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2016 (2) TMI 827 - ITAT PUNE

2016 (2) TMI 827 - ITAT PUNE - TMI - Revision u/s 263 - disallowance u/s 14A - Held that:- Assessing Officer while passing the assessment order is mandatorily required to record a satisfaction as to why suo moto disallowance made by the assessee of the expenditure relatable to exempt income was unreasonable and unsatisfactory, under sub-section (2) to section 14A of the Act and thereafter, resort is to be made to the provisions of Rule 8D of the Rules. In case, where the Assessing Officer is sat .....

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authority to initiate proceedings under section 263 of the Act in directing the Assessing Officer to re-look at the facts and apply the provisions of Rule 8D of the Rules in order to work out the disallowance under section 14A of the Act. We find no merit in the said directions of the Commissioner, where the Assessing Officer had applied his mind and was satisfied with the working of assessee and had not resorted to the provisions of Rule 8D of the Rules, and since one view has been taken by the .....

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rcise of jurisdiction by the Commissioner under section 263 of the Act and the same is held to be invalid - Decided in favour of assessee - ITA No.1211/PN/2013 - Dated:- 20-1-2016 - MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA, AM For The Appellant : Shri C.H. Naniwadekar For The Respondent : Shri S.K. Rastogi, CIT ORDER PER SUSHMA CHOWLA, JM: This appeal filed by the assessee is against the order of CIT-I, Pune, dated 25.03.2013 relating to assessment year 2008-09 against order passed unde .....

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to add, alter, delete or substitute all or any of above grounds of appeal. 3. The issue arising in the present appeal is against exercise of jurisdiction by the Commissioner under section 263 of the Act. 4. Briefly, in the facts of the present case, the assessee had furnished return of income declaring total income of ₹ 4,15,520/- on 30.09.2008. The assessment in the case was completed under section 143(3) of the Act by an order dated 23.12.2010 on total income of ₹ 4,67,702/-. On s .....

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0,000/-. The Commissioner further observed that in the scrutiny assessment, the Assessing Officer no doubt had dealt with the matter, but the Commissioner was of the view that the Assessing Officer had erroneously reasoned out that the disallowance suo motu made by the assessee on prorata basis was correct. He further was of the view that once satisfaction is formed that expenses have been incurred in relation to earning the exempt income, such expenses would have to be disallowed in the manner .....

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ules. He further observed that by applying Rule 8D of the Rules, disallowance would have worked out to ₹ 27,08,903/-, whereas the disallowance of ₹ 10,50,000/- made in the return of income, had been accepted by the Assessing Officer. In view of the above said error on the part of Assessing Officer in applying the correct law laid down in section 14A of the Act, the assessment order dated 23.12.2010 was considered to be erroneous in so far as it was prejudicial to the interest of Reve .....

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he investments from which dividends had been received during the year. However, the Commissioner referring to the provisions of Rule 8D(2)(iii) of the Rules pointed out that for computing the average value, not only the investments from which the dividends have been received during the year, but also the investments from which the dividends have not been received during the year, which shall not form part of total income in future, would have to be taken into consideration. Accordingly, alternat .....

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f the Act was provided to the Assessing Officer, who in turn, was satisfied about the said working and hence, the Assessing Officer had taken a possible view and therefore, the jurisdiction under section 263 of the Act could not survive. The Commissioner vide para 4.2 observed as under:- 4.2. No doubt, disallowance u/s.14A r. w. Rule 8 D need not be made in each and every case. In order that such disallowance can be made, the Assessing Officer, having regard to the accounts of the assessee, shou .....

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ed as one possible view. In this connection, the decision of the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. v. Commissioner of Income tax [109 TAXMAN 66 (SC)] can be fruitfully referred to. In this landmark decision, the Hon'ble Court held that incorrect assumption of facts, incorrect application of law, non-application of mind etc. would render an assessment order erroneous within the meaning of sec.263 of the Act. In the present case, the Assessing Officer accepte .....

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d for accepting the pro-rata working of the assessee is legally un-sustainable. Rule 8D has been prescribed precisely to take care of situations where, among others, the expenses are inclusive and are not directly apportionable to the various income including the exempt income. Such situations are taken care of by the mechanism provided in Clause (ii) and Clause (iii) of sub-Rule(2) of Rule 8D. However, the Assessing Officer stopped at Clause (i) and persuaded herself mistakenly to think that as .....

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e-tax [109 TAXMAN 66 (SC)], the assessment made on the basis of such an incorrect application of law cannot amount to taking one possible view. On the contrary, the assessment thus made will have to be considered as erroneous within the meaning of the section 263 of the Act. For the above reasons, the arguments raised by the assessee in the written submission made on 25.03.2013 to the effect that jurisdiction u/s.263 does not survive is rejected. 5. Since as per the Commissioner, the Assessing O .....

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the order. 6. The assessee is in appeal against the order of Commissioner under section 263 of the Act. 7. The learned Authorized Representative for the assessee pointed out that the issue of disallowance under section 14A of the Act has been dealt with by the Assessing Officer while passing the order under section 143(3) of the Act. Referring to the para 4.2 of the order passed under section 263 of the Act, he further pointed out that he does not know, how the order passed by the Assessing Off .....

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s one possible view then, in cases where the Assessing Officer has taken a possible view, there is no merit in exercise of jurisdiction under section 263 of the Act. Further, the Commissioner has not pointed out what is incorrect assumption of facts, in the case of the assessee, where the Assessing Officer had applied his mind. Referring to the para 3 of the assessment order, it was pointed out by him that the Assessing Officer records satisfaction that the assessee had correctly worked out the .....

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tion of application of Rule 8D of the Rules was that as to record satisfaction and where the Assessing Officer had recorded satisfaction, made enquiries and agreed with the disallowance worked out by the assessee, then what is erroneous in the assessment order passed by the Assessing Officer. The learned Authorized Representative for the assessee in this regard placed reliance on the order of Hon ble Delhi High Court CIT Vs. I.P. Support Services India (P.) Ltd. in ITA No.283/2014, order dated 2 .....

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n so far as it is prejudicial to the interest of Revenue. Both the conditions of order being erroneous and prejudicial to the interest of Revenue are to be fulfilled in order to enable the Commissioner to exercise his jurisdiction under section 263 of the Act. 10. The Hon ble Delhi High Court in Gee Vee Enterprises Vs. Addl.CIT & Others, (1975) 99 ITR 375 (Del) held as under:- "The reason is obvious. The position and function of the Income-tax Officer is very different from that of a ci .....

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acts stated in the return when the circumstances of the case are such as to provoke an inquiry. The meaning to be given to the word "erroneous" in section 263 emerges out of this context. It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word "erroneous" in section 263 includes the failure to make such an inquiry. The order becomes erroneous because such .....

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assed 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 unchartered power, it can be exercised only on fulfillment of the requirements laid down in sub-section (1). The consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no ma .....

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, 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 controversies as it must in other spheres of human activity. 12. 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, reported in 109 TAXMAN 6 .....

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d in loss to 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. 13. The ratios laid down in the above said decisions have to be kept in mind by the Commissioner whil .....

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here there is a finding of fact and as apparent from the record of 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 w .....

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Officer, with reference to such enquiries made during the course 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. The finding of the Commissioner must be clear, un-ambiguous and not debatable. The matter cannot be set-aside to the file of Assessing Officer to make further enquiries without a finding as to the order being errone .....

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of Rule 8D of the Rules. The assessee in the return of income had claimed certain income as exempt, against which it had worked out the disallowance under section 14A of the Act to the extent of ₹ 10,50,000/-. The Assessing Officer during the course of assessment proceedings had dealt with the said issue of disallowance under section 14A of the Act and had accepted the disallowance worked out by the assessee. On the other hand, the Commissioner was of the view that in view of the ratio lai .....

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g Officer is required to determine the amount of expenditure incurred by the assessee in relation to such income, which does not form part of the total income under the Act, in accordance with such method as may be prescribed. The Hon ble High Court (supra) further held that the jurisdiction of Assessing Officer arises where he was not satisfied with the correctness of the claim of assessee in respect of the expenditure, which he claims to have incurred in relation to income which does not form .....

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ncome is correct. The Assessing Officer must, in the first instance, determine whether the claim of the assessee in that regard is correct and the determination must be made having regard to the accounts of the assessee. The satisfaction of the Assessing Officer must be arrived at on an objective basis. It is only when the Assessing Officer is not satisfied with the claim of the assessee, that the Legislature directs him to follow the method that may be prescribed. In a situation where the accou .....

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er, the Hon ble Delhi High Court in CIT Vs. I.P. Support Services India (P.) Ltd. (supra) had, in turn, relied on the ratio laid down by the Hon ble Delhi High Court in Maxopp Investments (P) Ltd. Vs. CIT (2012) 347 ITR 272 (Del) and further on another decision of the same Court in CIT Vs. Taikisha Engineering India Ltd., reported in 370 ITR 338 (Del) and laid down that recording of satisfaction by the Assessing Officer as to why the voluntary disallowance made by the assessee was unreasonable a .....

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re the Assessing Officer is satisfied with the correctness of the claim of the assessee in respect of the expenditure relatable to the exempt income, then there is no reason to apply the method prescribed by the Rules as laid down by the jurisdictional High Court in Godrej & Boyce Mfg. Co. Ltd. Vs. DCIT (supra). As pointed out by us in the paras hereinabove and also as noted by the Commissioner, the Assessing Officer had verified the claim of the assessee in respect of expenditure disallowed .....

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