TaxTMI 
TaxTMI 
2017 (4) TMI 812
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.... carry forward loses of Rs. 1,46,98050/- and which included disallowance of Rs. 24,79,503/- under section 14A of the Act r.w. Rule 8D(2) (iii) of the I.T. Rules 1962 (in short 'the Rules'). 'Book Profits' under section 115JB of the Act were computed at Rs. 19,80,289/- and included the aforesaid disallowance under section 14A r.w. rule 8D of the Rules. On appeal, the learned CIT(A) reversed the disallowance made by the Assessing Officer (AO) under section 14A r.w. Rule 8D(2)(iii) of the Rules. While making the aforesaid disallowance under rule 8D(2)(iii), the AO at para 4.3 of the order of assessment, after considering the assessee's detailed submission/explanations, also held that no disallowance of interest is called for under section 14A r.w. rule 8D as the assessee had not claimed interest cost on investment in associate and subsidiary concerns since it has sufficient own funds for making the said investments. 3. Subsequently, the Principal CIT -9, Mumbai initiated revisionary proceedings under section 263 of the Act by issue of show cause notice dated 16.12.2015 stating that while the AO had disallowed an amount of Rs. 24,79,503/- under section 14A r.w. Rule 8D(2)(iii) of the ....
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....les of natural justice, as well as non-application of mind to the facts and the contentions brought on record by the Appellant. 2. REVISION ILLEGAL 2.1 The Ld. CIT erred in passing the order u/s. 263 of the Act, revising the assessment order passed by the A.O. u/s. 143 (3) of the Act. 2.2 It is submitted that in the facts and the circumstances of the case, and in law, the order is bad, illegal and void as necessary pre - conditions for initiating the revision proceeding as well as the completion thereof were not fulfilled. 2.3 Without prejudice to the generality of the above, the CIT failed to appreciate that: (i) The order which he was seeking to revise had already merged with the appellate order and, accordingly, was not the "record" within the meaning of section 263 of the Act; (ii) In any case, the assessment order framed was not "erroneous" within the meaning of section 263 of the Act; and (iii) The assessment order was not "prejudicial to the interest of the revenue" within the meaning of section 263 of the Act. 2.4 The Ld. CIT erred in holding that the A.O. had failed to make disallowance of interest u/s. 14A of the Act read with Rule 8D of the Rules and, ....
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....ade out of commercial expediency and not for earning of profits; made solely for the purpose of its business and therefore the AO held that the interest is to be excluded from the ambit of disallowance, ostensibly under section 14 r.w. rule 8D(2)(ii). It is submitted that the above established beyond doubt that the AO has examined and verified in detail the aspect of disallowance under section 14A r.w. rule 8D(2)(ii) of the Rules, before reaching the conclusion and rendering the finding that no disallowance was called for from interest, since the assessee had sufficient own funds to make the investments, inter alia, in associate and subsidiary concerns for business purposes of the assessee. It is after complete examination of the assessee's submission that he rejected the assessee's claim that it had not incurred any expenditure for earning of exempt income and made the disallowance of Rs. 24,79,503/- under section 14A of the Act r.w. rule 8D(2)(iii) of the Rules. Therefore, it is clear that the AO has duly applied his mind to the applicability of Rule 8D(2) and had arrived at definite conclusions that disallowance was not called for under rule 8D(2)(ii), but was called for under r....
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....se of CIT vs. Sujani Textiles P. Ltd. (1985) 151 ITR 653 (Mad) is not tenable as it is clearly distinguishable on facts from the facts on hand. It was a case where the assessee therein had advanced some amount to a broker, who in turn loaned it to a Director of the assessee company. The assessee stopped receiving interest income on such amount. It was in that factual circumstances that the claim of the assessee for deduction of the interest expenses on the amount borrowed to give such loan was held to be disallowable both under the head 'business income' as well as under the alternate claim under section 57(ii) of the Act. It is submitted that the facts and issues of the assessee in the case on hand are totally different. 4.2.5 The learned A.R. of the assessee further submits that no revision under section 263 of the Act is permissible by CIT if enquiry has already been conducted by the AO in the course of assessment proceedings; as has been carried out by the AO in the case on hand. In the case on hand it is evident from the order of assessment that the AO conducted enquiries in respect of disallowance to be made under section 14A r.w. rule 8D of the Rules and has applied his min....
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....d in the case of PHIL Corporation Ltd. (2011 - TIOL-432-HC-MUM-IT) this is in consonance with settled legal position that the strategic investments made by an assessee in group concerns for the purpose of business does not attract any disallowance under section 14A of the Act. According to the learned A.R. of the assessee, it is also settled legal position that interest expenditure incurred in respect of loans used for the purpose of making strategic investments in group concerns is allowable as business expenditure under section 36(i)(iii) of the Act. In support of this contention, reliance was, inter alia, placed on the decisions of the Hon'ble Madras High Court in the case of CIT vs. Spencers & Co. Ltd. (2013) 359 ITR 644 (Mad) and CIT vs. RPG Transmission Ltd. (2013) 359 ITR 673 (Mad). 4.2.7 The learned A.R. of the assessee further contended that without prejudice to the above submissions, no revision is permissible under section 263 of the Act, if the AO adopts one of the possible methods/ courses of action/conclusions permissible in law. The mere fact that the CIT is not in agreement with the view taken/conclusion reached by the AO, which is permissible in law, would not....
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....cised his revisionary powers under section 263 of the Act correctly and in accordance with law. It was submitted that as per the provisions of section 263 of the Act and Explanation 2 thereof, the CIT was empowered to call for and examine the record of any proceedings under the Act and the order can be held to be erroneous and prejudicial to the interest of Revenue if in the opinion of the CIT, the order has been passed without making inquiries or verifications which should have been made or that in the order the AO has allowed any relief without inquiring into the claim. It was contended that Explanation 2 is clarificatory in nature and can be applied retrospectively. It was prayed that the impugned order of the learned Principal CIT be upheld. 4.4.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncements cited. The mandate of the provisions of section 263 of the Act is that the CIT may call for and examine the record of any proceedings under the Act and if he considers that any order passed therein by the AO is erroneous, in so far as it is prejudicial to the interests of Revenue, he may then, after a....
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....hereof, the AO proceeded to render his decision for making disallowance under section 14A r.w. rule 8D of the Rules as under at paras 4.1 and 4.3 thereof: - "4.1 On perusal of the Balance Sheet it was noticed that the assessee was holding investments worth of Rs. 12,20,02,042/- and Rs. 86,97,99,026/ at the beginning and end of the year respectively, income from which does not or shall not form part of total income. The assessee ought to have made disallowance of expenditure in relation to the income which does not or shall not form part of total income as required u/s. 14A in accordance with the provision of Rule 8D. 4.2 In the course of scrutiny proceedings, the assessee was asked to furnish the details of its investments and to show cause as to why disallowance u/s. 14A of the Act should not be made in accordance with the provisions of Rule 8D. In response, the assessee stated that it has not incurred any interest cost for the purpose of making investment and company has sufficient own fund for making investment. Your honours kindly observe that the same contention has been accepted during the Assessment Year 2010-11 also. We would also like to inform you that such investment ....
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....ortant aspect that we observe in the case on hand, is that the learned CIT has not disputed the basic fact that the assessee had not incurred cost on investment as it had sufficient own funds to cover the investments made; including those strategic investments in group concerns, which were made for the purpose and in the course of the assessee's business. It is also seen that the learned CIT(A) has not disputed, controverted or found any discrepancy in the submissions, explanations and factual details brought on record by the assessee, which have been considered, examined and verified by the AO. We find that in revisonary proceedings, the learned CIT, apart from the facts already on record, has not found any fresh or different facts in coming to his view. The learned CIT has merely taken a different view on the same set of facts. In our considered view, if the actions/finding of the AO are evaluated in the factual matrix as laid out above and the settled legal position, it is clear that there is no infirmity in the order of the AO as it was in accordance with law in the given facts and circumstances of the case, and the finding of the AO was rendered after due application of mind o....