2019 (10) TMI 709 - AT - Income Tax

Revision u/s 263 - disallowance of Nano Project related to expenses by treating the same as capital in nature - HELD THAT - The company, however, has claimed only the revenue expenses incurred in relation to day to day operations at Singur, as deduction in its return of income and the relocation expenses have not been claimed as deductible expense. During the course of assessment proceedings these were examined by the assessing officer, the company has further furnished the details on the relocation expenses. Assessee made submissions that the AO had formed an opinion that these are revenue expenditure and assessee has rightly claimed the same. The AO has not disallowed these expenses while framing assessment under section 143(3) of the Act on this very reason and complete details were examined on various occasions as noted above. Hence, Revision on this count is bad. Disallowance of expenses relatable to exempt income by invoking the provisions of section 14A of the Act read with rule 8D - HELD THAT - We noted that complete details in respect to this filed before the AO during the course of assessment proceedings and the AO after examining the exempt income vis-a-vis expenses relatable to the same are already disallowed. In regard to propose exercise of revision with respect to working of disallowance made under section 14A of the Act Read with Rule 8D of the Rules relates to interest expenses paid for borrowings for R D expenses. We noted from the above details in respect to expenses related to Nano project and disallowance of expenses relatable to exempt income by invoking the provisions of section 14A of the Act read with Rule 8D of the Rules relates to interest expenses paid for borrowings for R D expenses already examined by the AO during the course of assessment proceedings under section 143(3) of the Act. We noted that the provisions of section 263 of the Act for revising the assessment can be invoked only in a case wherein twin conditions i.e. order being erroneous and prejudicial to the interest of Revenue are cumulatively satisfied. This proposition has been settled by the Hon ble Supreme Court in the case of Malabar Industries Co. Ltd. vs. CIT 2000 (2) TMI 10 - SUPREME COURT and CIT vs. Gabriel India Ltd. 1993 (4) TMI 55 - BOMBAY HIGH COURT . Similarly, where two views are possible and AO has adopted the one of the two possible views, even then the order cannot be held to be erroneous so as to prejudicial to the interest to the Revenue. Revision exercise carried out by the CIT is bad in law and hence, quashed. We quash the revision order passed by CIT under section 263 of the Act and allow the appeal of the assessee.

Summary

Issues Involved:
- Jurisdiction of CIT under Section 263 of the Income-tax Act.
- Disallowance of Nano Project related expenses by treating them as capital in nature.
- Disallowance of expenses relatable to exempt income by invoking Section 14A of the Act read with Rule 8D of the Rules.

Issue-wise Detailed Analysis:

1. Jurisdiction of CIT under Section 263:
The assessee challenged the jurisdiction of the CIT (LTU) under Section 263 of the Income-tax Act, arguing that the revision order was invalid and bad in law. The assessee contended that the Assessing Officer (AO) had already examined the issues during the assessment proceedings, and all relevant facts were disclosed before the ACIT. The assessee argued that the CIT (LTU) erroneously assumed jurisdiction by relying on the decision of the Bombay High Court in the case of Ciba of India Ltd without appreciating the different facts in the assessee's case.

2. Disallowance of Nano Project Related Expenses:
The CIT (LTU) revised the assessment by disallowing the expenses related to the Nano Project, treating them as capital in nature, amounting to ?43,82,54,995/-. The assessee argued that these expenses were normal and recurring, such as salary, staff welfare, travelling, and conveyance, which were revenue in nature. The assessee contended that the Nano Project at Singur was abandoned, and no new capital asset of enduring nature came into existence. The assessee further argued that the AO had formed an opinion that these were revenue expenditures and had rightly allowed them during the assessment proceedings.

3. Disallowance of Expenses Relatable to Exempt Income:
The CIT (LTU) also revised the assessment by disallowing expenses relatable to exempt income under Section 14A of the Act read with Rule 8D of the Rules. The assessee argued that the investments, income from which is exempt, were made out of its own funds and not from borrowed funds. The assessee contended that the loans were taken for specific purposes, and no interest expenses were attributable to investments. The AO had already examined the exempt income vis-à-vis expenses relatable to the same and had made disallowances accordingly.

Findings and Conclusion:
The Tribunal noted that the AO had examined the details of expenses related to the Nano Project and the disallowance under Section 14A during the assessment proceedings. The Tribunal observed that the provisions of Section 263 could be invoked only when the order is both erroneous and prejudicial to the interest of Revenue. Citing the Supreme Court's decision in Malabar Industries Co. Ltd. vs. CIT and the Bombay High Court's decision in CIT vs. Gabriel India Ltd., the Tribunal held that where two views are possible, and the AO has adopted one of the views, the order cannot be held to be erroneous and prejudicial to the interest of Revenue.

The Tribunal concluded that the revision exercise carried out by the CIT was bad in law and quashed the revision order passed under Section 263 of the Act. The appeal of the assessee was allowed.