Gujarat Narmada Valley Fertilizers & Chemicals Ltd Vs PCIT (ITAT Surat)
ITAT Surat held that AO already examined the issue and took a plausible view that addition should not be made. Accordingly, revisional jurisdiction u/s 263 unsustainable as order passed by AO is neither erroneous nor prejudicial to the interest of revenue.
Facts- The assessee had filed ROI declaring total loss of Rs.45,56,60,463/-, before allowing deduction under Chapter VIA of the Act which is the claim of deduction u/s.80IA amounting to Rs.72,65,30,991/- but restricted to the extent of total income. The returned income is shown at NIL. The assessee’s case was selected for scrutiny under CASS. The assessment u/s. 143(3) r.w.s 144C of the Act was completed determining total income at Rs.37,01,60,860/-, and calculated adjusted book profit u/s. 115JB at Rs.4,19,55,49,819/-.
On examination of assessment records, it was found by PCIT that the assessment order u/s. 143(3) r.w.s 144C of the Act is both erroneous and prejudicial to the interest of revenue. Accordingly, a show cause notice u/s. 263 of the Act was issued. PCIT rejected the arguments of the assessee and observed that the contentions raised by the assessee necessitate re-verification of the matter in its entirety by AO. Hence, the issue under consideration was restored by PCIT to the file of the AO for fresh adjudication at his end.
Aggrieved by the order of the PCIT, the assessee has preferred the present appeal.
Conclusion- Hon’ble Supreme Court in the case of Malabar Industries held that this phrase i.e. “prejudicial to the interest of the revenue” has to be read in conjunction with an erroneous order passed by the Assessing Officer. Their Lordship held that it has to be remembered that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. When the Assessing Officer adopted one of the courses permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue “unless the view taken by the Assessing Officer is unsustainable in law”.
Held that Assessing Officer has examined the issue under consideration and took a plausible view that the addition should not be made in assessee’s case under consideration as there is no exempt income so no disallowance. Hence, order passed by the Assessing Officer is neither erroneous nor prejudicial to the interest of Revenue. Therefore, we quash the order passed by the Ld. PCIT under section 263 of the Act.
FULL TEXT OF THE ORDER OF ITAT SURAT
By way of this appeal, the assessee has challenged the correctness of the order passed by the Learned Principal Commissioner of Income Tax –3 [in short ‘the Ld. PCIT’], Vadodara under section 263 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’), vide order dated 04.05.2020.
2. Grounds of appeal raised by the assessee are as follows:
“1. The order passed by the CIT is erroneous on facts and contrary to the provisions of the law and therefore needs to be quashed it is submitted it be so held now.
1.1.The CIT erred on facts and in law in holding that the order passed by the Assessing Officer (AO) under section 143(3) of the Income Tax Act (Act) was erroneous and prejudicial to the interest of the revenue and thereby restoring the issue of disallowance u/s 14A for fresh adjudication. It is submitted it be so held now.
1.2 The CIT erred in holding that the AO has failed to enquire & examine the disallowance u/s 14A when in fact the details & submissions had been made regarding this issue in regular proceedings. It is submitted it be so held now.
1.3 The CIT erred in facts and in law in holding that the contentions raised by the appellant necessitate re-verification of the matter in its entirety without appreciating that section 263 does not confer the power to re-review the same set of records. It is submitted it be so held now.
1.4 The learned CIT failed to appreciate that the view taken by the AO was a possible view duly supported by judicial precedents in own case of appellant and the provisions of section 263 of the Act had no applicability in the facts of the case. It is submitted that it be so held now.
1.5 The learned CIT failed to appreciate that no further disallowance u/s 14A was required to be made and erred in setting aside to AO for re-verification. It is submitted that it be so held now.
2. The learned CIT has erred in not appreciating that the investments in securities yielding tax free income were made from own funds and Rule 8D was not applicable to the appellant’s case.
2.1 The learned CIT has erred in not appreciating that interest expenses were of specific borrowings and cannot be considered for application of Rule 8D(ii). It is submitted that it be so held now.”
3. In this appeal, the assessee has raised a multiple grounds of appeal. However, at the time of hearing, we have carefully perused all the grounds raised by the assessee and noted that most of the grounds raised by the assessee are either academic in nature or contentions in nature. All the grounds raised by the assessee challenge the action of Ld. PCIT to exercise his jurisdiction under section 263 of the Act. Therefore, all these grounds are being disposed of as one.
4. Brief facts qua the issue are that in this case, the assessee had filed return of income on 29/11/2014 declaring total loss of Rs.45,56,60,463/-, before allowing deduction under Chapter VIA of the Act which is the claim of deduction u/s.80IA amounting to Rs.72,65,30,991/- but restricted to the extent of total income. The returned income is shown at NIL. The assessee’s case was selected for scrutiny under CASS. The assessment u/s. 143(3) r.w.s 144C of the Act was completed vide order dated 29/11/2017 determining total income at Rs.37,01,60,860/-, and calculated adjusted book profit u/s. 115JB at Rs.4,19,55,49,819/-.
5. On examination of assessment records, it was found by Ld. PCIT that the assessment order u/s. 143(3) r.w.s 144C of the Act dated 29/11/2017 passed by the ACIT, Circle-1, Bharuch is both erroneous and prejudicial to the interest of revenue. Accordingly, a show cause notice u/s. 263 of the Act was issued on 19/03/2020, which was duly served upon the assessee. The relevant portions of the notice are as under
“In your case, the case records for the A.Y.2014-15 were called for and examined. The return of income for the A. Y.2014-15 was filed by you on 29.11.2014 declaring total loss of Rs.45,56,60,463/- before allowing deduction under Chapter VI-A of the Act which is the claim of deduction u/s. 801 A amounting to Rs. 72,65,30,991/- but restricted to the extent of total income. Returned income is shown at NIL. The case was assessed under section 143(3) r.w.s 144C on 29.11.2017 by determining total income of Rs.37,01,60,860/- and calculated adjusted book profit u/s.115JB at Rs.4,19,55,49,819/-.
3. On scrutiny of records, it was noticed that dividend income of Rs.4,32,215,625/- was shown as exempted income and has claimed huge interest expenses amounting to Rs.88,53,85,000/- (note 24 of P & L A/c) during the year under consideration. During the year, there is an average value of investment amounting to Rs.1,30,99,46,000/-. Since, the income from these investments is exempted from the income-tax, provisions of section 14A of the I.T. Act, 1961 r.w.r. 8D of the Income-tax Rules, 1962 were required to be applied/invoked by the AO and expenditure in relation to investment made to earn such exempted income was required to added back to total income of the assessee. While finalizing his computation of income assessee had made disallowance of Rs.4,52.000/- u/s.14A r.w.s Rule 8D. However, as per calculation given below, the amount disallowable u/s.14A comes to Rs.2,07,87,708/-.
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