TMI Blog2017 (11) TMI 371X X X X Extracts X X X X X X X X Extracts X X X X ..... there was no any mistake on the part of the assessee. If the Assessing Officer takes a plausible view to disallow any expenditure then it cannot be said that order passed by him is erroneous and prejudicial to the interest of revenue. Therefore we are of the view that order passed by the ld. CIT U/s 263 is neither erroneous nor prejudicial to the interest of revenue. We accordingly quash the order u/s 263 of the Act and allow the appeal of the assessee. - ITA No.773/Kol/2015 - - - Dated:- 11-10-2017 - SHRI N.V. VASUDEVAN, JM And DR. A.L.SAINI, AM For The Appellant : Shri Ravi Tulsiyan, FCA For The Respondent : Md. Usman, CIT, DR ORDER Per Dr. Arjun Lal Saini, AM: The captioned appeal filed by the assessee, pertaining to Assessment Year 2010-11, is directed against an order passed by the Commissioner of Income Tax, Kolkata-4, dated 31.03.2015. 2. The assessee has raised the following grounds of appeal: 1.The order passed by the Principal Commissioner of Income Tax u/s263 of the Income Tax Act, 1961, is arbitrary, erroneous, void, invalid and bad in law. 2.On the facts and in the circumstances of the case, the ld. Pr. CIT erred in ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs.7,981/- (ii) Amount of expenditure by way of interest Rs. Nil (iii) 0.5% of Average value of investment on which can Yield exempt(Dividend) Income is Rs.99,29,903/- The Assessing Officer observed that assessee has claimed total expenses under the head other expenses of ₹ 84.54/- lakh in its profit and loss account during the year. After considering the expenses which are directly related with assessee s normal business, the amount of ₹ 7,67,500/- is disallowed by the Assessing Officer. This way, the Assessing Officer, computed the total disallowance under Rule 8D at ₹ 7,75,481/- ( 7,67,500 +7981). 4. Subsequently, the ld. CIT has exercised his jurisdiction u/s 263 of the I.T. Act. The ld. CIT observed that the Assessing Officer computed a sum of ₹ 99,29,903/- being % of average value of investment for the purpose of disallowance under section 14A of the I. T. Act Read with Rule 8D(2) of the I.T. Rules and the so computed amount was not ultimately added back in the computation of total income and therefore this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt order. The ld. CIT observed that it was seen that the Assessing Officer while passing order u/s 143(3) of the I. T. Act had calculated 0.5% of Average value of investment which can yield exempt income (dividend) at ₹ 99,29,903/- and disallowed a sum of ₹ 7,75,481/- u/s 14A of the I.T. Act, after considering the other expenses of ₹ 88.54 lakh, which was directly related with the assessee`s normal business. However, it was not clear that on which the Assessing Officer had figured out that out of ₹ 88.54 lakh claimed in P L Account as other expenses, an amount of ₹ 80.97 lakhs is directly attributable to earning of taxable income(directly nexus with the taxable income) and difference of ₹ 7,67,500/-(Rs.88.54 ₹ 80.87 lakh) related to exempt income. The ld. CIT also held that as per section 14A read with 8D (2) (iii) of the Income Tax Rules, it was evident that Assessing Officer had grossly erred in applying section 14A and the facts referred in the assessment order, and thereby framing an order which stand erroneous and prejudicial to the interest of revenue. Thereafter, the ld. CIT held that the assessment order framed by the AO deserve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roneous nor prejudicial to the interest of the revenue. The ld. Counsel for the assessee relied on judgment of Hon`ble ITAT, Kolkata in the case of JCIT Vs. M/s. Pilani Investment Industries Corpn. Ltd. in I.T.A No.653/Kol/2012 dated 4th February,2013, wherein it was held that once it is found that an expense is specifically relatable to a taxable income, as is the undisputed position in this case, no portion of such an expense can be disallowed u/s. 14A. The allocation of general expenses vis-i-vis tax exempt income and taxable income can only be made in respect of expenditure which cannot either be wholly allocated to taxable income, then or which cannot be wholly allocated to tax exempt income; the allocation can be made, even on the basis of formula set out in Rule 8D (2)(iii), in respect of such expenses which do not fall any of these categories. The ld. Counsel for the assessee also relied on judgment of Hon`ble ITAT, Kolkata in the case of Justice Sam P Bharucha Vs. ACIT, Mumbai in ITA No.3889/Mum/2011 dated 25th July 2012 wherein it was held that the AO shall determine the amount disallowable as per Rule 8D, if he, is not satisfied with the correctness of the claim of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hand, ld DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. 9. We have given a careful consideration to the rival submissions. The law with regard to exercise of jurisdiction u/s.263 of the Act on the ground that the AO failed to make enquiries which he ought to have made in the given circumstances of a case is well settled. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income-tax Officer should have made further inquiries before accepting the statements made by the assessee in his return. The Income-tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word ..... X X X X Extracts X X X X X X X X Extracts X X X X
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