenses considered separately to find
3 ITA NO.862/MUM/2022 (A.Y: 2017-18) M/s. Arena Enterprise out whether all expenses related to house property have been added including interest and finance charges which have been reduced while computing income from house property. According to him, it appears that some of the expenses related to house property, leaving a clear possibility that some of the expenses related to house property might have been claimed in profit and loss account and not added back. The Assessing Officer completed the assessment allowing claim made by the assessee.
Further, he observed that the details of interest paid to persons specified u/s. 40A(2)(b) of the Act submitted by assessee during the assessment proceedings, the Assessing Officer allowed the claim of interest to persons specified u/s 40A(2)(b) at the rate of 18% without considering the above facts. According to him the Assessing Officer was expected to verify the reasons for paying interest to persons specified u/s.40A(2)(b) at the rate higher than prevailing in the market. The Assessing Officer failed to consider this point and did not make expected verification in this regard. By observing above infirmities he issued notice u/s. 263 of the Act. through ITBA portal as to why the assessment U/s 143(3) of the Act should not be revised or set aside U/s.263 of the Act.
4 ITA NO.862/MUM/2022 (A.Y: 2017-18) M/s. Arena Enterprise 6. In response, assessee filed detailed submissions to the above said notice. For the sake of clarity, it is reproduced below: - “1. Disallowance of amount of Rs. 14,20,62,285/-. A. It is mentioned in the notice that the learned AO did not ask and verify for the voluntary disallowance of Rs. 14,26,67,2857- in the Computation of Income. In this regard, we invite your attention to the Computation of Income wherein disallowance is made under the head Income from Business of Rs. 14,26,67,285/-. Details of this voluntary disallowance, as required, are now filed herewith. On perusal of same your good self will find that these expenses were pertaining to Income From House Property and hence, were disallowed under the head Business Income and the same were claimed under the Income From House Property. Thus, the assessee has rightly claimed the following deduction from Income From House Property. 1. Property Tax of Rs. 1,50,00,000/-. 2. Interest on construction loan of Rs. 12,56,18,936/- The assessee has claimed interest u/s 24 as these loans were utilised for the construction of the building which yields rental income to the assessee. On perusal of expenses related to House Property Income disallowed in the Computation of income, you will notice that the expenses share pertaining to the rented premises of Rs. 14,21,216/- and depreciation on Furniture & Fixtures of Rs. 5,27,133/-stands disallowed as these expenditure are not allowable under the head Income From House Property. Thus, the Computation of Income discloses all allowable/disallowable which are correctly computed and offered for income. 2. Interest paid to Partners B. It is mentioned in the notice that the assessee firm has paid interest to partners at the rate of 18% pa. whereas as per the Partnership Deed, para 17 mentions that it is agreed by and between the parties here to that simple interest at the rate of 12% pa. or at such other rate as may be mutually agreed upon or prescribed u/s 40(b) shall be payable by partnership on the amount standing to the credit of the capital, current, loan A/C of the partners.
5 ITA NO.862/MUM/2022 (A.Y: 2017-18) M/s. Arena Enterprise It is also mentioned that the assessing officer has allowed the assessee's claim of interest to partners at the rate of 18% p.a. without considering the above terms mentioned in the Partnership Deed and without verifying the facts in this regard. In nutshell, in your opinion, the Assessing officer allowed interest at the rate of 18% p.a. on partners capital instead of 12% p.a. as provided in the Partnership Deed. In this regard, we would like to invite your attention to Profit & Loss A/C and the Computation of Income wherein no such deduction is claimed by the assessee firm being interest paid to Partners. The P & L A/C reveals the figure of Interest at Rs. 14, 23,40,006/- This interest is paid to the bank & other loan parties from whom loan was taken for construction of the building. Details of interest paid & received were already filed in the scrutiny assessment proceedings vide letter dated 05/09/2019 as per point no. 31-j. Also, there appears no credit in the Partners Capital A/C regarding interest paid. Thus, from the above said explanation it is evident that the assessee firm has not claimed any interest paid to partners. 3. The contentions raised in the notice of revision proceedings u/s 263 are prima facie not valid for setting aside the order of the AO thus, there is no leakage in the revenue. Thus, the scrutiny order passed u/s 143(3) is neither erroneous nor prejudicial to the interest of the revenue and hence, we earnestly request your good self to kindly drop the proceeding u/s 263 of the IT Act '61.”
Further, assessee vide letter dated 21st March, 2022 submitted as under: - “1. The Assessee filed its Return of Income for AY 2017-18. 2. The same was selected for scrutiny u/s. 143(3). 3. During the assessment proceedings, the AO called for several details in its Notice u/s. 142(1) and in response to the same the Assessee filed detailed submissions. 4. On perusal of the Notice u/s. 142(1) dated 03-09-2019, it can be seen from Point No. 11, 12 and 13, wherein the Assessing Officer had specifically called for details pertaining to Secured and Unsecured Loans, in a particular format and had also called for
6 ITA NO.862/MUM/2022 (A.Y: 2017-18) M/s. Arena Enterprise Confirmations and other supporting documents etc. The tax auditor had already mentioned the transactions pertaining to related party u/s 40(a)(2b) and the same were already furnished to the AO during assessment proceedings. 5. In response thereto, the Assessee filed an online response dated 11-10- 2019 and provided for all the details called for along with the details of Interest paid of Rs. 14,23,40,007/- (partwise breakup). 6. The assessment of AY 2017-18 was completed u/s 143(3) of the Income Tax Act, 1961 on 30.12.2019, determining the Total Income at a loss of Rs. 3,39,49,742/- after making additions of Rs. 58,014/- on account of accrued interest. 7. On perusal of the Balance Sheet and Profit and Loss Account as on 31-03-2017, the following details are relevant:- Interest Bearing Funds Secured Loans : Rs. 122,14,31,950/- Interest paid Rs. 12,03,52,935 Unsecured Loans: Rs. 11,99,98,378/- Interest paid: Rs. 2,19,87,071 Rs. 134,14,30,328/- Rs. 14,23,40,006/- Interest Free Funds Security Deposit Rs. 12,31,62,476/- Loans given to Outsiders Unsecured Loans: Rs. 4,94,18,449/- Interest Recd.: Rs. 49,39,921/- 8. From the Computation it can be seen that from the head 'Business Income', the Assessee has voluntarily added back a sum of Rs. 14,26,67,285/-, and the same has been claimed under the head House Income. The details of which are filed herewith. 9. The Assessee has fully and truly disclosed all material facts necessary at the time of assessment. Thus it was very clear that the Assessing Officer was well aware about the primary facts. The Assessee had furnished detailed documents to reply to the queries raised by the AO, which only after examining all the facts and explanations and application of mind did he accept the claim pertaining to AY. 2017-18.
7 ITA NO.862/MUM/2022 (A.Y: 2017-18) M/s. Arena Enterprise 10. Thus it is clear that the AO had correctly applied his mind to the facts and circumstances of the case and thereafter took a conscious decision to allow the interest claim. 11. It is hereby contended that whatever query was raised by the AO, the Assessee has duly complied with the same, to the best of ability, during the assessment proceeding. Thus, it is contended that there is no error in the order of the AO. If the AO was satisfied with the details and submissions filed before him, the order cannot be regarded to be erroneous and prejudicial to the interest of the revenue. Reliance was placed in this regard on the following cases:- (i). CIT vs. Gabriel India Ltd., 203 ITR 108 (Bom) CIT vs. Honda Siel Power Products Ltd., 333 ITR 547 (Del) (ii). 7 ITA.Nos. 170 TO 173/PNJ/2014 (ASST. YEARS: 2006-07 & 2010-11) (iii). CIT vs. Anand Food Products, 39 taxmann.com 187 (AP) (iv). CIT vs. Amit Corporation, 21 taxmann.com 64 (Guj) (v). CIT vs. Anil Kumar Sharma, 335 ITR 83 (Del) (vi). CIT vs. MeshanaDist Co-op Milk Producers Union Ltd., 263 ITR 645 (Guj) (vii). PyarelalJaiswal vs. CIT, 41 taxmann.com 278 (All) (viii). Indu Fine Lands (P) Ltd. vs. CIT, 45 taxmann.com 307 (Hyd) (ix). AnandPoddar vs. ACIT, 33 taxmann.com 367 (Gauh) (x). CIT vs. Vodafone Essar South Ltd. 212 Taxmann 184 (Del.) 12. The Assessee has received a show cause notice u/s. 263 for giving an opportunity to explain why the provisions of section 40A(2)(b) should not apply and has provided the following reason “ …….. The Assessing Officer allowed your claim of interest to persons specified u/s 40A(2)(b) at the rate of 18% without considering the above facts. The AO was expected to verify the reason for paying interest to persons specified u/s 40A(2)(b) at the rate higher than prevailing in the market. The AO failed to consider this point and did not make expected verification in this regard. The Assessing Officer passed the Assessment Order for A.Y. 2017-18 without applying his mind and without considering the above facts. Therefore, the assessment order suffers from above infirmity and the same is erroneous in so far as it is prejudicial to the interest of the revenue."
8 ITA NO.862/MUM/2022 (A.Y: 2017-18) M/s. Arena Enterprise SUBMISSIONS: ERRONEOUS Order+ PREJUDICIAL to Interest of Revenue 13. S.263 of the Income Tax Act confers powers on the CIT which are in the nature of supervisory powers in order to protect the interest of the Revenue. The CIT is empowered to call for and examine the records of any proceeding under the Act. He can then exercise his powers in revision, if he is satisfied that any order passed by the AO is erroneous and prejudicial to the interest of the Revenue. The Supreme Court has held that both these elements 'erroneous' and 'prejudicial to the interests of the Revenue' - must be satisfied for having recourse to S.263 (Malabar Industrial Co. 243 ITR 83). 14. An order is said to be 'erroneous' when it is passed without application of mind, and where the AO, accepts what is stated in the return of the assessee without making any enquiry called for in the circumstances of the case and proceeds with undue haste CIT v. Jawahar Bhattacharjee [2012] 341 ITR 434 (Gauhati) (HC) (FB). 15. An Order can be said to be prejudicial to the interest of the Revenue, in which (i) Income has been under assessed (ii) Loss has been over assessed (iii) Income has been assessed at a lower rate (iv) Excessive loss, deductions, allowances and reliefs have been allowed to the Assessee 16. On perusal of the assessment proceedings, it is evident that the Assessee had filed detailed replies, which included the details of the rate of interest paid to various parties, and therefore the information was very much on record and it is only after due verification, that the Assessing Officer had raised further queries regarding the Unsecured Loans and other issues pertaining to the same. 17. If while making the assessment, the AO examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income, the CIT, while exercising his power under s 263, is not permitted to substitute his estimate of income in place of the income estimated by the AO. 18. Thus we humbly submit that the Assessment Order passed is not erroneous.
9 ITA NO.862/MUM/2022 (A.Y: 2017-18) M/s. Arena Enterprise 19. Without prejudice, we would like to submit that in the show cause notice your Honour is desirous of applying the provisions of section 40A(2)(b) on the ground that the Fair Market Rate (being the Bank Rate of 10% p.a.), is much lower than rate of interest which is paid to the Specified Persons (i.e. 18% p.a.). We would like to submit that the provisions of section 40A(2)(b) are not applicable to the facts and circumstances of this case and therefore no addition can be made thereunder and consequently there is no loss to the revenue and therefore the provisions of section 263 do not apply. (i) It is evident from the computation of income that the Interest expenditure has been claimed under the provisions of Income from House Property u/s. 24(b) to which the provisions of section 40A(2)(b) do no apply. (ii) The Bank Rate cannot be treated as Fair Market rate, since the rate of interest given by the Bank is generally lower in comparison to the loans procured from private parties. The rate of interest paid to the bank cannot be compared with the interest paid to the related party because of the bank security, which is not given in the case of the lenders, who are private parties. Learned AR further contended that the rate of interest paid to the bank against the security is 10% and, hence, interest to the related party to 18% without any security, cannot be considered excessive keeping in view the market condition. (iii) The Assessee has paid interest @18% to other non- related parties also which please note. Details of Interest paid along with rate of interest are resubmitted for your reference. 20. It is for these reasons mentioned above that, it does not in any manner whatsoever prove that the Order passed by the AO is PREJUDICIAL TO THE INTEREST OF THE REVENUE, as it would not result in any addition even if the matter is sent back to the Assessing Officer. 21. In absence of any finding that there is loss of revenue, interference under section 263 is not justified. CIT v. G. R. Thangamaligai [2003] 259 ITR 129 (Mad.) (HC).
10 ITA NO.862/MUM/2022 (A.Y: 2017-18) M/s. Arena Enterprise 22. It is hereby submitted that the Order of the Assessing Officer is neither erroneous nor prejudicial to the interests of the Revenue and hence, the Commissioner of Income Tax cannot assume jurisdiction under section 263 (1) of the Act. 23. The department is not entitled to reopen an assessment based on a fresh inference of transactions accepted by the revenue for several preceding years on the pretext of dubbing them as erroneous. CIT v. Escorts Ltd. [2011] 338 ITR 435 (Delhi) (HC). Conclusion: Thus based on the case laws submitted and the facts and circumstances of the case, we humbly submit before your Honours that the order passed by the Assessing Officer is neither erroneous nor prejudicial to the interest of the Revenue and therefore the proceedings initiated u/s. 263 should be quashed, as it is bad in law.”
After considering the detailed submissions made by the assessee Ld. Pr.CIT observed that assessee has made voluntary disallowance of ₹.14,26,67,285/- in the Computation of Income, he observed that assessee itself has accepted that details of this voluntary disallowance, as required, are now filed herewith which clearly indicates that the Assessing Officer has not verified this issue of disallowance under the head Business Income and claiming the same under the Income from House Property. The Assessing Officer has allowed these expenses from Income from House Property without making necessary verifications about the nature of expenses and thus order passed by the Assessing Officer is erroneous and prejudicial to revenue.
11 ITA NO.862/MUM/2022 (A.Y: 2017-18) M/s. Arena Enterprise 9. From perusal of records, it is evident that no query has been made by the Assessing Officer regarding interest paid to persons specified u/s.40A(2)(b) at a higher rate than the prevailing market rate. The assessee in it's submissions has claimed that "Assessee has paid interest @18% to other non-related parties" and also that "Interest expenditure has been claimed under the of provisions of Income from House Property u/s. 24(b) to which the provisions of section 40A(2)(b) do not apply" which also needs verification at the end of the Assessing Officer.
The Ld. Pr.CIT held that, it is a clear case where the Assessing Officer has failed to make due verification and inquiries which were required in facts and circumstances of the case. By relying on section 263(1) clause (a) to Explanation 2 and various case laws he came to the conclusion that Assessment Order dated 30.12.2019 passed by the Assessing Officer u/s. 143(3) of the Act is erroneous and prejudicial to the interest of the Revenue, because the assessment has been made without proper verification and inquires on the issue which the Assessing Officer was expected to make in view of facts and circumstances discussed above. Accordingly, he directed the Assessing Officer to carry out due verification of (i) allowability of expenses claimed out of Income from House Property (ii) Payment of interest at higher rates to persons
12 ITA NO.862/MUM/2022 (A.Y: 2017-18) M/s. Arena Enterprise specified u/s 40A(2)(b) of the Act and pass the assessment order denovo after due verifications after giving proper opportunity of being heard to the assessee and pass a speaking order.
Aggrieved, assessee preferred appeal before us raising following grounds in its appeal: - “On the facts and circumstances of the case and in law: Erroneous & Prejudicial Order: A. Bifurcation of Expenses amongst different heads (i) The learned CIT has erred in issuing a notice u/s. 263 with respect to the bifurcation of expenditures claimed under the head Business Income' and 'Income from House Property', although the expenses incurred are genuine in nature and the bifurcation between the two heads would not in any manner whatsoever make the Assessment Order, erroneous and prejudicial to the interest of the revenue. (ii) The learned CIT failed to take into consideration that all details, supporting to the claim of the expenditures incurred, were submitted before the lower authorities, who after due verification has allowed the claim under the respective heads of income. The learned CIT cannot substitute his mind to that of the Assessing Officer and the Assessment Order passed cannot be termed as 'erroneous and prejudicial to Interest of Revenue' in as much as the Assessing Officer has passed the order after application of his mind and moresoever there is no loss to the revenue, if the expenditure is allowed as deduction under the head House Property or Business Income. B. Addition u/s, 40A(2)(b) (i) The learned CIT has erred in issuing a notice u/s. 263 which is void and without jurisdiction, seeking to revise the Asst. Order, although the same is not erroneous and not prejudicial to the interest of the Revenue, since the Interest expenditure incurred, has been claimed as a deduction u/s. 24(b) and the proposed application of Section 40A(2)(b) is not applicable and thus the
13 ITA NO.862/MUM/2022 (A.Y: 2017-18) M/s. Arena Enterprise condition that the order should be both erroneous and prejudicial is not satisfied and hence the Order is invalid, illegal and unlawful. (ii) The Learned CIT erred in applying the provisions of section 40A(2)(b) to the Interest rate paid on Unsecured Loans, although the same are not applicable, since the deduction has been claimed u/s, 24(b) under the head Income from House Property', and consequently the order is not prejudicial to the interest of the Revenue. (iii) The learned CIT has completely and erroneously ignored the fact, that all evidence were duly submitted before the Assessing Officer, who after due verification and after having correctly applied his mind has passed the Assessment Order u/s. 143(3). The Assessee has fully and truly disclosed all material facts necessary at the time of assessment. (iv) The learned CIT failed to take into consideration that the facts and circumstances of the case are similar to the earlier years, where the Assessee's claim has been fully allowed and therefore he ought to have followed the principles of consistency.”
At the time of hearing, Ld. AR of the assessee briefly brought to our notice the facts in this case and he brought to our notice that Ld.Pr.CIT has raised two major issues to consider the Assessment Order passed u/s. 143(3) as erroneous and prejudicial to the interest of the Revenue.
With regard to first issue where assessee has disallowed certain expenditure under the head income from house property and claimed certain expenditure to determine income from business. In this regard he brought to our notice Page No. 7 of the Ld. Pr.CIT order wherein
14 ITA NO.862/MUM/2022 (A.Y: 2017-18) M/s. Arena Enterprise assessee has explained the voluntary disallowance made in the computation of income and Ld. Pr.CIT itself has accepted that the claim made by the assessee is as per law and at the same Ld. Pr.CIT has not brought on record what is the prejudicial to the interest of the Revenue.
With regard to second issue raised by the Ld. Pr.CIT he brought to our notice Page No. 45 of the Paper Book which is the notice issued u/s.142(1) of the Act and in Page No. 48 subsequently Assessing Officer has asked the assessee to provide various bank statements with narration, furnish reconciliation of TDS credit as per 26AS and also asked the assessee to furnish details of loans (unsecured loans and interest free loans) outstanding at the beginning of the year, loans taken during the year including squared up loans in the format specified by him. Further, he brought to our notice Page No. 49 of the Paper Book wherein the Assessing Officer has asked the assessee to provide documents in respect of genuineness and creditworthiness of the unsecured loans and interest free loans including the listed item as per the annexure to the notice u/s. 142(1) of the Act in which assessee has to provide confirmation of the party, ITR and financial statement of the lending parties, bank statement of lending party as well as assessee,
15 ITA NO.862/MUM/2022 (A.Y: 2017-18) M/s. Arena Enterprise asked to submit source of funds in the hands of the lender and reasons for the lender for not charging interest in case of interest free loans. Further, in the same notice assessee was asked to furnish details of loans and advances outstanding at the beginning of the year as per the format enclosed.
Further, he brought to our notice Para No. 4 of the Assessment Order wherein the Assessing Officer has issued show cause notice vide letter dated 30.12.2019 in which assessee was asked to show the details of accrued interest not received to the tune of ₹.58,014/- in the list of advances and loans given. He submitted that Assessing Officer has verified the interest income in details and he has accepted the interest transactions and he has taken one of the possible view.
Further, he brought to our notice in earlier Assessment Years also, the similar income and computation declared by the assessee was accepted. In this regard he filed Assessment Orders u/s. 143(3) of the Act passed in A.Y.2014-15 and A.Y. 2015-16 which is placed on record at Page No. 70 and 75 of the Paper Book.
16 ITA NO.862/MUM/2022 (A.Y: 2017-18) M/s. Arena Enterprise 17. Further, he brought to our notice Page No. 43 and 44 of the Paper Book wherein details of interest paid to others and interest paid to relatives were submitted before the Assessing Officer. He brought to our notice that assessee has paid interest to relatives @18% and he brought to our notice that assessee also paid the interest @18% to others. He submitted that it clearly shows that assessee has taken loans @18% and also paid the loans at 18% there is no prejudicial to the interest of the Revenue.
On the other hand, Ld. DR brought to our notice Assessment Order, specifically Para No. 4 of the Assessment Order to submit that it clearly shows that Assessing Officer has not made any enquiry on the facts available on record. He simply accepted the submissions made by the assessee and completed the assessment without there being of proper investigations on the aspects of the claim of the assessee particularly he brought to our notice page no. 8 of the Ld. Pr.CIT order in which Ld. Pr.CIT has clearly highlighted that certain informations were filed before the Assessing Officer and on explanation to the show cause notice issued u/s. 263 of the Act assessee has filed various factual informations which clearly shows that Assessing Officer has not made
17 ITA NO.862/MUM/2022 (A.Y: 2017-18) M/s. Arena Enterprise any verification. Further, he brought to our notice Page No. 25 of the Paper Book and he brought to our notice the opening balance of unsold units and closing balance of unsold units remain the same amount and assessee has declared income from CAM @ ₹.2.18 crores and he submitted that assessee has claimed various expenses which are common in nature and Assessing Officer has allowed all those expenditures without proper verification particularly he brought to our notice interest paid expenditure which is one of the major expenditure claimed by the assessee and no enquiry was conducted by the Assessing Officer. He relied on the orders passed u/s. 263 of the Act.
Considered the rival submissions and material placed on record, we observe that Ld. Pr.CIT while verifying the assessment records found that Assessing Officer has accepted the claim made by the assessee with regard to standard deduction in the rental income claimed by the assessee and at the same time assessee also determined the income under the head “business income” this is out of receipts from common area maintenance charges and the assessee has claimed various expenditure. It is fact on record that assessee has declared rental income and also maintenance charges which is the common source income and also common expenditure, since there is no record on the
18 ITA NO.862/MUM/2022 (A.Y: 2017-18) M/s. Arena Enterprise assessment record to show that Assessing Officer has verified the claim of the assessee Ld. Pr.CIT issued notice u/s. 263 of the Act. However, we observe that assessee has filed the detailed submissions before Ld.Pr.CIT that assessee has already declared all the material facts necessary for completion of assessment in the return of income as well as in the computation of income. Further, assessee submitted that in computation of income wherein voluntary disallowance is made under the head income from business of ₹.14,26,67,285/-. The details of these voluntary disallowance, as required, are now filed herewith. On a perusal of the same, these expenditures were pertaining to income from house property were disallowed under the head business income and the same were claimed under the head “income from house property” Therefore there is no prejudicial to the interest of the Revenue. The assessee has explained to the Ld. Pr.CIT that assessee has segregated the expenditure claimed for income from house property in which assessee is claiming standard deduction, accordingly, the relevant expenditure was voluntarily disallowed while computing the income from business and the expenditures which are relevant for the business expenditure were claimed. Therefore, there is absolutely no additional expenditure claimed by the assessee. We have considered the
19 ITA NO.862/MUM/2022 (A.Y: 2017-18) M/s. Arena Enterprise submissions and we observe that no doubt assessee has claimed the voluntary expenditure under the head income from business. However, on a perusal of the various submissions made before Ld. Pr.CIT we observe that Ld. Pr.CIT has not brought on record any loss to the revenue except by observing that the submissions of the assessee itself clearly shows that Assessing Officer has not verified the same. Accordingly, he invoked the Explanation 2(a) to provisions of section 263 of the Act.
With regard to interest paid to partners, it is the fact on record that assessee has paid interest @18% to the related parties and which comes under the provisions of section 40A(2)(b) of the Act. At the same time, we observe that assessee has also taken several loans from unrelated parties and paid interest in the range of 12% to 18% to unrelated persons. With regard to related parties assessee has paid standard rate of 18%. We also observed that all these informations were submitted before the Assessing Officer (as per the declaration made before us in the Paper Book) it clearly shows that assessee has paid various rate of interest to unrelated persons the average may come to less than 18%, however, it maintains to pay @18% to the related parties. It clearly indicates that Assessing Officer has not verified or
20 ITA NO.862/MUM/2022 (A.Y: 2017-18) M/s. Arena Enterprise even asked the assessee the reasons for such excess payment of interest more than the market rate. Ld. AR brought to our notice that assessee has regularly paying above said rate to the related persons and he brought to our notice Assessment Orders for the A.Y. 2014-15 and 2015-16 wherein no disallowances were made by the Assessing Officer and regular practice of the assessee was accepted in the earlier Assessment Years. Therefore, as per the principle of consistency the rate adopted by the assessee should be accepted. We have considered the submissions carefully and we observe that there is no whisper of any discussion in any of the Assessment Orders submitted by the assessee on the aspect of payment of excess interest to the related parties, that means, in none of the Assessment Years Assessing Officer has not verified this aspect of additional payment of interest to the related parties much above the industry average or average interest rate to the assessee itself. Therefore, in our considered view merely accepting the submissions made by the assessee without there being any evidences on record to show that Assessing Officer has actually verified or enquired on this aspect. The submissions by the assessee before us does not show any evidence that Assessing Officer has actually verified the above said aspect. Therefore, in our considered view the revision proceedings
21 ITA NO.862/MUM/2022 (A.Y: 2017-18) M/s. Arena Enterprise initiated by the Ld. Pr.CIT holding that Assessing Officer has not verified and by relying on the Explanation 2(a) of the section 263 of the Act, we are inclined to accept the revision proceedings with the observation that the Assessing Officer has not verified on this aspect of interest payment to related parties itself makes the revision proceedings proper. It is brought to our notice that provisions of section 40A(2)(b) are not applicable in the given case since interest paid is claimed u/s. 24(b) of the Act. This submission also goes to prove that Assessing Officer has not verified properly whether the interest claimed by the assessee falls under which head of income. Therefore, the ground raised by the assessee are partly allowed and we hold that the initiation of the proceedings u/s. 263 of the Act is proper.
In the result, appeal filed by the assessee is partly allowed as indicated above.
Order pronounced in the open court on 01st December, 2022
Sd/- Sd/- (KULDIP SINGH) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated 01/12/2022 Giridhar, Sr.PS
22 ITA NO.862/MUM/2022 (A.Y: 2017-18) M/s. Arena Enterprise Copy of the Order forwarded to: 1. The Assessee 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// BY ORDER
(Asstt. Registrar) ITAT, Mum