Case Note & Summary
The appeal was filed by the Pr. Commissioner of Income Tax-14, Mumbai (appellant-revenue) under Section 260-A of the Income Tax Act, 1961, against the order dated 16th January, 2017 of the Income Tax Appellate Tribunal (ITAT) in Appeal No.3314/Mum/2011 for the assessment year 2006-07. The respondent-assessee, Shivshahi Punarvasan Prakalp Ltd., had filed its return of income on 11th November, 2006, which was selected for scrutiny. The Assessing Officer passed an assessment order under Section 143(3) on 16th December, 2008, allowing the assessee's claims for deduction under Section 36(1)(vii) for write off of interest receivable of Rs.6,01,84,862/- forgone under a One Time Settlement (OTS) with borrowers, and under Section 36(1)(iii) for interest expenditure of Rs.2,49,53,390/- incurred on borrowings for a slum rehabilitation project at Dindoshi. On 18th March, 2011, the Commissioner of Income Tax issued a notice under Section 263 of the Act, proposing to treat the assessment order as erroneous and prejudicial to the interest of revenue. The assessee responded that the Assessing Officer had made inquiries and formed an opinion on both issues. However, the Commissioner, by order dated 31st March, 2011, rejected the assessee's submissions and set aside the assessment order. The assessee appealed to the ITAT, which allowed the appeal and set aside the Commissioner's order. The revenue then filed the present appeal before the High Court. The High Court, after considering the submissions, held that the Assessing Officer had made proper inquiries and formed an opinion on the two deductions, and therefore, the Commissioner could not invoke Section 263 merely because he had a different view. The court found no substantial question of law and dismissed the appeal.
Headnote
A) Income Tax - Revision under Section 263 - Erroneous and Prejudicial Order - Section 263 of the Income Tax Act, 1961 - The Commissioner cannot invoke revisionary powers if the Assessing Officer has made proper inquiries and formed an opinion on the issues; mere difference of opinion does not make the assessment order erroneous or prejudicial to revenue. Held that the Tribunal correctly set aside the Commissioner's order as the Assessing Officer had examined the claims for deduction under Sections 36(1)(vii) and 36(1)(iii) during scrutiny. (Paras 1-3) B) Income Tax - Deduction under Section 36(1)(vii) - Write off of Interest Receivable - Section 36(1)(vii) of the Income Tax Act, 1961 - The assessee claimed deduction for interest receivable forgone under One Time Settlement with borrowers; the Assessing Officer allowed the claim after inquiry. The Commissioner's revision under Section 263 was not justified as the Assessing Officer had formed an opinion. (Para 1) C) Income Tax - Deduction under Section 36(1)(iii) - Interest Expenditure - Section 36(1)(iii) of the Income Tax Act, 1961 - The assessee claimed deduction for interest expenditure on borrowings for slum rehabilitation project; the Assessing Officer allowed the claim after inquiry. The Commissioner's revision under Section 263 was not justified as the Assessing Officer had formed an opinion. (Para 1)
Issue of Consideration
Whether the Commissioner of Income Tax was justified in exercising revisionary powers under Section 263 of the Income Tax Act, 1961, to set aside the assessment order on the ground that it was erroneous and prejudicial to the interest of the revenue, when the Assessing Officer had made inquiries and formed an opinion on the two deductions claimed by the assessee.
Final Decision
The High Court dismissed the appeal, holding that no substantial question of law arises. The ITAT order setting aside the Commissioner's revision under Section 263 is upheld.
Law Points
- Section 263 of the Income Tax Act
- 1961
- cannot be invoked if the Assessing Officer has made inquiries and formed an opinion
- Deduction under Section 36(1)(vii) for write off of interest receivable under One Time Settlement
- Deduction under Section 36(1)(iii) for interest expenditure on borrowings for slum rehabilitation project
