2017 (9) TMI 1281 - AT - Income Tax

Tax Tribunal Quashes Commissioner's Revision Order, Assessee's Appeal Successful

Saregama India Ltd. Versus C.I.T. - 1, Kolkata

The Tribunal quashed the Commissioner of Income Tax's revision order under Section 263, stating that the Assessing Officer had conducted sufficient ... Revision u/s 263 - disallowance made u/s 14A - Held that:- The Hon’ble Delhi High Court in the case of Maxop Investments Ltd. Vs CIT (2011 (11) TMI 267 - Delhi High Court) held that the AO cannot proceed to determine the amount of expenditure incurred in relation to exempt income without recording a finding that he is not satisfied with the correctness of the claim of the assessee. This is a condition precedent while rejecting the claim of the assessee, with regard to incurring of expenditure or no expenditure in relation to exempt income. AO will have to indicate cogent reasons for the same and Rule 8D comes into play only when the AO records a finding that he is not satisfied with the assessee’s method. In the case in hand the AO has not made any such recording of satisfaction and has accepted the disallowance made u/s 14 A by the assessee. In such circumstances it is not open for the ld. CIT to come to a conclusion that the AO should have invoked Rule 8D, without himself recording the satisfaction that the calculation given by the assessee in its disallowance made suo moto u/s 14A is not correct. Coming to the other expenses claimed, the ld. CIT has simply collected information after raising queries and has not given any finding whatsoever that there is an error made by the AO or that the circumstances was such that would require and warrant further inquiry or investigation. No error in the assessment order has been pointed out and it is not stated as to how prejudice was caused to the revenue. The finding that the AO had failed to properly scrutinise the above aspects does not give powers to the ld. CIT to revise the assessment u/s 263 of the Act. Making rowing enquiries is not a finding of an error. Assessments cannot be set aside for fresh enquiries unless a specific error is pointed out at not making proper enquiry cannot be equated with no enquiry. In view of the above we quash the order passed u/s 263 of the Act and allow the appeal of the assessee. Issues Involved:1. Validity of the revision order under Section 263 of the Income Tax Act, 1961.2. Adequacy of the Assessing Officer's (AO) inquiries during the assessment process.3. Application of Rule 8D in disallowance under Section 14A.4. Examination of various expenses and transactions by the AO.Issue-wise Detailed Analysis:1. Validity of the Revision Order under Section 263:The Commissioner of Income Tax (CIT) initiated proceedings under Section 263, asserting that the assessment order dated 30.12.2011 was erroneous and prejudicial to the interests of revenue. The CIT's primary contention was that the AO failed to properly scrutinize and inquire into various aspects of the assessment. However, the Tribunal emphasized that for invoking Section 263, the CIT must be satisfied with two conditions: the order should be erroneous and prejudicial to the interests of the revenue. The Tribunal cited several judgments, including Malabar Industrial Co. Ltd. and Max India Ltd., to assert that mere loss of revenue does not suffice; the order must be unsustainable in law. The Tribunal concluded that the CIT did not provide specific findings of error or prejudice, thus quashing the revision order under Section 263.2. Adequacy of the AO's Inquiries:The Tribunal examined whether the AO had conducted adequate inquiries during the assessment process. It was found that the AO had indeed raised queries on all the issues pointed out by the CIT in his show cause notice. The AO had asked specific questions under Section 142(1) regarding disallowance under Section 14A, related party transactions under Section 40A(2), and various expenses. The assessee had provided detailed replies, which the AO accepted. The Tribunal emphasized that the AO's inquiries were adequate and that the CIT's claim of lack of inquiry was factually incorrect.3. Application of Rule 8D in Disallowance under Section 14A:The CIT criticized the AO for not invoking Rule 8D while making disallowance under Section 14A. However, the Tribunal referred to the Delhi High Court's decision in Maxopp Investments Ltd. vs CIT, which stated that the AO must record a finding of dissatisfaction with the assessee's disallowance before invoking Rule 8D. In this case, the AO had accepted the assessee's suo moto disallowance under Section 14A without recording any dissatisfaction. Therefore, the Tribunal held that the CIT's expectation for the AO to invoke Rule 8D was erroneous.4. Examination of Various Expenses and Transactions by the AO:The CIT had raised multiple points regarding different expenses and transactions, including carriage, freight, advertisement expenses, bad debts, rental income, and more. The Tribunal noted that the AO had raised queries on these issues, and the assessee had provided satisfactory replies. The CIT did not point out any specific errors or provide findings that warranted further inquiry. The Tribunal emphasized that making roving inquiries without specific findings of error does not justify setting aside the assessment. The Tribunal concluded that the CIT's order lacked adequate reasons and specific findings, thus quashing the order under Section 263.Conclusion:The Tribunal quashed the CIT's revision order under Section 263, holding that the AO had conducted adequate inquiries, and the CIT failed to provide specific findings of error or prejudice to the revenue. The appeal of the assessee was allowed.