TaxTMI 
TaxTMI 
2017 (6) TMI 229
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....order dated 24.03.2014 wherein the assessee's income under the normal provisions was determined at Rs. 6,79,93,050/-; in view of the disallowance of Rs. 3,36,28,000/- under section 14A of the Act r.w. Rule 8D(2) (iii) of the I.T. Rules 1962 (in short 'the Rules'). On appeal, the learned CIT(A) upheld 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 expenditure claimed is called for under section 14A r.w. rule 8D as strategic investment by the assessee in associate and subsidiary concerns account for approximately 96% of investments made; from which business income arises to the assessee and as the same have been utilised for business purposes of the assessee. 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. 3,36,28,000/- under section 14A r.w. Ru....
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....stice, 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 ....
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....iency and not for earning of profits; were made solely for the purpose of its business and therefore the AO held that the interest incurred is to be excluded from the ambit of disallowance 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, as almost the entire investment was made in associate and subsidiary concerns for business purposes of the assessee. It is after complete examination of the above in detail 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. 3,36,28,000/- 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 rule 8D(2)(iii) of the Rules. 4.2.2 According to the learned A.R. a....
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..... 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 mind to this ....
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....e 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 render the order of assessment erroneous and prejudicial to the interests of Revenue. Even otherwise, where two views are possible and the AO has taken one view with which the CIT does not ....
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....63 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 affording the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon....
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....ereof: - "4.2 The submission filed by the AR of the assessee has been carefully considered but the same was not accepted A company cannot earn dividend without its existence and management Investment decisions are very complex in nature They require substantial market research, day- to-day analysis of market trends and decisions with regard to acquisition, retention and sale of shares at the most appropriate time From the detail submitted by the assessee and explanation given by him, it is observed that assessee has regular business connection with the companies in which investments has been made and also there are business incomes to assessee from them Therefore, interest expense debited by assessee has not been considered for the purpose of calculation of disallowance u/s 14A because same has been incurred for the purpose of business. But it is not correct to say that no any personal cost, administrative cost has been incurred for maintaining the investments, therefore disallowance of 0.5% of average value of investment has been made, considering the fact that there was day to day administrative cost, personal cost has been incurred by the assessee for maintaining the in....
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....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. 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, rendered after due application of mind on the issue of disallowance under section 14A r.w. rule 8D. 4.4.5 For the purpose of revision under section 263 of the Act, what is relevant is to decide whether the view adopted by the AO in the order of assessment, while considering the issue of disallowance under section 14A r.w. rule 8D of the Rules, was a possible view, notwithstanding the fact that the learned CIT entertains a different view/opinion on the same set of facts. In the case on hand, as spelt out earlier in this order, and which we again reiterate, that the learned CIT has not controverted the....