2016 (4) TMI 122 - AT - Income Tax

Revision u/s 263 - claim of 1/5th of IPO expenses u/s. 35D - Held that - The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent-if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous hut is prejudicial to the Revenue- recourse cannot be had to section 263(1) of the Act. The provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous The Gujarat Pollution Control Board has given consent and authorization treating the assessee an Industrial Undertaking - Decided in favour of assessee No disallowance has been made by the A.O u/s. 14A - Held that - This observation of the Commissioner is also against the true facts of the case, the following observations/findings of the A.O would explain the position. The submission of the assessee has been considered. Regarding investments, the assessee has put on records from its accounts evidence to demonstrate that the source of investment is out of interest free funds. Further regarding administrative expenses, the assessee has offered 0.5% of the average investments as disallowance u/s. 14A amounting to ₹ 8,80,758/-. Considering the details, the disallowance offered by the assessee during the assessment proceedings is accepted and a disallowance of ₹ 8,80,758/- is made u/s. 14A . From the above, it can be seen that that the A.O. has thoroughly examined the source of investment and after examination/verification, the A.O was convinced that the investment is out of interest free funds. - Decided in favour of assessee

Summary

Issues:
1. Challenge to the correctness of the order made u/s. 263 of the Act.
2. Claim of capital expenses and exempt dividend income.

Analysis:

Issue 1: Challenge to the correctness of the order made u/s. 263 of the Act
The appellant challenged the order of the ld. CIT-I, Ahmedabad dated 14.03.2014 pertaining to A.Y. 2009-10 made u/s. 263 of the Act. The appellant argued that the order passed by the ld. CIT was illegal and without jurisdiction as the original assessment order passed by the A.O u/s. 143(3) of the Act was neither erroneous nor prejudicial to the interest of the revenue. The Commissioner invoked powers under section 263 based on two grounds: the claim of capital expenses as preliminary expenses u/s. 35D and the failure to disallow proportionate interest expenses under Rule 8D(2)(ii) for exempt dividend income. The appellant contended that both issues were thoroughly examined by the A.O during the assessment proceedings, and thus, the assessment order was not erroneous or prejudicial to revenue. The D.R. supported the Commissioner's findings, stating the assessment order was indeed erroneous and prejudicial. The Tribunal analyzed the prerequisites under section 263 and concluded that the assessment order was neither erroneous nor prejudicial to the revenue's interest, setting aside the Commissioner's order and restoring that of the Assessing Officer.

Issue 2: Claim of capital expenses and exempt dividend income
Regarding the claim of capital expenses and exempt dividend income, the Commissioner found the A.O's actions to be incorrect. The first observation was related to the claim of 1/5th of IPO expenses u/s. 35D, where the Commissioner believed the assessee was not eligible to claim it as an Industrial Undertaking. However, the Tribunal noted that the A.O had thoroughly examined this issue, and judicial pronouncements supported the assessee's claim, indicating no wrong assumption of law. The second observation was about the failure to disallow expenses under section 14A for exempt dividend income. The A.O had made a disallowance based on the source of investment being interest-free funds, which was accepted. The Tribunal found no wrong assumption of fact in this regard. Citing legal precedents, the Tribunal emphasized that the A.O's differing view from the Commissioner's did not render the assessment order erroneous or prejudicial to revenue. The Tribunal, therefore, allowed the appeal filed by the assessee, setting aside the Commissioner's order under section 263 and restoring the A.O's order under section 143(3) of the Act.