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2017 (11) TMI 371 - AT - Income TaxRevision u/s 263 - disallowance made by him U/s 14A - Held that - For making any disallowance u/s.14A is to, firstly, examine the assessee s claim of having incurred some expenditure or no expenditure in relation to exempt income if the Assessing Officer gets satisfied with the same, then there is no need to compute disallowance as per Rule 8D. It is only when the Assessing Officer is not satisfied with the correctness of the claim of the assessee in respect of such expenditure or no expenditure having been incurred in relation to exempt income, that the mandate of Rule 8D will operate. In the assessee s case under consideration, the Assessing Officer has satisfied about the expenditure in relation to exempt income, he has every kind of details with him. The Assessing Officer computed the disallowance under the Rule 8D(2)(ii) at Rs.Nil. Under Rule 8D (2) (iii), the Assessing Officer disallowed the amount of ₹ 7,67,500/- stating the expenses which are not related to normal business. Therefore, every kind of details and documents were available before the Assessing Officer and there was no any mistake on the part of the assessee. If the Assessing Officer takes a plausible view to disallow any expenditure then it cannot be said that order passed by him is erroneous and prejudicial to the interest of revenue. Therefore we are of the view that order passed by the ld. CIT U/s 263 is neither erroneous nor prejudicial to the interest of revenue. We accordingly quash the order u/s 263 of the Act and allow the appeal of the assessee.
Issues Involved:
1. Validity of the Principal Commissioner of Income Tax's order under Section 263 of the Income Tax Act, 1961. 2. Application of Section 14A of the Income Tax Act, 1961, read with Rule 8D(iii) of the Income Tax Rules, 1962. 3. Direction to the Assessing Officer to recalculate the disallowance under Section 14A of the Act. Detailed Analysis: 1. Validity of the Principal Commissioner of Income Tax's order under Section 263 of the Income Tax Act, 1961: The assessee challenged the order passed by the Principal Commissioner of Income Tax (Pr. CIT) under Section 263 of the Income Tax Act, 1961, claiming it was arbitrary, erroneous, void, invalid, and bad in law. The Pr. CIT had exercised jurisdiction under Section 263, noting that the Assessing Officer (AO) had erred in applying Section 14A of the Act read with Rule 8D(iii) of the Income Tax Rules, 1962. The Pr. CIT observed that the AO's order was erroneous and prejudicial to the interest of revenue, as the AO did not add back the computed disallowance of ?99,29,903/- in the computation of total income, resulting in under-assessment of income. 2. Application of Section 14A of the Income Tax Act, 1961, read with Rule 8D(iii) of the Income Tax Rules, 1962: The AO had disallowed expenses under Section 14A read with Rule 8D, amounting to ?7,75,481/-, which included ?7,981/- directly related to exempt income and ?7,67,500/- for other expenses not directly attributable to taxable income. The AO observed that the assessee had claimed total expenses of ?84.54 lakhs under 'other expenses' in its profit and loss account, and after considering expenses directly related to normal business, disallowed ?7,67,500/-. The assessee argued that the AO had correctly disallowed ?7,67,500/- based on an independent analysis of the books of accounts and the nature of its business. The assessee submitted that the AO had examined the details of 'other expenses' amounting to ?84.54 lakhs, which were related to normal business and not to exempt income. 3. Direction to the Assessing Officer to recalculate the disallowance under Section 14A of the Act: The Pr. CIT directed the AO to recalculate the disallowance under Section 14A, stating that the AO had grossly erred in applying Section 14A and the facts referred to in the assessment order. The assessee contended that the AO had made the required inquiries and was satisfied with the details provided, and therefore, no further disallowance was necessary under Rule 8D. Conclusion: The Tribunal observed that the law regarding the exercise of jurisdiction under Section 263 is well settled. The Commissioner can regard an order as erroneous if the AO failed to make necessary inquiries. However, in this case, the AO had made the required inquiries and was satisfied with the details provided by the assessee. The AO had disallowed ?7,67,500/- based on a plausible view, and therefore, the order was neither erroneous nor prejudicial to the interest of revenue. The Tribunal quashed the order under Section 263 and allowed the appeal of the assessee. Order: The appeal filed by the assessee was allowed, and the order under Section 263 of the Act was quashed. The decision was pronounced in the open court on 11/10/2017.
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