TaxTMI 
TaxTMI 
2018 (2) TMI 1694
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....gh Court, is not sustainable. 3. That the Id. AO having invited the relevant details, verified for himself the relevant records and chosen not to make any specific disallowance U/S.14A, the Id. CIT was not justified in expecting the AO to do the same in a way as conceived by him to be more appropriate. 4. That sans any findings given in his order under appeal, that the assessment framed was erroneous as also prejudicial to the interest of revenue, the jurisdiction u/s.263 has been wrongly exercised and hence, not sustainable in law. 5. That the order under appeal is wholly against law and facts of the case." 3. At the outset, the Ld. AR submitted that the assessee had made strategic investment in the group company and on which no dividend was received and the Assessing Officer during assessment proceedings had examined this aspect and had made an addition of Rs. 5 lacs on this account and our attention was invited to Assessing Officer's orders at page 2 of his order. The Ld. AR submitted that Assessing Officer vide detailed questioner dated 20.10.2014 had required assessee to submit certain information and the required information included information ....
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....Haryana High Court in the case of Punjab Tractors Ltd. Vs. CIT. 5. We have heard the rival parties and have gone though the material placed on record. We find that during assessment proceedings, the Assessing Officer did enquire about the disallowance u/s 14A though he mentioned the disallowance out of interest paid and in fact also disallowed an amount of Rs. 5 lacs. The findings of the Assessing Officer in this respect are reproduced below: "After discussion and considering the submission as above, it becomes crystal clear that some of loans raised for the business on which interest is paid have been mis-utilized for meeting- personal obligations. So the raising | of loans & payment of interest to some extent is not incidental to the running of the business. It will be appropriate to point out that assessee has paid interest of Rs. 11863699/- on secured loans & an interest of Rs, 2055124/- on intt to depositors. The assessee mainly pleads that there is no nexus between raising of loans & the advances .without interest. He further submits that no secured loans are raised during the year whereas main interest free advance of Rs. 22685000/- has gone out during the year w....
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....ed to cover even those situations whether there is a possibility of exempt income being earned in future. The Circular, at paragraph 4, states that it is not necessary for exempt income to have been included in the income of a particular year for the disallowance to be triggered. According to the learned standing counsel, the provisions of section 14A are made applicable, in terms of sub-section (1) thereof to income "under the Act" and not "of the year" and a disallowance under section 14A, read with rule 8D can thus be effected even in a situation where a taxpayer has not earned any taxable income in a particular year. We are not able to subscribe to the aforesaid view. The provisions of section 14A were inserted as a response to the judgments of the Supreme Court in CIT v. Maharashtra Sugar Mills Lid. [1971] 82 ITR 452 (SC) and Rajasthan State Warehousing Corporation v. CIT [2000) 242 ITR 450 (SC) in terms of which, expenditure incurred by an assessee carrying on a composite business giving rise to both taxable as well as non-taxable income, was allowable m entirety without apportionment, it was thus that section 14A was inserted providing that no deduction shall be all....
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....were sought to be disallowed invoking the provisions of section 14A on the premise that the same related to borrowings that had been invested and would yield exempt returns. The assessee contested the disallowance under section 14A on multiple grounds. It was contended that there were sufficient reserves and surpluses available for the purpose of investments, and borrowed funds, for which the payment of interest had been incurred, had not been invested. The assessee sought to draw a nexus between the borrowed funds and the interest payments, highlighting the position that the quantum of available free funds was far in excess of the investments made. The Bench, in the light of the above submissions, remanded the issue to the file of the Assessing Officer to be considered de novo and after conducting a proper enquiry. Inter alia a direction was issued to the assessee to tender a proper explanation for the interest payments. The open remand was made in the facts and circumstances of that case and no conclusion was drawn by the Bench on the position of law involved. In fact, the substantial question of law raised in that case for the consideration of the court was couched in general te....
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....ct rather than distort it. In conclusion, we are of the view that the provisions of section 14A read with rule 8D of the Rules cannot be made applicable in a -vacuum, i.e., in the absence of exempt income. The questions of law are answered in favour of the assessee and against the Department and the appeal allowed. No costs." The Hon'ble Delhi High Court in the case of CIT Vs. DLF Ltd. while deciding the appeal filed by revenue against the Tribunal order, quashing the order u/s 263 has again held that where there is no exempt income, no disallowance can be made u/s 14A of the Act. In this case, the assessee had even received some exempt income also even then the Hon'ble Court held that the disallowance u/s 14A was a debatable issue and therefore the view taken by the Assessing Officer was sustainable one and therefore section 263 was not applicable. For the sake of completeness, the findings of the Hon'ble Court are reproduced below: "4. In ITA-236/2010, the facts are that the Tribunal followed its previous orders setting aside the revisional order of the CIT. The Tribunal had to consider the correctness of the order made pursuant to the fresh proce....
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.... not arise. 7. It was argued next that the Tribunal's order should not be interfered with because if enquiries are conducted by the Commissioner, he cannot go into or scrutinize the question of appropriateness of the previous proceedings before the AO. It was submitted in this regard that the judgment of this Court in CIT v. M/s Sunbeam Auto Ltd, 332 ITR 167 = (2009-TIOL-552-HC- IT) shows that there can be no roving and fishing enquiry by the Commissioner and he has to merely confine himself to the materials on record of the proceedings called for by him. In other words, if the AO makes an assessment acting in accordance with law that cannot be branded as erroneous. Reliance was also placed upon the judgment reported as CIT v. Anil Kumar Sharma, 335 ITR 72 (Del) = (2010-TOIL-267- HC-DEL-IT) . It was further argued that wherever two views are possible, the Commissioner is not justified in invoking the power of revision under Section-263. In support of this contention, the assessee's counsel relied upon CIT v. Max India Ltd., 295 ITR 282 (SC) = (2007-TIOL-203-SC- IT) . It was lastly urged that any order of revision which does not specify the prima facie error in the ....
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....and collect' tax in accordance with the provisions of the Act and this task is entrusted to the revenue. If due to an erroneous order of the Income Tax Officer, the revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the revenue. The phrase 'prejudicial to the interests of the revenue' has to be read in conjunction with an erroneous order passed by the assessing officer. Every loss of revenue as a consequence of an order of assessing officer cannot be treated as prejudicial to the interests of the revenue, for example, when an Income Tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the Income Tax Officer is unsustainable in law." In CIT Vs Max India Ltd, 295 ITR 282 (S.C) = (2007-TIOL-203-SC-IT) after noticing the judgment in Malabar, the Supreme Court applied the law declared by it, and also clarified that: "The phrase "p....
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....e assessee had to expend effort, or specially allocate resources to keep track of its investments, especially dividend yielding ones. In these circumstances, it can be said that whether tip deduction under Section 14-A was warranted, was a debatable fact. In any event, even if it were not debatable, the error by the AO is not "unsustainable". Possibly he could have taken another view; yet, that he did not do so, would not render his opinion an unsustainable one, warranting exercise of Section 263. 12. For the above reasons, the question of law is answered against the revenue, and in favour of the assessee. Consequently, the appeals fail and are dismissed." The Amritsar Bench of the Hon'ble Tribunal in the case of Dabwali Transport Co. Ltd. Vs. DCIT vide its order dated June 17, 2016 had also decided the similar issue by holding as under: 32. In this regard, the Id. counsel for the assessee has contended that the issue respect to disallowance u/s 14A cannot be raised in the proceedings 63 of the Act. Reliance has been placed on CIT v. DLF Ltd [2013] 350 ITR 214 Taxman 555/214 Taxman 91/31 taxmann.com 158 (Delhi), where it has been held that to make a disallo....