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2022 (9) TMI 1090 - AT - Income TaxRevision u/s 263 by CIT - as per CIT, AO has failed to make adequate inquiry w.r.t. to section 14A disallowance and merely accepted assessee's submission - whether the AO made inquiries in respect of deduction of claim under section14A of the Act during the course of assessment proceedings? - HELD THAT - Before the AO, the assessee submitted that the assessee had interest-free capital of the proprietor amounting to ₹ 1,53,73,45,614/- as on 31-03-2017. Out of the same, the total investment in interest free funds is amounting to Rs. 7,71,58,852/-. Therefore, considering the investment in the firms from which tax free income is earned, it is just 5% of the total interest-free capital of the proprietor. Further, the assessee submitted that there is no interest-bearing loan in the personal balance sheet of the assessee. Therefore, the assessee submitted before the AO that no interest-bearing funds were utilised in the investment which generated interest-free income in the hands of the proprietor. It was further submitted that there is no new investment during the year under consideration with reference to investment generating exempt income. Therefore interest or other expenses incurred during the year under consideration cannot be directly or indirectly related to exempt income, as no new fund has been invested for the investment generating exempt income. As in the instant set of facts, the assessee gave detailed explanation in respect of its claim u/s 14A of the Act. The assessee placed various documents on record to substantiate that since he was having adequate interest-free funds at its disposal, then in view of several jurisdiction Gujarat High Court decisions, it would be reasonable to presume, that interest-bearing funds were not utilised the purpose of making investments in instruments which will yield interest free income. In view of the explanation given by the assessee with respect to claim of deduction u/s. 14A of the Act, in our view, the view taken by the A.O. is a legally plausible view. It is a well settled position of law that if from the assessment records, it is evident that the Ld. AO has made due enquiries in response to which assessee has filed detailed submissions, then even if the assessment order does not discuss all aspects in detail with regards to claim of the assessee, it cannot be held that the order is erroneous and prejudicial to the interests of the Revenue. See M/S RELIANCE COMMUNICATION LTD. 2016 (4) TMI 173 - BOMBAY HIGH COURT , SMT. ANUPAMA BHARAT GUPTA 2021 (4) TMI 1000 - ITAT AHMEDABAD , GOYAL PRIVATE FAMILY SPECIFIC TRUST 1987 (10) TMI 43 - ALLAHABAD HIGH COURT - Appeal of assessee allowed.
Issues Involved:
1. Invocation of Section 263 of the Income Tax Act, 1961. 2. Adequacy of the Assessing Officer's (AO) inquiry regarding Section 14A disallowance. 3. Applicability of Explanation 2 to Section 263 of the Income Tax Act, 1961. 4. Legality of the revision order under Section 263. Issue-wise Detailed Analysis: 1. Invocation of Section 263 of the Income Tax Act, 1961: The Principal Commissioner of Income Tax (PCIT) invoked Section 263, claiming the AO's order was erroneous and prejudicial to the interests of the Revenue. The PCIT observed that the AO did not adequately inquire into the assessee's investments in unquoted shares, which could earn exempt income. Specifically, the PCIT noted that the AO failed to disallow Rs. 38,31,044 under Rule 8D read with Section 14A, despite the assessee's significant interest expenses and investments in unquoted shares. The PCIT cited several judicial precedents to support the invocation of Section 263, emphasizing the necessity of proper inquiries by the AO. 2. Adequacy of the Assessing Officer's (AO) Inquiry Regarding Section 14A Disallowance: The assessee argued that the AO made specific inquiries about the Section 14A claim during the assessment proceedings, as evidenced by the notice under Section 143(2) and the assessee's detailed responses. The assessee contended that the AO's acceptance of their explanation regarding the use of interest-free funds for investments was a plausible view, supported by judicial precedents. The assessee further argued that no new investments were made during the impugned year, and the AO had sufficient grounds to accept the assessee's claim without additional disallowance under Section 14A. 3. Applicability of Explanation 2 to Section 263 of the Income Tax Act, 1961: The PCIT relied on Explanation 2 to Section 263(1), which deems an order erroneous and prejudicial to the interests of the Revenue if it is passed without necessary inquiries or verification. The PCIT argued that the AO failed to conduct proper inquiries into the assessee's use of interest-bearing funds for investments generating exempt income. The PCIT emphasized that the AO's lack of inquiry and verification warranted the invocation of Section 263. 4. Legality of the Revision Order Under Section 263: The Tribunal examined whether the AO made adequate inquiries and whether the view taken by the AO was legally plausible. The Tribunal noted that the AO had made specific inquiries about the Section 14A claim and that the assessee provided detailed explanations and evidence supporting their claim. The Tribunal referenced several Supreme Court decisions, including Principal Commissioner of Income-tax v. Shreeji Prints (P.) Ltd. and Principal Commissioner of Income-tax v. Shree Gayatri Associates, which upheld that a plausible view taken by the AO after due inquiry cannot be deemed erroneous or prejudicial to the interests of the Revenue. The Tribunal concluded that the AO's order was not erroneous and prejudicial to the interests of the Revenue, as the AO had made due inquiries and the assessee's claim was substantiated with adequate evidence. Conclusion: The Tribunal allowed the assessee's appeal, holding that the AO conducted proper inquiries and took a plausible view regarding the Section 14A disallowance. The Tribunal found no error in the AO's order to justify the initiation of Section 263 proceedings by the PCIT. The appeal of the assessee was thus allowed, and the revision order under Section 263 was set aside.
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