Section 263, read with sections 10(23G), 36(1)(iii), 43B and

IN THE ITAT, MUMBAI BENCH, ‘E’ Seaking Infrastructure Ltd. v. Commissioner of Income-tax, Central – II, Mumbai SUNIL KUMAR YADAV, JUDICIAL MEMBER AND V.K. GUPTA, ACCOUNTANT MEMBER IT APPEAL NO. 4030 (MUM.) OF 2007 [Assessment year 2002-03] October 31, 2007 Section 263, read with sections 10(23G), 36(1)(iii), 43B and 45, of the Income-tax Act, 1961 – Revision Of orders prejudicial to interest of revenue – Assessment year 2002-03 – Commissioner examined assessment order passed by Assessing Officer – He noticed that Assessing Officer had allowed claim of assessee for exemption of capital gains under section 10(23G) arising out of conversion of certain equity share of a company ‘G’ as stock-in-trade in assessment year 2000-01 and subsequent sale of these shares in assessment year 2002-03 and had also allowed claim of interest of Rs. 1,87,06,108 on borrowed funds from a company ‘M’ used for purchase of shares as a business expenditure without verifying fact that conditions laid down in section 10(23G) had not been satisfied – He further noticed that interest paid on funds utilized for purchase of shares held as an investment was a capital expenditure not allowable under section 36(1)(iii) and even otherwise interest paid to ‘M’ was covered by provisions of section 43B and accordingly, set assessment order and asked Assessing Officer to frame assessment denovo – Whether since in instant case examined detailed reply furnished by assessee in respect of its claim and condition of section 10(23G) stood satisfied by assessee it could be said that Assessing Officer had adjudicated issue in assessment order – Held, yes – Whether further since assessee had duly explained Assessing Officer that its claim of interest was made in respect of shares of company ‘G’ which were held as stock-in-trade by assessee and had also explained factual position regarding its claim 2, after considering same had allowed claim of assessee in such circumstances for revising assessment order – Held, yes FACTS The Commissioner examined the assessment order passed by the Assessing Officer. He noticed that the Assessing Officer had allowed the claim of the assessee for exemption of capital gains under section 10(23G) arising out of conversion of certain equity share of a company ‘G’ as stock-in-trade in the assessment year 2000-01 and subsequent sale of these shares in the assessment year 2002-03 and had also allowed claim of interest of Rs. 1,87,06,108 on borrowed funds from a company ‘M’ used for purchase of shares as a business expenditure without verifying the fact that the conditions laid down in section 10(23G) had not been satisfied. He further noticed that the interest paid on funds utilized for purchase of shares held as an investment was a capital expenditure not allowable under section 36(1)(iii) and even otherwise the interest paid to ‘M’ was covered by the provisions of section 43B, proposed the assessment to revise under section 263(1) and further having not been satisfied with the explanation furnished by the assessee held that the assessment order passed by the Assessing Officer was both erroneous and prejudicial to the interest of the revenue. He, accordingly, set aside the same and asked the Assessing Officer to frame the assessment denovo. On second appeal : HELD This was not a case where the Assessing Officer had not adjudicate the issue at all in the assessment order. During the course of assessment proceedings, a specific query was raised in this regard and the assessee had filed a detailed reply before the Assessing Officer justifying its claim. The Assessing Officer having examined the detailed reply furnished by the assessee had adjudicated the issue by passing a speaking order. [Para 7] Further the assessee, in response to the notice issued under section 263, with regard to the claim of exemption of capital gains under section 10(23G) had categorically stated that eligibility of exemption 10(23G) solely rested with the CBDT and the company ‘G’ had been notified by the CBDT to be given exemption under section 10(23G) for the assessment year 1998-99 to 2003-04. The condition of section 10(23G) even otherwise stood satisfied by the assessee-company, as ‘infrastructure capital company’ as defined under Explanations to section 10(23G) means such company as has made investments by way of acquiring shares or providing long term finance to enterprises wholly engaged in the business referred to under section 10(23G). Through written reply, the assessee had also asked the Commissioner to explain as to how it did not satisfy the condition as stipulated in section 10(23G) to claim exemption from long-term capital gain arising on sale of equity shares of company ‘G’. This argument was not dealt with by the Commissioner in his revisional order. Further the long-term capital gain in the instant case was properly computed as per provisions of section 45. Further the conversion in stock-in-trade was in the assessment year 2000-01, when no sale was made. The sale was made in the assessment year 2002-03. Therefore, the total gain was to be bifurcated between long-term capital gain for the period of holding up to the date of conversion and subsequently till the date of sale, the gain would be the income from business, it being stock-in-trade. This calculation was as per provisions of section 45. This factual position was explained to the Assessing Officer during the course of assessment proceedings. [Para 8] Further with regard to the claim of interest on borrowed funds from the company ‘M’ used for the shares as a business expenditure, it was stated that the assessee itself had offered interest of Rs. 98,32,096 for disallowance and the Assessing Officer had also disallowed the same out of the total interest payment of Rs. 2,85,38,204. The assessee had claimed interest amounting to Rs. 1,87,06,108 by way of deduction under section 36(1)(iii). This claim of interest was made in respect of shares of company ‘G’, which were held as stock-in-trade by assessee. This factual aspect was also explained to the Assessing Officer during the course of assessment proceedings. The assessee had also claimed that interest was allowable under section 43B, as the same was paid in the assessment year 2002-03. [Para 9] It is well settled that if two views are possible and the Assessing Officer has taken one of it, such view cannot be revised. [Para 10] Nothing had been placed by the revenue on record that the view taken by the Assessing Officer was not a plausible view. Though the Commissioner might not agree with the view taken by the Assessing Officer but it did not mean that the view taken by the Assessing Officer was not a plausible view. Before invoking provisions of section 263, it is necessary for the revenue to make out case that assessment order is not only erroneous but prejudicial to the interest of the revenue. In the instant case, both these conditions were not satisfied. Therefore, the Commissioner was not justified in invoking his powers under section 263 for revising the assessment order. Therefore, the impugned order passed by the Commissioner deserved to be set aside. [Para 12]