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2016 (2) TMI 429 - ITAT PUNE

2016 (2) TMI 429 - ITAT PUNE - TMI - Revision u/s 263 - No levy of penalty under section 271(1)(c) on disallowance u/s under section 14A by AO - Held that:- The assessment was completed under section 143(3) of the Act, under which the disallowance was made by the Assessing Officer under section 14A of the Act read with Rule 8D of the Rules at ₹ 40,92,835/-, as against suo-moto disallowance made by the assessee of ₹ 4,35,012. In respect of the aforesaid addition, the Assessing Officer .....

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e disturbed by the Commissioner while exercising jurisdiction under section 263 of the Act. - Decided in favour of assessee - ITA No.1150/PN/2014 - Dated:- 20-1-2016 - MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA, AM For The Appellant : Shri Ketan Ved For The Respondent : Shri S.K. Rastogi ORDER PER SUSHMA CHOWLA, JM: This appeal filed by the assessee is against the order of CIT-III, Pune, dated 30.03.2014 relating to assessment year 2009-10 passed under section 263 of the Income-tax Ac .....

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earned CIT erred in not appreciating that the issue was duly discussed with the assessing officer and that the penalty proceedings were dropped after due application of mind. 4. The learned CIT erred in holding that the issue needs fresh examination at the end of the assessing officer and setting aside the matter to the file of the assessing officer with a direction to re-examine the issue. 5. The learned CIT erred in making following observations which are contrary to the facts of the case and .....

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sessing Officer has dropped the proceedings simply accepting the submission of the assessee, without discussing the merit and legality of the issue involved ... ... It is further seen that the assessee has not preferred any appeal against the said addition. This clearly shows that the assessee has accepted the addition made by the Assessing Officer. The appellant objects to the above observations made by the learned CIT. 6. Each one of the above grounds of appeal is without prejudice to the othe .....

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r under consideration had received tax free dividend of ₹ 96,09,873/- and had suomoto disallowed sum of ₹ 4,35,012/- as expenditure relatable to the exempt income, in view of provisions of section 14A of the Act. However, the Assessing Officer applied the provisions of Rule 8D of Income Tax Rules, 1962 (in short the Rules ) and computed the disallowance at ₹ 40,92,835/-. The said disallowance made by the Assessing Officer was accepted by the assessee and no appeal was filed aga .....

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and show cause notice was issued to the assessee observing that penalty order passed by the Assessing Officer was both erroneous and prejudicial to the interest of Revenue, since the assessee had not filed any appeal against the working of Assessing Officer, which in turn, means that the working of the assessee was not as per section 14A of the Act read with Rule 8D of the Rules. The Commissioner further observed that if the case had not been selected for scrutiny, it could have escaped the add .....

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377; 36,57,823/- under section 14A of the Act, the Assessing Officer should have levied penalty for furnishing of inaccurate particulars of income. The Commissioner further stated that the order passed by the Assessing Officer was erroneous in so far as it was prejudicial to the interest of Revenue and in his view, the issue needs fresh examination at the end of the Assessing Officer and hence, the matter was setaside to the file of Assessing Officer with direction to re-examine the issue. Vide .....

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The assessee is in appeal against the order passed by the Commissioner under section 263 of the Act. 7. The learned Authorized Representative for the assessee pointed out that the order passed by the Commissioner with direction to re-examine the issue is not proper, where the Assessing Officer had already taken a view after considering the submissions of the assessee and had dropped penalty proceedings under section 271(1)(c) of the Act. The issue of whether penalty is to be levied or not is on .....

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ioner as to why the order passed by the Assessing Officer in deleting the penalty under section 271(1)(c) of the Act was erroneous or prejudicial to the interest of Revenue. He had just set-aside the issue ignoring the submissions made by the assessee merely stating that where the assessee had not filed any appeal against the addition made in the quantum proceedings, penalty for concealment could not be deleted. Reliance in this regard was placed on the ratio laid down by the Hon ble Bombay High .....

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the Assessing Officer to be erroneous and prejudicial to the interest of Revenue. 10. Under section 263 of the Act, the Commissioner can invoke his jurisdiction where the assessment order passed by the Assessing Officer is both erroneous and prejudicial to the interest of Revenue. An erroneous order which has resulted in the order being prejudicial to the interest of Revenue can be looked into by the Commissioner, while exercising the jurisdictional power to review the orders of the subordinate .....

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ders passed without applying the principles of natural justice or without application of mind. The phrase "prejudicial to the interests of the Revenue" is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The High Court of Calcutta in Dawjee Dadabhoy and Co. v. S. P. Jain [1957] 31 ITR 872, the High Court of Karnataka in CIT v. T. Narayana Pai [1975] 98 ITR 422, the High Court of Bombay in .....

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onception of acts or orders which are subversive of the administration of revenue. There must be some grievous error in the order passed by the Income-tax Officer, which might set a bad trend or pattern for similar assessments, which on a broad reckoning, the Commissioner might think to be prejudicial to the interests of Revenue administration." In our view, this interpretation is too narrow to merit acceptance. The scheme of the Act is to levy and collect tax in accordance with the provisi .....

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cial to the interests of the Revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of Revenue; or where two views are possible and the Incometax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income-tax Officer is unsustainable in law. " 11. Under the provisions of section 263 of the .....

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rom that of a civil court. The statements made in a pleading proved by the minimum amount of evidence may be accepted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Incometax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to^ ascertain th .....

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us because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct." 13. The Hon ble Supreme Court in CIT Vs. Max India Ltd. (2007) 295 ITR 282 (SC) held as under:- The phrase prejudicial to the interests of the Revenue in section 263 of the Income-tax Act, 1961,has to be read in conjunction with the expression erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of .....

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ble Bombay High Court in CIT Vs. Gabriel India Ltd. (1993) 203 ITR 108 (Bom) had held as under:- ... From a rending of sub-section (1) of section 263, it is clear that the power of suo motu revision can be exercised by the Commissioner only if, on examination of the records of any proceedings under this Act, he considers that any order passed therein by the Income-tax Officer is "erroneous in so far as it is prejudicial to the interests of the Revenue" . It is not an arbitrary or unch .....

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tion of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial .....

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not be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order unless the decision is held to be erroneous. Cases may be visualised where the Income-tax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of t .....

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. It is because the Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be formed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion . . . There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser .....

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er will be erroneous because the order passed is not sustainable in law and the said finding must be recorded. CIT cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mist .....

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ct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under section 263 of the Act. In such matters, to remand the matter/issue to the Assessing Officer would imply and mean the CIT has not examined, and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question. 17. This distinction must be kept in mind by th .....

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er of the Assessing Officer may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the CIT to ask the Assessing Officer to decide whether the order was erroneous. This is not permissible. An order is not erroneous, unless the CIT hold and records reasons why it is erroneous. An order will not become erroneous because on remit, the Assessing Officer may decide that the order is erroneous. Therefore C .....

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ucts, 231 ITR 53 (SC)]. Nothing bars/prohibits the CIT from collecting and relying upon new/additional material/evidence to show and state that the order of the Assessing Officer is erroneous. 18……. 19. In the present case, the findings recorded by the Tribunal are correct as the CIT has not gone into and has not given any reason for observing that the order passed by the Assessing Officer was erroneous. The finding recorded by the CIT is that "order passed by the Assessing Of .....

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Assessing Officer but was not properly examined and therefore the assessment order is "erroneous". The said finding will be correct, if the CIT had examined and verified the said transaction himself and given a finding on merits. As held above, a distinction must be drawn in the cases where the Assessing Officer does not conduct an enquiry; as lack of enquiry by itself renders the order being erroneous and prejudicial to the interest of the Revenue and cases where the Assessing Office .....

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iry to verify and find out whether the order passed is erroneous or not. 17. The Hon ble Guwahati High Court in B & A Plantation & Industries Ltd. & Another Vs.CIT & Others (2007) 290 ITR 395 (Gau) while elaborating on the powers of the Commissioner while exercising the jurisdiction under section 263 of the Act, had held that it was not open to the Commissioner to consider the order of Assessing Officer as erroneous merely because in his view, certain amount of bonus should have .....

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become prejudicial to the interests of the Revenue. Unless both these ingredients are present in a given case, it is not legally permissible for a CIT to initiate suo motu proceeding under s. 263. "Erroneous assessment" refers to an assessment that deviates from the law and is, hence, invalid. The erroneous assessment pertains to a defect, which is jurisdictional in nature. It does not refer to the judgment of the AO in fixing the amount or valuation of property. "Erroneous judgm .....

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ec. 263 does not visualise a case of substitution of the judgment of the CIT for that of the ITO, who makes the assessment, unless the decision of the ITO is held to be an erroneous one. It is an established position of law that the CIT, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and if it was done by the CIT himself, then he would have estimated the income at a figure higher than the one determined by the ITO; but such .....

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eached. 18. The Hon ble Guwahati High Court further held that as under:- Viewed thus, it is clear that every error cannot be an error of jurisdiction and every error of an assessing authority is not open to exercise of suo motu revisional powers under s. 263. If an authority which has the power to assess, makes an assessment and commits a mistake or allows a deduction which ought not to have been allowed, such a mistake, unless it goes to the root of the making of the assessment order, cannot be .....

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f proceeding that the Assessing Officer had framed the assessment after due application of mind and holding enquiries, merely because, the Commissioner is of the view that no enquiries and / or non-sufficient enquiries had been conducted by the Assessing Officer, does not empower the Commissioner to exercise the jurisdiction under section 263 of the Act. It is the record of proceedings from which the presumption can be drawn as to whether the Assessing Officer had applied his mind to the various .....

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e of assessment and if the same is apparent from the perusal of the record of proceedings, then the invocation of jurisdiction by the Commissioner under such circumstances under section 263 of the Act is not sustainable. In any case as held by the Hon ble Delhi High Court in ITO Vs. DG Housing Projects Ltd. (supra) in cases where there is an inadequate enquiry but not lack of enquiry, then the Commissioner must record a finding that the order / enquiry made by the Assessing Officer was erroneous .....

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of jurisdiction under section 263 of the Act cannot be invoked for making short enquiries or to go into the process of assessment again and again merely on the basis that more enquiries ought to have been conducted to find something. 20. In cases where, two views are possible and the Assessing Officer had taken one view, with which the Commissioner may not agree, the said order cannot be termed as erroneous as held by the Hon ble Supreme Court in Malabar Industrial Co. Ltd. Vs. CIT (supra). Fur .....

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the Revenue, cannot make the order prejudicial to the interest of Revenue. In case, where the Commissioner gives his finding that the view taken by the Assessing Officer is un-sustainable in law and therefore, the order is erroneous, which in turn, was prejudicial to the interest of Revenue, then the exercise of power by the Commissioner under section 263 of the Act is to be upheld. 21. Now, coming to the facts of the present case, the assessment was completed under section 143(3) of the Act, u .....

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vide order dated 20.06.2012. The Assessing Officer thus, exercised a view of not levying the penalty under section 271(1)(c) of the Act on the issue of disallowance under section 14A of the Act read with Rule 8D of the Rules. This view expressed by the Assessing Officer cannot be disturbed by the Commissioner while exercising jurisdiction under section 263 of the Act. The Commissioner in order to exercise his powers under section 263 of the Act, has to give a finding that the view taken by the .....

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the issue needs fresh examination at the end of Assessing Officer and hence, the matter was set-aside to the Assessing Officer with direction to re-examine the issue. We find no merit in the said stand of the Commissioner. Where the submissions made by the assessee as to why penalty for concealment under section 271(1)(c) of the Act is not leviable had been considered by the Assessing Officer and penalty proceedings were dropped, the Commissioner on the premise that no appeal had been filed by .....

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