TMI Blog2019 (11) TMI 337X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Act by the Ld. Pr. CIT. We have not examined other merits of the matter. Appeal filed by the assessee is allowed. - ITA No. 2823/Del/2016 - - - Dated:- 4-11-2019 - Sudhanshu Srivastava, Judicial Member And Shri Anadee Nath Misshra, Accountant Member For the Assessee : Shri Tarandeep Singh, Advocate For the Department : Ms. Nidhi Srivastava, CIT, DR ORDER PER SUDHANSHU SRIVASTAVA, JM: This appeal is preferred by the assessee against order dated 7th March, 2016 passed by the Ld. Pr. Commissioner of Income Tax (PCIT), Delhi 7 under section 263 of the Income tax Act, 1961 (hereinafter called the Act ) and pertains to assessment year 2011-12. 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 is evident that out of the above the appellant has suo moto added back the amounts debited in the P L account of ₹ 1,24,87,347/- (out of interest on late deposit of TDS (₹ 320/-), Contingent Provisions against Standard Assets (₹ 20,13,436/-), depreciation as per accounts (₹ 20,15,945/-), out of amount written off (₹ 76,75,079), out of misc. expenses subscription (₹ 30,000/-), leave encashment u/s 43B (₹ 22,778/-) gratuity u/s 40A(7)(₹ 80,248), out of Deb. Issue exp. (₹ 5,54,858/-) and security transaction taxd (₹ 94,683/-) in the computation of income as inadmissible expenses. Besides the above, expenditures of ₹ 2,19,52 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 17thJune, 2013. In the show cause notice it was alleged by the Ld. PCIT that the AO, while the passing order u/s 143(3) of the Act, had wrongly computed the disallowance u/s 14A at ₹ 4,05,51,458/- whereas as per the Ld. PCIT, the correct disallowance u/s 14A worked out at ₹ 14,45,00,128/-. In this regard it will be relevant to reproduce the show cause notice of Ld. PCIT as under:- An addition of ₹ 1,92,77,595/- was made by the AO on account of disallowance u/s 14A of the Act computed as per clause (iii) of sub rule 2 of rule 8D by holding that the assessee has not correctly computed disallowance in terms of provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 investments from which income is earned. However, there are investments from which exempt income is earned such as dividend from mutual funds. Thus, the claim of the Assessee cannot be accepted. This aspect of the case has not been examined b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating to the disallowance u/s 14A of the Act, had been subject matter of appeal 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 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act and had also not initiated penalty proceedings u/s 273(c) of the Act. The assessee s objection to initiation of revisionary proceedings on the ground of doctrine of merger was rejected by the Ld. CIT. The Ld. CIT did not find any defect in any particular 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 disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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