TaxTMI 
TaxTMI 
TaxTMI 
2023 (9) TMI 739
X X X X Extracts X X X X
X X X X Extracts X X X X
....g the issue. 2. The Learned Pr. Comm. of Income Tax - 3, Ahmedabad has erred in holding that provisions of Sec.14A r.w.r.8D are applicable even if no exempt income was earned by the assessee and that the Assessing Officer has passed the Assessment order without making addition u/s. 14A of the Act towards disallowance of expenditure to the tune of Rs. 21,26,959/-. 3. The Learned Pr. Comm. of Income Tax - 3, Ahmedabad has erred in holding that the entire amount of depreciation of Rs. 34,48,97,336/- claimed on goodwill of Rs. 1,83,94,52,457/- need to be disallowed in view of the proposition that as per AS-14 no goodwill is generated in case of pooling of interest method ignoring the fact that no amalgamation or other merger has taken place in the year under consideration. 4. The Learned Pr. Comm. of Income Tax - 3, Ahmedabad has erred in treating the order as erroneous only on account of the fact that the assessment has not been converted into Complete Scrutiny as against Limited Scrutiny by the Assessing Officer." 3. The learned Counsel for the assessee, during the course of hearing before us, pointed out that the learned PCIT found the assessment order passed by the Asses....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e LLP vide letter dt. 07.10.2019 [APB Pg 8-10] but the AO failed to compute the disallowable amount by applying Rule 8D in this case. CBDT vide Circular No. 5/2014 has clarify that the expenses which are relatable to earning of exempt income have to be considered for disallowance irrespective of the fact that whether any such income has been earned during the year or not. It is settled legal position that Circulars are binding on Revenue Authorities as held in the case of K.P Varghese v/s ITO 131 ITR 597 SC. Thus not following the binding instruction is an error as provided in clause (c) of Explanation to Sec 263 of the Act. Besides this, it is evident from notice u/s 263 of the Act. Besides this, it is evident from notice u/s 142(1) and reply filed by the assessee thereto inter alia assessment order (where no discussion has been made about this point) that ld. AO accepted the claim of the assessee without application of mind. Hence, there remains no doubt in my mind that impugned assessment order was erroneous as well as prejudicial to the interest of revenue. [B] It is observed from the Balance Sheet, that, value of investment in Mutual Funds is shown as on 31.03.2017 at Rs. 4....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed in the same. The order passed by the AO is therefore not only erroneous but also prejudicial to the interest of revenue." 5. The learned Counsel for the assessee contended that though the CBDT Circulars are binding on the Revenue Officers and there is no dispute with respect to this fact, but at the same time they cannot overrule the decision of the High Courts on the issue. That therefore the AO could not be bound by CBDT instructions interpreting law in contradiction to that as laid down by courts He referred to the decisions of the Hon'ble Delhi High Court in the following cases for the said proposition:- i) PCIT Vs. IL & FS Energy Development Company Ltd., [2017] 399 ITR 483 (Delhi); ii) Cargo Motors (P.) Ltd. Vs. DCIT, [2023] 453 ITR 554 (Delhi). 6. With respect to the issue of assessee's claim of depreciation on goodwill which, as per the ld. PCIT, the Assessing Officer had not examined and which otherwise was not allowable to the assessee resulting in the ld. PCIT holding that the assessment order was erroneous causing prejudice to the interest of the revenue, the learned Counsel for the assessee contended that the assessee's case was taken up for 'limited scrutiny....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... was to be deemed to be erroneous and pointed out that one of the conditions listed therein at clause (c) was that "the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119". The learned DR contended that considering the specific instruction by the Board that where the Assessing Officer comes across any issue beyond the scope of limited scrutiny, he ought to seek approval of the ld. PCIT and expand the scope of the assessment and in the present case the Assessing Officer having not done so in regard to the issue of claim of depreciation on goodwill, clause (c) of Explanation (2) to Section 263 had become applicable referring the assessment order erroneous. 9. We have heard the contentions of both the parties and gone through the order of the ld. PCIT. With regard to the finding of the ld. PCIT of the assessment order being erroneous on account of issue of disallowance of expenses under Section 14A of the Act not having been examined by the Assessing Officer in the light of the circular issued by the CBDT in this regard, i.e. Circular No.5/2014, we are not in agreement with ld. PCIT. It is not disputed that the assesse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....'real income'. It does not note that under Section 5 of the Act, the question of taxation of 'notional income' does not arise. As explained in CIT v. Walfort Share & Stock Brokers (P.) Ltd. [2010] 326 ITR 1/192 Taxman 211 (SC), the mandate of Section 14A of the Act is to curb the practice of claiming deduction of expenses incurred in relation to exempt income being taxable income and at the same time avail of the tax incentives by way of exemption of exempt income without making any apportionment of expenses incurred in relation to exempt income. Consequently, the Court is not persuaded that in view of the Circular of the CBDT dated 11th May 2014, the decision of this Court in Cheminvest Ltd. (supra) requires reconsideration. 20. In Redington (India) Ltd. v. Addl. CIT [2017] 392 ITR 633/77 taxmann.com 257 (Mad.), a similar contention of the Revenue was negated. The Court there declined to apply the CBDT Circular by explaining that Section 14A is "clearly relatable to the earning of the actual income and not notional income or anticipated income." It was further explained that, "The computation of total income in terms of Rule 8D is by way of a determination invol....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ncome is made or earned. There is in fact nothing in the language of s. 57(iii) to suggest that the purpose for which the expenditure is made should fructify into any benefit by way of return in the shape of income. The plain natural construction of the language of s. 57(iii) irresistibly leads to the conclusion that to bring a case within the section, it is not necessary that any income should in fact have been earned as a result of the expenditure." 21. There is merit in the contention of Mr. Vohra that the decision of the Supreme Court in Rajendra Prasad Moody (supra) was rendered in the context of allowability of deduction under Section 57(iii) of the Act, where the expression used is "for the purpose of making or earning such income." Section 14A of the Act on the other hand contains the expression "in relation to income which does not form part of the total income." The decision in Rajendra Prasad Moody (supra) cannot be used in the reverse to contend that even if no income has been received, the expenditure incurred can be disallowed under Section 14A of the Act.' 23. The decisions of the ITAT in Ratan Housing Development Ltd. (supra) and Relaxo Footwears Ltd. (sup....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... with by the Hon'ble High Court. The Hon'ble High Court has noted that to expand the scope of assessment, the Assessing Officer has to seek prior permission of the superior officer in terms of the CBDT Instruction No. 7/14 dated 26th September, 2014 and Instruction No. 20/15 dated 19th December, 2015. The Hon'ble High Court observed, therefore, that the Assessing Officer could not have suo moto examined issues which were beyond the scope of limited scrutiny and, therefore, the ld. PCIT could not have found fault in the order of the Assessing Officer for not having done what the Assessing Officer was not permitted to do as per its own instructions and rules. The relevant findings of the Hon'ble Orissa High Court in the case of Shark Mines and Minerals (P.) Ltd. (supra) in this regard at paragraph no. 10 of the order is as under:- "10. What persuades this Court to reach this conclusion is the requirement in law that if the AO has to go beyond the scope of the issues for which 'limited scrutiny' has to be undertaken by him, he has to seek prior permission of the superior officer in terms of the CBDT Instruction No. 7/14 dated 26th September, 2014 and Instruction No. 20/15 da....