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Income Tax Appellate Tribunal, “A” Bench, Mumbai
The assessee has filed this appeal challenging the revision order dated 21-03-2022 passed by Ld PCIT-3, Mumbai u/s 263 of the Act and it relates to the assessment year 2017-18. The assessee is challenging the validity of revision order passed by Ld PCIT.
None appeared on behalf of the assessee. On perusing the appeal papers, the bench felt that the appeal of the assessee could be disposed of on merits. Accordingly, we proceed to dispose of the appeal ex-parte, without the presence of the assessee.
We heard Ld D.R and perused the record. The facts that led Ld PCIT to pass the impugned revision order are stated in brief. The assessee filed its return of income declaring loss of Rs.9,42,071/-. During the course of assessment proceedings, the AO noticed that the assessee has purchased 41,00,000 preference shares of M/s Edmond FinvestPvt Ltd (Earlier known as M/s Edmond Textile Pvt Ltd) of Rs.100/- each amounting to Rs.41.00 crores.
2 Adibhuta Investments Pvt. Ltd.
However, the assessee has not paid any money for the same and the above said amount of Rs.41.00 crores was shown as “payables” in the Balance Sheet. The AO examined the above said transaction in terms of sec.56(2)(viia) of the Act and accepted the valuation. The AO also made enquiries with regard to receipt and payment of interest and was also satisfied with the same. Accordingly, he completed the assessment accepting the loss declared by the assessee.
The Ld PCIT examined the assessment record and noticed that the AO has not made any disallowance u/s 14A of the Act, even though the assessee has invested a sum of Rs.41.00 crores in shares. He further noticed that the AO has, in fact, raised a query on the issue of disallowance to be made u/s 14A of the Act. In reply thereto, the assessee has stated that it has not received any exempt income and hence no disallowance is required to be made u/s 14A of the Act. The AO accepted the reply so given by the assessee and hence did not make any disallowance u/s 14A of the Act. We notice that the AO has also not discussed anything about sec. 14A in the assessment order. The Ld PCIT referred to the Circular No.5/2014 issued by CBDT, wherein it has been observed that the disallowance u/s 14A is required to be made even if the assessee has not earned any exempt income. Since the AO has not followed the CBDT Circular, the Ld PCIT held that the assessment order is erroneous in so far it is prejudicial to the interests of revenue. Accordingly, the Ld PCIT initiated revision proceedings u/s 263 of the Act. The assessee did not respond to the notices issued by Ld PCIT. Hence the Ld PCIT passed the order setting aside the assessment order and directed the AO to examine the applicability of section 14A read with Rule 8D in the light of the discussions made by him in the revision order. Aggrieved, the assessee has filed this appeal before the Tribunal.
The scope of revision proceedings initiated under section 263 of the Act was considered by Hon'ble Bombay High Court, in the case of Grasim
3 Adibhuta Investments Pvt. Ltd.
Industries Ltd. V CIT (321 ITR 92) by taking into account the law laid down by the Hon'ble Supreme Court. The relevant observations are extracted below: Section 263 of the Income-tax Act, 1961 empowers the Commissioner to call for and examine the record of any proceedings under the Act and, if he considers that any order passed therein, by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, to pass an order upon hearing the assessee and after an enquiry as is necessary, enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment. The key words that are used by section 263 are that the order must be considered by the Commissioner to be “erroneous in so far as it is prejudicial to the interests of the Revenue”. This provision has been interpreted by the Supreme Court in several judgments to which it is now necessary to turn. In Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83, the Supreme Court held that the provision “cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer” and “it is only when an order is erroneous that the section will be attracted”. The Supreme Court held that an incorrect assumption of fact or an incorrect application of law, will satisfy the requirement of the order being erroneous. An order passed in violation of the principles of natural justice or without application of mind, would be an order falling in that category. The expression “prejudicial to the interests of the Revenue”, the Supreme Court held, it is of wide import and is not confined to a loss of tax. What is prejudicial to the interest of the Revenue is explained in the judgment of the Supreme Court (headnote) :
“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.”
The principle which has been laid down in Malabar Industrial Co. Ltd. [2000] 243 ITR 83 (SC) has been followed and explained in a subsequent judgment of the Supreme Court in CIT v. Max India Ltd. [2007] 295 ITR 282.”
The principles laid down by the courts are that the learned CIT cannot invoke his powers of revision under section 263 if the Assessing Officer has conducted enquiries and applied his mind and has taken a possible view of the matter. If there was any enquiry and a possible view is taken, it would not give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has a different opinion in the matter. The consideration of 4 Adibhuta Investments Pvt. Ltd. the Commissioner as to whether an order is erroneous in so far it is prejudicial to the interests of Revenue must be based on materials on record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to start fishing and roving enquiries in matters or orders which are already concluded.
In the instant case, the ld PCIT himself has noticed that the AO had raised a specific query during the course of assessment proceedings on the disallowance to be made u/s 14A of the Act. The assessee has replied that the provisions of sec.14A are not applicable to it, since the assessee has not earned any exempt income. The above said reply was accepted by the AO, meaning thereby, the AO has applied his mind on the reply given by the assessee and has accepted the same. We notice that the contentions of the assessee would find support from the decisions rendered by Hon’ble High Courts and Tribunal. We notice that the Hon’ble Delhi High Court has considered the very same issue in the case of PCIT vs. IL & FS Energy Development Company Ltd (250 Taxman 0174), where in the Hon’ble Delhi High Court considered the Circular issued by the CBDT and expressed the view that the Circular cannot override the express provisions of sec. 14A r.w.r 8D of I T Rules. The Hon’ble Delhi High Court examined various decisions and finally concluded that the disallowance u/s 14A is not called for, if there is no exempt income. It is pertinent to note that the Hon’ble Delhi High Court has given its decision after considering the circular of CBDT relied upon by ld PCIT in the impugned revision order.
Thus, we notice that the view taken by the AO is supported by the decision rendered by Hon’ble Delhi High Court, meaning thereby, the AO has taken a possible view on the issue of disallowance to be made u/s 14A of the Act. In this view of the matter, the order passed by the AO cannot be considered to be 5 Adibhuta Investments Pvt. Ltd.
erroneous and prejudicial to the interests of the revenue. Accordingly, we set aside the impugned order passed by ld PCIT.
In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 13.07.2022.