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TMI Blog2014 (9) TMI 512X X X X Extracts X X X X X X X X Extracts X X X X ..... and prejudicial to the interests of revenue on the issue relating to the disallowance made u/s 14A of the Act. The Ld CIT noticed that the assessee has received following exempted income during the year under consideration:- (a) Dividend income Rs. 1,99,80,161/- (b) Surplus from Partnership firm (RaRe Investment)-Rs.12,42,62,603/- The Ld CIT further noticed that the assessing officer has disallowed a sum of Rs. 8,20,304/- only u/s 14A of the Act. The Ld CIT took the view that the disallowance is required to be made in terms of Rule 8D of the Income tax Rules, which provide for making disallowance in the following manner:- (a) 8D(2)(i) : Expenditure directly relating to income. (b) 8D(2)(ii) : Interest expenses not directly attributable to any income or receipt. (c) 8D(2)(iii) : The amount of ½ percent of the average value of investment. According to Ld CIT, the assessing officer has made disallowance in terms of Rule 8D(2)(i) of the Rules only. The Ld CIT took the view that the assessing officer has failed to make disallowance under Rule 8D(2)(ii) and Rule 8D(2)(iii). The Ld CIT noticed that the assessee has paid interest of Rs. 19.04 crores and the investments were re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld CIT held that the disallowance computed u/s 14A by the AO is not in accordance with Rule 8D of the IT Rules and the same is erroneous and prejudicial interest of the revenue. The Ld CIT also felt that the assessing officer did not make proper enquiries in this regard. In support of his views, the Ld CIT placed reliance on the following case law:- (a) Paul Mathew and Sons Vs. CIT (263 ITR 101)(Kerala) (b) CIT Vs. South India Shipping Corpn. Ltd (233 ITR 546)(Mad) (c) Rampyari Devi Saraogi Vs. CIT (67 ITR 84)(SC) (d) Smt. Tara Devi Aggarwal Vs. CIT (88 ITR 323)(SC) (e) Addl. CIT Vs. Mukul Corporation (111 ITR 312)(Guj) Accordingly, the Ld CIT set aside the order of the AO and directed him to compute the disallowance u/s 14A of the Act as per the provisions of Rule 8D of the Income tax Rule by considering the facts discussed by him and after providing reasonable opportunity for being heard to the assessee. Aggrieved, the assessee has filed this appeal. 6. The Ld Counsel appearing for the assessee submitted that the Ld CIT has erred in law in presuming that the income from partnership firm falls in the category of exempted income as contemplated in sec. 14A of the Act. He sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue; 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 interests of Revenue unless the view taken by the ITO is unsustainable in law." The Ld A.R submitted that the above said view was reiterated by the Hon'ble Supreme Court again in the case of CIT Vs. Max India Ltd (2007)(295 ITR 282). The Ld A.R submitted that the assessing officer, in the instant case, has applied his mind with regard to the disallowance to be made u/s 14A of the Act and has computed the disallowance by considering the accounts of the assessee. Accordingly he submitted that the assessing officer has adopted one of the possible courses permissible in law and hence the Ld CIT was not justified in holding that the assessment order is erroneous and prejudicial to the interests of revenue, simply because the Ld CIT was under the belief that the disallowance is required to be made as prescribed under Rule 8D of the I.T Rules. 9. The Ld D.R, on the contrary, submitted that the jurisdictional High Court in the case of Godrej & Boyce Mfg. Co. Ltd (supra) has held that the provisions of Rule 8D shall apply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt held that the provision "cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer" and "it is only when an order is erroneous that the section will be attracted". The Supreme Court held that an incorrect assumption of fact or an incorrect application of law, will satisfy the requirement of the order being erroneous. An order passed in violation of the principles of natural justice or without application of mind, would be an order falling in that category. The expression "prejudicial to the interests of the Revenue", the Supreme Court held, it is of wide import and is not confined to a loss of tax. What is prejudicial to the interest of the Revenue is explained in the judgment of the Supreme Court (head note) : "The phrase 'prejudicial to the interests of the Revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial to the interests of the Revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous unless it is not in accordance with law. This section does not visualize a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order unless the decision is held to be erroneous. If the Income-tax Officer had applied his mind while making an assessment and determines the income either by accepting the accounts or by making some estimate himself after making due enquiries, then the said assessment order cannot be termed as erroneous simply because, the Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. Hence, there must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed. 14. Now, we shall examine the issue before us by considering the facts prevailing in the instant case and also applying the law as interpreted by the jur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra). Thus, the very foundation, on which the revision proceeding was initiated in the instant case, was found to be not correct. In that case, the impugned revision proceeding is liable to be quashed, as the view entertained by Ld CIT on the issue of disallowance u/s 14A is not in accordance with the law. 16. Further, it is the case of the assessee that it was having both interest free funds and interest bearing funds. Thus, by relying on the decision of jurisdictional High Court in the case of Reliance Utilities & Power Ltd (supra), the assessee has contended before Ld CIT that the investments in the partnership firm has been made out of own funds only. 17. A perusal of the assessment order would show that the assessing officer has examined the issue of disallowance to be made u/s 14A of the Act. During the year under consideration, the assessee had declared a dividend income of Rs. 1.99 crores and the net profit returned by it was 129.34 crores. Accordingly, it was contended by the assessee before the AO, during the course of assessment proceedings, that there is no requirement of making any disallowance of interest or for invoking Rule 8-D. Thus, it is seen that the issue rela ..... X X X X Extracts X X X X X X X X Extracts X X X X
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