2023 (8) TMI 1111 - ITAT JAIPUR

Revision u/s 263 - pre-requisites to exercise of jurisdiction by the ld. Pr.CIT u/s 263 - disallowance u/s 14A r.w.r. 8D - HELD THAT:- Section 263 provision cannot be invoked to correct each and every type of mistake or error committed by the AO; it is only when an order is erroneous as also prejudicial to revenue’s interest, that the provision will be attracted. An incorrect assumption of the fact or an incorrect application of law will satisfy the requirement of the order being erroneous. The phrase 'prejudicial to the interest of the revenue' has to be read in conjunction with an erroneous order passed by the AO. Every loss of Revenue as a consequence of the order of the AO cannot be treated as prejudicial to the interest of the Revenue.

In the present case assessee has explained source of investment by submitting that it has total investment in equities and mutual funds against which its share capital and reserves stands for Rs. 38508.89 lacs. As assessee had not used borrowed funds for making investments. Entire investments were made out of owned funds. Consequently, borrowing cost incurred in investment is NIL. When mixed funds (interest bearing and interest free) are available, the right of appropriation is vested with the assessee.

In the case of the assessee interest income earned outweigh the interest expenditure. It clearly shows that no interest cost has been incurred to make any investment which shall result in exempt income.

As decided in the case of Adani Infrastructure & Developers (P.) Ltd.[2021 (2) TMI 486 - GUJARAT HIGH COURT] held that Rule 8D(2)(ii) shall have no application where interest income earned outweigh interest expenditure.

AO has considered the information filed by the assessee and arrived at conclusion that no disallowance is warranted under section 14A - The view of the AO is duly supported by the decisions of Hon’ble High Courts and Tribunals relied upon by the assessee. SLP filed by the revenue in this regard against the decisions of Hon’ble High Courts have been dismissed in the cases PCIT vs. Oil Industry Development Board [2019 (3) TMI 1571 - SC ORDER] and CIT vs. Chettinad Logistics Pvt. Ltd. [2018 (7) TMI 567 - SC ORDER] as relied upon by the A/R of the assessee in the detailed submission. This position was duly taken into consideration by the AO while passing the assessment order, which is evidently clear from the assessment order itself, as reproduced herein above and the order passed by the AO is not warranted revision.

In our considered opinion, the assessment order cannot be regarded as erroneous, or being prejudicial to the interests of the Revenue more so the assessee has non- interest bearing funds in the shape of share capital and reserves are much more than the investment which may result exempt income. the assessee has not incurred any indirect expenses to earn the exempt income and ld. PCIT has not brought any material to show that the assessee has incurred indirect expenses to earn the exempt income.

PCIT has erred in invoking the provisions of Section 263 of the IT Act and in passing the impugned order. Accordingly, we find merit in the grievance raised by the assessee.