Western Drugs Ltd., Udaipur V. PCIT, Udiapur

ITA 100/JODH/2023

• Counselvise Citation: [2024] 101 COUNSELVISE.COM (IT) 8370 (ITAT-JODHPUR)
• Duration Of Justice: 11 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-03-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 21-01-2024
• Assessment Year: 2018-2019
• Appeal Filed On: 29-03-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Revision of order; Business expenditure; Earning of tax free income; Proportionate interest; Difference of opinion; Assessment record; Change of opinion; Rule 8D
• Section: 263; 2; 143(3); 142(1); 14A; 115JB; 205; 80IA; 113; 43

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH, JODHPUR (DB). BEFORE: DR. S. SEETHALAKSHMI, JJUDICIAL MEMBER & SHRI RATHOD KAMLESH JAYANTBHAI, ACCOUNTANT MEMBER I.T.A. No. 100/Jodh/2023 Assessment Year: 2018-19 Western Drugs Ltd. F-271-A MIA Madari, Udaipur. [PAN:AAACW2424P ] (Appellant) Vs. PCIT, Uaipur. (Respondent) Appellant by Sh. Amit Kothari, C.A. Respondent by Sh. Shailendra Sharma, CIT DR Date of Hearing 22.01.2024 Date of Pronouncement 07.02.2024 ORDER PER: RATHOD KAMLESH JAYANTBHAI, AM This appeal filed by assessee is arising out of the order of the Learned Principal Commissioner of Income Tax , Udaipur dated 01.03.2023 [here in after “ld. PCIT”] for assessment year 2018-19, which in turn arise from the order dated 15.03.2021 passed under section 143(3) read with Sections 143(3A & 143(3B) of the Income Tax Act (hereinafter “Act”) by the AO. I.T.A. No.100/Jodh/2023 Western Drugs Ltd. 2 2. In this appeal, the assessee has raised following grounds: - “ 1. That on the facts and circumstances of the case the order passed by the Principal Commissioner Of Income Tax u/s 263 of the IT Act is bad in law and bad on facts since the assessment order passed by the ld. AO cannot be said to be erroneous or prejudicial to the interest of revenue and as such the revision order is unjustified and without proper jurisdiction. 2. That the Id. PCIT has erred in observing that the ld. AO has erred in not making any disallowance u/s 14A read with rule 8D of IT Act particularly when there was no claim of any expenditure against the exempted income. 3. That the ld. PCIT was also wrong in calculating disallowable amount u/s 14A at Rs.2688805 by applying the unamended provisions under rule 8D of the IT Rules particularly when the said Rules have been amended by Income Tax (Fourteenth Amendment) Rules, 2016 vide Notification No. 43 of 2016, dt.02/06/2016. 4. That the Id. PCIT was also wrong in observing that the Id. AO has erred in not making any disallowance on account of common expenses while granting deduction u/s 80IA particularly when the deduction u/s 80 IA has been claimed by the assessee and allowed on the basis of audit report in Form 10CCB and as such the direction of the Honorable PCIT on this issue is bad in law and unjustified. 5. That the appellant craves liberty to add, alter, amend or vary any of the above grounds of appeal on or before the time of hearing.” 3. Brief fact of the case is that the case was selected for complete scrutiny assessment under the E-assessment Scheme, 2019 on the following issues:- S.No. Issues i. Duty drawback ii. Deduction claimed for industrial undertaking u/s 80IA/80IB/80IAC/IB/IC/IBA/80ID/80IE/10A/10AA I.T.A. No.100/Jodh/2023 Western Drugs Ltd. 3 The assessee filed is original return of income for assessment year 2018-19 electronically on 24.09.2018 declaring total income at Rs. 36,56,67,530/- under normal provision and s. 39,10,88,074/- u/s 115JB of the Income Tax Act, 1961. The assessee has declared income under the head(s) Profits and gains from business or profession and Income from other sources. The assessee company is manufacturing Bulk Drugs Niacin & Niacinamide IP, BP, USP grade and marketing in indigenous market and also exporting the above products. After perusal of the return of income, material available on record and reply filed by the assessee, no addition is made on the issues for which the case has been selected for complete scrutiny. Total income and tax thereon are computed as per computation sheet attached. Based on this observation the assessment was completed at the return of income. 4. On culmination of the assessment proceedings the ld. PCIT called for the records and after examination of the records the ld. PCIT noted that the ld. AO failed to examine the issue of disallowance of Rs. 26,88,805/- is to be made u/s 14A of the Income Tax Act as per rule 8D of the I.T. Rules, 1962 and also the issue of making disallowance of claim u/s 80IA to the extent of Rs. 3,60,361/-. Therefore, considering that due lack of enquiry and also due to incorrect and uncompleted I.T.A. No.100/Jodh/2023 Western Drugs Ltd. 4 appreciation of fact. He hold that the order passed u/s 143(3) of the Act dated 15.03.2021 is erroneous so far as prejudicial to the interest of the Revenue and therefore, liable to be modified by invoking the provisions of Section 263 of the Act. After recording the detailed discussion in his order at para 6 and the relevant findings recorded by the ld. PCIT on the two issues is reproduced as under:- “(i) On the issue of disallowance of expenses u/s 14A in the manner prescribed under rule 8D of the Income Tax Rules, though the assessee company has not earned any exempt income during the year from investment but as per the mandate issued by the CBDT vide Circular No. 5/2014, disallowance is required to be made even though the tax payer in any particular year has not earned any exempt income. Meaning thereby the provisions of Section 14A are applicable where the assessee has invested its funds in suchinvestments which may result in exempted income. Further, the contention of the assessee on the points that it has made the investment in its subsidiary company not for earning the dividend (income exempt from tax) but havemade the investment as a strategic investment is not found tenable. The facts of the case law quoted in support of the claim are found to be different from the facts and circumstances of the case of the assessee and also it pertains to Kolkata ITAT bench, which are not having binding effect on the case in hand. Further, the assessee's claim about non- applicability of 14A in its case because of having sufficient own funds with it for the impugned investment into the subsidiary company which have the effect to earn exempt income with it, is also not found tenable because of the fact that the details submitted by him in support of his claim needs further examination/verification from the Books of Accounts and the fund flow/cash flow statements appropriately, as it relates to capital accounts, financial statements and fund flow statements of last several years. Further, with the fact on record that the assessee has incurred expenditure in P&L Account in terms of finance cost by Rs.434.16 lakh, from the submission/reply of the assessee, it cannot be ascertained for sure that no expenditure has been incurred by the assessee company to made the investment of 949.99 lakhs into its subsidiary company which may earn income which is exempt to tax. As per the Circular No. 05/2014 dated 11.02.2014, section 14A of the Act may apply even if there is no exempt income earned during the year. Meaning thereby, the disallowance u/s 14A read with Rule-8D can be made in that case also where the assesse does not have any exempt income during the year. I.T.A. No.100/Jodh/2023 Western Drugs Ltd. 5 What is relevant is not the earning of exempt income. but, having incurred the expenditure, which are attributable to the exempt income (in whichever year it may actually be earned). Therefore, during an Assessment Year, the proportionate interest pertaining to investment for earning of exempt income like dividend etc., is disallowable as per Section 14A read with Rule 8D (supra), even if no exempt income is earned during any Assessment Year. The impugned issue, has not yet been settled by the Hon'ble Apex Court. (ii) One of the major issues for selection of the case for scrutiny, under complete scrutiny criterion, was claim of deduction u/s 80IA. The FAO, though, had raised query related to this during the assessment, but he didn't consider the expenditure of Rs. 188 lakhs which represents common expenses for two types of business and this expenditure was required to be allocated to the eligible business and non- eligible business expenditure in the ration of the business income earned by these two segments of the business. The FAO, didn't ask or examined as to whether any expenses related to eligible business has been diverted to non-eligible business so as to enhance profit of eligible business, which would have had the effect of reduction in claim u/s 80IA by the corresponding amount, as calculated above, in order to increase/add the taxable amount by Rs.3,60,361/- accordingly. No proper explanation has been offered by the assessee in his reply on this point apart from that it is not warranted to be made on estimate basis. Further, in my opinion, the assessee's contention that no such disallowance has been made in any of the earlier years/subsequent years would not work for it in the matter. Therefore, reply filed by the assessee on this issue is not appreciated to be as per law and hence, not-accepted.” 5. Feeling aggrieved from the above order of the ld. PCIT, the assessee has preferred the present appeal on the ground as stated hereinabove. Apropos to the grounds so raised the ld. AR appearing on behalf of the assessee has placed reliance on the written submission which is extracted herein below:- “May It Please Your Honours’ The appellant respectfully submits following facts for your honour’s kind consideration with a prayer that the proceedings u/s 263 are bad in law and bad on facts and deserves to be quashed. 1. The appellant is regularly assessed to tax, and the return of income for the year under consideration was selected for complete scrutiny and after detailed I.T.A. No.100/Jodh/2023 Western Drugs Ltd. 6 examination of the case of the appellant the scrutiny order was passed u/s 143(3) by NFAC vide order dated 15.3.2021. 2. The ld. PCIT initiated proceedings u/s 263 vide notice dated 30.1.2023 on two issues as under : a. The first issued raised in the notice was that the AO has erred in not making any addition on account of disallowance u/s 14A read with Rule 8D of the Act for which the disallowance proposed by the ld. PCIT was Rs. 26,88,805/-. b. Secondly, the appellant had claimed deduction u/s 80IA on account of generation of power through Wind Mill and common expenses was determined by ld. PCIT at Rs. 3,60,361/- for which disallowance was not made in the assessment order. 3. The impugned notice had proposed to enhancethe income by invoking the provisions of sec. 263 of the Act on the allegation that the same is erroneous as well as prejudicial to the interest of revenue. 4. At the very threshold, it is respectfully submitted that the impugned order is not maintainable since the mandatory statutory requirement provided in the Act for a valid assumption of jurisdiction u/s 263 remains unfulfilled and unsatisfied. It is a settled law that the provisions of section 263 can be validly invoked only if the following twin conditions namelythat an order passed is erroneous and it is prejudicial to the interest of revenueare satisfied as held by the Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. 243 ITR 83 (SC). Even if either of the conditions is not satisfied the recourse cannot be taken to the provisions of section 263. The relevant extract of the said judgment is reproduced herein below: “A bare reading of provisions of section 263 makes it clear that the prerequisite to exercise the jurisdiction by the CIT suo motu under it, is that the order of ITO is erroneous insofar as it is prejudicial to the interests of the Revenue. The CIT has to be satisfied of twin conditions, namely, (i) the order of the AO sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue’. If one of them is absent - if the order of the ITO is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the revenue- recourse cannot be had to section 263(1)”. 5. The expression “erroneous” has not been defined in the Act. However, Black’s Law Dictionary defines the word “erroneous” to mean “involving error; deviating from the law”. “Erroneous assessment” refers to an assessment that deviates from the law and is, hence, invalid. The erroneous assessment pertains to a defect, which is jurisdictional in nature. It does not refer to the judgment of the Assessing Officer taking a particular possible view. “Erroneous judgment” means one rendered according to course and practice of court; but contrary to law, upon a mistaken view of law or upon an erroneous application of legal principles. I.T.A. No.100/Jodh/2023 Western Drugs Ltd. 7 6. An order cannot be termed erroneous unless it can be shown to be an order, which is not in accordance with law. If the AO, acting in accordance with law, makes certain assessment, the same cannot be termed as erroneous by the Commissioner. 7. Section 263 of the Income-tax Act does not visualize a case of substitution of the judgment of the Commissioner for that of the AO, who makes the assessment, unless the decision of the AO is held to be an erroneous one. 8. In the light of the law declared by the Hon’ble Supreme Court in the case of Malabar (supra), it is submitted that none of the grounds stated in the Order constitutes a valid ground or basis for the lawful assumption of jurisdiction u/s 263 of the Act and such order deserves to be quashed. 9. It is respectfully submitted that a bare statement to the effect that the AO has not done proper inquiries per se doesn’t constitute a valid basis for assuming jurisdiction u/s 263 of the Act. It is a settled law that the provisions of section 263 cannot be invoked on mere presumptions or suspicion that an inquiry might have unearthed any escaped taxable income as held by the Hon’ble Delhi High Court in its judgment in the case of CIT vs. Leisure Wear Exports Ltd. (2010) 46 DTR (del) 97 wherein the Hon’ble Court while relying upon the principle laid down by the Hon’ble Apex Court in the case of Malabar Industrial Co. Ltd 243 ITR 83 (SC) has held that “In the entire order emphasis laid by the CIT is that in respect of four issues mentioned by him, no queries were raised by the AO. On this premise, though it is observed that there was no application of mind on the part of the AO and the AO has not recorded any reasons to justify the omission to consider the said facts, the CIT does not take the said order to its logical conclusion which was the prime duty of the CIT in order to justify exercise of power under s.263. There is not even a whisper that the order is erroneous. Even if it is inferred that non- consideration of the issues pointed out by the CIT would amount to an erroneous order, it is not stated as to how this order is prejudicial to the interest of the revenue”. 10. It is submitted that the impugned order is also not maintainable for the reason that the very premise of the impugned order that the Ld. AO has not raised queries in relation to the issues stated therein is also factually incorrect and non-existent. The fact of the matter as also evident from the assessment record is that all the material facts/evidences in relation to the issues raised in the impugned issues were before the Ld. AO during the course of Assessment Proceedings, who after having satisfied himself in accordance with law, passed the assessment order. 11. It will be worthwhile to invite attention of your good self towards notice u/s 142(1) and query letter issued and response submitted during the assessment proceedings.It is submitted that mere absence of the reference in the Assessment Order of the query raised during the course of assessment I.T.A. No.100/Jodh/2023 Western Drugs Ltd. 8 proceedings, doesn’t lead to the conclusion that the AO has not applied his mind. 12. The assesse for the aforesaid proposition of law places reliance on the decision by the Hon’ble Delhi High Court in the case of CIT Vs. Vikas Polymers (2010) 236 CTR (Del) 476 wherein it has been observed that “A bare reiteration by him that the order of the ITO is erroneous in so far as it is prejudicial to the interest of the Revenue, will not suffice. If a query is raised during the course of scrutiny by the AO, which was answered to the satisfaction of the AO, but neither the query nor the answer was reflected in the assessment order, this would not by itself lead to the conclusion that the order of the AO called for interference and revision” which is precisely the case in hand wherein all the issues/grounds raised have already been examined by the Ld. Assessing Officer and the relevant details, replies and evidences furnished by the assesse in relation thereto forms part of the Assessment record. 13. Your kind attention is also invited towards the following decisions which supports the contention of the appellant that when the issue has been duly examined and a possible view is taken which cannot be said to be erroneous there would be no jurisdiction to invoke the powers u/s 263. In support, reliance was placed on the following decisions:-  Malabar Industrial Co. Ltd. V/s. CIT (2000) 243 ITR 83 (SC)  CIT vs. Girdhari Lal (2002) 258 ITR 331 (Raj) (DB)  CIT vs. Arvind Jewllers (2002) 177 (Guj) 546  CIT V/s. Mehrotra Brother (2004) 270 ITR 157 (MP)  CIT V/s. Shiv Hari Madhu Sudan (1998) 233 ITR 649 (Raj)  CIT vs. D.P. Karai (2004) 266 ITR 113 (Guj) (DB)  CIT vs. Mehsana District Co-operative Milk Producers Union Ltd. (2003) 263 ITR 645 (Guj) (DB)  Diamond Heritage vs. PCIT (2023) 37 NYPTTJ 543 (Asr)  Ramesh P. Modi vs. CIT (2009) 122 TTJ (Mum) 566  Satya Narayan Dhoot vs. PCIT (2023) 221 TTJ (Jd) 750 14. As regards the disallowance the ld. PCIT has discussed this issue at page 10 in para 6 of the assessment order.It was submitted that there is no exempted income and therefore no disallowance can be made. However this contention raised by the appellant was not accepted. It is observed by him that even if there is no income the disallowance can be made and the provisions of section 14A are applicable and reference was made to the CBDT Circular No. 5/2014 in this regard. 15. As regards the other contention of the appellant that the investment in the subsidiary company was not made for earning dividends but was made as a strategic investment was also not accepted. The PCIT stated that the judicial decisions submitted in this regard by the appellant are not applicable. The contention that there was sufficient funds available for making the investment was also not accepted. It was stated that since the appellant had also claimed I.T.A. No.100/Jodh/2023 Western Drugs Ltd. 9 interest expenditure the provisions were applicable. It was observed that the various judicial decisions had not achieved finality and matter is not settled by Apex Court. 16. As regards the second ground it was also observed in para (ii) at page 12 of the order u/s 263 that though the Assessing Officer has raised query in relation to the deduction u/s 80IA but he did not consideredthat there was expenditure of Rs. 188 lakhs which represents common expenditure and was required to be allocated to eligible business and non eligible business. 17. It is submitted that the appellant had furnished a detailed responsealongwith various case laws with regard to applicability of Provisions of Section14A which are duly mentioned in the order u/s 263 of the IT Act but the same havenot been properly considered by the PCIT and as such the order ofrevisionu/s263 oftheITAct isbad inlaw,illegalandunjustified. 18. It is submitted that M/s Ranka Organics Pvt.Ltd.is a subsidiary company of the appellant holding99% shares of thesaidcompanyandassuchinvestmentinM/sRankaOrganicsPvt.Ltd.hasnotbee nmadeforthepurposeofearninganydividendincomewhichisexemptfromincometa x and in support copy of businessagreemententeredwiththesubsidiarycompany. The scope of work is stated in detailed in the said agreement under the head scope of work. 19. The appellanthad not made investment in its subsidiary for earning any dividend but the assesseehas made strategic investment in its subsidiary company to control the interest inthe company. The appellant had also not received anydividend from thesubsidiary company and as such there was no exempt income in the hands of theassesseecompanywhereprovisionofsection14Aareapplicable. 20. As regards the objection of the ld. PCIT that the appellant company had invested Rs. 8 crores in the shares of M/s Ranka Organics Private Limited in the FY 2011-12 relevant to A.Y. 2012-13 and balance amount in subsequent years for Rs. 1.49 crores, it was submitted that the same was out of own funds of the company, which is evident from the following chart given below : AvailableFundsason31.03.2012 Own Fund Share CapitalOpening Reserve&Surplus-Opening Deduct CapitalRedemptionReserve 4,14,85,100 39,12,94,799 15,14,900 OwnFund at the beginningoftheyear 43,12,64,999 Add: Profit ofFY2011-12 aftertax 13,38,54,644 I.T.A. No.100/Jodh/2023 Western Drugs Ltd. 10 Deduct InterimDividend Tax on Interim DividendTotalFundsavailable 2,07,42,550 33,64,960 Fundsavailable 54,10,12,133 Investmentmadeduringtheyear2011-12 8,00,00,000 21. From the above chart it is evident that the available funds with theassessee company as on 31.03.2012 were Rs. 54,10,12,133 whereas the investmentin shares of the subsidiary company was Rs. 8,00,00,000 only. Even if the totalinvestmentofRs.9,49,99,000isconsideredason31.03.2018thepositionc omesasunder : Funds available as on 31.3.2018 Own Fund Share CapitalOpening Reserve&Surplus-Opening Deduct CapitalRedemptionReserve 4,14,85,100 94,15,71,000 15,14,900 OwnFundatthebeginningoftheyear 98,15,41,200 Add: Profit ofFY2017-18 aftertax 25,63,11,000 Deduct InterimDividend Tax on Interim Dividend 1,03,40,000 21,26,000 Fundsavailable 122,53,86,200 Investmentmadeduringtheyear2011-12 9,49,99,000 22. In this regard your kind attention is also invited towards the following decisions : a. South Indian Bank Ltd. vs. CIT (2021) 322 CTR (SC) 465 b. CIT vs. UTI Bank Ltd. (2022) 329 CTR (SC) 597 c. PCIT vs. Deepak Vegpro P. Ltd. (2017) 1 NYP CTR 1103 (Raj). d. CIT vs. Deepak Vegpro P. Ltd. (2018) 300 CTR (Raj) 98 e. Leela Devi Sankhlecha vs. ITO (2023) 37 NYP TTJ 594 (Jd) f. DCIT vs. Manohar Lal Anjana (2023) 37 NYP TTJ 157 (Jd) g. Infrastructure Ltd. vs. ACIT (2019) 33 NYP TTJ 388 (Jodh) h. DCIT vs. Vigyan Lodha (2023) 37 NYP TTJ 818 (Jp) i. CITvs Hero CyclesLtd (2010)323ITR 519 (P&H) I.T.A. No.100/Jodh/2023 Western Drugs Ltd. 11 j. PCIT vs. vs. Security Printing and Mining Corporation of India Ltd.(2023) 7NYPCTR1366(Del) k. Walia Construction Company vs. PCIT (2022) 37NYPTTJ 1212 (Asr) l. VINOD KUMAR JAIN vs. DCIT (2020) 205 TTJ (Raipur) 527 23. Even in relation to the electricity generation through Wind Mill complete details were submitted during the assessment proceedings. The company has installed two wind mill units in the state of Rajasthan one of which has commenced operations activity on 4th December 2010 (A.Y. 2011-12) and has claimed deduction u/s 80 IA ( 4) (iv) of the I T Act from the initial assessment year 2014-15. The 2nd unit has started operation on 15th December 2011 (A.Y. 2012-13) and has started claiming deduction u/s 80 IA(4) (iv) from the initial Assessment Year 2016-17.The audit reports in Form No. 10CCB have been filed for both the units along with the return of income and deduction u/s 80 IA(4) (iv) has been claimed accordingly. The entire work of maintenance had been given to Suzlon who had been looking after the same and there was no other expenses required to be incurred by the appellant. Therefore no common expenses were required to be apportioned. The judicial decisions as referred earlier would equally apply to this ground. This issue was duly examined and the ld. AO had taken a decision which cannot be said to be erroneous or prejudicial to the interest of revenue. 24. In view of above facts it is submitted that the order u/s 263 passed by the ld. AO may kindly be quashed.” 5.1 The ld. AR of the assessee in support of the contention so raised in the written submission has also relied upon the paper book contending the evidences relied upon and the copy of the judgements upon which reliance was placed reads as under :- S. No. Particulars Pages. 1. Written submissions filed before Ld. PCIT in 263 proceedings 1-5 2. Balance sheet showing funds availability with the company 6- 3. Agreement with Suzlon for maintenance of the Wind Mill Units. 7-15 4. Submissions filed before Ld. AO during the assessment proceedings. 16-18 5. Notice u/s 142(1) issued by the AO vide letter dated 03.2.2021 19-20 I.T.A. No.100/Jodh/2023 Western Drugs Ltd. 12 6. Copy of Judgment relied upon a South Indian Bank Ltd. Vs. CIT (2021) 322 CTR (SC) 465 21-28 b. CIT vs. UTI Bank Ltd. (2022) 329 CTR (SC) 597 29-30 c. PCIT vs. Deepak Vegpro P. Ltd. (2017) 1 NYP CTR 1103 (Raj.) 31-39 d. CIT vs. Deepak Vegpro P. Ltd. (2018) 300 CTR (Raj) 98 40-49 e. Leela Devi Sankhlecha vs. ITO (2023) 37 NYP TTJ 594 (Jd) 50-51 f. DCIT vs. Manohjar Lal Anjana (2023) 37 NYP TTJ 157 (Jd) 52-53 g. Inifrastructre Ltd. Vs. ACIT (2019) 33 NYP TTJ 388 (Jodh) 54-55 h. DCIT vs. Vigyan Lodha (2023) 37 NYP TTJ 818 (Jp) 56-57 i. Satya narayan Dhoot vs. PCIT (2023) 221 TTJ (Jd) 750 58-64 The ld. AR of the assessee is common addition to the above written submission and paper book argued that the assessee has no exempt income, therefore, disallowance so proposed by the ld. PCIT is not in accordance with various judgements relied upon by him. Even on merits, the ld. AR of the assessee is submitted that the assessee is sufficient interest free capital and reserved so as to substantiate the investment made from where the investment is made. As regards the second issue explain that he has submitted that the issue which is raised by the ld. PCIT which has dully been considered by the ld. AO vide notice dated 03.02.2021 wherein the ld. AO has raised the following question:- 1. Please furnish a detailed not on power generation for Windmill while laying emphasis on expenditures incurred on operations, maintenance, manpower employed, transmission of power. 2. In reference to the above mentioned query, please furnish a detailed not on the expenses incurred in the generation of power from wind mills. 3. Please furnish a breakup of the expenses claimed as ‘repairs and maintenance’ under wind mill expenses for both plant 1 and plant 2. 4. Please furnish the details of the income received party-wise from sale of electricity generated by windmills along with documentary evidences such as sale receipts.” I.T.A. No.100/Jodh/2023 Western Drugs Ltd. 13 5.2 Since, this issue has dully been verified by the Ld. AO, the Ld. PCIT cannot be imposed his view with that view of the ld. AO and change of opinion is not permitted. Based on the above submissions, the ld. AR of the assessee prayed that invoking the provisions of Section 263 of the Act by the ld. PCIT is beyond his jurisdiction and thus the order is required to be quashed. 6. On the other hand, ld. DR relied upon the detailed findings recorded in the order of the ld. PCIT and prayed that the order is speaking order has been passed, considering all the arguments raised by the ld. AR of the assessee. 7. We have heard the rival contentions, perused the material placed on record and gone through the judicial precedent cited by both the parties to drive home their respective contentions. Brief fact of the case is that the assessee has declared income under the head(s) Profits and gains from business or profession and Income from other sources. The assessee company is manufacturing Bulk Drugs Niacin & Niacinamide IP, BP, USP grade and marketing in indigenous market and also exporting the above products. The case was selected for complete scrutiny assessment under the E-assessment Scheme, 2019 on the I.T.A. No.100/Jodh/2023 Western Drugs Ltd. 14 following issues for verification of claimed of Duty drawback and Deduction claimed for industrial undertaking u/s. 80IA/80IB/80IAC/IB/IC/IBA/80ID/80IE/10A/10AA. The assessee filed is original return of income declaring total income at Rs. 36,56,67,530/- under normal provision and Rs. 39,10,88,074/- u/s 115JB of the Income Tax Act, 1961. After perusal of the return of income, material available on record and reply filed by the assessee, no addition is proposed by the ld. AO on the issues for which the case has been selected for complete scrutiny. Based on investigation conducted by the ld. AO the assessment was completed at the returned income. On completion of the assessment the ld. PCIT called for the records and after examination of the records the ld. PCIT noted that the ld. AO failed to examine the issue of disallowance of Rs. 26,88,805/- which is required to be made u/s 14A of the Income Tax Act as per rule 8D of the I.T. Rules, 1962 and also failed to make disallowance of claim u/s 80IA to the extent of Rs. 3,60,361/-. Therefore, considering that aspect of the matter he hold that the assessment has been completed on incorrect appreciation of fact and thus he hold that the order passed u/s 143(3) of the Act dated 15.03.2021 is erroneous so far as prejudicial to the interest of the Revenue and therefore, liable to be modified by invoking the provisions of Section 263 of the Act. After recording the detailed discussion in his I.T.A. No.100/Jodh/2023 Western Drugs Ltd. 15 order at para `6 and the relevant findings recorded by the ld. PCIT on the two issues is reproduced as under:- “(i) On the issue of disallowance of expenses u/s 14A in the manner prescribed under rule 8D of the Income Tax Rules, though the assessee company has not earned any exempt income during the year from investment but as per the mandate issued by the CBDT vide Circular No. 5/2014, disallowance is required to be made even though the tax payer in any particular year has not earned any exempt income. Meaning thereby the provisions of Section 14A are applicable where the assessee has invested its funds in such investments which may result in exempted income. Further, the contention of the assessee on the points that it has made the investment in its subsidiary company not for earning the dividend (income exempt from tax) but have made the investment as a strategic investment is not found tenable. The facts of the case law quoted in support of the claim are found to be different from the facts and circumstances of the case of the assessee and also it pertains to Kolkata ITAT bench, which are not having binding effect on the case in hand. Further, the assessee's claim about non- applicability of 14A in its case because of having sufficient own funds with it for the impugned investment into the subsidiary company which have the effect to earn exempt income with it, is also not found tenable because of the fact that the details submitted by him in support of his claim needs further examination/verification from the Books of Accounts and the fund flow/cash flow statements appropriately, as it relates to capital accounts, financial statements and fund flow statements of last several years. Further, with the fact on record that the assessee has incurred expenditure in P&L Account in terms of finance cost by Rs.434.16 lakh, from the submission/reply of the assessee, it cannot be ascertained for sure that no expenditure has been incurred by the assessee company to made the investment of 949.99 lakhs into its subsidiary company which may earn income which is exempt to tax. As per the Circular No. 05/2014 dated 11.02.2014, section 14A of the Act may apply even if there is no exempt income earned during the year. Meaning thereby, the disallowance u/s 14A read with Rule-8D can be made in that case also where the assesse does not have any exempt income during the year. What is relevant is not the earning of exempt income. but, having incurred the expenditure, which are attributable to the exempt income (in whichever year it may actually be earned). Therefore, during an Assessment Year, the proportionate interest pertaining to investment for earning of exempt income like dividend etc., is disallowable as per Section 14A read with Rule 8D (supra), even if no exempt income is earned during any Assessment Year. The impugned issue, has not yet been settled by the Hon'ble Apex Court. (ii) One of the major issues for selection of the case for scrutiny, under complete scrutiny criterion, was claim of deduction u/s 80IA. The FAO, though, had raised query related to this during the assessment, but he didn't consider the expenditure of Rs. 188 lakhs which represents common I.T.A. No.100/Jodh/2023 Western Drugs Ltd. 16 expenses for two types of business and this expenditure was required to be allocated to the eligible business and non- eligible business expenditure in the ration of the business income earned by these two segments of the business. The FAO, didn't ask or examined as to whether any expenses related to eligible business has been diverted to non-eligible business so as to enhance profit of eligible business, which would have had the effect of reduction in claim u/s 80IA by the corresponding amount, as calculated above, in order to increase/add the taxable amount by Rs.3,60,361/- accordingly. No proper explanation has been offered by the assessee in his reply on this point apart from that it is not warranted to be made on estimate basis. Further, in my opinion, the assessee's contention that no such disallowance has been made in any of the earlier years/subsequent years would not work for it in the matter. Therefore, reply filed by the assessee on this issue is not appreciated to be as per law and hence, not-accepted.” 8. From the perusal of the order and finding so recorded by the PCIT, the bench noted that the first is raised by the PCIT was not forming part of the selecting criteria and therefore, the ld. PCIT cannot extend the scope of the enquiry which was not before the ld. AO. Not only that the assessee contended before the ld. PCIT that the assessee was having sufficient fund to make the investment, the assessee has made this investment for the strategic investment and was not made for earning dividends. Thus, when the issue was not before the ld. AO the proceeding u/s. 263 does not empower to the PCIT to extend the scope of selection of the case. As regards the other issue the ld. PCIT observed in para (ii) at page 12 of the order that though the assessing officer has raised the query in relation to the deduction of 80IA but he did not considered that there was expenditure of Rs. 188 lakhs which represents common expenditure and was required to be allocated to I.T.A. No.100/Jodh/2023 Western Drugs Ltd. 17 eligible business and non eligible business. Thus, we note that the ld. PCIT appreciate that the issue has been raised by the ld. AO but has not conducted the enquiry the way he intends. The ld. AO based on the submission on the issue taken a plausible view of the matter. The law does not permit the PCIT to review the order of the ld. AO except the twin condition given in the section 263 is satisfied. The bench note that the prerequisite exercise of jurisdiction by the learned Principal CIT under section 263 of the Act is that the order of the AO is established to be erroneous in so far as it is prejudicial to the interest of the Revenue. The ld. PCIT has to be satisfied of twin conditions, namely (i) the order of the AO sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If any one of them is absent i.e., if the assessment order is not erroneous but it is prejudicial to the Revenue, provision of section 263 cannot be invoked. This provision cannot be invoked to correct each and every type of mistake or error committed by the AO; it is only when an order is erroneous as also prejudicial to Revenue's interest, than the provision will be attracted. An incorrect assumption of the fact or an incorrect application of law will satisfy the requirement of the order being erroneous. The phrase 'prejudicial to the interest of the Revenue has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue as a consequence of the I.T.A. No.100/Jodh/2023 Western Drugs Ltd. 18 order of the AO cannot be treated as prejudicial to the interest of the Revenue. It is pertinent to mention that if the AO has adopted one of the two or more courses permissible in law and it has resulted in loss of revenue, or where two views are possible and AO has taken one view with which the Pr. CIT does not agree, it cannot be treated as an erroneous order and it is prejudicial to the interest of the Revenue, unless the view taken by the AO is totally unsustainable in law. The bench noted that even in the proceeding before the PCIT based on the submission placed on record the PCIT noted that the claim of the assessee tallied but require reverification. This comments itself suggest that the PCIT is satisfied that the order is nor prejudicial or erroneous. Thus, in this process even the AO has no power to review his own order then how the PCIT can review without fulfilling the conditions laid down under the law. In this regard, we draw strength from the decision of the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT (2000) 159 CTR (SC) 1: (2000) 243 ITR 83 (SC). We also draw strength from the decision of the Hon'ble Supreme Court in the case of CIT vs. Max India Ltd. (2007) 213 CTR (SC) 266: (2007) 295 ITR 282 (SC) wherein it was held that: "The phrase 'prejudicial to the interests of the Revenue' in s. 263 of the IT Act, 1961, has to be read in conjunction with the expression 'erroneous' order passed by the AO. Every loss of revenue as a consequence of an order of the AO cannot be treated as prejudicial to the interests of the Revenue. For I.T.A. No.100/Jodh/2023 Western Drugs Ltd. 19 example, when the AO adopts one of two courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the AO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the Revenue, unless the view taken by the AO is unsustainable in law." 9. Thus, based on the decision of the apex court and the facts recorded and discussed here in above it is also noteworthy to mention that one of the pre-requisite before invoking S. 263 and the allegation of the Ld. PCIT is that there has been incorrect assumption of fact and law by the Assessing Officer. However, despite our deep and careful consideration of the material on record including the finding recorded in the subjected Assessment order dated 15.03.2021 and in the findings recorded in the order under challenge after considering the submission of the assessee on the issue, we do not find any incorrectness and incompleteness in the appreciation of facts made by the AO. In the light of these observations, we do not agree on this aspect to this extent with Ld. Pr. CIT. Even on facts we have discussed that on one issue which was not subject matter of assessment and on other issue wherein the ld. AO has taken a plausible view of the matter we see that there is no error or prejudice to the revenue. The AO has recorded his satisfaction in the assessment order that on the reasons of selection he has called for the details and after examination of the details has passed the order which we would find that the same is in accordance with the law and does not I.T.A. No.100/Jodh/2023 Western Drugs Ltd. 20 attract the clause (a) or (b) to explanation 2 of section 263 of the Act and thus, it is nothing but a change of opinion which is not permitted in the eyes of the law. In the light of the aforesaid discussion we hold that the order of the PCIT is not in accordance with the provisions of section 263 of the Act as the issue has already been examined by the FAO. In the result, the appeal of the assessee is allowed. Order pronounced under Rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963 by placing the details on the notice board. Sd/- Sd/- (Dr. S. Seethalakshmi) (Rathod Kamlesh Jayantbhai) Judicial Member Accountant Member Dated 07/02/2024 Santosh (On Tour) Copy of the order forwarded to: (1)The Appellant (2) The Respondent (3) The CIT (4) The CIT (Appeals) (5) The DR, I.T.A.T. True Copy By order