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

ITA 2249/MUM/2024

AI Insights

The case involves Tuljabhavani Housing Development Pvt. Ltd., which appealed against the revision orders for the assessment years 2016-17 and 2017-18 passed by the PCIT-4, Mumbai. The PCIT had set aside the original assessment orders, deeming them erroneous and prejudicial to the interests of the Revenue, as they were passed without adequate inquiry into the interest income reported by the assessee. The Tribunal considered the arguments from both the assessee and the Revenue, focusing on whether the Assessing Officer had conducted sufficient inquiry during the reassessment proceedings. The Tribunal concluded that the Assessing Officer failed to conduct necessary verifications, leading to the dismissal of the appeals.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 38014 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-02-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2016-2017
• Other Referred Cases: Karan Polymers Pvt. Ltd. v. PCIT (Kolkata), PCIT v. Karan Polymers Pvt. Ltd., CIT v. Lok Holdings, Bhikhabhai Rajabhai Dhameliya v. PCIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ASSESSEE; BISWANATH DAS
• Assessee Lawyers: JITENDRA SINGH
• Keywords: Business income; Capital asset; Transfer pricing; Reassessment proceedings; Business expenditure; Depreciation; TDS; Revision of order
• Section: 148; 194A; 2

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “E” MUMBAI BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND SHRI RAHUL CHAUDHARY (JUDICIAL MEMBER) ITA Nos. 2249 & 2248/MUM/2024 Assessment Years: 2016-17 & 2017-18 Tuljabhavani Housing Development Pvt. Ltd., Mehta House No. 4, Block No. 5, Bhai Jeevanji Lane S, JSS Road, Kalbadevi H.O. Mumbai-400 002. Vs. PCIT-4, 6th floor, Aayakar Bhavan, Maharishi Karve Road, Churchgate, Mumbai-400020. PAN NO. AACCT 5733 G Appellant Respondent Assessee by : Mr. Jitendra Singh Revenue by : Mr. Biswanath Das, CIT-DR Date of Hearing : 20/02/2025 Date of pronouncement : 24/02/2025 ORDER PER OM PRAKASH KANT, AM The captioned appeals by the assessee are directed against two separate revision orders, both dated 28.02.2024, passed by the Ld. Principal Commissioner of Income-tax-4, Mumbai ( in short the ‘PCIT’) for assessment years 2016-17 and 2017-18 respectively. 2. As facts and circ both the parties agree as a lead case and Therefore, same were heard together and disposed off by way of this consolidated order. The grounds raised in are reproduced as under: 1. The Ld. PCIT has erred in passing an Order Us 263 and setting aside the assessment Order framed by the Assessing Officer, although he was unable to satisfy the twin conditions of the Erroneous and Prejudicial to the interest of the Revenue. 2. The Ld. PCIT failed to take into consideration that an order is erroneous and prejudicial only if, it involves an error; deviates from law; is contrary to law; upon mistaken view o application of legal principle. Merely because the revisionary authority feels and opines that verification was not correctly made, does not make an order, erroneous and prejudicial to the interest 3. Briefly stated fact income was filed by the assessee therefore, the Assessing Officer after recording reasons to believe that income of Rs.46,76,240/ received by way of interest oth TDS was also deducted, Act,1961( in short the Act) reassessment proceedings, the Assessing Officer issued notice u/s Tuljabhavani Housing Development Pvt. Ltd. As facts and circumstances of both appeals being identical, oth the parties agreed to take appeal for assessment year 2016 as a lead case and follow the result of same in AY 2017 Therefore, same were heard together and disposed off by way of this . The grounds raised in assessment year 2016 are reproduced as under: The Ld. PCIT has erred in passing an Order Us 263 and setting aside the assessment Order framed by the Assessing Officer, although he was unable to satisfy the twin conditions of the AO's order being, Erroneous and Prejudicial to the interest of the Revenue. The Ld. PCIT failed to take into consideration that an order is erroneous and prejudicial only if, it involves an error; deviates from law; is contrary to law; upon mistaken view of law or upon erroneous application of legal principle. Merely because the revisionary authority feels and opines that verification was not correctly made, does not make an order, erroneous and prejudicial to the interest of Revenue. Briefly stated facts of case are that as no regular return of by the assessee for the year under consideration, therefore, the Assessing Officer after recording reasons to believe that income of Rs.46,76,240/- escaped assessment, which was interest other than the interest on security and TDS was also deducted, issued notice u/s 148 of the ,1961( in short the Act) on 27.03.2021. During the reassessment proceedings, the Assessing Officer issued notice u/s ITA Nos. 2249 & 2248/MUM/2024 2 Tuljabhavani Housing Development Pvt. Ltd. umstances of both appeals being identical, to take appeal for assessment year 2016-17 follow the result of same in AY 2017-18. Therefore, same were heard together and disposed off by way of this assessment year 2016-17 The Ld. PCIT has erred in passing an Order Us 263 and setting aside the assessment Order framed by the Assessing Officer, although he was unable to AO's order being, Erroneous and Prejudicial to the interest of the The Ld. PCIT failed to take into consideration that an order is erroneous and prejudicial only if, it involves an error; deviates from law; is contrary to f law or upon erroneous application of legal principle. Merely because the revisionary authority feels and opines that verification was not correctly made, does not make an order, erroneous and prejudicial to the no regular return of for the year under consideration, therefore, the Assessing Officer after recording reasons to believe escaped assessment, which was er than the interest on security and issued notice u/s 148 of the Income-tax on 27.03.2021. During the reassessment proceedings, the Assessing Officer issued notice u/s 142(1) of the Act dat assessee on 25.02.2022 the reassessment order on 24.03.2022 accepting the returned income. 3.1 Subsequent to the assessment, t records and after exa Rs.47,67,775/- was received by the assessee, on which tax was also deducted u/s 194A of the Act, but the assessee claimed the same as part of business receipts and deducted all business expenditure debited in profit and loss against said interest income. to him the interest income was required to be assessee under head ‘income from other sources’ and the expenses and loss account having not allowable. He further noted that assessment was made when without making inquiry or verification in this regard. Accordingly, after considering submission of the assessee, passed by the Assessing Officer as erroneous in so far as prejudicial to the interest of the Revenue order giveing direction to pass a fresh assessment order after making necessary inquiry in the matter. 4. Before us, the Ld. Book containing pages 1 to 50 referred to paper book page 27 which is part of the questionnaire Tuljabhavani Housing Development Pvt. Ltd. 142(1) of the Act dated 22.11.2021 which was replied by the assessee on 25.02.2022. Thereafter, the Assessing Officer passed the reassessment order on 24.03.2022 accepting the returned Subsequent to the assessment, the Ld. PCIT called for the records and after examination, and observed that interest income of was received by the assessee, on which tax was also deducted u/s 194A of the Act, but the assessee claimed the same as part of business receipts and deducted all business expenditure debited in profit and loss against said interest income. him the interest income was required to be assessee under head ‘income from other sources’ and the expenses debited in the and loss account having no nexus with said interest income was He further noted that assessment was made when making inquiry or verification in this regard. Accordingly, after considering submission of the assessee, he treated the order passed by the Assessing Officer as erroneous in so far as prejudicial to the interest of the Revenue and cancelled the sai direction to pass a fresh assessment order after making necessary inquiry in the matter. Before us, the Ld. Counsel for the assessee has filed a Paper Book containing pages 1 to 50. The ld Counsel for per book page 27 which is part of the questionnaire ITA Nos. 2249 & 2248/MUM/2024 3 Tuljabhavani Housing Development Pvt. Ltd. ed 22.11.2021 which was replied by the hereafter, the Assessing Officer passed the reassessment order on 24.03.2022 accepting the returned CIT called for the that interest income of was received by the assessee, on which tax was also deducted u/s 194A of the Act, but the assessee claimed the same as part of business receipts and deducted all business expenditure debited in profit and loss against said interest income. According him the interest income was required to be assessee under head debited in the profit with said interest income was He further noted that assessment was made when making inquiry or verification in this regard. Accordingly, he treated the order passed by the Assessing Officer as erroneous in so far as prejudicial said assessment direction to pass a fresh assessment order after for the assessee has filed a Paper ld Counsel for assessee per book page 27 which is part of the questionnaire issued by the Assessing Officer. The question No. 19 referred by the Ld. counsel for the assessee is reproduced as under: “19. Please furnish the details of all the loans & advances (including capital ass interest charged on the same. of interest paid and claimed in P & L account are exclusively for the purpose of business and professional disallowance u/s 36(iii) should not be made in your 4.1 Further, the Ld. counsel referred to reply of the assessee in respect of queries raised For ready reference said reply is also reproduced as under: “19. A. Details of Interest earned on loans & advances given - Details of loans & advances given are shown in Balance sheet. - Interest received de 1. Interest Received on loans 2. Interest on Income Tax Refund - Interest on Income Tax refund are as under. 1. Assessment year 2. Assessment year 3. Assessment year Total Rs. 91536 B. No interest paid during the year. Tuljabhavani Housing Development Pvt. Ltd. issued by the Assessing Officer. The question No. 19 referred by the Ld. counsel for the assessee is reproduced as under: “19. Please furnish the details of all the loans & advances (including capital asset in progress) given with the details of interest charged on the same. Please justify the amount of interest paid and claimed in P & L account are exclusively for the purpose of business and professional. Also furnish the explanation as to why e u/s 36(iii) should not be your case.” ( emphasis supplied externally) Further, the Ld. counsel referred to reply of the assessee in respect of queries raised, which is available on Paper Book page 32. For ready reference said reply is also reproduced as under: 19. A. Details of Interest earned on loans & advances given Details of loans & advances given are shown in Balance sheet. Interest received details : 1. Interest Received on loans Rs. 46762397- 2. Interest on Income Tax Refund Rs. 915367- Total Rs. 47677757- Interest on Income Tax refund are as under. 1. Assessment year-2011-2012 16790 2. Assessment year-2014-2015 32158 3. Assessment year-2013-2014 42588 B. No interest paid during the year. ITA Nos. 2249 & 2248/MUM/2024 4 Tuljabhavani Housing Development Pvt. Ltd. issued by the Assessing Officer. The question No. 19 referred by the Ld. counsel for the assessee is reproduced as under: “19. Please furnish the details of all the loans & advances et in progress) given with the details of Please justify the amount of interest paid and claimed in P & L account are exclusively for the purpose of business and . Also furnish the explanation as to why e u/s 36(iii) should not be ( emphasis supplied externally) Further, the Ld. counsel referred to reply of the assessee in which is available on Paper Book page 32. For ready reference said reply is also reproduced as under: 19. A. Details of Interest earned on loans & advances given Details of loans & advances given are shown in Balance sheet. 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 submitted that the Assessing Officer had duly verified the issue of interest income, which formed the basis for reopening the assessment. According to him, while the assessment order may be prejudicial to the Revenue, it is not erroneous. He argued that the Assessing Officer, after considering the assessee’s submissions, had taken a reasoned view that the interest income should be assessed under the head \"Business and Profession.\" Therefore, the Learned Principal Commissioner of Income Tax (PCIT) cannot substitute hi own view in place of the Assessing Officer’s conclusion. of this argument, the Learned Counsel relied on the decisions in:  Karan Polymers Pvt. Ltd. v. PCIT (Kolkata),  PCIT v. Karan Polymers Pvt. Ltd.  CIT v. Lok Holdings  Bhikhabhai Rajabhai Dhameliya v. PCIT taxmann.com 493 (Surat 4.3 On the other hand, the Learned Departmental Representative (DR) contended that the assessment was reopened due to the escapement of interest income. Therefore, the Assessing Officer was Tuljabhavani Housing Development Pvt. Ltd. In view of above your honor will find the above details in order as per In light of the above query and response, the Learned Counsel that the Assessing Officer had duly verified the issue of interest income, which formed the basis for reopening the assessment. According to him, while the assessment order may be prejudicial to the Revenue, it is not erroneous. He argued that the g Officer, after considering the assessee’s submissions, had taken a reasoned view that the interest income should be assessed under the head \"Business and Profession.\" Therefore, the Learned Principal Commissioner of Income Tax (PCIT) cannot substitute hi own view in place of the Assessing Officer’s conclusion. of this argument, the Learned Counsel relied on the decisions in: Karan Polymers Pvt. Ltd. v. PCIT (2022) 97 ITR (Trib.) 556 PCIT v. Karan Polymers Pvt. Ltd., IA No. GA/2/2023, CIT v. Lok Holdings [2010] 189 Taxman 452 (Bombay), and Bhikhabhai Rajabhai Dhameliya v. PCIT taxmann.com 493 (Surat-Trib.). On the other hand, the Learned Departmental Representative (DR) contended that the assessment was reopened due to the escapement of interest income. Therefore, the Assessing Officer was ITA Nos. 2249 & 2248/MUM/2024 5 Tuljabhavani Housing Development Pvt. Ltd. In view of above your honor will find the above details in order as per In light of the above query and response, the Learned Counsel that the Assessing Officer had duly verified the issue of interest income, which formed the basis for reopening the assessment. According to him, while the assessment order may be prejudicial to the Revenue, it is not erroneous. He argued that the g Officer, after considering the assessee’s submissions, had taken a reasoned view that the interest income should be assessed under the head \"Business and Profession.\" Therefore, the Learned Principal Commissioner of Income Tax (PCIT) cannot substitute his own view in place of the Assessing Officer’s conclusion. In support of this argument, the Learned Counsel relied on the decisions in: (2022) 97 ITR (Trib.) 556 GA/2/2023, [2010] 189 Taxman 452 (Bombay), and Bhikhabhai Rajabhai Dhameliya v. PCIT [2023] 151 On the other hand, the Learned Departmental Representative (DR) contended that the assessment was reopened due to the escapement of interest income. Therefore, the Assessing Officer was duty-bound to examine the correct head under which the interest income was to be assessed. The DR submitted that the Assessing Officer had issued only a single query letter, in which the inquiry regarding interest income/expenses was limited to details of interest paid, if any, for earning interest income. However, the Assessing Officer failed to examine the assessee's profit and loss account, where the assessee had claimed business expenses amounting to ₹33,54,309/ expenses included the cost of materials, employee benefits, depreciation, amortization, and other expenditures. that, in the absence of a proper inquiry or verification prudent Assessing Officer ought to have conducted assessment order is deemed interests of the Revenue under Explanation 2 to Section 263 of the Act. He also referred to Ground No. 2 of the appeal, which asserts that the PCIT cannot deem an order erroneous or prejudicial merely due to insufficient verification. However, the DR contended that, in light of Explanation 2 introduced with effect from 01.06.2015, this ground itself becomes infructuous. 4.3 We have considered the rival submissions and carefully examined the relevant materials on record. Explanation 2 to Section 263 of the Income Tax Act, whic 2015, stipulates that if the Assessing Officer fails to conduct the Tuljabhavani Housing Development Pvt. Ltd. bound to examine the correct head under which the interest was to be assessed. The DR submitted that the Assessing Officer had issued only a single query letter, in which the inquiry regarding interest income/expenses was limited to details of interest paid, if any, for earning interest income. However, the sing Officer failed to examine the assessee's profit and loss account, where the assessee had claimed business expenses 33,54,309/- against the interest income. These expenses included the cost of materials, employee benefits, mortization, and other expenditures. that, in the absence of a proper inquiry or verification prudent Assessing Officer ought to have conducted assessment order is deemed to be erroneous and prejudicial to the venue under Explanation 2 to Section 263 of the Act. He also referred to Ground No. 2 of the appeal, which asserts that the PCIT cannot deem an order erroneous or prejudicial merely due to insufficient verification. However, the DR contended that, in of Explanation 2 introduced with effect from 01.06.2015, this ground itself becomes infructuous. We have considered the rival submissions and carefully examined the relevant materials on record. Explanation 2 to Section 263 of the Income Tax Act, which came into effect from , stipulates that if the Assessing Officer fails to conduct the ITA Nos. 2249 & 2248/MUM/2024 6 Tuljabhavani Housing Development Pvt. Ltd. bound to examine the correct head under which the interest was to be assessed. The DR submitted that the Assessing Officer had issued only a single query letter, in which the inquiry regarding interest income/expenses was limited to details of interest paid, if any, for earning interest income. However, the sing Officer failed to examine the assessee's profit and loss account, where the assessee had claimed business expenses against the interest income. These expenses included the cost of materials, employee benefits, The DR argued that, in the absence of a proper inquiry or verification— which a prudent Assessing Officer ought to have conducted—the erroneous and prejudicial to the venue under Explanation 2 to Section 263 of the Act. He also referred to Ground No. 2 of the appeal, which asserts that the PCIT cannot deem an order erroneous or prejudicial merely due to insufficient verification. However, the DR contended that, in of Explanation 2 introduced with effect from 01.06.2015, this We have considered the rival submissions and carefully examined the relevant materials on record. Explanation 2 to Section h came into effect from June 1, , stipulates that if the Assessing Officer fails to conduct the necessary inquiry or verification that ought to have been carried out during the assessment process, the resulting assessment order shall be deemed erroneou Revenue. The relevant provision of below: “263. Revision of orders prejudicial to revenue. [Explanation 2.—For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall 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 or Principal] Commissioner or Commissioner, (a) the order is passed without making inquiries or verification which should have been made60 (b) the order is passed allowing (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.] 5. Therefore, in the present case, it is essential to determine whether the Assessing Officer conducted the necessary verification regarding the interest income. The assessee reported the interest income as \"Other Income\" in the profit and loss account and di declare any revenue from operations. However, the assessee claimed total business expenses amounting to this \"Other Income.\" The relevant portion of the profit and loss Tuljabhavani Housing Development Pvt. Ltd. necessary inquiry or verification that ought to have been carried out during the assessment process, the resulting assessment order shall be deemed erroneous and prejudicial to the interests of the The relevant provision of Section 263 “263. Revision of orders prejudicial to revenue. For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer 64[or the Transfer Pricing Officer, as the case may be,] 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 65[Chief Commissioner or Chief Commissioner incipal] Commissioner or Commissioner,— the order is passed without making inquiries or verification which should 60; the order is passed allowing any relief without inquiring into the claim; the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.] Therefore, in the present case, it is essential to determine whether the Assessing Officer conducted the necessary verification regarding the interest income. The assessee reported the interest income as \"Other Income\" in the profit and loss account and di declare any revenue from operations. However, the assessee claimed total business expenses amounting to ₹33,54,309/ this \"Other Income.\" The relevant portion of the profit and loss ITA Nos. 2249 & 2248/MUM/2024 7 Tuljabhavani Housing Development Pvt. Ltd. necessary inquiry or verification that ought to have been carried out during the assessment process, the resulting assessment order s and prejudicial to the interests of the Section 263 is reproduced For the purposes of this section, it is hereby declared that an order [or the Transfer Pricing Officer, as the case may be,] ll be deemed to be erroneous in so far as it is prejudicial to the interests of the [Chief Commissioner or Chief Commissioner the order is passed without making inquiries or verification which should any relief without inquiring into the claim; the order has not been made in accordance with any order, direction or the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.] Therefore, in the present case, it is essential to determine whether the Assessing Officer conducted the necessary verification regarding the interest income. The assessee reported the interest income as \"Other Income\" in the profit and loss account and did not declare any revenue from operations. However, the assessee 33,54,309/- against this \"Other Income.\" The relevant portion of the profit and loss account, as available on below: 5.1 Thus, given the facts and circumstances of the present case, the Assessing Officer was required to examine how the interest income qualified for assessment under the head Profession.\" He also needed to determine whether earni constituted the assessee's business activity or if the interest income was incidental to the assessee’s business operations which interest was earned were made for furtherance of business activity. However, no such inquiries were any responses provided by the assessee. Therefore, we are of the considered opinion that the Assessing Officer failed to conduct the necessary inquiry or verification that ought to have been undertaken during the assessment Tuljabhavani Housing Development Pvt. Ltd. account, as available on Page 9 of the Paper Book, is reprod Thus, given the facts and circumstances of the present case, the Assessing Officer was required to examine how the interest income qualified for assessment under the head He also needed to determine whether earni constituted the assessee's business activity or if the interest income was incidental to the assessee’s business operations which interest was earned were made for furtherance of business . However, no such inquiries or verification were any responses provided by the assessee. Therefore, we are of the considered opinion that the Assessing Officer failed to conduct the necessary inquiry or verification that ought to have been undertaken during the assessment proceedings. Accordingly, we ITA Nos. 2249 & 2248/MUM/2024 8 Tuljabhavani Housing Development Pvt. Ltd. of the Paper Book, is reproduced Thus, given the facts and circumstances of the present case, the Assessing Officer was required to examine how the interest income qualified for assessment under the head \"Business or He also needed to determine whether earning interest constituted the assessee's business activity or if the interest income was incidental to the assessee’s business operations or advances on which interest was earned were made for furtherance of business erification were made, nor were any responses provided by the assessee. Therefore, we are of the considered opinion that the Assessing Officer failed to conduct the necessary inquiry or verification that ought to have been proceedings. Accordingly, we concur with the findings of the decision. The case laws relied upon by the assessee have been duly considered, however, given the differing facts and circumstances, they are not applicable to the pre of appeal for AY 2016 6. The facts and circumstances for the year under consideration for assessment year 2017 assessment year 2017 7. In the result, both the appeals of the assessee are dismissed. Order pronounced in the open Court on Sd/ (RAHUL CHAUDHARY JUDICIAL MEMBER Mumbai; Dated: 24/02/2025 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// Tuljabhavani Housing Development Pvt. Ltd. concur with the findings of the Learned PCIT and uphold his decision. The case laws relied upon by the assessee have been duly however, given the differing facts and circumstances, they are not applicable to the present case. As a result, the grounds of appeal for AY 2016-17 stand dismissed. The facts and circumstances for the year under consideration for assessment year 2017-18 being identical all the ground raised in assessment year 2017-18 are also dismissed. In the result, both the appeals of the assessee are dismissed. nounced in the open Court on 24/02/2025. Sd/- (RAHUL CHAUDHARY) (OM PRAKASH KANT JUDICIAL MEMBER ACCOUNTANT MEMBER the Order forwarded to : BY ORDER, (Assistant Registrar) ITAT, Mumbai ITA Nos. 2249 & 2248/MUM/2024 9 Tuljabhavani Housing Development Pvt. Ltd. and uphold his decision. The case laws relied upon by the assessee have been duly however, given the differing facts and circumstances, As a result, the grounds The facts and circumstances for the year under consideration 18 being identical all the ground raised in In the result, both the appeals of the assessee are dismissed. /02/2025. Sd/- OM PRAKASH KANT) ACCOUNTANT MEMBER BY ORDER, (Assistant Registrar) ITAT, Mumbai "