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2021 (2) TMI 738 - AT - Income TaxRevision u/s 263 - Disallowance u/s 14A - HELD THAT - No doubt that the Ld. A.O has raised specific query with regard to huge interest expenditure as to whether they were allowable as business expenditure and secondly issue of disallowance u/s 14A of the Act and to these specific queries detailed replies were filed by the assessee which are stated above and duly considered by Ld. A.O and he after discussing the issue in detail in the assessment order has confirmed the disallowance u/s 14A of the Act. It thus shows that the present case is neither of no enquiry or incomplete enquiry at the end of the Ld. A.O nor the order u/s 143(3) of the Act can be said to be erroneous so far as prejudicial to the interest of revenue as the Ld. A.O has taken one of the possible views provided under the law and the application of mind by the Ld. A.O is clearly discernable from records as well as the assessment order. There was no room left for Ld. PCIT to have assumed his jurisdiction u/s 263 of the Act on the issues raised in the show cause notice. We accordingly quash the impugned order passed u/s 263 of the Act and restore the assessment order u/s 143(3) of the Act dated 28.8.2016. The sole ground raised by the assessee is allowed.
Issues Involved:
1. Jurisdiction assumed by the Principal Commissioner of Income Tax (Pr. CIT) under Section 263 of the Income Tax Act. 2. Whether the assessment order passed under Section 143(3) was erroneous and prejudicial to the interests of the revenue. Issue-wise Detailed Analysis: 1. Jurisdiction Assumed by Pr. CIT under Section 263: The assessee challenged the jurisdiction assumed by the Pr. CIT under Section 263 of the Income Tax Act. The Pr. CIT issued a show cause notice on 15.02.2019, asserting that the assessment order dated 28.06.2016 was erroneous and prejudicial to the interests of the revenue. The Pr. CIT directed the Assessing Officer (AO) to re-examine the issue of disallowance under Section 14A read with Rule 8D. Assessee's Argument: The assessee argued that the AO had already examined the issue thoroughly, made necessary inquiries, and applied his mind before making a disallowance of ?79,019 under Section 14A. Therefore, the order under Section 263 was unwarranted, invalid, and bad in law. Revenue's Argument: The Revenue contended that the AO did not independently verify the interest expenses and accepted the assessee's calculations without proper inquiry. Therefore, the Pr. CIT was justified in directing the AO to re-examine the issue. 2. Whether the Assessment Order was Erroneous and Prejudicial to Revenue: The Pr. CIT held that the assessment order was erroneous and prejudicial to the interests of the revenue because the AO did not make proper inquiries into the disallowance under Section 14A. Assessee's Submission: The assessee submitted detailed replies to the AO's queries, including the computation of disallowance under Section 14A, and argued that the AO had duly verified and accepted these submissions. The assessee also cited various judicial pronouncements to support their claim that the AO had made a proper inquiry and that the order was not erroneous. Tribunal's Observations: The Tribunal observed that the AO had issued a detailed questionnaire and received comprehensive replies from the assessee. The AO had specifically inquired about the interest expenses and disallowance under Section 14A, and the assessee had provided detailed explanations and calculations. The AO had considered these submissions and made a disallowance of ?79,019 under Section 14A, which was duly recorded in the assessment order. The Tribunal referred to several judicial precedents, including the Supreme Court's judgment in CIT v. Max India Ltd (295 ITR 282) and the Delhi High Court's judgment in CIT v. Vikas Polymers (263 ITR 475), which held that if the AO had made inquiries and applied his mind, the order could not be deemed erroneous merely because the Pr. CIT had a different opinion. Conclusion: The Tribunal concluded that the AO had made proper inquiries and applied his mind before making the disallowance under Section 14A. Therefore, the assessment order was not erroneous or prejudicial to the interests of the revenue. The Tribunal quashed the order passed by the Pr. CIT under Section 263 and restored the assessment order dated 28.06.2016. Final Judgment: The appeal of the assessee was allowed, and the order passed under Section 263 was quashed. The assessment order under Section 143(3) dated 28.06.2016 was restored. The judgment was pronounced in the open court on 17.02.2021.
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