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TMI Blog2021 (6) TMI 169X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act, 1989 with effect from 1-6-1988. We note that the subject-matter in question Disallowance under section 14A r.w.r.8D has been considered and decided by the Commissioner of Income Tax (Appeals), therefore, now ld PCIT could not invoke the revisional jurisdiction under section 263(1) of Act. The power of revision conferred on the Commissioner by section 263 to call for and examine then record of any proceeding under the Act and to interfere if he considers that any order passed therein by the assessing officer is erroneous insofar as it is prejudicial to the interest of the revenue, does not empower the Commissioner to interfere with any order passed by the Commissioner of Income Tax (Appeals). Therefore, if any order of the assessing officer had merged in the order passed in appeal by the Commissioner of Income Tax (Appeals), the same cannot be set aside under section 263, in revision, by the Principal Commissioner of Income Tax. For the reasons given above, we are of the view that order of the Principal Commissioner of Income Tax passed under section 263 is without jurisdiction and hence, invalid in law - Appeal of the assessee is allowed. - ITA No.94/SRT/2020 - - - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmissioner of Income Tax -1, Surat [in short the ld. PCIT ] has exercised his jurisdiction under section 263 of the Income Tax Act, 1961. On perusal of Scrutiny records, it was observed by ld PCIT that while computing disallowance u/s 14A by applying formula under Rule 8D item (iii) being percent of average investment, investment in partnership firm M/s. Gokulanand Petro Fibers was not considered. The PCIT noted that assessee has received share of profit of ₹ 1,68,92,427/- (being 44 per cent of total profit of the firm), which was claimed and allowed as exempted income u/s 10(2A) of the Act. Further, assessee have not received any interest on its investment in the firm (investment as on 01.04.2013 of ₹ 96,58,97,818/- and as on 31.03.2014 of ₹ 115,42,90,245/-). As such, only income form the firm earned by assessee was in the form of share of profit, which was exempted. In view of this, even if assessee claims that its investment in the partnership firm was not meant for earning exempt income but the dominant purpose was strategic investment, it still attracts provision of section 14A of the Act and that investment in partnership firm was required to be consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Reliance Mutual Fund and Franklin Templeton India Mutual Fund. As these were not equity oriented mutual funds, Long Term Capital Gain(LTCG) from such funds are not exempted u/s 10(38) of the Act. It was to be taxed u/s 112 of the Act. Thus, ld PCIT noticed that there is underassessment of income to the extent of ₹ 53,00,470/-, under section 14A of the Act read with Rule 8D of the I.T. Rules and exemption claimed u/s 10(38) of the Act, to the tune of ₹ 93,96,281/- which was left to be examined by the AO during the course of assessment proceedings. In view of the above facts and provisions of law, the assessment order passed u/s 143(3) r.w.s. 92CA(3) of the Act for A.Y. 2014-15 is considered erroneous and prejudicial to the interest of the Revenue. 5. On verification of the case record, it was noticed by ld PCIT that exemption claimed u/s 10(38) of the Act and allowed by the AO without making necessary enquiry and verifying the facts whether conditions for availing exemption u/s 10(38) of the Act are fulfilled or not. The AO did not make disallowance u/s 14A r.w. Rule 8D of the IT. Rules, on investment made with firm M/s Gokulanand Petro Fibers. On consideration o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Ld. CIT(A) while giving relief to the assessee held that there is no interest bearing borrowed funds and total of own funds is more than 200 Crores as against average investment of 75 Crore and hence according to the decision of Supreme Court (cited supra), Section 14A was not applicable and hence there was no question of making disallowance u/r 8D. The copy of the order of CIT(A) is filed herewith. 4.3 It is submitted that in the present case, the assessee is having an opening and closing interest free owned funds (Share Capital and Reserves) of ₹ 200,82,99,645/- and ₹ 223,76,10,828/-respectively and the average of it comes to ₹ 212,29,55,236/- which is more than the average investment taken by Assessing Officer of ₹ 75,12,44,464/- and hence no disallowance under Section 14A r.w.r 8D is called for. Even if the investment by assessee company in partnership firm M/s Gokulanand Petro Fibers is considered average investment would come to ₹ 181,13,38,495/- [₹ 106,00,94,031 being investment in Gokulanand Petro Fibers + ₹ 75,12,44,464/- being taken by assessing officer] which is less than the average net owned funds of the assessee amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rger because in the original assessment proceedings assessing officer, as discussed above has made the disallowance of ₹ 34,52,937/- u/s 14A r.w rule 8D. Thereafter the Ld CIT(A), vide order dated 24.04.2019, after considering each and every contention of the assessee, came to the conclusion that there is no rational behind making disallowance u/s 14A r.w rule 8D and in view of decision of Honourable Gujarat High Court in case of PCIT vs Sintex Industries Ltd. (cited supra) and decision of ITAT Ahmedabad in assessee s own case for AY 2008-09 deleted the entire disallowance u/s 14A . Reference is made to Clause (c) of Explanation to Sec 263(1) which is reproduced below: (c) where any order referred to in this sub-section and passed by the AO had been the subject-matter of any appeal filed on or before or after the 1st June, 1988, the powers of the CIT 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. 4.5 Hence it is submitted that Clause (c) of Explanation under Sec 263(1) is clearly attracted in this case and particularly when the subject matter in question ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ehabilitation Authority [107 taxmann.com 18] (Bombay) CIT vs. Vam Resorts Hotels [111 taxmann.com 62] (Allahabad). 5. In view of the above, your honour is requested not to draw any adverse inference. 7. However, the ld. PCIT has rejected the contention of the assessee and held that assessee has received share of profit of ₹ 1,68,92,427/- (being assessee share of 44 percent of total profit of the firm) which was claimed and allowed as exempted income u/s 10(2A) of the Act. Further, the assessee company has not received any interest on its investment in the firm (investment as on 01.04.2013 of ₹ 96,58,97,818/- and as on 31.03.2014 of ₹ 115,42,90,245/-). As such, only income from the firm by assessee was in the form of share of profit which was exempted. The Ld. PCIT noted that even if Assessee Company claims that its investment in the partnership firm was not meant for earning exempt income but the dominant purpose was strategic investment, it still attracts provision of section 14A of the Act. As such investment in partnership firm was required to be considered for disallowance under section 14A read with rule 8D of the Rules. The Ld. PCIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate enquiry, has framed the assessment order, therefore, order passed by the Assessing Officer is neither erroneous nor prejudicial to the interest of the Revenue. 10. The ld Counsel also stated that when the assessee, being aggrieved by the assessment order framed by the assessing officer under section 143(3) r.w.s. 92CA(3) of the Act, dated 29.12.2017, for assessment year 2014-15, carried the matter in appeal before the ld CIT(A), then ld CIT(A) deleted the disallowance under section 14A r.w.r.8D of the Rules, therefore principle of doctrine of merger has applied in the assessee s case, and ld. PCIT need not to exercise the jurisdiction under section 263 of the Act in respect of the same matter(disallowance under section 14A r.w.r.8D of the Rules), which was adjudicated and deleted by the ld. Commissioner of Income Tax (Appeals) . 11. On the other hand, Shri Ritesh Mishra, the Learned Departmental Representative (in short the ld. DR ) for the Revenue has relied on the order of the ld. PCIT, particularly para nos. 4 to 6 of the order of ld. PCIT, which we have already narrated above, therefore the same is not being repeated for the sake of brevity. 12. We have hear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or where two views are possible and the Assessing Officer has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue unless the view taken by the Assessing Officer is unsustainable in law . 13. Taking note of the aforesaid dictum of law laid down by the Hon ble Apex Court, let us examine in assessee`s case under consideration the assessment order framed by the assessing officer under section 143(3) r.w.s. 92CA(3) of the Act, dated 29.12.2017, is erroneous and prejudicial to the interest of the Revenue. We note that ld PCIT has exercised his jurisdiction under section 263 of the Act on account disallowance under section 14A r.w.r.8D of the Rules, being following two issues: (i) Disallowance of ₹ 53,00,470/- u/s 14A r.w. rule 8D of the Act. (ii) Exemption claimed u/s 10(38) amounting to ₹ 93,96,261/-. We observe that above noted both issues relate to disallowance under section 14A r.w.r.8D of the Rules, therefore, we will adjudicate them together. Now, first of all, we shall examine whether these issues were examined by the assessing officer while framing original assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate its expenditure and reduce tax liability to that extent, the undersigned has no option but to determine the expenditure In relation to the exempt income shown by the assessee In accordance with the method prescribed under Rule 8D of the IT Rules, Accordingly, the same is determined as under, 3.3 The aggregate of the following shall be deemed to be the expenditure in relation to the exempted income shown by the assessee during the year under consideration. [i] Amount of expenditure directly related to exempted dividend income and longterm capital gain shown. Nil [ii] A x B/C 0 x 75,12,44,464/2,47,62,80,788 = Nil. (A) Amount of expenditure by way interest other than the amount of interest included in clause (i) incurred during the year. Nil (B) Average value of investment, income from which does not form part of total income, as appearing in the balance sheet of the assesses, on the first day and last day of the previous year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d add it to the total income of the assessee company. 3.6 Penalty proceedings u/s. 271(1)(c) for furnishing inaccurate particulars, are also being initiated in assessee s case separately. 14. It is abundantly clear from the above assessment order passed by the assessing officer under 143(3) r.w.s. 92CA(3) of the Act, that in response to question asked by the assessing officer during the assessment stage, the assessee submitted details and documents before the assessing officer, in respect of long term capital gain on sale of mutual fund ₹ 93,96,281/- and in respect of long term capital gain from liquid mutual fund ₹ 53,00,470/-. The assessing officer had examined both these issues during the assessment proceedings and took a possible view. Not only that the assessing officer made the disallowance under section 14A r.w.r.8D, at ₹ 34,52,937/-, which clearly shows that assessing officer has examined both these issues in depth and applied his mind. Therefore, those issues which have been examined in depth with due application of mind by assessing officer, should not be subject matter of revision proceedings under section 263 of the Act. 15. It is al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts appearing in the computation of total income wherein assessee has added back security transactions tax of ₹ 69,482/- and management fees of ₹ 11,09,173/- to the net profit and loss account. As per submissions made by Ld. AR it has been mentioned that dividend income of ₹ 4.29/- Crore is derived from mutual funds and assessee has paid a management fees of ₹ 11,01,973/- as a portfolio management fees to the portfolio manager who has taken care of the dealing of the assessee in regard to investment for various mutual funds including switching but not switching out from one fund to another in order to optimum benefit to the assessee. In the given situation where the assessee has himself added a sum of ₹ 11,71,455/- to its total income in relation to expenditure incurred to earning exempt income then there remains no reason to sustain the addition of ₹ 8,84,542/- as made by Ld. Assessing Officer under the provisions of section 14A of the Act. We therefore, delete the same and allow the appeal of the assessee . Since the facts continue to be same, the order of ITAT for earlier year applicable to instant assessment year. 7.3 The AR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner of Income Tax (Appeals) on 24.04.2019. The ld PCIT could not have invoked power under section 263 of the Act as the assessment order passed by the assessing officer under section 143(3) r.w.s.92CA(3) of the Act, had merged with the order of the ld Commissioner of Income Tax (Appeals). If the department was aggrieved by the order of the ld CIT(Appeals) deleting the disallowance under section 14A r.w.r 8D, the proper recourse would have been to approach the higher forum (Tribunal). In this respect reliance can be placed on the decision of the Coordinate Bench of ITAT, Delhi in the case of Oscar Investments Ltd. (in ITA No.2823/DEL/2016 for AY.2011-12) order dated 04.11.2019, wherein it was held as follows: 5.0 We have heard the rival submissions and have also perused the material available on record. The undisputed facts are that for the year under consideration, dividend income of ₹ 1,10,58,833/- was earned by the assessee which was claimed as exempt and not liable to tax. In the return of income, the assessee had, suo moto made a disallowance u/s 14A of the Act to the tune of ₹ 2.13 crores. The AO, in his order u/s 143(3), recomputed the disallowance u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs u/s 263 of the Act. If the department was aggrieved by the order of the Tribunal deleting the disallowance, proper recourse would have been to approach the higher forum. Therefore, we are of the considered opinion that the jurisdiction u/s 263 of the Act could not have been invoked by the Pr. CIT in this case. Accordingly we quash the assumption of jurisdiction u/s 263 of the Act by the Ld. Pr. CIT. We have not examined other merits of the matter. 17. From the above facts of the assessee`s case we note that ld PCIT, under 263 revision proceedings directed the assessing officer to recompute the disallowance under section 14A r.w.r.8D, although in the meantime the order of assessment passed by the assessing officer under section 143(3) r.w.s. 92CA(3) of the Act, had been the subject-matter of appeal before the Commissioner of Income Tax (Appeals). Therefore, order passed by the assessing officer has merged with the Commissioner of Income Tax (Appeals), hence ld Principal Commissioner of Income Tax ( Ld. PCIT) does not have power under section 263 to exercise his jurisdiction on the issue of disallowance under section 14A r.w.r.8D , since the said issue has been already adj ..... X X X X Extracts X X X X X X X X Extracts X X X X
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