2016 (3) TMI 22 - AT - Income Tax

Revision u/s 263 - as per CIT(A) AO has not properly computed disallowance under section 14A while finalizing the assessment- Held that - Commissioner was in error in holding that taking the total of assets on the basis of its value in the balance sheet has rendered the assessment order erroneous and prejudicial to the interest of the revenue. The view that the assets are required to be taken on the basis of value shown in the balance sheet, and not after reducing the liabilities, is an equally, if not more, convincing approach to the issue. Viewed in the light of Hon ble Supreme Court s judgment in the case of Malabar Industrial (2000 (2) TMI 10 - SUPREME Court ), thus the assets being taken on the value in the balance sheet, without adjusting the liabilities, is not such an error, error even if it is, which can lead to the assessment order being subjected to the revision proceedings under section 263. In view of the above analysis, as also bearing in mind entirety of the case, we are of the considered view that the learned Commissioner was indeed in error in exercising his revision powers under section 263 on the facts and in the circumstances of this case. As learned CIT(A) was in seisin of the same matter, i.e. disallowance under section 14A, in the appellate proceedings, learned Commissioner could not have invoked his revision powers on the issue before the CIT(A). The view adopted by the learned Assessing Officer was after due examination of the matter and a considered view after taking into account all the relevant factor and even if a different view, on the same set of facts, was possible, the possibility of another view in favour of the assessee did not render the assessment erroneous and prejudicial to the interest of revenue so as to trigger revision under section 263. In any event, even on merits, the stand of the Commissioner was incorrect and unsustainable in law. For all these reasons, we are not inclined to uphold the impugned order. Accordingly, the revision order stands quashed. - Decided in favour of assessee

Issues Involved:
1. Invocation of powers under Section 263 of the Income Tax Act, 1961.
2. Assessment order being erroneous and prejudicial to the interest of revenue.
3. Consideration of disallowance under Section 14A read with Rule 8D.
4. Calculation of disallowance under Section 14A.
5. Jurisdictional limits of the Commissioner under Section 263.

Detailed Analysis:

1. Invocation of Powers under Section 263 of the Income Tax Act, 1961
The appellant challenged the correctness of the order passed by the Commissioner under Section 263 r.w.s. 143(3) of the Income Tax Act, 1961. The appellant contended that the conditions stipulated for invoking such extraordinary jurisdiction were not satisfied. The Tribunal noted that the Commissioner initiated revision proceedings even as the matter was pending before the CIT(A) for adjudication. The Tribunal referred to the Hon'ble Madras High Court's judgment in CWT Vs Sampathmal Chordia, which clarified that revision jurisdiction cannot be exercised in a manner that deprives the appellate authority of its power to examine the correctness of the order under appeal.

2. Assessment Order Being Erroneous and Prejudicial to the Interest of Revenue
The Commissioner held that the order passed by the Assessing Officer was erroneous and prejudicial to the interest of revenue. The Tribunal observed that the Assessing Officer had examined the matter regarding disallowance under Section 14A in detail and reached a conclusion consistent with the past history of the case. The Tribunal emphasized that just because the view adopted by the Assessing Officer was not the same as that of the Commissioner, it could not be a reason to subject the assessment order to revision proceedings.

3. Consideration of Disallowance under Section 14A read with Rule 8D
The Tribunal noted that the Assessing Officer had made a detailed inquiry into the disallowance under Section 14A r.w.r. 8D. The Commissioner, however, initiated revision proceedings on the grounds that the computation of disallowance was incorrect. The Tribunal pointed out that the Assessing Officer had considered the net interest amount for disallowance, which was judicially settled by various decisions in favor of the assessee.

4. Calculation of Disallowance under Section 14A
The Tribunal analyzed the computation of disallowance under Section 14A r.w.r. 8D. The Commissioner argued that the gross interest should have been considered, not the net interest. The Tribunal referred to precedents like Morgan Stanley Securities Pvt Ltd Vs ACIT and DCIT Vs Trade Apartments Ltd, which supported the view that only the net amount of interest paid should be considered for disallowance. The Tribunal also addressed the issue of including mutual funds in the computation, noting that the income from these mutual funds was taxable, and hence, their value was rightly excluded from the computation of disallowance.

5. Jurisdictional Limits of the Commissioner under Section 263
The Tribunal held that the Commissioner could not have invoked his revision powers under Section 263 as the matter was already before the CIT(A). The Tribunal cited the Explanation (c) to Section 263(1), which restricts the Commissioner's powers to matters not considered and decided in an appeal. The Tribunal concluded that the view adopted by the Assessing Officer was a well-considered decision and not perverse or unreasonable. The Tribunal also referred to the Hon'ble Supreme Court's judgment in Malabar Industrial Co Ltd Vs CIT, which stated that if the Assessing Officer adopted one of the permissible courses in law, it could not be treated as erroneous and prejudicial to the interests of revenue.

Conclusion
The Tribunal quashed the revision order passed by the Commissioner, holding that the Commissioner was in error in exercising his revision powers under Section 263. The Tribunal allowed the appeal, noting that the Assessing Officer's view was after due examination and consistent with judicial precedents, and even if another view was possible, it did not render the assessment erroneous and prejudicial to the interest of revenue.

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