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2008 (2) TMI 533 - AT - Income TaxRevision u/s 263 - Disallowance u/s 14A - Claim of the assessee is that it is covered under the expression Infrastructure capital company - Investment by way of acquiring shares or long-term finance to an enterprises - Non-Availability of Exemption u/s 10(23G) - erroneous and prejudicial Order - HELD THAT - The disallowance may not be made on proportionate basis but the facts remains that the expenditure incurred in relation to such income need to be determined and disallowed. This exercise was not done by the Assessing Officer. Even for the AY 1992-93, when income was only 2.13 crores, the disallowance of expenses of Rs. 25,000 was upheld by the Tribunal. Therefore, when we consider income, the disallowance would be of much higher magnitude. In any case an enquiry and examination was required to be made by the Assessing Officer at the time of completing the assessment and passing an order u/s 154. The relevant details were, to be called for and examined. Therefore, the order of the Assessing Officer was definitely erroneous and also prejudicial to the interest of the revenue insofar as the disallowance of expenses under section 14A is concerned. As regards the contention of the assessee that the order passed under section 263 is bad in law because he has acted merely on the proposal of Addl. CIT without independent application of mind, we do not find any substance in the same. The order clearly shows that along with the proposal, the Addl. CIT had also sent the case records and these were examined by the CIT. Therefore, it cannot be said that CIT, Jammu acted merely on the proposal sent to him. Therefore, this plea is rejected and the judgment in the case of B A Plantation Industries Ltd. v. CIT 2006 (12) TMI 101 - GAUHATI HIGH COURT is not applicable to the facts of this case. Therefore, we are of the opinion that the order of assessment read with order u/s 154 was erroneous and prejudicial to the interest of revenue so far as disallowance of expenses under section 14A in relation to income claimed exempt is concerned. Both conditions laid down in section 263 are satisfied. However, before parting with this issue, we wish to mention that quantum of expenses to be disallowed under section 14A has to be determined at the time of completing the set aside assessment. If it is not acceptable to the assessee, it may challenge the same in appeal before the CIT(A). Thus, we uphold the order of CIT u/s 263 so far it relates to non-consideration of the provisions of section 14A while allowing exemption of income of Rs. 36.10 crores. Allowance of exemption u/s 10(23G) - 'infrastructure capital company' - There is no dispute about the fact that the assessee is a banking company. The essential feature of the business of a banking company is to mobilise resources from the public and lend it on interest to various sectors. The revenue has not denied that assessee had indeed made investment in shares and providing long-term finance to enterprises engaged in infrastructural facility. Therefore, all the conditions laid down for claiming exemption under section 10(23G) are fulfilled by the assessee. Therefore, we are of the opinion that it is not proper to take a narrow view of the issue when the assessee had in fact made investments in shares and financed the enterprises engaged in providing infrastructure facilities on long-term basis. We therefore, feel that it is not necessary that the 'Infrastructure Capital Company ' should be formed solely for the purpose of mobilising resources for financing infrastructure facilities. If it includes one of the objects of the Banking business, the same should be sufficient to entitle the assessee to claim exemption of its income under section 10(23G). This view also finds support from the fact that subsequently this benefit of section 10(23G) has been extended to Co-operative Banks, though such banks have also not been set up for the purpose of mobilising resources for financing the infrastructure facilities. Therefore, we are of the opinion that the assessee falls in the category of 'infrastructure capital company' entitled to exemption under section 10(23G). Validity of the order passed by CIT u/s 263 - Assessee had filed detailed reply at the paper book and thereafter, the proceedings for the assessment year 2000-01 were dropped. This shows that the revenue has accepted that the assessee is indeed entitled to exemption under section 10(23G) of the Act. Since the facts of the case for the assessment year under consideration are similar to the facts of the case for the other assessment years, we are of the opinion that the principle of consistency also deserves to be followed. Thus, we are of the considered opinion that the ld. CIT was not justified in holding that the assessee was not entitled to exemption under section 10(23G) of the Act. The assessment order read with order under section 154 for allowing exemption of income under section 10(23G) cannot be considered as erroneous and prejudicial to the interests of revenue. Therefore, order of CIT under section 263 on this issue is set aside. Accordingly, this part of the ground is allowed. In the result, the appeal filed by the assessee is partly allowed.
Issues Involved:
1. Disallowance under Section 14A of the Income-tax Act, 1961. 2. Non-availability of exemption under Section 10(23G) of the Income-tax Act, 1961. Detailed Analysis: Disallowance under Section 14A: Facts and Background: - The assessee, a bank, claimed exemption for income under sections 10(15), 10(23G), and 10(33) aggregating to Rs. 36,10,19,907. - The Assessing Officer initially disallowed the exemption due to lack of documentary evidence but later allowed it under section 154 after the assessee provided details from previous years. CIT's Action: - The Additional Income-tax Commissioner proposed action under section 263, stating the Assessing Officer failed to examine the allowability of exemptions in light of section 14A. - CIT issued a notice under section 263, highlighting that the Assessing Officer did not consider disallowance of proportionate interest and management expenses against the exempt income. Assessee's Response: - The assessee argued that only expenses incurred in relation to earning exempt income should be disallowed. - It claimed sufficient surplus funds for investments and cited various judicial precedents to support its stance. Tribunal's Findings: - The Tribunal upheld the CIT's view that the Assessing Officer's failure to consider section 14A made the order erroneous and prejudicial to the interests of revenue. - It emphasized that the Assessing Officer should have examined the expenditure related to earning exempt income. - The Tribunal noted that while the quantum of disallowance under section 14A should be determined afresh, the initial oversight warranted the CIT's intervention under section 263. Non-availability of exemption under Section 10(23G): Facts and Background: - The assessee claimed exemption under section 10(23G) for interest income from infrastructure enterprises. - CIT contended that the exemption was only available to 'Infrastructure Capital Fund,' 'Infrastructure Capital Company,' or 'Co-operative Bank,' and the assessee did not qualify as such. Assessee's Response: - The assessee argued that it qualified as an 'Infrastructure Capital Company' as it invested in shares or provided long-term finance to infrastructure enterprises. - It relied on CBDT Circulars and judicial precedents to support its claim. Tribunal's Findings: - The Tribunal disagreed with the CIT's narrow interpretation, stating that the assessee's activities met the criteria for an 'Infrastructure Capital Company.' - It noted that the exemption was granted in previous and subsequent years, and the principle of consistency should apply. - The Tribunal found that the CIT's order on this issue was not justified, as the exemption under section 10(23G) was correctly allowed by the Assessing Officer. Conclusion: The Tribunal upheld the CIT's order under section 263 regarding the non-consideration of section 14A but set aside the CIT's order concerning the exemption under section 10(23G). The appeal was partly allowed, necessitating a fresh assessment for disallowance under section 14A while maintaining the exemption under section 10(23G).
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