DEVKANT SYNTHETICS (INDIA) P.LTD,MUMBAI vs. PR CIT 3, MUMBAI

The only issue raised by the assessee in all the grounds of appeal is against the exercising the revisionary jurisdiction under section 263 of the Income Tax Act, 1961 by the PCIT setting aside the assessment order by holding that the same is erroneous and prejudicial to the interest of Revenue.

Finally, the OCIT, after considering the contentions and submissions of the assessee and rejecting the same, set aside the assessment order of the AO by holding that the same is erroneous and prejudicial to the interest of revenue on the ground that AO has made adhoc addition at the rate of 5% of the dividend instead of following Rule 8D of the Income Tax Rules 1962. The PCIT further observed that the AO followed the order of the ITAT in assesee‟s own case for the assessment years 2010-11 and 2011-12 despite the fact that these orders were challenged by the Revenue before the Jurisdictional High Court. The ld. PCIT noted that it is a case of complete non-application of mind by the AO as the inquiry conducted is exceedingly inadequate and hence fall in the category of „no-inquiry‟ conducted by the AO thereby resulting into incorrect assumption of facts makes the order erroneous and prejudicial to the interest of the revenue.

The ld. AR vehemently submitted that the revisionary jurisdiction u/s 263 of the Act was wrongly assumed by the PCIT as the twin conditions of erroneous and prejudicial to the interest of revenue were not satisfied concurrently as the AO has taken conscious decision by following the decision of the Tribunal in assessee‟s own case for the assessment year 2010-11 and 2011-12. The AO specifically raised the queries qua the disallowance made 4 I . T . A . N o . 3 1 5 3 / M u m / 2 0 1 7 by the AO by applying the provisions of section 14A r.w.s.rule 8D of the Rules and the assessee filed specific rely and only thereafter took the possible view by following the Tribunal order in assessee‟s own case. Therefore, the observations and assumption of section 263 by the ld.PCIT on the ground that there was no application of mind and inadequate inquiry on the part of AO leading to incorrect examination of facts was totally wrong. In support its contention, the ld. AR relied upon the series of case laws which are as under : a) Gabriel India Ltd., 203 ITR 108 Bom b) S S Muddanna V/s State of Karnataka reported 89 STC 90 c) Paul Mathews and Sons V/s CIT 263 ITR 101. The ld. AR submitted that while passing the assessment order the AO is bound to follow the decision of the Tribunal in assessee‟s own case passed in the earlier years as has been decided in the case of Seimens India Ltd reported in 156 ITR 11(Bom). 6. The ld.DR relied on the decision of ld. PCIT and also the decision rendered in the case of Garden Silk Mills Ltd V/s CIT 221 ITR 861. The ld .DR relied heavily on the order of ld.PCIT by submitted that when the order is challenged before the higher forum, the AO has committed the error by a by accepting the order in assessee‟s own case for the assessment years 2010- 11 and 2011-12 applied the rate of 5% exempt income to make u/s 14A r.w.r.8D despite the fact that there is a specific mechanism provided under 5 I . T . A . N o . 3 1 5 3 / M u m / 2 0 1 7 the Act to deal with such type of disallowances. The ld. DR relied on the following decisions : a) Rajrnandir Estates Pvt Ltd -386 ITR 162 b) Subhlakshmi Vanijya Pvt. Ltd -155 ITD 171 c) Kalwa Devadattam & Ors-49 ITR 165 d) K.S.N. Bhatt -37 CTR 273 e) Sir Kikabhai Premchand -24 ITR 506

We have carefully considered the rival contentions, perused the material placed before us during the course of hearing including the decisions of authorities below and also the decisions relied upon by the parties. We find in the instant case, the revisionary jurisdiction has been exercised by the ld.PCIT setting aside the assessment order u/s 143(3) of the Act on the ground that the AO has passed the order without application of mind and also by following the Tribunal Order for the assessment years 2010-11 and 2011- 12, wherein the Tribunal has held that the disallowance u/s 14A r.w.8D on 5% ofmthe exempt income. The ld.PCIT observed that since the said order was not accepted by the revenue and was challenged before the Higher Forum, the AO has committed error in not applying the mind and by following the ratio laid down by the Tribunal in assessee‟s own case specifically when there is a clear cut mechanism provided u/s 14A r.w.r.8D and thus the same is a case of non-application of mind and inadequate inquire and wrong assumption of facts. We also note that the AO during the course of assessment proceedings, has raised the specific query on the issue 6 I . T . A . N o . 3 1 5 3 / M u m / 2 0 1 7 of disallowance u/s14A r.w.r 8D which was replied by the assessee. Another factor which is worth mentioning is that the assessee has not made any investments in the security yielding the tax free income but was holding the shares as stock-in-trade as the assessee was making purchase of shares for the purpose of trading in shares and securities. Having all the facts of the case and in the light of various decisions as cited by both the parties, we are not in agreement with the ld. PCIT that the order of the AO is erroneous and prejudicial to the interest of revenue as the AO after calling for information from the assessee on the issue of disallowance u/s 14A r.w.r 8D has taken a conscious view which is a possible view out of two views and applied the decision of the Tribunal in assessee‟s own case in the earlier years. The mere fact that the revenue has challenged the decision of the Tribunal in assessee‟s own case for the assessment years 2010-11 and 2011-12 is not rendered the decision of the AO as erroneous and prejudicial to the interest of revenue as the AO has taken a possible view after examining and considering the reply and arguments of the assessee as rendered during the course of assessment proceedings. While concluding our findings, we take a shelter of following decisions :  In the case of Seimens India Ltd (supra) it has been observed and held as under : So far as the legal position is concerned, the ITO would be bound by a decision of the Supreme Court as also by a decision of the High Court 7 I . T . A . N o . 3 1 5 3 / M u m / 2 0 1 7 of the State within whose jurisdiction he is, irrespective of the pendency of any appeal or special leave application against that judgment. He would equally be bound by a decision of another High Court on the point, because not to follow that decision would be to cause grave prejudice to the assessee. Where there is a conflict between different High Courts, he must follow the decision of the High Court within whose jurisdiction he is, but if the conflict is between decisions of other High Courts, he must take the view which is in favour of the assessee and not against him. Similarly, if the Income-tax Appellate Tribunal has decided a point in favour of the assessee, he cannot ignore that decision and take a contrary view, because that would equally prejudice the assessee. He can, however, reject claims which ae clarly and indisputably untenable and about which a different view is not rationally possible.”