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TMI Blog2021 (7) TMI 142X X X X Extracts X X X X X X X X Extracts X X X X ..... d in respect of huge investment made to the tune in unlisted equity is on wrong assumption of facts and therefore the Ld. PCIT erred on this issue. Disallowance u/s.14A - assessee has suo moto disallowed - This issue has been enquired into by the AO and the assessee has replied to it as aforestated and since the disallowance has been made by the assessee suo moto u/s. 14A read with Rule 8D the fault alleged by the Ld. PCIT is again on wrong assumption of facts. Therefore, the action of the AO cannot be termed as erroneous as well as prejudicial to the revenue for no enquiry on the part of AO - we note that the impugned order of PCIT was without satisfying the condition precedent as stipulated u/s. 263 of the Act that the AO's order dated 19.07.2017 as erroneous as well as prejudicial to the revenue. In the absence of this jurisdictional fact and law, PCIT ought not to have usurped the jurisdiction u/s. 263 to interfere with the assessment order passed by the AO on 19.07.2017. Since the jurisdictional condition precedent has not been satisfied in this case by Ld. PCIT before passing the impugned order, we are inclined to quash the impugned order of Ld PCIT dated 23.03.2020. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssues mentioned above and accordingly making disallowance/addition in this regard. 4. In response to the aforesaid show cause notice the Ld. PCIT notes that no one appeared nor any adjournment petition was filed despite the matter was fixed thrice (12.03.2020, 18.03.2020 and 20.03.2021). Thereafter the Ld. PCIT notes that from the assessment records it is seen that the main reason for scrutiny was with regard to huge investment of ₹ 18.94 crores in unlisted securities. According to him, the AO has not enquired the source of such huge investment. However, the Ld. PCIT notes that it appears from the record that the assessee had sold inventory Mutual Fund units (MF units) and diverted the fund into investment in unlisted equity. According to Ld. PCIT no such details was obtained by the AO. The other fault found by the Ld. PCIT was that the assessee has earned dividend income of ₹ 2.32 crores out of Mutual Funds but disallowance u/s. 14A has not been considered by the AO. Therefore, according to Ld. PCIT, the AO has not done in-depth enquiry in respect of huge investment made by the assessee and subsequent income earned out of such investment. Therefore, he was pleased ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's order was passed on incorrect assumption of fact; or (ii) incorrect application of law; or (iii) Assessing Officer's order is in violation of the principle of natural justice; or (iv) if the order is passed by the Assessing Officer without application of mind; (v) if the AO has not investigated the issue before him;[ because AO has to discharge dual role of an investigator as well as that of an adjudicator ]then in aforesaid any event the order passed by the Assessing Officer can be termed as erroneous order. Coming next to the second limb, which is required to be examined as to whether the actions of the AO can be termed as prejudicial to the interest of Revenue. When this aspect is examined one has to understand what is prejudicial to the interest of the revenue. The Hon'ble Supreme Court in the case of Malabar Industries (supra) held that this phrase i.e. prejudicial to the interest of the revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer. Their Lordship held that it has to be remembered that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities were obtained by the AO. For that the Ld. A.R. drew our attention to reply filed by the assessee during the assessment proceedings before the AO dated 22.06.2017 and 27.06.2016 which are placed from pages 22 to 24 and 25 of the paper book respectively. From a perusal of page 23 of paper book it is noted that the assessee has replied to the AO pursuant to the notice issued u/s. 142(1) of the Act dated 14.06.2017 wherein the assessee has given a reason for increase in investment in unlisted equities (Group Companies) as under: During the year, the increase in investment in unlisted equities is amounting to ₹ 8,95,11,968/-. Investment in unlisted equities as on 31.03.2014 was ₹ 6,47,56,500/- which had increased to ₹ 15,42,68,468/- as on 31.03.2015. this is evident from Note-7 of the Balance Sheet. All such investment were made in the group companies. The details of companies in which said investment were made is as under: SL. No. Name of Company Amount (Rs.) of investment made during the year 1. Horizon Vintrade pvt. Ltd. 2,30,00,000/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ils viz. name of unquoted and quoted shares along with the number of shares held by the assessee as on 31.03.2015. The entire details of investment made by the assessee is seen to have been filed by the assessee before the AO. So, therefore, the Ld. PCIT's allegation that no details was called for by the AO during the enquiry conducted in respect of huge investment made to the tune of ₹ 8.95 crores in unlisted equity is on wrong assumption of facts and therefore the Ld. PCIT erred on this issue. 11. Coming to the next issue i.e. the assessee having earned dividend income of ₹ 2.32 crores out of mutual funds and no disallowance u/s. 14A of the Act had been considered by the AO. It is noted that the assessee had made suo moto disallowance of ₹ 8,65,105/- u/s. 14A read with Rule 8D which fact is evident from the perusal of page 23 of the PB wherein Para 4 the computation of disallowance u/s. 14A read with Rule 8D was enclosed for the perusal of AO pursuant to the notice of AO u/s. 142(1) dated 14.06.2016. The computation of suo moto disallowance u/s. 14A as per Rule 8D is seen placed at page 19 and 20 of PB wherein the computation at page 19 made in tabular fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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