TaxTMI 
TaxTMI 
2016 (2) TMI 827
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....by the Commissioner under section 263 of the Act. 4. Briefly, in the facts of the present case, the assessee had furnished return of income declaring total income of Rs. 4,15,520/- on 30.09.2008. The assessment in the case was completed under section 143(3) of the Act by an order dated 23.12.2010 on total income of Rs. 4,67,702/-. On subsequent examination of records, the Commissioner was of the view that the said assessment order suffered from incorrect application of law as laid down in section 14A of the Act read with Rule 8D of the Income Tax Rule, 1962 (in short 'the Rules'). The assessee in the return of income, had claimed certain income to be exempt under sections 10(34), 10(38) and 10(2A) of the Act and worked out the expenditure disallowed under section 14A of the Act in relation to such exempt income at Rs. 10,50,000/-. The Commissioner further observed that in the scrutiny assessment, the Assessing Officer no doubt had dealt with the matter, but the Commissioner was of the view that the Assessing Officer had erroneously reasoned out that the disallowance suo motu made by the assessee on prorata basis was correct. He further was of the view that once satisfaction is for....
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.... applied only if the Assessing Officer was not satisfied with the correctness of claim of expenditure made by the assessee. Since in the case of assessee, detailed working out of disallowance under section 14A of the Act was provided to the Assessing Officer, who in turn, was satisfied about the said working and hence, the Assessing Officer had taken a possible view and therefore, the jurisdiction under section 263 of the Act could not survive. The Commissioner vide para 4.2 observed as under:- "4.2. No doubt, disallowance u/s.14A r. w. Rule 8 D need not be made in each and every case. In order that such disallowance can be made, the Assessing Officer, having regard to the accounts of the assessee, should be satisfied that the assessee's claim in respect of the expenditure in relation to the exempt income is incorrect. Up to this point, the argument taken by the assessee cannot be found fault with. But the moot question is whether "any satisfaction" of the Assessing Officer regarding the correctness of the assessee's claim of expenditure can be considered as final; or, for that matter, the acceptance by the Assessing Officer of the working made by the assessee can be cons....
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.... does not survive is rejected." 5. Since as per the Commissioner, the Assessing Officer had not applied the provisions of Rule 8D of the Rules correctly, the assessment order was revised under section 263 of the Act and was set-aside to the Assessing Officer, who in turn, was directed to re-compute the income by working out disallowance to be made under section 14A of the Act, as per provisions of Rule 8D of the Rules. The Assessing Officer was further directed to verify the correctness of the disallowable expenditure worked out at Rs. 27,08,903/-, while giving effect to the order. 6. The assessee is in appeal against the order of Commissioner under section 263 of the Act. 7. The learned Authorized Representative for the assessee pointed out that the issue of disallowance under section 14A of the Act has been dealt with by the Assessing Officer while passing the order under section 143(3) of the Act. Referring to the para 4.2 of the order passed under section 263 of the Act, he further pointed out that he does not know, how the order passed by the Assessing Officer was erroneous, whether there is any incorrect appreciation of facts or law. The next contention raised by the lear....
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....judicial to the interest of Revenue. Both the conditions of order being erroneous and prejudicial to the interest of Revenue are to be fulfilled in order to enable the Commissioner to exercise his jurisdiction under section 263 of the Act. 10. The Hon'ble Delhi High Court in Gee Vee Enterprises Vs. Addl.CIT & Others, (1975) 99 ITR 375 (Del) held as under:- "The reason is obvious. The position and function of the Income-tax Officer is very different from that of a civil court. The statements made in a pleading proved by the minimum amount of evidence may be accepted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Incometax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to^ ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. The meaning to be given to the word "erroneous" in section 263 emerges out of this context. It is because it is incumbent on the In....
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....us order passed by the Assessing Officer. However, loss of revenue as a conse quence to order of the Assessing Officer cannot be treated as prejudicial to the interest of revenue. The Hon'ble Apex Court (supra) further held that where the Assessing Officer had adopted one of the courses permissible and available to him, which in turn, had resulted in loss to the Revenue, cannot make the order prejudicial to the interest of Revenue. In case, where the Commissioner gives his finding that the view taken by the Assessing Officer is un-sustainable in law and therefore, the order is erroneous, which in turn, was prejudicial to the interest of Revenue, then the exercise of power by the Commissioner under section 263 of the Act is to be upheld. 13. The ratios laid down in the above said decisions have to be kept in mind by the Commissioner while exercising the power under section 263 of the Act. Where the Assessing Officer has adopted one of the courses permissible, which in turn, has resulted in loss of revenue or two views are possible and the Assessing Officer had taken one of the views, with which the Commissioner does not agree, the assessment order passed by the Assessing Officer ca....
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....e of assessment proceedings had dealt with the said issue of disallowance under section 14A of the Act and had accepted the disallowance worked out by the assessee. On the other hand, the Commissioner was of the view that in view of the ratio laid down by the Hon'ble Bombay High Court in Godrej & Boyce Mfg. Co. Ltd. Vs. DCIT (supra), the application of Rule 8D of the Rules was mandatory from assessment year 2008-09 onwards and since the Assessing Officer had not applied the said provisions, the order passed by the Assessing Officer was erroneous. 15. The perusal of the decision of Hon'ble Bombay High Court in Godrej & Boyce Mfg. Co. Ltd. Vs. DCIT (supra) reflects that under sub-section (2) to section 14A of the Act, the Assessing Officer is required to determine the amount of expenditure incurred by the assessee in relation to such income, which does not form part of the total income under the Act, in accordance with such method as may be prescribed. The Hon'ble High Court (supra) further held that the jurisdiction of Assessing Officer arises where he was not satisfied with the correctness of the claim of assessee in respect of the expenditure, which he claims to have incurred in ....