INCOME TAX ACT, 1961

Section 263

Revision under section 263 - Erroneous and prejudicial order - Complete incorrect assumption of facts by Pr.CIT - No lack of enquiry on AO's part

Pr. CIT took the view that assessee company was engaged in the business of investment advisory services, project management of consultancy, development management services and real estate development software services Pr. CIT observed that it was not justifiable that assessee extended interest-free loan to IHCL using borrowed funds, where primary motive was to earn interest income on loans extended to the parties. Since this matter was not examined by AO, order of AO was erroneous and prejudicial to the interest of revenue on account of AO having allowed deduction under section 36(1)(iii). Held: Assessee actually was a real estate company, and not a company engaged in the business of financing. Hence, it could be safely concluded that earning interest income on loans extended was not a primary activity of assessee. Accordingly, entire basic premise of Pr.CIT about nature of business was factually incorrect and consequential decision making process thereon would also become incorrect. Adequate enquiries were, indeed, carried out by AO in the course of original assessment proceedings with regard to impugned issue of borrowed funds being utilised for interest free advances to IHCL and consequential allowability of interest on borrowed funds under section 36(1)(iii). Interest-free advance to IHCL was also accepted to be for business purposes by AO and consequentially AO allowed interest on borrowed funds under section 36(1)(iii). Accordingly, order passed by AO could not be treated as erroneous and prejudicial.

ReliedCIT v. Nirav Modi (2016) 390 ITR 292 (Bom) : 2016 TaxPub(DT) 3506 (Bom-HC).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2009-10

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