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2016 (7) TMI 374 - ITAT KOLKATA

2016 (7) TMI 374 - ITAT KOLKATA - TMI - Revision u/s. 263 - disallowance u/s. 14A - whether CIT had erroneously held that invoking the provisions of Rule 8D of the Rules is mandatory and automatic for making disallowance u/s. 14A? - Held that:- We are in complete agreement with the arguments of Ld. AR that adoption of Rule 8D of the Rules for disallowance u/s. 14A of the Act is not automatic and cannot be mechanically applied by the AO. The AO in the instant case was satisfied with the manner of .....

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does not form part of the total income especially in the case of a composite business having both taxable as well as non-taxable income. We find in the instant case that the Ld. CIT in 263 proceedings had only tried to substitute his own opinion in lieu of decision already taken by the Ld. AO. - We find that the Ld. DR had only tried to argue on flimsy ground that the Ld. AR had not furnished the covering letter before the AO while replying to section 142(1) questionnaire dated 18.01.2010. I .....

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6 - Shri N. V. Vasudevan, JM & Shri M. Balaganesh, AM For The Appellant: Shri Ravi Tulsiyan, AR For The Respondent: Shri Niraj Kumar, CIT, DR ORDER Per Shri M. Balaganesh, AM: This appeal by assessee is arising out of revision order of CIT, Central-III, Kolkata vide M. No. CIT/C-III/Kol/263 order/12-13/3518-14 dated 05.03.2013. Assessment was framed by DCIT, CC-XX, Kolkata u/s. 143(3) of the Income tax Act, 1961 (hereinafter referred to as the Act ) for AY 2009-10 vide his order dated 31.12. .....

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ister 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 ₹ 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 reaso .....

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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 Rules, 1962 (hereinafter referred to as the Rules . He held that for not doing so, there had been under-assessment of ₹ 10,20,594/- and consequent undercharge of ₹ 3,15,564/-. Aggrieved, the assessee is in appeal before us on the following grounds: 1. The order passed by the CIT u/s 263 of the Income-tax .....

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to follow provisions of Rule 8D of the LT. Rules, 1962 for determination of the amount of disallowance u/s 14A of the I. T. Act'. 4. On the facts and in the circumstances of the case, the learned CIT erred in revising the assessment order passed by the A.O. u/s 143(3) of the Act; on the basis of his own views on the matter of making disallowance u/s 14 A of the Income-tax Act, 1961; and in directing the A. O. to re-compute the said disallowance by applying Rule 8D of the Income Tax Rules, 1 .....

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ls of interest income, Furnish details of dividend income & Expenses related to earning exempted income (as per section 14A of I. T. Act, 1961 read with rule 8D of I. T. Rules, 1962.) The assessee replied to the said questionnaire and presented detailed workings of disallowance u/s. 14A of the Act and offered a sum of ₹ 22,584/- with proper rationale by referring to each and every expenses debited in the P&L Account. The said workings are reproduced hereinbelow for the sake of conv .....

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d 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 ₹ 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 date .....

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by the AO. The AO in the instant case was satisfied with the manner of assessee making disallowance u/s. 14A of the Act which specifically refers to each and every item of expenditure debited in the P&L Account and accordingly, thought it fit not to resort to Rule 8D of the Rules. He had in fact made disallowance u/s. 14A(2) of the Act. For the sake of convenience the provisions of section 14A of the Act are reproduced hereinbelow: 14A [1] For the purposes of computing the total income unde .....

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rrectness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. (3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act:] 7. We find from the bare reading of section 14A of the Act that Rule 8D of the Rules should be applied only as a las .....

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gh Court in the case of CIT Vs. Gabriel India Ltd. reported in (1993) 203 ITR 108 (Bom), wherein it was held as under: The power of suo motu revision under sub-section (1) is in the nature 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 .....

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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 principles'. From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is .....

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accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the ITO. That would not vest the Commissioner with power to re-exmine t .....

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to vest the Commissioner with the power of suo motu revision because the first requirement, viz., that the order is erroneous, is absent. Similarly, if an order is erroneous but not prejudicial to the interests of the revenue, then also the power of suo motu revision cannot be exercised. Any and every erroneous order cannot be the subject-matter of revison because the second requirement also must be fulfilled. There must be some prima facie material on record to show that tax which was lawfully .....

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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 powe .....

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ned by such authority. The ITO in this case had made enquiries in regard to the nature of the expenditure incurred by the assssee. The assessee had given a detailed explanation in that regard by a letter in writing. All these were part of the record of the case. Evidently, the claim was allowed by the ITO on being satisfied with the explanation of the assessee. This decision of the ITO could not be held to be 'erroneous' simply because in his order he did not make an elaborate discussion .....

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was not justified in setting aside the assessment order. 8. We also find in the instant case that adequate enquiry has been made by the Ld. AO by taking the issue of disallowance u/s. 14A of the Act to the logical end. Hence, it cannot be construed as lack of enquiry or even inadequate enquiry though it is well settled that inadequate enquiry would not give rise to revisionary jurisdiction u/s. 263 of the Act. The Ld. AO in the instant case had conducted extensive enquiry and had concluded the m .....

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sment order, which apparently did not give any reason while allowing the entire expenditure as revenue expenditure. However, that, by itself, would not be indicative of the fact that the Assessing Officer had not applied his mind to the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reasons in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether th .....

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n 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 Ass .....

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nstant case was not a case where the Commissioner had concluded that the opinion of the Assessing Officer was clearly erroneous and not warranted on the facts before him, viz., the expenditure incurred was not the revenue expenditure, but should have been treated as capital expenditure. Even the Commissioner in his order passed under section 263 was not clear as to whether the expenditure could be treated as capital expenditure or it was revenue in nature. No doubt, in certain cases it may not b .....

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ce followed for a number of years had the approval of the income-tax authorities. Interestingly, even for future assessment years, the very same accounting practice was accepted. [Para 16] It was in that context, the question that assumed importance was as to whether powers could be exercised under section 263 when two views were possible. [Para 17] The matter could be looked from another angel. What was the material/ information available with the Assessing Officer on the basis of which he allo .....

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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 whi .....

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