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2022 (7) TMI 958 - HC - Income TaxRevision u/s 263 by CIT - disallowance u/s 14A of the Income Tax Act r/w Rule 8D - HELD THAT - As relying on case of husband of the respondent 2022 (7) TMI 598 - GUJARAT HIGH COURT 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 of the Act. Therefore, in absence of the same the Id. Pr.CIT was not correct in exercise the jurisdiction under section 263 - Decided in favour of assessee.
Issues Involved:
1. Jurisdiction under Section 263 of the Income Tax Act, 1961. 2. Disallowance under Section 14A of the Income Tax Act read with Rule 8D. 3. Deduction of interest expenses under Section 57(iii) of the Income Tax Act, 1961. Detailed Analysis: 1. Jurisdiction under Section 263 of the Income Tax Act, 1961: The Revenue challenged the judgment of the Income Tax Appellate Tribunal (ITAT) on the grounds that the Principal Commissioner of Income Tax (PCIT) was not correct in exercising jurisdiction under Section 263 of the Income Tax Act, 1961. The PCIT had noticed discrepancies in the assessment order passed by the Assessing Officer (AO) and issued a show cause notice under Section 263. The Tribunal held that the PCIT's supervisory jurisdiction is invoked when the AO's order is erroneous and prejudicial to the interest of the Revenue. It emphasized that lack of inquiry by the AO makes the order erroneous, but inadequate inquiry does not. The Tribunal concluded that the AO had taken a plausible view sustainable in law, and the PCIT's invocation of Section 263 was not justified as the twin conditions of the order being erroneous and prejudicial to the Revenue were not satisfied. 2. Disallowance under Section 14A of the Income Tax Act read with Rule 8D: The PCIT observed that the AO did not disallow expenses related to earning exempt income as required under Section 14A read with Rule 8D. The assessee had claimed exempt income and deduction of interest expenses, but the PCIT noted that no exempt income was earned during the year under consideration, and thus, disallowance under Section 14A could not be made. The Tribunal referred to the Gujarat High Court's decision in CIT v. Corrtech Energy Pvt. Ltd., which held that Section 14A cannot be applied if no exempt income is claimed. The Tribunal also cited the Supreme Court's decision in Maxopp Investment Ltd. v. CIT, which stated that only expenses proportionate to earning exempt income could be disallowed. 3. Deduction of interest expenses under Section 57(iii) of the Income Tax Act, 1961: The PCIT had disallowed the deduction of interest expenses claimed by the assessee under Section 57(iii), arguing that the investment was in a private limited company controlled by family members and not for earning dividend income. The Tribunal, however, held that the expenditure must be incurred wholly and exclusively for the purpose of earning income, regardless of whether income is actually earned. It relied on the Supreme Court's decision in CIT v. Rajendra Prasad Moody, which allowed the deduction of interest on money borrowed for investment in shares even if no dividend was earned. The Tribunal concluded that the AO had taken a plausible view and the PCIT's invocation of Section 263 was not justified. Conclusion: The High Court dismissed the Revenue's appeal, agreeing with the Tribunal's findings that the AO's order was not erroneous or prejudicial to the Revenue. The Court emphasized that the PCIT had not provided specific reasons for the order being prejudicial to the Revenue, and mere insufficiency of inquiry by the AO does not justify invoking Section 263. The appeal was dismissed in line with the earlier decision in the case of the respondent's husband for the same assessment year.
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