TaxTMI 
TaxTMI 
2023 (3) TMI 30
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....aking, bad in law and without jurisdiction. 2. Under the fact and circumstances of the case and in law, the Ld. PCIT, Udaipur has erred in passing the impugned Order without providing an adequate opportunity of being heard. 3. Under the facts and the circumstances of the case and in law, the PCIT, Udaipur has grossly erred in holding that the Assessing Officer has failed to make proper enquiry without appreciating that specific query was raised in the assessment proceeding on the issues of: * Computation of disallowance of expenditure u/s 14A of the Act and * Deduction of employee's contribution for the purpose of Section 36(1)(va) of the Act 4. Under the facts and the circumstances of the case and in law, PCIT Udaipur has grossly erred in passing order u/s 263 of the Act in respect of issues for which reasonable and plausible view was taken by Ld. AO considering judicial precedents and sufficient material available on record. 5. Under the facts and circumstances of the case and without prejudice to ground no. 1 to 3 above, the Ld. PCIT was not justified and has grossly erred in directing AO to examine the issue of disallowance of expenses u/s 14A of the Act a....
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....lowable u/s 36(1)(va) r.w.s. 2(24)(x) of the Income Tax Act. Particular Amount Collected from employees (in Rs.) Due date of depositing Actual date of deposit PF 87,093 15.07.2016 19.07.2016 PF 1,01,548 15.01.2017 20.01.2017 ESI 11,261 21.09.2016 18.11.2016 ESI 11,742 21.10.2016 18.11.2016 ESI 20,037 21.01.2017 23.01.2017 Total 2,31,681/- Thus, the above amount of Rs. 2,31,681/- was required to be disallowed u/s 36(1)(va) of the Act which was not done by the Assessing Officer while passing the assessment order u/s 143(3) of the Act. No such disallowance was made by the Assessing Officer while passing the assessment order. Based on the above observations she stated that the assessment order passed u/s 143(3) of the IT Act 1961 in the case of the assessee company for the assessment year 2017-18 completed on 14.12.2019 is erroneous and prejudicial to the interest of revenue. 5. Based on the said findings a show cause notice u/s. 263 of the Act was issued by the PCIT on 26.02.2022 to the assessee to explain its case on the issues mentioned in the show cause notice. In compliance to the notice the assessee company has filed its rely though on....
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....sed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. 4. From the bare perusal of provision of Section 263 of the Act, it is evident that the expression "erroneous" as stipulated under Section 263(1) of the Act, means 'involving error', 'deviating from the law'. Thereby, meaning that the order cannot be termed as erroneous unless it is not in accordance with the law. An Assessment order may be termed as erroneous in so far as it is prejudicial to the interest of revenue, only when in the opinion of Chief Commissioner or Principal Commissioner or Commissioner: i. the order is passed without making inquiries or verification which should have been made, or ii. the order is passed allowing any relief without inquiring into the claim, or iii. the order has not been made in accordance with any ord....
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....cuments given by the Assessee with respect to both the issues for which independent inquiry was conducted and after making adequate examination of the same by the Ld. AO, the scrutiny assessment was completed by order u/s 143(3) of the Act dated 14.12.2019 wherein no further disallowance was made u/s 14A of the Act, as interest cost on borrowed funds was not attributable to earning exempt dividend income and also deduction for employee's contribution u/s 36(1)(va) of the Act, deposited before due date of filing return of income was duly allowed/accepted. 9. Thus, it is evident that the Ld. AO has conducted sufficient inquiry for the issues against which your goodself is exercising its revisionary power. Thus, no revision proceedings u/s 263 could be initiated for the Assessment Order in the present case as it has been passed after making proper enquiries and verification and after taking a plausible view on settled judicial position on these two issues. 10. Without prejudice to the above, even if it is assumed but not accepted that the Assessing Officer has not conducted proper inquiry on verifiable facts, the inadequacy of inquiry is no ground for exercising revisional power....
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.... under this Act, he considers that any order passed therein by the ITO is 'erroneous insofar as it is prejudicial to the interests of the revenue'. It is not an arbitrary or unchartered power. It can be exercised only on fulfilment of the requirements laid down in sub-section (1). The consideration of the Commissioner as to whether an order is erroneous insofar as it is prejudicial to the interests of the revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasijudicial controversies as ....
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....ourt in K. N. Agrawal v. CIT [1991] 189 ITR 769 have held that where the Income Tax Officer's order is passed on the basis of a binding decision, revisional power under section 263 cannot be exercised to undo the said order. The Income Tax Officer is a quasi-judicial authority and the principle laid down is sound. We endorse the same. 17. In view of the above, no revision u/s 263 of the Act is warranted on this ground also. Taking different view cannot be termed as erroneous: 18. In this context, it is humbly submitted that the view taken by the Ld. AO during scrutiny assessment was after relying upon the settled jurisprudence of provision of Section 14A of the Act, and Section 36(1)(va) of the Act as well as supporting documents submitted by the Assessee. 19. The Assessing officer has taken a plausible view that no interest charges are attributable for earning exempt dividend income and depositing the employees contribution before due date of filing return of income is allowable deduction u/s 36(1)(va). The view of the Ld. Assessing Officer cannot be called as erroneous just because of the reason that he has taken a difference plausible view in the current matter from....
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....wance u/s 14A of the Act at Rs.5,347/- calculated as per its detailed working submitted during assessment. The copy of the same is enclosed as Annexure___ for your ready reference. However, expenditure of Rs. 7,20,412/- is a specific expense have been used for the business purposes only and is not attributable for earning any exempt dividend income. Therefore, no disallowance is warranted. 24. Accordingly, being satisfied with the basis of computation of disallowance u/s 14A, the Ld. AO has taken plausible view on allowability of the same which is legally allowed as it is usual that interest free funds would be first utilized for investment rather borrowed funds. The reliance in this context is placed on binding judicial precedents in support of the contentions raised herein above: Commissioner of Income-tax v. Reliance Utilities & Power Ltd. [2009] 178 Taxman 135 (Bombay) If there are funds available both, interest-free and overdraft and/or loans are taken, then a presumption would arise that investments would be out of the interest-free fund generated or available with the company, if the interest-free funds are sufficient to meet the investments. In the instant case sai....
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....circumstances and having regard to judicial precedents discussed above, is not erroneous as well as prejudicial to interest of revenue as the Ld. AO has taken legally justifiable view on the issue of disallowance u/s 14A of the Act. In other words, having satisfied with the method adopted by the Assessee in determining the expenditure incurred on the exempt dividend income, as well as correctness of the claim of the Assessee and further in utmost regard to the settled jurisprudence of provision of Section 14A of the Act, the Ld. AO after making a detailed inquiry has not disputed the working related to the disallowance of Rs. 1,20,000/- made by the Assessee. Accordingly, Rule 8D of Income Tax Rules, 1962 has no applicability in the present case. Thus, no interference is required in the order of the Ld. AO. 26. In this context, the relevant extract of rule 8D of Income Tax Rule is reproduced herein below for your kind perusal: 8D. (1) Where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with- (a) the correctness of the claim of expenditure made by the assessee; or (b) the claim made by the assessee that no expenditu....
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....tted during assessment proceedings. 29. Without prejudice to the above, it is humbly submitted that beside the fact that the Assessing Officer has conducted the detailed inquiry with respect to the specific issue of disallowance u/s 14A of the Act, the Assessee has submitted various documentary evidences such as breakup of Finance Cost, Investment sheet, on perusal of the same, it is established that interest cost of Rs. 7,25,723/- have no bearing on exempt dividend income of the Assessee. Accordingly, there is no deviation for correctness of claim made by Assessee. 30. In view of above, from the face of documentary evidence submitted during scrutiny assessment, it is ostensibly clear that though investment in equities/MF were made out of interest free funds as credit limit was not utilized for said purpose. Accordingly in the absence of utilization of cash credit limit for making any investment, no interest charges could be said to be attributable to earning exempt income. 31. All the investment made in equities and MF were from surplus own funds. In support of the same bank statement as well as breakup of investment chart was submitted which is self-speaking in nature an....
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....ding before her, she stated that the she has considered the facts of the case, written submissions along with enclosures filed by the assessee. She further stated the contentions raised by the assessee is not tenable. The issue of disallowance to be made u/s. 14A of the Act is not disputed by the assessee and has disallowed the amount but in the assessment proceedings a query letter issued by the Assessing Officer. Though the assessing officer show caused for making disallowance as per Rule 8D of the Income Tax Rules, but did not conduct proper verification whether the amount or disallowance made by the assessee itself was as per the method provided in Rule 8D or not. Thus, she believed that the assessing officer failed to make proper verification of the amount of disallowance made u/s. 14A by the assessee even though the same was not worked as per the prescribed rule. As regards the issue of disallowance u/s. 36(1)(va) of the Act, the provision of section are clear that deduction under this section is restricted to the employees account in the relevant fund or funds on or before the "due date" and the due date is also defined. Since, the assessee has deposited the sum beyond the p....
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....ction as per law. However, the AO is directed to ensure that reasonable opportunity of being heard is accorded to the assessee before passing the order." 7. Aggrieved from the said order of the ld. Pr. CIT the assessee carried the matter in appeal before us challenging the order passed u/s. 263 of the Act. On merits the ld. AR appearing on behalf of the assessee submitted a detailed written submission and the same is extracted here in below: "1. The Appellant is private limited company engaged in the production of grinding media and various casting product. The Appellant for the year under consideration has filed its original return of income u/s 139(1) of the Act on 14.10.2017 declaring income of Rs. 6,88,75,950/-, which was subsequently revised u/s 139(5) of the Act on 04.07.2018 at total income of Rs. 6,89,95,950/-. 2. The return income filed by the Appellant was duly processed u/s 143(1) of the Act. After which, the case of the Appellant was selected for complete scrutiny with issuance of notice u/s 143(2) of the Act. During the assessment proceedings, the notice u/s 142(1) of the Act was issued on 07.11.2019 (PB No. 20-22) wherein the Ld. AO also raised specific query w....
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....unds were utilized for investment, the Ld. AO accepted the claim of suo-moto disallowance made Assessee after due verification of working submitted with relevant documents submitted. 6. After due verification of records and having regard to well settled judicial precedents, the Ld. AO passed the assessment order on 14.12.2019 in accordance with the applicable law. 7. Thereafter, the Ld. the Principal Commissioner of Income tax (PCIT), Udaipur without any inquiry or verification or examination and against the records, considered the Assessment Order dated 14.12.2019 for revision by invalidly invoking provisions of Section 263 of the Act. 8. In the impugned show cause dated 26.02.2022/08.03.2022 issued during proceedings u/s 263 of the Act, Ld. PCIT alleged that the assessment order passed by Ld. AO dated 14.12.2019 was erroneous and prejudicial to the interest of revenue on the whimsical grounds in respect of two relevant issues that: a. Ld. AO allowed deduction u/s 36(1)(va) of the Act, without inquiry and verification (as against the fact that the Assessing Officer duly examined and verified the claim after considering detailed reply dated 10.12.2019 submitted during a....
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.... In the Impugned Order, the Ld. PCIT proposed the following disallowance as against the law applicable for the assessment year under consideration: * Disallowance as per Rule 8D amounting to Rs. 7,07,227/- after wrongly taking interest expenditure into consideration despite the fact no such expenditure was incurred for earning exempt income * Disallowance of Employee's contribution for Rs. 2,31,681/- u/s 36(1)(va) of the Act, though the contribution was deposited on due time and before due date of return of income. 13 Aggrieved by the said order of Ld. PCIT the Appellant filed appeal before your good self on the various grounds, against which the submissions are made as under: "GROUND NO.1 Under the facts and the circumstances of the case and in law, the Ld. PCIT, Udaipur failed to appreciate that the Assessment Order was neither erroneous nor prejudicial to the interest of revenue, thus, order passed u/s 263 of the Act is perverse, arbitrary, bad in law and without jurisdiction. SUBMISSIONS 14. At the very outset, it is humbly submitted that the Ld. PCIT, has mechanically invoked the Section 263 of the Act without considering the Assessment Order passed by the....
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....) LTD. V. UNION OF INDIA [2000] 112 TAXMAN 465 (DELHI) * Commissioner of Income-tax vs. Gabriel India Ltd. [1993] 71 Taxman 585 (Bom.) * J.P. Srivastava & Sons (Kanpur) Ltd. vs. Commissioner of Income-Tax {1978] 111 ITR 326 (ALL.) * 19. In light of the above, the Appellant humbly submits that during the assessment proceedings, various notices were issued including notice u/s 142(1) of the Act dated 07.11.2019 was issued by the Ld. AO specifically asking for information in order to verify the disallowance made by the Appellant u/s 14A of the Act and reasons as to why employee's contribution received for PF Fund and ESI Fund deposited during the extended period of respective Act and before due date of filing return of income should not be treated as income of the Appellant as per provision of Section 36(1)(va) of the Act. The copy of the abovementioned notice is available at Page no. 20-22 of paper book for your reference. 20. In response to such notices, reply in detail dated 10.12.2019 was filed by the Appellant wherein each and every question raised by the Ld. AO was answered and later on verified by Ld. AO himself. Accordingly, after proper verification of the ....
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...., is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including- (i) an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment; or (ii) an order modifying the order under section 92CA: or (ii) an order cancelling the order under section 97CA and directing a fresh order under the said section] Explanation 1.-For the removal of doubts, it is hereby declared that, for the purposes of this sub-section. (a) an order passed on or before or after the 1st day of June, 1988] by the Assessing Officer for the Transfer Pricing Officer, as the case may be, I shall include (f) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income-tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A: (i) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer for the....
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....pplicable in case of Appellant, as explained herein below: Non-Applicability of Clause (a) of Explanation 2 to Section 263 of the Act 26. From the bare perusal of clause (a) of Explanation 2 to Section 263 of the Act, it is evident that the said clause is applicable under the circumstances wherein the assessment order is passed without making inquiry which a reasonable or prudent officer would have carried out. In other words, before invoking clause (a) of Explanation 2 to Section 263 of the Act, it is incumbent upon the Ld. PCIT to show that enquiries conducted by the AO was not in accordance with the enquiries or verification that would have been carried out by prudent officer. Since in the instance case, the Ld. AO carried out enquiries as required under the law, therefore, the assessment order is not attracted by clause (a) of Explanation 2 to Section 263 of the Act. * Narayan Tatu Rane vs. Income-tax Officer, Ward 27(1)(1), Mumbai [2016] 70 taxmann.com 227 (Mumbai - Trib.) 28. In the present case the Assessment Order was passed after making detail enquiry with respect to the issue of disallowance made u/s 14A of the Act and with respect to the deduction of employee....
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....e Ld. PCIT has directly taken resort of clause (a) and clause (b) of Explanation 2 to Section 263 of the Act is mentioned as under in the Impugned Order: "The assessment order u/s 143(3) of the 1.T. Act for the A.Y. 2017-18 dated: 14.12.2019 was passed by the Assessing Officer in this case, without making proper enquiries or without doing any verification of the issue as discussed in preceding paras.". 34. In this context, it is humbly submitted that aforesaid findings of the Ld. PCIT are factually incorrect having regard to the fact that the specific query was raised during the assessment proceeding as evident from the notice issued u/s 142(1) of the Act dated 07.11.2019, therefore it is not case wherein no exercise of verification was done by the Ld. AO. Accordingly, the Appellant is outside the scope of clause (a) and clause (b) of Explanation 2 to Section 263 of the Act. Hence the action of the Ld. PCIT u/s 263 of the Act is not justified and accordingly deserves to be set aside by Hon'ble Bench. 35. Without prejudice to the above, it is further submitted before your goodself that in the show cause notice dated 26.02.2022, there is no discussion regarding invocation....
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....hat the interest expenditure is attributable to earning exempt dividend income. With respect to the disallowance u/s 36(1)(va) of the Act, there was also no inquiry conducted by Ld. PCIT to check whether the employee's contribution was deposited after the due date of the respective act, as against the fact that the employee's contribution was deposited within the extended due date of the respective Act and before filing return of income. 39. It is trite law that Ld. PCIT is required to give specific findings and conduct adequate inquiries to establish how the assessment order was passed not in accordance with law to fall within the meaning of erroneous and prejudicial to interest of revenue. However, no such attempt and finding are made by Ld. PCIT in Impugned Order, thus assumption of jurisdiction u/s 263 of the Act is invalid and bad in law. In this context, reliance is placed on following judicial pronouncements: Principal Commissioner of Income-tax Vs. Delhi Airport Metro Express (P.) Ltd [2018] 99 taxmann.com 382 (Delhi) Sh. Sanjay Jain vs The PCIT, (Central) Ludhiana, ITA No. 140/CHD/2021 40. Without prejudice to the above, as stated above during the assessme....
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....terest of revenue" as mentioned in the Section 263 of the Act. Therefore, it is evident that the Ld. PCIT has legally erred in holding that the impugned assessment order was erroneous and prejudicial to the interest of revenue. Hence, the impugned order u/ s 263 is without jurisdiction and not maintainable. 44. Thus, the Assessment order passed by the Assessing Officer is not prejudicial to the interest of revenue as whatever revenue which revenue is lawfully eligible to generate has already been generated, considering the fact that revenue has passed the order within the parameters of binding judicial precedents and having regard to the law applicable during that assessment year under consideration. By no stretch of imagination, the Assessment Order could be assumed to be prejudicial to the interest of revenue as what is lawfully required to be done has been done, and there is no lawfully loss of revenue to the tax authorities. 45. Further, it is humbly submitted that just because in subsequent year different view is possible due to change in law, though not applicable in the year under consideration, the view taken by the ld. AO having regard to the law applicable during th....
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.... Commissioner of Income-tax v. Future Corporate Resources Ltd [2021] 132 taxmann.com 173 (Bombay) Commissioner of Income Tax, Bangalore vs. Chemsworth (P) Ltd. (2020) 119 taxmann.com 358 (Karnataka) Shringar Marketing (P.) Ltd. v. Principal Commissioner of Income-tax-4, Kolkata [2021] 128 taxmann.com 199 (Kolkata Trib.) 48. In view of the above, Impugned Order passed u/s 263 is without authority of law and Ld. PCIT was not justified in exercising jurisdiction u/s 263 of the Act. GROUND NO. 2 Under the facts and the circumstances of the case and in law, the Ld. PCIT, has erred in passing the Impugned Order without providing an adequate opportunity of being heard: SUBMISSIONS 50. In this context, it is humbly submitted that the Impugned Order dated 26.03.2022 is without providing an adequate opportunity of being heard and accordingly the Impugned Order deserves to be set aside, as the same is in violation of principle of natural justice. 51. It is humbly submitted that against the show cause notice dated 26.02.2022, the Appellant has submitted its detail reply dated 16.03.2022 and has sought the opportunity of being heard by way of appearance before the Ld. PC....
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.... 36(1) of the Act. Thus deduction u/s 36(1)(va) of the Act and suo motto disallowance made by the Appellant u/s 14A of the Act was duly verified and examined by the Ld. AO and was undisputedly allowed while passing the Order u/s 143(3) of the Act. 55. The Ld.AO has categorically recorded following findings in the Assessment order. "4. The assessee company submitted the documents and evidences called for during the assessment proceedings. On examination of these documents, no adverse inference has been made. Therefore, the total income of the assessee is accepted at return income." 56. It is pertinent to note that the Ld. AO has taken consideration of the submissions made by the Appellant including with respect to claim of deduction under Section 36(1)(va) of the Act and working related to disallowance made by the Appellant u/s 14A of the Act and made no addition in the relevant section to the returned income. Therefore, the Ld. AO after duly applying his mind and examining the information and documents placed before him vis a vis applicable law concluded the assessment, wherein deduction u/s 36(1)(va) of the Act was allowed as employee's contribution was deposited duri....
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....ng be initiated on account of change of opinion. The various Hon'ble's courts while adjudicating the said issue held that if the assessing officer have passed an order after making an inquiry and after carefully examining the replies of the assessee with proper application of mind, it must not be treated as a case of "no inquiry and the proceeding u/s 263 of the said Act cannot take place and the order should not be subject to revision just because another view is possible on the issue inquired by the AO. 60. The present case of the Appellant is supported from judicial precedents relevant extract of the same is reproduced herein below for your kind perusal: Commissioner of Income-tax v. Vodafone Essar South Ltd. 2012] 28 taxmann.com 273 (Delhi) [20.11.2012] Commissioner of Income-tax v. Anil Kumar Sharma [2010] 194 Taxman 504 (Delhi) [24.02.2010] Commissioner of Income-tax v. Gokuldas Exports [2011] 333 ITR 214 (Karnataka) Commissioner of Income-tax v. Srinivasa Hatcheries (P.) Ltd. [2015] 60 taxmann.com 207 (Andhra Pradesh and Telangana) 61. Therefore, despite the fact that the proceeding u/s 143(3) has been culminated following the due process of law, th....
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....c query was raised during the assessment proceeding, vide notice dated 07.11.2019, regarding the verification of issue for which the Ld. PCIT has invalidly exercised its revisionary power u/s 263 of the Act. The Assessment Order dated 14.12.2019 was passed after duly making verification u/s 36(1)(va) and 14A of the Act. The Impugned Order in passed u/s 263 of the Act is thus based on incorrect facts that the Assessment order was passed by the Ld. AO without verifying the disallowance u/s 14A of the Act and disallowance made u/s 36(1)(va) of the Act. 66. Without prejudice to the above, beside the fact that the Assessment Order dated 14.12.2019 is not erroneous in as much as prejudicial to the interest of revenue, various incorrect findings were also given in the Impugned Order which is the basis on account of which the Ld. PCIT has exercised its revisionary power u/s 263 of the Act which is not justifiable. 67. Specific instances to demonstrate as to how the Impugned Order contain various incorrect findings of the case are as follows: 67.1. The Appellant for the year under consideration deposited the employee's contribution during the extended due date of respective act....
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....ant extract of rule 8D of Income Tax Rule is reproduced herein below for your kind perusal 8D. (1) Where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with (a) the correctness of the claim of expenditure made by the assessee; or (b) the claim made by the assessee that no expenditure has been incurred. in relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2). 27. From the bare perusal of the Rule 8D of Income Tax Rules, it is evident that the applicability of the said rule is arises only after dissatisfaction of the Assessing Officer with respect to the correctness of claim of expenditure on exempt income. In the present case, having satisfied with the correctness of the claim, the case of the Assessee is outside the scope of Rule 8D. Even otherwise, direct resort to rule 8D is not permitted as per plain language of the Section 14A(2) of the Act, which reads as under 14A. (1) For the purposes of computing the total income under this Chapter, no ....
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....dent: Vijay Kumar Megotia v. Commissioner of Income-tax [2010] 195 TAXMAN 63 (PAT.)(MAG) 69. In view of the above, impugned order deserves to be set aside and consequential relief may kindly be granted to Appellant. GROUND NO.4 Under the facts and the circumstances of the case and in law, PCIT Udaipur has grossly erred in passing order u/s 263 of the Act in respect of issues for which plausible was taken by Ld. AO considering judicial precedents and sufficient material available on record. GROUND NO.5 Under the facts and circumstances of the case and without prejudice to the ground no. 1 to 3 above, the Ld. PCIT was not justified and has grossly erred in directing AO to examine the issue of disallowance of expenses u/s 14A of the Act and deduction u/s 36(1)(va) of the Act. FACTS IN BRIEF: 70. Relevant facts pertaining to the issue of deduction u/s 36(1)(va) of the Act are such that the Appellant for the year under consideration deposited the employee's contribution within the extended due date of the respective act and even before due date of filing return of income. Since the deposit of employee's contribution was made well before due date of return....
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....usiness purpose have no nexus with whatsoever manner with the investment made by the Appellant in mutual funds and equities and dividend income earned by the Appellant from that investments. Findings of Ld. PCIT 1. "the issue of disallowance to be made u/s 14A of IT Act is not disputed by the Assessee. 2. "the Assessing Officer failed to examine the facts of the case and apply the correct provision of law". 3. Clause (2) of Section 14A of the IT Act clearly provide that the amount of the disallowance u/s 14A of the IT Act is to be determined in accordance with such method as may be prescribed. 4. The Assessing Officer failed to make proper verification of the amount of disallowance made u/s 14A by the Assessee even though the same was not worked out as per the prescribed rules". 5. AO did not conduct proper verification whether the amount of disallowance made by the Assessee itself was as per the method provided under Rule 8D.The Assessing Officer failed to make proper verification of the amount of disallowance made u/s 14A by the Assessee even though the same was not worked out as per the prescribed rules 6. Ld. PCIT Directed Assessing Officer to verify and exami....
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....diture is not to be allowed which has been incurred by the assessee in relation to income which does not form part of the total income under this Act. Axiomatically, it is that expenditure alone which has been incurred in relation to the income which is includible in total income that has to be disallowed. If an expenditure incurred has no causal connection with the exempted income, then such an expenditure would obviously be treated as not related to the income that is exempted from tax, and such expenditure would be allowed as business expenditure. To put it differently, such expenditure would then be considered as incurred in respect of other income which is to be treated as part of the total income.(Para 32] 83. Apart from this the Assessce places his reliance on the decision of jurisdictional High Court which was further upheld by the Apex Court in the case of Rajasthan State Warehousing Corpn. Commissioner of Income-tax [2000] 109 Taxman 145 (SC) wherein the Apex Court held that, "if the exempted income and the taxable income are earned from one and indivisible business, then the apportionment of the expenditure cannot be sustained". 84. Thus, it is evident that Ld. AO ....
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....ws: Garden Silk Mills Ltd. v. Commissioner of Income-tax [1996] 221 ITR 861 (Gujarat) Commissioner of Income Tax vs. Paul Brothers (16.10.1992 - BOMHC), Income-tax Reference No. 358 of 1987, MANU/MH/0244/1992 MANU/MH/0244/1992 91. In view of the above, order u/s 263 of the Act is devoid of authority of law and accordingly deserves to be set aside. WITHOUT PREJUDICE TO ABOVE, COUNTER SUBMISSION ON ALLEGATION AND FINDING OF THE LD. PCIT IS MADE AS UNDER: The issue of disallowance to be made u/s 14A of IT Act is not disputed by the Assessee. 92. In this regard, it is submitted that in response to the show cause notice dated 26.02.2022 the Appellant has submitted its details submission dated 16.03.2022 wherein the Appellant has objected the disallowance to be made by the Ld. PCIT u/s 14A of the Act by stating that the said Section is applicable to the extent of the dissatisfaction of the Assessing Officer with respect to the correctness claim of expenditure on exempt income. However beside various contentions raised by the Appellant in its reply dated 16.03.2022, the said contention of the Appellant has also skipped the Ld. PCIT attention. Thus, it is apparent that th....
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....PCIT is also not legally tenable. In this context, relevant para of Rule 8D of Income Tax Rules, 1962 is reproduced herein below for your kind perusal: Rule 8D: Method for determining amount of expenditure in relation to income not includible in total income. Where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with a) the correctness of the claim of expenditure made by the assessee; or (b) the claim made by the assessee that no expenditure has been incurred, in relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2). From the bare perusal of the Rule 8D it is evident that Rule 8D has limited applicability to the extent if the Assessing Officer was not satisfied with the claim of disallowance made by the Appellant u/s 14A of the Act. Thus, without finding any incorrectness in claim or working of disallowance made by Assessee, direct resort to rule 8D is not envisaged in the law, which interpretation has been wrongly given by the Ld. PCIT. It is su....
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....at the different view was taken by the Ld. PCIT is with respect to the amendment under Section 36(1)(va) of the Act by Finance Act, 2021. 99. In this regard, it is submitted that the amendment u/s 36(1)(va) of the Act are only applicable to AY 2021-22 and subsequent AY as the amendment is effective from 1st April,2021. The view taken by the Ld. AO while framing assessment u/s 143(3) of the Act is having regard to the settled law which was applicable during that period of time. The Subsequent amendment u/s 36(1)(va) of the Act by Finance Act, 2021 does not render the plausible taken by the Ld. AO as invalid, considering the fact that the view taken by the Ld. AO was in accordance with the settled jurisprudence of Section 36(1)(va) of the Act as in force during that year. 100. In reaching adverse conclusion against the Appellant, the Ld. PCIT has relied upon following judicial precedents by placing misinterpretation to same or without appreciating that the same were rendered in different set of facts and circumstances. The counter submission against those judgments are made as follows: 100.1. Malabar Industrial Limited V/S CIT 243 ITR and TTK LIF LTD., v/s ACIT 9Mad) 51 DTR ....
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....eous; and (ii) it is prejudicial to the interests of revenue. If one of them is absent - if the order of the Assessing Officer is erroneous but is not prejudicial to the interests of revenue - recourse cannot be had to section 263 (1). There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer; it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category falls orders passed without applying the principles of natural justice or without application of mind. [Para 6] The phrase 'prejudicial to the interests of revenue' has to be read in conjunction with an ]lerroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of the order of the Assessing Officer cannot be treated as prejudicial to the interests of revenue. For example, if the Assessing Officer has adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Assessing officer has taken ....
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....own that the order was prejudicial to the interests of the revenue. It is not each and every order passed by the ITO which can be revised under section 33B of the 1922 Act [Page no. 2] 35-36 Inquiries conducted by the Ld. AO 6. Narayan Tatu Rane v. Income-tax Officer, Ward 27(1)(1), Mumbai [2016] 70 taxmann.com 227 (Mumbai - Trib.), 20. Further clause (a) of Explanation states that an order shall be deemed to be erroneous, if it has been passed without making enquiries or verification, which should have been made. In our considered view, this provision shall apply, if the order has been passed without making enquiries or verification which a reasonable and prudent officer shall have carried out in such cases, which means that the opinion formed by Ld Pr. CIT cannot be taken as final one, without scrutinising the nature of enquiry or verification carried out 6/13/22, 3:53 PM 11/12 POOJA by the AO vis-à-vis its reasonableness in the facts and circumstances of the case. Hence, in our considered view, what is relevant for clause (a) of Explanation 2 to sec. 263 is whether the AO has passed the order after carrying our enquiries or verification, which a reasonable and pruden....
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....ayan Tatu Rane - 70 taxmann.com 227 (Mum. Trt.) [PB 153-1561 wherein held that explanation cannot laid to have over ridden the law as interpreted/the various High Courts where the High Courts have held that before reaching the conclusion that the order of the Assessing Officer is erroneous prejudicial to the interest of Revenue. The CIT himself has to undertake some enquiry to establish that the assessment order is erroneous and prejudicial to the interest of Revenue. ....... [Para No. 15] 77-82 No independent inquiry was conducted by the Ld. PCIT 9. Principal Commissioner of Income-tax v. DelhiAirportMetro Express (P.) Ltd [2018] 99 taxmann.com 382 (Delhi) 10. For the purposes of exercising jurisdiction under section 263 of the Act, the conclusion that the order of the Assessing Officer is erroneous and prejudicial to the interests of the Revenue has to be preceded by some minimal inquiry. In fact, if the Principal Commissioner of Income-tax is of the view that the Assessing Officer did not undertake any inquiry, it becomes incumbent on the Principal Commissioner of Income-tax to conduct such inquiry. All that the Principal Commissioner of Income-tax has done in the imp....
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....issioner of Income-tax v. Srinivasa Hatcheries (P.) Ltd. [2015] 60 taxmann.com 207 (Andhra Pradesh and Telangana) .....The principle governing the exercise of power in a revision was taken note of. The principle is to the effect that where two views of a particular aspect are possible, for an Income-tax Officer, and he has chosen one, the Commissioner cannot reopen the matter on the ground that another view is possible...... [Para No.4] 129-130 Similar Issue order u/s 263 was set aside 13. Commissioner of Income-tax v. Future Corporate Resources Ltd [2021] 132 taxmann.com 173 (Bombay) 7. In the order of PCIT it is stated "in paragraph 4.3 of the assessment order, the Assessing Officer has recorded that from the details submitted by the assessee and the explanation given by him, it was observed that assessee had regular business connection with the company in which investment had been made and also there was business income to the assessee from the same. Therefore, interest expense debited by the assessee has not been considered for the calculation of disallowance under section 14A because the same has been incurred for the purpose of business." The PCIT theref....
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.... [Para 8] 137-144 15. Shringar Marketing (P.) Ltd. v. Principal Commissioner of Income-tax-4, Kolkata [2021] 128 taxmann.com 199 (Kolkata - Trib.) ........This is a condition precedent while rejecting the claim of the assessee, with regard to incurring of expenditure or no expenditure in relation to exempt income. The AO will have to indicate cogent reasons for the same and Rule 8D comes into play only when the AO records a finding that he is not satisfied with the assessee's method. In the case in hand the AO has not made any such recording of satisfaction and has accepted the disallowance made u/s 14A by the assessee. In such circumstances it is not open for the ld. CIT to come to a conclusion that the AO should have invoked Rule 8D, without himself recording the satisfaction that the calculation given by the assessee in its disallowance made suo moto u/s 14A is not correct. Coming to the other expenses claimed, the ld. CIT has simply collected information after raising queries and has not given any finding whatsoever that there is an error made by the AO or that the circumstances was such that would require and warrant further inquiry or investigation. No err....
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....treated as not related to the income that is exempted from tax, and such expenditure would be allowed as business expenditure. To put it differently, such expenditure would then be considered as incurred in respect of other income which is to be treated as part of the total income. [Para 32] 159-176 18. Rajasthan State Warehousing Corpn. v. Commissioner of Income-tax* [2000] 109 Taxman 145 (SC) "if the exempted income and the taxable income are earned from one and indivisible business, then the apportionment of the expenditure cannot be sustained". 177- 180 19. Principal Commissioner of Income Tax-2 v. Bombay Stock Exchange Ltd [2020] 113 taxmann.com 303 (Bombay) Non-satisfaction with the disallowance offered by the assessee has to be arrived at on the basis of the accounts submitted by the assessee. In this case, the Assessing Office had not carried out the aforesaid exercise but rejected the disallowance claimed by the assessee only on the ground that it was not in accordance with rule8D. The application of rule8D would only arise once the Assessing Officer is not satisfied on an objective criteria in the context of its accounts, that suo motu disallowance claimed b....
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....ann.com 185(SC) Nigam Ltd. [2014] 363 ITR 307/49 taxmann.com 540/[2015] 228 Taxman 214 (Mag.) (Raj.) and accordingly both the questions are covered by the aforesaid judgment and against the revenue. privilege fees being a revenue expenditure, is required to be allowed as a revenue expenditure. This court in the aforesaid case has also allowed the claim of the assessee, in so far aspayment of PF & ESI etc. is concerned, on the finding of fact that the amounts in question were deposited on or before the due date of furnishing of the return of income and taking in consideration judgment of this Court in CIT v. State Bank of Bikaner & Jaipur [2014] 363 ITR 70/43 taxmann.com 411/225 Taxman 6 (Mag.) (Raj.) and CIT v. Jaipur Vidhut Vitaran 193-198 Plausible View taken by the Ld. AO 23. Garden Silk Mills Ltd. v. Commissioner of Income-tax [1996] 221 ITR 861 (Gujarat) The order of the assessing authority could not be said to be erroneous as he had rendered the decision following the decision of a higher authority or a court on the same point. It was required to be noted that the decisions reached by the Tribunal or the High Court are binding upon the Assessing Officer and discipline d....
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.... of the assessee drawn our attention to the said notice (assessee paper book page 20 & 21) and the relevant questions raised by the AO is reiterated here in below: "2. Provide why the employee contributions received for PF fund and ESI fund but deposited to the respective fund after due date should not be treated as your income for A. Y. 2017-18 as per the provision of section 36(1)(va). 3. Provide if any disallowance has been made in the ITR for expenditure incurred for earning exempt income. If yes, provide a working note on the same and if not justify why disallowance should not be made as per the provisions of section 14A of the Act and Rule 8D." 10. We have also gone through the reply submitted by the assessee company in the assessment proceedings. The same is reiterated herein below for the sake of brevity of the facts: "Justification on eligibility of allowance u/s 36(1)(va) on employee's contribution 1.0 Facts 1.1 The assessee company has received contribution from employees towards Provident Fund and ESI Fund throughout the year. However, in following cases, the assessee company has deposited the employee's contribution to relevant fund after due date of....
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....n. Ltd. 2.3 Further, Karnataka High Court in case of Essae Teraoka (P) Ltd. (2014 (43) taxmann.com 33) held that in order to claim deduction u/s 36(1)(va), payment of employees' contribution to Employees' Provident Fund, Labour Welfare Fund and Employees' State Insurance can be made before the due date of filing of return of income u/s 139(1), Relevant extract is reproduced for ease of reference: "20. Paragraph-38 of the PF Scheme provides for Mode of payment of contributions. As provided in sub-para(1), the employer shall, before paying the member, his wages, deduct his contribution from his wages and deposit the same together with his own contribution and other charges as stipulated therein with the provident fund or the fund under the ESI Act within fifteen days of the closure of every month pay. It is clear that the word "contribution" used in Clause(b) of Section 438 of the IT Act means the contribution of the employer and the employee. That being so, if the contribution is made on or before the due date for furnishing the return of income under sub-section (1) of Section 139 of the IT Act is made, the employer is entitled for deduction." 2.4 Similarly Del....
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....red in the assessment proceedings before her. As regards the disallowance u/s. 14A the specific detailed working and explanation along with the evidence that the sufficient fund was available with the assessee company to make the investment even though the disallowance under section 14A r.w.r 8D was made by the assessee company. For this ld. AR submitted that all the relevant information was also placed on record to decide the issue on hand by the AO. The same is supported by a detailed submission before the assessment proceedings. Thus, the issue was considered by the ld. AO based on the submission and material placed on record. Whereas in respect of the second issue respectfully following the jurisdictional high court the ld. AO has allowed the deduction of the payment made before the due date of filling return for PF and ESI which is also a one of the views based on the submission made by the assessee company. So, on both the issue the ld. AO has given his attention and sufficient enquiry was conducted by the ld. AO. On the contrary PCIT has not specified what enquiry should have been done by the ld. AO. In the absence such clear finding how the order is prejudicial and erroneou....
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....or erroneous on any of the angel by the PCIT while issuing the show cause notice to the assessee company. In that circumstance the provision of section 263 and its explanation 2 will not apply. 13. Per contra, the ld. DR has vehemently supported the order of the PCIT and submitted that in the working of disallowance the assessee has calculated the disallowance in accordance with rule 8D. The ld. DR further submitted that after the amendment made in the section 14A in 2022 and after considering the judgement of the Guhati bench of ITAT considering the amendment as retrospective the disallowance is strictly required to be completed in accordance with section 14A r.w.r. 8D. The basis considered for the disallowance is only for staff salary and no direct expenses is considered by the assessee company while computing the disallowance. Even the assessee has not considered the interest paid by them. The disallowance should also be considered in accordance with the overall scheme of the Act. The ld. DR further submitted that while considering the provision of section 263 the ld. PCIT is only supposed to give the opportunity of being heard to the assessee and should not demonstrate all the....
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....r passed under S. 263, the rival contentions raised by both the parties and the material placed on record as well as gone through the judicial pronouncements relied upon by both the parties to drive home to their contentions. From the fact, we noticed that the assessee is a private limited company and filed return for the year under consideration which was taken up for complete scrutiny. For this year the ld. AO has called for the details required to complete the assessment based on the reason of selection under CASS, assessee submitted the details called for and ld. AO taken a plausible view on the issue of disallowance u/s. 14A and disallowance u/s. 36(1)(va) of the Act. Whereas the ld. Pr. CIT considered that the same has not been seen by the AO in light of the observations made by her in the proceedings before her as depicted by her in the show cause notice issued by her. The bench notes that the prerequisite exercise of jurisdiction by the learned Principal CIT under section 263 of the Act is that the order of the AO is established to be erroneous in so far as it is prejudicial to the interest of the Revenue. The Principal CIT has to be satisfied of twin conditions, namely (i)....
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.... pre-requisites before invoking S. 263 and the allegation of the Ld. Pr. CIT is that there has been incorrect assumption of fact and law by the Assessing Officer. However, despite our deep and careful consideration of the material on record including the finding recorded in the subjected Assessment order dated 30.12.2019 and in the findings recorded in the order under challenge, we do not find any incorrectness and incompleteness in the appreciation of facts made by the AO after hearing the arguments of both the parts. In the light of these observations, we do not agree on this aspect to this extent with Ld. Pr. CIT. 17. We now proceed to consider whether the AO has also incorrectly appreciated and assumed the law while making the subjected assessment to be termed, as erroneous and prejudicial to the interest of the revenue? The facts are not disputed that the in the assessment proceeding both the issue which are raised by the PCIT is raised by the AO too. On both the issue the assessing officer called for the information from the assessee on the issue under dispute in the order of the PCIT and has considered the issue by taking a plausible view of the matter. It is also not in di....
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.... it is required to be noted that the ITAT Mumbai bench in the Mrs. Khatiza S. Oomerbhoy addressed the issue of 263 proceeding elaborately after referring to number of cases on revisionary powers vested in the Commissioner of Income-tax under section 263 of the Act and summed up the fundamental principles emerging from several cases as under- (i) The CIT must record satisfaction that the order of the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. Both the conditions must be fulfilled. (ii) Sec. 263 of the Act cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer and it was only when an order is erroneous that the section will be attracted. (iii) An incorrect assumption of facts or an incorrect application of law will suffice the requirement of order being erroneous. (iv) If the order is passed without application of mind, such order will fall under the category of erroneous order. (v) Every loss of revenue cannot be treated as prejudicial to the interests of the Revenue and if the Assessing Officer has adopted one of the courses permissible under law or....
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....63 of the Act. Accordingly, we find finding no justification on the part of the Pr. CIT, who in exercise of his powers under Sec. 263 of the Act, had dislodged the view that was taken by the AO. 20. Thus, we found from the above discussion and evidences placed before us that the issue has already been raised in the assessment proceedings and was after deliberation was considered. Based on the contentions and judicial precedent cited by the assessee the assessing officer satiated himself and has taken a plausible view. Based on the set of evidence before him the AO has taken a view which is also one of the views and there is no clear finding of the ld. Pr. CIT as to why and how the view taken by the assessing officer is not legally correct when he has asked the relevant information and taken a view in the matter. The ld. AR of the assessee based on the similar set of circumstance relied on the decision of the Honurable Jurisdiction High Court in the case of CIT Vs. Ganpat Ram Bishnoi 152 Taxman 242 where in the court observed that : 10. From the record of the proceedings, in the present case, no presumption can be drawn that the Assessing Officer had not applied its mind to the v....