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TMI Blog2018 (8) TMI 1042X X X X Extracts X X X X X X X X Extracts X X X X ..... - Sri Mahavir Singh, JM And Sri G Manjunatha, AM Appellant by : Shri R Murlidhar, AR Respondent by : Shri R Manjunath a Swam y, DR ORDER Per Mahavir Singh, JM This appeal by the assessee is arising out of the revision order of Pr. Commissioner of Income Tax-1, Mumbai, [in short PCIT] dated 27.12.2017. The Assessment was framed by the ACIT, Circle-1(2)(1), Mumbai (in short ACIT/ AO) for the assessment year 2013-14 order dated 31.03.2016 under section 143(3) of the Income Tax Act, 1961(hereinafter the Act ). 2. The only issue in this appeal of assessee is against the revision order passed by CIT under section 263 of the Act setting aside the assessment framed by the AO and directing the AO to make fresh assessment in respect of disallowance of expenses relatable to exempt of income under section 14A read with Rule 8D of the Income Tax Rules, 1962 (hereinafter the Rules ) For this assessee has raised the following two grounds: - 1(a) On the facts and in the circumstances of the case and in law, the learned Principal Commissioner of Income Tax erred in passing an order u/s.263 of the Income Tax Act, 1961 being void ab-initio and bad in law and thereby ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 43(3) of the Act dated 31.03.2016 has considered the issue of disallowance of expenses relatable to exempt income under section 14A of the Act read with rule 8D of the Rules and by following the Tribunal s decision in earlier years and also the AO s order for AY 2006-07 disallowed the expenditure relatable to exempt income at 2% of the exempt income by observing at Para 10 as under : - 10. In addition to the above, it is seen from the audited books of accounts of the assessee company that during the year the assessee has earned tax free income of ₹ 5,63,02,492/-. But the assessee has not made any disallowance u/s 14A for earning this exempt income. In this case for AN 2006- 07 the AO had made disallowance of expenditure u/s 14 A @2 2% of the dividend income earned and was confirmed by the Hon'ble Tribunal vide order dated 29.11.2011. Therefore the expenditure disallowed u/s 14A 2% of exempt income (5,63,02,492)=11,26,049/-. 4. Subsequently, the Principal CIT (1) vide show cause notice No. Pr. CIT-1/263/Show cause notice/2017-18 dated 27.12.2017 required the assessee as to why the expenses relatable to exempt income be not disallowed by invoking the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ails of investments and claim of exempt income and applicability of section 14A r.w.r 8D. In reply, the assessee vide letter dated 12.08.2015, has explained vide note item No. 12, the applicability of Rule as under: - 12) During the year assessee has received interest on tax free bonds of ₹ 5,63,02,492/- which is claimed as exempt income. Note on disallowance u/s 14A The assessee is a members' club incorporated for the benefit of members. The club was established in 1933 and it does not carry any trade or business. It is mutual association and principal of mutuality will apply. In the assessee's own case, ITAT in orders for assessment years 1974-75, 1976-77, 1980-81, 1988-89, 1991-92 2000-01,2001-02, 2002-03 and 2003-04 has confirmed that assessee is social club existing to provide recreational and other refreshments facilities exclusively to its members and occasionally to their guests. Most of the receipts of assessee are not chargeable to tax on the grounds of mutuality which is settled and accepted consistently in all the earlier years. Certain receipts earned by assessee are taxable under the provisions of the Act. Brief details along wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofit Loss A/c which may have some nexus with earning of exempt income, the question of disallowance of such expenditure uls. 14A does not arise. Therefore, disallowance u/s. 14A read with Rule 8D is not warranted in the case of assessee. Further, we would like to state - I) that the assessee's case is not that it has not incurred any expenditure in relation to earning of exempt income but its ground is that no additional disallowance/addition can be made u/s. 144 in the absence of any claim for deduction of such expenditure in relation to exempt income in its total income; ii) that the assessee club is governed by the principle of mutuality. Only income received from outsiders has been offered for tax under the head 'Income from House Property' and 'Income from Other sources'. While computing income under the head 'House Property' only statutory deductions u/s. 24 have been claimed as deduction and while computing income chargeable under the head 'Income from Other Sources', only those expenses which have been incurred wholly and exclusively in relation to earning of income in terms of S. 57(u) and S. 57(iii) have been clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision. The learned Counsel for the assessee relied on the decision of Hon ble Jurisdictional High Court in the case of CIT vs. Gabriel India Ltd. (203 ITR 109) (Bom). The learned Counsel for the assessee also relied on the Hon ble Supreme Court decision in the case of CIT vs. Max India Ltd (2007) 295 ITR 282(SC). The learned Counsel for the assessee also stated that even this exemption granted by order under section 143(3) of the Act while framing the assessment, the same was withdrawn vide rectification order passed by AO under section 154 of the Act dated 16.12.2016 and this exempt income was treated as taxable. No exemption under section 10(15) of the Act was allowed to the assessee. On the other hand, the learned CIT, Shri R Manjunatha Swamy, relied on the revision order passed by Principal CIT under section 263 of the Act. 7. We have heard the rival contentions and gone through the facts and circumstances of the case. We find from the facts of the case that the assessee also replied vide letter dated 27.08.2015 and further vide letter dated 23.02.2016 and filed the same explanation, which are enclosed at pages 36,39 and 44 of the assessee s paper book. The AO after going t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous. Cases may be visualised where the ITO while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. 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 and left to the Commissioner, he would have estimated the income at a figure higher than the one determined by the ITO. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the ITO has exercised the quasi- judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed to be erroneous simply because the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner passed the above order. Moreover the mechanics of the section have become so complicated over the years that two views were inherently possible. Therefore, subsequent amendment in 2005 even though retrospective will not attract the provision of section 263 particularly when as stated above we have to take into account the position of law as it stood on the date when the Commissioner passed the order dated 5-3- 1997 in purported exercise of his powers under section 263 of the Income-tax Act. 9. In view of the above given facts and circumstances, we are of the view that this is not a fit case for revision proceedings under section 263 of the Act, as the disallowance made by AO under section 14A of the Act, was after due application of mind to the facts of the case. The AO has conducted enquiry in regard to expenses relatable to exempt income and assessee has filed a complete note before the AO during the course of assessment proceedings and accordingly, the assessment was framed under section 143(3) of the Act. We are of the view that wherever, there are two possible views and the AO has taken one of the courses permissible, the PCIT cannot exercised his power under section ..... X X X X Extracts X X X X X X X X Extracts X X X X
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