TaxTMI 
TaxTMI 
2018 (8) TMI 1042
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.... raised the following two grounds: - "1(a) On the facts and in the circumstances of the case and in law, the learned Principal Commissioner of Income Tax erred in passing an order u/s.263 of the Income Tax Act, 1961 being void ab-initio and bad in law and thereby erred in setting aside the assessment and directing the Id. Assessing Officer to make fresh assessment. 1(b) The Id. Pr. Commissioner of Income Tax erred in invoking the revisionary power under section 263(1) of the Income Tax Act, 1961 without appreciating the fact that the Id. Assessing officer after making all possible enquiries, examining the facts and proper application of mind, completed the assessment of the assessee u/s 143(3) of the Income Tax Act, 1961, which was in accordance with the provisions of law. 2(a) The Ld. Principal Commissioner of Income Tax erred in invoking revisionary power u/s 263, in respect of disallowance u/s 14A despite the fact that appellant's claim for exempt income was subsequently disallowed by the Ld. AO by suo-moto passing an order u/s 154 of the Act.. 2(b) On the facts and in the circumstances of the case and in law the Id. Pr. Commissioner of In....
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.... exempt income (5,63,02,492)=11,26,049/-." 4. Subsequently, the Principal CIT (1) vide show cause notice No. Pr. CIT-1/263/Show cause notice/2017-18 dated 27.12.2017 required the assessee as to why the expenses relatable to exempt income be not disallowed by invoking the provisions of section 14A of the Act read with Rule 8D of the Rules. The PCIT computed the disallowance at Rs. 1,43,98,016/-. According to Principal CIT(1) Mumbai, the disallowance under section 14A of the Act is to be carried out with reference to Rule 8D of the Rules for the relevant AY 2013-14 and the disallowance restricted @ 2% by following the Tribunal's decision for AY 2006-07, the provisions of Rule 8D of the Rules were not applicable. The PCIT directed the AO to reframe the assessment after apply the Rule 8D of the Rules as non-applying of Rule 8D, the assessment is both erroneous and prejudicial to the interest of the Revenue. For this he observed at Para 11 and 12 as under: - "11. I have carefully considered the submission made by the assessee and have also gone through the facts of the case. The fact remains that the restriction on using Rule SD is limited only for years proceeding A.Y. 2008....
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....s and occasionally to their guests. Most of the receipts of assessee are not chargeable to tax on the grounds of mutuality which is settled and accepted consistently in all the earlier years. Certain receipts earned by assessee are taxable under the provisions of the Act. Brief details along with the nature of expenses claimed against the said receipts are as under - Particulars of income Head of income Expenses claimed Relevant Section Of The Act Rent of office and shops Income from House Property Municipal taxes, Standard Deduction @30% of NAV S.23& S.24 Capital Gains Capital Gains Cost of Acquisition/Indexed Cost of Acquisition S. 48 Rent from Leasehold plots and Licensed plots Income from Other Sources Municipal taxes, Ground Rent S. 57 Hire charges of Micro Amplifier Charges, Furniture, sale of scrap Income from Other Sources Nil S. 57 Interest Income from Other Sources Nil S.57 From the above your table, your goodself will appreciate that the assessee has claimed deductions only in respect of those expenses which are related to earning of income offered for tax. All....
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....y in respect of those expenses which are incurred for earning income that have been offered for tax under the head 'Income from Other Sources.' All other expenses incurred during the year have not been claimed against such income. Accordingly, no deduction has been claimed in respect of any expenditure incurred in relation to earning of tax free income and hence there cannot be any disallowance/addition u/s. 14A to the total income. iii) That for invoking provisions of S.14A there should be some claim for deduction in respect of any expenditure incurred in relation to exempt income and since the assessee-club has not claimed any deduction in respect of expenditure incurred for earning exempt income while computing its taxable income, the question of disallowance under section 14A does not arise. Accordingly, Rule 8D cannot be applied in the instant case to work out the disallowance u/s. 14A of the Act, as there cannot he any disallowance u/s.14A in the absence of any claim for allowance. In other words, the exercise of determining the expenses in relation to earning of exempt income will have no impact to the taxable income. This is more important in the g....
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....ssment under section 143(3) of the Act, after application of mind and restricted the disallowance at 2% of the exempt income. The AO has invoked the provisions of section 14A of the Act and made disallowance and formed an opinion for the same. In such circumstances, whether the order can be treated as erroneous so as to prejudicial to the interest of the Revenue and warrants revision under section 263 of the Act or not. Hon'ble Bombay High Court in the case of Gabriel India Ltd. (supra), has considered this issue and held as under:- "10. The power of suo motto revision under sub-section (1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise power of revision under this sub-section, viz., ( i) the order is erroneous; (ii) by virtue of the order being erroneous prejudice has been caused to the interests of the revenue. It has, therefore, to be considered firstly as to when an order can be said to be erroneous. We find that the expressions 'erroneous', 'erroneous assessment' and 'erroneous judgment' have been de....
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.... is erroneous but not prejudicial to the interests of the revenue, then also the power of suo motu revision cannot be exercised. Any and every erroneous order cannot be the subject- matter of revision because the second requirement also must be fulfilled. There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed." 8. Similarly, Hon'ble Supreme Court in the case of Max India Ltd. (supra) has also considered this issue and held as under: - "2. At this stage we may clarify that under para 10 of the judgment in the case of Malabar Industrial Co. Ltd. (supra) this Court has taken the view that the phrase "prejudicial to the interest of the revenue" under section 263 has to be read in conjunction with the expression "erroneous" order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of the revenue. For example, when the Income-tax Officer adopted one of the courses permi....