TMI Blog2019 (12) TMI 904X X X X Extracts X X X X X X X X Extracts X X X X ..... ot suggested the basis of inquiry or verification to be carried out by the AO, the order passed by the AO cannot be deemed to be erroneous in so as far as it is prejudicial to the interest of the Revenue. In the light of the above mentioned judicial precedents and facts of the present case, we are of the opinion that the AO has adopted one possible legal view sustainable in law on the issue and mere invoking proviso based on revenue audit objection amounts non application of mind. Merely just because the view taken by the AO was not found acceptable does not mean that the AO has failed to make requisite enquiries. Thus, the view taken by the AO was plausible view, which cannot be disturbed by the Ld. Pr.CIT. Therefore, we find that twin condition were not satisfied for invoking the jurisdiction under section 263 - Appeal of the assessee is allowed. - I.T.A No.218/SRT/2019 - - - Dated:- 10-12-2019 - SHRI AMARJIT SINGH, JUDICIAL MEMBER AND SHRI O.P.MEENA, ACCOUNTANT MEMBER For the Appellant : Shri Rasesh Shah, CA For the Respondent : Shri Prasenjit Singh, CIT(D.R.) ORDER PER O.P. MEENA, AM: 1. This appeal by the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee vide letter dated 07.03.2019, which has been reproduced by the Pr. CIT in his order passed u/s. 263 of the Act.On the issue of disallowance u/s.14A read with Section 8D, the assessee has stated that there is negative income (loss) from the partnership firm, however the Pr.CIT was of the view that CBDT Circular No.05/2014 dated 11.02.2014 clarifies that Rule 8D in Section 14A of the Act provides for disallowance of expenditure even where tax-payer in a particular year has not earned any exempt income. On the issue of claim of deduction of interest expenses u/s. 57(iii) of the Act, the assessee has stated that section 57(iii) has been wrongly interpreted for which the assessee has placed reliance on the decision of Hon ble Supreme Court in the case of CIT v. Rajendra Prasad Moody [1978] 115 ITR 579 (SC). However, the Pr. CIT observed that case laws are clearly distinguishable on the fact that in the case of shares of public limited companies were purchased with the intention of earning dividend, which is not the case in respect of assessee as the investment is in a private limited company. Further, in the case of assessee investment is providing funds to the company for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that in the case of the assessee,there is no exempt income,hence there can be no disallowance of expenses, there action to be disallowance u/s.14A of the Act has held by Hon ble Gujarat High Court in the case of CIT v. Corretech Energy Pvt. Ltd (2014) 45 taxmann.com 116 (Gujarat). 6. The ld. counsel submitted that in the show cause notice exempt income of ₹ 53,14,838/- is mentioned but the same appears to be wrong and field break-up of the shares of profit of the partnership firm was loss at ₹ 28,44,028/-. Since, there is no exempt income from partnership firm, the question of applying section 14A read with Rule 8D does not arise with regard to claim of deduction u/s. 57(iii) of the Act of intent expenditure of and ₹ 2,91,18,343/-, It was submitted that there is nothing on record which shows that the interest expenses so claimed was wholly, and exclusively for the purpose of earning interest income from other sources. The provisions of section 57(iii) of the Act have been wrongly interpreted, as the said section laid down that the expenditure must be laid wholly and exclusively for earning income and not that such income must have been earned. The ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fone from HTL accompanied the CGP share and cannot be dissected so as to be treated as transfer of controlling interest of Mauritian entities and then that of Indian entities and ultimately that of HEL. Thereafter, the Hon ble Supreme Court has held that capital gain chargeable under section 45 and their computation is to be in accordance with the provisions that follow section 45 and there is no notion of indirect transfer in section 45. Meaning thereby, the Hon ble Supreme Court has held that controlling interest cannot be said to be that any income offered explained is allowable or not allowable if they are not provided specifically on the statue. The ration of this decision can be easily imported on the facts of the present case as acquiring of controlling interest in the company does not bear any income or expenditure is to be assessed or not to be allowed. The interest has paid on borrowed for acquiring the shares of a company and the dividend income is taxable during the year under consideration. Therefore, in our considered view, the interest income is allowable as deduction under section 57(iii) or under section 36(1)(iii) of the Act. We, order accordingly. 7. Pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO was (a) erroneous; and (b) prejudicial to the interests of the Revenue. 9. The perusal of facts of the present case reveals that the assessee has taken unsecured loans, which have been utilized for the purpose of investment in shares of private limited companies controlled by the family members and investment in partnership firm. Such investment was at ₹ 26.55 crores as on 31.03.2013 and ₹ 27.17 crores as on 31.03.2014. The assessee has paid interest of ₹ 2,91,18,343/- on unsecured loans and claimed deduction out of income, which has been during allowed by the AO. The Pr. CIT viewed that such interest is not allowable under section 14A and under section 57(iii) as investment made was related to exempt income and interest expenses were incurred for earning income from other source. However, it is noticed that there was negative income from partnership firm and no dividend income has been earned during the year under consideration, therefore, no expenditure has been incurred for earning exempt income, hence, disallowance under section 14A read with Rule 8D cannot be made as held by the Hon ble Gujarat High Court in the case of CIT v. Corrtech Energy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . We further, observe that the Pr. CIT has not discussed as to how the assessment order passed by the AO is prejudicial to the interest of the Revenue. The Hon`ble Rajasthan High Court in the case of CIT vs. Jain Construction [2013] 257 ITR 336 (Raj.) of which head notes reads as: Held, that safeguard provided to assessee in section 263 is that mere erroneous orders are not revisable but revisional authority has to further establish with material on record that such erroneous order is also prejudicial to the interest of revenue-twin conditions of assessment order being erroneous and it also being prejudicial to the interest of revenue, keeps initial burden on Commissioner, who invokes such jurisdiction- Premises for invoking the revisional jurisdiction on the ground that the Assessing Authority made insufficient inquiry or improper enquiry and paid to verify closing the stock in record of the assessee, before passing assessment order, falls flat by a bare perusal of assessment order itself-Thus, Tribunal was justified in holding that Commissioner was in error invoking revisional jurisdiction u/s. 263 Mere alleged insufficiency of inquiry in of opinion of Commissioner By Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 interests of the Revenue, unless the view taken by the Income-tax Officer is unsustainable in law. 10. Following the aforesaid judgment, the Hon`ble Supreme Court in CIT v. Max India Ltd. [2007] 295 ITR 282(SC) reiterated that the phrase prejudicial to the interests of the Revenue as used in section 263(1) of the Act must be read in conjunction with the expression erroneous and unless the view taken by the Assessing Officer is found to be unsustainable in law, the powers under section 263 of the Act cannot be invoked. 11. In view of legal position discussed in above pars of this order, the order passed by the AO, in our opinion, shall be deemed to be erroneous in so far as it prejudicial to the interest of the Revenue, if the Pr. CIT would have specifically pointed out which of inquiries or verification should have been carried out by the AO in this regard and the AO failed to carry out those inquiries and ver ..... X X X X Extracts X X X X X X X X Extracts X X X X
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