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2016 (5) TMI 934 - ITAT CHANDIGARH

2016 (5) TMI 934 - ITAT CHANDIGARH - TMI - Revision u/s 263 - Disallowance u/s 14A and 36(1)(iii) - Held that:- The issues of sections 14A and 36(1)(iii) of the Act were open before the Assessing Officer, who after due verification preferred to make certain disallowances under these sections. Once the disallowances under respective sections have been made, we can safely presume that the provisions of these sections in whole were there before the Assessing Officer i.e. he was seized of all the is .....

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rety consists of "matters". However, there may be many aspects of a "matter". We cannot say that the issues of sections 14A and 36(1)(iii) of the Act were not the "matters" before the CIT (Appeals). Though we can say that one of the aspects related to these "matters" were not there before the Assessing Officer or the CIT (Appeals). In this view, we do not hesitate to hold that the disallowances under sections 14A and 36(1)(iii) of the Act were the "matters" before the CIT (Appeals). Therefore, t .....

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ated 21.3.2013 for assessment year 2008- 09, passed under section 263 of the Income Tax Act, 1961 (in short 'the Act'). 2. Briefly, the facts of the case are that the assessment under section 143(3) of the Act was completed vide order of the Assessing Officer dated 29.12.2008 at an income of ₹ 1,86,30,144/-. Thereafter, on examination of the assessment record, the learned Commissioner of Income Tax, Ludhiana found that the order of the Assessing Officer is erroneous in as much as p .....

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o the same. 3. With regard to the investments made not for business purpose, the learned Commissioner of Income Tax was of the opinion that the assessee is a partner in M/s Friends Colonizers , the income earned in the form of share profit would be exempt from taxation under section 14A of the Act. Therefore, the interest and other expenses in relation to capital invested in the firm have been incurred by the assessee for earning tax free income from the firm. The Assessing Officer completely fa .....

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& Haryana High Court in the case of CIT Vs. Abhishek Industries Ltd., 286 ITR 1, a suitable amount was liable to be capitalized and disallowed out of interest paid under section 36(1)(iii) of the Act. However, this aspect of the case was also not looked into by the Assessing Officer. 4. The assessee raised preliminary objection before the learned Commissioner of Income Tax stating that the Assessing Officer had made disallowances under both sections 14A and 36(1)(iii) of the Act and the appe .....

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on which no interest was paid. Since no investment in the partnership firm was made out of the borrowed funds, no disallowance under section 14A can be made. With regard to disallowance under section 36(1)(iii) of the Act, it was stated that the advance had been made out of loans raised against security of FDRs and the disallowance of interest, if any, would be only notional since the same would be set off against the corresponding interest income from the FDR. 5. The learned Commissioner of In .....

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up in appeal before us, raising following grounds of appeal : "1. That the order passed u/s 263 of the Income-tax Act, 1961 passed by the Ld. Commissioner of Income Tax-ll, Ludhiana is against law and facts on the file in as much as he was no justified to hold that order dated 29.12.2008 suffers from errors and thus, rendering the same to be prejudicial to the interest of the revenue. 2. That he was not justified to set aside the order without fulfilling the twin condition as laid down in .....

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Appeals) and the order of the Assessing Officer having been merged with the order of the CIT (Appeals), the learned Commissioner of Income Tax cannot invoke his jurisdiction under section 263 of the Act. With regard to issues on merit, the submissions made before the learned Commissioner of Income Tax were reiterated. 8. The learned D.R. stated that the Assessing Officer made enquiries and addition was made under section 14A of the Act on a different aspect limited to the dividend income only. N .....

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the rejoinder, the learned counsel for the assessee drew our attention to the reply filed by the assessee before the Commissioner of Income Tax in response to notice under section 263 of the Act, placed at Paper Book pages 3 to 21, whereby at page 13, a specific reply with regard to disallowance under section 14A of the Act that the assessee had sufficient owned funds to invest in partnership firm, no disallowance under section 14A of the Act is called for. It was stated that this issue raised b .....

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be exercised. With regard to the theory of merger, a copy of the order of the I.T.A.T., Chandigarh Bench in the case of M/s Trident Limited Vs. ACIT in ITA No.653/Chd/2011 dated 27.12.2011 was placed on record. 10. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record. The undisputed facts and chronology of events of the present case are that the original assessment under section 143(3) of the .....

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wever, it is also to be noticed that the order of the CIT (Appeals) was passed as on 21.12.2012. The issues before the CIT (Appeals) were that of sections 14A and 36(1)(iii) of the Act. At the time of issue of notice under section 263 of the Act, the order of the CIT (Appeals) was not available to the Commissioner of Income Tax, as the same was passed on a later date. We cannot say that at the time of issuing notice under section 263 of the Act, the assumption of jurisdiction under section 263 o .....

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al, 34 ITR 130 established that it would be open to the Commissioner of Income Tax to revise the assessment order while an appeal against it is still pending before the CIT (Appeals), because the Assessing Officer's order must be regarded as subsisting and effective in law despite the pendency of the appeal. 11. The appellate order having been disposed off, in the present case, before the Commissioner of Income Tax passed order under section 263 of the Act, the question of ground of merger o .....

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en the subject matter of any appeal [filed on or before or after the 1st day of June, 1988], the powers of the [Principal Commissioner or] Commissioner under this sub-section shall extend [and shall be deemed always to have extended] to such matters as had not been considered and decided in such appeal.]" 13. The above explanation was inserted by the Finance Act, 1989, with retrospective effect from 1st June 1988. Earlier to that, two judicial views were prevailing, one endorsing the view t .....

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ery clear that the learned Commissioner of Income Tax has jurisdiction to invoke the provisions of section 263 of the Act to the extent of such matters only which had not been considered and decided in appeal by the CIT (Appeals). Therefore, the inference of law in this regard comes to the effect that the matters which have been decided by he CIT (Appeals) before the order of the learned Commissioner of Income Tax under section 263 of the Act cannot be tinkered with by the Commissioner of Income .....

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ich have been subject of appeal. Therefore, the "matters" which have already been dealt with by the CIT (Appeals) cannot be the issues to be taken up for revision under section 263 of the Act. Now the question before us is whether the disallowance made by the Assessing Officer and confirmed by the CIT (Appeals) with respect to sections 14A and 36(1)(iii) of the Act were "matters" or as contended by the learned D.R., the same were considered by them to an extent but not to the .....

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o an extent, however, not to the extent the Commissioner of Income Tax wants in his order under section 263 of the Act with respect to investment made in the advance booking of office. 16. The issues of sections 14A and 36(1)(iii) of the Act were open before the Assessing Officer, who after due verification preferred to make certain disallowances under these sections. Once the disallowances under respective sections have been made, we can safely presume that the provisions of these sections in w .....

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matter". The issues relating to sections 14A and 36(1)(iii) of the Act in its entirety consists of "matters". However, there may be many aspects of a "matter". We cannot say that the issues of sections 14A and 36(1)(iii) of the Act were not the "matters" before the CIT (Appeals). Though we can say that one of the aspects related to these "matters" were not there before the Assessing Officer or the CIT (Appeals). In this view, we do not hesitate to hol .....

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der : "The first question is directed to the aspect whether after the appellate order was passed by the AAC or an appeal had been preferred, the Commissioner had jurisdiction in the facts and circumstances of this case under Section 263 of the Act. Now, it is well settled that before an appeal before the AAC certain orders are appealable. It is also well settled that in an appeal preferred before the AAC the whole assessment is open for review by the AAC. He is both the appellate as well as .....

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e. In this case the question is whether the quantum of allowance or disallowance or depreciation was the subject-matter of appeal or not. It is true that whether depreciation should be calculated on the basis of 12 months or it should be calculated on the basis of 11 months was not a specific aspect which was agitated before the AAC nor did he give any direction on this aspect of the matter but he had this aspect kept open for adjudication by him even though not taken by the assessee. Then, on t .....

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risdiction, otherwise an anomalous position would arise. The ITO has been directed by the AAC to fix depreciation at a certain percentage, indicated by the AAC, without any further direction that it should be confined to 11 months or 12 months. But, now, if further consideration is superimposed by the Commissioner by rectification made by the ITO as a result of the order passed by the Commissioner under Section 263 then that would be in conflict with the direction given by the AAC in his appella .....

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f CIT v. Amritlal Bhogilal & Co. . This was also reiterated in the decision in the case of Jeewanlal (1929) Ltd. v. Addl. CIT and the decision in the case of Premchand Sitanath Roy v. Addl. CIT . The Allahabad High Court reiterated the same principle in the case of J. K. Synthetics Ltd. v. Addl. CIT . Therefore, it appears to us that as the quantum of depreciation was the subject-matter of appeal the Commissioner had no jurisdiction, in the facts and circumstances of this case, to issue the .....

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ve jurisdiction under section 263 of the Act to revise the same on the pretext of verifying another aspect of the same subject matter. 18. There is another aspect to the present case. The Commissioner of Income Tax in his order under section 263 of the Act, after holding the order of the Assessing Officer to be erroneous to the extent prejudicial to the interest of revenue, recorded the following finding in last paragraph of his order : "4.0 In view of the above facts and legal position, it .....

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and given him directions to frame the same de- novo. However, we observe that the Commissioner of Income Tax was not justified in setting aside the entire order of assessment in exercise of his revisionary powers under section 263 of the Act, in view of the fact that the order of the Assessing Officer was subject matter of an appeal before the CIT (Appeals). This view gets strengthened by the Full Bench judgment of the Madhya Pradesh High Court in the case of CIT Vs. K.L. Rajput, reported in 16 .....

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