2010 (12) TMI 949 - HC - Income Tax

Proviso to section 14 A - whether does not apply to the revisionary powers under section 263 - Jurisdiction of CIT(A) - Held that - Section 14-A deals with the expenditure incurred in relation to income not includable in total income. However, the proviso has come into existence only with effect from 11.5.2001 but section 14-A was brought in by Finance Act of 2001 with retrospective effect 1.4.62. In that view of the matter, the Income Tax Commissioner while exercising powers tender section 263 of the Act was justified in saying the expenditure attributed to taxable income is allowable and what is attributable to non-taxable income cannot be allowed as deduction. The CIT(A) was right in directing the assessing officer to compute the interest, which could not be allowed as against the exempted income being a share in the profit on the capital investment by the individual partners. Even after remand by the High Court, the appellants-assessees were not able to bring on record the facts clarifying the position. Therefore, the Tribunal was justified in saying that the facts have to be clarified before the assessing officer while proceeding with the matter as directed by CIT. All cases relied upon by the appellants doesnot applies to the facts of the present case and the Tribunal has appreciated the case on hand in accordance with the provisions of section 14-A including the proviso to section 14-A. Accordingly, the substantial questions of law are answered in favour of the revenue.

Summary

Issues:
1. Validity of the Commissioner's order under section 263 of the Income Tax Act.
2. Applicability of the proviso to section 14 A of the Income Tax Act to revisionary powers under section 263.
3. Jurisdiction of the Commissioner under section 263 in respect of assessment years prior to 2001-02.

Analysis:
1. The case involved the challenge to the Commissioner's order under section 263 of the Income Tax Act, which was reviewed by the Tribunal. The appellants argued that the Commissioner's order was not justified as there was no error in the assessing officer's decision. They contended that the Commissioner can only act under section 263 if the assessing officer's order is erroneous and prejudicial to revenue. The Tribunal upheld the Commissioner's order, leading to the appeal before the High Court.

2. The second issue revolved around the applicability of the proviso to section 14 A of the Income Tax Act to revisionary powers under section 263. The Tribunal held that the proviso did not apply to the case of the assessees for any assessment year prior to 2001-02. The High Court observed that the Tribunal failed to consider the impact of the proviso, leading to a remand of the matter back to the Tribunal for reconsideration.

3. The third issue focused on the jurisdiction of the Commissioner under section 263 in respect of assessment years prior to 2001-02. The Tribunal, after the remand, clarified that the proviso to section 14-A was inserted with retrospective effect from 11.5.2001, which did not apply to the facts of the assessees' case for the assessment year 1995-96. The Tribunal justified its decision by stating that the proviso was not in existence at the time of the Commissioner's orders under section 263.

In conclusion, the High Court dismissed the appeal, stating that none of the cases cited by the appellants applied to the facts of the case. The Court found that the Tribunal had appropriately considered the provisions of section 14-A, including the proviso, in its decision-making process. The substantial questions of law were answered in favor of the revenue, affirming the Tribunal's decision.