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TMI Blog2023 (8) TMI 1111X X X X Extracts X X X X X X X X Extracts X X X X ..... had not used borrowed funds for making investments. Entire investments were made out of owned funds. Consequently, borrowing cost incurred in investment is NIL. When mixed funds (interest bearing and interest free) are available, the right of appropriation is vested with the assessee. In the case of the assessee interest income earned outweigh the interest expenditure. It clearly shows that no interest cost has been incurred to make any investment which shall result in exempt income. As decided in the case of Adani Infrastructure Developers (P.) Ltd.[ 2021 (2) TMI 486 - GUJARAT HIGH COURT] held that Rule 8D(2)(ii) shall have no application where interest income earned outweigh interest expenditure. AO has considered the information filed by the assessee and arrived at conclusion that no disallowance is warranted under section 14A - The view of the AO is duly supported by the decisions of Hon ble High Courts and Tribunals relied upon by the assessee. SLP filed by the revenue in this regard against the decisions of Hon ble High Courts have been dismissed in the cases PCIT vs. Oil Industry Development Board [ 2019 (3) TMI 1571 - SC ORDER ] and CIT vs. Chettinad Logistics ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nance Act 2022 is applicable w.e.f. 01.04.2022 and it cannot be applied retrospectively. 5. On the facts and in the circumstances of the case and in law the ld. Pr. CIT erred in not accepting contention of appellant that no expenses were incurred for making investment and such investment was made by the appellant out of his own funds. 6. On the facts and circumstances of the case, the ld. PCIT passed the order under section 263 on assumption of wrong and incorrect facts, and relying the decisions which are on different facts and further erred the rejecting the ratio laid down in the decisions relied upon by the assessee. 7. The appellant prays for leave to add, to amend, to delete or modify the all or any grounds of appeal on or before the hearing of appeal. 2. The brief facts of the case are that the assessee is listed public limited company and engaged in the business of Coaching Centres and tuitions. The assessee filed original return of income on 31-10-2018 declaring total income of Rs. 13,03,13,740/-. The case of the assessee was selected for limited Scrutiny by CASS on the issue of Expenses Incurred for Earning Exempt Income . Under the E- Assessment Scheme 2019 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ong and tenable reasons to justify the proceedings u/s 263 of the Act. So, the present proceedings assuming the order to be erroneous and prejudicial to the interest of the revenue deserves to be set aside. 2.2 The complete details were called for, examined and verified At the outset we would like to submit that current assessment proceeding was selected under CASS for limited scrutiny to examine the following issue: - Expenses incurred for earning Exempt Income During the course of E-assessment proceeding the ld. AO issued the notice u/s 142(1) of the Act along with query letter (Copy Enclosed as Annexure to WS ) , thus, detailed inquiry was made from the assessee, which is apparent from the query letter. Following notices under section 143(2) and 142 of the Income Tax Act, 1961 were issued during the course of assessment proceedings. S. No Date of Notice PB PAGE ITBA/AST/S/143(2)/2019- 20/1018220568(1) 23 rd Sep 2019 230-231/Vol -2 ITBA/AST/F/142(1)/2019- 20/1025356837(1) 18 th Feb 2020 234-238/V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -15 was completed u/s 143(3) wherein addition of Rs. 12,11,158 u/s 14A was made, which was deleted by ld CIT(A). Copy of order of ld CIT(A) is at PB page 249-274/Vol-2. Appeal filed by the revenue before Hon ble ITAT Jaipur was dismissed. Copy of the order of Hon ble ITAT Jaipur is at PB page 275-277/ Vol-2. (iii) AY 2017-18 The assessment of immediate preceding year AY 2017-18 was completed u/s 143(3) wherein no addition u/s 14A was made. The copy of assessment order for AY 2017-18 is at PB page 241-246/Vol-2. It is worthwhile to mention the investment in MF/Equities as on 31/03/2017 was of Rs. 21,957.06 lacs against the share capital and Reserves of Rs. 1816.29 lacs and 35,354.12 respectively totaling to Rs. 37,170.41 Hence, PCIT has erred in assuming jurisdiction u/s 263 of the Act. Contention of ld PCIT that assessee submitted incomplete information as asked for by the FAO and assessee submitted an evasive reply. This finding of ld PCIT is perverse and incorrect. All replies submitted during the course of assessment proceedings enclosed herewith at PB page no.15-17/Vol-1 for your kind perusal. Details with respect to investments as and when required by Ld. AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y entertain a different view on the issue. Hence it would not be correct to conclude that the assessment had been done based on incomplete or incorrect information provided by the assessee and the assessment order passed by ld FAO is erroneous and prejudicial to the interest of revenue. So, assessee prays your honour kindly to set aside the order passed by ld PCIT u/s 263. 2.3 Ld PCIT failed to consider the past history of the assessee before passing order u/s 263 of I. Tax Act:- The ld PCIT failed to consider the past assessment history of the assessee wherein the contention of the assessee that addition u/s 14A cannot be made where the non-interest bearing funds i.e. share capital and reserves are much more than the investment which may result the exempted income was accepted. The past history of the assessee as settled in the AY 2013-14, AY 2014-15 and AY 2017-18 is very relevant to the issue in hand. Hon ble Rajasthan High Court in the case of CIT Vs Bhawan Va Path Nirman (Bohra) Co (No. 1) 258 ITR 431 has held that the past history of the assessee is best guiding factor. 2.4 In point no (iii) of para3at page 2 of order passed u/s 263 the ld PCIT assumed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dering the fact that interest earned by the assessee is much more than the interest paid so net interest cost of funds is NIL. Thus proposal for making additions of Rs. 2,53,26,820 in the order passed u/s 263 of I. Tax Act is highly unjustified:- Amount of interest income earned by the assessee during the relevant year is Rs. 654.45 Lacs (PB page 38) which is far more in excess of total interest cost claimed as expenditure during the relevant year amount to Rs. 303.41Lacs (PB page 39). In the case of the assessee interest income earned outweigh the interest expenditure. It clearly shows that no interest cost has been incurred to make any investment which shall result in exempt income. Assessee also like to bring your honor kind attention towards the rate of interest on which loan was taken and the rate of interest on which loans were given: Rate of interest of Loan taken from IndusInd Bank 8.6% p.a. Rate of interest of loan given to Gopi Bai Foundation 9% p.a. Rate of interest of loan given to Srajan Capital Ltd. 9.75%p.a. From above it is clear that rate of interest of loans given is higher than the rate of interest of loan taken. Whatever interest income ear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Funds utilised to generate exempt income or taxable Income IndusInd Bank Ledger A/c is at PB page 61 Interest 2500 Lacs Rs. 1400 Lacs paid in Yes Bank Ltd OD Account. It reduces OD interest cost Taxable income 8.6% Ledger A/c is at PB page 62-64 Rs. 134 Lacs paid in Deutsche Bank OD Account. It reduces OD Interest cost Ledger A/c is at PB page 70 Taxable income Rs. 750 lacs paid on interest to Srajan Capital Ltd On Interest 9.75% Ledger A/c is at PB page 65-68 Taxable income Rs. 216 Lacs paid on interest to Gopi Bai Foundation On Interest 9% Ledger A/c is at PB page 69-70 Taxable income From above explanation of utilisation of fresh borrowings, it is crystal c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest free fund. To put it another way, in respect of payment made out of mixed fund, it is the assessee who has such right of appropriation and also the right to assert from what part of the fund a particular investment is made and it may not be permissible for the Revenue to make an estimation of a proportionate figure. For accepting such a proposition, it would be helpful to refer to the decision of the Bombay High Court in Pr. CIT v. Bombay Dyeing and Mfg. Co. Ltd. (I.T.A. No. 1225 of 2015) where the answer was in favour of the assessee on the question, whether the Tribunal was justified in deleting the disallowance under Section 80M of the Act on the presumption that when the funds available to the assessee were both interest free and loans, the investments made would be out of the interest free funds available with the assessee, provided the interest free funds were sufficient to meet the investments. The resultant SLP of the Revenue challenging the Bombay High Court judgment was dismissed both on merit and on delay by this Court. The merit of the above proposition of law of the Bombay High Court would now be appreciated in the following discussion. 18. In the above c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no finding is recorded by the AO in this regard. On the contrary, the ld. CIT (A) has given a finding after examining the accounts of the assessee. The AO has not brought on record any material to show that the assessee has incurred any expenditure in relation to the incomer which do not form part of the total income. Moreover it is not in dispute that the assessee has earned exempt income of Rs. 27,006/- and expenditure amounting to 42,22,857/- in relation to this is disallowed The finding of the ld. CIT (A) is not rebutted by revenue by placing any contrary materials. Therefore, we do not see any reason to interfere with the order of the ld. CIT (A). The same is hereby upheld. The ground raised by the Revenue is dismissed. (iv) Hon ble High Court of Gujarat passed in Principal Commissioner of Income Tax-4 V/s Sintex Industries Ltd (2018) 403 ITR 418 (Gujarat). 9. Considering the aforesaid facts and circumstances, more particularly the fact that the assessee was already having its own surplus fund and that too to the extent of ₹ 1981.55 Crores against which investment was made of ₹ 144.51 Crores, there was no question of making any disallowance of expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee was having share holding funds to the extent of 2607.18 crores and the investment made by it was to the extent of Rs. 195.10 crores. In other words, the assessee had sufficient funds for making the investments and it had not used the borrowed funds for such purpose. This aspect of huge surplus funds is not disputed by the revenue which earned it the interest on bonds and dividend income. With regard to disallowance of 1% of administrative expenses averred to have incurred on account of the earning of interest, there is nothing on record to indicate that there has been in fact any actual expenditure incurred by the assessee for earning tax free income of Rs.14 crores. It is also to be noted that out of the total amount of exempt income of Rs. 14 crores, the assessee could point out that 6.12 crores (rounded oil) was earned by 'S' project which was under construction for which no expenditure had been claimed and for the remaining income of Rs 7.88 crores which consists of dividend and tax free interest, no part of expenditure appears to have been made towards the investment activity as emerging from the material. According to the respondent, the total investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of Rs. 2,21,70,780/- as proportionate indirect expenses against the exempt income of Rs 62,529/-. The ld PCIT has not proved that the indirect expenditure sought to be disallowed had actually been incurred in earning the exempted income. Reliance is placed on the following decisions:- (i) Hon ble Supreme Court of India in Maxopp Investment Limited V. Commissioner of Income Tax (2018) 91 Taxmann.com 154 (SC) has examined the scope of Rule-14A vis-a-vis Rule-8D in detail. The pertinent part of the judgment of Hon ble Apex Court is reproduced below for your kind perusal. 32. In the first instance, it needs to be recognised that as per section 14A(1) of the Act, deduction of that expenditure is not to be allowed which has been incurred by the assessee in relation to income which does not form part of the total income under this Act . Axiomatically, it is that expenditure alone which has been incurred in relation to the income which is includible in total income that has to be disallowed . If an expenditure incurred has no causal connection with the exempted income, then such an expenditure would obviously be treated as not related to the income that is exempted from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO. As per section 14A(2), the AO is required to determine the amount of expenditure incurred in relation to such income which does not form part of the total income under the Act and in accordance with rule 8D of Income Tax Rules, 1961 if the AO having regarding to the accounts, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to such exempt income, is empowered for making disallowance as per rule 8D. In the case in hand, no finding is recorded by the AO in this regard. On the contrary, the ld. CIT (A) has given a finding after examining the accounts of the assessee. The AO has not brought on record any material to show that the assessee has incurred any expenditure in relation to the incomer which do not form part of the total income. Moreover it is not in dispute that the assessee has earned exempt income of Rs. 27,006/- and expenditure amounting to 42,22,857/- in relation to this is disallowed The finding of the ld. CIT (A) is not rebutted by revenue by placing any contrary materials. Therefore, we do not see any reason to interfere with the order of the ld. CIT (A). The same is hereby upheld. The ground raised by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to have incurred on account of the earning of interest, there is nothing on record to indicate that there has been in fact any actual expenditure incurred by the assessee for earning tax free income of Rs. 14 crores. It is also to be noted that out of the total amount of exempt income of Rs. 14 crores, the assessee could point out that 6.12 crores (rounded oil) was earned by 'S' project which was under construction for which no expenditure had been claimed and for the remaining income of Rs 7.88 crores which consists of dividend and tax free interest, no part of expenditure appears to have been made towards the investment activity as emerging from the material. According to the respondent, the total investment from the huge surplus is comparatively small and investment made was effortless, without any burden of administrative expenses. In view of fact that no expenditure was incurred for earning exempted income and that being the question of fact, disallowance of 1% of interest expenditure artificially or on the basis of assumption rightly has not been sustained by the Tribunal. The revenue's appeal therefore, requires no further entertainment and hence d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ead with rule 8D is to be in relation to income which does not form part of total income and this can be done only by taking into consideration investment which has given rise to this income which does not form part of total income. Accordingly, in assessee s case explanation to Section 14A does not applies and additions cannot be made if no exempt income is received. 2.12 Application of section 14A and rule 8D is not automatic in each and every case:- Application of section 14A and rule 8D is not automatic in each and every case where there is income not forming part of total income and before its application, it needs to be justified as to how expenditure incurred by assessee during relevant year related to income not forming part of its total income. The ld PCIT has not considered the submission of the assessee in judicial perception. The assessee has submitted that its interest free funds are much more that the investments which may result exempt income. The assessee cited various case laws before ld PCIT which were rejected in summary manner by saying that the facts of the case law quoted in support of the claim are found to be different from the facts and circumst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the clauses because the ld. AO made the inquiries from the assessee, examined and verified the documents and thereafter he found that no expense was incurred for earning the exempt income and he made no addition u/s 14A of I. Tax Act. The view of the ld FAO is supported by various case laws. Ld FAO, after adequate enquiry, has taken a judicious view. Revision u/s 263 is not permissible merely because ld PCIT may entertain a different view on the issue. The scope of section 263 as peer above explanation is triggered where no inquiry has been made by ld. AO. If the ld. AO has made any short of inquiry in whatsoever manner as per his own satisfaction, then the revisionary power given in section 263 of the Act cannot be applied. It is relevant to mention here that section 263 of the Act or any other provision of the Act does not prescribe the extent of enquirers to be conducted by the ld. AO and it is own wisdom of ld. AO to decide the extent to enquiry is to be made by him for completing the assessment proceeding. The revisionary power u/s 263 of the Act cannot be used just for the reason that in view point of PCIT the enquiry and verification was not proper and ld PCIT cannot s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t made. (a) Malabar Industrial Co Ltd. vs. CIT (2000) 243 ITR 83 (SC) Hon ble Apex Court 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 AO. Their Lordship held that it has to be remembered that every loss of revenue as a consequence of an order of AO cannot be treated as prejudicial to the interest of the revenue. 10. 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 interests of the Revenue unless the view taken by the Income Tax Officer is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t cannot be treated as an erroneous order and it is prejudicial to the interest of the Revenue, unless the view taken by the AO is totally unsustainable in law; 1.14 (ii). The law is well settled that the assessment order cannot be held to be erroneous simply on the allegation of inadequate enquiry. Unless there is an established case of total lack of enquiry; 1.15. It is pertinent to note that the assessment in the case of assessee firm for the year under consideration was carried out in the faceless manner by the NFAC. Any faceless assessment is carried out through a teamwork of Assessment Unit, Technical Unit, Review Unit, Verification Unit. Also, officers of level of Additional Commissioners are involved. The different units are headed by Principal Commissioner of Income tax. Accordingly, in a faceless regime, there cannot be a case of prejudice or lack of enquiry, for the reason that there is application of mind by multiple officers of Department and not by a single officer. 1.16. Where the assessee firm has furnished the requisite information and the NFAC has completed the assessment after considering all the facts, the order cannot be termed as erroneous. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee firm as business income, to be assessed on presumptive basis under section 44AD. Therefore, once the income is held to be business income applicability of section 44AD is a natural consequence. Attention was drawn of the ld. PCIT, during proceedings under section 263, towards the judgment of Chennai Properties Investments Ltd. v. CIT [2015] 56 taxmann.com 456 (SC). Ld. PCIT although has not distinguished the case of Hon ble Supreme Court yet has not followed the same. Similar to Chennai Properties case (Supra) the object as contained in the object clause of the partnership deed of the assessee firm was letting out the properties together with other amenities. The decision of Hon ble Madras High Court in the case of Keyaram Hotels (P) ltd. v. Dy. CIT, Co. Circle- II (4), Chennai [373 ITR 494 Madras] has no relevance in view of the judgment of the Hon ble Apex Court in the case of Chennai Properties (Supra). It is also to be noted that judgment of Hon ble Madras High Court was delivered on 11/11/2014 whereas the decision of the Hon ble Supreme Court in Chennai Properties was delivered on 09/04/2015. The fact of rejection of assessee s SLP by the Hon ble Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch the Special Leave Petition had been filed before this Court stands affirmed or the judgment and order impugned merges with such order of this Court on dismissal of the petition. It simply means that this Court did not consider the case worth examining for a reason, which may be other than merit of the case. An order rejecting the Special Leave Petition at the threshold without detailed reasons, therefore, does not constitute any declaration of law or a binding precedent. 3. Employees Welfare Association v. Union of India and Anr. AIR 1990 SC 334 22. It has been already noticed that the Special Leave petitions filed on behalf of the Union of India against the said judgments of the Delhi High Court were summarily dismissed by this Court. It is now a well settled principle of law that when a Special Leave Petition is summarily dismissed under Article 136 of the Constitution, by such dismissal this Court does not lay down any law, as envisaged by Article 141 of the Constitution, as contended by the learned Attorney General. In Indian Oil Corporation Ltd. v. State of Bihar it has been held by this Court that the dismissal of a Special Leave Petition in limine by a non- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otice u/s 142(1) dated 20-11-2020 seeking pin pointed queries about the nature of business activities as well as verification of such receipts. The said notice was previously issued by the AO to verify the issue in question for which the case was selected for scrutiny. In reply to the said notice, the assessee furnished letter dated 06-12-2020 and explained the nature of the business and in this regard complete explanation was rendered regarding income falling under the head Income from Business and Profession . Apart from this, a reference was also drawn to CBDT Circular No. 16/2017 dated 25-04-2017 and also the fact of Department having accepted the judgement in the case of CIT vs Information Technology Park Ltd. (2014) 47 taxmann.com 239 (Karnataka) wherein instructions were given to lower authorities that the business of lease rent received from letting out the properties along with other amenities was chargeable to tax under the head Income from Business and not under the head Income from House Property . During the course of assessment proceedings, it was pointed out by the AO that TDS u/s 194C was deducted towards rendering, managing and maintaining services by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt. Thus from the totality of the discussion, we are of the view that in the present case since the assessment was completed by the AO on the basis of exhaustive enquiries and detailed submissions filed by the assessee firm and even otherwise Explanation 2 to Section 263 inserted vide Finance Act, 2015 cannot override the basic requirements of Sub-section (1) of Section 263. In this regard, we draw strength from the following case laws. 1. Torrent Pharmaceuticals Ltd. [2018) 173 ITD 130 (Ahd.-Trib) 2. Eveready Industries India Ltd.[2020] 181 ITD 528 (Kolkata Trib) 3. M/s. Smira Pune Food Pvt. Ltd (ITA No.3205/DEL/2017, ITAT Delhi Bench. 4. Shri Narayan Tatu Rane, ITA No2690/Mum/2016, ITAT Mumbai Bench In the present case, the case of the assessee was selected for scrutiny for specific purpose for verification of refund claim and income from house property and, therefore, there cannot be any presumption of lack of enquiry more particularly when the detailed questionnaire was issued by the AO during the assessment proceedings and in this regard the assessee had also furnished all the details along with decision of Chennai Properties Investments Ltd. v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be a case of prejudice of lack of enquiry for the reason that there is application of mind by multiple officers of Department and not by a single officer and thus at the end of our discussion, we are of the view that the assessee firm had furnished the requisite information and the NFAC has completed the assessment after considering all the facts, therefore, the order passed by the AO cannot be termed as erroneous. In this regard, we draw strength from following decisions. 1. CIT v Ratlam Coal Ash Co (1988) 171 ITR 141 (MP) 2. Ashok Kumar Parasramka v ACIT (1998) 65 ITD 1 (Cal) 3. CIT v Mehrortra Brothers (2004) 270 ITR 157 (MP) 4. CIT v Parameshwar Bohra (2004) 267 ITR 698 (Raj) . 5. Paul Mathews Sons v CIT (2003) 263 ITR 101 (Ker) 6. CIT v Arvind Jewellers (2003) 259 ITR 502 (Guj) 7. CIT v Hastings Properties (2002) 253 ITR 124 (Cal) 8. CIT v Goal (JP) (HUF) (2001) 247 ITR 555 (Cal) Therefore, after considering the totality of the facts of the case and keeping in view the legal position as discussed herein above, it is clear that the assessment order passed by the AO was after full enquiry and, therefore, the case does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case is also not applicable to the case of assessee in hand. In the case of assessee the ld AO has passed the order after making all the inquiries and after verification of the facts stated by the assessee/ Ld PCIT has not pointed out any defects or falsehood in the facts stated by the assessee. d) CIT Vs Raisons Industries Ltd 288 ITR 322 (SC) This case is also not applicable to the case of assessee in hand. The power of ld PCIT is not absolute to treat any order as erroneous and prejudicial to interest of revenue. The assessee filed detailed reply to PCIT during the course of 263 proceedings. It submitted detailed chart of source of investment in MF/equities. It also submitted the utilization of the borrowing funds raised during the year. It also submitted the position of investment in MF/equities as on 31-03-2017 and 31-03-2018. It also submitted the position of borrowed funds on interest as on 31-03-2017 and 31-03-2018. The assessee has demonstrated that it has own capital reserves much more than the investment in MF/Equities. The ld PCIT without pointing out defect in the reply of the assessee and by assuming the wrong facts and figures, passed revisionary order u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urnished by the assessee, accepted the return income filed by the assessee. Subsequently, the ld. Pr.CIT by invoking provisions of section 263 of the IT Act, 1961, passed the impugned order mentioning the fact that the assessment order dated 28.01.2021 passed by the AO is erroneous in so far as it is prejudicial to the interest of Revenue. 7. From perusal of the record, we observed that the pre-requisites to exercise of jurisdiction by the ld. Pr.CIT u/s 263 of the Act is that the order of the AO is established to be erroneous in so far as it is prejudicial to the interest of the Revenue. The Pr. CIT has to be satisfied of twin conditions, namely (i) the order of the AO sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If any one of them is absent i.e. if the assessment order is not erroneous but it is prejudicial to the Revenue, Sec. 263 cannot be invoked. This provision cannot be invoked to correct each and every type of mistake or error committed by the AO; it is only when an order is erroneous as also prejudicial to revenue s interest, that the provision will be attracted. An incorrect assumption of the fact or an incorrect applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly exempt income the assessee submitted that there is no interest paid on fund utilized for investment made during the year and all investment is through own fund. The submissions given by the assessee is verified. After perusal of the details uploaded, the returned income is accepted and total income is assessed of Rs. 13,03,13,740/- without making any modification to the returned income. The sum payable or refund of any amount due on the basis of the assessment is determined as per the notice of demand. Accordingly, assessment order is finalized under section 143(3) read with Section 143(3A) and 143(3B) of the Income Tax Act, 1961. The ld. A/R now raised the main issue in this case is whether the ld. Pr. CIT was justified in invoking jurisdiction under section 263 of the I.T. Act, 1961 and thereby proposing to make disallowance of Rs. 2,53,26,820/- under section 14A of the IT Act read with Rule 8D of IT Rules, 1961. The assessee has explained source of investment by submitting that it has total investment in equities and mutual funds of Rs, 22384.52 lacs against which its share capital and reserves stands for Rs. 38508.89 lacs. As assessee had not used borrowed funds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee during the relevant year is Rs. 654.45 Lacs (PB page 38) which is far more in excess of total interest cost claimed as expenditure during the relevant year amount to Rs. 303.41 Lacs (PB page 39). In the case of the assessee interest income earned outweigh the interest expenditure. It clearly shows that no interest cost has been incurred to make any investment which shall result in exempt income. Hon ble GUJARAT HIGH COURT in the case of PCIT-1 v. Adani Infrastructure Developers (P.) Ltd. [2021] 432 ITR 133 (Gujarat) has held that Rule 8D(2)(ii) shall have no application where interest income earned outweigh interest expenditure . The ld PCIT calculated the proposed disallowance of Rs. 2,21,70,790/- against the indirect expenses under rule 8D (2)(ii). The assessee earned the exempt income of Rs. 62,529/- of long term capital gains under Section 10(38) on sale of UTI TRANSPORTATION AND LOGISTICS FUND which was purchased out of owned funds as assessee was having availability of own funds. So, no borrowing cost has been incurred towards purchase of this UTI TRANSPORTATION AND LOGISTICS FUND. The ld PCIT proposed disallowance of Rs. 2,21,70,780/- as proportionate indire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of this UTI TRANSPORTATION AND LOGISTICS FUND. The AO considered the information filed by the assessee and the same is evident from the assessment order wherein the AO has mentioned at page 2 of his order as under : After perusal of the details uploaded, the returned income is accepted and total income is assessed of Rs. 13,03,13,740/- without making any modification to the returned income. The sum payable or refund of any amount due on the basis of the assessment is determined as per the notice of demand. Accordingly, assessment order is finalized under section 143(3) read with Section 143(3A) and 143(3B) of the Income Tax Act, 1961. Thus, the AO has considered the information filed by the assessee and arrived at conclusion that no disallowance is warranted under section 14A of the Act. The view of the AO is duly supported by the decisions of Hon ble High Courts and Tribunals relied upon by the assessee. SLP filed by the revenue in this regard against the decisions of Hon ble High Courts have been dismissed by the Hon ble Supreme Court of India in the cases PCIT vs. Oil Industry Development Board (2019) 262 Taxman 102 (SC) and CIT vs. Chettinad Logistics Pvt. Ltd. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Interest from Bank Deposit Rs. 52,68,744/- Other loans Advances Rs. 33,34,284/- Net Gain on sale of current investment Rs. 1,65,12,080/- Profit on sale of fixed assets Rs. 6,499/- Bad debts recovered Rs. 2,50,455/- Miscellaneous Income Rs. 18,16,959/- Rs. 6,82,91,163/ From the chart containing the position of taxability of gain arose on redemption/sales/maturity of investments held at the end of the year it is also seen that out of total investments of Rs. 91,58,22,106/- the income on investments of Rs. 22,08,22,106/= was also exempted and the income on balance investments was taxable. In this regard, it submitted that the entire investments cannot be taken into consideration for computing the disallowance u/s 14A of Income Tax Act, 1961 by the AO is also not justified. On perusal of balance sheet of the assessee, it is found that the assessee wa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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