2021 (8) TMI 1142 - AT - Income Tax

Revision u/s 263 by CIT - as per CIT disallowance u/s 14A read with Rule 8D was not at all considered or examined by the AO during the course of assessment proceedings - HELD THAT - As observed that a specific opportunity was given by the Ld. Pr. CIT to the assessee-company to offer its explanation on the issue of disallowance u/s 14A read with Rule 8D during the course of proceedings u/s 263. The assessee-company however did not avail this opportunity by offering any satisfactory explanation and as noted by the Ld. Pr. CIT in his impugned order, a very cryptic remark was made by the assessee in answer to every query raised in the notice issued u/s 263. As submitted by CIT DR, this issue relating to the disallowance u/s 14A read with Rule 8D was not at all examined by the Assessing Officer during the course of assessment proceedings and there is nothing brought on record on behalf of the assessee-company to show that any enquiry whatsoever was made by the AO on this issue during the course of assessment proceedings. As held in the case of CIT vs Maithan International 2015 (4) TMI 479 - CALCUTTA HIGH COURT the role of the Assessing Officer is that of an investigator as well as adjudicator and where relevant enquiry was not undertaken before allowing the claim of the assessee, the order become erroneous as well as prejudicial to the interest of the revenue calling for revision u/s 263 - as specifically provided in clause (a) of Explanation 2 below Section 263, if in the opinion of Pr. CIT, an order passed by the AO is without making enquiries or verifications, which should have been made, the same shall be deemed to be erroneous in so far as it is prejudicial to the interest of revenue for the purpose of Section 263 calling for exercise of revisionary power. - Decided against assessee.

Summary

Issues:
1. Revision of assessment order u/s 263 by Ld. Pr. CIT.
2. Under assessment on interest income, expenses, and brokerage.
3. Non-compliance and explanation by the assessee.
4. Disallowance u/s 14A read with Rule 8D.

Analysis:
1. The appeal was against the order of Ld. Pr. CIT, Central - 5, Kolkata dated 25.03.2019 under section 263 of the Income Tax Act, 1961. The assessee, a non-banking finance company, filed its return of income for the year declaring a total income of ?1,23,83,710. The Ld. Pr. CIT identified under assessments on interest income, expenses, and brokerage totaling to ?2,77,31,881. The assessee failed to comply with notices and final show cause letter issued by the Ld. Pr. CIT, leading to the order being set aside for reassessment.

2. The assessee's written submission in response to the notice highlighted explanations and details for the identified under assessments. However, the Ld. Pr. CIT found the submission lacking and deemed the order erroneous and prejudicial to revenue. The Ld. Pr. CIT directed the AO to reframe the assessment on the identified issues. The assessee appealed, arguing acceptance of two issues by the AO in the fresh assessment, while disputing the disallowance under section 14A read with Rule 8D.

3. The Ld. CIT DR supported the Ld. Pr. CIT's order, emphasizing the unaddressed issue of disallowance under section 14A read with Rule 8D. The Tribunal observed the lack of satisfactory explanation from the assessee on this issue during proceedings under section 263. Noting the absence of examination by the AO on this matter, the Tribunal upheld the Ld. Pr. CIT's order, citing the importance of proper enquiry by the AO as per legal precedents.

4. The Tribunal dismissed the assessee's appeal, affirming the Ld. Pr. CIT's order under section 263. The decision was based on the inadequacy of explanation by the assessee and the necessity for proper enquiry by the AO in assessing disallowances under section 14A read with Rule 8D. The Tribunal upheld the revisionary power exercised by the Ld. Pr. CIT in setting aside the original assessment order for reassessment.

In conclusion, the Tribunal upheld the Ld. Pr. CIT's order under section 263, emphasizing the importance of thorough examination and proper enquiry by the AO in addressing identified issues, particularly in cases of under assessments and disallowances.