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TMI Blog2019 (12) TMI 1608X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment with the direction to frame the assessment by making disallowance of interest expenditure u/s. 14A read with rule 8D. 3. It is therefore prayed that above order passed by the Pr. CIT u/s. 263 may please be quashed or modified as your honour deem it proper. 3. Succinctly, facts of the case are that the assessee filed his return of income on 09.10.2014 declaring total income at Rs.59,42,080/-. The assessee is engaged in the business of trading and earned income from salary, profits and gains from business and profession, income from other sources and profit from partnership firms. The case was selected under scrutiny, and accordingly order under section 143 (3) of the Act was passed on 28.10.2016 by assessing total income of Rs.59,42,080/-. On examination of profit and loss account, balance sheet and computation of income, it was noticed that the assessee is claimed exempt income of Rs.26,77,189/- on account of profit from partnership firm and Rs.1,20,43,503/- on account of interest expenses. On perusal of balance sheet, it was seen that assessee has invested a total sum of Rs.1,92,42,285/- as on 31.03.2013 and Rs.2,43,38,418/- as on 31.03.2014. Therefore, in view of prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same after taking into account, the observation made by this Pr. CIT for disallowance u/s.14A read with Rule 8D and the claim u/s.57(iii) of the Act which is to be proper verified. 5. Being aggrieved, the assessee filed this appeal before this Tribunal. The ld. counsel submitted that the borrowed loans were utilized for partnership firm for the purpose of business; hence claim of interest on the same is allowable and full. The ld. counsel referred paper book Para 5 and which is the show cause notice issued by the Pr. CIT for propose disallowances. However, the ld. counsel contended that the assessee has not earned any exempt income in assessment year 2014-15, the proceedings u/s.263 of the Act are initiated on the basis of revenue's audit objection. It was further submitted that similar disallowance u/s.57(iii) of the Act were also made during the assessment proceedings of year 2012-13, which has been allowed by the ld. CIT(A) against which file by the assessee dismissed due to low tax effect. The provisions u/s.263 is invoked because of audit objection hence; there is no independent application of mind by the Pr. CIT. Therefore, we are of the view that provision in view of proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 019) 106 taxmann.com 181 (SC), where the AO proceeded to calculate disallowance u/s. 14A on the basis of investments made by assessee that Tribunal opined that in absence of any exempt income reported by assessee, disallowance could not be made u/s.14A. The Tribunal thus deleted the disallowance made by the AO which was upheld by the High Court and the Hon'ble Supreme Court has dismissed the SLP filed against the order of High Court. Similarly, on similar circumstances the SLP filed against the decision on Punjab and Haryana High Court in the case of PCIT v. State Bank of Patiala (2018) 99 taxmann.com 285, SLP was dismissed by the Hon'ble Supreme Court reported at 2018, 99 taxmann.com 286 (SC). The ld. counsel further placed reliance on the decision of Hon'ble Bombay High Court in the case of CIT v. Srishti Securities (P) Ltd. (2010) 321 ITR 0498 (Bombay) and also the decision of Hon'ble High Court in the case of Vodafone International Holdings B.V v. Union of India (2012) 341 ITR 1(SC) and submitted that dividend income was taxable income during year under consideration, therefore any interest expenditure was allowable u/s.57(iii) of the Act. The ld. counsel further placing relian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te that section 263 of the Act enables supervisory jurisdiction to the Pr. CIT over the AO. The Pr.CIT is empowered to act under section 263 of the Act when he considers that AO's order is erroneous in so far as it is prejudicial to the interest of Revenue. It is a settled position of law that the aforesaid twin condition i.e. AO's order is erroneous and prejudicial to the interest of revenue is sine qua non for assumption of revisionary jurisdiction by Pr.CIT. As per the scheme of the 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere the assessee did not make any claim for exemption, section 14A could have no application. Similar findings was given by the Hon`ble Supreme Court in the case of Maxopp Investment Ltd. v. CIT [2018] 91 taxmann.com 154(SC) holding that only expenses proportionate to earning exempt income could be disallowed. We are of the view that the provisions of Section 57(iii) lays down that the expenditure must be laid wholly and exclusively for the purpose of earning income and not that such income must have been earned. The plain requirement of section is that the purpose for which the expenditure is incurred should fructify 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 circumst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of section 263(1) in the following words :"A bare reading of this provision makes it clear that the prerequisite to the exercise of jurisdiction by the Commissioner suo-moto-moto under it, is that the order of the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent- if 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 applica ..... X X X X Extracts X X X X X X X X Extracts X X X X
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