R V INTERIOR PVT. LTD. ,DELHI V. PCIT, DELHI

ITA 452/DEL/2022

AI Insights

The case involves R.V. Interior Pvt. Ltd., which appealed against the order of the PCIT, Delhi-7, concerning the assessment year 2016-17. The primary issues were the increase in investments in unlisted equities and high interest expenses related to exempt income under Section 14A of the Income Tax Act. The AO initially accepted the assessee's explanations and completed the assessment. However, the PCIT later invoked Section 263, deeming the assessment order erroneous and prejudicial to the interests of the Revenue, leading to the appeal. The Tribunal's decision emphasized that the AO had made a proper inquiry and taken a considered view, thus reversing the PCIT's order.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 474612 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2016-2017
• Other Referred Cases: Greenworld Corporation - [2009J 181 Taxman 111 (SC), CIT v. Vodafone Essar South Ltd. - [2012] 28 taxmann.com 273 (Delhi), CIT v. Anil Kumar Sharma - [2010J 194 Taxman 504 (Delhi), PCIT vs. Shree Gayatri Associates - [2019]106 taxmann.com 31 (SC), PCIT vs. Sumatichand TolamalGouti - [2019]111 taxmann.com 287 (SC), Braham Dev Gupta v. PCIT - {2017]88 taxmann.com 831, CIT v. NiravModi - {2016] 71 taxmann.com 272 (Bombay), CIT vs Gabriel India Limited [1993] 203 ITR 108, PCIT vs. V. Dhana Reddy & Co. - [2018] 100 taxmann.com 358 (SC), CIT vs. International Society For Krishna Consciousness - [2020] 117 taxmann. com 799 (SC), Ramesh Kumar, ITA No. 1982/Del/2018 for A. Y. 2014-15 order dated 25.01.2019, Shanker Tradex Pvt. Ltd. vs. PCIT, ITA No. 2999/Del/2017 for A.Y. 2007-08 order dated 16.04.2018, Surya Financial Services Ltd. vs. PCIT[2018-TIOL-74-ITAT- DEL]order dated 08.01.2018, Gee Vee Enterprises vs Addl. CIT, 99 ITR 375, Perfetti Van Melle India Pvt. Ltd., ITA No. 3046/Del/2016 for A.Y. 2009-10 order dated 11.01.2019
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D.S. SIDHU
• Assessee Lawyers: K. SAMPATH
• Keywords: Set aside; Proportionate interest; Reassessment proceedings; Business expenditure; Capital Gains; Earning of tax free income; Audit objection; Assessment record; Revision of order
• Section: 143(3); 142(1); 143(2); 263; 13; 14A

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘F’: NEW DELHI BEFORE SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER and MS. MADHUMITA ROY, JUDICIAL MEMBER ITA No.452 /DEL/2022 (Assessment Year: 2016-17) R.V. Interior Pvt. Ltd., vs. PCIT, C – 11, 1st Floor, Anand Niketan, Delhi. Delhi – 110 021. (PAN : AAECR9860J) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri K. Sampath, Advocate Shri S.K. Goyal, CA REVENUE BY : Shri D.S. Sidhu, CIT DR Date of Hearing : 13.02.2025 Date of Order : 28.03.2025 O R D E R PER S. RIFAUR RAHMAN, ACCOUNTANT MEMBER : 1. The assessee has filed appeal against the order of the Learned PCIT, Delhi – 7 (for short ‘ld. PCIT)’) dated 31.03.2021 for Assessment Year 2016-17. 2. Brief facts of the case are, the assessee filed its return of income for AY 2016-17 on 12.10.2016 declaring income of Rs.21,36,144/-. The case was selected for limited scrutiny through CASS. Accordingly, the notices u/s 143(2) and 142(1) of the Income Tax Act, 1961 (in short ‘the Act’) were 2 ITA No.452/DEL/2022 issued and served on the assessee. In response, ld. AR of the assessee attended and submitted the relevant information as called for. 3. The case was selected for limited scrutiny to verify the large increase in investment in unlisted equities during the year and high interest expenses relatable to exempt income u/s 14A of the Act. When the assessee was asked to submit the above specific details, the assessee in its reply submitted that there are no investments in listed, unlisted or any kind of shares made by the assessee during the year under consideration. The investments shown in the Balance Sheet are for purchase of property and are part of the business of the Company. No specific finance cost was incurred in relation to the said property. The investments are made in the earlier years and the same are assessed to tax, the relevant investments are highlighted in the bank statement. It was also submitted that AYs 2012-13 and 2014-15 are selected for regular scrutiny and relevant orders were passed u/s 143(3) of the Act, copy filed before the AO. It was also submitted that the provisions of section 14A are not applicable to the assessee as there is not investment made which yield exempt income. After considering the reply of the assessee, the AO completed the assessment by accepting the returned income. 4. On verification of the assessment records and audit scrutiny of the assessment order, Ld. PCIT, Delhi-7 observed that the AO has not 3 ITA No.452/DEL/2022 verified the issues on the basis of which the limited scrutiny was selected. According to him, the AO should have verified whether the investments were made from disclosed sources, whether income earned from investments are disclosed and whether the interest claimed is admissible. 5. He observed that the assessee has claimed Rs.57,24,201/- in its Profit and loss account, he also observed from the note 11 of the Balance Sheet forming part of audit report, the assessee has invested an amount of Rs.375,94,381/- in purchase of immovable properties in real estate and not in unlisted securities. He was of the view that the assessee has provided incorrect information in the ITR. Since the assessee has not provided correct information in the ITR, the reason for scrutiny would have been different. 6. Further he relied on the findings of Audit Scrutiny of the Balance sheet as on 31.03.2016 and it revealed that the assessee’s own capital in the business is lesser than the borrowed capital, therefore the capital employed by the assessee was barely sufficient to meet the working capital requirement or even the capital required for fixed assets employed in the business. Therefore, the interest cost employed by the assessee was utilized for investment purpose. He further observed that the investments made in the real estate which are to be paid in instalments, he listed the various investment made by the assessee in the residential flats, he came 4 ITA No.452/DEL/2022 to the conclusion that the purchase of the house property is made for the purpose of investments and not for the purpose of business, interest cost cannot be allowed as a business expenses. Further he observed that the investment in house property will lead to income from house property and when it is sold, will lead to income from capital gains. Accordingly, he calculated the interest allowable under the head income from the business and other proportionate interest of Rs. 49,47,606/- is not allowable as business expenses, may be added back to the income of the assessee. 7. By relying on the audit objection, assessment order placed on record, he was of the view that prima-facie the assessment is erroneous and prejudicial to the interest of Revenue. He issued the notice u/s 263 and asked the assessee to appear and submit the compliance. In response, the assessee submitted detailed submissions on the allowability of interest and on invoking of section 263, it was submitted as under:  “Section 263 can be invoked only if the assessment order is 'erroneous in so far as it is prejudicial to the interests of the revenue.  In the present case, Section 263 is not invocable at all as the assessment order is neither erroneous nor prejudicial to the interests of revenue. The same is discussed as below: a) The assessment order is not erroneous  The assessment order is not erroneous as none of the conditions specified in Explanation 2 to Section 263 are satisfied. 5 ITA No.452/DEL/2022  The assessment order has been passed after full verification of facts and application of mind by the Ld AO who has then taken a considered view regarding the allowability of interest expenses.  The case was selected for limited scrutiny specifically on the issues of increase in investments and deductibility of interest expenses. It had been mistakenly assumed by the AO that the investments related to unlisted equity shares. The assessee provided all details related to the investments and interest expenses. It was demonstrated with evidence that the investments were made in properties out of own funds and were related to the core business of the company. It was also demonstrated with evidence that the loans were not in the nature of home loans and that there was no correlation between the investments and the borrowings of the company.  Questionnaires and submissions for the relevant A Y 2016-17 are attached as Annexure-4.  The assessee also provided copies of the previous years' assessment orders where the interest expenses had been fully allowed. The Ld AO has recorded in the assessment order that:  The investments are for purchase of property and are part of the business.  There is no specific finance cost incurred in relation to the said properties.  Past years' investments have been assessed.  Interest has been fully allowed in the previous assessment orders.  The submission of the assessee, the facts and material on record have been considered. From the above, it is clear that the Ld AO has made detailed inquiries, applied her mind to the case and taken a considered view that the investments are for business purposes and that interest expenses are fully allowable. It is submitted that an order is not erroneous if it is not a case of \"no inquiry\". If an order is passed after making inquiry on an issue and 6 ITA No.452/DEL/2022 after having examined the replies of the Assessee with due application of mind, it is not the case where no inquiry was made. Therefore, such a case cannot be treated as a case of \"no inquiry\" and thus proceedings u/s 263 of the Act cannot be initiated. Further, an assessment order cannot be subject to revision u/s 263 merely because another view is possible on the issue decided by the AO. Following judgements including that of the Supreme Court have decided this issue in favour of the Assessee:  Supreme Court in the case of Greenworld Corporation - [2009J 181 Taxman 111 (SC)  Delhi High Court in the case of CIT v. Vodafone Essar South Ltd. - [2012] 28 taxmann.com 273 (Delhi)  Delhi High Court in the case of CIT v. Anil Kumar Sharma - [2010J 194 Taxman 504 (Delhi)  Lack of enquiry/no enquiry is different from inadequate enquiry and it is only in case of no enquiry by the AO that Pro CIT/CIT can exercise jurisdiction u/s 263 of the Act and not in cases where the AO has made detailed enquiries as seem appropriate in the facts and circumstances of the case. Similar proposition was upheld in the following rulings:  PCIT vs. Shree Gayatri Associates - [2019]106 taxmann.com 31 (SC)  PCIT vs. Sumatichand TolamalGouti - [2019]111 taxmann.com 287 (SC)  Delhi Tribunal in the case of Braham Dev Gupta v. PCIT - {2017]88 taxmann.com 831  Bombay High Court in the case of CIT v. NiravModi - {2016] 71 taxmann.com 272 (Bombay) [Revenue's SLP dismissed by SC] Further, in the case of CIT vs Gabriel India Limited [1993] 203 ITR 108, the Hon'ble Bombay HC held that the Ld CIT cannot invoke Section 263 and substitute his opinion for that of the AO. Where the AO has made sufficient enquiries, the assessee has replied to the same and the AO has taken a considered view, the order cannot be said to be erroneous for the purpose of Section 263 merely because the Ld CITIPCIT has a different opinion regarding the issue. 7 ITA No.452/DEL/2022 Further, in the case of PCIT vs. V. Dhana Reddy & Co. - [2018] 100 taxmann.com 358 (SC), the Hon'ble Supreme Court has held that if AO had adopted a plausible view, revision uls 263 not sustainable. Similarly, in the case of CIT vs. International Society For Krishna Consciousness - [2020] 117 taxmann. com 799 (SC), the Karnataka High Court held that \"where Assessing Officer after making due enquiries found assessee's claim for exemption of income as correct and, thus, dropped reassessment proceedings, since view taken by him was one of possible views, impugned revisional order passed under section 263 was to be set aside ... \"  Hon'ble ITAT Delhi Bench in the case of Ramesh Kumar, ITA No. 1982/Del/2018 for A. Y. 2014-15 order dated 25.01.2019 has observed as under-, Ongoing through the facts, it can be observed that the Assessing Officer has not conducted any enquiry and this is a clear case of lack of enquiry not a case inadequate enquiry. Furff1\"er non application of mind by the Assessing Officer can be easily gauzed from the fact that the information available with the Assessing Officer has not been utilised during the assessment proceedings which makes the case fit applying the provisions of explanation 2 (a) of section 263.  Further, Hon'ble ITA T Delhi Bench in the case of Shanker Tradex Pvt. Ltd. vs. PCIT, ITA No. 2999/Del/2017 for A.Y. 2007-08 order dated 16.04.2018 has rightly held that the Assessing Officer though reopened the assessment proceedings did not made an in mention of the same in the Assessment Order itself which proves that the order is passed without making inquiries or verification which should have been made by the Assessing Officer. Thus, it is prejudicial to the interest of the Revenue and there is loss of revenue.  Similar view is taken by Hon'ble ITAT Delhi Bench in the case of Surya Financial Services Ltd. vs. PCIT[2018-TIOL-74-ITAT- DEL]order dated 08.01.2018, the relevant part of which is reproduced as under- \"6.5 In view of above, there is absolutely no dispute that the AO has not made any enquiry regarding the accommodation entry pertaining to the assessee specifically which was found during the course of search and investigation in SK Jain Group as highlighted by the Pro CIT. Once adequate or proper enquiry has not been done, then in terms of Explanation 2 inserted in section 8 ITA No.452/DEL/2022 263 of the Act by the Finance Act, 2015, w.e.f. 1.6.2015, the assessment order is deemed to be erroneous in so far as it is prejudicial to the interest of Revenue.”  Hon'ble Delhi High Court in the case of Gee Vee Enterprises vs Addl. CIT, 99 ITR 375 has clearly held that the Commissioner can regard the order as erroneous on the ground that in the circumstances of the case, ITO should have made further inquiries before accepting the statements made by the assessee in his return.  Further Hon'ble Delhi Bench in the case of Perfetti Van Melle India Pvt. Ltd., ITA No. 3046/Del/2016 for A.Y. 2009-10 order dated 11.01.2019 has taken a similar view by observing that where the Assessing Officer has not properly adjudicated the issue of claim u/s•80IC before allowing the same to the assessee company, the Pr. CIT has rightly invoked Section 263 of the Act and passed the order.” 8. After considering the assessee response, Ld PCIT was of the view that there were no enquiries conducted by the AO on the issues under consideration, accordingly he invoked the explanation 2 of section 263 of the Act. He rejected the submissions of the assessee that the AO has made full verification before passing the order by observing that the AO has merely accepted the submissions of the assessee without making proper verification, the order is cryptic and non-speaking. By relying on the case law on the issue of cryptic order, further he rejected the argument of the assessee on the issue of not availed any loan for purchase of house property, assessee has sufficient funds for making investments and there is no direct next between interest bearing funds and investment in house property. Therefore, he directed the AO to verify whether the investment 9 ITA No.452/DEL/2022 in the properties has any nexus with the interest bearing borrowed funds and make disallowance of only such interest cost which is linked with the investment in house property made by the assessee. 9. Aggrieved with the above order, the assessee is in appeal before us and raised the following grounds of appeal: “1) That on the basis of facts and the law governing the case, the action of the Ld. PCIT in exercising revisionary powers u/s 263 is not justified as the matter related to interest expenses was already assessed by the Ld AO in the original assessment order u/s 143(3) dated 01/12/2018. 2) That on the basis of facts and the law governing the case, the order of the Ld PCIT is patently illegal and unsustainable as he has not passed an order on the merits of the case. 3) That on the basis of facts and the law governing the case, the order of the Ld PCIT is patently illegal and unsustainable as he has not rendered an independent finding regarding how the order of the Ld AO is erroneous or prejudicial to the interests of revenue. 4) That the aforesaid grounds of appeal are without prejudice to each other.” 10. At the time of hearing, Ld AR submitted that the assessment was selected and completed on the basis of selection criteria of limited scrutiny and brought to our notice relevant notice issued u/s 143(2) of the Act, page 62 of paper book. Further, he brought to our notice the submissions of the assessee before the AO through ITBA portal, which is placed at page 133 to 136 of the paper book, he submitted that the assessee has submitted all the relevant information of investments during the year 31.03.2016 and 31.03.2015. It was also informed that the assessee does not have any 10 ITA No.452/DEL/2022 exempt income. Further he brought to our attention the other submissions made by the assessee, which is placed on record at pages 136 to 142, further details of loans and its categories, details of interest expenses. He submitted that the assessee has addressed the various queries raised by the AO. 11. Further he submitted that similar informations were also submitted before the PCIT during the proceedings. He submitted that the Ld PCIT has proceeded on wrong directions, and he has rejected the submissions simply on the issue of investments made on the house property and not appreciated the fact that the income earned by the assessee whether in the business or income from house property, the same are taxable in the hands of the assessee. All the investments and financial cost are incurred for the purpose of the business. He objected to the findings of the Ld PCIT that there was no verification, he submitted that the assessee has already submitted all the information during the assessment proceedings relating to the queries raised by the AO for the selection criteria and AO has taken one of the possible view and Ld PCIT cannot take another possible view and also the proceedings were initiated on the basis of non- verification, he submitted that Explanation 2 to section 263 cannot be invoked in case of improper verification. 11 ITA No.452/DEL/2022 12. On the other hand, Ld DR of the Revenue submitted that no doubt the case was selected for limited scrutiny, the AO has not asked for right details from the assessee, he brought to our notice page 66 of the paper book, he highlighted the point 10 and submitted that he has asked complete details of investment made/held/sold during the year. He supported the findings of the Ld. PCIT and he elaborately discussed the issue under consideration in his order. He relied on the findings of Ld PCIT. 13. Considered the rival submissions and material placed on record. We observed that the case of the assessee was selected for limited scrutiny and assessee was asked to verify the large increase in investment in unlisted equities and high interest expenses relatable to exempt income u/s 14A. The AO has verified the above said aspect from the information submitted by the assessee. The assessee has brought to our notice the various information submitted through ITBA portal, as per which the assessee has addressed the issues raised by the AO in the 143(2) notices. After considering the information made available before him, the AO has accepted the submissions and completed the assessment. It may look cryptic but they had a minimum mandate to scrutinise the issues raised in the CASS selection. 12 ITA No.452/DEL/2022 14. We observed that the Ld PCIT has accepted the information submitted by the assessee on the issues raised by the AO that the assessee has not made any investment on the listed or unlisted shares, which may lead to exempt income. He also accepted that fact that interest expenses are not related to the exempt income. However, he proceeded to question the rationale of making investments in the house properties, utilisation of borrowed funds in the business and he also raised the issue of allowability of interest expenses for investment in the house property. We find it odd to notice such exercises. The assessee has wide range of business and showing healthy turn over. It is normal for the different assessee to make investments other than the business purpose. How can a tax authority interfere in such decisions, as long as it is in the name and control of the assessee, the related expenses have to be allowed as business expenses. It is also unfair to question how the assessee arranges its funds to run the business. Ld PCIT has highlighted the own funds available in the business, he overlooked the other types of funds available in the business like trade payables and other indirect finances. 15. We further observed that he has directed the AO to verify the issues raised by him without giving proper findings and step into the shoes of the businessman, how he must run the business. He has not justified how 13 ITA No.452/DEL/2022 the interest expenses on the real estate investment cannot be allowed in the income tax provisions. 16. In our view, the AO has verified the limited scope of selection process and taken one of the possible view based on the material available before him and Ld PCIT may have divergent view and possible other views, the same cannot make the assessment order erroneous and prejudicial to the interest of the Revenue. In this case, the Ld PCIT has invoked Explanation 2 to section 263 in this case. Accordingly, the grounds raised by the assessee are allowed. 17. In the result, appeal filed by the assessee is allowed. Order pronounced in the open court on this 28th day of March, 2025. Sd/- sd/- (MADHUMITA ROY) (S.RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 28.03.2025 TS Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals). 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI "