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TMI Blog2008 (10) TMI 390X X X X Extracts X X X X X X X X Extracts X X X X ..... d without application of mind and deserves to be quashed as provisions of section 14A were not attracted on appellant's facts. 3.That the CIT has grossly erred in identifying a sum of Rs. 1,21,95,140 as related to the earning of dividend income by the appellant. The appellant was never confronted with such amount identified by him during the course of proceedings under section 263 of the Income-tax Act, 1961. 4.That the directions issued by the CIT under section 263 are vague, ambiguous and untenable as there is no basis for arriving at the figure of Rs. 1,21,95,140 by the CIT. 5.That the CIT erred in law and on the facts and in the circumstances of the appellant's case in setting aside the assessment and has also erred in holding that the original order passed by the Assessing Officer under section 143(3) was erroneous and prejudicial to the interest of the revenue. 2. Rival contentions have been heard and record perused. Facts in brief are that assessee-company is engaged in the business of real estate and developing township at Gurgaon. For the relevant assessment year under consideration it filed its return of income at Rs. 11.44 crores, the Assessing Officer issued notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d subsidiary company, through a single dividend warrant. Our attention was also drawn to the various details and replies furnished by the assessee-company before the Assessing Officer with reference to the query raised as per notesheet entry dated 16-12-2004. He further contended that Ld. Assessing Officer has clearly applied his mind on the subject and categorically obtained the details of tax free income, even though there is no specific mention or reference to section 14A of the Income-tax Act yet in the Assessing Officer's wisdom, the provisions of section 14A were not attracted because he had noted that dividend income was a solitary transaction which did not require any extra cost to the assessee and no amount of expenses were attributed to or found to be relatable to such income. Reliance was placed on the following decisions in support of the proposition that provision of section 14A are not applicable where as there is no nexus between the expense incurred and the tax free income earned by the assessee : 1. Maruti Udyog Ltd. v. Dy. CIT [2005] 142 Taxman 57 (Delhi) (Mag.); 2. CIT v. Radico Khaitan Ltd. [2005] 142 Taxman 681 (All.). 4. As per Ld. AR a solitary transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the matter back to the Assessing Officer for detailed inquiry with regard to the expenditure incurred on earning the tax free income. 7. We have considered the rival contentions and gone through the orders of the authorities below. We had also deliberated on the case laws referred by Ld. CIT in his order as well as cited by Ld. AR during the course of hearing before us, in the context of factual matrix of the case. There is no dispute to the well-settled proposition that in the absence of any inquiry the assessment framed by the Assessing Officer can be said to be erroneous insofar as prejudicial to the interest of the revenue. However, it is a matter of fact to find out whether Assessing Officer has made any inquiry and applied his mind while making an assessment with reference to a particular point which is found to be not convincing by the CIT and thereby rendering the order of the Assessing Officer as erroneous and prejudicial to the interest of the revenue. The action of CIT under section 263 starts with the point of identification of error which has rendered the assessment framed by the Assessing Officer as erroneous and has also caused prejudice to the revenue not only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he revenue' has to be read in connection with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue unless the view taken by the ITO is unsustainable in law. An order cannot be termed as erroneous unless it is not in accordance with law. If an ITO acting in accordance with law passes some order, the same cannot be branded as erroneous by the Commissioner simply because he is of some other view or in the opinion of the Commissioner the order passed by the Assessing Officer is weak. This section does not visualize a case of substitution of judgment of the Commissioner for that of the ITO, who passed the order, unless the decision is held to be erroneous causing prejudice to the interest of revenue. The power of suo motu revision under sub-section (1) of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer to make inquiry and find out the proportionate expenses which can be disallowed under section 14A. The issue with regard to disallowance of proportionate expenditure has been dealt by the ITAT Delhi Bench in cases of Wimco Seedling Ltd. v. CIT [2007] 107 ITD 267 (TM) and Impulse (India) (P.) Ltd. v. Asstt. CIT [2008] 22 SOT 368 , wherein it was observed that the provisions of section 14A has been introduced to disallow the expenses identified as having been incurred for earning exempted income. On plain construction of section 14A, it is very much clear that only the expenditure which have been proved to be incurred in relation to earning of tax free income can be disallowed and, the section cannot be extended to disallow even the expenditure which is assumed to have been incurred for earning tax free income. While applying the section, there is no authority conferred by the section upon the Assessing Officer to deem or assume certain expenditure to have been incurred in relation to the tax free income. Accordingly, common expenditure incurred cannot be broken artificially to attribute for apportioning a part thereof to the earning of the tax free income on the assumption tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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