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TMI Blog2022 (7) TMI 598X X X X Extracts X X X X X X X X Extracts X X X X ..... re invoking proviso based on revenue audit objection amounts non application of mind. Merely just because the view taken by the AO was not found acceptable does not mean that the AO has failed to make requisite enquiries. Thus, the view taken by the AO was plausible view, which cannot be disturbed by the Ld. Pr.CIT. Therefore, we find that twin condition were not satisfied for invoking the jurisdiction under section 263 of the Act. Therefore, in absence of the same the Id. Pr.CIT was not correct in exercise the jurisdiction under section 263 of the Act. In view of these facts and circumstances, wequash the impugned order passed under section 263 of the Act and allow the appeal of the assessee. In view of above findings of fact arrived at by the Tribunal and in view of settled legal position considered in the aforesaid findings, we are of the opinion that there is no infirmity in the impugned order passed by the Tribunal so as to give rise to any substantial question of law. - R/TAX APPEAL NO. 272 OF 2022 - - - Dated:- 13-6-2022 - HONOURABLE MR. JUSTICE A.J.DESAI AND HONOURABLE MR. JUSTICE BHARGAV D. KARIA MRS KALPANAK RAVAL FOR THE APPELLANT ORDER PER : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 2,91,18,343/-. On perusal of the balance-sheet, it was further found that the assessee had invested a total sum of Rs.26,55,56,360/- as on 31.03.2013 and Rs. 27,17,19,263/- as on 31.03.2014 and therefore, as per the provisions of section 14A of the Act, 1961 read with Rule 8D of the Income Tax Rules,1962 the expenses pertaining to earning exempt income was required to be disallowed and added to the total income of the assessee. 5. Accordingly, show cause notice under section 263 of the Act, 1961 was issued to the assessee which was replied by the assessee vide letter dated 7.3.2019. In the reply, on the issue of disallowance under section 14A of the Act, 1961 read with Rule 8D of the Income Tax Rules, 1962, the assessee stated that there was negative income (loss) from the partnership firm. 6. However, PCIT after considering the reply observed that CBDT circular No.05/2014 dated 11.02.2014 clarifies that Rule 8D and Section 14A of the Act, 1961 provides for disallowance of expenditure even where tax-payer in a particular year has not earned any exempt income. 7. On the issue of claim of deduction of interest expenses under section 57(iii) of the Act, 1961, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, AO has a dual role to discharge while assessing the income of an assessee. He is both an investigator as well as an adjudicator. If the AO fails in discharging any of the two said duties i.e. as an investigator or that of an independent/impartial adjudicator, the Pr.CIT's supervisory jurisdiction is attracted because the order of the AO would be erroneous for lack of inquiry. Thus, if he does not investigate, it would be erroneous, for failure of AO to adjudicate as an independent/impartial adjudicator, which means that if the AO passes assessment order in violation of natural justice, or there is bias or arbitrariness etc., then also the order of AO would be erroneous. When, we say that lack of inquiry. makes an AO's order erroneous, one has to keep in mind the difference between lack of inquiry and inadequate inquiry. Lack of inquiry makes the AO's order erroneous, but inadequate inquiry does not make the order of AO erroneous. Thus, in order to exercise the powers under section 263(1) of the Act, the Pr.CIT must be satisfied that the assessment order made by the AO was (a) erroneous; and (b) prejudicial to the interests of the Revenue. 9. The perusal of fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been earne The plain requirement of section is that the purpose for which the expenditure is incurred should fructi into any benefit by way of return in the shape of income. This view is further, supported .by the decision of Hon ble Supreme Court in the case of CIT v. Rajendra Prasad Moody [1978] 115 ITR 579 (SC) wherein it was held that interest paid on money borrowed for investment in shares is deductible under section 57(iii) even though the shares did not yield any dividend. Similar views were also expressed by the Hon ble Calcutta High Court in the case of Shri Saytsai Properties Investment (P) Ltd. vs. CIT [2014] 45 taxmann.com 120 (Cal.) In view of these facts and circumstances, where the AO has taken a plausible view which is sustainable in law, invocation of provisions of section 263 are not justified. We further observe that similar disallowance made by the AO in assessment year 2012-13 in the case of the assessee, were deleted by the Ld. CIT (A) and appeal against which has been dismissed by the tribunal on account of low tax effect. We further, observe that the Pr. CIT has not discussed as to how the assessment order passed by the AO is prejudicial to the interest of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . If one of them is absentif the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue-recourse cannot be had to section 263(1) of the Act. There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase prejudicial to the interests of the Revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of Revenue; or where two views are possible and the Income-tax Officer has taken one view with which ..... 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