TULJABHAVANI HOUSING DEVELOPMENT PRIVATE LIMITED,MUMBAI vs. ITO WARD 4(3)-1, AAYAKAR BHAWAN,MUMBAI

142(1) of the Act dat 142(1) of the Act dated 22.11.2021 which was replied by the ed 22.11.2021 which was replied by the assessee on 25.02.2022 assessee on 25.02.2022. Thereafter, the Assessing Officer passed hereafter, the Assessing Officer passed the reassessment order on 24.03.2022 accepting the returned the reassessment order on 24.03.2022 accepting the returned the reassessment order on 24.03.2022 accepting the returned income. 3.1 Subsequent to the assessment, t Subsequent to the assessment, the Ld. PCIT called for the CIT called for the records and after exa records and after examination, and observed that interest income of that interest income of Rs.47,67,775/- was received by the assessee, on which tax was also was received by the assessee, on which tax was also was received by the assessee, on which tax was also deducted u/s 194A of the Act, but the assessee claimed the same deducted u/s 194A of the Act, but the assessee claimed the same deducted u/s 194A of the Act, but the assessee claimed the same as part of business receipts and deducted all business expenditure as part of business receipts and deducted all business expenditure as part of business receipts and deducted all business expenditure debited in profit and loss against said interest income. According debited in profit and loss against said interest income. debited in profit and loss against said interest income. to him the interest income was required to be assessee under head him the interest income was required to be assessee under head him the interest income was required to be assessee under head ‘income from other sources’ and the expenses ‘income from other sources’ and the expenses debited in the debited in the profit and loss account having and loss account having no nexus with said interest income was with said interest income was not allowable. He further noted that assessment was made when He further noted that assessment was made when He further noted that assessment was made when without making inquiry or verification in this regard. Accordingly, making inquiry or verification in this regard. Accordingly, making inquiry or verification in this regard. Accordingly, after considering submission of the assessee, after considering submission of the assessee, he treated the order he treated the order passed by the Assessing Officer as erroneous in so far as prejudicial passed by the Assessing Officer as erroneous in so far as prejudicial passed by the Assessing Officer as erroneous in so far as prejudicial to the interest of the Revenue to the interest of the Revenue and cancelled the sai said assessment order giveing direction to pass a fresh assessment order after direction to pass a fresh assessment order after direction to pass a fresh assessment order after making necessary inquiry in the matter. making necessary inquiry in the matter.

“19. Please furnish the details of all the loans & advances “19. Please furnish the details of all the loans & advances “19. Please furnish the details of all the loans & advances (including capital ass (including capital asset in progress) given with the details of et in progress) given with the details of interest charged on the same. Please justify the amount Please justify the amount interest charged on the same. of interest paid and claimed in P & L account are of interest paid and claimed in P & L account are of interest paid and claimed in P & L account are exclusively exclusively exclusively for for for the the the purpose purpose purpose of of of business business business and and and professional professional. Also furnish the explanation as to why . Also furnish the explanation as to why disallowance e e u/s u/s u/s 36(iii) 36(iii) 36(iii) should should should not not not be be be made in your your case.” ( emphasis supplied externally) ( emphasis supplied externally) 4.1 Further, the Ld. counsel referred to reply of the assessee in Further, the Ld. counsel referred to reply of the assessee in Further, the Ld. counsel referred to reply of the assessee in respect of queries raised respect of queries raised, which is available on Paper Book page 32. which is available on Paper Book page 32. For ready reference said reply is also reproduced as under: For ready reference said reply is also reproduced as under: For ready reference said reply is also reproduced as under: 19. A. Details of Interest earned on loans & advances given “19. A. Details of Interest earned on loans & advances given 19. A. Details of Interest earned on loans & advances given Details of loans & advances given are shown in Balance sheet. - Details of loans & advances given are shown in Balance sheet. Details of loans & advances given are shown in Balance sheet. Interest received details : - Interest received de 1. Interest Received on loans Rs. 46762397- 1. Interest Received on loans 2. Interest on Income Tax Refund Rs. 915367- 2. Interest on Income Tax Refund Total Rs. 47677757- Interest on Income Tax refund are as under. - Interest on Income Tax refund are as under. 16790 1. Assessment year 1. Assessment year-2011-2012 32158 2. Assessment year 2. Assessment year-2014-2015 42588 3. Assessment year 3. Assessment year-2013-2014 Total Rs. 91536 B. No interest paid during the year. B. No interest paid during the year.

& 5 2248/MUM/2024 Tuljabhavani Housing Tuljabhavani Housing Development Pvt. Ltd. Development Pvt. Ltd.

In view of above your honor will find the above details in order as per In view of above your honor will find the above details in order as per In view of above your honor will find the above details in order as per notice annexure.” 4.2 In light of the above query and response, the Learned Counsel In light of the above query and response, the Learned Counsel In light of the above query and response, the Learned Counsel submitted that the Assessing Officer had duly verified the issue of that the Assessing Officer had duly verified the issue of that the Assessing Officer had duly verified the issue of interest income, which formed the basis for reopening the interest income, which formed the basis for reopening the interest income, which formed the basis for reopening the assessment. According to him, while the assessment order may be assessment. According to him, while the assessment order may be assessment. According to him, while the assessment order may be prejudicial to the Revenue, it is not erroneous. He argued that the prejudicial to the Revenue, it is not erroneous. He argued that the prejudicial to the Revenue, it is not erroneous. He argued that the Assessing Officer, after considering the assessee’s submissions, had g Officer, after considering the assessee’s submissions, had g Officer, after considering the assessee’s submissions, had taken a reasoned view that the interest income should be assessed taken a reasoned view that the interest income should be assessed taken a reasoned view that the interest income should be assessed under the head "Business and Profession." Therefore, the Learned under the head "Business and Profession." Therefore, the Learned under the head "Business and Profession." Therefore, the Learned Principal Commissioner of Income Tax (PCIT) cannot substitute his Principal Commissioner of Income Tax (PCIT) cannot substitute hi Principal Commissioner of Income Tax (PCIT) cannot substitute hi own view in place of the Assessing Officer’s conclusion. In support own view in place of the Assessing Officer’s conclusion. own view in place of the Assessing Officer’s conclusion. of this argument, the Learned Counsel relied on the decisions in: of this argument, the Learned Counsel relied on the decisions in: of this argument, the Learned Counsel relied on the decisions in:

 Karan Polymers Pvt. Ltd. v. PCIT Karan Polymers Pvt. Ltd. v. PCIT (2022) 97 ITR (Trib.) 556 (2022) 97 ITR (Trib.) 556 (Kolkata),  PCIT v. Karan Polymers Pvt. Ltd. PCIT v. Karan Polymers Pvt. Ltd., IA No. GA/2/2023, GA/2/2023,  CIT v. Lok Holdings CIT v. Lok Holdings [2010] 189 Taxman 452 (Bombay), and [2010] 189 Taxman 452 (Bombay), and  Bhikhabhai Bhikhabhai Bhikhabhai Rajabhai Rajabhai Rajabhai Dhameliya Dhameliya Dhameliya v. v. v. PCIT PCIT PCIT [2023] 151 taxmann.com 493 (Surat taxmann.com 493 (Surat-Trib.).

4.3 On the other hand, the Learned Departmental Representative On the other hand, the Learned Departmental Representative On the other hand, the Learned Departmental Representative (DR) contended that the assessment was reopened due to the (DR) contended that the assessment was reopened due to the (DR) contended that the assessment was reopened due to the escapement of interest income. Therefore, the Assessing Officer was escapement of interest income. Therefore, the Assessing Officer was escapement of interest income. Therefore, the Assessing Officer was & 6 2248/MUM/2024 Tuljabhavani Housing Tuljabhavani Housing Development Pvt. Ltd. Development Pvt. Ltd. duty-bound to examine the correct head under which the interest bound to examine the correct head under which the interest bound to examine the correct head under which the interest income was to be assessed. The DR submitted that the Assessing was to be assessed. The DR submitted that the Assessing was to be assessed. The DR submitted that the Assessing Officer had issued only a single query letter, in which the inquiry Officer had issued only a single query letter, in which the inquiry Officer had issued only a single query letter, in which the inquiry regarding interest income/expenses was limited to details of regarding interest income/expenses was limited to details of regarding interest income/expenses was limited to details of interest paid, if any, for earning interest income. However, the interest paid, if any, for earning interest income. However, the interest paid, if any, for earning interest income. However, the Assessing Officer failed to examine the assessee's profit and loss sing Officer failed to examine the assessee's profit and loss sing Officer failed to examine the assessee's profit and loss account, where the assessee had claimed business expenses account, where the assessee had claimed business expenses account, where the assessee had claimed business expenses amounting to ₹33,54,309/ 33,54,309/- against the interest income. These against the interest income. These expenses included the cost of materials, employee benefits, expenses included the cost of materials, employee benefits, expenses included the cost of materials, employee benefits, depreciation, amortization, and other expenditures. mortization, and other expenditures. The DR argued that, in the absence of a proper inquiry or verification— which a that, in the absence of a proper inquiry or verification that, in the absence of a proper inquiry or verification prudent prudent prudent Assessing Assessing Assessing Officer Officer Officer ought ought ought to to to have have have conducted—the conducted conducted assessment order is deemed assessment order is deemed to be erroneous and prejudicial to the erroneous and prejudicial to the interests of the Revenue under Explanation 2 to Section 263 of the venue under Explanation 2 to Section 263 of the venue under Explanation 2 to Section 263 of the Act. He also referred to Ground No. 2 of the appeal, which asserts Act. He also referred to Ground No. 2 of the appeal, which asserts Act. He also referred to Ground No. 2 of the appeal, which asserts that the PCIT cannot deem an order erroneous or prejudicial merely that the PCIT cannot deem an order erroneous or prejudicial merely that the PCIT cannot deem an order erroneous or prejudicial merely due to insufficient verification. However, the DR contended that, in due to insufficient verification. However, the DR contended that, in due to insufficient verification. However, the DR contended that, in light of Explanation 2 introduced with effect from 01.06.2015, this of Explanation 2 introduced with effect from 01.06.2015, this of Explanation 2 introduced with effect from 01.06.2015, this ground itself becomes infructuous. ground itself becomes infructuous.

4.3 We have considered the rival submissions and carefully We have considered the rival submissions and carefully We have considered the rival submissions and carefully examined the relevant materials on record. Explanation 2 to Section examined the relevant materials on record. Explanation 2 to Section examined the relevant materials on record. Explanation 2 to Section h came into effect from June 1, 263 of the Income Tax Act, whic 263 of the Income Tax Act, which came into effect from 2015, stipulates that if the Assessing Officer fails to conduct the , stipulates that if the Assessing Officer fails to conduct the , stipulates that if the Assessing Officer fails to conduct the & 7 2248/MUM/2024 Tuljabhavani Housing Tuljabhavani Housing Development Pvt. Ltd. Development Pvt. Ltd. necessary inquiry or verification that ought to have been carried out necessary inquiry or verification that ought to have been carried out necessary inquiry or verification that ought to have been carried out during the assessment process, the resulting assessment order during the assessment process, the resulting assessment order during the assessment process, the resulting assessment order shall be deemed erroneou shall be deemed erroneous and prejudicial to the interests of the s and prejudicial to the interests of the The relevant provision of Section 263 Section 263 is reproduced Revenue. The relevant provision of below:

“263. Revision of orders prejudicial to revenue. “263. Revision of orders prejudicial to revenue. [Explanation 2.—For the purposes of this section, it is hereby declared that an order For the purposes of this section, it is hereby declared that an order For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer passed by the Assessing Officer 64[or the Transfer Pricing Officer, as the case may be,] [or the Transfer Pricing Officer, as the case may be,] shall be deemed to be erroneous in so far as it is prejudicial to the interests of the ll be deemed to be erroneous in so far as it is prejudicial to the interests of the ll be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal revenue, if, in the opinion of the Principal 65[Chief Commissioner or Chief Commissioner [Chief Commissioner or Chief Commissioner or Principal] Commissioner or Commissioner, incipal] Commissioner or Commissioner,— (a) the order is passed without making inquiries or verification which should the order is passed without making inquiries or verification which should the order is passed without making inquiries or verification which should have been made60 60; (b) the order is passed allowing the order is passed allowing any relief without inquiring into the claim; any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or the order has not been made in accordance with any order, direction or the order has not been made in accordance with any order, direction or instruction issued by the Board under instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is the order has not been passed in accordance with any decision which is the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or prejudicial to the assessee, rendered by the jurisdictional High Court or prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.] Supreme Court in the case of the assessee or any other person.] Supreme Court in the case of the assessee or any other person.]

5.1 Thus, given the facts and circumstances of the present case, Thus, given the facts and circumstances of the present case, Thus, given the facts and circumstances of the present case, the Assessing Officer was required to examine how the interest the Assessing Officer was required to examine how the interest the Assessing Officer was required to examine how the interest income qualified for assessment under the head "Business or income qualified for assessment under the head income qualified for assessment under the head Profession." He also needed to determine whether earni He also needed to determine whether earni He also needed to determine whether earning interest constituted the assessee's business activity or if the interest income constituted the assessee's business activity or if the interest income constituted the assessee's business activity or if the interest income was incidental to the assessee’s business operations or advances on was incidental to the assessee’s business operations was incidental to the assessee’s business operations which interest was earned were made for furtherance of business which interest was earned were made for furtherance of business which interest was earned were made for furtherance of business activity. However, no such inquiries . However, no such inquiries or verification erification were made, nor were any responses provided by the assessee. Therefore, we are of were any responses provided by the assessee. Therefore, we are of were any responses provided by the assessee. Therefore, we are of the considered opinion that the Assessing Officer failed to conduct the considered opinion that the Assessing Officer failed to conduct the considered opinion that the Assessing Officer failed to conduct the necessary inquiry or verification that ought to have been the necessary inquiry or verification that ought to have been the necessary inquiry or verification that ought to have been undertaken during the assessment undertaken during the assessment proceedings. Accordingly, we proceedings. Accordingly, we & 9 2248/MUM/2024 Tuljabhavani Housing Tuljabhavani Housing Development Pvt. Ltd. Development Pvt. Ltd. concur with the findings of the concur with the findings of the Learned PCIT and uphold his and uphold his decision. The case laws relied upon by the assessee have been duly decision. The case laws relied upon by the assessee have been duly decision. The case laws relied upon by the assessee have been duly considered, however, given the differing facts and circumstances, however, given the differing facts and circumstances, however, given the differing facts and circumstances, they are not applicable to the pre they are not applicable to the present case. As a result, the grounds As a result, the grounds of appeal for AY 2016 of appeal for AY 2016-17 stand dismissed.