TMI Blog2017 (3) TMI 432X X X X Extracts X X X X X X X X Extracts X X X X ..... ld AO had taken a possible view and this action had not caused any prejudice to the interest of the revenue but on the contrary as stated above, it had only caused prejudice to the interest of the assessee. Hence, the dual conditions stipulated in section 263 of the Act are not satisfied cumulatively. The most celebrated judgement of Gee Vee Enterprises vs Addl CIT (1974 (10) TMI 29 - DELHI High Court ) would not come to the rescue of the revenue in the instant case as the facts of the instant case did not provoke any further enquiry in the mind of the ld AO and hence there cannot be any error that could be attributed in his order. Hence the ld CIT could not invoke revision jurisdiction u/s 263 of the Act in the instant case. - Decided in favour of assessee - I.T.A No. 1173/Kol/2016 - - - Dated:- 8-3-2017 - Shri N. V. Vasudevan, JM And Shri M. Balaganesh, AM For the Appellant : Shri J.P.Khaitan, Sr. Advocate Shri S. Jhajharia, FCA For the Respondent : Shri G. Mallikarjuna, CIT, DR ORDER Per Shri M. Balaganesh, AM: This appeal by assessee is arising out of revision order of Pr. CIT-1, Kolkata vide Pr. CIT-1/15-16/U/s.263/Umang/2011-12/12574-76 dated 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act should be increased to ₹ 18,83,15,804/- under Rule 8D(2)(ii) as against ₹ 9,91,24,091/- made by the ld AO. 4. In response to show cause notice, the assessee replied that the net worth of assessee stood at ₹ 90.27 crores as against which investment in securities yielding tax free income stood at ₹ 211.12 crores. Thus, as on 1.4.2010, investment in securities was excess by ₹ 120.85 crores. Similarly as on 31.3.2011, the net worth of the company stood at ₹ 105.62 crores as against which investment in securities yielding tax free income stood at ₹ 183.02 crores. Thus as on 31.3.2011, investment in securities yielding tax free income was excess by ₹ 77.40 crores when compared to the net worth. Thus, average investment in securities yielding tax free income in excess of net worth during the financial year 2010-11 stood at ₹ 99.12 crores and the excess has been financed out of borrowings on which interest has been paid which interest needs to be disallowed. The assessee had adopted the weighted average interest rate of borrowings made by the company during the financial year 2010-11 at 10% and applied the said interest rat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id bonds were held during the financial year 2010-11 and were sold only in December 2010 and Feb 2011. As such, the interest of ₹ 11,63,01,170/- pertaining to the loan of ₹ 150 crores taken for purchase of bonds needs to be first reduced from gross interest expense of ₹ 37,76,73,248/- leaving behind the balance of ₹ 26,13,72,078/- (i.e ₹ 37,76,73,248 minus ₹ 11,63,01,170) . From this ₹ 26,13,72,078/- , the interest income of ₹ 18,93,57,444/-needs to be reduced and the net interest amount works out to ₹ 7,20,14,634/- which alone could be considered for the purpose of disallwoance under Rule 8D(2)(ii) of the Rules. Acordingly it was submitted that the disallwoance of interest made by the assessee at ₹ 9,91,24,091/- being more than ₹ 7,20,14,634/- having regard to the accounts of the assessee, cannot be held as erroneous and prejudicial to the interests of the revenue. 4.3. In other words, it was pleaded that in respect of disallowance of interest as per Rule 8D(2)(ii) of the Rules, the figure worked out above comes to ₹ 7,20,14,634/- but whereas the assessee company itself had voluntarily disallowed ₹ 9, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umstances, the Ld. PCIT having nowhere concluded that the order of the AO was erroneous and prejudicial to the interest of revenue, order of the Ld. PCIT is even otherwise also wholly bad, illegal, unjustified and uncalled for and it may kindly be quashed/cancelled. 5. For that the Ld. PClT having passed the order u/s 263 in respect of matter which was not the subject matter of notice u/s 263 and in view of the facts the order so passed by Ld. PCIT is wholly bad and illegal. 6. Without prejudice to ground No. 5 above, the disallowance made u/s 14A cannot be in excess of exempt income and in view of the facts the Ld. PCIT failed to appreciate the law settled in such respect and in view of the facts and in the circumstances it may kindly be held accordingly. 7. For that in view of the facts and in the circumstances and without prejudice to grounds No. 5 6 above, the Ld. PCIT is wholly unjustified in directing AO to disallow ₹ 18,83,15,804/- u/s 14A read with Rule 80(2)(i) and in view of the facts and in the circumstances AO already having taken/considered the matter in its assessment order and AO's view being neither erroneous nor prejudicial to the interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resulting in short term capital gain of ₹ 41,09,589/- on sale of these bonds of ABRL. The relevant papers in this regard are part of pages 98 to 99 of the Paper Book. We find that the assessee had also earned interest income of ₹ 21,91,781/- for the period from 1.10.2010 to 19.12.2010 for ₹ 100,00,00,000 @ 1% for 80 days and ₹ 19,17,808/- for the period from 1.10.2010 to 17.2.2011 for ₹ 50,00,00,000 @ 1% for 140 days. This interest income from bonds is offered to tax by the assessee. Hence it could be safely concluded that the investment in bonds had yielded only taxable income and not any exempt income to the assessee. Hence the argument of the ld AR that the said investment should be excluded while calculating the total value of investments and total value of assets is logical and since it is not in dispute that the said bonds were purchased out of borrowed funds, the proportionate interest element attributable to ₹ 150 crores loan deserves to be eliminated from the gross interest paid by the assessee. This is to be done in view of the fact that only interest paid on loans relatable to investments yielding tax free income alone would be the su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been taken by him taking into consideration the accounts of the assessee in terms of section 14A(2) of the Act and accordingly it could be safely concluded that he had taken a possible view thereon which cannot be subject matter of revision u/s 263 of the Act. In support of his contentions, he placed reliance on the following decisions:- (a) Hon ble Jurisdictional High Court in the case of CIT vs J.L.Morrison (India) Ltd reported in (2014) 366 ITR 593 (Cal) ; (b) Hon ble Jurisdictional High Court in the case of CIT vs Mulchand Bagri reported in (1993) 68 Taxman 215 (Cal) ; (c) Hon ble Supreme Court in the case of CIT (Central) vs Max India Ltd reported in (2007) 295 ITR 282 (SC) 6.3. The ld DR argued that the ld AO simply reproduced the version and explanation of the assessee in the assessment order and that does not tantamount to making any enquiries with regard to the issue of disallowance u/s 14A of the Act and hence it cannot be construed as having taken any one possible view in the matter so as to stay outside the ambit of revision u/s 263 of the Act and hence the case laws cited by the ld AR are not applicable to the facts of the instant case. 6.4. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s part had produced enough material on record to show that the matter had been discussed in detail by the Assessing Officer. The least that the Tribunal could have done was to refer to the assessment record to verify the contentions of the assessee. Instead of doing that, the Tribunal has merely been swayed by the fact that the Assessing Officer has not mentioned anything in the assessment order. During the course of assessment proceedings, the Assessing Officer examines numerous issues. Generally, the issues which are accepted do not find mention in the assessment order and only such points are taken note of on which the assessee's explanations are rejected and additions/disallowances are made. As already observed, we have examined the records of the case and find that the Assessing Officer had made full inquiries before accepting the claim of the assessee qua the amount of ₹ 10 lakhs on account of discrepancy in stock. Not only this, he has even gone a step further and appended an office note with the assessment order to explain why the addition for alleged discrepancy in stock was not being made. In the absence of any suggestion by the Commissioner as to how the inquir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts cited by Mr. Poddar indicate that the Assessing Officer is not required to write an elaborate judgment. He contended that the assessing officer may not have any such obligation but it cannot be said, according to him, that the Assessing Officer is under no obligation to record anything in his assessment order. It is not in the first place a fact that he has not recorded anything. From the assessment order, the following facts and circumstances appear:- Return was filed on 29/11/06 showing total income of ₹ 3,80,66,940/-. In response to notices u/s. 143(2) and 142(1) of the I. T. Act, 1961, Sri P. R. Kothari, A/r appeared from time to time and explained the return. Necessary details and particulars were filed. The business of the assessee is manufacturing and trading of cosmetics and dental care products as in earlier years. In view of above total income is computed is under: 98. Unless the aforesaid recital is factually incorrect or the computation is legally wrong, it is not possible to hold that the assessment order was passed without application of mind. On the top of that when the Assessing Officer accepted the contention of the assessee there was no occas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the Commissioner's decision to revise the order of the ITO under section 263 was erroneous. (c) Hon ble Supreme Court in the case of CIT (Central) vs Max India Ltd reported in (2007) 295 ITR 282 (SC) wherein it was held that :- 2. At this stage we may clarify that under para 10 of the judgment in the case of Malabar Industrial Co. Ltd. (supra) this Court has taken the view that the phrase prejudicial to the interest of the revenue under section 263 has to be read in conjunction with the expression erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of the revenue. For example, when the Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue, unless the view taken by the Income-tax Officer is unsustainable in law. According to the learned Additional Solicitor General on interpretation of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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