2015 (10) TMI 1766 - HC - Income Tax

Revision u/s 263 - benefit under section 35D disallowed - ITAT setting aside the order of CIT passed u/s 263 cancelling the order passed u/s 143(3) - Held that - Assessee had claimed the benefit thereof in the assessment year 2007-08 and such claim had been allowed and was not disturbed subsequently. It is subsequently in the year 2009-10 that the Commissioner of Income Tax has taken the matter in revision under section 35D. As held by this court in the case of Deputy Commissioner of Income Tax v. Gujarat Narmada Valley Fertilizers Company Limited, (2013 (8) TMI 300 - GUJARAT HIGH COURT) when the claim has been granted by the Assessing Officer in respect of previous years, such claim cannot be disallowed subsequently without disturbing the decision in the initial year. Under the circumstances, it cannot be said that the view adopted by the Assessing Officer is not a plausible view. It is by now well settled that if two views are possible and the Assessing Officer has adopted one view, the same would not warrant exercise of the powers under section 263 of the Act. Disallowance under section 14A read with rule 8D(2)(ii) - CIT(A) noted that AO had not made any addition under rule 8D(2)(i) which shows that no expenditure had been considered as directly related to earning exempt income and that the Assessing Officer had disallowed part of the interest expenses under rule 8D(2)(ii) - Held that - In the facts of the present case, as is apparent from the findings recorded by the Commissioner of Income Tax, the Assessing Officer had invoked the provisions of section 14A of the Act read with rule 8D of the rules. The assessee submitted that mutual fund investment was made out of IPO proceeds. Investment in mutual funds of ₹ 14.78 crores was made out of funds lying idle till deployment in business for short term proceeds of Public Issue. Such mutual fund investments were redeemed as and when required for business operation. Dividend income claimed exempt was of ₹ 64,30,214/- consisting of dividend received from various mutual fund schemes invested as above. No direct expenditure was incurred in relation to receive income of dividend, as these investments were made out of temporary idle IPO proceeds. The Assessing Officer after considering the explanation given by the assessee was not satisfied with regard to the accounts of the assessee in relation to earning income that does not form part of the total income of the assessee company. He, accordingly, computed the expenditure incurred in relation to earning dividend income as per the provisions of section 14A read with rule 8D of the rules and disallowed interest expenditure of ₹ 41,32,115/- under rule 8D(2)(ii) of the rules. Thus, the Assessing Officer after examining the issue and calling for the explanation of the assessee was not satisfied with the explanation of the assessee and computed the interest expenditure in terms of section 14A of the Act read with rule 8D of the rules. The Commissioner of Income Tax is of the opinion that he would have assessed the interest expenditure at a higher figure. Therefore, merely because another view is possible is not sufficient to invoke powers under section 263 of the Act. The view adopted by the Assessing Officer, being a plausible view, it cannot be said that the assessment order is erroneous so as to warrant exercise of powers under section 263 of the Act. - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the Appellate Tribunal erred in setting aside the order of the CIT passed under section 263 of the Income-tax Act, 1961, which cancelled the assessment order passed under section 143(3) of the Act.
2. Whether the assessee was entitled to the deduction under section 35D of the Act.
3. Whether the disallowance under section 14A of the Act was correctly computed by the Assessing Officer.

Detailed Analysis:

1. Tribunal's Setting Aside of the CIT's Order under Section 263:
The appellant challenged the Tribunal's decision to set aside the CIT's order under section 263 of the Income-tax Act, 1961. The CIT had invoked section 263 on the grounds that the assessment order was erroneous and prejudicial to the interest of the revenue. The Tribunal found that the Assessing Officer's view was a permissible view and that the CIT's invocation of section 263 was not warranted merely because another view was possible.

2. Deduction under Section 35D of the Act:
The CIT had observed that the assessee wrongly claimed a deduction of Rs. 61,21,968 under section 35D for public issue expenses, arguing that the assessee was not an industrial undertaking in the first year of the claim (assessment year 2007-08). The Tribunal noted that the benefit under section 35D had been allowed in the initial year and was not disturbed subsequently. The Tribunal also observed that the word "industrial" was omitted by the Finance Act, 2008, making the benefit available to non-industrial undertakings as well. Consequently, the Tribunal held that the Assessing Officer's view was plausible and did not warrant revision under section 263.

3. Disallowance under Section 14A of the Act:
The CIT contended that the Assessing Officer had incorrectly computed the disallowance under section 14A read with rule 8D by considering interest expenditure of Rs. 41,32,115 instead of Rs. 2,62,65,901. The Tribunal noted that the Assessing Officer had examined the issue, called for explanations, and was not satisfied with the assessee's accounts related to earning exempt income. The Assessing Officer then computed the disallowance as per section 14A read with rule 8D. The Tribunal held that the CIT's opinion that a higher disallowance should have been made did not render the assessment order erroneous, as the Assessing Officer's view was a plausible one.

Conclusion:
The High Court found no infirmity in the Tribunal's order, agreeing that the Assessing Officer's views on both the deduction under section 35D and the disallowance under section 14A were plausible. The appeal was dismissed as it did not raise any substantial question of law warranting interference.