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2019 (11) TMI 337

..... bunal was also dismissed [2017 (2) TMI 1254 - ITAT DELHI] - HELD THAT:- On the factual matrix of the case, the doctrine of merger will apply. The logic underlying the doctrine of merger is that there cannot be more than one decree or operative order governing the same subject-matter at a given point of time. The question before the Hon’ble Madhya Pradesh High Court in NARPAT SINGH MALKHAN SINGH [ 1980 (7) TMI 66 - MADHYA PRADESH HIGH COURT was whether the Ld. CIT, while exercising power u/s 263, could set aside the assessment order after the appellate order was made by the AAC. The Division Bench took the view that the Ld. CIT could not have invoked power u/s 263 as the ITO’s order had merged with the order of the AAC. In the present appeal before us, going by the doctrine of merger, since the Ld. CIT (A) had already decided the issue in favour of the assessee, the Ld. Pr. CIT could not have exercised his revisionary powers u/s 263 of the Act. If the department was aggrieved by the order of the Tribunal deleting the disallowance, proper recourse would have been to approach the higher forum. Therefore, we are of the considered opinion that the jurisdiction u/s 263 of the .....

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..... (as returned by the appellant) to ₹ 4,05,51,458/- (being 0.5% of average of value of investments) without appreciating that the appellant had actually incurred and claimed total expenditure of ₹ 2,12,73,863/- only during the year under reference. 4.1.2 The appellant, a listed company and also an NBFC is engaged in the business of investment in shares / securities as well as in the business of granting loans and advances. During the year under reference the assessee company has erred income not forming part of total income of ₹ 1,10,58,833/- on shares of various companies and units of mutual fund in the nature of dividend exempt u/s 10(34)/10(35) of the Act. The appellant in its return of income had made a suo moto disallowance u/s 14A of ₹ 2,19,52,010/- in the form of ₹ 6,78,146/- out of interest and ₹ 2,12,73,864/- in accordance with clause (iii) of subrule (2) of Rule 8D. The AO has computed the disallowance under rule 8D (2)(iii) at ₹ 4,05,51,458/- and added the excess disallowance of ₹ 1,92,77,595/-. 4.1.3 From the P&L account it is seen that the total amount debited was ₹ 3,36,56,041/-. From the computation of income it .....

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..... 10/- in the form of ₹ 678146/- out of interest and ₹ 21273864/- in accordance with the clause (iii) of sub rule 2 of rule 8D under section 14A of the income tax act. Recently, the Delhi High Court in the case of Joint Investments vs. ACIT [ TS-92-HC-2015(DEL)-O] held that disallowance under section 14A of the Act must not be made to the extent that it is almost equal to or more than the actual dividend income received by the assessee. Similar view has also been taken recently by the Punjab & Haryana High court in the case of Pr. CIT vs. Empire Package Pvt. Ltd.: ITA No.415 of 2015. As in the present case disallowance under section 14A read with rule 8D has already exceeded by the suo moto disallowance made of the assessee amounting to ₹ 21952020/- against the exempt income of ₹ 11058833/- therefore no further disallowance can be imputed. In view of this, we dismiss ground No.1 to 3 of the appeal of the revenue. 2.3 In the interregnum i.e., when the revenue s appeal was pending disposal before this Tribunal, a show cause notice u/s 263 of the Act was issued by the Ld. PCIT proposing to revise the order of assessment passed u/s 143(3) of the Act dated 17th .....

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..... ot appear to be correct. The matter will have to be examined as to out of the disallowance made by the assessee at ₹ 2,12,73,863/-, what portion is relatable to direct expenses under rule 8D(2)(i) for earning dividend income and only the balance amount can be reduced from the disallowance worked out by the Assessing Officer under rule 8D(2)(iii). To this extent, therefore the order passed by the Assessing Officer is erroneous and prejudicial to revenue. Accordingly proposal u/s 263 is being moved in this respect. In view of the above, the order passed by the AO on 17.06.2013 u/s 14393) of the Act is erroneous in so far as it is prejudicial to the interest of the revenue. 2.4 In reply, vide letter dated 2ndFebruary, 2016, the assessee filed detailed objections to the assumption of jurisdiction u/s 263 of the Act. The Ld. PCIT, however, was unconvinced and in the impugned order he has set aside the order of assessment dated 17th June, 2013 for a fresh examination of disallowance u/s 14A by observing as under :- The arguments of the assessee cannot be accepted because of the following:- 1. The assessee has strongly argued that the entire interest costs are directly related to in .....

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..... far as it is prejudicial to the interest of the revenue. The Assessing Officer is therefore directed to work out and examine various details and evidences relating to the disallowance u/s 14A as per Rule 8D and pass an appropriate order after providing opportunity of being heard to the assessee, in the light of observations made above. 2.5 Being aggrieved, the assessee is now in appeal before us and has raised the following grounds of appeal: 1. That the Ld. Principal Commissioner of Income Tax (Ld.CIT) erred in passing the Order dated 7th March, 2016 u/s 263 of the Income Tax Act, 1961 directing the Assessing Officer (AO) to examine determination of disallowance in terms of Rule 8D(2) of the Income Tax Rules, 1962 without properly appreciating the facts of the case and without considering the submissions made by the Appellant Company in reply to the show cause notice. 2. That the Order passed by the Ld.CIT dated 7th March, 2016 is bad in law and deserves to be quashed as the same has been passed without taking into consideration the correct facts in regard to case of the appellant and the legal position. 3. That the Ld.CIT failed to appreciate that the issue regarding disallowance .....

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..... before the CIT(A) and presently the appeal filed by the department in regard to the above matter is pending for adjudication before the Income Tax Appellate Tribunal and therefore, the Ld. CIT had no jurisdiction to invoke his power u/s 263 of the Act. That the Appellant craves leave to add, alter modify withdraw any of the grounds hereinabove at any time or hereinafter and at the time of hearing of the appeal. 3.0 The Ld. Authorised Representative (AR), at the outset, raised an objection to the assumption of jurisdiction u/s 263 of the Act on a legal issue. In this regard it was submitted by the Ld. AR that the disallowance u/s 14A cannot exceed the amount of exempt income and, therefore, it was submitted that the impugned order assuming jurisdiction u/s 263 is bad in law and void ab-initio. In support of his case, the Ld. AR relied upon following decisions: Joint Investments P. Ltd vs. CIT reported in 372 ITR 696 (Del.) PCIT vs. Empire Package P. Ltd reported in 286 CTR 457 (P/H.) CIT vs. Vision Finstock Ltd reported in 2017-TIOL- 2778-HC-AHM-IT CIT vs. Vision Finstock Ltd reported in 2018-TIOL- 217-SC-IT Vision Finstock Ltd vs. ACIT reported in 2016-TIOL- 2808-ITAT-AHM Ranbaxy .....

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..... lar item decided by the ITO which was not the subject matter of appeal before the AAC but only in the omission to charge interest u/s 217(1A) and initiate penalty proceedings u/s 273(c). The assessee appealed successfully before the Tribunal. On department s appeal, the question before the Hon ble Madhya Pradesh High Court was whether the Ld. CIT, while exercising power u/s 263, could set aside the assessment order after the appellate order was made by the AAC. The Division Bench took the view that the Ld. CIT could not have invoked power u/s 263 as the ITO s order had merged with the order of the AAC. In the present appeal before us, going by the doctrine of merger, since the Ld. CIT (A) had already decided the issue in favour of the assessee, the Ld. Pr. CIT could not have exercised his revisionary powers u/s 263 of the Act. If the department was aggrieved by the order of the Tribunal deleting the disallowance, proper recourse would have been to approach the higher forum. Therefore, we are of the considered opinion that the jurisdiction u/s 263 of the Act could not have been invoked by the Pr. CIT in this case. Accordingly we quash the assumption of jurisdiction u/s 263 of the Ac .....

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