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Facts
The assessee, M/s Jagriti Job Finder Private Limited, filed its return for AY 2018-19, which was processed and finalized under Section 143(3) after detailed scrutiny, including queries about Section 14A applicability. Subsequently, the PCIT initiated proceedings under Section 263, deeming the assessment order erroneous and prejudicial to the revenue for not disallowing expenses under Section 14A, despite the assessee's claim of having earned no exempt income and the AO's prior inquiry into the matter.
Held
The Tribunal ruled that the AO had sufficiently inquired into the Section 14A issue, and the assessee had confirmed no exempt income was earned, thus Section 14A was not applicable for AY 2018-19. Citing a Delhi High Court judgment, it affirmed that the Finance Act, 2022 amendments to Section 14A (Explanation 2) were prospective from 01.04.2022 and not retrospective. Therefore, the PCIT's revisionary order under Section 263 was quashed as arbitrary and unsustainable, concluding that the original assessment was not erroneous or prejudicial to the revenue.
Key Issues
Whether the PCIT's order under Section 263 for non-disallowance of expenses under Section 14A was valid, especially when the AO had already inquired into the matter, the assessee earned no exempt income, and considering the prospective nature of Finance Act 2022 amendments to Section 14A.
Sections Cited
Section 263, Section 139(1), Section 143(1), Section 143(2), Section 142(1), Section 143(3), Section 14A, Rule 8D, Section 119, Section 153A, Section 153C, Section 36(1)(iii), Finance Act, 2022
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Income Tax Appellate Tribunal, “C” BENCH, DELHI
Before: MS.MADHUMITA ROY & SHRI AVDHESH KUMAR MISHRA
PER MADHUMITA ROY, JM:
The instant appeal filed by the assessee is directed against the order dated 14.03.2024 passed by the Ld. PCIT, Central, Delhi-1 under Section 263 of the Income Tax Act 1961 (hereinafter referred to as ‘the Act’) whereby and whereunder the assessment order dated 31.05.2021 has been found to be erroneous as it is prejudicial to the interest of revenue and the income of the assessee has been enhanced by Rs.1,12,73,766/- for Assessment Year 2018-
The brief fact leading to the case is this that the assessee, a private limited company, filed its return of income under Section 139(1) of the Act through electronic media on 26.10.2018 for Assessment Year 2018-19 declaring total income at Rs.11,66,380/- which was processed under Section 143(1) of the Act on 05.11.2019. In fact, the case was taken up for limited scrutiny and notice under Section 143(2) dated 21.09.2019 followed by notice under Section 142(1) along with detailed questionnaire dated 16.01.2020 and further notice under Section 142(1) of the Act along with specific questionnaire was issued on 28.01.2021. Due compliance was made by the assessee to the said notices by filing submissions to the queries made and upon considering the information, details and/or clarification so filed by the assessee, the returned income was accepted by the Ld. AO and assessment proceeding was finalized under Section 143(3) of the Act on 31.05.2021.
Thereafter, a show cause notice dated 12.02.2024 under Section 263 of the Act has been issued by the Ld. PCIT considering the fact that the assessee made investment in the equity shares as reflected from balance sheet but had not deducted any expense related to exempt income. Further that the AO did not disallow any expense related to such exempt income under Section 14A of the Act. The details of assessee’s investment in equity shares made in Sr. No. Name of the Company As at 31.03.2018 As at 31.03.2017 (Amount in Rs.) (Amount in Rs.) 1 Ultra- Modern Developers & 25370300 25370300 Builder Pvt. Ltd.
Amazing General Traders Pvt. 19856550 19856550 Ltd.
Boost Minerals and Mining Pvt. 14500000 14500000 Ltd.
Concise Exim Private Ltd. 130000000 130000000 5. Dependable Transport Pvt. Ltd. 14200000 14200000 6. Fairdeal Information 43020000 43020000 Technology Pvt. Ltd.
Frozen Iron and Steel Private 8400000 8400000 Limited 8. Golden Job Finder Private Ltd. 76200000 76200000 9. Immense Minerals and Mining 9500000 9500000 Pvt. Ltd.
Janitor Infrastructure Pvt. Ltd. 149800000 149800000 11. Navyuga Consultancy Pvt. Ltd. 56500000 56500000 12. Reinforce Recruiter Pvt. Ltd. 4317750 4317750 13. Superb Natural Resources Pvt. 63000000 63000000 Ltd.
Supreme Placement Services 82500000 82500000 Pvt. Ltd.
Venus Jupiter Pvt. Ltd. 89550000 89550000 16. Trustworthy Cement Pvt. Ltd. 35020000 35020000 17. Marvelous Cement Pvt. Ltd. 72491000 72000000 18. Remarkable Consumer 72593000 72000000 Electronics Pvt. Ltd. Total 112,79,18,600/- 112,68,34,600/-
Finally, considering the explanation to the provision of Section 14A of the Act, introduced by the Finance Act, 2022 the Ld. PCIT came to a finding that non-disallowance of expense relating to exempt income under Section 14A of the Act has resulted in under assessment of the income to the extent of Rs.1,12,73,766/-. While doing so the Ld. PCIT observed as follows:
M/s Jagriti Job Finder Pvt. Ltd. Vs. PCIT(Central)-1 Delhi “3. Finance Act, 2022 has clarified the provisions of section 14A of I.T. Act by inserting Explanation as under:- “Explanation For the removal of doubts, it is hereby clarified that notwithstanding anything to the contrary contained in this Act, the provisions of this section shall apply and shall be deemed to have always in a case where the income, not forming part of the total income under this Act, has not accrued or arisen or has not been received during the previous year relevant to an assessment year and the expenditure has been incurred during the said previous year in relation to such income not forming part of the total income.”
In view of the above Explanation, the assessee was required to disallow expenses relating to exempt income as per the rule 8D as under: - Investment at the beginning of year - Rs 112,68,34,600 Investment at the end of the year - Rs 112,79,18,600 Average investment during the year - Rs 112,73,76,600 Amount to be disallowed as per under 14A - 1% of the average investment of Rs.1,12,73,766”
In that view of the matter the assessee was directed to explain as to why proceeding under Section 263 should not be initiated for revision of assessment order for Assessment Year 2018-19 and as to why the income should not be enhanced by Rs.1,12,73,766/- on account of failure of the AO to disallow these expenses.
The Ld. Counsel appearing for the assessee joins issue here. At the very threshold, it was submitted by him that the assessee does not have any exempt income. Further that during the course of assessment proceeding, notice under Section 142(1) of the Act was issued on 16.01.2020 wherein applicability of Section 14A has been directed to be specified by the Ld. AO. Further that the assessee was directed to submit the computation for disallowances, if any, under Section 14A r.w.Rule 8D before the said Assessing Officer. In this regard, he has drawn our attention to pages 40 to 43 M/s Jagriti Job Finder Pvt. Ltd. Vs. PCIT(Central)-1 Delhi of the paper book filed before us containing the said notice issued under Section 142(1) dated 16.01.2020 by the AO, Central, Circle 3, Delhi, along with annexures thereto. It was further contended by him that by and under the reply dated 14.04.2021 in respect of the notice issued to the assessee dated 16.01.2020 under Section 142(1) of the Act, the assessee clarified that it has not earned any exempt income and therefore the provision of Section 14A of the Act is not applicable. Different case laws were also relied upon including that of the judgments passed by the Hon’ble Apex Court wherein it has been clearly held that in the absence of any exempt income, no disallowance under Rule 14A of the Act is called for. In this regard, he has drawn our attention to pages 44 to 47 being the reply dated 14.04.2021 filed by the assessee before the Assessing Officer annexed to the paper book filed before us.
Having regard to the specific queries raised by the Ld. AO and the reply to the same filed by the assessee along with all details as asked for the issue appears to have been adjudicated by the Ld. AO during the course of the assessment proceeding, the contention as made by the Ld. Counsel with the corroborative documents mentioned hereinabove has not been able to be controverted by the Ld. D.R.
He has further relied upon the profit and loss account of the assessee company at page 13 of the paper book filed before us where no exempt income earned by the assessee is reflecting. Apart from that the ld. A.R raised objection to the invocation of Explanation 2 of Section 263 of the Act by the Ld. CIT(A). The “(7) Further Explanation 2 to Section 263 Section 263 of the Act which is relevant in the instant case provides that "for the purposes of this section, an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner of Commissioner. (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been 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.”
In this regard, he has relied upon the judgment passed by the Hon’ble Delhi High Court in the case of PCIT Vs. Era Infrastructure India Ltd., reported in (2022) 141 taxman.com 289 (Del) wherein it has been held that up to and including Assessment Year 2021-22 no disallowance could be made under Section 14A if no exempt income is earned by an assessee. Further that amendment made by the Finance Act, 2022 to Section 14A by inserting a non-obstante clause and explanation will take effect from 01.04.2022 and cannot be presumed to have retrospective effect. In that view of the matter since the issue involved in the order impugned passed under Section 263 of the Act i.e non disallowance of expenses relating to exempt income under Section 14A of the Act has already been verified and examined by the Assessing Officer during the assessment proceedings and thus, finalization of the assessment M/s Jagriti Job Finder Pvt. Ltd. Vs. PCIT(Central)-1 Delhi proceedings accepting return filed by the assessee cannot be held to be erroneous only upon invocation of Explanation 2 of Section 263 of the Act which cannot be applied at all as submitted by the Ld. A.R. In this regard, he has relied upon the judgment passed by the Hon’ble Delhi High Court in the case of PCIT Vs. Indian Farmers & Fertilizers Co-operative Ltd. in of 2017. Keeping in view the judgment passed by the Hon’ble Supreme Court in different matters including in the matter of Maxopp Investment Limited Vs. CIT, reported in 402 ITR 640 (SC) that in the absence of exempt income no disallowance under Section 14A of the Act is called for as was the crux of the argument advanced by the Ld. A.R. On the other hand, the Ld. D.R relied upon the order passed by the authorities below.
We have heard the rival submissions made by the respective parties and we have also perused the relevant materials available on record. We find that the assessee was issued specific queries by and under the notice under Section 142(1) dated 16.01.2020 (Pages 40 to 43 of the PB) in regard to the application of Section 14A in the case of the assessee, the contents whereof is as follows:
Government of India Ministry of Finance Income Tax Department Office of the Assistant Commissioner of Income Tax Central Circle 3, Delhi To, JAGRITI JOB FINDER PRIVATE LIMITED 134A, 1ST FLOOR SOMDUTTA CHAMBERS-1,5, NEW DELHI 110066, DELHI, INDIA PAN: AY: Dated; DIN & Notice No: AABCJ5974E 2018-19 16/01/2020 ITBA/AST/F/142(1)/2019- 20/1023924836(1)
Notice under sub-section (1) of Section 142 of the Income Tax Act, 1961 Sir/Madam/ M/s In connection with the assessment for the assessment year 2018-19 you are required to: a) Furnish or cause to be furnished on or before 23/01/2020 at 11:30 AM the accounts and documents specified overleaf b) Furnish and verified in the prescribed mariner under Rule 14 of 1.7 Rules 1962 the information called for as per annexure and on the points or matters specified therein on or before 23/01/2020 at 11:30 AM c) The above mentioned evidence/information is to be fumished online electronically in E Proceeding facility through your account in 'e-filing' website of Income Tax Department d) Para(s) (a) to (c) are applicable if you have an account in e filing website of Income Tax Department Till such an account is created by you, assessment proceedings shall be camed out either through your e-mail account or manually (if e-mail is not available). e) In cases where order has to be passed under section 153A/153C of the Income Tax Act, 1961 read with section 143(3), assessment proceedings would be conducted manually
Yours faithfully,
SATHISH G CENTRAL CIRCLE 3, DELHI ANNEXURE Please refer to your Return of Income filed for the A.Y. 2018-19. In this connection you are requested to fumish the following details / information to substantiate your income and justify the expenses debited in the P&L account financial year relevant to this assessment year
Please provide details of interest expenses made during the year and explain whether these expenses are attributable to investments made by the company.
1.1. Please provide details of source of above investments.
1.2. Please specify applicability of section 14A of IT Act, 1961 in your case. If yes, please submit computation for disallowances u/s 14A rw Rule 8D.
1.3. Expenses debited to Profit & Loss Account for earning exempt income as per schedule of ITR is significantly lower as compared to investments made to earn exempt income Please justify and explain as to why disallowance u/s 14A of the 1.T. Act may not be made as per Rule 8D of I.T. Rules
You are requested to explain all the issues as discussed above and provide detailed clarifications on all the above issues along with documentary evidence Further, for A Y. 2018-19, you are also requested to
Power of Attorney in favour of the Authorized Representative
Tax audit report and particulars of Balance Sheet and P/L account for the A.Y. 2018-19 with all annexures and schedules.
Copy of complete set of income tax returns in prescribed form along with computation of income & Acknowledgement for the A.Y. 2018-19
Copy of Form 26AS in support of taxes paid (Advance & self assessment tax) and TDS credit claimed in return along with reconciliation of receipts as per the form with those shown in income of the A.Υ. 2018-19
Brief note on the source of incorne of the assessee and detail of business activities carried out if any during the year and method of accounting followed during the F.Y. 2017-18. In case of deviation in method of accounting, please mention and give.
Please furnish all addresses where offices / godowns are situated Also give details of ownership of such properties
Please furnish details of the Bank Accounts including Fixed Deposits in the name of the individual/firm as well as those in the names of the partners in the following format:
Name & Address of Account in the name of Account No. Account type the Bank with Branch (i) (ii) (iii) (iv)
If applicable, please submit true copy of assessment order passed u/s 143(3) (scrutiny assessment) of the Act during the last 3 years If there is no such assessment order, kindly mention the same
Complete name, addresses & bank accounts of the Directors of the company and of all the shareholders having shareholding of more than 10% along with details of shareholding of the company.
M/s Jagriti Job Finder Pvt. Ltd. Vs. PCIT(Central)-1 Delhi 10. Please furnish the details of any income tax demand stands pending against your name 11. Please furnish all the details regarding properties/premises/assets held by the company in given format : -
Location and Purchased/inherited Usage of the Fair market Wealth address of the property value of the tax, if property said paid 1 2 3 4 5
Furnish details of your Income-tax assessments for the earlier 2 years in following format, if scrutinized accordingly.
A.Y. Income Income Nature of Amount of Result of Result of Arrears returned assessed addition addition 1st appeal 2nd appeal due
Further that upon perusal of the reply reflecting at pages 44 to 47 of the paper book filed before us which was furnished before the Ld. DCIT in accordance with notice issued under Section 142(1) dated 16.01.2020 we find that the assessee has taken the trouble in explaining the issue with calculation and further took the support of different judicial pronouncements from different forums in favour of the assessee in the following manner:
Date: 14.04.2021 The Dy. Commissioner of Income Tax, Centre Circle -3 Delhi,
Reg: Assessment Proceedings in the case of M/s JAGRITI JOB FINDER PRIVATE LIMITED for A.Y. 2018-19
Sir,
This is with reference to notice dated 16/01/2020 issued under section 142(1) ofthe Income-tax Act 1961 wherein certain documents/information/clarification are desired by Your Honour's. With respect to specific queries raised by Your Honour's, the point wise reply are being enclosed herewith:-
M/s Jagriti Job Finder Pvt. Ltd. Vs. PCIT(Central)-1 Delhi 1. As regard Your Honour's query regarding the details of interest expenses made during the year, it is submitted that the Assessee company had paid Rs 10,689/ as interest during the relevant assessment year.
1.1 As regard Your Honour's query regarding details of source of investment, the source of investments in various unquoted equity/preference shares during the relevant Assessment Year, which is tabulated below:-
Sr. Particulars Amount (Rs.) No. 1. 500 Unquoted equity Shares of Marvelous Cement 2,45,500/- Private Limited purchased from Aayushi Credit and Capital Services Limited during the relevant Assessment year 2. 500 Unquoted equity shares of Marvelous Cement 2,45,500/- Prviate Limited purchased from Shri Raj Investments & Fiannce Limited during the relevant Assessment year. 3. 500 Unquoted Equity Shares of Remarkable 2,96,500/- Consumer Electronic Private Limited from Aayushi Credit and Capital Services Limited during the relevant Assessment Year 4. 500 Unquoted Equity Shares of Remarkable 2,96,500/- Consumer Electronic Private Limited from Shri Raj Investments & Finance Limited during the relevant Assessment Year Grand Total 10,84,000/-
In this connection, copy of the relevant bank statement reflecting the payment made during the relevant Assessment Year are enclosed herewith.
1.2 As regard Your Honour's regarding applicability of section 14A read with Rule BD of the Income-tax Act 1961, In this regard, it is submitted that the Assessee Company has not earned any exempt income hence the provisions of Section 14A of the Income tax Act, 1961 are not applicable to the Assessee Company In this connection reference may be made to the following case laws including judgements of Hon'ble Supreme Court wherein it has been clearly held that in the absence of any exempt income no disallowance u/s 14A of the Income-tax Act, 1961 is called for Principal Commissioner of Income tax, Patiala v State Bank of Patiala [2018] 99 taxmann.com 286 (SC); Maxopp Investment Ltd v/s CIT [402 ITR 640 (SC)] PCIT v. GVK Project and Technical Services Ltd [(2019) 106 taxmann.com 181(SC)]; M/s Jagriti Job Finder Pvt. Ltd. Vs. PCIT(Central)-1 Delhi Commissioner of Income Tax (II), Kanpur vs Shivam Motors Pvt Ltd in of 2014 for A/Y 2008-09vide order dated 05-05-2014 (Allahabad High Court); CIT vs Corrtech Energy Pvt Ltd [(2014) 223 Taxman 130(Guj)], CIT vs Holcim India (P) Ltd in ITA Nos. 486/2014 and 299/2014 vide order dated 05 September, 2014 (Delhi High Court); Commissioner of Income-tax, Faridabad vs. Lakhani Marketing Inc. [(2014) 226 Taxman 45 (Punjab & Haryana)]
In view of the above discussion and ruling of Hon'ble Supreme Court, it is submitted that in the absence of any exempt income no disallowance can be made under section 14A read with Rule 8D of the Income tax Act 1961 1.3 As regard Your Honour's query regarding expenses debited to Profit and Loss Account for earning exempt income, it is submitted that there is no exempt income earned during the relevant Assessment year, so this point is not applicable. Further, Your Honour's query regarding various documents and clarifications, it is submitted as under:- 1. Power of Attorney is enclosed herewith 2.(a) Copy of Audited Annual accounts for the year ended 31 03 2018 alongwith relevant Annexures and Schedules is enclosed herewith. (b) Copy of the Tax Audit Report filed for the relevant Assessment Year is enclosed herewith 3. Copy of ITR Acknowledgement alongwith Income tax Return for the relevant Assessment Year is enclosed herewith 4. As desired, copy of form 26AS for the relevant Assessment Year is enclosed herewith 5. As regard Business Activity of the Assessee Company, it is submitted that the Assessee Company is engaged in the business to carry on the business / profession of consultants / suppliers/ providers of all types of man power such as contractual, skilled / unskilled, trained labour / staff /managerial personnel and act as employment agent and recruitment agent and placement of all kind of personnel including managers, professionals, executives, skilled, semi-skilled, un-skilled workers, labourers & other technical personnel in India and abroad And to provide man power for industry and labour contractors, for security services, security guards, body guards and to provide training to security personals guards, industrial labour / manpower And constitute, promote, subsidise, organise and assist or aid in forming, constituting, promoting, subsidising, organising and assisting or aiding any Company or Companies of all kinds, for the purpose of acquiring all or any of the property. rights and liabilities of this Company or for carrying on any business which this Company is authorised to carry on or for any other purposes which may seem directly or indirectly calculated to benefit this Company or to promote or advance the interests or this Company M/s Jagriti Job Finder Pvt. Ltd. Vs. PCIT(Central)-1 Delhi 6. As desired, details of registered address of the Assessee Company is enclosed herewith 7. As desired, details of bank accounts along with bank statement for the relevant Assessment Year is enclosed herewith 8. As desired copy of Assessment order passed u/s 143 (3) for the Assessment year 2017-18 is enclosed herewith. 9.(a) As desired, details of directors as on 31.03.2018 is enclosed herewith (b) As desired, details of shareholders with their shareholding pattern for the relevant Assessment Year is enclosed herewith 10. As regard your Honour's query regarding details of income tax demand. It is submitted that demand of Rs 2287 is due for the Assessment year 2010-11 11. As regard Your Honour's query regarding properties/ premises/ assets held by the company, it is submitted that the Assesssee Company has not held any properties/ premises/ assets as on 31.03.2018.
As desired, details of Income tax Assessments for the earlier 2 years in the prescribed format is enclosed herewith. Hope Your Honour's would find the above in order and proceed to frame the Assessment accordingly.”
When sufficient explanation has been given by the assessee to the specific queries made by the Assessing Officer in regard to the similar proposal made by the Ld. PCIT in the order impugned under Section 263 of the Act, i.e the issue of disallowance of expenses under Section 14A of the Act and only thereafter, the assessment has been finalized, such inquiry and verification made by the Ld. AO cannot be said to be insufficient and issuance of order under Section 263 of the Act holding such order erroneous as prejudicial to the interest of revenue is not called for. We further note that having regard to the specific queries raised by the Ld. AO mentioned hereinabove and the reply filed by the assessee to the same along with all details as asked for, the issue therefore clearly appears to have been adjudicated by the Ld. AO in its proper perspective during the course of assessment proceedings, as M/s Jagriti Job Finder Pvt. Ltd. Vs. PCIT(Central)-1 Delhi contended by the Ld. Counsel appearing for the assessee with corroborating documents annexed to the paper book filed before us mentioned hereinabove has not been able to be controverted by the Ld. D.R.
In this regard, we have carefully considered the judgment passed by the Hon’ble Delhi High Court in the case of Indian Farmers & Fertilizers Co-operative Ltd. in ITA No. 597/2017. While dealing with this particular aspect of the matter. the Hon’ble Court has been pleased to observe as follows:
“10. As regards the issue concerning the capitalization of interest, the Court finds again that the ITAT took note of the fact that detailed enquires were made by the AO in regard to the major additions to the fixed assets, capital work in progress, the manner in which the depreciation was claimed and the details of both secured as well as unsecured loans. The audited financial statements of the Assessee were also compiled, for the earlier AYs including the AY in question, and placed before the AO. The ITAT also took note of the Significant Accounting Policies in the Auditor's Report and the synopsis filed before the AO. It is only after such an elaborate exercise that it was concluded by the ITAT in the impugned order as under:
“16. We have carefully considered the submissions and arguments made by the learned counsel of the assessee as well as the learned CJT(O.R.) and heard both the parties at length. We find that the Assessing Officer had made detailed inquiries and examined the entire block of fixed assets. A brief note on capital work in progress was also filed and queries regarding the manner in which the depreciation was claimed was also raised. Further the assessee is following a settled accounting policy/principle for capitalization of expenses including interest expenses to both the fixed assets as well as capital work in progress. This method was forming part of the audited financial statements which were filed before the Assessing Officer as well. We also find that the free reserves were also more than sufficient to cover up the investment in fixed assets/capital work in progress. Further the assessee society has generated sufficient internal cash flows to meet with the cost of fixed assets as well as capital work in progress. In spite of this fact the assessee has capitalized a sum of Rs.7.09 crores in the books of accounts. The learned Pr. CIT has also not disputed that the total investments were merely 10% of the interest-free M/s Jagriti Job Finder Pvt. Ltd. Vs. PCIT(Central)-1 Delhi funds available with the assessee society. We also find that a consistent view has taken by all the judicial authorities that in the event of availability of interest-free funds a presumption would be that investments would be out of interest assessee. In this respect, reliance was placed on the decision of the Bombay High Court in the case of CIT v. Reliance Utility and Power Ltd. 313 1TR340.
16.1 In light of the above discussions as well as factual matrix, we have no hesitation in holding that the order passed by the learned Pr CIT is bad in law for the following reasons.
(a) That, as discussed above, detailed inquiries were made by the Assessing Officer with regard to the capitalization of interest to fixed assets as well as capital work in progress.
(b) That, even on the facts of the case the assessee had sufficient interest-free funds to meet with the capital expenditure and, therefore, following the ratio of the decision of the Hon'ble Bombay High Court in Reliance Utility and Power Ltd. (supra), по disallowance u/s 36(1)(iii) is called for (c) That, the assessee had already discharged its onus of proving non- diversion of funds borrowed for working capital towards capital work in progress and fixed assets by submitting a certificate of an independent statutory auditor and proved availability of own funds and internal accruals which was not rebutted by Ld. Pr.CIT."
Lastly, it was urged by Mr. Manchanda that the ITAT failed to note the changed position as a result of the insertion of Explanation-2 in Section 263 of the Act with effect from 1" June, 2015. However, on this aspect, the ITAT has specifically held in para 17 of the impugned order as under:
“17. Before concluding we would also like to deal with the recent insertion, of Explanation 2 to Section 263 of the Act. We have already held above that in respect of both the issues i.e. allowing credit of deemed taxes paid on dividend in Oman as well as capitalization of interest u/s 36 (1) (iii) detailed enquiries as well as verification have been made by the AO. Further it is also not the case of the Ld. Pr. CIT that the order is not in accordance with any instruction direction issued by the Board or is not in accordance with any decision of Hon'ble Delhi High Court or the Apex Court of India. Accordingly the order passed by the AO cannot be regarded as deemed to be erroneous or prejudicial to the interest of the Revenue under Explanation 2 of the Act.”
M/s Jagriti Job Finder Pvt. Ltd. Vs. PCIT(Central)-1 Delhi 12. For the above reasons, this Court is of the considered view that no substantial question of law arises for consideration from the impugned order of the ITAT. The appeal is, accordingly, dismissed but in the circumstances, with no orders as to costs.”
So far as the invocation of Explanation 2 of Section 263 is concerned we find that the judgment relied upon by the Ld. A.R in the case of PCIT Vs. Era Infrastructure reported in (2022) 141 taxmann.com 289 (Delhi) holds the field. It is categorically decided that amendment by Finance Act, 2022 to Section 14A by inserting a non-obstante clause and Explanation will take effect from 01.04.2022 and the same cannot be presumed to have retrospective effect. Thus, having regard to the entire aspect of matter we find that the issue raised and decided by the Ld. PCIT in the order impugned under Section 263 of the Act has already been enquired and examined/verified by the Ld. AO during the course of assessment proceedings and only upon which the assessment proceedings has been finalized upon accepting return.
The assessment order cannot be held to be erroneous insofar as it is prejudicial to the interest of the revenue. In fact, Section 263 of the Act, admittedly, empowers the jurisdictional Commissioner of Income-tax tax 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 such orders thereon as the circumstances of the case may justify including an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment. However, such a M/s Jagriti Job Finder Pvt. Ltd. Vs. PCIT(Central)-1 Delhi power can be executed only after giving the Assessee an opportunity of being heard and after making or causing to be made such enquiry as he may deem necessary. It cannot be over emphasized here that the Commissioner can revise the order passed by the Assessing Officer only if he considers that the order passed is "erroneous in so far as it is prejudicial to the interests of the revenue" within the parameters laid down in Explanation 2 thereto.
However, we note that invocation of Explanation 2 of Section 263 of the Act by the Ld. PCIT cannot be allowed to have a freehand to reopen the issue particularly when the said Provision of Law in the year under consideration is found to be not sustainable in view of the above judgment.
We also note that Assessing Officer when acting in accordance with law and make a certain assessment, the same cannot be branded as erroneous simply because the order should have been written more elaborately. The expression erroneous refers to an error, in computation applying the relevant law or facts, or selecting a number which would govern the factual situation and moreso, arbitrary exercise and quasi judicial power is certainly not mandated within the scope of Section 263. Provision of Section 263(1) 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. Furthermore, both the conditions i.e order being erroneous and prejudicial to the interest of revenue could be specified simultaneously and conjunctively. If one of the conditions is not satisfied the order M/s Jagriti Job Finder Pvt. Ltd. Vs. PCIT(Central)-1 Delhi cannot be the subject matter of any revisionary proceedings. The said interpretation and position of law is not only clear from a plain and basic reading of the said section but also has been emphatically upheld by the Hon’ble Supreme Court in the case of Malabar Industrial Company Ltd. Vs. CIT, reported in (2000) 243 ITR 83 (SC) also relied upon by the Ld. A.R.
Thus, having regard to the entire aspect of the matter the order passed by the Ld. CIT(A) is found to be bad in law in holding the order passed by the Ld. A.O erroneous so far as it is prejudicial to the interest of the revenue not only on merit considering the aspect of not having been any exempt income earned by the assessee in the year under consideration but also on wrong invocation of Explanation 2 of Section 263 of the Act in view of the Judgment passed by the Hon’ble Delhi High Court in the case of Era Infrastructure (India) Ltd. (supra) as discussed above. The Ld. Assessing Officer when already had discharged its statutory duty cast upon him by making inquiry on the same proposal as made by the Ld. PCIT during the course of assessment proceedings, branding the same as erroneous so far as it is prejudicial to the interest of revenue made by the Ld. PCIT under the order impugned issued under Section 263 is, therefore, found to be arbitrary, whimsical, not sustainable in the eyes of law and thus, liable to be set aside. With the aforesaid observations the impugned order is, therefore, quashed. However, in view of the observation made by the Hon’ble Delhi High Court in the case of PCIT Vs. Era Infrastructure India Ld. (supra) that the order passed therein shall abide by the final decision of Hon’ble Apex Court in SLP filed in the case of IL & M/s Jagriti Job Finder Pvt. Ltd. Vs. PCIT(Central)-1 Delhi FS Energy Development Company Ltd., this order passed by us shall also abide by the final decision passed by the Hon’ble Supreme Court in the said matter. The assessee’s appeal is therefore allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 14.08.2024
Sd/- Sd/-
(Avdhesh Kumar Mishra) (Madhumita Roy ) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated 14.08.2024 PS: Rohit