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Income Tax Appellate Tribunal, MUMBAI BENCH “G” MUMBAI
PER RAVISH SOOD, J.M: The present appeal filed by the assessee is directed against the order passed by the Principal Commissioner of Income Tax-27, Mumbai (for short „Pr.CIT‟) u/s 263 of the Income Tax Act, 1961 (for short „Act‟), dated 18.03.2020 for A.Y. 2015-16, which in turn arises from the order passed by the A.O u/s 143(3) of the Act, dated 30.11.2017. The assessee has assailed the impugned order on the following grounds before us:
2 Shri Sanjay Agarwal Vs. The Pr.CIT-27 “1. That the learned Pr.CIT-27 has erred in initiating proceeding u/s 263, as the said issue has already been examined by the AO and AO after proper inquiry, verification and application of mind has passed the assessment order.
2. The learned Fr, CIT-27, has erred in wrongly initiating the proceeding as covered under explanation 2 under section 263(1), as the said order is neither erroneous nor prejudicial to the interest of revenue.
3. The learned ld. CIT-27, has erred in passing an order u/s 263of the Income Tax Act 1961.
4. The appellant reserves the right to add, alter, delete or amend any of the grounds of the appeal cither earlier or at the time of hearing.”
Briefly stated, the assessee who is a lawyer by profession had e-filed his return of income for A.Y. 2016-17, declaring a total income of Rs. 1,14,72,080/-. Initially the return of income filed by the assessee was processed as such vide an intimation under Sec. 143(1) of the Act, dated 13.02.2016. Subsequently, the case of the assessee was selected for scrutiny assessment under the “Computer Assisted Scrutiny Assessment” (CASS). Accordingly, notices u/ss. 143(2) and 142(1) were issued and served on the assessee. Original assessment was thereafter framed by the A.O vide his order passed u/s 143(3) of the Act, dated 30.11.2017, wherein the returned income of the assessee was accepted as such.
After culmination of the assessment proceedings, the Pr.CIT in exercise of the powers vested with him u/s 263 of the Act called for the assessment records of the assessee. On a perusal of the records, it was observed by the Pr.CIT that the assessee had claimed deduction of interest expenditure of Rs.79,67,173/- that was stated to have been paid in respect of property loan. On a perusal of the depreciation chart of fixed assets, it was observed by the Pr. CIT that the assessee had during the year under consideration purchased two flats, viz. (i). flat purchased for a consideration of Rs. 41,46,083/- on which the assessee had claimed depreciation @10%; and (ii). flat purchased for a consideration of Rs. 8,56,85,000/- on which no depreciation was claimed. Backed by the aforesaid
3 Shri Sanjay Agarwal Vs. The Pr.CIT-27 facts, the Pr.CIT formed a view that though the flat on which the assessee had claimed depreciation was a „business asset‟, however, the other flat on which no depreciation was claimed would not have been used by the assessee for his business purpose during the year under consideration. Further, it was observed by the Pr.CIT that from a perusal of the records it could safely be gathered that the assessee‟s claim for deduction of interest of Rs.79,67,173/- was in respect of the flat on which no depreciation was claimed. On the basis of his aforesaid deliberations, the Pr.CIT was of the view that as the assessee had not claimed depreciation on the aforesaid new flat, therefore, it could safely be inferred that the same was a self-occupied property and was not utilized by him for the purpose of his business during the year under consideration. It was further noticed by the Pr. CIT that the assessee had in the course of the assessment proceedings not furnished any details about the abovementioned flats viz. copy of purchase agreement, details as regards loan against property etc. Accordingly, the Pr. CIT in the backdrop of the aforesaid facts held a conviction that as the assessee had claimed deduction of interest expenditure in respect of a self- occupied property that was acquired by him during the year for a consideration of Rs. 8,56,85,000/-, therefore, the same was not admissible.
Backed by his aforesaid observations, the Pr. CIT was of the view that as the A.O had not verified the details in respect of the aforesaid issues in question, therefore, the assessment order passed by him u/s 143(3), dated 31.11.2017 was erroneous in so far it was prejudicial to the interest of the revenue within the meaning of Sec. 263 of the Act. Accordingly, the Pr. CIT issued a „Show cause‟ notice (SCN), dated 28.11.2019 and called upon the assessee to explain as to why the aforesaid order passed by the A.O may not be revised under Sec. 263 of the Act. In reply, the assessee vide his letter dated 13.12.2019 submitted before the Pr.CIT that he had purchased the new office premises No.1001 and 1702 at Brindavan Terrace, Mumbai for a consideration of Rs.8,56,85,000/-, vide
4 Shri Sanjay Agarwal Vs. The Pr.CIT-27 registered agreements dated 13.10.2014 and 25.11.2014 which was partly sourced by loans that were raised from two financial institutions, viz. (i) loan from DHFL (for purchase of office premises No. 1702): Rs.3,00,00,000/-; and (ii) loan from India Bulls (for purchase of office No. 1001: Rs.2,59,50,000/-). It was submitted by the assessee that since the aforementioned offices during the year were under renovation and thus, used only for few days, therefore, the assesee had opted not to claim depreciation on the same during the year under consideration. As regards the query pertaining to the claim for deduction of interest expenditure of Rs.79,67,173/- in his profit and loss account, the bifurcated details as regards the same were furnished by the assessee with the Pr. CIT, which read as under:
Sr. No. Name of the Nature of loan Interest paid Documents Loan taken and Financial Institute on loan attached in interest allowed support of claim since 1. Tamilnadu Office at South 12,77,175/- Loan Passbook April 2014 Mercantile Bank Mumbai 2. Tamilnadu Office at Delhi 38,52,846/- Loan passbook August 2012 Mercantile Bank 3. Tamilnadu Office at 5,72,848/- Loan Passbook March 2011 Mercantile Bank Chembur 4. India Bulls Loan Office at 10,91,073/- Loan repayment December 2014 Brindavan 1001 schedule 5. DHFL Loan Office at 11,73,230/- Loan statement December 2014 Brindavan 1702 Accordingly, it was submitted by the assessee that his claim for deduction of interest expenditure was not only pertaining to the aforesaid new offices that were purchased during the year, but also for the other three offices which were purchased in the earlier years and were being used by him for the purpose of his profession. It was, thus, the claim of the assessee that the interest paid on the loans pertaining to the aforementioned new property, viz. new office premises No.1001 and 1702 at Brindavan Terrace, Mumbai worked out at an amount of Rs.22,63,303/-. At the same time, it was submitted by the assessee, that though he had opted not to claim depreciation on the aforementioned property that was purchased during the year, however, the same was not in the nature of a self-
5 Shri Sanjay Agarwal Vs. The Pr.CIT-27 occupied property. It was the claim of the assessee that in the course of the assessment proceedings the requisite details as regards his claim for deduction of interest expenditure which had, inter alia, formed the basis for selecting his case for scrutiny assessment under CASS were furnished with the A.O, viz. party wise details of loans accepted, loans repaid and the interest paid on the said loans during the year. It was the claim of the assessee that the complete details of the loans and interest along with the relevant documents were furnished by him in the course of the assessment proceedings with the A.O, vide his letter dated 10.02.2017. In the backdrop of his aforesaid contention, it was the claim of the assessee that as the issue pertaining to his claim for deduction of interest expenditure had been examined, verified and discussed by the A.O while framing the assessment, therefore, the Pr.CIT was divested of his jurisdiction u/s 263 of the Act qua the said issue.
After deliberating at length on the contentions advanced by the assessee, the Pr.CIT was not persuaded to accept the same. On a perusal of the record, it was observed by the Pr.CIT that the A.O while framing the assessment had allowed the assessee‟s claim for deduction of interest expenditure of Rs.79,67,173/- that was debited in his „profit and loss account‟, without carrying out any proper verification. It was observed by the Pr.CIT that the assessee had himself admitted before him that out of the total interest expenditure of Rs.79,67,172/- an amount of Rs.10,91,073/- and Rs.11,73,230/- pertained to Office No. 1702 and Office No. 1001, respectively, which were purchased by him vide agreements that were registered on 13.10.2014 and 25.11.2014. It was observed by the Pr.CIT, that the assessee had neither furnished any documentary evidence which would reveal that the aforementioned properties were put to use during the year under consideration nor filed the copies of the aforesaid registered agreements. Backed by the aforesaid facts, the Pr.CIT observed that no material was placed on record by the assessee which would
6 Shri Sanjay Agarwal Vs. The Pr.CIT-27 reveal that he had received possession of the aforementioned properties during the year under consideration. Adverting to the assessee‟s claim for deduction of the balance amount of interest expenditure of Rs.57,02,869/- [i.e Rs.79,67,172/- (-) Rs.10,91,073/- (-) Rs.11,73,230/-], it was observed by the Pr.CIT that though the assessee had submitted that the said interest expenditure pertained to his other three office premises at South Mumbai, Delhi and Chembur, however, in support thereof he had in the course of the revisional proceedings only placed on record copy of a loan passbook, from which, it could not be gathered that the funds therein borrowed were utilized for the purpose of purchasing the properties, as was so claimed by the assessee. It was, thus, observed by the Pr.CIT that the assessee even in the course of the proceedings before him had failed to furnish any justification of his claim for deduction of interest expenditure of Rs.79,67,172/- alongwith complete details and documentary evidence. On the basis of his aforesaid deliberations, the Pr.CIT being of the view that the order passed by the A.O u/s 143(3) of the Act, dated 30.11.2017 was erroneous in so far it was prejudicial to the interest of revenue within the meaning of Sec. 263 of the Act, therefore, set-aside the assessment order with a direction to the A.O to pass a fresh assessment order after considering the aforementioned issue and allowing an opportunity of being heard to the assessee.
Aggrieved, the assessee has assailed before us the order passed by the Pr.CIT u/s 263 of the Act, dated 18.03.2020. The ld. Authorized Representative (for short „A.R‟) for the assessee took us through the facts of the case. It was submitted by the ld. A.R that the case of the assessee was selected for limited scrutiny assessment under CASS, wherein, inter alia, one of the reason for selecting the case for scrutiny assessment was to examine the assessee‟s claim for deduction of interest expenses in the return of income. It was submitted by the ld. A.R that qua the aforesaid issue i.e deduction of interest expenditure queries were raised by the A.O in the course of the assessment proceedings,
7 Shri Sanjay Agarwal Vs. The Pr.CIT-27 and the same were duly answered by the assessee to the satisfaction of the A.O. In order to buttress his aforesaid claim the ld. A.R took us through the notice that was issued by the A.O u/s 142(1) of the Act, dated 29.01.2017. It was submitted by the ld. A.R that the A.O in his aforesaid notice had specifically queried as regards the assessee‟s claim for deduction of interest expenditure. Our attention was thereafter drawn by the ld. A.R to the reply, dated 04.02.2017 that was filed by the assessee in compliance to the aforesaid notice u/s 142(1), dated 290.01.2017. It was submitted by the ld. A.R that the assessee at Serial no.9 of his reply had furnished the bifurcated details as regards his claim for deduction of interest expenditure of Rs.83,61,643/- pertaining to the various loans that were raised from the banks/financial institutions. Backed by the aforesaid facts, it was the claim of the ld. A.R, that now when the A.O in the course of the assessment proceedings had carried out necessary verifications qua the assessee‟s claim for deduction of interest expenditure, therefore, the Pr.CIT was clearly divested of his jurisdiction to revise the assessment order on the said count in exercise of the powers that were vested with him u/s 263 of the Act. In support of his aforesaid claim the ld. A.R had relied on the judgment of the Hon‟ble High Court of Bombay in the case of CIT Vs. Gabriel India Limited (1997) 203 ITR 108 (Bom). It was submitted by the ld. A.R that as observed by the Hon‟ble High Court of Bombay, the CIT cannot seek revision of an order merely because he disagrees with the conclusion arrived at by the A.O. Our attention was also drawn to the judgment of the Hon‟ble High Court of Delhi in the case of ITO Vs. D.G. Housing Projects Ltd. (2012) 343 ITR 329 (Del). Relying on the aforesaid judicial pronouncement, it was submitted by the ld. A.R that a CIT without arriving at a finding that the order passed by the A.O was erroneous and prejudicial to the interest of revenue was precluded from invoking his revisional jurisdiction u/s 263 of the Act. Further, the ld. A.R relied on the judgment of the Hon‟ble High Court of Delhi in the case of CIT Vs. Sunbeam Auto Limited (2012) 332 ITR 167 (Del), wherein the High Court had held that Sec. 263 does not visualize a case of substitution of the judgment
8 Shri Sanjay Agarwal Vs. The Pr.CIT-27 of the CIT as against that of the Income Tax Officer unless the latters decision is found to be erroneous. Also, reliance was placed by the ld. A.R on the judgment of the Hon‟ble High Court of Bombay in the case of CIT Vs. Development Credit Bank Limited (2010) 323 ITR 206 (Bom). By drawing support from the aforesaid judicial pronouncement, it was the claim of the ld. A.R, that in a case where the assessment order had been passed after considering the details that were called for and had been furnished by the assessee, the CIT could not revise the order, on the ground, that no enquiry had been conducted. Reliance was placed on the judgment of the Hon‟ble High Court of Delhi in the case of CIT vs. Anil K. Sharma (2011) 335 ITR 83 (Del). It was submitted by the ld. A.R that the Hon‟ble High Court in its aforesaid order had held that there was a distinction between “lack of inquiry” and “inadequate inquiry”. It was submitted by the ld. A.R that the Hon‟ble High Court had observed that even if the enquiry by the A.O was inadequate, the same would not justify revision of his order for the said reason by the CIT u/s 263 of the Act. Lastly, the ld. A.R relied on the order of the ITAT, „C‟ bench, Chennai in the case of M/s Winvest Holding (I) Pvt. Ltd. Vs. ACIT, Chennai, dated 23.08.2019. It was submitted by the ld. A.R, that the Tribunal, had observed, that in a case the assessment order does not patently indicate that the issue in question had been considered by the A.O, but the material on record reveals that the A.O had applied his mind on the said issue, then, the CIT would stand divested of his jurisdiction to revise such an order in exercise of powers vested with him u/s 263 of the Act. It was, thus, submitted by the ld. A.R that as the Pr.CIT in the present case had exceeded his jurisdiction u/s 263 of the Act, therefore, the order passed by him was liable to be vacated. Alternatively, it was submitted by the ld. A.R that as the Pr.CIT had not afforded sufficient opportunity of being heard to the assessee in the course of the proceedings u/s 263 of the Act, therefore, for the said reason the requisite details could not be filed before him.
9 Shri Sanjay Agarwal Vs. The Pr.CIT-27
Per contra, the ld. Departmental Representative (for short „D.R‟) relied on the order passed by the Pr.CIT u/s 263 of the Act, dated 18.03.2020. It was submitted by the ld. D.R that as the A.O had blatantly failed to conduct any enquiry vis-a-vis the issue in question i.e the assessee‟s claim for deduction of interest expenditure and had summarily allowed the same without carrying out any verification at all, therefore, the Pr.CIT had rightly invoked his jurisdiction u/s 263 of the Act and set-aside the assessment with a direction to the A.O to pass a fresh order after affording a reasonable opportunity of being heard to the assessee. In order to fortify his aforesaid averment that the A.O had failed to carry out any verification as regards the assessees‟ claim for deduction of interest expenditure, the ld. D.R took us through the assessee‟s reply dated 04.02.2017 that was filed in compliance to the notice issued by the A.O u/s 142(1) of the Act, dated 29.01.2017. It was submitted by the ld. D.R that as no infirmity emerges from the order passed by the Pr.CIT u/s 263 of the Act, therefore, the appeal filed by the assessee being devoid and bereft of any merit was liable to be dismissed.
We have heard the ld. authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the ld. A.R to drive home his contentions. Admittedly, it is a matter of fact borne from the record that the case of the assessee was selected for scrutiny assessment under CASS, inter alia, for examining the assessee‟s claim for deduction of interest expenditure. As observed by us hereinabove, the assesse had claimed deduction of interest expenditure of Rs.79,67,173/- in his „profit and loss account‟ for the year under consideration. Although, the assessee had claimed deduction of interest expenditure of Rs.79,67,173/- pertaining to property loan, but except for furnishing the bifurcated details of the interest that was paid on the various loans that were raised by him from the banks/financial
10 Shri Sanjay Agarwal Vs. The Pr.CIT-27 institutions, we find, that in absence of any query by the A.O as regards the corresponding properties to which the loans/borrowings pertained, no such details were furnished by the assessee in the course of the assessment proceedings. As observed by the Pr.CIT, the assesse had during the year under consideration, inter alia, purchased a property, viz. Office No.1001 and 1702 at Brindavan Terrace, Mumbai for a consideration of Rs.8,56,85,000/-, vide respective agreements that were registered on 13.10.2014 and 25.11.2014. Observing, that the assessee had not claimed depreciation on the aforementioned property, the Pr. CIT held a conviction that the same was in the nature of a self-occupied property and had not been used by the assessee for his business purpose during the year under consideration. On being confronted, the assessee in the course of the revisional proceedings furnished the bifurcated details of interest aggregating to Rs.79,67,173/- that was claimed to have been paid in respect of the various loans/borrowings taken from banks/financial institutions vis-a-vis the purchase/acquisition of his various office premises. On a perusal of the aforesaid details, we find that out of the total interest expenditure of Rs.79,67,173/- (supra) only an amount of interest expenditure of Rs.22,63,303/- pertains to the aforementioned office premises i.e Office Nos. 1001 and 1702 at Brindavan Terrace, Mumbai, the purchase/acquisition of which, as stated by the assessee, was partly sourced from the loans/borrowings that were raised by him from two financial institutions, viz. (i). loan from DHFL (for purchase of office no. 1702) : Rs.3,00,00,000/-; and (ii) loan from India Bulls (for purchase of office No. 1001) : Rs.2,59,50,000/-. In the backdrop of the facts furnished by the assessee in the course of the revisional proceedings, we find, that as observed by the Pr.CIT, and rightly so, the assessee had not only in the course of the assessment proceedings but also in the course of the proceedings before him not furnished any documentary evidence which would reveal that the aforementioned office premises viz. office No. 1001 and 1702 at Brindavan Terrace, Mumbai had been put to use by the assessee during the year under 11 Shri Sanjay Agarwal Vs. The Pr.CIT-27 consideration. In fact, as observed by the Pr.CIT the assessee had even failed to place on record any material which would reveal that the possession of the property was taken by him during the year under consideration. As regards the assessee‟s claim for deduction of the balance amount of interest expenditure of Rs.57,02,869/- [i.e Rs.79,67,172/- (-) Rs.62,63,303/-], it was observed by the Pr.CIT, that though it was the claim of the assessee that the same pertained to his three office premises at South Mumbai, Delhi and Chembur that were acquired by him in the earlier years by using the loans/borrowed funds, however, in support of the said claim he had in the course of the revisional proceedings merely furnished a copy of the loan passbook from which the veracity of his said claim could not be gathered. In the backdrop of the aforesaid facts, we are of the considered view, that the Pr.CIT had rightly observed that not only the A.O while framing the assessment vide his order passed u/s 143(3), dated 30.11.2017 had failed to verify as to whether or not the new property purchased by the assessee, viz. Property Nos. 1001 and 1702 at Brindavan Terrace, Mumbai, was in the nature of a self-occupied property or an office premise, but had also not verified as to whether or not the said property had been put to use during the year under consideration. In our considered view, there would be no gainsaying that as per the „Proviso‟ to Sec. 36(1)(iii) of the Act, verification of the fact as to when the aforesaid new property, viz. Property Nos. 1001 and 1702 at Brindavan Terrace, Mumbai was occupied and put to use by the assessee for the purpose of his profession was indispensably required to have been done by the A.O for determining of the interest expenditure on the capital borrowed for purchase /acquisition of the said property, that would be allowable as a deduction, which we find he had failed to do. Apart from that, we concur with the Pr. CIT that the A.O had also failed to verify the claim of the assessee that the balance amount of interest expenditure of Rs.57,02,869/- (supra) pertained to the loans that were raised by the assessee for acquiring/purchasing the other three office premises of his at South Mumbai, Delhi and Chembur in the earlier years. As regards the 12 Shri Sanjay Agarwal Vs. The Pr.CIT-27 claim of the ld A.R that the A.O in the course of the assessment proceedings had duly verified the assessee‟s claim for deduction of the interest expenditure, we are unable to persuade ourselves to accept the same. As is discernible from the reply dated 04.02.2017 filed by the assessee in compliance to the queries that were raised by the A.O u/s 142(1), dated. 29.01.2017, we find, that the assessee had therein only furnished the bifurcated details of the interest expenditure with reference to the banks/financial institutions from whom the same were raised. Accordingly, in the backdrop of our aforesaid deliberations, we are of a strong conviction that no infirmity emanates from the order passed by the Pr.CIT, who had rightly observed that the A.O without verifying the assessee‟s claim for deduction of interest expenditure had summarily accepted the same on the very face of it. Our aforesaid conviction is fortified by the „Explanation 2(a)‟ to Sec. 263 of the Act, as per which, where an order is passed by an A.O without making an inquiry and verification which in the opinion of Principal Commissioner or Commissioner should have been made, the order therein passed by him shall be deemed to be erroneous in so far it is prejudicial to the interest of the revenue. We, thus, are of the considered view that the Pr.CIT had rightly set-aside the assessment order passed by the A.O u/s 143(3), dated 18.03.2020, with a direction to him to pass a fresh assessment order after considering the aforesaid issue and allowing an opportunity of being heard to the assessee. Before parting, we may herein observe, that though it is averred by the ld. A.R that the Pr. CIT had passed the order under Sec. 263, dated 18.03.2020 without affording sufficient opportunity of being heard to the assessee, however, neither the said fact is discernible from the record nor anything in support thereof has been filed before us by the ld. A.R. Accordingly, the aforesaid claim of the assessee being devoid and bereft of any merit is rejected. The Grounds of appeal Nos. 1 to 4 raised by the assessee are dismissed.
13 Shri Sanjay Agarwal Vs. The Pr.CIT-27
8. Resultantly, the appeal filed by the assessee is dismissed.
Order pronounced in the open court on 02.08.2021