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2015 (10) TMI 1766 - GUJARAT HIGH COURT

2015 (10) TMI 1766 - GUJARAT HIGH COURT - TMI - Revision u/s 263 - benefit under section 35D disallowed - ITAT setting aside the order of CIT passed u/s 263 cancelling the order passed u/s 143(3) - Held that:- Assessee had claimed the benefit thereof in the assessment year 2007-08 and such claim had been allowed and was not disturbed subsequently. It is subsequently in the year 2009-10 that the Commissioner of Income Tax has taken the matter in revision under section 35D. As held by this court i .....

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and the Assessing Officer has adopted one view, the same would not warrant exercise of the powers under section 263 of the Act.

Disallowance under section 14A read with rule 8D(2)(ii) - CIT(A) noted that AO had not made any addition under rule 8D(2)(i) which shows that no expenditure had been considered as directly related to earning exempt income and that the Assessing Officer had disallowed part of the interest expenses under rule 8D(2)(ii) - Held that:- In the facts of the present .....

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operation. Dividend income claimed exempt was of ₹ 64,30,214/- consisting of dividend received from various mutual fund schemes invested as above. No direct expenditure was incurred in relation to receive income of dividend, as these investments were made out of temporary idle IPO proceeds. The Assessing Officer after considering the explanation given by the assessee was not satisfied with regard to the accounts of the assessee in relation to earning income that does not form part of the .....

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erms of section 14A of the Act read with rule 8D of the rules. The Commissioner of Income Tax is of the opinion that he would have assessed the interest expenditure at a higher figure. Therefore, merely because another view is possible is not sufficient to invoke powers under section 263 of the Act. The view adopted by the Assessing Officer, being a plausible view, it cannot be said that the assessment order is erroneous so as to warrant exercise of powers under section 263 of the Act. - Decided .....

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einafter referred to as "the Tribunal") in IT Appeal No.350/AHD/2014 by proposing the following question, stated to be a substantial question of law: Whether the Appellate Tribunal has substantially erred in law in setting aside the order of CIT passed u/s 263 of the Act cancelling the order passed u/s 143(3) of the Act? 2 The assessee is a company engaged in the business of providing natural gas compressors, air compressors and transport contractor. The assessee filed its revised retu .....

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ards public issue expenses incurred after commencement of the business, as according to him, in terms of the provisions of section 35D(1)(ii) of the Act, for assessment year 2008-09 such deduction was available to the assessee for extension of an industrial undertaking and that while quantifying disallowance of expenditure under section 14A of the Act read with rule 8D of the Income Tax Rules, 1962 interest expenditure was considered by the Assessing Officer at ₹ 41,32,115 instead of ͅ .....

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Assessing Officer had erred in allowing the deduction of IPO expenditure of ₹ 61,21,968 in contravention of the provisions of section 35D(1)(ii) of the Act and that the Assessing Officer had also erred in considering the interest expenses of ₹ 41,32,115 instead of ₹ 2,62,65,901 while quantifying the disallowance under section 14A of the Act. He, accordingly, held that the assessment order dated 26.12.2011, made under section 143(3) of the Act was erroneous and prejudicial to th .....

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t the wrong assessment made by the Assessing Officer. If the stand taken by the Assessing Officer were final, there was no need to have section 263 of the Act on the statute book. It was further submitted that the present case is not one wherein two views are possible on the issue. As regards the first issue before the Tribunal, the attention of the court was invited to the provisions of section 35D of the Act, which makes provision for amortisation of certain preliminary expenses. Referring to .....

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extension of the industrial undertaking is completed or the new unit commences the production or operation. It was submitted that in the first year when the assessee would become entitled to such benefit, the respondent-assessee was not an industrial undertaking and hence in the year under consideration the assessee was not entitled to the benefit under section 35D of the Act. It was submitted that subsequent amendment in the year 2009 deleting the word industrial from clause (ii) of subsection .....

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ncome Tax that the assessee had not maintained separate accounts for the purpose of investment and funds for business as well as investment activity fund used for common fund. Thus, the entire interest expenditure incurred by the assessee is attributable in some way or the other to earn exempt income. Therefore, while computing the quantum of disallowance of interest expenses under rule 8D(2)(ii), the figure of interest should be considered at ₹ 2,62,65,901 instead of ₹ 41,32,115. It .....

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of the first year when the benefit under section 35D of the Act had been obtained is disturbed, in the subsequent year it cannot be disturbed. In support of such submission, reliance was placed upon the decision of this court in the case of Deputy Commissioner of Income Tax v. Gujarat Narmada Valley Fertilizers Company Limited, (2013) 356 ITR 450 (Guj), wherein the court had recorded that it was an admitted position that the claim under section 35D of the Act did not arise for consideration for .....

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refusing to continue the benefit of tax holiday granted to the assessee in the earlier years without disturbing the relief granted in the initial years. The court observed that the Income Tax Act recognises the principle of consistency. That in the facts of the said case for as many as 27 years, the Assessing Officer did not dispute certain claims and therefore, the Tribunal has correctly interpreted that the Assessing Officer has wrongly sought to reopen the assessment. It was submitted that, .....

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of the Act. It was submitted that, therefore, the view adopted by the Assessing Officer is not a patently erroneous view and is a permissible view and hence, the Commissioner of Income Tax was not justified in resorting to the provisions of section 263 of the Act. Insofar as disallowance under section 14A of the Act is concerned, reliance was placed upon the findings recorded by the Tribunal to submit that there is no infirmity in the view adopted by the Tribunal. 5 This court has considered th .....

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uch expression as envisaged under section 35D of the Act. From the facts as narrated hereinabove, it is manifest that in respect of financial year 2006-07 relatable to assessment year 2007-08 the assessee had been granted the benefit of amortization under section 35D(1) of the Act. The Tribunal has, in the impugned order, recorded that the first year of the claim under section 35D of the Act was for the assessment year 2007-08 and in that year the claim of the assessee had been accepted under se .....

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efore, the benefit of section 35D was also available to the assessees who were not industrial undertakings. The Tribunal has, accordingly, found that no material has been brought on record to demonstrate that the view taken by the Assessing Officer was not a permissible view. 6 From the findings recorded by the Tribunal and the facts as emerging from the record, it is evident that insofar as the benefit under section 35D of the Act is concerned, the respondent-assessee had claimed the benefit th .....

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thout disturbing the decision in the initial year. Under the circumstances, it cannot be said that the view adopted by the Assessing Officer is not a plausible view. It is by now well settled that if two views are possible and the Assessing Officer has adopted one view, the same would not warrant exercise of the powers under section 263 of the Act. 7 The second issue on which the Commissioner of Income Tax has sought to take the assessment order in revision is that while calculating the disallow .....

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ough the Assessing Officer had invoked the provisions of section 14A read with rule 8D, he had not made any addition under rule 8D(2)(i) which shows that no expenditure had been considered as directly related to earning exempt income and that the Assessing Officer had disallowed part of the interest expenses under rule 8D(2)(ii). According to the Commissioner of Income Tax, the assesee had not maintained separate accounts for the purpose of investment and the funds for business as well as invest .....

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visualised where ITO while making an assessment examines the accounts, makes inquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimates himself. The Commissioner, on perusal of records, may be of the opinion that the estimate made by the officer concerned was on the higher side and, left to the Commissioner, he would have estimated the income at a higher figure than the one determined by the ITO. .....

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e interest of the Revenue. But that by itself will not be enough to vest the Commissioner with the power of suo motu revision because the first requirement, namely, the order is erroneous, is absent. 8 In the facts of the present case, as is apparent from the findings recorded by the Commissioner of Income Tax, the Assessing Officer had invoked the provisions of section 14A of the Act read with rule 8D of the rules. The assessee submitted that mutual fund investment was made out of IPO proceeds. .....

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