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2022 (12) TMI 837
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....eedings and on being satisfied with the reply of the appellant, no disallowance u/s 14A was made and accordingly order u/s 263 is bad-in-law. 2. That on facts and circumstances of the case the learned PCIT has erred in passing order u/s 263 for considering the proposed disallowance u/s 14A without appreciating written submissions along with directly applicable judicial pronouncements relied on having reference to the Circular No.5/2016 which is heavily relied on by the PCIT while passing order u/s 263. 3. The appellant craves leave to add, amend, alter, substitute, modify the above grounds of appeal, if necessary on the basis of submissions to be made at the time of personal hearing." 3. Succinct facts qua the issue are that assessee is a Private Limited Company and filed its return of income for assessment year 2017-18 on 31.10.2017, declaring total income of Rs.43,58,80,060/-. Thereafter, the case was selected for scrutiny under CASS and assessment under section 143(3) of the Act was finalized on 21.12.2019 by determining total assessed income of Rs.67,28,34,760/- after making addition of Rs.23,69,54,700/-. 4. Later on, Ld. PCIT exercised his jurisdiction ....
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....dings for revision of order u/s 263 of the Act were initiated by issuing show cause notice bearing DIN No.ITBA/REV/F/REV1/2021-22/040734126(1) dated 15.03.2022 and duly served through e-proceedings. 7. In response to the notice, the assessee-company submitted its reply through eproceedings. 8. However, Ld.PCIT rejected the contention of the assessee and noted that as per Balance-Sheet as on 31.03.2016, the assessee has made investment in equity shares of Mahalaxmi Rubtech Ltd to the tune of Rs.5,55,19,521/-, and in shares of Gandhinagar Hotel Ltd to the tune of Rs.49,71,303/- and in shares of Raj Packaging Ltd of Rs.58,73,052/-. As on 31.03.2017, Mahalaxmi Rubtech Ltd to the tune of Rs.80,11,382/- in shares of Gandhinagar Hotel Ltd to tune of Rs.1,90,000/- and in share of Raj Packaging Ltd of Rs.11,52,000/-. Besides, as on 31.03.2016 and 31.03.2017, the assessee-company has shown investment in mutual funds to the tune of Rs.5,50,000/-. As on 31.03.2017, the investment in equity shares reduced to Rs.99,03,385/- in comparing the preceding year of Rs.6,69,13,876/. The AO has not inquired into the issue of disallowance to be made u/s 14A of the Act by ascertaining the expenditure....
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....case under consideration. The Ld. Counsel took us through paper book page-5, wherein the Assessing Officer asked the question during the assessment proceedings by issuing notice u/s 142(1) of the Act and in response to notice, the assessee has submitted its reply during the assessment proceedings which is placed at paper book page- 7.Therefore Ld. Counsel contended that during the assessment stage, assessing officer questioned the assessee and assessee has submitted its reply, thus assessing officer has applied his mind and frame the assessment order, therefore the order passed by the Assessing Officer is neither erroneous nor prejudicial to the interest of Revenue. 11. On the other hand, Shri Ashok B Koli, Ld. CIT-DR for the Revenue, supported the order of Ld.PCIT and requested the Bench to uphold the same. 12. We have heard both the parties and perused the materials available on record. The Ld. Counsel took us through paper book page no.5, wherein the Assessing Officer asked the question during the assessment proceedings by issuing notice u/s 142(1) which is reproduced below: "Please furnish the details of expenditure incurred in relation to income not includible i....
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....yable by the assessee in respect of his share in the income of the association or body computed in the manner provided in section 67A : Provided that,- (a) where the association or body is chargeable to tax on its total income at the maximum marginal rate or any higher rate under any of the provisions of this Act, the share of a member computed as aforesaid shall not be included in his total income; (b) in any other case, the share of a member computed as aforesaid shall form part of his total income : Provided further that where no income-tax is chargeable on the total income of the association or body, the share of a member computed as aforesaid shall be chargeable to tax as part of his total income and nothing contained in this section shall apply to the case.]" 15. From the above provisions of the Act, it is vivid that Income-Tax shall not be payable by the assessee in respect of his share in the income of the association or body computed in the manner provided in section 67A. Thus, if the joint venture has paid the taxes on its income, then in that circumstances, share received by the members from such joint venture is exempt from tax. Th....
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....efore order passed by the assessing officer is not sustainable in the eye of law. For that, let us take the guidance of judicial precedents laid down by the Hon'ble Apex Court in Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83(SC) wherein their Lordship have held that twin conditions needs to be satisfied before exercising revisional jurisdiction u/s 263 of the Act by the CIT. The twin conditions are that the order of the Assessing Officer must be erroneous and so far as prejudicial to the interest of the Revenue. In the following 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 Reven....
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....prejudicial to the interest of Revenue) are satisfied in the assessee`s case under consideration. 19. We note that Co-ordinate Bench of ITAT Pune in the case of Paras Bhomraj Oswal,[2017] 88 taxmann.com 41 (Pune - Trib.) held that profit share from the partnership firm is exempt income, which is liable for disallowance under section 14A of the Act. The findings of the CO-Ordinate Bench is reproduced below: "8. The ground No. 3 raised by the assessee in appeal is with respect to disallowance of deduction u/s. 14A r.w. Rule 8D in respect of share of profit received by the assessee from partnership firm. The assessee has received tax free income of Rs. 49,79,071/- from M/s. Tirupati Pooja Construction where the assessee has holding 60% share. The contention of the assessee is that the income of the partnership firm is not tax free. Before distribution of profits, tax is paid on the income of partnership firm, therefore, no disallowance u/s. 14A should be made on the share of profit received from partnership firm. The ld. Counsel has placed reliance on the Circular No. 8/2014 to support his contentions that once the tax has been paid by the firm the same is not liable to be....
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....of such partners, even if the income chargeable to tax becomes NIL in the hands of the firm on account of any exemption or deduction as per the provisions of the Act. 4. This may be brought to the notice of all concerned." A perusal of circular would show that the interpretation drawn by ld. Counsel for excluding share of partnership firm from scope of section 14A is not sustainable. We do not find any infirmity in the order of Commissioner of Income Tax (Appeals) in upholding the disallowance made by the Assessing Officer. Accordingly, the ground No. 3 raised by the assessee in its appeal is dismissed." 20. Reference in this regard can be usefully made to the decision of CO-Ordinate Bench of ITAT Mumbai, in the case of Hoshang D. Nanavati, 25 taxmann.com141( Mumbai-Trib), wherein it was held as follows: "5.........Coming to the question as to the basis on which remaining expenses are to be apportioned between the expenditure incurred for the purpose of profit share and expenditure incurred for the purpose of earning remuneration from partnership firm, we are unable to see much guidance from section 16(1) as it is stood at the relevant point of time. I....