TaxTMI 
TaxTMI 
2015 (4) TMI 667
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.... u/s. 35D towards public issue expense incurred after commencement of business and according to him, as per provisions of Section 35D(ii) for A.Y. 08-09 such deduction is only available to an Assessee for extension of its industrial undertaking. (ii) while quantifying disallowance of expenditure u/s. 14A read with Rule 8D, interest expenditure was considered by the A.O at Rs. 41,32,115/- instead of 2,62,65,901/-. He was therefore of the view that the order of the A.O was erroneous and prejudicial to the interest of Revenue. He accordingly issued notice dated 26.09.2013 and called upon the Assessee to show cause as to why appropriate order u/s. 263 be not passed. In response to the aforesaid notice, Assessee interalia objected to the initiation of proceedings u/s. 263 and on merits submitted that no error was committed by the A.O while computing the assessment. The submissions of the Assessee were not found acceptable to the ld. CIT. He was of the view that (i) A.O had erred in allowing deduction of IPO expense of Rs. 61,21,968/- in contravention of provisions of 35D(1) & (ii) A.O had also erred in considering the interest expenses of Rs. 41,32,115/- instead of 2,62,65,901/- while q....
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....as required to be made on a ground that Assessee was having hire income. He therefore submitted that the revision order passed is contrary to show cause notice and therefore bad in law and void. With respect to the claim u/s. 35D, he submitted that it is allowable for 10 successive previous years as per the proviso to Section 35D(1). The first year of such claim was assessment year 2007-08 which has been accepted u/s. 143(1) and no action u/s. 147 or 263 has been taken in A.Y. 2007-08 or in A.Y. 2008-09. He therefore submitted that when the claim has been allowed in initial years and without any change in facts, the claim cannot be rejected in subsequent years and it cannot be subjected to Section 263 in subsequent years. He further submitted that for the year under consideration, a questionnaire was issue by the A.O wherein the A.O had asked to explain as to why the revised claim u/s. 35D not be disallowed in view of the fact that the revised return was filed beyond the time allowed by the Act. He submitted that with respect to the disallowance of expenses u/s. 14A in the questionnaire, the Assessee was also asked to explain as to why Rule 8D not be applied to disallow the expense....
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....g or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment." 8. The reading of the above provisions makes it very clear that the power of suo motu revision u/s 263(1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise power of revision u/s 263, namely (i) the order is erroneous (ii) by virtue of being erroneous prejudice has been caused to the interests of the Revenue. 9. In the present case, it is seen that Section 263 has been invoked on two grounds namely deduction u/s. 35D and disallowance u/s. 14A. With respect to deduction u/s. 35D it is an undisputed fact that the expenses were incurred by the Assessee in the year ending 31st March, 2007 relevant to assessment year 2007-08 and the first year of claim was A.Y. 2007-08 and in that year the claim of the Assessee has been accepted u/s. 143(1) and no action u/s. 147 or 263 has been taken in for A.Y. 2007....
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....l satisfied with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interest of the Revenue. But that by itself will not be enough to vest the Commissioner with the power of suo motu revision because the first requirement, namely, the order is erroneous, is absent. Similarly if an order is erroneous but not prejudicial to the interest of the Revenue, then also the power of suo motu revision cannot be exercised. Any and every erroneous order cannot be subject-matter of revision because the second requirement also must be fulfilled." 10. We find that Hon'ble Apex Court in the case of CIT vs. Max India Ltd. 295 ITR 282 (SC) had held that where two views are possible and ITO has taken one view which ld. CIT does not agree the order of A.O cannot be treated as erroneous order prejudicial to the interest of Revenue unless the view taken by the A.O is unsustainable in law. We further find that ld. CIT was of the view that Section 35D was only applicable to an industrial undertaking and activity of the Assessee cannot be regarded as an industrial undertaking and therefore not eligible for deduction u/s. 3....