2017 (3) TMI 432 - AT - Income Tax

Revision u/s 263 - addition u/s 14A - Held that - AO had sought to make disallowance u/s 14A of the Act having regard to the accounts of the assessee in terms of section 14A(2) of the Act and we hold that he need not resort to Rule 8D always for the purpose of making disallowance. Admittedly, the Rules cannot prevail over the Act as it is only a subordinate piece of legislation. When the Act clearly stipulates the point that the ld AO is entitled to make disallowance u/s 14A(2) of the Act having regard to the accounts of the assessee , then no error could be attributed on that aspect in the order of the ld AO. Moreover, we also find that if Rule 8D is adopted , then it would only result in lesser disallowance figure u/s 14A of the Act as enumerated above in the detailed factual workings given by the assessee before the ld CIT. Hence it could be safely concluded that the assessee had erred on the revenue side and offered more amount of disallowance u/s 14A of the Act which has been accepted by the ld AO. Hence it could be safely concluded that the ld AO had taken a possible view and this action had not caused any prejudice to the interest of the revenue but on the contrary as stated above, it had only caused prejudice to the interest of the assessee. Hence, the dual conditions stipulated in section 263 of the Act are not satisfied cumulatively. The most celebrated judgement of Gee Vee Enterprises vs Addl CIT (1974 (10) TMI 29 - DELHI High Court ) would not come to the rescue of the revenue in the instant case as the facts of the instant case did not provoke any further enquiry in the mind of the ld AO and hence there cannot be any error that could be attributed in his order. Hence the ld CIT could not invoke revision jurisdiction u/s 263 of the Act in the instant case. - Decided in favour of assessee

Summary

Issues Involved:
1. Justification of CIT's invocation of revisionary jurisdiction under Section 263 of the Income-tax Act.
2. Examination of disallowance under Section 14A of the Act by the Assessing Officer (AO).
3. Validity of the additional disallowance proposed by the CIT.

Detailed Analysis:

1. Justification of CIT's Invocation of Revisionary Jurisdiction under Section 263:
The primary issue in this appeal is whether the CIT was justified in invoking revisionary jurisdiction under Section 263 of the Income-tax Act. The CIT argued that the AO's order was erroneous and prejudicial to the interests of the revenue, warranting an increase in the disallowance under Section 14A from ?9,91,24,091 to ?18,83,15,804. The tribunal found that the AO had conducted a detailed examination of the assessee's accounts and had accepted the voluntary disallowance made by the assessee. The AO's decision was based on a thorough review of the net worth and investments in securities, and thus, it was not erroneous or prejudicial to the revenue's interests.

2. Examination of Disallowance under Section 14A by the AO:
The AO had observed that the assessee had received significant income from dividends and profits on the sale of investments and had voluntarily disallowed ?9,95,65,228 under Section 14A as expenditure incurred for earning income that does not form part of the total income. The AO examined the disallowance during scrutiny proceedings and accepted it after considering the assessee's net worth and investments. The CIT, however, believed the AO should have increased the disallowance to ?18,83,15,804 under Rule 8D(2)(ii). The tribunal noted that the AO had made inquiries and accepted the disallowance after due consideration, thus taking a possible view, which cannot be revised under Section 263.

3. Validity of the Additional Disallowance Proposed by the CIT:
The CIT proposed an additional disallowance of ?9,86,04,041, arguing that the AO's order was erroneous and prejudicial to the revenue. The tribunal found that the assessee had provided detailed workings for the disallowance under Section 14A, which were examined by the AO. The AO's acceptance of the disallowance was based on the accounts of the assessee, and the tribunal held that the AO need not always resort to Rule 8D for making disallowances. The tribunal concluded that the AO's order was not erroneous and did not cause any prejudice to the revenue, as the disallowance made by the assessee was more than what would have been calculated under Rule 8D.

Conclusion:
The tribunal quashed the revision order passed by the CIT under Section 263, holding that the AO had taken a possible view after due examination of the accounts, and the conditions for invoking Section 263 were not satisfied. The appeal of the assessee was allowed.