Commission Of Income Taxchennai v. L & T Infrastructuredevelopment Projects Ltd.,Mount Poonamallee Roadmanapakkam, Chennai

In the High Court of Judicature at Madras Dated: 03.06.2013 Coram The Honourable Mrs.JUSTICE CHITRA VENKATARAMANandThe Honourable Ms.JUSTICE K.B.K.VASUKI Tax Case (Appeal) No.87 of 2010 Commission of Income TaxChennai .... Appellant Vs. L & T InfrastructureDevelopment Projects Ltd.,Mount Poonamallee RoadManapakkam, Chennai. .... Respondent APPEAL under Section 260A of the Income Tax Act against the orderdated 09.10.2009 made in I.T.A.No.856/Mds/09 on the file of IncomeTax Appellate Tribunal 'B' Bench for the assessment year 2004-05against the order of the Commissioner of Income Tax, Chennai-I,Chennai 34, dated 27/03/1009 and made in C.No.218/CIT-1/95/263/2008-09 For Appellant : Mr.T.RavikumarFor Respondent : Dr.Anita Sumanth (Judgment of the Court was delivered by CHITRA VENKATARAMAN,J.) This Tax Case (Appeal), filed at the instance of the Revenue asagainst the order of the Income Tax Appellate Tribunal for theassessment year 2004-05, was admitted by this Court on the followingsubstantial question of law: "Whether on the facts and circumstances of the case,the Tribunal was right in setting aside the order of theCommissioner of Income Tax under Section 263 of the Act?" https://hcservices.ecourts.gov.in/hcservices/ 2. The Commissioner of Income Tax revised the assessment byissuing notice under Section 263 of the Income Tax Act, 1961, on theground that the assessment made, particularly with reference to theclaim under Section 14A of the Income Tax Act, was erroneous andprejudicial to the interest of the Revenue. 3. It is seen that the assessee had borrowed secured loans byissue of redeemable non-convertible debentures to the tune of Rs.60crores, but utilized the same towards investment in shares. Theassessee claimed interest and finance charges to the extent ofRs.4.46 crores to pay interest on the debentures issued. Allegingthat the Assessing Officer had not considered the provisions ofSection 14A of the Income Tax Act in a proper perspective and thatthe interest claimed by the assessee was not related to the fundsdeployed in activities from which income had been shown during theyear, the assessment was revised after giving notice to the assessee. 4. The assessee resisted the revision of the assessment on theground that it had used its own funds as well as borrowed funds forinvestment in special purpose vehicles for carrying out variousproject related advisory services. In the circumstances, the assesseecontended that Section 14A of the Income Tax Act was not applicableto the case on hand. The assessee further pointed out that thecompany did not make any investment from the date of issue ofredeemable non-convertible debentures, i.e, between 17.3.2004 and31.3.2004 and hence, the assumption that the same had been utilizedon purposes unrelated to business, was not correct. The assesseealso questioned the legality of the issuance of notice under Section263 of the Income Tax Act, on the ground that when there was noincome claimed as exempt, the question of invoking Section 14A wouldnot be correct. The assessee also questioned the jurisdiction inissuing notice under Section 263 of the Income Tax Act, which did notspecify the ground on which the assessment order was found to beerroneous and prejudicial to the interest of the Revenue. 5. After hearing the assessee, the Commissioner of Income Taxconfirmed the proposal, thereby rejected the contention of theassessee. He reasoned out that in Form 3CD report, the assessee hadstated that it is a Non-Banking Financial Company without acceptingpublic deposits; there was no details on the receipt of the incomerelating to Engineering and financial services and the other sourceof income was interest income; the major item of expenditure debitedin the account was interest and finance charges of Rs.4,46,10,370/-,for which no details were available either in the letter dated12.7.2006 or in any of the schedules. Thus, the Commissioner heldthat when there were no materials to show as to whether the depositsmade had any correlation to the debentures raised and the purpose notbeing clear from the records, the assessment merited to be revised.In the circumstances, setting aside the order of assessment, the Assessing Officer was directed to re-consider the issue in properperspective. Aggrieved by this, the assessee went on appeal beforethe Income Tax Appellate Tribunal. 6. One of the issues raised by the assessee before the Income TaxAppellate Tribunal related to lack of jurisdiction of theCommissioner of Income Tax to revise the assessment. The assesseecontended that the proposal by the Commissioner under Section 263 ofthe Income Tax Act failed to satisfy the twin conditions enunciatedunder Section 263 of the Income Tax Act, in so far as the noticeissued under Section 263 failed to pin-point any error in theassessment order warranting revision. In any event, the assesseecontended that when there was no investment during the period whenthe redeemable non-convertible debentures were issued, the questionof considering Section 14A of the Income Tax Act did not arise.After analysing the case, the Tribunal pointed out that the noticeissued under Section 263 of the Income Tax Act pointed out nospecific error and that only bald and vague statements had been used.Hence, the revisional proceedings were devoid of any basis. TheTribunal further found that when a specific contention was taken bythe assessee as to the absence of materials satisfying the twinconditions under Section 263, the Commissioner of Income Tax hadoverlooked the reply and objection made by the assessee. TheTribunal further pointed out that the assessee had borrowed securedloans by issue of redeemable non-convertible debentures to the tuneof Rs.60 crores and there were no materials to hold that the assesseemade any investment from the date of issue of redeemable non-convertible debentures between 17.3.2004 and 31.3.2004. In thecircumstances, the assumption that it was utilized for non-taxinvestments was not correct. Hence, the Tribunal allowed the appealfiled by the assessee, thereby set aside the order of theCommissioner of Income Tax. Aggrieved by this, the Revenue has filedthe present appeal. 7. Learned Standing Counsel appearing for the Revenue contendedthat the Tribunal committed serious error in overlooking the factthat when the details regarding investment and the purpose forborrowing were not made properly and there was no correlation,rightly, the Commissioner of Income Tax revised the order ofassessment. He further pointed out that the order of assessment madeno reference at all to the enquiry made on this aspect. In thecircumstances, the Tribunal committed serious error in interferingwith the order of the Commissioner of Income Tax. He placed relianceon the decision reported in 346 ITR 452 (TTK LIG Ltd. V. AssistantCommissioner of Income) to support his contention that theCommissioner of Income Tax has jurisdiction under Section 263 of theIncome Tax Act, to revise the order of assessment. 8. We do not agree with the contention of the learned StandingCounsel appearing for the Revenue. As far as the reliance placed onthe decision reported in 346 ITR 452 (TTK LIG Ltd. V. AssistantCommissioner of Income) is concerned, the same merits to bedistinguished on the facts of the case before us. As already pointedout, in paragraph 6 of the order of the Tribunal, it is clearlypointed out that the notice issued under Section 263 of the IncomeTax Act made no specific reference to materials showing theassessment as erroneous and prejudicial to the interest of theRevenue warranting revision of the order of assessment. Thus, unlessthe basis of revision satisfying the twin conditions, namely,erroneous and prejudicial to the interest of the Revenue, are pointedout by the Commissioner of Income Tax in invoking Section 263 of theIncome Tax Act, certainly, the asssessee is entitled to raise thequestion of jurisdiction. Assumption of revisional jurisdiction canbe justified only on the basis of materials indicating the order ofassessment as erroneous and prejudicial to the interest of theRevenue. Thus, in the absence of materials, the Commissioner ofIncome Tax nevertheless seeks to set aside the assessment for freshenquiry. However, it is obvious that the exercise of power is onlyfor enquiry and not on facts existing. 9. As far as the present case is concerned, the Tribunal, as amatter of fact, found that the redeemable non-convertible debentureswere issued between 17.3.2004 and 31.3.2004 and there were noinvestments made during this period. Being pure and simple factualfinding, which has not been denied by the Revenue, we do not findthere exists any ground to accept the case of the Revenue to dislodgethe findings of the Tribunal. 10. In the light of the fact that the notice fails to point outthe basis for revision and that the factual finding as regards theissuance of redeemable non-convertible debentures is not correlatedto any investment made during this period, we have no hesitation inrejecting this appeal, thereby confirming the order of the Income TaxAppellate Tribunal. Accordingly, this Tax Case (Appeal) standsdismissed. No costs. Sd/-Asst. Registrar /true copy/ Sub Assistant Registrar. sl To 1.The Income Tax Appellate Tribunal 'B' Bench,Chennai 2.The Commissioner of Income Tax-I, Chennai-34 3.The Director, Central Board of Direct Taxes, New Delhi. +1cc to Dr. Anita Sumanth, Advocate SR.No.27466 +1cc to Mr. T. Ravikumar, Advocate Sr.No.27371 EV(CO)GP 19/06GP 19/06 T.C.(A) No.87 of 2010