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TMI Blog2016 (7) TMI 374X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO in original scrutiny assessment proceedings. In support of his contention, he referred to pages 1 to 4 of the paper book containing the detailed questionnaire issued by the AO wherein vide question no. 12 the following query was raised by AO vide notice u/s. 142(1) of the Act dated 18.01.2010: "12. Please submit details of other income, Details of insurance claim received, details of STCG with evidences. Furnish details of interest income, Furnish details of dividend income & Expenses related to earning exempted income (as per section 14A of I. T. Act, 1961 read with rule 8D of I. T. Rules, 1962.)" The assessee replied to the said questionnaire and presented detailed workings of disallowance u/s. 14A of the Act and offered a sum of ₹ 22,584/- with proper rationale by referring to each and every expenses debited in the P&L Account. The said workings are reproduced hereinbelow for the sake of convenience: The Ld. AO accepted the said workings and on being satisfied with the same disallowed a sum of ₹ 22,584/- in the assessment. Accordingly, the Ld. AR argued that the issue of disallowance u/s. 14A of the Act was examined in detail by the Ld. AO. Hence, he has o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act:]" 7. We find from the bare reading of section 14A of the Act that Rule 8D of the Rules should be applied only as a last resort in the event of AO not able to work out the disallowance of expenses incurred for earning income which does not form part of the total income especially in the case of a composite business having both taxable as well as non-taxable income. We find in the instant case that the Ld. CIT in 263 proceedings had only tried to substitute his own opinion in lieu of decision already taken by the Ld. AO. This is strictly prohibited under section 263 proceedings as decided by the Hon'ble Bombay High Court in the case of CIT Vs. Gabriel India Ltd. reported in (1993) 203 ITR 108 (Bom), wherein it was held as under: The power of suo motu revision under sub-section (1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interests of the revenue. But that by itself will not be enough to vest the Commissioner with the power of suo motu revision because the first requirement, viz., that the order is erroneous, is absent. Similarly, if an order is erroneous but not prejudicial to the interests of the revenue, then also the power of suo motu revision cannot be exercised. Any and every erroneous order cannot be the subject-matter of revison because the second requirement also must be fulfilled. 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. Therefore, in order to exercise power under section 263(1) there must be material before the Commissioner to consider that the order passed by the ITO was erroneous insofar as it is prejudicial to the interests of the revenue and that it must be an order which is not in accordance with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rise to revisionary jurisdiction u/s. 263 of the Act. The Ld. AO in the instant case had conducted extensive enquiry and had concluded the matter to its logical end by invoking the provisions of section 14A(2) of the Act. We place reliance on the decision of Hon'ble Delhi High Court in the case of CIT Vs. Sunbeam Auto Ltd. reported in (2011) 332 ITR 167 (Del.) wherein it was held as under: The submission of the revenue was that while passing the assessment order, the Assessing Officer did not consider the aspect specifically whether the expenditure in question was revenue or capital expenditure. That argument predicated on the assessment order, which apparently did not give any reason while allowing the entire expenditure as revenue expenditure. However, that, by itself, would not be indicative of the fact that the Assessing Officer had not applied his mind to the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reasons in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when it was found that very accounting practice followed for a number of years had the approval of the income-tax authorities. Interestingly, even for future assessment years, the very same accounting practice was accepted. [Para 16] It was in that context, the question that assumed importance was as to whether powers could be exercised under section 263 when two views were possible. [Para 17] The matter could be looked from another angel. What was the material/ information available with the Assessing Officer on the basis of which he allowed the expenditure as revenue? It was disclosed to the Assessing Officer that the assessee was a manufacturer of car parts. In the manufacturing process, dyes were fitted in machines by which the car parts were manufactured. Those dyes were, thus, the components of the machines. Those dyes needed constant replacement, as their life was not more than a year. The assessee had also explained that since those parts were manufactured for the automobile industry, which had to work accurately at high speed for a longer period, replacement of those parts at short intervals became imperative to retain accuracy. Because of those reasons, those tools and ..... 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