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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 ..... no interest bearing funds were utilized for the same. A bare reading of provisions of section 263 makes it clear that the prerequisite to exercise of jurisdiction by the CIT suo motu under it, is that the order of the ITO is erroneous insofar as it is prejudicial to the interests of the Revenue. Not only the incurring of expenditure but also its relationship with the exempted income must be clear and must be capable of being ascertained. There was no specific finding by the CIT to the effect that any particular expenses has been incurred for earning the exempted income, he only asked the AO to make inquiry and find out the proportionate expenses which can be disallowed u/s 14A. While applying section 14A, there is no authority conferred by the section upon the AO 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 that such part of the common expenditure was incurred in relation to the tax free income. Therefore, we do not find any merit in the order passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer determined total income at Rs. 13.99 crores wherein various disallowance and additions were made by the Assessing Officer. Subsequently the CIT issued notice under section 263 wherein it was observed that prima facie the order of the Assessing Officer is erroneous and prejudicial to the interest of revenue. The CIT observed the assessee has received dividend income from its fully owned subsidiary company DLF Universal Ltd. through a single dividend wherein the assessee was asked to explain as to why the proportionate expenditure incurred for earning the dividend income should not be disallowed under section 14A. It was explained by the assessee that no expenditure was incurred for earning this dividend income, therefore, the question of disallowance for proportionate expenses as per provisions of section 14A could not have arisen. It was also submitted that no borrowed funds were utilized for purchase of equity shares of DLF Universal Ltd., therefore, proportionate interest paid on the borrowed funds also could not have been disallowed. However the CIT did not agree with the assessee-company and observed that Assessing Officer did not examine the issue as to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the assessee which would justify the invoking of section 14A of the Income-tax Act because no amount of expense can be related to the earning of this income. Our attention was also drawn to the capital, reserve surplus of the assessee-company out of which investment was made in earlier years in the subsidiary company M/s. DLF Power Ltd. He further contended that no part of borrowed money was utilized for making the said investment, therefore there was no reason for any disallowance by invoking provisions of section 14A. 5. He also pointed out that show-cause notice dated 29-3-2006 was not signed by the competent authority and it was signed by the Income-tax Officer (Hqs.-IV), New Delhi, was not in accordance with the provisions of section 263 and the same is of no consequence and the proceedings initiated thereunder deserves to be dropped. Reliance was placed on the ratio laid down by Hon ble MP High Court in case of CIT v. Associated Food Products (P.) Ltd. [2006] 153 Taxman 3 in support of the proposition that where the Commissioner has not recorded any specific defect and proceeded in vague manner that assessment was made in a hurry, to save period of limitation, witho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eet placed on record the Assessing Officer has categorically asked the assessee the break up of interest and dividend income. The assessee has also filed various details and also demonstrated before us the fact that dividend income was received through a single cheque and no extra expenditure was incurred for earning the same with regard to deployment of funds. Investment in shares was made in earlier years, sufficient own capital reserve was shown in the balance sheet out of which investment was made in the subsidiary company and it was submitted that no interest bearing funds were utilized for the same. A bare reading of provisions of section 263 makes it clear that the prerequisite to exercise of jurisdiction by the CIT suo motu under it, is that the order of the ITO is erroneous insofar as it is prejudicial to the interests of the Revenue. The CIT has to be satisfied of twin conditions, namely, ( i ) the order of the Assessing Officer sought to be revised is erroneous; and ( ii ) by virtue of the order being erroneous, prejudice has been caused to the interests of the revenue. If one of them is absent - if the order of the ITO is erroneous but is not prejudicial to the revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces specified therein exist. Furthermore an order passed by the Assessing Officer cannot be set aside for making roving inquiry without pointing out any error in his order. An order can be revised only when such order is demonstrated to be erroneous, the powers of revision is not meant to be exercised for purpose of directing officer to hold another investigation when the order of the Assessing Officer is not found to be erroneous. Where assessment order has been passed by the Assessing Officer after taking into account assessee s submissions and documents furnished by him and no material whatsoever has been brought on record by the Commissioner which showed that there was any discrepancy or falsity in evidences furnished by the assessee, the order of Assessing Officer cannot be set aside for making deep inquiry only on the presumption and assumption that something new may come out. For making a valid order under section 263 it is essential that the Commissioner has to record an express finding to the effect that order passed by the Assessing Officer is erroneous which has caused loss to the revenue. Furthermore where acting in accordance with law the Assessing Officer frames cert ..... X X X X Extracts X X X X X X X X Extracts X X X X
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