The Ahmedabad Bench of Income Tax Appellate Tribunal (ITAT) ruled that the Principal Commissioner of Income Tax’s (PCIT) action under Section 263 was invalid as it constituted an impermissible second opinion for the Assessment Year(AY) 2018-19.
Black Rock Financial Services Pvt. Ltd.,the appellant-assessee,filed its return of income for the Assessment Year 2018-19 on 06.09.2018, reporting a total loss of Rs. 11,80,550. The assessment, completed on 22.02.2021 under Sections 143(3), 143(3A), and 143(3B), determined total income at Rs. 2,07,60,084, with additions under Sections 2(22)(e) and 40(a)(ia) of the Act.
The PCIT observed that the assessee accepted a short-term borrowing of Rs. 1,72,76,00,000 from Fortune Broking Intermediary Pvt. Ltd. but failed to report interest income. The PCIT noted that proportionate disallowance under Section 36(1)(iii) should have been made.
Get a Copy of Handbook To Income Tax Rules, Click here
Additionally, the PCIT found insufficient disallowance under Section 14A for exempt income of Rs. 2,11,807. After issuing a notice under Section 263 on 07.03.2023, the PCIT determined that the Assessing Officer(AO) did not adequately verify the utility of the borrowed funds and failed to apply the amended provisions of Section 14A, deeming the assessment order erroneous and prejudicial to the revenue’s interest.
The assessee, aggrieved by the Order under Section 263 of the Act, filed an appeal before the tribunal.
The Tribunal reviewed the relevant material and noted that the Assessing Officer had examined the Rs. 1,72,76,00,000 received from Fortune Broking Intermediary Pvt. Ltd. The assessee stated that this amount was received at the end of March, reflected in the current account, and did not attract interest.
The bench concluded that the Assessing Officer had properly verified the issue and that the PCIT’s claim for disallowance under Section 36(1)(iii) was unfounded, as all interest expenses were directly related to the company’s business.
Get a Copy of Handbook To Income Tax Rules, Click here
Additionally, the Assessing Officer confirmed the suo motu disallowance related to exempt income, stating that disallowance could not exceed the exempt income. Therefore, the Tribunal found that the PCIT was not justified in invoking Section 263, as it constituted a second opinion, which was not permissible.
The two member bench comprising Suchitra Kamble(Judicial Member) and Narendra Prasad Sinha(Accountant Member) allowed the appeal filed by the assessee.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
