TMI Blog2023 (4) TMI 230X X X X Extracts X X X X X X X X Extracts X X X X ..... refore ought be held to be erroneous so as to cause prejudice to the interest of the Revenue. No such exercise having been done by the ld.Pr.CIT in the present case; his finding of the error, merely on the ground that no inquiry was made by the AO on the issue of 14A, without dealing with the contentions made by the ld.counsel for the assessee before him, is not tenable in law. Explanation 2 to section 263 is clearly not applicable in the present case. For this reason, order of the CIT, we hold, is to be set aside. Revisionary power u/s 263 of the Act has been invoked for an inconsequential and immaterial issue; as per the Ld.PCIT s calculation a disallowance of barely 10% of the income returned by the assessee, the exercise of revisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bstantial interest, and therefore, the investments had been made out of interest bearing funds on which, the ld.Pr.CIT noted, the assessee had incurred huge expenditure in the form of interest and debited to the profit loss account. He accordingly worked out the disallowable expenses u/s 14A of the Act applying Rule 8D of the Income Tax Rules, 1962 (in short referred to as Rules) at Rs.36,17,305/- as opposed to Rs.70,519/- suo moto disallowed by the assessee. As per the Ld.PCIT the AO having accepted assesses less quantum of suo moto disallowance, his order was erroneous causing prejudice to the Revenue. 3. During the course of hearing before us, it was brought to our notice that the facts noted by the ld.Pr.CIT relating to the issue o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dealing with this contention of the ld.counsel for the assessee. He further pointed out that in the Asst.Year 2011-12 disallowance made under section 14A had been deleted by the ITAT vide is order passed in ITA No.1707/Ahd/2016 dated 31.8.2018. He therefore contended that there was clearly no finding of the error as such in the order of the AO by the ld.Pr.CIT and the order passed therefore under section 263 needed to be set aside. 4. The ld.DR relied on the order of the ld.Pr.CIT. 5. We have considered rival submissions of both the parties. Before dealing with the contentions as made by the ld.counsel for the assessee, it is pertinent to bring out a few relevant facts relating to the issue before us. We have noted from the order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eded to work out the disallowance of interest applying formulae given under Rule 8D(2)(ii) at Rs.30,34,560/- taking interest components at Rs.6,26,48,819/- in the said formula and including the components of non-current investment alongwith the current investment for the purpose of average investment made by the assessee, required as per the said formula. The calculation made by the Ld.PCIT, reproduced above by us, reveals all the aforestated facts. The ld.counsel for the assessee has pointed out that in the first place, the assessee has not incurred interest expenditure to the extent of Rs.6.26 crores, but on the contrary, the interest expenses, which could be attributable at the most to the earning of exempt income was only of Rs.44.27 la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is clearly evident that the basis of calculating expenses disallowable under section 14A of the Act by the Ld.PCITwas on the assumption of incorrect facts. 7. We have noted, that despite being so pointed out by the assessee, and having noted so atpara-7 of his impugned order, where he briefly stated the above facts pointed out by the ld.counsel for the assessee, the Ld.PCIT made no effort to re-work the calculation and find out whether any expense was still liable to be disallowed under section 14A of the Act. The ld.Pr.CIT, we find, proceeded to hold the assessment order to be erroneous on the basis that no inquiry was conducted by the AO on the issue. He has invoked Explanation 2(a) to section 263 for the said purpose. We are not co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld.counsel for the assessee before him, is not tenable in law. Explanation 2 to section 263 is clearly not applicable in the present case. For this reason, order of the ld.Pr.CIT, we hold, is to be set aside. Further, considering the fact, as noted above, that revisionary power under section 263 of the Act has been invoked for an inconsequential and immaterial issue; as per the Ld.PCIT s calculation a disallowance of barely 10% of the income returned by the assessee, the exercise of revisionary power for a trivial issue, that too on the basis of assuming incorrect facts, is nothing but an arbitrary exercise of the extraordinary power of revision as per section 263 of the Act. There is no reason absolutely to uphold the order of the Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X
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