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2017 (4) TMI 812 - AT - Income TaxRevision u/s 263 - Disallowance u/s 14A r.w. rule 8D(2)(ii) - Held that - CIT has not controverted the factual aspects of the AO s finding that no disallowance of interest on loans debited by the assessee is called for thereon (ostensibly under rule 8D(2)(ii) of the Rules) since almost the entire investment was made strategically in group concerns for the purposes of the assessee s business, but proceeded beyond the show cause notice he issued to the assessee by directing inquiry to be carried out under section 57(ii) of the Act also alongwith the disallowance to be made under rule 8D(2)(ii) of the Rules. We also find that the learned CIT/learned D.R. for Revenue have also not controverted the judicial pronouncements cited by the assessee in support of its various contentions, on jurisdiction as well as on merits. CIT has merely taken a different view on the same set of facts. Since it is clear to us that inquiry in respect of the requirement of disallowance of interest under section 14A r.w. rule 8D of the Rules was conducted by the AO in the assessment proceedings, as is evident from the order of assessment for A.Y. 2011-12, and he took a possible view that no disallowance was called for on interest, ostensibly in respect of rule 8D(2)(ii) of the Rules and that disallowance was called for under rule 8D(2)(iii) of the Rules; the mere fact that the CIT is not in agreement with the view adopted by the AO, would not render the order of assessment erroneous and prejudicial to the interest of Revenue. - Decided in favour of assessee
Issues Involved:
1. Breach of Principles of Natural Justice 2. Legality of the Revision Order under Section 263 3. Merits of the Disallowance under Section 14A r.w. Rule 8D Issue-wise Detailed Analysis: 1. Breach of Principles of Natural Justice: The appellant argued that the Principal CIT did not provide a proper, sufficient, and effective opportunity of being heard before framing the revision order under section 263 of the Income Tax Act, 1961. The appellant contended that this was a breach of the principles of natural justice and non-application of mind to the facts and contentions brought on record. 2. Legality of the Revision Order under Section 263: The appellant contended that the revision order was illegal and void as the necessary pre-conditions for initiating and completing the revision proceedings were not fulfilled. Specifically, the appellant argued that: - The order sought to be revised had already merged with the appellate order and, therefore, was not the "record" within the meaning of section 263. - The assessment order was neither "erroneous" nor "prejudicial to the interest of the revenue" within the meaning of section 263. - The AO had failed to make a disallowance of interest under section 14A r.w. Rule 8D, and thus, the order was erroneous and prejudicial to the interest of the revenue. - The CIT gave directions to the AO to consider the issue of disallowance under section 14A r.w. Rule 8D(ii), which was not warranted. 3. Merits of the Disallowance under Section 14A r.w. Rule 8D: The appellant argued that: - The interest payment was fully allowable under section 36(1)(iii) of the Act. - Even if the interest expense was allowable under section 57(iii), there was no automatic application of section 14A. - The AO had already examined and verified the issue of disallowance under section 14A r.w. Rule 8D during the assessment proceedings. The AO concluded that no disallowance of interest was called for as the appellant had sufficient own funds to make the investments, which were strategic investments for business purposes. - The revision order under section 263 was bad in law as the Principal CIT had traveled beyond the issue mentioned in the show cause notice by including the applicability of sections 36(1)(iii) and 57(iii). - The Principal CIT's reliance on CIT vs. Sujani Textiles P. Ltd. was not tenable as the facts were distinguishable. - The AO's inquiry into the disallowance under section 14A r.w. Rule 8D was adequate, and the Principal CIT could not assume jurisdiction under section 263 merely because he had a different opinion. - The provisions of section 14A and section 36(1)(iii) are mutually exclusive, and there is no scope for invoking both sections simultaneously. - The AO's view was a possible view, and the Principal CIT could not exercise revisionary powers merely because he had a different opinion. Tribunal’s Findings: The Tribunal found that: - The AO had indeed conducted a detailed inquiry into the disallowance under section 14A r.w. Rule 8D during the assessment proceedings. - The AO had concluded that no disallowance of interest was called for as the appellant had sufficient own funds to make the investments, which were strategic investments for business purposes. - The Principal CIT had not disputed the basic fact that the appellant had sufficient own funds to cover the investments. - The Principal CIT had merely taken a different view on the same set of facts without finding any fresh or different facts. - The AO's view was a possible view, and the Principal CIT could not assume jurisdiction under section 263 merely because he had a different opinion. The Tribunal concluded that the conditions precedent for invoking jurisdiction under section 263 did not exist, and therefore, the Principal CIT exceeded his jurisdiction. The Tribunal set aside/quashed the order of the Principal CIT passed under section 263 for A.Y. 2011-12. Conclusion: The appeal by the assessee for A.Y. 2011-12 was allowed, and the order of the Principal CIT under section 263 was set aside.
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