TaxTMI 
TaxTMI 
2021 (6) TMI 169
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....s erred in setting aside the assessment with the direction to frame the assessment de novo after inquiring into applicability of provision of section 14A and exemption claimed u/s10(38). 3.Even otherwise, order passed by PCIT directing the assessing officer to frame assessment de novo is not justified in law, because the order sought to be revised is subject to appeal and confirmed by CIT(A). 4.It is therefore prayed that above order passed by Pr. CIT u/s 263 may please be quashed or modified as your honours deem it proper. 5.Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal." 2. The relevant material facts, as culled out from the material on record, are as follows. The assessee before us is a Private Limited Company and engaged in the business of manufacturing of textile machinery and other parts. The assessee company filed its return of income for Assessment Year 2014-15, on 29.11.2014 declaring total income at Rs. 28,65,15,430/-. Thereafter, the case of the assessee was selected for scrutiny under CASS and assessment was completed under section 143(3) r.w.s. 92CA(3) of the Income Tax....
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....iented fund" means a fund: (i) where the investible fund are invested by way of equity share in domestic companies to the extent of more than sixty-five per cent of the total proceeds of such fund; and (ii) which has been set up under a scheme of a Mutual Fund specified under clause (23D): Provided that the percentage of equity share holding of the fund shall be computed with reference to the annual average of the monthly averages of the opening and closing figures. As such, Long Term Capital Gain (LTCG) arisen on transfer of pure liquid/date mutual funds and hybrid/balanced mutual funds having investment in equity shares of domestic companies in less than 65 percent is not exempted. Such, capital gain is to be taxed at the rate prescribed u/s 112 of the Act. 4. In the light of the above provisions of the Act, ld PCIT did the scrutiny of Balance-sheet, Profit and Loss Account, Computation of income and details in investment in mutual funds and noted that assessee has claimed exempt income of Rs. 93,96,281/- being LTCG on sale of mutual funds. The same was allowed by the assessing officer, without having examined, while passing of assessment order u/s 143(3) r.w.s. 92CA(3) of ....
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....D item (iii) being percentage of average investment, investment in partnership firm M/s Gokulanand Petro Fibres was not considered by the assessing officer, which results into under assessment of income amounting to Rs. 53,00,470/-. In this regard following submissions are made. 4.1 During the course of assessment proceedings, assessing officer observed that assessee earned exempt income in form of dividend income and income from mutual fund, therefore assessing officer has made disallowance of Rs. 34,52,937/- u/s 14A r.w rule 8D. Thereafter the ld. CIT(A) vide order dated 24.04.2019 deleted the entire disallowance following the decision of Apex Court in case of PCIT vs. Sintex Industries Ltd. [93 taxmann.com 24] wherein it was held that when the assessee is having interest free own funds which is more than the average investment from whom exempt income is to be received, no disallowance is to be made u/s 14A r.w.r 8D. In the said case, the Assessing Officer had made a disallowance of Rs. 90.97 lakhs which included amount under Rule 8D(iii) also, however the total addition was deleted by Tribunal and confirmed by Gujarat High Court in [82 taxmann.com 428] (Guj). The revenu....
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....to the interests of the Revenue. It is submitted that the PCIT has to be satisfied of twin conditions, namely, (i) the order of the AO sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent i.e. if the order of the AO is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue, recourse cannot be had to s.263(1). In the present case, considering the facts of the case it can be seen that the assessment order is neither prejudicial to the interest of Revenue nor erroneous. Both the conditions are required to be satisfied cumulatively. Reliance is placed on the decision of Honourable Supreme Court in case of Malabar Industrial Co. Ltd. v/s. CIT - 243 ITR 83 (SC) wherein it was held that "The CIT has to be satisfied of twin conditions, namely (i) the order of the AO sought to be revised is erroneous and (ii) it is prejudicial to the interest of the Revenue. If one of them is absent - if the order of the ITO is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue - recourse cannot be had to S. 263(1).....
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....nt allowance under S.32A of Rs. 5,35,424/- on certain fixed assets. However, the assessing officer allowed the claim only in respect of certain fixed assets. On appeal before the CIT(A), the issue was decided in favour of the assessee. Thereafter, the Commissioner invoked the provision of section 263 on the ground that the action of the assessing officer in granting deduction u/s 32A on certain fixed assets was erroneous. The Honourable Gujarat HC held that "once the Commissioner (Appeals) allowed the assessee's claim on certain fixed assets, the order of the Assessing Officer stood merged with that of the Commissioner (Appeals) and hence, no part of the order of the Assessing Officer could have been revised by the Commissioner under S. 263." 4.6 Further, the reliance is placed upon following decisions for the doctrine of merger: • RankaJewellers v. Addl. CIT [2010] 328 ITR 148 (Bom.) (HC). • CIT v. Ram Kishore Raj Kishore [2004] 135 Taxman 511 (All.) (HC) : • Aerens Infrastructure & Technology Ltd. v. CIT [2004] 271 ITR 15 (Delhi)(HC). • CIT v. RatilalBacharilal& Sons [2006] 282 ITR 457 (Bom.)(HC) • PCIT....
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....ghly examined the exempt income of the assessee. The ld Counsel took us through assessment order framed by the assessing officer under section 143(3) r.w.s. 92CA(3) of the Act, dated 29.12.2017, wherein, (vide para No. 3 to 3.6 of the assessment order), the assessing officer discussed and investigated the issue relating to disallowance under section 14A read with rule 8D of the Income Tax Rules. The assessee has submitted the required details before the Assessing Officer, pertaining to exempt income and assessing officer having examined the same, took possible view, therefore ld. PCIT should not have invoked his jurisdiction under section 263 of the Act. The Ld. Counsel pointed out that assessee received Rs. 1,13,54,471/-, exempt income by way of dividend. The assessee also received exempt income under section 10(38) at Rs. 93,96,281/-, which was alleged by the ld PCIT stating in his order under section 263 that the said income of Rs. 93,96,281/- was left to be examined by the assessing officer during the course of assessment proceedings and that is why the ld PCIT held that order passed by the assessing officer under section 143(3) r.w.s.92CA(3) of the Act is erroneous and prej....
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....ng circumstances, the order of the AO can be held to be erroneous order, that is (i) if the Assessing Officer's order was passed on incorrect assumption of fact; or (ii) incorrect application of law; or (iii)Assessing Officer's order is in violation of the principle of natural justice; or (iv) if the order is passed by the Assessing Officer without application of mind; (v) if the AO has not investigated the issue before him; then the order passed by the Assessing Officer can be termed as erroneous order. Coming next to the second limb, which is required to be examined as to whether the actions of the AO can be termed as prejudicial to the interest of Revenue. When this aspect is examined one has to understand what is prejudicial to the interest of the revenue. The Hon'ble Supreme Court in the case of Malabar Industries (supra) held that this phrase i.e. "prejudicial to the interest of the revenue'' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Their Lordship held that it has to be remembered that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. When th....
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....for the purpose of computing the total income, no deduction shall be allowed rn respect of expenditure incurred by the assesses in relating to income which does not form part of total Income. As in the instant case, the assessee has shown only expenditure amounting to Rs. 3,03,285/- related to such exempt income and also not proved nexus of investment made out of own fund, expenditure attributable to exempted income is required to be ascertained on proportionate basis. Sub-Section (3) of Section 14A read with Rule 8D of the 1,T, Rule, 1962 inserted by the finance Act, 2006 gives- a very scientific method for determining the expenditure related to exempt income, Sub- Section (3) of Section 14A provides that in a case where an assessee claims that no expenditure ha* been incurred by him in relation to income which does not form part of total Income, the Assessing Officer snail determine the amount of expenditure incurred in relation to such income which does not form part of total income in accordance with the method prescribed under Rule 80 of the IT, Rules, 1962. Since the exempt income shown by the assesses does' not form part of total income and the assesses has claimed that ....
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....ssesses was requested to order to show cause as to why difference of expenditure of comes to Rs. 34.52.937/- [Rs. 37,56,222 - Rs. 3,03,285] determined as above in accordance with the provisions Sub-Section (3) of Section 14A of the I.T. Act, be not disallowed and added to the total for the year under consideration as the assessee has totally failed to justify the low expenses claimed in related to exempt income. The assessee was requested to furnish its reply in response to said show cause notice on or before 26.12.2017. However, the assesses company has not submitted any reply in response to the said shown cause notice. Therefore, it is presumed that the assessee has nothing to say in this regard. 3.5 On the basis of facts and findings, the undersigned has no option but to make disallowance u/s.14A r.w Rule 8D in the case of assessee company. Therefore, I make disallowance u/s.14A r.w. Rule 8D amounting to Rs. 34,52,937/- and add it to the total income of the assessee company. 3.6 Penalty proceedings u/s. 271(1)(c) for furnishing inaccurate particulars, are also being initiated in assessee's case separately." 14. It is abundantly clear from the above assessmen....
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....ncome under this Act and thereafter if the Assessing Officer is unable to determine the amount of such expenditure incurred in relation to the income which does not form part of the total income then he may resort to the method with prescribed in Rule 8D of the IT Rules, 1962. In the case of assessee no such satisfaction has been recorded by the Assessing Officer about the incorrectness of the claim of assessee towards expenditure incurred for earning exempt income. In the case of assessee the exempt income are of three types out of which two relate to dividend income from mutual funds and equity shares and another in relation thereof profit in relation to partnership firm and Assessing Officer has calculated a sum of Rs. 8,84,542/- as the amount of disallowance u/s 14A of the Act by following the method prescribed under Rule 8D of the IT Rules. We find that Id. Assessing Officer completely ignored the facts appearing in the computation of total income wherein assessee has added back security transactions tax of Rs. 69,482/- and management fees of Rs. 11,09,173/- to the net profit and loss account. As per submissions made by Ld. AR it has been mentioned that dividend incom....
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....er, in his order under section 143(3) r.w.s.92CA(3) of the Act, recomputed the disallowance under section 14A by invoking provisions of Rule 8D to Rs. 34,52,937/-. On appeal, the Ld. CIT (A) deleted this disallowance of Rs. 34,52,937/-. Hence, the said disallowance under section 14A r.w.r.8D, cannot be subject matter of revision proceedings under section 263 of the Act. Therefore, we are of the view, that based on the assessee`s facts, as narrated above, the doctrine of merger will apply. The logic underlying the doctrine of merger is that there cannot be more than one decree or operative order governing the same subject-matter at a given point of time. The Ld. PCIT,( on the said disallowance under section 14A r.w.r.8D) while exercising power under section 263 of the Act passed order on 24.04.2020, which is after the appellate order made by the ld Commissioner of Income Tax (Appeals) on 24.04.2019. The ld PCIT could not have invoked power under section 263 of the Act as the assessment order passed by the assessing officer under section 143(3) r.w.s.92CA(3) of the Act, had merged with the order of the ld Commissioner of Income Tax (Appeals). If the department was aggrieved by ....
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....Ld. CIT did not find any defect in any particular item decided by the ITO which was not the subject matter of appeal before the AAC but only in the omission to charge interest u/s 217(1A) and initiate penalty proceedings u/s 273(c). The assessee appealed successfully before the Tribunal. On department's appeal, the question before the Hon'ble Madhya Pradesh High Court was whether the Ld. CIT, while exercising power u/s 263, could set aside the assessment order after the appellate order was made by the AAC. The Division Bench took the view that the Ld. CIT could not have invoked power u/s 263 as the ITO's order had merged with the order of the AAC. In the present appeal before us, going by the doctrine of merger, since the Ld. CIT (A) had already decided the issue in favour of the assessee, the Ld. Pr. CIT could not have exercised his revisionary powers u/s 263 of the Act. If the department was aggrieved by the order of the Tribunal deleting the disallowance, proper recourse would have been to approach the higher forum. Therefore, we are of the considered opinion that the jurisdiction u/s 263 of the Act could not have been invoked by the Pr. CIT in this case. Accordingly we quash th....