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Income Tax Appellate Tribunal, KOLKATA ‘A’ BENCH, KOLKATA
Before: Shri P.M. Jagtap & Shri S.S. Vishwanethra Ravi
Per Shri P.M. Jagtap, A.M.: This appeal filed by the assessee is directed against the order of ld. Commissioner of Income Tax, Kolkata-1, Kolkata dated 03.03.2014 passed under section 263 of the Income Tax Act, 1961.
The assessee in the present case is a Company, which is engaged in the business of manufacturing of pig iron. The return of income for the year under consideration was filed by it on 30.09.2010 declaring total income at ‘nil’ after claiming set off of the brought forward loss of Rs.50,43,10,411/- and book profit of Rs.25,82,81,684/- under section 115JB of the Act. In the assessment completed under section 143(3), the total income of the assessee was determined by the Assessing Officer at Rs.56,39,97,781/- as against Rs.50,43,10,411/- returned by the assessee and after allowing the set off of the brought forward business loss to that ./2014 Assessment year: 2010-2011 Page 2 of 5 extent, the total income was assessed at ‘nil’. In the said assessment, the book profit of the assessee under section 115JB of the Act was computed by the Assessing Officer at Rs.34,71,85,918/-. The records of the assessment thereafter came to be examined by the ld. CIT and on such examination, he noted that although the claim of the assessee for exemption under section 10(34) of the Act was allowed by the Assessing Officer in respect of dividend income, the disallowance on account of expenses incurred in relation to the said exempt income as required by section 14A of the Act was not made by him by applying Rule 8D of Income Tax Rules. According to him, the Assessing Officer apparently had accepted the explanation of the assessee that there was no direct expenses incurred for earning such dividend income without application of mind and there was an error in the order passed by him under section 143(3) in not invoking the provisions of section 14A read with Rule 8D, which was prejudicial to the interest of the revenue. He, therefore, issued a notice under section 263, in reply to which, it was brought to the notice of the ld. CIT by the assessee that the Assessing Officer had examined the issue relating to the disallowance under section 14A during the course of assessment proceedings. It was also contended by the assessee that even on the facts as involved in the case of the assessee, no disallowance under section 14A read with Rule 8D was called for. The ld. CIT did not find merit in this contention of the assessee. According to him, the relevant facts of the case were not fully examined by the Assessing Officer while deciding the issue relating to the disallowance under section 14A read with Rule 8D and the case of the assessee was accepted by him without making the necessary enquiries as were called for in the facts and circumstances of the case and without application of his mind. Accordingly, after discussing the scope of revision under section 263 by relying on the various judicial pronouncements, the order passed by the Assessing Officer under section 143(3) was held to be erroneous as well as prejudicial to the interest of the revenue by the ld. CIT and setting aside the same by exercising his powers under section 263, he directed the Assessing Officer to examine the applicability of section 14A read ./2014 Assessment year: 2010-2011 Page 3 of 5 with Rule 8D after verifying the books of account of the assessee as well as the supporting evidence. Aggrieved by the order of the ld. CIT passed under section 263, the assessee has preferred this appeal before the Tribunal.
The ld. counsel for the assessee, at the outset, invited our attention to the copy of order-sheet entry dated 08.02.2013 recorded by the Assessing Officer during the course of assessment proceedings placed at page no. 56 of his paper book to point out that a specific query was raised by the Assessing Officer on the issue of disallowance under section 14A and the assessee in this regard was called upon by him to furnish the source of funds utilized to make investment in shares and units of Mutual Funds. He contended that the issue relating to the disallowance under section 14A thus was examined by the Assessing Officer during the course of assessment proceedings and after having satisfied with the explanation of the assessee of having not incurred any expenditure in relation to the earning of exempt dividend income, no disallowance under section 14A read with Rule 8D was made by him. Relying, inter alia, on the decision of the Hon’ble Supreme Court in the case of CIT –vs.- Gabriel India Limited [203 ITR 108] and in the case of Malabar Industrial Co. Limited –vs.- CIT [243 ITR 83], he contended that the power of revision under section 263 cannot be exercised by the ld. CIT when the Assessing Officer has already examined the claim of the assessee by conducting an enquiry during the course of assessment proceedings and has adopted a possible view as per law.
The ld. D.R., on the other hand, relied on the impugned order of the ld. CIT in support of the Revenue’s case that the issue relating to the disallowance under section 14A read with Rule 8D having not been decided by the Assessing Officer by conducting the necessary enquiry and by applying his mind to the facts of the case, the order passed by him under section 143(3) on this issue was erroneous as well as prejudicial to the interest of the revenue calling for revision under section 263. ./2014 Assessment year: 2010-2011 Page 4 of 5
We have considered the rival submissions and also perused the relevant material available on record. It is observed that the fact that the assessee had claimed exemption on account of dividend income of Rs.1,42,047/- was taken note of by the Assessing Officer during the course of assessment proceedings as is evident from the order-sheet entry dated 08.02.2003 and in this regard, the explanation of the assessee was also called for by him regarding the source of funds utilized to make investment in the shares and units of Mutual Funds, which generated such exempt income. The issue relating to the disallowance under section 14A read with Rule 8D thus was examined by the Assessing Officer during the course of assessment proceedings and this position is accepted even by the ld. CIT in his impugned order passed under section 263, where he has clearly mentioned in paragraph no. 2 that the explanation of the assessee of having not incurred any direct expenses for earning exempt dividend income was accepted by the Assessing Officer. Although the ld. CIT proceeded further to say that such acceptance by the Assessing Officer was without application of mind, the fact that remains to be seen is that the issue relating to the disallowance under section 14A read with Rule 8D was examined by the Assessing Officer and the claim of the assessee of having not incurred any direct expenditure in relation to the earning of exempt income was accepted by him by taking a possible view. In the case of Gabriel India Limited (supra) cited by the ld. counsel for the assessee, the Hon’ble Supreme Court has held that ITO’s conclusion cannot be termed as erroneous simply because Commissioner does not agree with his conclusion and the substitution of the judgment of the Commissioner for that of the ITO is not permissible under section 263 of the Act. If the facts of the present case are considered in the light of the ratio laid down by the Hon’ble Supreme Court in the case of Gabriel India Limited (supra), we are of the view that the order of the Assessing Officer passed under section 143(3) by accepting the claim of the assessee on the issue of disallowance under section 14A read with Rule 8D could not be held to be erroneous and the ld. CIT was not justified in setting aside the same by ./2014 Assessment year: 2010-2011 Page 5 of 5 exercising the powers conferred upon him under section 263. In that view of the matter, we set aside the impugned order passed by the ld. CIT under section 263 and restore that of the Assessing Officer passed under section 143(3).
In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on September 7th, 2016.