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TMI Blog2016 (7) TMI 374X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 90,58,000/- from one sister company only viz. M/s Himadri Chemicals & Industries Ltd. In the return of income filed by the assessee company for AY.2009-10, the assessee company offered for disallowance u/s. 14A of the Act, an amount of Rs. 22,584/- towards earning of the aforesaid dividend income. Detailed calculations taking into consideration the different items of expenditure and the probable contributions thereof to the earning of the dividend income were provided. The Ld. AO was satisfied about the reasonableness of the said amount of disallowance u/s. 14A of the Act. Accordingly, he passed the assessment order for AY.2009-10, u/s 143(3) of the Act, on 31.12.2010, accepting the said disallowance u/s 14A of the Act as offered by the assessee company. The Ld. CIT issued show cause notice u/s. 263 of the Act and the Ld. CIT revised the said assessment order passed u/s. 143(3) of the Act, by his order u/s 263 of the Act passed on 05.03.2013. In the said Revision order, the learned CIT held that in accordance with the provisions of section 14A(2) of the Act, it was mandatory for the Ld. AO to make disallowance u/s. 14A of the Act, by strictly applying Rule 8D of the Income Tax R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowed a sum of Rs. 22,584/- in the assessment. Accordingly, the Ld. AR argued that the issue of disallowance u/s. 14A of the Act was examined in detail by the Ld. AO. Hence, he has objected to the exercise of revisionary Jurisdiction u/s. 263 of the Act by the CIT on this very same issue. He also argued that Ld. CIT had erroneously held that invoking the provisions of Rule 8D of the Rules is mandatory and automatic for making disallowance u/s. 14A of the Act. 5. The Ld. DR argued that the AO had not discussed anything about the disallowance u/s. 14A of the Act in his order except making addition in the sum of Rs. 22,584/- by simply accepting the workings of the assessee by ignoring the mandatory provisions of Rule 8D of the Rules. He further argued that the assessee had not filed any covering letter while replying to the questionnaire issued along with the notice u/s. 142(1) of the Act dated 18.01.2010. Hence, he argued that the AO had not examined the issue in the light of Rule 8D of the Rules. Hence, the Ld. CIT has rightly held the order of AO is erroneous inasmuch as it is prejudicial to the interest of the revenue. 6. We have heard rival submissions and perused the mate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise power of revision under this sub-section, viz., (i ) the order is erroneous; and (ii) by virtue of the order being erroneous prejudice has been caused to the interests of the revenue. It has, therefore, to be considered firstly as to when an order can be said to be erroneous. One finds that the expressions 'erroneous', 'erroneous assessment' and 'erroneous judgment' have been defined in Black's Law Dictionary. According to the definition, 'erroneous' means 'involving error; deviating from the law'. 'Erroneous assessment' refers to an assessment that deviates from the law and is, therefore, invalid, and is a defect that is jurisdictional in its nature, and does not refer to the judgment of the Assessing Officer in fixing the amount of valuation of the property. Similarly, 'erroneous judgment' means 'one rendered according to course and practice of Court, but contrary to law, upon mistaken view of law, or upon erroneous application of legal p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to consider that the order passed by the ITO was erroneous insofar as it is prejudicial to the interests of the revenue and that it must be an order which is not in accordance with the law or which has been passed by the ITO without making any enquiry in undue haste. An order can be said to be prejudicial to the interests of the revenue if it is not in accordance with the law in consequence whereof the lawful revenue due to the State has not been realised or cannot be realised. There must be material available on the record called for by the Commissioner to satisfy him prima facie that the aforesaid two requisites are present. If not, he has no authority to initiate proceedings for revision. Exercise of power of su motu revision under such circumstances will amount to arbitrary exercise of power. It is well-settled that when exercise of statutory power is dependent upon the existence of certain objective facts, the authority before exercising such power must have materials on record to satisfy it in that regard. If the action of the authority is challenged before the Court, it would be open to the Courts to examine whether the relevant objectives were available from the records ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailed reasons in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. One has to keep in mind the distinction between 'lack of inquiry' and 'inadequate inquiry'. If there was any inquiry, even inadequate, that would not, by itself, give occasion to the Commissioner to pass orders under section 263 merely because he has different opinion in the matter. It is only in cases of 'lack of inquiry' that such a course of action would be open. [Para 12] In the instant case, the Assessing Officer had called for explanation on items in question from the assessee and the assessee had furnished his explanation. Said fact was even taken note of by the Commissioner himself in his order. [Para 13] That clearly showed that the Assessing Officer had undertaken the exercise of examining as to whether the expenditure incurred by the assessee in the replacement of dyes and tools was to be treated as revenue expenditure or not. It appeared that since the Assessing Officer was satisfied with the assessee's explanation, he acce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had to work accurately at high speed for a longer period, replacement of those parts at short intervals became imperative to retain accuracy. Because of those reasons, those tools and dyes had a very short span of life and could produce maximum one lakh permissible shorts. Thereafter, they had to be replaced. With the replacement of such tools and dyes which were the components of a machine, no new assets came into existence, nor was their benefit of an enduring nature. It neither enhanced the life of existing machines of which these tools and dyes were only parts, nor had their production capacity increased. In CIT v. Mysore Spun Concrete Pipe (P.) Ltd. [1992] 194ITR 159/60 Taxman 170 (Kar.), the High Court held that the replacement of moulds was not in the nature of replacement of a capital machinery but in the nature of replacement of a part of the machinery which, in turn, was in the nature of maintenance of machinery installed in the factory. Such an expenditure was treated as revenue expenditure. With this position in law, it was clear that view taken by the Assessing Officer was one of the possible views and,therefore, the assessment order passed by him could not be held to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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