2017 (11) TMI 633 - AT - Income Tax

Revision u/s 263 - AO by following the Tribunal Order for the assessment years 2010-11 and 2011-12 held that the disallowance u/s 14A r.w.8D on 5% of the exempt income - Held that - AO during the course of assessment proceedings, has raised the specific query on the issue of disallowance u/s14A r.w.r 8D which was replied by the assessee. Another factor which is worth mentioning is that the assessee has not made any investments in the security yielding the tax free income but was holding the shares as stock-in-trade as the assessee was making purchase of shares for the purpose of trading in shares and securities. Having all the facts of the case and in the light of various decisions as cited by both the parties, we are not in agreement with the ld. PCIT that the order of the AO is erroneous and prejudicial to the interest of revenue as the AO after calling for information from the assessee on the issue of disallowance u/s 14A r.w.r 8D has taken a conscious view which is a possible view out of two views and applied the decision of the Tribunal in assessee‟s own case in the earlier years. The mere fact that the revenue has challenged the decision of the Tribunal in assessee‟s own case for the assessment years 2010-11 and 2011-12 is not rendered the decision of the AO as erroneous and prejudicial to the interest of revenue as the AO has taken a possible view after examining and considering the reply and arguments of the assessee as rendered during the course of assessment proceedings. The assessment order passed by the AO after considering of all the facts is neither erroneous nor prejudicial to the interest of revenue. Therefore, the ld.PCIT is wrong in assuming the revisionary jurisdiction u/s 263 - Decided in favour of assessee.

Summary

Issues Involved:
Challenging revisionary jurisdiction under section 263 of the Income Tax Act, 1961.

Analysis:
The appeal was filed challenging the order passed by the Principal Commissioner of Income Tax-3, Mumbai for the assessment year 2013-14. The main issue raised was regarding the revisionary jurisdiction exercised under section 263 of the Income Tax Act. The Principal Commissioner observed discrepancies in the assessment order, specifically related to the disallowance made under section 14A not in accordance with Rule 8D. The Principal Commissioner set aside the assessment order, citing that the AO had made an adhoc addition at a rate of 5% of the dividend instead of following Rule 8D. It was noted that the AO had followed the ITAT order in the assessee's own case for previous years, despite the Revenue challenging these orders. The Principal Commissioner concluded that there was a lack of application of mind by the AO, leading to an incorrect assumption of facts, making the order erroneous and prejudicial to the revenue's interest.

The Assessee argued that the revisionary jurisdiction was wrongly assumed, as the AO had consciously followed the Tribunal's decision in the assessee's own case for previous years. The Assessee contended that the AO had raised specific queries regarding the disallowance under section 14A, and after considering the assessee's response, took a possible view by following the Tribunal's order. The Assessee cited relevant case laws to support their argument. On the other hand, the Department supported the Principal Commissioner's decision, emphasizing that the AO erred by not following the specific mechanism provided under the Act for such disallowances. The Department relied on various legal precedents to strengthen their position.

Upon careful consideration of the contentions and evidence, it was found that the AO had indeed raised specific queries during the assessment proceedings and the Assessee had responded accordingly. It was noted that the Assessee did not make investments in securities yielding tax-free income but held shares as stock-in-trade for trading purposes. The Tribunal disagreed with the Principal Commissioner's assessment that the AO's order was erroneous and prejudicial to revenue. The Tribunal held that the AO had taken a possible view after due inquiry and consideration of the facts, based on the Tribunal's decision in the assessee's own case for previous years. The Tribunal referred to relevant legal decisions to support its conclusion.

In conclusion, the Tribunal found that the AO's assessment order was neither erroneous nor prejudicial to the interest of revenue. The Tribunal deemed the assumption of revisionary jurisdiction under section 263 as invalid and held the consequent order passed under section 263 as bad. Consequently, the appeal of the assessee was allowed, overturning the decision of the Principal Commissioner.

This detailed analysis highlights the key arguments, legal precedents, and the Tribunal's final decision regarding the challenging of revisionary jurisdiction under section 263 of the Income Tax Act, 1961.