TMI Blog2012 (9) TMI 626X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal in its impugned order. There is no dispute that the investment to the sister concern, was not questioned even the Commissioner has not sought to undermine this aspect. Equally, there is no material to say that apart from that single dividend warrant, any other dividend income was received. Furthermore, there is nothing on record to say that the assessee had to expend effort, or specially allocate resources to keep track of its investments, especially dividend yielding ones. In these circumstances, it can be said that whether the deduction under Section 14-A was warranted, was a debatable fact. In any event, even if it were not debatable, the error by the AO is not “unsustainable”. Possibly he could have taken another view yet, that he did not do so, would not render his opinion an unsustainable one, warranting exercise of Section 263 - in favour of assessee. - ITA Nos.236/2010 & 384/2010 - - - Dated:- 17-9-2012 - MR. JUSTICE S. RAVINDRA BHAT, MR. JUSTICE R.V. EASWAR, JJ. For Appellant: Mr. N.P. Sahni, Sr. Standing Counsel. For Respondent: Mr. Ajay Vohra with Ms. Kavita Jha and Mr. Somnath Shukla, Advocates. MR. JUSTICE S.RAVINDRA BHAT The Revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty to the assessee to the assessee company of being heard. 3. The Commissioner, therefore, set aside the assessment on the question of disallowance of proportionate income pertaining to dividend and directed fresh adjudication in accordance with law. The Commissioner s order under Section-263 was challenged in an appeal to the ITAT which concluded after considering the order sheets and the materials placed on record that: - the AO has categorically asked the assessee the breakup of interest and dividend income. The assessee has also filed various details and also demonstrated before us the fact that dividend income was received through a single cheque and no extra expenditure was incurred for earning the same with regard to deployment of funds. Investment in shares was made in earlier years, sufficient own capital reserve was shown in the balance sheets out of which investment was made in the subsidiary company and it was submitted that no interest bearing funds was utilized for the same After noticing scheme of the Act and the scope of revision under Section-263, the Tribunal observed as follows: - It is also pertinent to mention here that unlike the other provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct to the order made by the CIT under Section-263 had disallowed the proportionate expenditure and that since the revisional order itself had been set aside, the appeal against the AO s order also had to be set aside. 5. It is argued by counsel for the Revenue that the Tribunal fell into error in not saying that Section-14-A mandates the AO to determine proportionate expenditure in relation to exempt income such as dividend income. Neither the order nor the proceedings reflected any application of mind to this mandatory provision. It was urged in this context that the observations of the ITAT proceed on the assumption that the AO took into account all the necessary factors and had impliedly accepted the fact that no such deduction could be made. It was highlighted in this context that the expression prejudicial to the interest of Revenue has to be seen in the background of an erroneous order by the AO. According to settled principles it is only in cases where two views are possible that revisional order under Section-263 cannot be made. Counsel relied upon the judgment of the Supreme Court reported as Malabar Industrial Company Ltd v. CIT, 243 ITR 83. Learned counsel also rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tracted below: "263. (1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. 9. In Malabar (supra) the Supreme Court explained the scope and content of revisional power of the Commissioner under Section 263 as follows: "A bare reading of this provision makes it clear that the prerequisite to exercise of jurisdiction by the Commissioner suo moto under it, is that the order of the Income Tax Officer is erroneous insofar as it is prejudicial to the interests of the revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the assessing officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the revenue. If one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when the Assessing Officer adopts one of two courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Assessing Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the Revenue, unless the view taken by the Assessing Officer is unsustainable in law." 10. It is thus, not mere prejudice to the revenue, or a mere erroneous view which can be revised, under Section 263. There should (post Max India) be the added element of unsustainability in the order of the AO, which clothes the Commissioner with jurisdiction to issue notice, and proceed to make appropriate orders. 11. In this case, the record reveals that the AO had issued notice, and held proceedings on several dates (of hearing) before proceeding to frame the assessment. He added nearly Rs. 2 crores to the income at that time. The Commissioner took the view that the assessment order disclosed an error, in that the deduction under Section 14-A had not been made. Now, while the statutory direction to the Assessing Officer to calculate, proportionately, the expenditure which an assesse may incur to obt ..... X X X X Extracts X X X X X X X X Extracts X X X X
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