2012 (3) TMI 610 - AT - Income Tax

Revision u/s 263 - Disallowance u/s 14A - Held that - The order of the CIT cannot be justified. For invoking the provisions under section 263, two parameters are to be justified. One that the order is erroneous and two it is prejudice to the interests of the Revenue . As far as the order being erroneous in nature, AO after considering that the assessee had offered some of the share transactions as business income and some of the shares held in investment which yielded short term capital gain of more than ₹ 5.79 crores, has only disallowed a portion of the total expenditure in relation to the exempt income to the total income earned by assessee. This is one way of arriving at a reasonable amount for disallowance under section 14A which cannot be faulted. AO had determined the business income at ₹ 14.76 crores and allowed carry forward of losses to be set of thereby determining the business income at Nil. The short term capital gain of ₹ 5.76 crores was to be taxed at 10%. The assessee also had suffered tax on book profit under section 115JB and the Assessing Officer determined the total book profit at ₹ 45.53 crores on which the tax payable at ₹ 7.50 crores worked out at ₹ 3.41 crores. AO had given a finding that the tax payable on book profit is more than the tax payable on the regular income and, therefore, book profit under section 115JB was assessable to tax. The consequential/re-assessment order passed by the Assessing Officer was also placed on record and noticed that the business income was still determined at Nil and the Assessing Officer again accepted the income under section 115JB. The fact is that the assessment was done invoking provisions of section 115JB in both the situations. There is no effect on ultimate assessed income/ book profit and therefore, the order of the Assessing Officer does not cause any prejudice to the Revenue. In view of this, we are of the opinion that the order of the CIT under section 263 cannot be sustained as one of the parameters for invoking the jurisdiction has not been fulfilled. Therefore, without analyzing the rival contentions on various judicial principles, which is only academic in nature, we hold that the order of the Assessing Officer passed originally under section 143 has to be upheld and order of the CIT under section 263 has to be cancelled. Accordingly the assessee s grounds are allowed and the order under section 263 is therefore, cancelled.

Summary

Issues:
1. Correctness of disallowance under section 14A by Assessing Officer.
2. Jurisdiction of CIT to invoke Section 263.
3. Application of Rule 8D for disallowance.
4. Assessment under section 115JB.

Analysis:

Issue 1: Correctness of disallowance under section 14A by Assessing Officer
The Assessing Officer disallowed an amount under section 14A based on the ratio of exempt income to total income. The CIT disagreed with this disallowance and directed a higher amount to be disallowed. The appellant contended that the Assessing Officer had already examined the details and made a reasonable disallowance. The CIT's method was challenged as not based on proper analysis. The Tribunal found the Assessing Officer's approach reasonable and faulted the CIT for not justifying the need for a higher disallowance.

Issue 2: Jurisdiction of CIT to invoke Section 263
The CIT invoked Section 263 due to perceived errors in the assessment order. The appellant argued that the Assessing Officer had correctly disallowed the amount under section 14A during assessment. The Tribunal held that for Section 263 to apply, the order must be both 'erroneous' and 'prejudicial to the interests of the Revenue.' As the initial assessment did not prejudice revenue and was not erroneous, the Tribunal canceled the CIT's order under Section 263.

Issue 3: Application of Rule 8D for disallowance
The Departmental Representative argued that Rule 8D should have been applied for disallowance, considering the appellant's investments generating exempt income. However, the Tribunal found that the appellant's investments included business transactions and short-term capital gains, which were not exempt. Therefore, disallowance under Rule 8D was deemed unnecessary, and the CIT's reliance on it was criticized.

Issue 4: Assessment under section 115JB
The Assessing Officer had assessed the appellant's income under Section 115JB, determining business income and book profit. The Tribunal noted that the assessment under Section 115JB did not affect the ultimate assessed income or book profit. Consequently, the Tribunal upheld the Assessing Officer's order, finding no prejudice to revenue and canceling the CIT's order under Section 263.

In conclusion, the Tribunal allowed the appellant's appeal, canceling the CIT's order under Section 263, and upholding the Assessing Officer's original assessment under Section 143.