Point of Law: Taxation - Revision of orders prejudicial to revenue - Assessment order can be interdicted under S. 263 of Act, if two conditions are met, i.e., that order is erroneous and is prejudicial to interests of revenue.

JUDGMENT :

Rajiv Shakdher, J.

Table of Contents

Prefatory facts: - ................................................................................................................. 2

Submissions on behalf of the appellant/revenue: - .............................................................. 4

Submissions advanced on behalf of the respondent/assessee: - .......................................... 6

Analysis and reasons: - ....................................................................................................... 7

Issue no. (i): - ...................................................................................................................... 7

Issue no. (ii): - ................................................................................................................... 13

Issue no. (iii): - .................................................................................................................. 15

Issue no. (iv): - .................................................................................................................. 16

Conclusion: - .................................................................................................................... 20

Prefatory facts: -

1. The above-captioned appeals are directed against the common order dated 18.12.2019, passed by the Income Tax Appellate Tribunal [in short "Tribunal"] in ITA Nos. 4341/Del/2019 and 4342/Del/2019, concerning assessment years [in short AYs] 2012-2013 and 2013-2014, respectively.

1.1. The Tribunal, via the impugned order, has in turn set aside two separate but similar orders dated 28.03.2019, passed by the Principal Commissioner of Income Tax [in short “PCIT”] in the exercise of his powers under Section 263 of the Income Tax Act, 1961 [in short "Act"]

1.2. The PCIT has, via his orders dated 28.03.2019, interfered with the assessment orders dated 31.01.2017 and 27.09.2017 passed by the assessing officer [in short “AO”] concerning the respondent/assessee [hereafter referred to as “assessee”] pertaining to AYs 2012-2013 and 2013-2014 respectively. The assessment orders were passed under Section 143(3) read with Section 144C of the Act, although, in the opening sheet of the assessment order concerning AY 2013-2014, there is only a reference to Section 143(3) of the Act. The record also shows that, after the PCIT had passed the order dated 28.03.2019, insofar as AY 2013-2014 is concerned, the AO as directed, passed a fresh order dated 12.11.2019 under Section 143(3) of the Act by conducting “proper enquiries”.

2. The reason why the PCIT had interfered with the original assessment orders was on account of a view held by him that interest earned by the assessee against fixed deposits was adjusted, i.e., deducted from the value of the inventory and not credited to the Profit and Loss Account [in short “P&L account”]. The PCIT noted that the tax auditor, in the report filed in Form 3CD, had observed that interest earned on fixed deposits pertained to “other income” and had not been credited to the P&L account. The interest earned on fixed deposits in AY 2012-2013 was Rs.9,47,04,585/- whereas in AY 2013-2014, the interest earned on fixed deposits was Rs.4,32,91,517/-

2.1. Consequently, after the PCIT had issued two separate show cause notices to the assessee concerning the aforementioned AYs dated 20.02.2019 and had received replies against the same, he proceeded to pass two separate orders of even date, i.e., 28.03.2019 concerning AYs 2012-2013 and 2013-2014.

2.2. The PCIT interfered with the orders of assessment on the ground that they had been passed without making any enquiries as to whether the interest earned by the assessee had any nexus with the real estate project, the construction of which was undertaken by the assessee. Thus, according to the PCIT, the assessment orders were “erroneous” insofar as they were prejudicial to the int