2018 (3) TMI 33 - AT - Income Tax

Disallowance u/s 14A r.w.s. 8D - Held that - In the instant case, the assessee had voluntarily disallowed ₹ 21,29,607 by applying all the three limbs of Rule 8D. Hence we are not inclined to get into the availability of own funds as far as applicability of Rule 8D(2)(ii) in the instant case. Revision u/s 263 - Held that - AO had made elaborate enquiry about the aspect of 14A and had taken a possible view on the same while discussing it elaborately in his assessment order. AO had not made any disallowance of interest u/s 36(1)(iii) which goes to prove that the interest paid other than ₹ 651821/- have been used only for the purpose of business of the assessee and not for the purpose of making investments in shares. When the possible view has been taken by the Ld. AO after taking into consideration facts and circumstances of the case and after raising a specific query with regard to complete details of interest payments vis- -vis its utilization, and after raising a specific query with regard to disallowance under Rule 8D of the Rules, it cannot be said that the Ld. AO had not applied his mind or had proceeded on incorrect assumption of facts as alleged by the Ld. CIT in his revision order. CIT had passed revision order u/s 263 on the very same issue for assessment years 2011-12 and 2012-13. We find that the Ld. AO had disallowed an additional over and above the amounts disallowed by the assessee voluntarily u/s 14A read with Rule 8D of the Rules under all the three limbs. In both these orders, the Ld. AO had issued detailed questionnaire to the assessee vide 142(1) notice for assessment years 2011-12 and 2012-13 raising specific query in this regard and assessment has been completed after due consideration of the reply received by the assessee and after proper application of mind by the Ld. - Decided in favour of assessee.

Summary

Issues Involved:
1. Justification of invoking revisionary jurisdiction under section 263 of the Income Tax Act by the Commissioner of Income Tax (CIT).
2. Correctness of the disallowance under section 14A read with Rule 8D of the Income Tax Rules.
3. Legal validity of the CIT's order setting aside the assessment order passed by the Assessing Officer (AO).

Issue-wise Detailed Analysis:

1. Justification of Invoking Revisionary Jurisdiction under Section 263:
The primary issue in this appeal is whether the CIT was justified in invoking revisionary jurisdiction under section 263 of the Income Tax Act for the assessment years 2010-11 to 2012-13. The CIT believed that the AO had not properly verified the workings for disallowance under section 14A read with Rule 8D. The CIT argued that the total interest paid by the assessee on borrowed funds should have been considered by the AO while working out the disallowance under Rule 8D(2)(ii). The assessee contended that the AO had made due enquiries and the issue cannot be the subject matter of revision under section 263 on the ground of improper enquiries. The Tribunal found that the AO had indeed made specific enquiries regarding the disallowance under section 14A and had taken a conscious decision based on the detailed replies provided by the assessee. Therefore, the Tribunal held that the revisionary jurisdiction exercised by the CIT under section 263 was not sustainable in law.

2. Correctness of the Disallowance under Section 14A read with Rule 8D:
The assessee had voluntarily disallowed a sum under section 14A read with Rule 8D, covering all three limbs of the rules. The AO recomputed the disallowance, resulting in an excess disallowance. The CIT, however, directed the AO to adopt a higher figure for the interest paid, which the assessee argued was incorrect. The Tribunal noted that the AO had issued a specific questionnaire and made elaborate discussions in the assessment order regarding the disallowance under section 14A read with Rule 8D. The Tribunal found that the AO had applied his mind and taken a possible view, making the revisionary jurisdiction under section 263 inapplicable. The Tribunal also noted that the CIT failed to consider the assessee's detailed breakup of loans and their utilization, which indicated that the borrowed funds were used for business purposes, not for making investments.

3. Legal Validity of the CIT's Order Setting Aside the Assessment Order:
The Tribunal held that the AO had made detailed enquiries and taken a possible view on the disallowance under section 14A read with Rule 8D. The Tribunal emphasized that when a possible view has been taken by the AO after due appreciation of facts and application of mind, the same cannot be considered as lack of enquiry or incorrect assumption of facts. The Tribunal relied on the Supreme Court's decision in CIT vs. Max India Ltd., which supports the view that when two views are possible, the CIT cannot invoke revisionary jurisdiction under section 263. Consequently, the Tribunal concluded that the CIT's order setting aside the assessment order was bad in law.

Conclusion:
The Tribunal allowed the appeals for the assessment years 2010-11 to 2012-13, holding that the CIT was not justified in invoking revisionary jurisdiction under section 263. The AO had made detailed enquiries and taken a possible view on the disallowance under section 14A read with Rule 8D, making the CIT's order unsustainable in law.