2021 (10) TMI 175 - HC - Income Tax

Revision u/s 263 by CIT - As per CIT AO had failed to examine the interest expenses related to the borrowing made for the investment purposes was a business expenditure allowable u/s 36(1) (iii) or was it an expenditure incurred for earning dividend income allowable under Section 57 (iii) of the Act which is determinant of the applicability of Section 14A - ITAT setting aside order passed by the Principle Commissioner of Income Tax u/s 263 - HELD THAT - If there are two possible views and the Assessing Officer has chosen one of the possible views then there is no reason to exercise power of revision and revisional powers cannot be exercised for directing a full inquiry to find out if that view taken after an inquiry is erroneous. Moreover, the power of revision can only be exercised where no inquiry as required under the law is carried out and even in case of inadequate inquiry by the Assessing Officer, the order of the Assessing Officer could not be reviewed. AO has recorded from the details submitted by respondent and the explanation given by respondent that the assessee had regular business connection with the company in which investment has been made and also there was a business income to the assessee from the same. He notes that the Assessing Officer, therefore did not consider the calculation of disallowance under Section 14A the interest expense debited by the assessee because the same has been incurred for the purpose of business. PCIT though was unhappy with the view of the Assessing Officer, the PCIT himself does not say why it should have been considered for the calculation of disallowance under Section 14A. Even if one assumes that he has, after reading of the order expressed his views, but still the position is two views therefore were possible. Therefore, if one of the two possible views was taken by the Assessing Officer, the PCIT could not have exercised his powers under Section 263. PCIT has not disputed the nature of the investments being strategic investment made for the purpose and in course of the business of the assessee. The PCIT has only looked at the matter from a different legal view on the same set of facts. It was for these reasons, the ITAT had interfered and held that the order passed by PCIT under Section 263 of the Act was not sustainable and accordingly set aside that order. Tribunal has not committed any perversity or applied incorrect principles to the given facts - Decided against revenue.

Summary

Issues:
Challenge to the order passed under Section 263 of the Income Tax Act, 1961 regarding disallowance of interest expenses related to borrowing for investment purposes.

Analysis:
The appeal was filed against the order by the ITAT setting aside the order passed by the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act. The PCIT exercised powers under Section 263 on the grounds that the Assessing Officer's order was erroneous and prejudicial to the revenue's interest.

After the assessment order, the PCIT found that the Assessing Officer failed to examine whether interest expenses related to borrowing for investment purposes were a business expenditure allowable under Section 36(1)(iii) or incurred for earning dividend income allowable under Section 57(iii), determining the applicability of Section 14A.

The PCIT observed discrepancies in the assessment order regarding interest expenses debited by the assessee, considering the nature of investments made in associate and subsidiary companies, and the revenue generated from those investments. The PCIT concluded that the Assessing Officer failed to make a disallowance of interest under Section 14A, leading to the order being deemed erroneous and prejudicial to revenue.

The ITAT set aside the PCIT's order under Section 263, noting that the PCIT did not dispute the nature of investments as strategic for the assessee's business. The ITAT found that the PCIT's view was based on a different legal perspective, leading to the order being unsustainable.

The High Court, after considering arguments from both sides, agreed that if there are two possible views and the Assessing Officer chose one, there is no basis for revision. The Court emphasized that revisional powers cannot be used for a full inquiry if the chosen view is not erroneous. The Court found no substantial question of law in the case and dismissed the appeal, deeming it meritless.

In conclusion, the High Court upheld the ITAT's decision, stating that no perversity or incorrect principles were applied. When analyzing the facts and applying the correct test, the Court found no substantial legal question raised, leading to the dismissal of the appeal without costs.