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2022 (8) TMI 1168 - AT - Income TaxRevision u/s 263 - disallowance u/s 14A - how is order of AO is erroneous and prejudicial to the interest of the revenue? - HELD THAT - One of the pre-requisite before invoking S. 263 and the allegation of the Ld. Pr. CIT is that there has been incorrect assumption of fact and law by the Assessing Officer. However, despite our deep and careful consideration of the material on record including the finding recorded in the subjected Assessment order dated 27.12.2019 and in the findings recorded in the order under challenge, we do not find any incorrectness and incompleteness in the appreciation of facts made by the AO.In the light of these observations, we do not agree on this aspect to this extent with Ld. Pr. CIT Whether the AO has also incorrectly appreciated and assumed the law while making the subjected assessment to be termed, as erroneous and prejudicial to the interest of the revenue ? - The facts are not disputed that the assessee has submitted the proof of identity of shareholders, capacity by showing the gift received and genuineness of the transactions as the shareholder and company both have supplied the information related to these transactions. Even the issue was similar in assessment year 2016-17 wherein the investor shareholders being same and the investment made by the shareholder were accepted and even the proceedings u/s. 143(3) r.w.s. 263 read with section 144B of the Act for the assessment year 2016-17 has after giving the detailed show cause and considered the submission of the assessee and accepted the fact that the investment made by the shareholder is genuine and no addition was made in the case of the company what else the ld. AO can do in this case so as to prove the investment made by the shareholder in the assessee company. Even the factual input made by the ld. AR that the case of shareholders are re-opened to check the genuineness of the investment made by them in that circumstances we believe the plausible view was taken by the AO on this issue. As regards, the disallowance under section 14A r.w.r. 8D the ld. AR of the assessee has submitted that there is no exempt income for the year under consideration and there is no expenditure incurred to earn the exempt income. This view and argument were accepted by the AO. Pr. CIT acted beyond jurisdiction in holding that the assessment order for A. Y. 201718 passed by the AO is held erroneous in so far as it is prejudicial to the interests of the revenue for the purpose of section 263 of the Income Tax Act. As the assessment was completed after making required amount of enquiry and there was no lake of enquiry or investigation by the AO on the issues which was raised by the ld. Pr. CIT under the provision of section 263 proceedings. Therefore, the findings of Ld Pr. CIT that order passed by AO was passed without conducting necessary enquires and without verifying necessary details was without any basis or without any evidence on record and mere guess work that that the ld AO has not conducted the enquiry. Appeal of assessee allowed.
Issues Involved:
1. Jurisdiction of the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act. 2. Verification of the source of share capital and the genuineness of transactions. 3. Applicability of Section 14A of the Income Tax Act regarding disallowance of expenses related to exempt income. Detailed Analysis: 1. Jurisdiction of PCIT under Section 263 of the Income Tax Act: The assessee challenged the order passed by the PCIT under Section 263, arguing that the PCIT exceeded his jurisdiction. The PCIT had set aside the assessment order dated 27.12.2019, alleging it was erroneous and prejudicial to the interests of revenue. The assessee contended that the assessment was completed after detailed inquiries and that the assessment order was neither erroneous nor prejudicial to the revenue's interest. The Tribunal noted that for invoking Section 263, the order must be both erroneous and prejudicial to the revenue, and if the Assessing Officer (AO) has adopted one of the permissible views, it cannot be considered erroneous. The Tribunal relied on the Supreme Court's decisions in Malabar Industrial Co. Ltd. v. CIT and CIT v. Max India Ltd., which held that every loss of revenue cannot be treated as prejudicial to the revenue's interest unless the AO's view is unsustainable in law. 2. Verification of Source of Share Capital and Genuineness of Transactions: The PCIT questioned the creditworthiness of the shareholders and the genuineness of the transactions involving the share capital of Rs. 90 crores. The assessee provided details, including the identity of the shareholders, their PAN, and bank statements showing the transactions were through banking channels. The funds were received as gifts from their uncle, Dr. Rajendra Kumar Joshi, a Swiss national. The Tribunal observed that the AO had made necessary inquiries and verified the details during the assessment proceedings. The Tribunal also noted that the shareholders' cases were reopened under Section 148, indicating the department's acceptance of the genuineness of the transactions. The Tribunal concluded that the AO had taken a plausible view, and the PCIT's action under Section 263 was not justified. 3. Applicability of Section 14A regarding Disallowance of Expenses Related to Exempt Income: The PCIT directed the AO to disallow expenses under Section 14A, arguing that the assessee had made significant investments in unlisted equities, which would result in exempt income. The assessee contended that no exempt income was earned during the year, and hence, Section 14A was not applicable. The Tribunal referred to the Karnataka High Court's decision in CIT v. Chemsworth Pvt. Ltd., which held that if the AO has taken a plausible view, the PCIT cannot invoke Section 263 merely on the ground of inadequate inquiry. The Tribunal found that the AO had considered the assessee's explanation and taken a plausible view, and therefore, the PCIT's order under Section 263 was not sustainable. Conclusion: The Tribunal concluded that the assessment order dated 27.12.2019 was neither erroneous nor prejudicial to the interest of the revenue. The AO had made necessary inquiries and taken a plausible view on the issues raised by the PCIT. Therefore, the Tribunal set aside the PCIT's order under Section 263 and allowed the assessee's appeals. The Tribunal's decision applied mutatis mutandis to both appeals (ITA No. 190/JP/2022 and ITA No. 192/JP/2022) for the Assessment Year 2017-18.
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