TaxTMI 
TaxTMI 
2015 (10) TMI 1007
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....Tax is not justified in directing the assessing officer to re-work the disallowance, already calculated as per provisions of section 36(1)(iii), by applying provisions of section 14A and increasing the disallowance by Rs. 5,55,41,854/-. 4. The learned Pr. Commissioner of Income Tax ought to have appreciated that the issue of disallowance under two sections, section 14A and section 36(1)(iii), was duly considered and accordingly given effect to by the assessing officer and merely because the learned Pr. Commissioner of Income Tax entertains a different view the assessment cannot be termed as erroneous. 5. The learned Pr. Commissioner of Income Tax ought to have appreciated that the issue of disallowance U/s. 36(1)(iii) and section 14A is the subject matter of appeal filed before the learned CIT(A) and as such, it is no more within the jurisdiction of Commissioner of Income Tax U/s. 263 of the Act to consider the sufficiency of disallowance in respect of this issue". 3. Before adverting to the merits of the action of the Pr.CIT, it is necessary to mention the chronology of events leading to the present order. Assessee is engaged in the business of Micro Finance and filed its ret....
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....ted the disallowance made u/s. 36(1)(iii). 4. After this order of CIT(A), Ld. Pr.CIT examined the record and came to the conclusion that the order passed by the AO was erroneous insofar as it is prejudicial to the interest of the Revenue on the reason that the disallowance under Rule 8D(2)(ii) was to the tune of Rs. 13,40,73,873/-, whereas the AO disallowed only part amount, therefore, there was short computation of income of Rs. 5,51,41,860/-. Even though the show cause notice issued on 03-03-2015 does not indicate how the above amount was arrived at, the order u/s. 263 do indicate that this amount was arrived at by certain formula, the amounts of which were not clarified nor referred to from any schedules. Be that as it may, Ld. Pr.CIT issued show cause notice to assessee why the said order could not be revised u/s. 263? 5. Assessee objected to the initiation of proceedings u/s. 263 and gave detailed submissions which were summarized by Pr.CIT vide para 5 of the order as: (i) the MOA wherein such investment is among the main objectives of the business and the assessee is duly registered with the ROC and RBI as a Non-Banking Financial Company (NBFC) with the same set of object....
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....d from the (ix) bank borrowing and submit all these details to the Bank within 30 days of utilize the loans for any purpose other than disbursements to borrowers. Hence, the entire interest expenses incurred on these loans (and what is intended to be disallowed through the order under section 263) is towards generation of interest income that is offered for taxation. (x) Section 14A should not be applied merely because there is an earning of an income which is exempt. For application of section 14A, a clear direct and distinct connection has to be established between the disallowed expenses and the exempt income. In the current case of the assessee, it has stated that there is no connection between, the exempt income and the interest expenses. (xi) During the scrutiny proceedings, the assessee has stated that: (a) No part of interest bearing loan funds were used as a source of mutual fund investments. (b) The entire investments were made out of non interest bearing funds available with the company. (c) The company did not have the contractual liberty to use the loan funds for any other purposes than further lending to micro finance borrowers. (xii) The assessee stated....
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.... Court in the case of Maxopp Investment Ltd and ors vs CIT 247 CTR 0162 for explaining Section 14A and Rule 8D, provisions of the Act and relied on the principle that the disallowance under Rule 8D(ii) was not subject matter of appeal before the CIT(A) and therefore, Pr.CIT was well within his rights to invoke the jurisdiction u/s. 263. 11. We have considered the rival contentions and perused the Paper Book placed on record and case law relied upon by the parties. First of all, it is to be noted that issue of disallowance u/s. 36(1)(iii) and also 14A was examined by the AO in detail in the scrutiny assessment. As briefly stated above, AO disallowed part of the interest claim on the reason that assessee has invested funds in the mutual funds diverting from business purposes. He quantified the disallowance at Rs. 7,85,32,019/- based on the period of investment during the year. Therefore, as far as quantification of interest on diversion of funds for investment in mutual funds are concerned, we cannot subscribe to the Ld. Pr.CIT's opinion of quantifying the amount on a formula under Rule 8D(2)(ii). This issue was already examined and adjudicated by the ITAT in ITANo.1653/Hyd/2012....
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..... Muncherji & Co. (167 ITR 671) held as follows: "The principle underlying section 263 of the Income Tax Act, 1961, corresponding to section 33B of the Indian Income Tax Act, 1992 is that it is only the order of the Income Tax Officer which can be revised by the Commissioner. Once the order of assessment is confirmed by the Appellate Assistant Commissioner or any order with regard to the assessment has been made by him, that becomes a final order of assessment and the only right the Department has is the right of appeal to the Appellate Tribunal. 8. Further, the Hon'ble High Court with respect to the Doctrine of merger at Page 676 held as follows: "9. We have considered rival contentions carefully. In our opinion, this Court's decision in Tejaji Farasram Kharawala's case (supra) still holds the field and is binding on us. Chief Justice Chagla in that case has categorically held that the principle underlying section 33B of the Indian Income-tax Act, 1922 ('the 1922 Act'), corresponding to section 263 of the 1961 Act, is that it is only the order of the ITO which can be revised by the Commissioner. Once the order of assessment is confirmed by the AAC or any ....
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....ces of funds in detail. It cannot be stated that AO has not examined the issues in the course of assessment. Moreover, he has clearly made his findings in the assessment order while disallowing the amounts, therefore, it cannot be stated that AO failed in the course of scrutiny assessment in examining the issues, as opined by the Ld. Pr.CIT. Since this issue was already examined by the AO in the course of scrutiny, and has come to certain conclusions on the basis of the facts, it cannot be stated that AO has not examined the issues properly. As held by the Hon'ble Delhi High Court in the case of CIT Vs. Hotz Industries Ltd89 CCH0192 Del HC dt 23-07-14., wherein it was held that CIT was not justified in exercising jurisdiction u/s. 263 and setting aside assessment order without arriving at finding that assessment order passed by AO was erroneous. 13. In the case of Spectra Shares & Scrips Pvt Ltd., Vs. CIT [354 ITR 35 (AP)], Hon'ble jurisdictional High Court has held as follows: "If there was an inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders u/s 263 merely because he has a different opinion in the matter. It is only in c....