ICICI HOME FINANCE CO. LTD, MUMBAI V. ACIT 10(1), MUMBAI

ITA 3946/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9529 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 01-10-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 14-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K C P PATNAIK
• Keywords: Business income
• Section: 143(3); 14A; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I, MUMBAI BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER.. I.T.A. NO.3946/MUM/2010. ASSESSMENT YEAR : 2005-06 M/S ICICI HOME FINANCE CO. LTD., ASSTT. COMMISSIONER OF TAXATION DEPARTMENT, ICICI BANK LTD., VS. INCOME TAX-10(1), SOUTH TOWER, EAST WING, 9 TH FLOOR, MUMBAI. BANDRA KURLA COMPLEX, BANDRA (EAST), MUMBAI 400 051. PAN AAACI 6285N APPELLANT. RESPONDENT . APPELLANT BY : SMT. ARA TI VISSANJI RESPONDE NT BY : SHRI K.C.P. PATNAIK. DATE OF HEARING : 01-10-2012 DATE OF PRONOUNCEMENT : 30-11-2012. O R D E R PER P.M. JAGTAP, A.M. : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX-10, MUMBAI DATED 15-03-2 010 PASSED U/S 263 OF THE ACT. 2. THE ASSESSEE IN THE PRESENT CASE IS A HOUSING FI NANCE COMPANY WHICH FILED ITS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERAT ION ON 29-10-2005 DECLARING TOTAL INCOME OF RS.28,55,51,580/-. IN THE ASSESSMENT COMP LETED U/S 143(3) VIDE AN ORDER DATED 26 TH DECEMBER, 2007, THE TOTAL INCOME OF THE ASSESSEE W AS COMPUTED BY THE AO AT RS.28,60,04,490/- AFTER MAKING ADDITION/DISA LLOWANCE OF RS.4,52,908/- U/S 2 ITA NO.3946/MUM/2010 14A OF THE ACT. THE RECORDS OF THE SAID ASSESSMENT CAME TO BE EXAMINED BY THE LEARNED CIT AND ON SUCH EXAMINATION, HE FOUND THAT PRIMA FACIE THERE WERE FOLLOWING ERRORS IN THE ASSESSMENT ORDER PASSED BY THE AO U/S 143(3): (I) DEDUCTION OF RS.10,90,00,000/- WAS ALLOWED U/S 36(1)(VIII) ON RESERVE CREATED BY AN ASSESSEE FROM THE BUSINESS OF PROVIDI NG LONG TERM FINANCE FOR CONSTRUCTION OF RESIDENTIAL HOUSES. (II) DEDUCTION OF RS.3092.12 LAKHS BEING FEES INCOM E, RS.464.04 LAKHS OF MISCELLANEOUS INCOME BEING LEASE RENTALS, INTEREST OF INCOME-TAX REFUND OF RS.70.71 LAKHS, ARE NOT INCOME FROM LONG TERM FINANCE FOR CONSTRUCTION OF RESIDENTIAL HOUSE AND DO NOT QUALIF Y FOR DEDUCTION U/S 36(1)(VIII). (III) EXPENSES DEBITED AS INTEREST AND OTHER FINANC IAL CHARGES INCLUDE RS.3,43,24,768/- BOND ISSUE EXPENSES, WHICH ARE CAP ITAL IN NATURE. THE LEARNED CIT ACCORDINGLY ISSUED A NOTICE U/S 26 3 ON 21-04-2009 REQUIRING THE ASSESSEE TO EXPLAIN WHY THE ORDER OF THE AO PASSED U/S 143(3) SHOULD NOT BE REVISED U/S 263 IN VIEW OF THE AFORESAID ERRORS. 3. IN REPLY TO THE NOTICE ISSUED BY THE LEARNED CIT U/S 263, THE FOLLOWING SUBMISSIONS WERE MADE ON BEHALF OF THE ASSESSEE IN WRITING : DURING THE COURSE OF ASSESSMENT, IT WAS SUBMITTED THAT 1-HFC HAS DISCONTINUED THE BUSINESS OF GIVING FRESH HOUSING L OANS AND THE SAME ARE DISBURSED BY ICICI BANK. HOWEVER, WE WOULD LIKE TO DRAW YOUR HONOURS ATTENTION TO THE FACT THAT 1-HFC IS STILL IN THE BU SINESS OF PROVIDING FINANCE FOR CONSTRUCTION OF RESIDENTIAL HOUSES AND CONTINUE S TO SOURCE THE SAID LOANS AND SERVICE THE ENTIRE LOAN PORTFOLIO, INCLUDING TH E OLD PORTFOLIO, WHICH IS STILL CONTINUED IN THEIR BOOKS. THIS IS EVIDENT FRO M THE INTEREST INCOME OF RS.197.82 CRORES EARNED FROM THE LOAN PORTFOLIO SAN CTIONED AND DISBURSED BY 1-HFC AND THUS 1-HFC IS ENTITLED TO DEDUCTION UNDER SECTION 36(1)(VIII) OF THE ACT. IN ITS RETURN OF INCOME, 1-HFC HAD CLAIMED DEDUCTIO N OF RS.109,000,000 UNDER SECTION 36(1)(VIII) @ 40% OF ITS INCOME DERIV ED FROM THE BUSINESS OF LONG TERM FINANCE FROM HOUSING COMPUTED UNDER THE H EAD PROFIT AND GAINS 3 ITA NO.3946/MUM/2010 FROM BUSINESS OR PROFESSION BEFORE MAKING ANY DEDU CTION UNDER THE SAID CLAUSE. THE SAID BUSINESS INCOME INCLUDED FEE INCOM E OF RS.30.92 CRORES AND INTEREST RECEIVED FROM OTHER SOURCES OF RS.4.64 CRORES AND OTHER MISCELLANEOUS INCOME OF RS.70.71 LAKHS. FEE INCOME COMPRISES OF PROCESSING FEES IN RESPECT OF LOANS DISBURSED DURIN G THE YEAR, WHICH IS A PART OF THE COMPANYS BUSINESS OF CRORES EARNED FROM FI XED DEPOSITS WITH BANKS, GOVERNMENT, SECURITIES TOO FORMS A PART OF THE HOUS ING BUSINESS AS 1-HFC AS PER NHBS REGULATIONS WHICH MANDATES COMPANIES TO I NVEST IN CERTAIN SECURITIES IN ORDER TO MAINTAIN THE STATUTORY LIQUI DITY RATIO. THUS THESE INCOME ARE DERIVED FROM THE BUSINESS OF PROVIDING L ONG TERM FINANCE AND ARE ELIGIBLE FOR DEDUCTION UNDER SECTION 36(1)(VIII) OF THE ACT. WITHOUT PREJUDICE, EVEN IF THE AFORESAID INCOME AGG REGATING TO RS.36.26 CRORES IS EXCLUDED, THE DEDUCTION UNDER SECTION 36( 1)(VIII) WOULD NOT CHANGE AS CAN BE SEEN FROM THE WITHOUT PREJUDICE WORKING A TTACHED HEREWITH. AS PER THE SAID WORKING THE RATIO OF INCOME FROM LONG TERM HOUSING FINANCE TO THE TOTAL INCOME COMES TO 84%. THUS ONLY 16% OF THE INC OME CAN BE CONSIDERED AS DERIVED FROM OTHER THAN THE BUSINESS OF LONG-TER M FINANCE FOR CONSTRUCTION OR PURCHASE OF HOUSES FOR RESIDENTIAL PURPOSES. EVE N IF THE SAME IS EXCLUDED, THE DEDUCTION ALLOWABLE U/S 36(1)(VIII) WOULD REMAI N UNCHANGED AT RS.109,000,000 WHICH IS ALLOWED VIDE ORDER U/S 143( 3). THE WITHOUT PREJUDICE WORKING AS PER NOTICE U/S 263 IS SHOWN HE REUNDER:- PARTICULARS AMOUNT. RS. PROFIT/(LOSS) BEFORE SPECIAL RESERVE AS PER COMPUTATION OF BUSINESS INCOME. 36,77,76,325 LESS: NON LONG TERM HOUSING FINANCE INCOME (16% OF ABOVE INCOME) 5,88,44,212 PROFIT FROM LONG TERM FINANCE 30,89,32,113 SPECIAL RESERVE DEDUCTION @40% 12,35,72,845 AMOUNT APPROPRIATED TO SPECIAL RESERVE 10,90,00,000 DEDUCTION ALLOWED UNDER SECTION 36(1)(VIII) 10,90,0 0,000 IN VIEW OF THE AFORESAID, YOUR HONOUR WOULD APPRECI ATE THAT THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) OF THE ACT ALLOWI NG THE DEDUCTION UNDER SECTION 36(1)(VIII) AT RS.10,90,00,000 IS NEITHER E RRONEOUS NOR PREJUDICIAL TO THE INTERESTS OF THE REVENUE AND THUS DOES NOT COME WITHIN THE PURVIEW OF SECTION 263 OF THE ACT. 4 ITA NO.3946/MUM/2010 ISSUE BOND EXPENSES 1-HFC HAD ISSUED BONDS IN MARCH 2004 AND HAD REDEE MED THE SAME IN MARCH, 2005. THE EXPENSES OF R.3,43,24,768 INCUR RED ON THE SAME HAVE BEEN INVESTMENT CORPORATION LIMITED VS. CIT (225 IT R 802) HAS HELD THAT DISCOUNT ON DEBENTURES ISSUED IS AN ALLOWABLE REVEN UE EXPENDITURE. THUS THE CLAIM MADE BY 1-HFC IN RETURN OF INCOME IS CORRECT AND THE ASSESSMENT ORDER PASSED IS NEITHER ERRONEOUS NOR PREJUDICIAL T O THE INTERESTS OF THE REVENUE. THE LEARNED CIT DID NOT FIND MERIT IN THE ABOVE SUB MISSIONS MADE ON BEHALF OF THE ASSESSEE. ACCORDING TO HIM, THE ASSESSEE HAVING DIS CONTINUED THE BUSINESS OF GIVING FRESH HOUSING LOANS COULD NOT BE REGARDED AS CARRYING ON THE BUSINESS OF PROVIDING HOUSING LOANS MERELY ON THE BASIS OF OLD HOUSING LOANS BEING SERVICED BY IT OR ON THE BASIS OF HOUSING LOANS SOURCED BY IT D URING THE YEAR UNDER CONSIDERATION THROUGH ICICI BANK. HE HELD THAT THE ASSESSEE THUS WAS NOT CARRYING ON THE BUSINESS OF PROVIDING HOUSING LOANS DURING THE YEAR UNDER CONSIDERATION SO AS TO BE ELIGIBLE FOR DEDUCTION U/S 36(1)(VIII) AND THERE WA S AN ERROR IN THE ORDER PASSED BY THE AO U/S 143(3) ALLOWING SUCH DEDUCTION TO THE AS SESSEE TO THE EXTENT OF RS.10,90,00,000/-. AS REGARDS THE CLAIM OF THE ASSE SSEE FOR DEDUCTION ON ACCOUNT OF BOND ISSUE EXPENSES AMOUNTING TO RS.3.43 CRORES, TH E LEARNED CIT HELD THAT THE SAID CLAIM WAS ALLOWED BY THE AO WITHOUT CONDUCTIN G PROPER AND ADEQUATE ENQUIRY INASMUCH AS HE FAILED TO EXAMINE THE MATERI AL AND RELEVANT ASPECTS TO ASCERTAIN WHETHER BOND ISSUE EXPENSES WERE CAPITAL OR REVENUE IN NATURE. HE, THEREFORE, TREATED THE ASSESSMENT ORDER PASSED BY T HE AO U/S 143(3) TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE ON THESE TWO ISSUES AND SET ASIDE THE SAME BY AN ORDER PASSED U/S 263 WITH A DI RECTION TO THE AO TO REFRAME IT AFRESH. AGGRIEVED BY THE ORDER OF THE LEARNED CIT, THE ASSESSEE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 5 ITA NO.3946/MUM/2010 4. THE LEARNED COUNSEL FOR THE ASSESSEE AT THE OUTS ET, INVITED OUR ATTENTION TO SCHEDULE VI OF THE BALANCE SHEET GIVING THE DETAILS OF LOANS AND OTHER CREDIT FACILITIES PLACED AT PAGE NO. 16 OF HER PAPER BOOK TO POINT OUT THAT HOUSING LOANS OF THE ASSESSEE OUTSTANDING AS ON 31 ST MARCH, 2005 GIVEN TO THE INDIVIDUALS WERE RS.2355.75 CRORES AS AGAINST THE OUTSTANDING AMOUNT OF SUCH LOAN AS ON 31 ST MARCH, 2004 AT RS.2280.36 CRORES. SHE ALSO POINTED OUT FRO M THE DETAILS OF INCOME GENERATED BY THE ASSESSEE FROM ITS BUSINESS OPERATI ONS GIVEN ON PAGE NO. 17 OF THE PAPER BOOK THAT SUBSTANTIAL INTEREST OF RS.197.82 C RORES WAS RECEIVED BY THE ASSESSEE ON SUCH LOANS DURING THE YEAR UNDER CONSID ERATION WHICH MAINLY INCLUDED INTEREST RECEIVED ON HOUSING LOANS. SHE THEN INVITE D OUR ATTENTION TO THE COPY OF RETURN FILED WITH NHB PLACED AT PAGE NO. 32 AND 33 OF HER PAPER BOOK AND POINTED OUT THAT THE PRINCIPAL BUSINESS TRANSACTED BY THE A SSESSEE COMPANY DURING THE YEAR UNDER CONSIDERATION WAS CLEARLY MENTIONED AS FINAN CING HOUSING LOANS AND SOURCING AND SERVICING HOME LOANS FOR ICICI BANK. SHE ALSO INVITED OUR ATTENTION TO PARA 4 OF THE SAID RETURN PLACED AT PAGE NO. 38 AND 39 OF HER PAPER BOOK WHEREIN ENTIRE DETAILS OF HOUSING LOANS GIVEN BY THE ASSESS EE COMPANY TO INDIVIDUALS WERE GIVEN ALONG WITH DISBURSEMENT MADE DURING THE YEAR UNDER CONSIDERATION. SHE SUBMITTED THAT THERE WERE NO HOUSING LOANS GIVEN BY THE ASSESSEE THROUGH ICICI BANK AND THE ASSESSEE COMPANY HAD ONLY RENDERED SER VICES IN CONNECTION WITH HOME LOANS FOR WHICH FEES WAS SEPARATELY RECEIVED A MOUNTING TO RS.30.92 CRORES. SHE CONTENDED THAT THE ASSESSEE THUS WAS VERY MUCH ENGAGED IN THE BUSINESS OF PROVIDING LONG TERM FINANCE FOR CONSTRUCTION OF RES IDENTIAL HOUSE DURING THE YEAR UNDER CONSIDERATION MAKING IT ENTITLED FOR DEDUCTIO N U/S 36(1)(VIII) AND THERE WAS NO ERROR IN THE ORDER OF THE AO ALLOWING THE SAID D EDUCTION. AS REGARDS THE ALLOWABILITY OF DEDUCTION U/S 36(1)(VIII) IN RESPEC T OF INCOME BY WAY OF FEES AMOUNTING TO RS.30.92 CRORES RECEIVED FROM ICICI AN D MISCELLANEOUS INCOME OF RS.4.64 CRORES, SHE SUBMITTED THAT THE FEES RECEIVE D FROM ICICI WAS IN CONNECTION 6 ITA NO.3946/MUM/2010 WITH SERVICING OF HOUSING LOANS AND THE SAME, THERE FORE, WAS ELIGIBLE FOR DEDUCTION U/S 36(1)(VIII) WHILE THE MISCELLANEOUS INCOME OF R S.4.64 REPRESENTED INTEREST ON DEPOSIT MADE AS PER THE REQUIREMENT OF NHB AND THE SAID INCOME, THEREFORE, WAS IN THE NATURE OF PROFIT DERIVED FROM ELIGIBLE BUSINESS OF PROVIDING LONG TERM FINANCE FOR DEVELOPMENT OF HOUSING IN INDIA. 5. AS REGARDS THE OTHER ERROR ALLEGEDLY POINTED OUT BY THE LEARNED CIT REGARDING NON-EXAMINATION OF CERTAIN ASPECTS RELATING TO ALLO WABILITY OF BOND ISSUE EXPENSES, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE SAID EXPENSES WERE IN REVENUE NATURE AND THE SAME WERE ALLOWED BY THE AO AFTER MAKING NECESSARY ENQUIRY. SHE CONTENDED THAT THERE WAS THUS NO ERROR IN THE ORDER OF THE AO PASSED U/S 143(3) CALLING FOR REVISION U/S 263 BY THE LEAR NED CIT. 6. THE LEARNED DR, ON THE OTHER HAND, RELIED ON THE IMPUGNED ORDER OF THE LEARNED CIT PASSED U/S 263 IN SO FAR AS THE ERROR C OMMITTED BY THE AO IN ALLOWING DEDUCTION U/S 36(1)(VIII) TO THE ASSESSEE IS CONCER NED. HE SUBMITTED THAT OTHER INCOME IN FORM OF FEES ETC. RECEIVED BY THE ASSESSE E WAS NOT IN THE NATURE OF INCOME DERIVED FROM THE ELIGIBLE BUSINESS AND THERE WAS AN ERROR IN THE ORDER OF THE AO IN ALLOWING DEDUCTION U/S 36(1)(VIII) IN RESPECT OF THE SAID INCOME. HE SUBMITTED THAT THE DEDUCTION CLAIMED BY THE ASSESSE E ON ACCOUNT OF BOND ISSUE EXPENSES WAS ALLOWED BY THE AO WITHOUT MAKING PROPE R AND ADEQUATE ENQUIRY AS POINTED OUT BY THE LEARNED CIT IN HIS IMPUGNED ORDE R AND THERE IS NOTHING ON RECORD TO SUPPORT THE CONTENTION OF THE LEARNED COU NSEL FOR THE ASSESSEE THAT SUCH ENQUIRY WAS INDEED CONDUCTED BY THE AO DURING THE C OURSE OF ASSESSMENT PROCEEDINGS. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALS O PERUSED THE RELEVANT MATERIAL ON RECORD. THE LEARNED COUNSEL FOR THE ASS ESSEE HAS FILED SCHEDULE VI OF 7 ITA NO.3946/MUM/2010 THE BALANCE SHEET OF THE ASSESSEE COMPANY AT PAGE N O. 16 OF HER PAPER BOOK WHICH GIVES THE DETAILS OF THE SECURED LOANS AND OTHER CR EDIT FACILITIES GIVEN BY THE ASSESSEE AS UNDER : AS AT 31 ST MARCH,2004 AS AT 31 ST MARCH,2005 HOUSING LOANS TO RS.2280.36 CRORES RS.2355.75 C RORES. INDIVIDUALS HOUSING LOANS TO RS.190.90 CRORES R S.27.27 CRORES. CORPORATE. OTHER LOANS RS.11.76 CRORES RS.35.03 CRORES. THE LEARNED COUNSEL FOR THE ASSESSEE HAS ALSO FILED SCHEDULE X AT PAGE NO. 17 OF HER PAPER BOOK GIVING DETAILS OF INCOME OF THE ASSE SSEE FROM ITS OPERATIONS AND A PERUSAL OF THE SAME SHOWS THAT INTEREST INCOME OF R S.197.82 CRORES WAS RECEIVED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION OF WHICH MAJOR AMOUNT WAS RELATING TO HOUSING LOANS GIVEN TO THE INDIVIDUALS AND CORPORATE. A COPY OF RETURN FILED BY THE ASSESSEE TO NHB IS ALSO PLACED ON RECO RD BEFORE US AT PAGE NO. 31 TO 40 OF THE ASSESSEES PAPER BOOK AND A PERUSAL OF TH E SAME SHOWS THAT THE PRINCIPAL BUSINESS TRANSACTED BY THE ASSESSEE COMPANY DURING THE YEAR UNDER CONSIDERATION WAS CLEARLY INDICATED AS FINANCING HOUSING LOANS AN D SOURCING AND SERVICING HOME LOANS FOR ICICI BANK. THE DETAILS OF DISBURSEMENT O F HOUSING LOANS DURING THE YEAR UNDER CONSIDERATION WERE ALSO GIVEN IN PART 4.1 OF THE SAID RETURN PLACED AT PAGE NO. 39 OF THE PAPER BOOK WHICH SHOWS THAT 709 NEW H OUSING LOANS WERE DISBURSED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION INVOLVING TOTAL AMOUNT OF RS.15.06 CRORES. IN OUR OPINION, ALL THESE FACTS AN D FIGURES OF THE ASSESSEES CASE ARE SUFFICIENT TO SHOW THAT IT WAS VERY MUCH CARRYI NG ON THE BUSINESS OF PROVIDING LONG TERM FINANCE FOR DEVELOPMENT OF HOUSING IN IND IA MAKING IT ENTITLED FOR 8 ITA NO.3946/MUM/2010 DEDUCTION U/S 36(1)(VIII) AND THERE WAS NO ERROR IN THE ORDER OF THE AO IN ALLOWING SUCH DEDUCTION TO THE ASSESSEE IN THE ASSESSMENT CO MPLETED U/S 143(3). 8. AS REGARDS THE QUANTUM OF SUCH DEDUCTION, IT IS OBSERVED THAT ONE OF THE ERRORS POINTED OUT BY THE LEARNED CIT IN THIS REGAR D IN THE NOTICE ISSUED U/S 263 WAS THAT OTHER INCOME ON ACCOUNT OF FEES, INTEREST ETC . WAS NOT IN THE NATURE OF INCOME FROM ELIGIBLE BUSINESS ENTITLED FOR DEDUCTION U/S 3 6(1)(VIII). HOWEVER, KEEPING IN VIEW HIS CONCLUSION THAT THE ASSESSEE WAS NOT AT AL L ENTITLED FOR THE SAID DEDUCTION, HE APPEARS TO HAVE NOT GIVEN ANY FINDING ON THESE A SPECTS. SINCE THERE IS NO DISCUSSION IN THE ASSESSMENT ORDER PASSED BY THE AO U/S 143(3) ON THIS ASPECT OR EVEN ANY OTHER MATERIAL BROUGHT ON RECORD BEFORE US TO SHOW THAT THIS ASPECT WAS EXAMINED BY THE AO, WE ARE OF THE VIEW THAT THE ASS ESSMENT ORDER SUFFERS FROM AN ERROR TO THE EXTENT OF NON-EXAMINATION OF THIS ASPE CT AND THE SAME BEING PREJUDICIAL TO THE INTEREST OF THE REVENUE, WE UPHOLD THE DIREC TION GIVEN BY THE LEARNED CIT TO THE AO TO THE EXTENT THAT HE SHOULD EXAMINE THIS LI MITED ASPECT OF ASSESSEES CLAIM FOR DEDUCTION U/S 36(1)(VIII) AFRESH. 9. AS REGARDS THE ISSUE RELATING TO ASSESSEES CLAI MS FOR DEDUCTION ON ACCOUNT OF BOND ISSUE EXPENSES, WE FIND THAT THERE IS NOTHING BROUGHT ON RECORD TO SHOW THAT THE CLAIM OF THE ASSESSEE FOR DEDUCTION ON ACCOUNT OF BOND ISSUE EXPENSES WAS ALLOWED BY THE AO IN THE ASSESSMENT COMPLETED U/S 1 43(3) AFTER MAKING PROPER AND ADEQUATE ENQUIRY. THERE WAS A FAILURE ON THE PART O F THE AO TO MAKE SUCH ENQUIRY AS SPECIFICALLY POINTED OUT BY THE LEARNED CIT IN O RDER TO ASCERTAIN THE NATURE OF THE SAID EXPENSES WHETHER CAPITAL OR REVENUE AND IN OUR OPINION, THE ORDER OF THE AO WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF TH E REVENUE ON THIS ISSUE AS RIGHTLY POINTED OUT BY THE LEARNED CIT. WE, THEREFORE, MODI FY THE IMPUGNED ORDER OF THE 9 ITA NO.3946/MUM/2010 LEARNED CIT PASSED U/S 263 TO THE EXTENT INDICATED ABOVE AND ALLOW THIS APPEAL OF THE ASSESSEE IN PART. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED COURT ON THIS 30 TH DAY OF NOV., 2012. SD/- SD/- (AMIT SHUKLA) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED : 30 TH NOV., 2012. WAKODE COPY TO : 1. APPELLANT. 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. D.R., I-BENCH. (TRUE COPY) BY ORDER ASSISTANT REGISTRAR, ITAT, MUMBAI.