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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 ..... ch Energy Pvt. Ltd [ 2014 (3) TMI 856 - GUJARAT HIGH COURT] Hon`ble Supreme Court in CIT v. Max India Ltd. [ 2007 (11) TMI 12 - SUPREME COURT] reiterated that the phrase prejudicial to the interests of the Revenue as used in section 263(1) of the Act must be read in conjunction with the expression erroneous and unless the view taken by the Assessing Officer is found to be unsustainable in law, the powers under section 263 of the Act cannot be invoked. The order passed by the AO, in our opinion, shall be deemed to be erroneous in so far as it prejudicial to the interest of the Revenue, if the Pr. CIT would have specifically pointed out which of inquiries or verification should have been carried out by the AO in this regard and the AO failed to carry out those inquiries and verification as desired by the Pr. Commissioner of Income-tax. Since the Pr. CIT has not suggested the basis of inquiry or verification to be carried out by the AO, the order passed by the AO cannot be deemed to be erroneous in so as far as it is prejudicial to the interest of the Revenue. We are of the opinion that the AO has adopted one possible legal view sustainable in law on the issue and mere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 provisions of section 14A with Rule 8D, the expenses pertaining to earning exempt income was required to be disallowed and added to the total income of the assessee. Accordingly, a show-cause notice was issued which was replied by the assessee vide letter dated 08.01.2019, which has been reproduced by the Pr.CIT in his order passed under section 263 of the Act. On the issue of disallowance u/s.14A read with Section 8D, the assessee has stated that there is negative income (loss) from the partnership firm, however the Pr.CIT was of the view that CBDT Circular No.05/2014 dated 11.02.2014 clarifies that Rule 8D in Section 14A of the Act p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 proceedings u/s.263 are not justified as held by the Hon ble Supreme Court in the case of CIT v. Max India Ltd. (2007) 295 ITR 0282 (SC) and Malabar Industrial Co. Ltd v. CIT (2000) 243 ITR 0083. The ld. counsel submitted that in the case of the assessee, there is no exempt income, hence there can be no disallowance of expenses, there action to be disallowance u/s.14A of the Act has held by Hon ble Gujarat High Court in the case of CIT v. Corretech Energy Pvt. Ltd (2014) 45 taxmann.com 116 (Gujarat). 6. The ld. counsel submitted that in the show cause notice exempt income of Rs.26,77,179/- is mentioned but the same appears to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 reliance in the decision of ITAT C Bench, Bombay in ITA No.4649/MUM/2008 for the A.Y. 2003-04 in the case of Pistabai Rikhabchand Kothari v. ITO, 14(1)(3) dated 23.01.2013, wherein it was held that acquisition of shares may carry the acquisition of controlling interest which is purely commercial concept and tax is levied on the transaction, not on its effect. Controlling interest, which stood transferred to Vodafone from HTL accompanied the CGP share and cannot be dissected so as to be treated as transfer of controlling interest of Mauritian entities and then that of Indian entities and ultimately that of HEL. Thereafter, the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or. 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 facts of the present case reveals that the assessee has taken unsecured loans, which have been utilized for the purpose of investment in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nto 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 the Revenue. The Hon`ble Rajasthan High Court in the case of CIT vs. Jain Construction [2013] 257 ITR 336 (Raj.) of w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the inte ..... X X X X Extracts X X X X X X X X Extracts X X X X
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