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TMI Blog2024 (5) TMI 1162X X X X Extracts X X X X X X X X Extracts X X X X ..... balance amount of Rs. 52,26,505/- is escaped income which is caused the assessment order erroneous and prejudicial to the interest of the revenue. When the ld. AO adopted one of the possible views, his order does not suffer from any error. Therefore, in view of the aforestated essence of precedents on the issue of revision under s. 263, the twin conditions - the order is erroneous and prejudicial to the interest of Revenue, do not co-exist in this case.The same view was taken by the Coordinate Bench at Jodhpur in the case of Chhita Singh Shekhawat [ 2015 (10) TMI 305 - ITAT JODHPUR] - PCIT has not rejected the method of calculation of 14A of assessee which is accepted by the ld. AO. Mere change in method of calculation the Section 263 cannot be invoked. We dismiss the impugned revisional order passed u/s 263 of the Act. The ground of the assessee is succeeded. - DR. M. L. MEENA, ACCOUNTANT MEMBER AND SH. ANIKESH BANERJEE, JUDICIAL MEMBER For the Appellant : Sh. Kirti Kamdar, CA. For the Respondent : Ms. Meenakshi Vohra, CIT DR ORDER Per:Anikesh Banerjee, JM: 1. The instant appeal of the assessee was filed against the order of the ld. Principal Commissioner of Income Tax (in short ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 8D in the assessment order passed under section 143(3). B. Grounds on merits: 7. On the facts and in the circumstances of the case and in law, the Principal Commissioner of Income-tax erred in directing the Assessing Officer to conduct enquiries and verification in respect of the disallowance under section 14A and compute the disallowance as per Rule 8D. 8 On the facts and in the circumstances of the case and in law, the Principal Commissioner of Income-tax erred in not providing any reason for non-satisfaction with the suo moto computation of disallowance under 14A made by the appellant before invoking provisions of Rule 8D. 9. On the facts and in the circumstances of the case and in law, the Principal Commissioner of Income-tax erred in not appreciating the fact that no direct expenses are incurred for the purpose of earning exempt income other than the demat charges of Rs. 1,280 which are already considered for the purpose of computing the disallowance in the return of income. 10. On the facts and in the circumstances of the case and in law, the Principal Commissioner of Income-tax erred in not appreciating that as per the decision of the Supreme Court in case of CIT vs. Walfo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is stated above is true to the best of my information and belief. 3. Brief fact of the case is that the assessment was framed u/s 143(3) of the Act, by disallowance of the exemption u/s 80G of the Act. The ld. PCIT by invoking section 263 issued show cause for escapement of tax related to section 14A. As per the ld. PCIT the exempted income of the assessee comes to Rs. 2,62,10,345/-. So, disallowance u/s 14A read with Rule 8D of the Income Tax Rule, 1962 (in short the Rule) is restricted to Rs. 67,12,410/-. The assessee considering Sec 14A disallowed the same in computation amount to Rs. 14,85,415/-, therefore, there is short disallowance of Rs. 52,26,595/-. Accordingly, the assessment order is called erroneous and prejudicial to the interest of the revenue. The show cause wasissued u/s 263. The assessee filed the details of submission before the ld. PCIT. But without considering the same, the order u/s 263 was passed by setting aside the assessment order for erroneous and prejudicial to the interest of the revenue. Being aggrieved assessee filed an appeal before us. 4. The ld. AR filed the written submissions which are kept in the record. The ld. AR vehemently argued and first inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hence, the assessed income has been found to be under computed/assessed by this amount of Rs. 52,26,595/-. The assessment order duly passed by the AO/NaFAC was, hence, found to be erroneous insofar as it is prejudicial to the interest of Revenue on above terms. 4. In view of the facts, as categorically mentioned above at para No. 3, it is clear that the AO (FAO in this case) has failed to examine the issues of disallowance of Rs. 52,26,595/- u/s 14A of the I.T. Act, 1961 read with Rule 8D of the I.T. Rules 1962 (supra). Therefore, due to lack of enquiry and also due to incorrect and incomplete appreciation of facts, the assessment order duly passed u/s 143(3) of the IT Act dated 05.03.2021 for the A.Y. 2018-19 is erroneous insofar as it is prejudicial to the interest of revenue. Therefore, the order was proposed to be suitably modified/enhanced/cancelled by invoking the provisions of the section 263 of the I.T. Act, 1961. However, before doing so, a notice u/s 263 of the Act was duly issued on 01.02.2023 to the assesses, vide Document Identification No (DIN) ITBA/REV/F/REV1/2022- 23/1049329502(1), for giving opportunity of being heard as well as requiring the assessee to furnish it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 14A with retrospective effect is the serious attempt on the part of the Parliament not to allow deduction in respect of any expenditure incurred by the assessee in relation to income, which does not form part of the total income under the Act against the taxable income (see Circular No. 14 of 2001, dated 22-11-2001). In other words, section 14A clarifies that expenses incurred can be allowed only to the extent they are relatable to the earning of taxable income. In many cases the nature of expenses incurred by the assessee may be relatable partly to the exempt income and partly to the taxable income. In the absence of section 14A, the expenditure incurred in respect of exempt income was being claimed against taxable income. The mandate of section 14A is clear. It desires to curb the practice to claim deduction of expenses incurred in relation to exempt income against taxable income and at the same time avail the tax incentive by way of exemption of exempt income without making any apportionment of expenses incurred in relation to exempt income. The basic reason for insertion of section 14A is that certain incomes are not includible while computing total income as these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se allowances are admissible to qualified deductions. These deductions are for debits in the real sense. A pay-back does not constitute an expenditure incurred in terms of section 14A. Even applying the principles of accountancy, a pay-back in the strict sense does not constitute an expenditure as it does not impact the Profit and Loss Account. Pay-back or return of investment will impact the balance-sheet whereas return on investment will impact the Profit and Loss Account. Cost of acquisition of an asset impacts the balance sheet. Return of investment brings down the cost. It will not increase the expenditure. Hence, expenditure, return on investment, return of investment and cost of acquisition are distinct concepts. Therefore, one needs to read the words expenditure incurred in section 14A in the context of the scheme of the Act and, if so read, it is clear that it disallows certain expenditures incurred to earn exempt income from being deducted from other income which is includible in the total income for the purpose of chargeability to tax. As stated above, the scheme of sections 30 to 37 is that profits and gains must be computed subject to certain allowances for deductions/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3,436/-. Further the balance expenses consider for disallowance total amount of Rs. 5,73,425/- apportionment disallowance of Rs. 200,699/-. The ld. AR specifically mentioned that the amount is total justifiable u/s 14A rule 8D 4.3 During proceeding u/s 263, the ld. AR submitted the submission which is reproduced as below: Assessee has already made a disallowance in the return of income which was computed on a reasonable basis: 3.10 As stated above, the Company had not incurred any expenditure which had a direct and proximate nexus with the earning of exempt income. However, in the return of income, the Company had out of abundant caution, disallowed a sum of Rs. 14,85,415 as expenditure incurred in relation to earning of exempt income in order to comply with the provisions of section 14A. The same had been computed on the basis of a detailed analysis of each and every head of expenditure as is evident from the statement working submitted during the course of assessment proceedings ( refer compilation page nos, 39-40). 3.11 Considering the fact that the Company itself has attributed reasonable expenses of Rs. 14,85,415, there is no question of making any further disallowance under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exempt income. 2. Accordingly, Notices under section 143(2) of the IT. Act, 1961 was issued by National e-Assessment Centre, Delhi and duly served on the assessee company. Thereafter, statutory notice u/s 142(1) of the I.T. Act, 1961 dated 14.12.2019 was also issued calling for specific information/documents with regard to the above-mentioned issues. In response to the above notice, the assessee company has furnished the details as called for i.e. computation of income, notes to the financial statements, 26AS, copy of donation receipt, details with respect to investments during the year, detailed note on expenses incurred for earning exempt income, copy of quarterly filed TQS return, computation of disallowance u/s.14A as per Rule 8D etc. After examination of the above details and considering the facts circumstances of the case, the Assessment is concluded as follows. 4.5 The ld. AR further relied on the order of Gotan Limestone Khanij Udyog P. Ltd. vs. PCIT (2022) 134 Taxmann.com 382 (Jodhpur Trib) held 24. It is an undisputed fact that Ultra Tech Cement Limited is an entity listed on stock exchanges of India and the assessee Company is wholly owned subsidiary of UltraTech Cement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, should have avoided such frivolous proceedings since the law in this regard is very clear and he could have been easily decided the matter once the facts were before him. 26. Since we have decided the legality of the proceedings u/s. 263 of the Act, it is not necessary to dwell upon the argument of the ld. DR. However, for the sake of completeness, we think it is appropriate to address this issue as well. 27. Explanation 2(a) to s.263 uses the following expression to define when an order can be said to be erroneous- the order is passed without making inquiries and verification which should have been made . In the present case, as noted above, the case of the assessee was selected under CASS and one of the issues for verification was large squaring up of loan. As observed in the preceding paragraphs, the AO has examined the facts furnished by the assesseeduring the course of assessment. The case of the PCIT, as can be verified from the impugned order, is that the AO has failed to make adequate enquiries. There is a distinction between, the lack of enquiry and no enquiry. The Explanation covers cases of no enquiry within the ambit of 'erroneous order'. Where the AO has mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... call for and examine the records of any proceeding under the Act. It empowers the CIT to make or cause to be made such an enquiry as he deems necessary in order to find out if any order passed by AO is erroneous insofar as it is prejudicial to the interests of the Revenue. The only limitation on his powers is that he must have some material(s) which would enable him to form a prima facie opinion that the order passed by the AO is erroneous insofar as it is prejudicial to the interest of the Revenue. Once he comes to the above conclusion on the basis of the 'material' that the order of the AO is erroneous and also prejudicial to the interests of the Revenue, the CIT is empowered to pass an order as the circumstances of the case may warrant. He may pass an order enhancing the assessment or he may modify the assessment. He is also empowered to cancel the assessment and direct to frame a fresh assessment. He is empowered to take recourse to any of the three courses indicated in s. 263. So, it is clear that the CIT does not have unfettered and unchequered discretion to revise an order. The CIT is required to exercise revisional power within the bounds of the law and has to satis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t have material on record to arrive at a satisfaction. (ix) If the AO has made enquiries during the course of assessment proceedings on the relevant issues and the assessee has given detailed explanation by a letter in writing and the AO allowed the claim on being satisfied with the explanation of the assessee, the decision of the AO cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in that regard. 2.3 Adverting to the facts of the given case, we are convinced that this case was selected for scrutiny under CASS (Scheme) for a limited purpose. However, he has made his order under s. 143(3) after making necessary enquiries and investigation. The AO has taken one of the two possible views regarding TDS provisions. When the AO adopted one of the possible views, his order does not suffer from any error. Therefore, in view of the afore stated essence of precedents on the issue of revision under s. 263, the twin conditions - the order is erroneous and prejudicial to the interest of Revenue, do not co-exist in this case. Accordingly, we set aside the impugned revisional order and restore the assessment order. 3. In the result, appeal of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Assessing Officer, the Assessing Officer has not made a specific reference in the assessment order. It is apparent from the assessment order that the Assessing Officer has expressed in detail about the claims that were disallowable. Where the claims were allowable, as we find from the reading of the assessment order, the Assessing Officer has not referred to those claims. The Corporate Social Responsibility claim is one of them. It is apparent from the notice under Section 142 (1) of the Act that a specific query in regard to the claim pertaining to the Corporate Social Responsibility was made and a detailed note after giving bifurcation of the expenses under different heads was sought. We have perused the response in respect of this query which is exhaustive. We find that the assessee has given the details, as are sought under query no.9 in the notice under Section 142 (1) of the Act. If that is so, the judgments, reported in Fine Jewellery (India) Ltd. (supra) and Nirav Modi (supra) and on which the learned Counsel for the assessee has placed great reliance would come into play. It is held in the judgments referred to herein above by relying on the judgment in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertaining to the expenditure under each head of the claim in respect of Corporate Social Responsibility, in detail. The Tribunal was not justified in holding that the reply/explanation of the assessee was not elaborate enough to decide whether the expenditure claim was admissible under the provisions of the Income Tax Act. The Assessing Officer is not expected to raise more queries, if the Assessing Officer is satisfied about the admissibility of claim on the basis of the material and the details supplied. In the facts and circumstances of the case, we answer the question of law in the negative and against the Revenue. 6. For the reasons aforesaid, the Income Tax Appeal is allowed. The orders passed by the Commissioner of Income Tax and the Income Tax Appellate Tribunal are quashed and set aside. No order as to costs. 5. The ld. DR vehemently argued and relied on the order of the revenue authorities. 6. We heard the rival submission and considered the documents available in the record. The assessment was initiated on disallowance of expenses on exempted income. The notice u/s 142(1) was issued, and the question was asked for. In the assessment order the ld. AO also covered the issu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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