TMI Blog2018 (2) TMI 1694X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 263 was not applicable - Decided in favour of assessee. - I.T.A. No. 178/(Asr)/2017 - - - Dated:- 30-11-2017 - Sh. T. S. Kapoor, Accountant Member And Sh. N. K. Choudhry, Judicial Member For the Appellant : Sh. J. S. Bhasin (Adv.) For the Respondent : Sh. Rahul Dhawan (D. R.) ORDER PER T. S. KAPOOR (AM): This is an appeal filed by assessee against the order of Ld. CIT, Jalandhar, and dated 28.03.2017 for Asst. Year: 2012-13. 2. The assessee has taken the following grounds of appeal. 1. That in the given facts of this case, the ld.CIT-2, Jalandhar has grossly erred in setting the aside the AO's order passed u/s. 143(3) dated 27.03.2015, by wrongly invoking the provisions of section 263. 2. That the Id. CIT has gravely erred to infer that the Id. AO ought to have made a disallowance U/S.14A, even when admittedly no exempt income was earned during the year, which being contrary to settled legal position pronounced by various High Courts including the jurisdictional High Court, is not sustainable. 3. That the Id. AO having invited the relevant details, verified for himself the relevant records and chosen not to make any specific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 33 wherein it has been held that in the absence of exempt income, the provisions of section 14A read with rule 8D are not applicable. The Ld. AR further placed his reliance on an order of Delhi High Court in the case of CIT Vs. M/s DLF Ltd. wherein under similar facts and circumstances, the CIT had passed order u/s 263, and appeal filed by revenue against the order of the Hon'ble Tribunal was dismissed. The Hon'ble Court had dismissed the appeal of revenue on the basis that the disallowance u/s 14A was a debatable issue and therefore held that the Hon'ble Tribunal had rightly allowed the appeal of assessee. In view of the above facts and circumstances, the Ld. AR submitted that the order passed by Ld. CIT is not sustainable. 4. The Ld. DR, on the other hand relied on the order of Punjab Haryana High Court in the case of M/s Jindal Steel and Power Ltd. Vs. Pr. CIT wherein it has been held that Department Officers are bound by the CBDT circulars. The Ld. DR further relied on a judgment of Punjab Haryana High Court in the case of Punjab Tractors Ltd. Vs. CIT. 5. We have heard the rival parties and have gone though the material placed on record. We find that durin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een held that where the assessee did not receive any exempt income during a particular year, no disallowance can be made u/s 14A of the Act. The case laws relied on by Ld. AR in support of his contention that in view of not receiving any dividend income, the disallowance u/s 14A was not warranted. The Hon'ble Madras High Court in the case of Redington (India) Ltd. has decided in favour of assessee after considering the circular no. 5/2014 by allowing appeal of the assessee. The findings of the Hon'ble Court are reproduced below: Per contra, Sri T. Ravikumar appearing on behalf of the Revenue drew our attention to the marginal notes of section 14A pointing out that the provision would apply not only where exempted, income is '^included in the total income, but also where exempt income is includable in total income. He relied upon a circular issued by the Central Board of Direct Taxes in Circular No. 5 of 2014, dated February 11, 2014 (see [2014] 361 ITR (St.) 94) to the effect that section 14A was intended to cover even those situations whether there is a possibility of exempt income being earned in future. The Circular, at paragraph 4, states that it is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mission of the Revenue would result in the imposition of an artificial method of computation on notional and assumed income. We believe this would be carrying the artifice too far. The learned standing counsel relies on the decisions of tire Division Bench of the Kerala High Court in South Indian Bank Ltd. v. CiT [2014] 363 ITR 111 (Ker); [2014] 49 taxmann.com 100 (Ker) and CIT v. Catholic Syrian Bank Ltd. [2012] 344 ITR 259 (Ker) as well as the decision of the Division Bench of the Calcutta High Court in Dhanuka and Sons v. CIT [2011] 339 FIR 319 (Cal); [2011] 12 taxmamr.com 227 (Cal) in all of which tire assessee did, as a matter of fact, earn dividend income. The aforesaid decisions are thus factually distinguishable and do not advance this proposition of the Revenue. Reliance is also placed on a decision of the jurisdictional High Court in the case of Beach Minerals Co. Pvt. Ltd. v. Asst. CIT in TCA No. 681 of 2013, dated December 2, 2013. In that case, payments of interest by the assessee were sought to be disallowed invoking the provisions of section 14A on the premise that the same related to borrowings that had been invested and would yield exempt returns. The ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us year other than that immediately preceding the relevant assessment year, the provision shall expressly state so. The provisions of section 10 in Chapter III of the Act dealing with Incomes not included in total income commences with the phrase . In computing the total income of a previous year, any income falling within any of the following clauses shall not be included . . . The exemption extended to dividend income would relate only to tire previous year when the income was earned and none other and consequently the expenditure incurred in connection therewith should also be dealt with in the same previous year. Thus, by application of the matching concept, in a year where there is no exempt income, there cannot be a disallowance of expenditure in relation to such assumed income. (Madras Industrial Investment Corporation Ltd. v. CIT [1997] 225 ITR 802 (SC). The language of section 14A(1) should be read in that context and such that it advances the scheme of the Act rather than distort it. In conclusion, we are of the view that the provisions of section 14A read with rule 8D of the Rules cannot be made applicable in a -vacuum, i.e., in the absence of exempt in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 which did not reflect any application of mind as far as the question of Section-14A or its applicability was concerned. It was submitted that even the order sheet merely showed that a breakup of interest and dividend income had been sought on 6.12.2004. In these circumstances, there could not have been any assumption that the AO had ever considered the question of proportionate expenditure and accepted the assessee's argument. 6. Learned counsel for the assessee emphasized that the facts of the present case would reveal that the assessee had received a single dividend cheque of ₹ 6,93,69, 402/-. The materials on record clearly showed that the AO had called for particulars and held proceedings on a number of occasions. The materials were clearly before him as also was in the nature of investment i.e. in a subsidiary company for a purpose of business. Such being a case, the question of there being any error much less one prejudicial to the interest of Revenue did not arise. 7. It was argued next that the Tribunal's order should not be interfered with because if enquiries are conducted by the Commissioner, he cannot go into or scrutinize the question of appropriat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e interests of the revenue. If one of them is absent - if the order of the Income Tax Officer is erroneous but is not prejudicial to the revenue or if it is not erroneous but is prejudicial to the revenue - recourse cannot be had to section 263(1) of the Act. The provision cannot be invoked to correct each and every type of mistake or error committed by the assessing officer; it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase 'prejudicial to the interests of the revenue' is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import I and is not conferred to loss of tax. The scheme of the Act is to levy and collect' tax in accordance with the provisions of the Act and this task is entrusted to the revenue. If due to an erroneous order of the Income Tax Officer, the revenue is losing tax lawfully payable by a person, it will certai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utory direction to the Assessing Officer to calculate, proportionately, the expenditure which an assessee may incur to obtain dividend income, for purposes of disallowance, cannot be lost sight of, equally, such a requirement has to be viewed in the context and circumstances of each given case. In the present case, it was repeatedly emphasized that the assessee dividend income was confined to what it received from investment made in a sister concern, and that only one dividend warrant was received. These facts, in the opinion of this court, were material, and had been given weightage by the Tribunal in its impugned order. There is no dispute that the investment to the sister concern, was not questioned; even the Commissioner has not sought to undermine this aspect. Equally, there is no material to say that apart from that single dividend warrant, any other dividend income was received. Furthermore, there is nothing on record to say that the assessee had to expend effort, or specially allocate resources to keep track of its investments, especially dividend yielding ones. In these circumstances, it can be said that whether tip deduction under Section 14-A was warranted, was a debatab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ] 343 ITR 74/212 Taxman 130/J2012] 19 taxmann.com 142 (SC). 34. Concerning the assessment year 2012-13, the stand of the assessee is that the issue was discussed in detail by the AO while passing the assessment order. An inquiry letter dated 18.11.2014 (APB-78) was issued. The assessee filed reply dated 17.12.2014 (APB79 to 97). The AO made full application of mind while framing the assessment. 35. The Id. DR, on the other hand, has strongly relied on the order under appeals. 36. In this regard, the proposition settled in DLF Ltd (supra) is that the powers u/s 263 of the Act cannot be invoked for making disallowance u/s 14A of the Act. While observing so, it was held that it is not mere prejudice to the revenue or a mere erroneous view, which can be revised u /s 263 of the Act and that there should exist the added element of sustainability in the order of the AO, which clothes the CIT (here, the Pr. CIT) with jurisdiction to issue notice and proceed to make appropriate order. 37. Before us, nothing is available either in the impugned orders, or by way of any other material on record, to suggest that the assessment orders were unsustainable in law. As observed in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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