TMI Blog2022 (12) TMI 837X X X X Extracts X X X X X X X X Extracts X X X X ..... the interest of Revenue. The reliance can be placed on the decision in the case of Indian Textiles [ 1985 (2) TMI 23 - MADRAS HIGH COURT] wherein it was held that provisions of section 263 can be invoked even where full facts are disclosed but the AO has not examined these details as per correct provisions of law. Therefore, considering the facts and circumstances, as narrated above, we uphold the order passed by ld PCIT under section 263 of the Act and dismiss the appeal of the assessee. - ITA No.113/SRT/2022 - - - Dated:- 23-11-2022 - Shri Pawan Singh, JM And Dr. A.L.Saini, AM For the Assessee : Shri Ankur A Shah, CA For the Respondent : Shri Ashok B. Koli CIT-DR ORDER PER DR. A. L. SAINI, ACCOUNTANT MEMBER: By way of this appeal, the assessee has challenged the correctness of the order passed by the Learned Principal Commissioner of Income Tax-1 (in short ld. PCIT ), under section 263 of the Income Tax Act, 1961 [hereinafter referred to as the Act ] dated 27.03.2022, for the assessment year 2017-18. 2. The grievances raised by the assessee are as follows: 1. That on facts and circumstances of the case the learned PCIT has erred in pas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9,13,876/- 99,03,385/- 5. The CBDT in its Circular No.05/2014 dated 11.02.2014 has clarified that Rule 8D read with section 14A of the Act provides for disallowance of the expenditure even where taxpayer in a particular year has not earned any exempt income. Accordingly, it can be concluded that disallowance u/s14A is applicable to the case of assessee, the amount of disallowance as per Rule 8D r.w.s.14A is worked out as under: As per rule 8D(2)(i) Direct expenditure relating to income which does not form part of total income. NI: As per rule 8D(2)(ii) Indirect expenditure interest not directly attributable to any particular income receipt Total investment which can earn exempt income as on 01.04.2016 as shown in above table Rs.6,69,13,876/- Total investment which can earn exempt income as 31.03.2017, as shown in above table Rs.99,03,385/- Average value of investment (D) income form which is exempt (B) + (C) divided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... larified that Rule 8D read with section 14A of the Act provides for disallowance of the expenditure even where taxpayer in a particular year has not earned any exempt income.The assessee has further claimed that no such expenditure has been incurred by it in relation to earning of exempt income. In this regard, it is observed that the source of making such large investment has not been examined by the AO, with reference to the interest cost attributable to such investment. Further certain administrative expenses would be involved in the decision-making process of maintaining / increasing such investment. The AO has not carried out the exercise of examining the books of account of the assessee, in terms of section 14A(2) and 14A(3) of the Act to ascertain the correctness of the claim of the assessee that no expenditure was incurred in relation to income which does not form part of the total income under this Act. Therefore, ld PCIT held that assessing officer has not inquired the issue of disallowance u/s 14A of the Act while completing the assessment proceedings therefore, the assessment order passed u/s143(3) of the Act dated 21.12.2019 for A.Y. 2017-18 was set -aside with a direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eport and annexures from which exempted income is earned. 13. The Ld. Counsel submitted that in response to notice, the assessee has submitted its reply during the assessment proceedings, which is placed at paper book page no.7, which is reproduced below: 6. Your honour may kindly note that income claimed as exempt pertains to the share of Joint Venture entered into by the company, details of which is enclosed in the succeeding point. It may also appreciate the fact that share from JV is exempt u/s 86 of the Income-tax Act, 1961,and accordingly, provisions of section 14A is not applicable in relation to this income. 14. Therefore Ld. Counsel contended that during the assessment stage, Assessing Officer questioned the assessee and assessee has submitted its reply. After getting the reply from the assessee, the assessing officer examined the issue and applied his mind, therefore the order passed by the Assessing Officer is neither erroneous nor prejudicial to the interest of Revenue. We note that assessee has replied to the assessing officer stating that income claimed as exempt pertains to the share of Joint Venture entered into by the company, and the share from JV i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ributed among members of joint venture, which is tax free in the hand of the members of joint venture. Thus, the income distributed among the members have already been suffered tax, hence, ld Counsel stated that order passed by the assessing officer is neither erroneous nor prejudicial to the interest of Revenue, therefore order of ld PCIT may be quashed. 16. We note that during the assessment stage, the Assessing Officer asked the assessee to submit the details regarding the exempt income u/s 14A, which is placed at paper book page no.5 and in response thereto, the assessee submitted its reply during the assessment stage, which is placed at page no. 7 of the paper book. Hence, we note that during the assessment stage the assessing officer has examined the issue. However, just because assessing officer has called the details relating to issue of section 14A does not mean that order passed by the assessing officer is correct. In assessee`s case under consideration, the assessing officer, after getting the relevant documents and details from assessee about exempt income, has reached on wrong conclusion. The assessee has himself submitted before the assessing officer that share fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer. Their Lordship held that it has to be remembered that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. When the Assessing Officer adopted one of the courses permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue unless the view taken by the Assessing Officer is unsustainable in law . 18 Taking note of the aforesaid dictum of law laid down by the Hon ble Apex Court, in the case of Malabar Industries Ltd(supra), we observe that order of the assessing officer can be held to be erroneous order, because assessing officer has passed the order on incorrect assumption of fact, that is, assessing officer has not considered exempt income received from joint Venture for the purpose of disallowance under section 14A of the Act. No doubt, assessing officer issued the notice to the assessee to furnish the documents relating to exempt income, and in fact the assessee in response to suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om partnership firm is exempt from tax u/s. 10(2A) of the Act in the hands of the partner. Therefore, it is tax free income in the hands of the assessee. The assessee has not made any disallowance for earning tax free income. The Assessing Officer has rightly invoked the provisions of section 14A r.w. Rule 8D for making such disallowance. The Circular No. 8/2014 rather clarifies the reason as to why the share of profits of a partnership firm is exempt from tax in the hands of partner. The same is reproduced here-in-under : SECTION 10(2A) OF THE INCOME TAX ACT, 1961 - FIRM - SHARE OF PROFITS TO PARTNER OF FIRM - CLARIFICATION ON INTERPRETATION OF PROVISIONS OF SECTION 10(2A) IN CASES WHERE INCOME OF FIRM IS EXEMPT CIRCULAR NO. 8/2014 [F. NO.173/99/2013-ITA-I], DATED 31-3-2014 A reference has been received in the Board in connection with the interpretation of provisions of section 10(2A) of the Income tax Act, 1961 ('Act') seeking clarification as to what will be the amount exempt in the hands of the partners of a partnership firm in cases where the firm has claimed exemption/deduction under Chapter III or VI-A of the Act. 2. The matter has been examined. Sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tivity of attending office, it would not be fair to treat all such incidental expenditure only for the purpose of earning remuneration income. In our considered view and particularly having regard to the smallness of the amount involved it would be justified to allocate these expenses in the same ratio in which these expenses were allocated by the Assessing Officer 21. From the above judgments, it is vivid that share received from Joint Venture is exempt income therefore disallowance under section 14A of the Act would attract. After getting the details and information from the assessee, the assessing officer has failed to compute the disallowance under section 14A of the Act, therefore jurisdiction exercised by ld PCIT under section 263 of the Act is valid in law. 22. Apart from this, during the revision proceedings under section 263 of the Act, it has been observed by Ld.PCIT that assessee-company has made following investment in unquoted shares, which can earn exempt income: Sr. No Nature of investment Amount of investment as on 01.04.2016 (Rs) Amount of investment as on 31.03.2017 (Rs) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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