AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2017 (3) TMI 432
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....ok Profit to the tune of Rs. 20,88,02,973/-. The case was selected for scrutiny and during the course of assessment proceedings, the ld AO observed that the assessee was in receipt of dividend of Rs. 9,45,55,748/- ; profit on sale of long term investments of Rs. 28,65,62,101/- and Profit on sale of current investments of Rs. 62,60,745/-. The ld AO observed that the assessee had voluntarily disallowed a sum of Rs. 9,95,65,228/- u/s 14A of the Act as expenditure incurred for the purpose of earning income which do not form part of the total income. The assessee made the disallowance u/s 14A of the Act voluntarily in the return of income on the following basis :- Demat Account charges (direct expenses) Rs. 552/- Interest expenses relatable to investment Rs. 9,91,24,091/- 25% of total administrative expenses Rs. 4,40,585/- Rs. 9,95,65,228/- The ld AO in the course of scrutiny proceedings u/s 143(3) of the Act discussed the issue of disallowance u/s 14A of the Act having regard to the accounts of the assessee by looking into the net worth of the assessee and investments in securities made by the assessee. Based on these examination of accounts,....
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....us the assessee company is having tax free income in the form of dividend on shares and also taxable income in the form of interest income on loans granted. During the financial year 2010-11, the total revenue of the assessee company was Rs. 58,48,69,384/- out of which dividend income was Rs. 9,45,55,748/- and thus dividend income as a percentage of total revenue stood at 16.17%. Out of the total administrative and other expenses of Rs. 17,62,890/- , the assessee company has already added back Rs. 26,538/- on account of incremental provision for gratuity / leave salary and Rs. 552/- on account of demat charges leaving a balance of Rs. 17,35,800/-. 16.17% of Rs. 17,35,800/- works out to Rs. 2,80,679/- being the indirect expenses attributable to dividend income. As against this, the assessee has itself added back Rs. 4,40,585/- which was much more than Rs. 2,80,679/- and hence the ld AO had rightly accepted the said disallowance towards indirect expenses. 4.1. It was further submitted that the assessee during the Asst Years 2008-09 , 2009-10 and 2010-11 had offered disallowance of interest on a net basis at (i.e interest paid less interest income on loans granted) . The interest p....
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....vestments of the assessee company and arrived at the disallowance figure of Rs. 98,53,465/- under Rule 8D(2)(iii) of the Rules. Accordingly, he proposed to make additional disallowance of Rs. 9,86,04,041/- ( 18,83,15,804 + 98,53,465 - 9,95,65,228) and non-consideration of the said additional disallowance resulted in the order of the ld AO as erroneous and prejudicial to the interest of the revenue. Aggrieved, the assessee is in appeal before us on the following grounds :- "1. For that in view of the facts and in the circumstances, the Ld. PCIT is wholly wrong and unjustified in initiating proceedings u/s. 263 and passing an arbitrary order u/s.263 of the Act directing revision of original assessment order u/s 143(3) without considering the facts and the law explained before the AO as well as before Ld. PCIT as well. 2. For that in view of the facts and in the circumstances, the order u/s. 263 is wholly bad, illegal and void ab initio and such order u/s 263 has been made by the Ld. PCIT without properly taking into consideration the submission made by your petitioner by letter dated 26.02.2016 and in view of the facts and in the Circumstances such order u/s 263 may....
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.... audit report in Form 3CD in response to Question No. 17 (l) of Form 3CD. The ld AR drew our attention to Questionnaire issued by the ld AO in the course of assessment proceedings vide Question No.13 to Questionnaire dated 5/11.9.2013 which is enclosed in Page 61 of the Paper Book as below:- 13. Please state why the disallowance u/s 14A in relation to the exempted income (i.e Dividend income of Rs. 9,45,55,748/- and LTCG of s. 42,72,57,122/-) is not made following the Rule 8D. In response to the same, the assessee filed reply to the said questionnaire on 4.3.14 which is enclosed in Pages 100 -103 of Paper Book. The assessee also filed complete details of capital gains wherein in respect of sale of unlisted bonds of Aditya Birla Retail Limited (ABRL) on which gain of Rs. 41,09,589/- was earned by the assessee. It was stated that these bonds were purchased in Financial Year 2009-10 in physical mode but were sold in demat mode in the Financial Year 2010-11. We find that the assessee had replied before the ld AO that on 31.3.2010, it had subscribed to 1,50,00,000 1% optionally fully convertible bonds of Rs. 100 each of Aditya Birla Retail Limited at a total cost of Rs. 150,....
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....he Act that the ld AO had not bothered to probe into the details of interest paid in the huge sum of Rs. 37.76 crores by not calling for the details of the same, we find that the assessee had duly replied before the ld AO in the course of assessment proceedings vide letter dated 7.2.2014 wherein it had clearly given the party wise details of loans given and loans granted by the assessee together with its interest, TDS details, repayments , if any, made thereon etc which are enclosed in pages 69 to 97 of the Paper Book. Hence from the perusal of the said documents, we are convinced that the ld AO had duly examined the aspect of interest paid on loans and interest received on loans in the assessment proceedings. The ld AR even informed the bench that the ld AO had also sent notices u/s 133(6) of the Act to those parties and cross verified the loan statements with their records and no adverse inferences were drawn by the ld AO in the assessment proceedings. Accordingly, the ld AR argued that the ld AO after having elaborate enquiries on the issue of disallowance u/s 14A of the Act thought it fit that the disallowance made thereon by the assessee itself is much more though the same is ....
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.... Hence it could be safely concluded that the ld AO had taken a possible view and this action had not caused any prejudice to the interest of the revenue but on the contrary as stated above, it had only caused prejudice to the interest of the assessee. Hence, the dual conditions stipulated in section 263 of the Act are not satisfied cumulatively. 6.5. We find that the ld AR had placed reliance on the following decisions :- (a) Hon'ble Jurisdictional High Court in the case of CIT vs J.L.Morrison (India) Ltd reported in (2014) 366 ITR 593 (Cal), wherein it was held :- "85. He also drew our attention to a judgment of the Punjab & Haryana High Court in the case of Hari Iron Trading Co. v. CIT [2003] 263 ITR 437/131 Taxman 535, wherein the following views were expressed:- "The expression "record" has also been defined in clause (b) of the Explanation so as to include all records relating to any proceedings available at the time of examination by the Commissioner. Thus, it is not only the assessment order but the entire record which has to be examined before arriving at a conclusion as to whether the Assessing Officer had examined any issue or not. The assess....
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.... raised by him in the annexure to notice under Section 142 (1) of the Act could not have been formulated. 88. The Assessing Officer was required to examine the return filed by the assessee in order to ascertain his income and to levy appropriate tax on that basis. When the Assessing Officer was satisfied that the return, filed by the assessee, was in accordance with law, he was under no obligation to justify as to why was he satisfied. On the top of that the Assessing Officer by his order dated 28th March, 2008 did not adversely affect any right of the assessee nor was any civil right of the assessee prejudiced. He was as such under no obligation in law to give reasons. 96. The function of an Assessing Officer is to estimate the income of the assessee and to recover tax on the basis of such estimate as laid down by the Apex Court in the case of S.S Gadgil (supra). Their Lordships opined that the income tax proceedings do not partake the character of a judicial proceeding between the State and the citizen. Therefore, the principles applicable to a proceeding before a judicial or a quasi-judicial authority where there are two contesting parties cannot be made applic....
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....Having regard to the facts of the case, we are of opinion that even on merits the provisions of section 263 cannot be invoked on the facts of the present case before us." 14. This finding has not been challenged by the Commissioner as perverse in this case. There is no allegation of any misdirection of law. In other words, the finding of the Tribunal was that the ITO had actually made an enquiry into the sale of silver utensils. Therefore, the Commissioner was not right in his conclusion that the case of the assessee had been accepted by the ITO without any enquiry. Since this finding of fact of the Tribunal has not been challenged, it will be academic to give any answer to the question of law posed by the revenue. The Tribunal might have wrongly decided the question of the Commissioner's jurisdiction under section 263 and the nature of the assessment order made by the ITO pursuant to a direction given by the IAC. But the Tribunal has come to a conclusion that the ITO had made enquiries about the sale of the silver utensils. Therefore, the Commissioner was not right in coming to the conclusion that the order passed by the ITO was prejudicial to the interest of the reve....