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TMI Blog2016 (3) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned CIT grossly erred in holding that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of revenue without appreciating that the order passed by the Assessing Officer is neither erroneous nor prejudicial to the interest of revenue. 3. The learned CIT erred in fact and in law in setting aside the assessment framed by the AO despite the fact that the AO has considered each and every aspect of the case and had framed the assessment only after making proper inquires and after considering the submissions made by the Appellant. 4. The learned CIT failed to appreciate the fact that all the details relating to section 14A was filed before the AO at the time of regular assessment and it is only after proper verification of the documents filed/explanations given the assessment was finalized and hence the assessment order was not subject to revision under S. 263. 5. Without prejudice to the above, the CIT grossly erred in invoking revision proceedings, without appreciating that disallowance u/s 14A was already a subject matter of appeal and accordingly carrying out revision proceedings was not within powers of CIT as per explanation (c) to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge total assets). The total disallowance thus computed under rule 8D r.w.s. 14A was computed at Rs. 50,000 (direct expenses offered by the assessee) + Rs. 5,96,533 (0.5% of average net investments)+ Rs. 3,65,850 (net interest expenses allocated as above). The aggregate of disallowance so computed thus worked out to Rs. 10,12,383. It was in this backdrop that a further disallowance of Rs. 9,62,383, in addition to Rs. 50,000 offered by the assessee, was thus made. Aggrieved by the disallowance so made, assessee carried the matter in appeal before the CIT(A). Learned CIT(A) upheld the contention of the assessee to the effect that no part of interest expenses could be disallowed under section 14A as the assessee had sufficient interest free funds of his own. The disallowance to the extent of Rs. 3,65,850 was thus deleted. While doing so, vide order dated 12th June 2015, learned CIT(A) observed as follows: 5.4 The assessment order u/s 143(3) and remand report dated 01/06/2015 of the AO as well as submission dated 14/10/2013 and reply/rebuttal dated 10/06/2015 of the AR of the appellant have been considered. The AO has made total disallowance of Rs. 10,12,383/- u/s 14A of the Act and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view of this the disallowance of interest expenditure of Rs. 3,65,850/- as made u/s 14A of the Act is hereby deleted. Thus, the ground of appeal no.3 of the appellant is partly allowed. 4. In a somewhat parallel development, however, even as the matter was before the Commissioner (Appeals) for his adjudication, learned Commissioner initiated the revision proceedings under section 263 r.w.s. 143(3). Vide show cause notice dated 22nd January 2015, learned Commissioner required the assessee to show cause as to why the assessment "not be enhanced or set aside, with a direction to make the fresh assessment in accordance with the law in this regard". In the said show cause notice, it was, inter alia, pointed out that the interest which should have been taken into account for the purpose of disallowance is not the net interest (i.e. interest received minus interest paid minus interest disallowed by the AO anyway) but gross interest ((i.e. interest received minus interest disallowed by the AO anyway), that the computation of average investment was incorrect inasmuch as it does not take into account mutual funds units of Rs. 15 crores, and that the computation of average assets was incorr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into account, and has been taken into account, is the investment relating to tax exempt income. As for the figures of assets taken in the computation not being the same as the balance sheet figure, it was explained that the balance sheet figure in the outer column is net of current liabilities, as per the requirements of Schedule VI to the Companies Act, whereas the amount taken into account in the computation of disallowance is the value of assets as per the balance sheet- as is the requirement of rule 8D. None of these submissions, however, impressed the Commissioner. Learned Commissioner was of the view that whether a mistake is made after application of mind by the Assessing Officer, or without application of mind, does not matter at all. As long as the Assessing Officer is in error, the order can be subjected to revision proceedings. The Commissioner further observed that the amount to be disallowed under section 14A is the gross amount and not the net amount. As for the judicial precedents cited before him on this issue, he chose to simply brush them aside. On the question of gross assets versus net assets, however, he referred to a decision of the Tribunal in the case of Ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e revised is one passed by the AO and had been made the subject-matter of an appeal, the power of the CWT will extend to such matters as had not been considered and decided in such appeal. 8. The provisions of Explanation (c) to Section 25(2) to the Wealth Tax Act and Explanation c to 263(1) of the Income Tax Act are exactly the same. For the sake of completeness, however, these two provisions are reproduced below: (c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal. [Explanation c to Section 25(2)] (c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Principal Commissioner or Commissioner under this sub-section shall extend and shall be deemed always to have extended] to such matters as had not been considered and deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vestment in mutual fund satisfies this condition inasmuch as the investment is stated to be in fixed maturity plan- a fact stated by the assessee all along, including in his submission before the Commission in response to the show cause notice- at page 54 of the paperbook before us, and the same has not been controverted at any stage. The income in the case of a fixed maturity plan arises only on redemption which is taxable as capital gain. On these facts, exclusion of these units in the computation of disallowance was wholly justified and there was no error in the stand of the assessee. As regards the question whether current assets are to be taken on the basis of the actual figures or net of the current liabilities, we find that the wordings of the formula are clear and unambiguous and it refers to "the average of total assets, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year". Clearly, therefore, the assets are to be taken at the balance sheet value and there is no scope of netting these figures by subtracting current liabilities from the same. A reference to the average value of 'total assets as appearing in the balance s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value. It is at best one of the possible views of the matter that the assets, net of liabilities, should be taken into account, and the other view, which is equally if not, more convincing a view is that the total value of assets should be taken into account without making any adjustment for the liabilities. It is elementary, as was held by Hon'ble Supreme Court in the case of Malabar Industrial Co Ltd Vs CIT [(2000) 243 ITR 83 (SC)], "Every loss of revenue as a consequence of an order of AO 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 interests of the Revenue unless the view taken by the ITO is unsustainable in law". Learned Commissioner was thus in error in holding that taking the total of assets on the basis of its value in the balance sheet has rendered the assessment order erroneous and prejudicial to the interest of the revenue. The view that the assets are required to be taken on the basi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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