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2016 (2) TMI 827

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..... ply 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 Assessing Officer, the same cannot be substituted by the Commissioner in the garb of exercise of jurisdiction under section 263 of the Act. In case, where the Assessing Officer had recorded the satisfaction as required under section 14A of the Act, made enquiries and accepted the calculations of the assessee, such an order passed by the Assessing Officer cannot be said to be erroneous as the same has been passed in line with the provisions of the Act. In this regard, we find no merit in the exercise 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. Ra .....

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..... o laid down by the Hon ble Bombay High Court in Godrej Boyce Mfg. Co. Ltd. Vs. DCIT, (2010) 234 CTR 1 (Bom). The Commissioner was of the view that from assessment year 2008-09, there was no scope for working out the disallowance under section 14A of the Act other than through the mechanism provided under Rule 8D of the Rules. 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 Revenue. The Commissioner issued a show cause notice to the assessee, which is reproduced at page 3 of the order passed by the Commissioner. The claim of the assessee before the Commissioner was that though the disallowance is worked out to ₹ 27,08,903/-, in fact as per the said Rule, the disallowable expenditure was worked out to ₹ 6,85,504/- only. An alternate com .....

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..... ect 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 accepted the pro-rata basis adopted by the assessee for working out the disallowable expenditure u/s.14A on the ground that as the assessee had prepared common profit and loss account in respect of its activities and the expenses relating to the various activities are inclusive , the amount of expenditure directly related to the income which does not form part of the total income cannot be worked out as per reasoning thus given by the Assessing Officer for not applying Rule 8D and 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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..... wance is made by the assessee itself. He further pointed out that the Commissioner himself admits that it is 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 disallowance under section 14A of the Act and once satisfaction is recorded, there is no reason to go to the Rule 8D of the Rules. Reliance in this regard was placed on the decision of Hon ble Bombay High Court in Godrej Boyce Mfg. Co. Ltd. Vs. DCIT (supra), wherein the mandate of the Hon ble High Court was that in case the Assessing Officer was not satisfied by the disallowance worked out by the assessee, then resort is to be made to the provisions of Rule 8D of the Rules. The basic condition of application of Rule 8D of the Rules was that as to record satisfaction and where the Asse .....

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..... s not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct. 11. The Hon 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 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 materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jur .....

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..... d 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 aspects of the matter or not. In case, the Assessing Officer had applied his mind and come to a conclusion to which the Commissioner does not agree and merely on such grounds cannot satisfy the test of the necessary conditions for invoking the jurisdiction under section 263 of the Act. Where the perusal of record reflects that enquiries have been made by the Assessing Officer and a particular conclusion was reached by the Assessing 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 Com .....

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..... at hence, sub-section (2) does not ipso facto enable the Assessing Officer to apply the method prescribed by the rules straightaway without considering whether the claim made by the assessee in respect of the expenditure incurred in relation to income which does not form part of the total income 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 accounts of the assessee furnish an objective basis for the Assessing Officer to arrive at a satisfaction in regard to the correctness of the claim of the assessee of the expenditure which has been incurred in relation to income which does not form part of the total income, there would be no warrant for taking recourse to the method prescribed by the rules. For, it is only in the event of the Assessing Officer .....

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