Mr. Haroon Ebrahim, Panaji V. Asst. Commissioner of Income tax Cir. 1 (1), Panaji

ITA 113/PAN/2013

• Counselvise Citation: 11324114 RSA 2013
• Duration Of Justice: 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 27-05-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: BARTHAKUR
• Keywords: Business income; Audit objection; Earning of tax free income
• Section: 143(3); 244A; 14A; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE SHRI P. K. BANSAL, HONBLE ACCOUNTANT MEMBER AND SHRI D.T. GARASIA, HONBLE JUDICIAL MEMBER ITA NO. 113 /PNJ/2013 (ASSESSMENT YEAR - 2008 - 09) MR. HAROON EBRAHIM, PROP. M/S MAGNUM CONSTRUCTIONS 1 ST FLOOR, MAGNUM CHAMBERS, V.V. DEMPO MARG, ST. INEZ, PANAJI. PAN: AADP16704L (APPELLANT) VS. THE COMMISSIONER OF INCOME TAX, OFFICE OF THE COMMISSIONER OF INCOME TAX, AAYAKAR BHAWAN, PLOT NO.5., EDC COMPLEX, PATTO PLAZA, PANAJI GOA - 403001. (RESPONDENT) A PPELLANT BY : MR. M.M.GOLVALA, CA. RESPONDENT BY : MR. BARTHAKUR, DR. DATE OF HEARING : 07/11/2013 D ATE OF ORDER : 31/1/ /2014 O R D E R PER: D.T. GARASIA THIS APPEAL HAS BEEN F ILED AGAINST THE ORDER OF CIT(A) DATED 28.03.2013 FOR THE ASSESSMENT YEAR 2008 - 09. 2. THE FOLLOWING GROU NDS ARE RAISED IN THIS APPEAL WHICH READ AS UNDER: THIS APPEAL IS FILED U/S.263 PASSED BY COMMISSIONER OF INCOME TAX, PANAJI AND RELATES TO ASSESSMENT YEAR 2OO8 - O9. 1) THE LEARNED COMMISSIONER OF INCOME TAX ERRED IN ASSUMING JURISDICTION U/S.263 OF THE INCOME TAX ACT, WHEN THE JURISDICTIONAL CONDITIONS WERE NOT SATISFIED. 2) THE LEARNED COMMISSIONER OF INCOME TAX ERRED IN PASSING AN ORDER U/S. 263 IN A MATTER WHERE TWO VIEWS WERE POSSIBLE. 3) THE LEARNED COMMISSIONER OF INCOME TAX ERRED IN EXERCISING JURISDICTION WHEN THERE WAS NO ERROR IN THE ORDER OF THE ASSESSING OFFICER. 4) THE LEARNED COMMISSIONER OF INCOME TAX ERRED IN ASSUMING JURISDICTIO N ULS.263 WITHOUT REFERRING TO ANY MATERIAL IN THE REVISION ORDER. 5) THE LEARNED COMMISSIONER OF INCOME TAX ERRED IN PASSING AN ORDER U/S.263 WITHOUT CONSIDERING THE PAST RECORD OF THE APPELLANT. 2 . ITA NO. 113/PNJ/2013 (A.Y - 2008 - 09) MR. HARRON EBRAHIM VS. CIT 6) THE APPELLANT SUBMITS THE ORDER PASSED BY THE LEARNED CO MMISSIONER OF INCOME TAX IS BARRED BY LIMITATION. 7) THE LEARNED COMMISSIONER OF INCOME TAX ERRED IN PASSING AN ORDER U/S.263, MERELY ON ACCOUNT OF AN AUDIT OBJECTION. 8) HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE, AND THE PROVISIONS OF LAW, THE APPELLANT SUBMITS THAT THE ORDER U/S.263 BE CANCELLED. 3. THE BRIEF FACTS OF THE CASE ARE AS UNDER: 3.1. THE ASSESSEE HAS DERIVED DIVIDEND INCOME OF RS. 13,61,762/ - AND THE SAME HAS BEEN CLAIMED AS EXEMPT U/S. 10(38) OF THE IT ACT. THE ASSESSEE DERIV ED SUBSTANTIAL INCOME FROM VARIOU S COMPANIES/FIRMS IN WHICH HE I S A DIRECTOR/ PARTNER. THE SAME HAS ALSO BEEN CLAIMED AS EXEMPT BUT NO DISALLOWANCE OF EXPENDITURE HAS BEEN MADE. THE SIZEABLE SUM OF DIVIDEND INCOME, SHARE OF PROFIT, ETC CLAIMED AS EXEMPT CA LLS FOR DISALLOWANCE OF EXPENDITURE WHICH HAS NOT BEEN WORKED OUT BY ASSESSING OFFICER. THE PROVISIONS OF SECTION 14A READ WITH RULE 8D STIPULATE THAT. NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. IN VIEW OF THIS CIT HAS HELD THAT OFFICER HAS PASSED THE ORDER WITHOUT MAKING THE ENQUIR Y IN RESPECT OF EXPENSES UNDER 14 A RELATING TO EXEMPT INCOME OF DIVIDEND SHARE OF PROFIT INTEREST ON PPF AND TAX FREE BONDS, E TC IN THE ASSESSMENT ORDER U/S. 143(3). THEREFORE COMMISSIONER HAS RESTORE THIS ISSUE TO THE FILE OF AO FOR PASSING FRESH ORDER AFTER EXAMINING THE RELEVANT FACTS AND GIVING ADEQUATE OPPORTUNITY TO THE ASSESSEE OF BEING HEARD. AGGRIEV ED BY THIS ORDER ASSESSEE IS IN APPEAL BEFORE TRIBUNAL. 3.2. LEARNED AR SUBMITTED THAT ASSESSMENT ORDER WAS COMPLETED U/S 143(3) OF THE ACT. THE COMMISSIONER IS INITIATED THE PROCEEDING ON THE GROUND THAT THE ASSESSING OFFICER HAS NOT DISALLOWED THE EXPENDITURE U/S 14A OF THE INCOME TAX ACT AGAINST THE DIVIDEND INCOME CLAIMED AS EXEMPT DURING THE YEAR. THE SCHEME OF SEC TION 14A SAYS THAT THE TAXPAYERS GENERATES AN INCOME WHICH EXEMPT FROM TAX OR EARNING SUCH INCOME SOME EXPENDITURE HAS BEEN INCURRED. 3 . ITA NO. 113/PNJ/2013 (A.Y - 2008 - 09) MR. HARRON EBRAHIM VS. CIT HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE TAXPAYER IN RESPECT OF AFORESAID EXPENDITURE WHICH IS INCURRED IN RELATION TO INCOME EXEMPT TO TAX. THE ASSESSING OFFICER SHALL D ETERMINE THE QUANTUM OF SUCH EXPENDITURE IN ACCORDANCE WITH THE ME THOD PRESCRIBED UNDER RULE 8D A ND SUCH AS RULE 8D THE ASSESSING OFFICER HAS TO SATISFY HIMSELF WITH THE CORRECTNESS OF THE CLAIM OF THE EXPENDITURE CLAIMED BY THE ASSESSEE THAT NO EXPENDITUR E HAS BEEN INCU RRED IN RELATION TO THE INCOME , IT DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE IT ACT FROM THE PREVIOUS YEAR, HE SHALL DETERMINE THE AMOUNT OF EXPENDITURE IN RELATION TO SUCH INCOME IN ACCORDANCE WITH RULE 8D. THE ASSESSING OFFICER HAS VERIFIED THE DETAILS OF EXEMPT INCOME AND DETAILS CONNECTED WITH SUCH INCOME. THE ASSESSEE HAS FURNISHED THE DETAIL OF EXEMPT INCOME WHICH IS ON PAGE 14 OF THE PAPER BOOK WHEREIN THE ASSESSEE HAS SHOWN THE INVESTMENT IN HIS BOOKS ACCOUNT THAT WAS SUBMITTED TO ASSESSING OFFICER. T HE DETAIL OF SUCH INVESTMENT IS ON PAGE 19,20 AND 21 OF THE PAPER BOOK WHICH WAS BEFORE THE AO. THE ASSESSEE HAS ALSO SUBMITTED IN TEREST OFFERED TO TAX WHICH IS ON PAGE - 6, MOREOVER ASSESSEE HAS GIVEN ALL THESE DETAILS BEFORE THE AO BY HIS LETTER WHICH IS ON PAGE 50 AND THE DETAILS OF SHARE OF PROFIT WHICH IS ON PAGE 52 OF THE PAPER BOOK. THE ASSESSEE HAS GIVEN ALL THESE DETAILS ON VARIOUS DATES WHICH IS ON PAGE 66 OF THE PAPER BOOK, THEREFORE WHEN ASSESSEE HAS GIVEN ALL THESE EXPLAN ATION AND EVIDENCE IN RESPECT OF HIS INCOME AND EXPENDITURE AMOUNT. THEREFORE, THE ASSESSING OFFICER HAS VERIFIED THE CLAIM OF THE ASSESSEE AND PASS THE ORDER U/S 143 ( 3) OF THE ACT. 3.3. THE LEARNED AR RELIED UPON THE ORDER OF SUPREME COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. MAX INDIA LTD. 295 ITR 282 AND SUBMITTED THAT PREJUDICIAL TO THE INTEREST OF THE REVENUE IN SECTION 263 OF THE INCOME TAX ACT HAS TO BE READ IN CONJUNCTIO N WITH THE EXPRESSION ERRONEOUS ORDER PASSED BY ASSESSING OFFICER. EVERY LOSS OF REVENUE AS CONSEQUENCE OF AN ORDER OF 4 . ITA NO. 113/PNJ/2013 (A.Y - 2008 - 09) MR. HARRON EBRAHIM VS. CIT ASSESSING OFFICER CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. WHEN THE ASSESSING OFFICER ONE OF THE ADOPTS ONE OF TWO COURSES PERMISSIBLE IN LAW AND IT HAS RESULTED IN LOSS OF REVENUE, OR WHERE TO VIEWS ARE POSSIBLE AND THE ASSESSING OFFICER HAS TAKEN ONE VIEW WHICH COMMISSIONER DOES NOT AGREE, IT CANNOT BE TREATED ERRONEOUS ORDER PREJUDICIAL TO THE REVENUE, UNLESS T HE VIEW TAKEN BY THE ASSESSING OFFICER IS UNSUSTAINABLE IN LAW. LEARNED AR ALSO RELIED UPON THE DECISION OF DELHI HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. DLF. LTD. 350 ITR 555 (DELHI) AND SUBMITTED THAT WHEN AO HAS ISSUED NOTICE AND HELD P ROCEEDING ON SEVERAL DATES BEFORE ASSESSMENT . T HE ASSESSEE S DIVIDEND INCOME IS CONFINED TO INVESTMENT MADE IN A SISTER CON CERN AND ONLY ONE DIVIDE ND WARRANT IS RECEIVE D. NOTHING TO SHOW THAT THE ASSESSEE HAD SPENT RESOURCES TO EARN DIVIDEND , THE DISALLOWANCE U/S 14 A NOT WARRANTABLE AND DEBATABLE THEREFORE, SECTION 263 CANNOT BE APPLICABLE . AS PER SECTION 14A THE ASSESSING OFFICER TO CALCULATE, PROPORTIONATELY, THE EXPENDITURE WHICH AN ASSESSEE MAY INCUR TO OBTAIN THE DIVIDEND INCOME FOR PURPOSES OF DISALLOWANCE CANNOT BE LOST SIGHT OF EQUALLY, SUCH A REQUIREMENT HAS TO BE VIEWED TO IN THE CONTEXT AND CIRCUMSTANCES OF EACH GIVEN CASE. SIMILARLY THE LEARNED AR POINTED OUT THE DECISION OF DELHI HIGH COURT IN THE CAS E OF COMMISSIONER OF INCOME TAX VS. ANIL KUMAR SHARMA 335 ITR 83 (DEL.) AND AS PER THIS JUDGEMENT THAT THERE I S A DISTINCTION BETWEEN LACK OF ENQUIRY AND INADEQUATE INQUIRY. IF THERE WAS ANY ENQUIRY EVEN INADEQUATE THAT WOULD NOT BY ITSELF GIVE OCCASION TO THE COMMISSIONER TO PASS ORDERS UNDER SECTION 263 OF THE INCOME TAX ACT MERELY BECAUSE HE HAS A D IFFERENT OPINION IN THE MATTER. SIMILARLY HE HAS ALSO RELIED UPON THE DECISION OF DELHI HIGH COURT IN THE CASE OF C IT VS. GUPTA SPINNING MILLS (P) LTD. ITA NO. 410/2013. 4. LEARNED D R RELIED UPO N TH E ORDER OF THE COMMISSIONER. LEARNED DR SUBMITTED THAT THE TRIBUNAL HAS ALL THE POWER TO GIVE DIRECTION TO ITO TO CONSIDER THE MATTER AFRESH AND PASS ORDER WHICH REFERS TO THE ASSESSEE CLAIM U/S 5 . ITA NO. 113/PNJ/2013 (A.Y - 2008 - 09) MR. HARRON EBRAHIM VS. CIT 14A OF THE ACT. UNDER COMMISSIONER POWERS U/S 263 CAN EITHER SET ASIDE THAT PORTION OF THE ORDER OF ASSESSING AUTHORITY WHICH IS AGAINST THE REVENUE STRAIG HTWAY OR MAY REMIT THE MATTER TO ITO FOR FURTHER ENQUIRY AFTER SETT ING ASIDE . LEARNED DR SUBMITTED THAT THE ASSESSEE ON PAGE 43 OF THE PAPER BOOK WHERE IN ASSESSEE HAS EARNED INCOME FOR COMPANY OF RS. 54,620.50 AND THE ASSESSING OFFICER HAS NOT VERIFIED WHETHER THE ASSESSEE HAS INCURRED ANY EXPENDITURE FOR EARNING THIS INCOME. THE O RDER OF THE COMMISSIONER IS JUSTIFIED FOR SENDING THE MATTER TO THE FILE OF AO FOR FRESH ENQUIRY. 4. 1. WE HAVE HEARD THE RIVAL CONTENTION OF BOTH THE PARTIES, WE FIND FROM THE ASSESSMENT ORDER WHICH AS UNDER: - IN RESPONSE TO THE NOTICE CA V.G. AMONKAR THE AUTH ORISED REPRESENTATIVE (AR), OF THE ASSESSEE APPEARED AND SUBMITTED THE DETAILS AS PER QUESTIONNAIRE. THE DETAILS PRODUCED HAVE BEEN VERIFIED AND CASE WAS HEARD. AFTER DISCUSSIONS THE ASSESSMENT IS COMPLETED BY ACCEPTING THE RETURNED INCOME. TOTAL INCOME AS PER RETURN OF INCOME FILED INCLUDING CAPITAL GAINS RS. 17,96,450/ - TAX PAYABLE RS. 4,84,657/ - SURCHARGE @ 10% RS. 48,466/ - PAYABLE RS. 5,33,123/ - ADD: EDUCATION CESS @ 3% RS. 15,993/ - PAYABLE RS. 5,49,116/ - LESS TDS RS. 5,28,499 / - PAYABLE RS. 20,617 LESS ADVANCE TAX RS. 2,24,206/ - REFUNDABLE RS. 2,03,589/ - ADD INTEREST U/S. 244A RS. 24,430/ - REFUNDABLE RS. 2,28,019/ - LESS REFUND ORDER ISSUED RS. 2,28,020/ - PAYABLE/REFUNDABLE NIL FROM THE PERUSAL OF THE ASSESSMENT ORDER THE AO HAS NOTHING DISCUSSED IN THE ASSESSMENT ORDER, THEREFORE, WE VERIFIED THE QUESTIONNAIRE ISSUED BY THE DEPARTMENT WHICH IS ON PAGE 49 OF THE PAPER BOOK WHEREIN THE AO HAS CALLED FOR DETAILS REGARDING SHAREHOLDING AND THE CAPITAL/ LOA N GIVEN TO THEM, AND THE 6 . ITA NO. 113/PNJ/2013 (A.Y - 2008 - 09) MR. HARRON EBRAHIM VS. CIT INCOME EARNED DURING THE YEAR AND EXEMPTED INCOME SHOWN . IN RESPONSE TO THE NOTICE ASSESSEE HAS SUBMITTED THE DETAILED OF FIRM WHERE ASSESSEE IS A PARTNER OR DIRECTOR AND WHEREIN ASSESSEE HAS STATED THAT HE IS A PARTNER OF M/S. CAR PENTERS CHOICE, M/S. MAGNUM RESORTS A ND M/S. FUTURE FOUNDATION. HE I S A PARTNER IN THESE THREE FIRMS. THEREAFTER, THE ASSESSEE HAS ALSO GIVEN THE DETAILS OF INVESTMENTS MADE IN SECURITIES, MUTUAL FUNDS, COMMODITIES ETC. DURING THE YEAR. FURTHER THE ASSESS EE HAS ALSO GIVEN THE DETAIL OF PROOFS OF ANY EXEMPTED INCOME SHOWN ON PAGE 57 - 58. WE HAVE PERUSED AND GIVEN OUR FULL ATTENTION TO THESE DOCUMENTS WHICH WERE PRODUCED DURING THE PROCEEDINGS BEFORE AO. WE FIND FROM THE ASSESSMENT ORDER THAT THE ASSESSING OFFICER HAS NOT MADE ANY DETAILED DISCUSSION REGARDING EXEMPT INCOME AND HE HAS ASCERTAINED THE TRUTH OF THE FACTS STATED IN THE RETURN WHEN THE CIRCUMSTANCES OF SUCH CASE ARE TO PROVOKE THE ENQUIRY. IN THIS CASE, AS PER THE ASSESSEE, THE ASSESSING OFFIC ER HAS VERIFIED ALL THE CLAIMS AND HE HAS ALLOWED THE SAME. WE FIND THAT ASSESSEE HAS FILED THE PAPER BOOK AND AT PAGE 43 OF THE PAPER BOOK THE ASSESSEE HAS STATED THAT HE HAS EARNED THE DIVIDEND INCOME FROM THE COMPANY AT RS. 54,620 .50. WE ASKED THE LEAR NED DR TO CLARIFY WHETHER THE ASSESSING OFFICER HAS MADE ANY ENQUIRY IN RESPECT OF THIS DIVIDEND INCOME FROM THE COMPANY AND WHETHER THE ASSESSING OFFICER HAS MADE ANY ENQUIRY FROM THE ASSESSEE REGARDING THIS DIVIDEND INCOME. WE COULD NOT FIND IT FROM THE DOCUMENTS SUBMITTED BEFORE US. IN OUR VIEW THE ASSESSING OFFICER HAS NOT MADE ANY ENQUIRY WHETHER THE ASSESSEE HAS INCURRED ANY EXPENDITURE FOR EARNING THIS DIVIDEND INCOME OR NOT. WE FIND THAT THE ASSESSEE HAS DERIVED THE DIVIDEND INCOME OF RS.13,61,762/ - AND SAME HAS BEEN CLAIMED AS EXEMPT U/S. 10(38) OF THE IT ACT, 1961. THE ASSESSEE HAS ALSO SHOWN THE SHARE OF PROFIT FROM THE FIRMS, INTEREST OF PPF AND INTEREST ON TAX FREE BONDS. AS PER SECTION 14A OF THE ACT, THE EXPENDITURE INCURRED IN RELATION TO TH E INCOME NOT INCLUDED IN TOTAL INCOME IS LIABLE TO BE DISALLOWED IN ACCORDANCE WITH THE METHOD PRESCRIBED THE UNDER RULE 8D OF THE IT RULES. FOR EARNING THE EXEMPT INCOME, THE ASSESSEE HAD INVESTED HUGE AMOUNT PART OF WHICH MAY BE 7 . ITA NO. 113/PNJ/2013 (A.Y - 2008 - 09) MR. HARRON EBRAHIM VS. CIT OUT OF INTEREST BEARING F UND. BESIDES FOR EVERY INVESTMENT DECISION, MANAGERIAL COSTS IS INVOLVED. FOR EARNING THE EXEMPT INCOME, THE ASSESSEE HAS TO INCUR VARIOUS OTHER OVERHEAD COSTS PART OF WHICH IS ALSO LIABLE TO BE DISALLOWED IN CONNECTION WITH EXEMPT INCOME. THE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MFG. CO. LTD VS. DEPUTY CIT IN 328 ITR 81 HAS HELD THAT SECTION 14A IS APPLICABLE TO DIVIDEND INCOME AND ALSO INCOME FROM MUTUAL FUNDS EXEMPT UNDER 10(33). IN OUR OPINION, WHEN ASSESSEE HAS EARNED THE DIVIDEND INCOM E FROM THE COMPANY, SOME EXPENDITURE MIGHT HAVE INCURRED AND IT IS THE DUTY OF THE AO TO MAKE ENQUIRY IN RESPECT OF EXPENDITURE INCURRED FOR EARNING THE DIVIDEND INCOME. THIS IS THE CASE WHETHER THE AO HAS MADE THE ASSESSMENT WITHOUT PROPER ENQUIRY. THE AO UNLIKE THE CIVIL COURT WHICH IS NEUTRAL TO GIVE A DECISION ON THE BASIS OF EVIDENCE PRODUCED BEFORE HIM. BUT AO IS NOT ONLY ADJUDICATOR BUT ALSO AN INVESTIGATOR. THE AO CANNOT REMAIN PASSIVE ON THE FACTS OF A RETURN WHICH IS APPARENTLY IN ORDER BUT CALL S FOR FURTHER ENQUIRY. IN THIS CASE IT WAS THE DUTY OF THE AO TO MAKE ENQUIRY, WHETHER ASSESSEE HAS INCURRED ANY EXPENDITURE TO EARN THE DIVIDEND FROM THE COMPANY AT RS. 54,620.50 OR NOT. THE AO WAS FAILED TO MAKE SUCH ENQUIRY, THE ORDER IS ERRONEOUS AND P REJUDICIAL TO REVENUE. IN OUR VIEW IS SUPPORTED BY DECISION OF HONBLE SUPREME COURT IN THE CASE OF MALABAR CO. LTD. 243 ITR 83, AND GEE VEE ENTERPRISES VS. ADDL. CIT & ORS.(DEL) 99 ITR 375. WE HAVE GONE THROUGH THE ORDER OF THE COMMISSIONER WHEREIN COMMIS SIONER HAS SIMPLY SET ASIDE THE ORDER OF THE AO TO MAKE A FURTHER ENQUIRY AFTER GIVING DUE OPPORTUNITY OF HEARING TO THE ASSESSEE. THEREFORE, WHEN THE ASSESSMENT IS RESTORE D TO THE AO THE ASSESSEE WILL GIVE SUFFICIENT OPPORTUNITY TO REPRESENT HIS CASE. THE REFORE, IT WILL NOT PREJUDICE HIS INTERES T. THIS VIEW IS ALSO SUPPORTED BY DECISION OF MADRAS HIGH COURT IN CASE OF INDIAN TEXTILE VS. COMMISSIONER OF INCOME TAX 157 ITR 112 (MAD.) IN OUR OPINION, THE CIT(A) HAS NARRATED HIS JUDGMENT, HE HAS GIVEN HIS FINDING IN PARAGRAPH 4,5,6 READ AS UNDER: - 8 . ITA NO. 113/PNJ/2013 (A.Y - 2008 - 09) MR. HARRON EBRAHIM VS. CIT 4. I HAVE CONSIDERED THE ASSESSING OFFICERS PROPOSAL AND THE ASSESSEES SUBMISSIONS. PERUSAL OF FACTS REVEALS THAT THE ASSESSEE HAS DERIVED DIVIDEND OF RS. 13,61,762 AND THE SAME HAS BEEN CLAIMED AS EXEMPT U/ S. 10(38) OF THE IT ACT, 1961. THE ASSESSEE HAS ALSO SHOWN SHARE OF PROFIT. OF FIRMS/AOP, ETC OF RS. 21,91,235, INTEREST ON PPF OF RS. 83,926 AND INTEREST ON TAX FREE BONDS OF RS. 65,000 AS EXEMPT, THE ASSESSEE HAS ARGUED THAT DURING ASSESSMENT, THE ASSESS ING OFFICER WAS SATISFIED TO THE EFFECT THAT NO EXPENDITURE IS LIABLE TO BE DISALLOWED. IT HAS BEEN CONTENDED THAT THE ASSESSING OFFICER HAS PASSED THE ORDER AFTER THOROUGH ENQUIRY AND HENCE, THE CIT CANNOT TAKE ANOTHER VIEW U/S. 263. 5. THE EXPLANATION OF THE ASSESSEE IS NOT ACCEPTABLE. AS PER SECTION 1 4A OF THE IT ACT, 1961, EXPENDITURE INCURRED IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME IS LIABLE TO BE DISALLOWED IN ACCORDANCE WITH METHOD PRESCRIBED UNDER RULE 8D OF IT RULES. FOR EARNING THE EXEMPT INCOME, THE ASSESSEE HAD INVESTED HUGE AMOUNTS PART OF WHICH, MAY BE OUT OF INTEREST BEARING FUNDS. BESIDES, FOR EVERY INVESTMENT DECISION, MANAGERIAL COST IS INVOLVED. FOR EARNING THE EXEMPT INCOME, THE ASSESSEE HAD TO INCUR VARIOUS OTHER OVERHEAD COSTS PART OF WHICH, IS ALSO LIABLE TO BE DISALLOWED IN CONNECTION WITH EXEMPT INCOME. THE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MFG. CO. LTD VS. DEPUTY CIT IN 328 ITR 81 HAS HELD THAT SECTION 14A IS APPLICABLE TO DIVIDEND INCOME AND INCOME FR OM MUTUAL FUNDS EXEMPT U/S .10(33). THE SPECIAL BENCH MUMBAI ITAT, IN THE CASE OF ITO VS. DAGA CAPITAL MANAGEMENT PVT. LTD. IN 312 ITR 1 HAS HELD THAT SPECIAL PROVISION DISALLOWING EXPENDITURE IN RELATION TO EXEMPT INCOME IS APPLICABLE FOR ALL HEADS OF INC OME INCLUDING BUSINESS INCOME. THE EXPRESSION IN RELATION TO IN SECTION 14A COVERS ALL INDIRECT AND DIRECT EXPENSES AND THERE IS NO REQUIREMENT FOR DOMINANT OR IMMEDIATE CONNECTION BETWEEN EXPENDITURE AND EXEMPT INCOME. THEREFORE, THE FAILURE ON THE PART OF THE ASSESSING OFFICER TO DISALLOW RELATABLE EXPENSES AGAINST THE EXEMPT INCOME RENDER THE ASSESSMENT ORDER ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE AND NEEDS TO BE SET ASIDE U/S. 263 OF THE INCOME - TAX ACT, 1961 IN THIS CONTEXT. THE DELHI IT AT IN AMAN PALACE VS. ITO.33 LTD 697, HAS HELD THAT. IF ASSESSMENT WAS COMPLETED WITHOUT PROPER ENQUIRIES WHICH THE FACTS OF THE CASE PROVOKED, THE ASSESSMENT WAS RIGHTLY TREATED AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. IF THE ASSESSING OF FICER FAILS TO INVESTIGATE INTO THE FACTS BEFORE MAKING THE ASSESSMENT, THE ONLY CONCLUSION WOULD BE THAT THE ORDER PASSED BY THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE ORDER WOULD BE ERRONEOUS IF IT IS BASED ON AN INCORRECT ASSUMPTION OR AN INCORRECT APPLICATION OF LAW (AS IN THE INSTANT CASE) OR NON - APPLICATION OF MIND OR BASED ON NO OR INSUFFICIENT MATERIALS ARVEE INTERNATIONAL VS. ADDI. CIT (ITAT, MUM) 101 LTD 495. FURTHER UNLIKE THE CIVIL COURT WINCH IS NEU TRAL TO GIVE A DECISION ON THE BASIS OF EVIDENCE PRODUCED BEFORE IT, AN ASSESSING OFFICER IS NOT ONLY AN ADJUDICATOR BUT IS ALSO AN INVESTIGATOR . HE CANNOT REMAIN PASSIVE ON THE FACE OF A RETURN WHICH IS APPARENTLY IN ORDER BUT CALLS FOR FURTHER ENQUIRY - IT IS HIS DUTY TO ASCERTAIN THE TRUTH OF THE FACTS STATED IN THE RETURN WHEN THE CIRCUMSTANCES OF THE CASE ARE SUCH AS TO PROVOKE ENQUIRY IF THERE IS FAILURE TO MAKE SUCH ENQUIRY, ORDER IS ERRONEOUS AND PREJUDICIAL TO REVENUE. THE CIT NEED 9 . ITA NO. 113/PNJ/2013 (A.Y - 2008 - 09) MR. HARRON EBRAHIM VS. CIT NOT PROVE THAT I T IS ERRONEOUS HE CAN REVISE IT U/S. 263 - RAMPYARI DCVI SARAOGI VS. CIT(SC) 67 ITR 84, MALA INDUSTRIAL CO. LTD. VS. CIT(SC) 243 ITR 83, SWARUP VEGETABLE PRODUCTS INDUSTRIES LTD. VS. CIT(ALL) 187 ITR 412, GEE VEE ENTERPRISES VS. ADDI. CIT & ORS (DEL) 99 IT R 375, RAJALAKSHMI MILLS LTD VS. ITO (ITAT, SB, CHENNAI) 121 LTD 343; 313 ITR (AT) 182, SRM SYSTEMS & SOFTWARE PVT. LTD. VS. ACIT 2010 - TIOL - 646..HC MAD - IT. ERROR IN ASSESSMENT ORDER ARISING BY IGNORING RELEVANT MATERIAL OR ON INCORRECT ASSUMPTION OF FACTS OR INCORRECT APPLICATION OF LAW AMENABLE TO REVISION U/S 263 CIT VS JAWAHAR BHATTACHARJEE (GAU - FB) 341 ITR 434. BESIDES, IN THE CASE OF AMBIKA AGRO SUPPLIERS VS. ITO 95 LTD 326 (PUNE), THE ITAT HAS HELD THAT ACCEPTANCE OF EXPLANATION OF THE ASSESSEE WITHO UT ANY ENQUIRY RENDERED THE ORDER ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF REVENUE. THE ITAT, BOMBAY IN THE CASE OF VINAY D VALIA VS ADDL. ITO 27 LTD 109 HAS HELD THAT THE FAILURE OF THE AO TO MAKE NECESSARY ENQUIRY ITSELF WAS SUFFICIENT GROUND FOR COMMISSIONER TO ASSUME JURISDICTION U/S. 263. THE SC IN THE CASE OF MALABAR INDUSTRIES CO. VS. CIT 243 ITR 83 HAS HELD THAT CIT CAN PASS ORDER U/S. 263 EVEN ON DEBATABLE ISSUES . 6. IN VIEW OF THE ABOVE FACTS, IT IS CLEAR THAT THE ASSESSMENT ORDER IS E RRONEOUS IN SO FAR AS, IT IS PREJUDICIAL IN THE INTERESTS OF REVENUE, SINCE THE AO HAS FAILED TO ADD/DISALLOW THE EXPENSES U/S. 14A RELATING TO EXEMPT INCOME OF DIVIDEND, SHARE OF PROFIT, INTEREST ON PPF AND TAX FREE BONDS, ETC IN THE ASSESSMENT ORDER U/S .143(3). I THEREFORE SET ASIDE THE ASSESSMENT ORDER FOR THE ASST. YEAR 2008 - 09 PASSED BY THE AO AND RESTORE THE AFORESAID ISSUE TO THE AO FOR PASSING FRESH ORDER AFTER EXAMINING THE RELEVANT FACTS AND GIVING ADEQUATE OPPORTUNITY TO THE ASSESSEE OF BEING HE ARD. THE AO, WHILE PASSING THE ASSESSMENT ORDER AFRESH, SHOULD PROPERLY VERIFY THE ISSUES RAISED AND THE SUBMISSIONS MADE BY THE ASSESSEE AND PASS A FRESH ASSESSMEN T ORDER IN ACCORDANCE WITH LAW. THEREFORE, OUR INTERFERENCE IS NOT REQUIRED. 5 . IN THE R ESULT, THE APPEAL OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN CO URT ON 31.1. 2014 . SD/ - SD/ - ( P.K. BANSAL) (D.T. GARASIA) ACCOUNTANT MEMBER JUDICIAL MEMBER PLACE : PANAJI / GOA D ATED : 31.1 .2014 P.S. - *PK* 10 . ITA NO. 113/PNJ/2013 (A.Y - 2008 - 09) MR. HARRON EBRAHIM VS. CIT COPY TO : ( 1 ) APPELLANT ( 2 ) RESPONDENT ( 3 ) CIT CONCERNED ( 4 ) CIT(A) CONCERNED ( 5 ) D.R ( 6 ) GUARD FILE TRUE COPY, BY ORDER SR. PRIVATE SECRETARY, ITAT, PANAJI, GOA 11 . ITA NO. 113/PNJ/2013 (A.Y - 2008 - 09) MR. HARRON EBRAHIM VS. CIT