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2019 (12) TMI 904 - AT - Income TaxRevision u/s 263 - case was selected under scrutiny, and accordingly order u/s. 143(3) was passed on 28.12.2016 by assessing total income of Rs. Nil - disallowance u/s.14A read with Rule 8D and the claim u/s. 57(iii) of the Act which is to be proper verified - HELD THAT - Hon ble Supreme Court in CIT v. Max India Ltd. 2007 (11) TMI 12 - SUPREME COURT reiterated that the phrase prejudicial to the interests of the Revenue as used in section 263(1) must be read in conjunction with the expression erroneous and unless the view taken by the Assessing Officer is found to be unsustainable in law, the powers under section 263 of the Act cannot be invoked. The order passed by the AO, in our opinion, shall be deemed to be erroneous in so far as it prejudicial to the interest of the Revenue, if the Pr. CIT would have specifically pointed out which of inquiries or verification should have been carried out by the AO in this regard and the AO failed to carry out those inquiries and verification as desired by the Pr. Commissioner of Income-tax. Since the Pr. CIT has not suggested the basis of inquiry or verification to be carried out by the AO, the order passed by the AO cannot be deemed to be erroneous in so as far as it is prejudicial to the interest of the Revenue. In the light of the above mentioned judicial precedents and facts of the present case, we are of the opinion that the AO has adopted one possible legal view sustainable in law on the issue and mere invoking proviso based on revenue audit objection amounts non application of mind. Merely just because the view taken by the AO was not found acceptable does not mean that the AO has failed to make requisite enquiries. Thus, the view taken by the AO was plausible view, which cannot be disturbed by the Ld. Pr.CIT. Therefore, we find that twin condition were not satisfied for invoking the jurisdiction under section 263 - Appeal of the assessee is allowed.
Issues Involved:
1. Whether the order passed under section 263 by the Principal Commissioner of Income Tax (Pr. CIT) was justified. 2. Whether the disallowance of interest expenditure under section 14A read with Rule 8D was appropriate. 3. Whether the claim of deduction under section 57(iii) of the Income Tax Act was valid. Issue-wise Detailed Analysis: 1. Justification of the Order Under Section 263: The appeal challenges the Pr. CIT's order dated 27.03.2019, passed under section 263 of the Income Tax Act, 1961, for the assessment year 2014-15. The Pr. CIT invoked section 263, asserting that the assessment order passed under section 143(3) was erroneous and prejudicial to the interest of the revenue. The Tribunal noted that for the Pr. CIT to exercise jurisdiction under section 263, the assessment order must be both erroneous and prejudicial to the interests of the Revenue. The Tribunal held that mere insufficiency in the inquiry by the AO does not justify the invocation of section 263 unless it is shown that the AO's order was unsustainable in law. The Tribunal found that the AO had taken a plausible view sustainable in law, and thus, the conditions for invoking section 263 were not satisfied. Consequently, the Tribunal quashed the Pr. CIT's order under section 263. 2. Disallowance of Interest Expenditure Under Section 14A Read with Rule 8D: The Tribunal examined whether the disallowance of interest expenditure under section 14A read with Rule 8D was justified. The Pr. CIT had directed the AO to disallow the interest expenditure, arguing that the assessee had invested in shares and partnership firms, which generated exempt income. However, the Tribunal noted that there was no exempt income earned during the assessment year in question. Citing the Gujarat High Court's decision in CIT v. Corrtech Energy Pvt. Ltd., the Tribunal held that section 14A could not be applied where no exempt income was earned. Therefore, the Tribunal concluded that the disallowance under section 14A read with Rule 8D was not justified. 3. Validity of the Claim of Deduction Under Section 57(iii): The Tribunal also addressed the validity of the assessee's claim for deduction of interest expenses under section 57(iii). The Pr. CIT had argued that the interest expenses were not allowable under section 57(iii) because the investments were not made with the intention of earning income. The Tribunal, however, referred to the Supreme Court's decision in CIT v. Rajendra Prasad Moody, which held that interest paid on money borrowed for investment in shares is deductible under section 57(iii) even if no income is earned from the investment. The Tribunal also cited the Calcutta High Court's decision in Shri Satyasai Properties & Investment (P) Ltd. v. CIT, which supported the deductibility of interest expenses under section 57(iii). The Tribunal concluded that the AO had correctly allowed the deduction of interest expenses under section 57(iii), and the Pr. CIT's contrary view was not sustainable. Conclusion: The Tribunal found that the AO had taken a plausible view sustainable in law regarding the disallowance under section 14A and the deduction under section 57(iii). The conditions for invoking section 263 were not satisfied as the AO's order was neither erroneous nor prejudicial to the interests of the Revenue. Therefore, the Tribunal quashed the Pr. CIT's order under section 263 and allowed the appeal of the assessee. The Tribunal's decision emphasized the importance of the AO's role as both an investigator and an adjudicator and upheld the principle that mere insufficiency of inquiry does not justify the invocation of section 263.
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