AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2022 (7) TMI 958
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....,428/- should have been made? (ii) Whether on the facts and circumstances of the case and in law, the Hon'ble ITAT has erred in setting aside the impugned order u/ s.263 of the Income Tax Act and allowing the appeal of the assessee?" 3. By order of even date passed in Tax Appeal No.272/2022 arising out of ITA No.218/SRT/2019 for the same assessment year, in case of husband of the respondent, this Court dismissed the appeal as under : "1. Revenue has preferred this appeal under section 260A of the Income Tax Act, 1961 (For short "the Act, 1961") for the assessment year 2014-2015 challenging the judgment and order dated 10.12.2019 passed by the Income Tax Appellate Tribunal, Surat Bench, Surat in I.T.A. No.218/SRT/2019. 2. Following substantial questions of law are proposed by the Revenue : "(i) Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT has erred in holding that the Ld. PCIT was not correct in exercising jurisdiction u/s 263 of the Act by ignoring the fact that the Assessing Officer has passed assessment order without making inquiries/verification in the light of the fact that the disallowance u/s 14A of the Income Tax Act r/w....
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....rtnership firm. 6. However, PCIT after considering the reply observed that CBDT circular No.05/2014 dated 11.02.2014 clarifies that Rule 8D and Section 14A of the Act, 1961 provides for disallowance of expenditure even where taxpayer in a particular year has not earned any exempt income. 7. On the issue of claim of deduction of interest expenses under section 57(iii) of the Act, 1961, the assessee stated in his reply that section 57(iii) has been wrongly interpreted by relying on the judgment of Hon'ble Supreme Court in case of CIT v. Rajendra Prasad Moody reported in (1978) 115 ITR 579 (SC). 8. PCIT however, observed that case laws are clearly distinguishable on the fact inasmuch as in the case before the Apex Court shares of public limited companies were purchased with the intention of earning dividend which was not the case in respect of the assessee as the investment was in a private limited company. Further in case of assessee, investment was for providing funds to the company for its operation in the form of purchase of shares. It was observed that the total fund came from the family and management was also of the family of the assessee which controlled the company a....
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....e between lack of inquiry and inadequate inquiry. Lack of inquiry makes the AO's order erroneous, but inadequate inquiry does not make the order of AO erroneous. Thus, in order to exercise the powers under section 263(1) of the Act, the Pr.CIT must be satisfied that the assessment order made by the AO was (a) erroneous; and (b) prejudicial to the interests of the Revenue. 9. The perusal of facts of the present case reveals that the assessee has taken unsecured loans, which have been utilized for the purpose of investment in shares of private limited companies controlled by the family members and investment in partnership firm. Such investment was at Rs.26.55 crores as on 31.03.2013 and Rs.27.17 crores as on 31.03.2014. The assessee has paid interest of Rs.2,91,18,343/on unsecured loans and claimed deduction out of income, which has been during allowed by the AO. The Pr. CIT viewed that such interest is not allowable under section 14A and under section 57(iii) as investment made was related to exempt income and interest expenses were incurred for earning income from other source. However, it is noticed that there was negative income from partnership firm and no dividend incom....
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....s of section 263 are not justified. We further observe that similar disallowance made by the AO in assessment year 2012-13 in the case of the assessee, were deleted by the Ld. CIT (A) and appeal against which has been dismissed by the tribunal on account of low tax effect. We further, observe that the Pr. CIT has not discussed as to how the assessment order passed by the AO is prejudicial to the interest of the Revenue. The Hon'ble Rajasthan High Court in the case of CIT vs. Jain Construction [2013] 257 ITR 336 (Raj.) of which head notes reads as: Held, that safeguard provided to assessee in section 263 is that mere erroneous orders are not revisable but revisional authority has to further establish with material on record that such erroneous order is also prejudicial to the interest of revenue-twin conditions of assessment order being erroneous and it also being prejudicial to the interest of revenue, keeps initial burden on Commissioner, who invokes such jurisdiction Premises for invoking the revisional jurisdiction on the ground that the Assessing Authority made insufficient inquiry or improper enquiry and paid to verify closing the stock in record of the assessee, before passin....
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....ith an 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 interests of the Revenue. For example, when an Incometax 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." 10. Following the aforesaid judgment, the Hon'ble Supreme Court in CIT v. Max India Ltd. [2007] 295 ITR 282(SC) reiterated that the phrase "prejudicial to the interests of the Revenue" as used in section 263(1) of the Act must be read in conjunction with the expression "erroneous" and unless the view taken by the Assessing Officer is found to be unsustainable in law, the powers under section 263 of the Act cannot be invoked. 11. In view of legal position discussed in above pars of this order, the order passed by the AO, in our opinion, shall be deemed to be erroneous in so far as ....