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TMI Blog2022 (9) TMI 1090X X X X Extracts X X X X X X X X Extracts X X X X ..... nt during the year under consideration with reference to investment generating exempt income. Therefore interest or other expenses incurred during the year under consideration cannot be directly or indirectly related to exempt income, as no new fund has been invested for the investment generating exempt income. As in the instant set of facts, the assessee gave detailed explanation in respect of its claim u/s 14A of the Act. The assessee placed various documents on record to substantiate that since he was having adequate interest-free funds at its disposal, then in view of several jurisdiction Gujarat High Court decisions, it would be reasonable to presume, that interest-bearing funds were not utilised the purpose of making investments in instruments which will yield interest free income. In view of the explanation given by the assessee with respect to claim of deduction u/s. 14A of the Act, in our view, the view taken by the A.O. is a legally plausible view. It is a well settled position of law that if from the assessment records, it is evident that the Ld. AO has made due enquiries in response to which assessee has filed detailed submissions, then even if the assessment orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 83,93,492/-. Hence the assessee has made investment in unquoted shares of ₹ 5, 96,90,880/- from interest-bearing funds. Further, in view of CBDT Circular number 05/2014 dated 11-02-2014 clarifying that under Rule 8D rws 14A of the Act, the disallowance of expenditure can be made even when the taxpayer has not earned exempt income in a particular year. Hence, disallowance of ₹ 38,31,044/- should have been made under Rule 8D rws 14A of the Act by the AO during the course of assessment proceedings. Accordingly after giving opportunity of hearing to the assessee, Principal CIT set aside the assessment order on the ground that the same is erroneous and prejudicial to the interests of the revenue, with the following observations: 6. I have gone through the records carefully, it may be mentioned that two essentials condition for invoking the provisions of section 263 of IT Act are that the order passed by the AO is erroneous and prejudicial to the interest of revenue. 7. It is noticed from the record that the assessee has merely submitted vide his point-wise reply stating please note that no expenditure was incurred to earn exempt income during the year under conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 121 ITD 343, 313 ITR(AT) 182 6. SRM Systems Software Pvt. Ltd, Vs. ACIT 2010-TIOL-646- HC- MAD-IT. 7. Shakti Credits Ltd Vs. CIT 2015 Tax Pub (DT) 3058 (Luck,'A' Trib) 8. Shoreline Hotel Pvt Ltd. Vs. CIT 2015 Tax Pub (DT) 2982 (Mum.'E Trib.) 9. Kapil Ratan Associates Vs CIT 2015 Tax Pub (DT) 2931 (Mum.'A' Trib) 69 SOT 188 (Mum.) 5 Hf 10. Swadeshi Vilas Private Ltd Vs. ACIT ITA No.599/Hyd/2013 dt:25-09-2013 The Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. Vs CIT [2000] 109 Taxman 66 (SC}/[2000] 243 ITR 83 (SC)/[2000] 159 CTR 1 (SC), has also affirmed the same proposition of law. 9. The Hon'ble Courts have held that where the assessment has been completed by the AO, without proper inquiries, by assuming incorrect facts of the case, by incorrect application of law or the AO has not applied his mind properly then the said order has been held to be erroneous and prejudicial to the interest of revenue. The Hon'ble Gujarat High Court in the case of CIT vs. M M Khambhatwala (1992) 193 ITR 144 has upheld that the CIT can exercise his powers u/s. 263 of I T Act even where issue is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) The order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. 11. As per the Explanation 2, the order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interest of the revenue if the order is passed allowing any relief without inquiring into the claim. However, the AO did not conduct any such inquiries or verification as outlined above and simply accepted the assessee's submission. Thus the AO has failed to apply his mind and not appreciated the facts and law in the case, in this manner the assessee's case is also covered under para 'a of Explanation 2, of section 263(1) of I.T. Act. Therefore the order passed by the AO is erroneous and prejudicial to the interest of revenue to that extent. 12. Keeping in view these facts, I am of the considered view that this is a fit case for invoking section 263 of I, T, Act as the twin conditions namely, (i) the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... useful to refer to some Supreme Court decisions on this subject which would throw useful light on the scope of enquiry under Explanation (a) to section 263 of the Act. 5.2 The Supreme Court of India in the case of Principal Commissioner of Income-tax, Surat-2 v. Shreeji Prints (P.) Ltd.[2021] 130 taxmann.com 294 (SC) dismissed SLP filed by the assessee against order passed by High Court holding that where assessee-company had received unsecured loans from two different companies and Assessing Officer had made inquires in detail and accepted genuineness of same, such view of Assessing Officer being a plausible view could not be considered erroneous or prejudicial to interest of revenue. The facts of this case were that respondent assessee has filed its return of income showing total income of Rs. 62,55,900/- which was assessed under section 143(3) of the Act, 1961 by an assessment order dated 14th March 2016. The respondent company received unsecured loans from M/s. Georgett Tradecom Pvt Ltd and M/s. Purba Agro Food Pvt Ltd amounting to Rs. 2.49 Crore and the Assessing Officer allowed these unsecured loans. The Principal Commissioner of Income-tax invoked section 263 of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Department held as under: We have heard learned counsel for the Revenue and perused the documents on record. In particular, the Tribunal has in the impugned judgment referred to the detailed correspondence between Assessing Officer and the assessee during the course of assessment proceedings to come to a conclusion that the Assessing Officer had carried out detailed inquiries which includes assessee's on-money transactions. It was on account of these findings that the Tribunal was prompted to reverse the order of revision. No question of law arises. Tax Appeal is dismissed 5.4 The Supreme Court in the recent case of Principal Commissioner of Income-tax-2, Meerut v. Canara Bank Securities Ltd[2020] 114 taxmann.com 545 (SC) , dismissed the Revenue s SLP holding that 263 proceedings are invalid when AO had made enquiries and taken a plausible view in law, with the following observations: Having heard learned counsel for the parties and having perused the documents on record, we see no reason to interfere with the view of the Tribunal. The question whether the income should be taxed as business income or as arising from the other source was a debatable issue. The A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e factors led to the market value of the CDs declining dramatically. It was on account of these reasons, that the assessee had incurred substantial loss arising out of reduction in the value of stock lying at the end of the year. The Tribunal, therefore noted that the Assessing Officer had carried out detailed enquiries and taken a plausible view. 5.6 Now coming to the instant set of facts before us, the first aspect to be considered is whether the AO made inquiries in respect of deduction of claim under section14A of the Act during the course of assessment proceedings. On perusal of records, we observe that the AO had made specific queries on this aspect, to which the assessee had also filed its reply (annexed in the Paper-Book filed before us) . Therefore, in this case, the AO had applied his mind on the aspect of deduction of claim under section 14A of the Act. The second aspect to be considered as whether on merits, the assessee had reasonable case and therefore could be inferred that the view taken by the AO is a leally plausible view or whether from the facts it can be inferred that the view taken by the AO is prima facie erroneous. Before the AO, the assessee submitted ..... 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