Kalyani Consultant Pvt Ltd, Pune V. CIT - 1, Pune

ITA 1211/PUN/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 2856 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 7 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 12-01-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 29-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: C H NANIWADEKAR SHRI S K RASTO
• Keywords: Earning of tax free income; Prejudicial to interest
• Section: 143(3); 14A; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA , AM . / ITA NO. 1 211 /PN/201 3 / ASSESSMENT YEAR : 20 0 8 - 09 KALYANI CONSULTANT PVT. LTD., 1 ST FLOOR, B & C WING, SHANGRILLA GARDEN, OPP. BUND GARDEN, PUNE 4110 0 1 . / APPELLANT PAN: AA ACK7314C VS. THE COMMISSIONER OF INCOME TAX - I , PUNE . / RESPONDENT / APPELLANT BY : S HRI C.H. NANIWADEKAR / APPELLANT BY : S HRI C.H. NANIWADEKAR / RESPONDENT BY : SHRI S.K. RASTOGI , CIT / DATE OF HEARING : 1 2 . 0 1 .201 6 / DAT E OF PRONOUNCEMENT: 20 . 0 1 .201 6 / ORDER PER SUSHMA CHOWLA, J M : TH IS APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF CIT - I , PUNE , DATED 25 . 0 3 .20 1 3 RELATING TO ASSESSMENT YEAR 20 0 8 - 09 AGAINST ORDER PASSED UNDER SECTION 263 OF THE INCOME - TA X ACT , 1961 (IN SHORT THE ACT) . 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. THE LEARNED COMMISSIONER OF INCOME TAX - I ERRED ON THE FACTS AND IN LAW IN INVOKING JURISDICTION U/S. 263 OF THE ACT. IN REGARD TO DISALLOWANCES U/S 14A OF T HE ACT, HE FAILED TO APPRECIATE THAT THE ISSUE WAS PROPERLY AND SUFFICIENTLY ADDRESSED DURING THE ASSESSMENT PROCEEDINGS AND THE ASSESSING OFFICER HAS TAKEN A POSSIBLE VIEW IN THE MATTER. ITA NO. 1211 /PN/20 1 3 KALYANI CONSULTANTS PVT. LTD. 2 2. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, DELETE OR SUBSTITUTE AL L OR ANY OF ABOVE GROUNDS OF APPEAL. 3. THE ISSUE ARISING IN THE PRESENT APPEAL IS AGAINST EXERCISE OF JURISDICTION BY THE COMMISSIONER UNDER SECTION 263 OF THE ACT . 4. BRIEFLY, IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE HAD FURNISHED RETURN OF INCOM E DECLARING TOTAL INCOME OF RS.4,15,520/ - ON 30.09.2008. THE ASSESSMENT IN THE CASE WAS COMPLETED UNDER SECTION 143(3) OF THE ACT BY AN ORDER DATED 23.12.2010 ON TOTAL INCOME OF RS.4,67,702/ - . ON SUBSEQUENT EXAMINATION OF RECORDS, THE COMMISSIONER WAS OF THE VIEW THAT THE SAID ASSESSMENT ORDER SUFFERED FROM INCORRECT APPLICATION OF LAW AS LAID DOWN IN SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULE, 1962 (IN SHORT THE RULES) . THE ASSESSEE IN THE RETURN OF INCOME, HAD CLAIMED CERTAIN INC OME TO BE EXEMPT UNDER SECTION S 10(34), 10(38) AND 10(2A) OF THE ACT AND WORKED OUT THE EXPENDITURE DISALLOWED UNDER SECTION 14A OF THE ACT IN RELATION TO SUCH OUT THE EXPENDITURE DISALLOWED UNDER SECTION 14A OF THE ACT IN RELATION TO SUCH EXEMPT INCOME AT RS.10,50,000/ - . THE COMMISSIONER FURTHER OBSERVED THAT IN THE SCRUTINY ASSESSM ENT, THE ASSESSING OFFICER NO DOUBT HAD DEALT WITH THE MATTER, BUT THE COMMISSIONER WAS OF THE VIEW THAT THE ASSESSING OFFICER HAD ERRONEOUSLY REASONED OUT THAT THE DISALLOWANCE SUO MOTU MADE BY THE ASSESSEE ON PRORATA BASIS WAS CORRECT. HE FURTHER WAS OF THE VIEW THAT ONCE SATISFACTION IS FORMED THAT EXPENSES HAVE BEEN INCURRED IN RELATION TO EARNING THE EXEMPT INCOME, SUCH EXPENSES WOULD HAVE TO BE DISALLOWED IN THE MANNER PRESCRIBED IN RULE 8D OF THE RULES. AS PER THE COMMISSIONER, THE APPLICATION OF R ULE 8D OF THE RULES WAS MANDATORY FROM ASSESSMENT YEAR 2008 - 09 ONWARDS, IN VIEW OF THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN GODREJ & BOYCE MFG. CO. LTD. VS. DCIT , (2010) 234 CTR 1 (BOM). THE COMMISSIONER WAS OF THE VIEW THAT FROM ASSESSMENT YEAR 2008 - 09 , THERE WAS NO SCOPE FOR WORKING OUT THE DISALLOWANCE UNDER SECTION 14A OF THE ACT OTHER ITA NO. 1211 /PN/20 1 3 KALYANI CONSULTANTS PVT. LTD. 3 THAN THROUGH THE MECHANISM PROVIDED UNDER RULE 8D OF THE RULES. HE FURTHER OBSERVED THAT BY APPLYING RULE 8D OF THE RULES, DISALLOWANCE WOULD HAVE WORKED OUT TO RS. 27,08,903/ - , WHEREAS THE DISALLOWANCE OF RS.10,50,000/ - MADE IN THE RETURN OF INCOME, HAD BEEN ACCEPTED BY THE ASSESSING OFFICER. IN VIEW OF THE ABOVE SAID ERROR ON THE PART OF ASSESSING OFFICER IN APPLYING THE CORRECT LAW LAID DOWN IN SECTION 14A OF THE ACT, THE ASSESSMENT ORDER DATED 23.12.2010 WAS CONSIDERED TO BE ERRONEOUS IN SO FAR AS IT WAS PREJUDICIAL TO THE INTEREST OF REVENUE. THE COMMISSIONER ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE, WHICH IS REPRODUCED AT PAGE 3 OF THE ORDER PASSED BY THE COMMISSIONER. THE CLAIM OF THE ASSESSEE BEFORE THE COMMISSIONER WAS THAT THOUGH THE DISALLOWANCE IS WORKED OUT TO RS.27,08,903/ - , IN FACT AS PER THE SAID RULE, THE DISALLOWABLE EXPENDITURE WAS WORKED OUT TO RS. 6,85,504/ - ONLY. AN ALTERNATE COMPUT ATION OF DISALLOWANCE OF RS.6,85,504/ - WAS PROVIDED TO THE COMMISSIONER. THE ASSESSEE ADOPTED THE AVERAGE VALUE OF THE INVESTMENTS FROM WHICH DIVIDENDS HAD BEEN RECEIVED DURING THE YEAR. HOWEVER, THE COMMISSIONER REFERRING TO THE PROVISIONS OF RULE 8D(2) (III) OF THE RULES POINTED OUT THAT FOR COMPUTING THE AVERAGE VALUE, NOT ONLY THE INVESTMENTS FROM WHICH THE DIVIDENDS HAVE BEEN RECEIVED DURING THE YEAR, BUT ALSO THE INVESTMENTS FROM WHICH THE DIVIDENDS HAVE NOT BEEN RECEIVED DURING THE YEAR , WHICH SHALL NOT FORM PART OF TOTAL INCOME IN FUTURE, WOULD HAVE TO BE TAKEN INTO CONSIDERATION . ACCORDINGLY, ALTERNATE COMPUTATION WORKED OUT BY THE ASSESSEE WAS HELD TO BE NOT ACCEPTABLE AND AN OPPORTUNITY WAS GIVEN TO THE ASSESSEE TO MAKE FURTHER SUBMISSIONS. IN HIS WRITTEN SUBMISSIONS DATED 25.03.2013 , THE ASSESSEE ALLEGES THAT THE RULE 8D OF THE RULES DID NOT HAVE MANDATORY APPLICATION , BUT COULD BE APPLIED ONLY IF THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE CORRECTNESS OF CLAIM OF EXPENDITURE MADE BY THE A SSESSEE. SINCE IN THE CASE OF ASSESSEE , DETAILED WORKING OUT OF DISALLOWANCE UNDER SECTION 14A OF THE ACT WAS PROVIDED TO THE ASSESSING OFFICER, WHO IN TURN, WAS SATISFIED ITA NO. 1211 /PN/20 1 3 KALYANI CONSULTANTS PVT. LTD. 4 ABOUT THE SAID WORKING AND HENCE, THE ASSESSING OFFICER HAD TAKEN A POSSIBLE VIEW A ND THEREFORE, THE JURISDICTION UNDER SECTION 263 OF THE ACT COULD NOT SURVIVE. THE COMMISSIONER VIDE PARA 4.2 OBSERVED AS UNDER: - 4.2. NO DOUBT, DISALLOWANCE U/S.14A R. W. RULE 8 D NEED NOT BE MADE IN EACH AND EVERY CASE. IN ORDER THAT SUCH DISALLOWANCE C AN BE MADE, THE ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, SHOULD BE SATISFIED THAT THE ASSESSEE'S CLAIM IN RESPECT OF THE EXPENDITURE IN RELATION TO THE EXEMPT INCOME IS INCORRECT. UP TO THIS POINT, THE ARGUMENT TAKEN BY THE ASSESSE E CANNOT BE FOUND FAULT WITH. BUT THE MOOT QUESTION IS WHETHER 'ANY SATISFACTION' OF THE ASSESSING OFFICER REGARDING THE CORRECTNESS OF THE ASSESSEE'S CLAIM OF EXPENDITURE CAN BE CONSIDERED AS FINAL; OR, FOR THAT MATTER, THE ACCEPTANCE BY THE ASSESSING OFF ICER OF THE WORKING MADE BY THE ASSESSEE CAN BE CONSIDERED AS ONE POSSIBLE VIEW. IN THIS CONNECTION, THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. V. COMMISSIONER OF INCOME TAX [109 TAXMAN 66 (SC)] CAN BE FRUITFULLY R EFERRED TO. IN THIS LANDMARK DECISION, THE HON'BLE COURT HELD THAT INCORRECT ASSUMPTION OF FACTS, INCORRECT A PPLICATION OF L AW, NON - APPLICATION OF MIND ETC. WOULD RENDER AN ASSESSMENT ORDER ERRONEOUS WITHIN THE MEANING OF SEC . 263 OF THE ACT . IN THE PRESEN T CASE , THE ASSESSING OFFICER ACCEPTED THE PRO - RATA BASIS ADOPTED BY THE ASSESSEE FOR WORKING OUT THE DISALLOWABLE EXPENDITURE U/S.14A ON THE GROUND THAT AS THE ASSESSEE HAD PREPARED COMMON PROFIT AND LOSS ACCOUNT IN RESPECT OF ITS ACTIVITIES AND THE EXPEN SES RELATING TO THE VARIOUS ACTIVITIES ARE 'INCLUSIVE', 'THE AMOUNT' OF EXPENDITURE DIRECTLY RELATED TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME CANNOT BE WORKED OUT AS PER REASONING THUS GIVEN BY THE ASSESSING OFFICER FOR NOT APPLYING RULE 8 D AND FOR ACCEPTING THE PRO - RATA WORKING OF THE ASSESSEE IS LEGALLY UN - SUSTAINABLE. RULE 8 D HAS BEEN PRESCRIBED PRECISELY TO TAKE CARE OF SITUATIONS WHERE, AMONG OTHERS, THE EXPENSES ARE PRECISELY TO TAKE CARE OF SITUATIONS WHERE, AMONG OTHERS, THE EXPENSES ARE INCLUSIVE AND ARE NOT DIRECTLY APPORTIONABLE TO THE VARIOUS INCOME I NCLUDING THE EXEMPT INCOME. SUCH SITUATIONS ARE TAKEN CARE OF BY THE MECHANISM PROVIDED IN CLAUSE (II) AND CLAUSE (III) OF SUB - RULE(2) OF RULE 8 D . HOWEVER, THE ASSESSING OFFICER STOPPED AT CLAUSE (I) AND PERSUADED HERSELF MISTAKENLY TO THINK THAT AS THERE WAS NO EXPENDITURE UNDER CLAUSE (I), THEREFORE RULE 8 D WOULD NOT APPLY. SHE DID NOT CONSIDER CLAUSE (II) & CLAUSE (III) AT ALL. THIS IS WHERE THE FAILURE OF THE ASSESSING OFFICER LIES. THE INCORRECT APPLICATION OF THE LAW LAID DOWN IN SEC.14A READ WITH RUL E 8 D RESULTED FROM INCORRECT APPRECIATION OF THE ABOVE STATUTORY PROVISIONS. REVERTING TO THE REFERENCE MADE EARLIER ON TO THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. V. COMMISSIONER OF INCOME - TAX [109 TAXMAN 66 (SC)], THE ASSESSMENT MADE ON THE BASIS OF SUCH AN INCORRECT APPLICATION OF LAW CANNOT AMOUNT TO TAKING ONE POSSIBLE VIEW. ON THE CONTRARY, THE ASSESSMENT THUS MADE WILL HAVE TO BE CONSIDERED AS ERRONEOUS WITHIN THE MEANING OF THE SECTION 263 OF THE ACT. FOR TH E ABOVE REASONS, THE ARGUMENTS RAISED BY THE ASSESSEE IN THE WRITTEN SUBMISSION MADE ON 25.03.2013 TO THE EFFECT THAT JURISDICTION U/S.263 DOES NOT SURVIVE IS REJECTED. 5. SINCE AS PER THE COMMISSIONER, THE ASSESSING OFFICER HAD NOT APPLIED THE PROVISION S OF RULE 8D OF THE RULES CORRECTLY, THE ASSESSMENT ORDER WAS REVISED UNDER SECTION 263 OF THE ACT AND WAS SET - ASIDE TO THE ASSESSING OFFICER, WHO IN TURN, WAS DIRECTED TO RE - COMPUTE THE INCOME BY WORKING OUT DISALLOWANCE TO BE MADE UNDER SECTION 14A OF TH E ACT , A S PER PROVISIONS OF ITA NO. 1211 /PN/20 1 3 KALYANI CONSULTANTS PVT. LTD. 5 RULE 8D OF THE RULES . T HE ASSESSING OFFICER WAS FURTHER DIRECTED TO VERIFY THE CORRECTNESS OF THE DISALLOWABLE EXPENDITURE WORKED OUT AT RS.27,08,903/ - , WHILE GIVING EFFECT TO THE ORDER. 6. THE ASSESSEE IS IN APPEAL AGAINST TH E ORDER OF COMMISSIONER UNDER SECTION 263 OF THE ACT. 7. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE ISSUE OF DISALLOWANCE UNDER SECTION 14A OF THE ACT HAS BEEN DEALT WITH BY THE ASSESSING OFFICER WHILE PASSING THE ORDER UN DER SECTION 143(3) OF THE ACT. REFERRING TO THE PARA 4.2 OF THE ORDER PASSED UNDER SECTION 263 OF THE ACT, HE FURTHER POINTED OUT THAT HE DOES NOT KNOW, HOW THE ORDER PASSED BY THE ASSESSING OFFICER WAS ERRONEOUS, WHETHER THERE IS ANY INCORRECT APPRECIATI ON OF FACTS OR LAW. THE NEXT CONTENTION RAISED BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE WAS THAT ONCE THE ASSESSING OFFICER WAS REPRESENTATIVE FOR THE ASSESSEE WAS THAT ONCE THE ASSESSING OFFICER WAS SATISFIED AND SINCE IT IS S ET OF MIND I.E. THERE IS AN OBJECTIVE SATISFACTION OF THE ASSESSING OFFICER, THEN T HE PROVISIONS OF RULE 8D OF THE RULES COULD NOT BE APPLIED, WHERE THE DISALLOWANCE IS MADE BY THE ASSESSEE ITSELF. HE FURTHER POINTED OUT THAT THE COMMISSIONER HIMSELF ADMITS THAT IT IS ONE POSSIBLE VIEW THEN, IN CASES WHERE THE ASSESSING OFFICER HAS TAKE N A POSSIBLE VIEW, THERE IS NO MERIT IN EXERCISE OF JURISDICTION UNDER SECTION 263 OF THE ACT. FU R THER, THE COMMISSIONER HAS NOT POINTED OUT WHAT IS INCORRECT ASSUMPTION OF FACTS, IN THE CASE OF THE ASSESSEE, WHERE THE ASSESSING OFFICER HAD APPLIED HIS MI ND. REFERRING TO THE PARA 3 OF THE ASSESSMENT ORDER, IT WAS POINTED OUT BY HIM THAT THE ASSESSING OFFICER RECORDS SATISFACTION THAT THE ASSESSEE HAD CORRECTLY WORKED OUT THE DISALLOWANCE UNDER SECTION 14A OF THE ACT AND ONCE SATISFACTION IS RECORDED, THER E IS NO REASON TO GO TO THE RULE 8D OF THE RULES. RELIANCE IN THIS REGARD WAS PLACED ON THE DECISION OF HONBLE BOMBAY HI GH COURT IN GODREJ ITA NO. 1211 /PN/20 1 3 KALYANI CONSULTANTS PVT. LTD. 6 & BOYCE MFG. CO. LTD. VS. DCIT (SUPRA) , WHEREIN THE MANDATE OF THE HONBLE HIGH COURT WAS THAT IN CASE THE ASSESSIN G OFFICER WAS NOT SATISFIED BY THE DISALLOWANCE WORKED OUT BY THE ASSESSEE, THEN RESORT IS TO BE MADE TO THE PROVISIONS OF RULE 8D OF THE RULES. THE BASIC CONDITION OF APPLICATION OF RULE 8D OF THE RULES WAS THAT AS TO RECORD SATISFACTION AND WHERE THE AS SESSING OFFICER HAD RECORDED SATISFACTION, MADE ENQUIRIES AND AGREED WITH THE DISALLOWANCE WORKED OUT BY THE ASSESSEE, THEN WHAT IS ERRONEOUS IN THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE I N THIS REGARD PLACED RELIANCE ON THE ORDER OF HONBLE DELHI HIGH COURT CIT VS. I.P. SUPPORT SERVICES INDIA (P.) LTD. IN ITA NO.283/2014, ORDER DATED 24.09.2015 . 8. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACED RELIANCE ON THE ORDER OF COM MISSIONER. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE ARISING IN THE PRESENT APPEAL IS IN RELATION TO EXERCISE OF JURISDICTION BY THE COMMISSIONER UNDER SECTION 263 OF THE ACT . FOR EXERCISING POWERS UNDER SECTION 263 OF THE ACT, THE BASIC CONDITION TO BE LOOKED INTO BY THE COMMISSIONER IS WHETHER THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE . BOTH THE CONDITIONS OF ORDER BEING ERRONEOUS AND PREJUD ICIAL TO THE INTEREST OF REVENUE ARE TO BE FULFILLED IN ORDER TO ENABLE THE COMMISSIONER TO EXERCISE HIS JURISDICTION UNDER SECTION 263 OF THE ACT. 1 0 . THE HONBLE DELHI HIGH COURT IN GEE VEE ENTERPRISES VS. ADDL.CIT & OTHERS, (1975) 99 ITR 375 (DEL) HE LD AS UNDER: - 'THE REASON IS OBVIOUS. THE POSITION AND FUNCTION OF THE INCOME - TAX OFFICER IS VERY DIFFERENT FROM THAT OF A CIVIL COURT. THE STATEMENTS MADE IN A PLEADING PROVED BY THE MINIMUM AMOUNT OF EVIDENCE MAY BE ACCEPTED BY A CIVIL COURT IN THE ABSEN CE OF ANY REBUTTAL. THE CIVIL COURT IS NEUTRAL. IT SIMPLY GIVES DECISION ITA NO. 1211 /PN/20 1 3 KALYANI CONSULTANTS PVT. LTD. 7 ON THE BASIS OF THE PLEADING AND EVIDENCE WHICH COMES BEFORE IT. THE INCOME - TAX OFFICER IS NOT ONLY AN ADJUDICATOR BUT ALSO AN INVESTIGATOR. HE CANNOT REMAIN PASSIVE IN THE FACE OF A RETURN WHICH IS APPARENTLY IN ORDER BUT CALLS FOR FURTHER INQUIRY. 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 AN INQUIRY. THE MEANING TO BE GIVEN TO THE WORD 'ERRONEOUS ' IN SECTION 263 EMERGES OUT OF THIS CONTEXT. IT IS BECAUSE IT IS INCUMBENT ON THE INCOME - TAX OFFICER TO FURTHER INVESTIGATE THE FACTS STATED IN THE RETURN WHEN CIRCUMSTANCES WOULD MAKE SUCH AN INQUIRY PRUDENT THAT THE WORD 'ERRONEOUS' IN SECTION 263 INCLU DES THE FAILURE TO MAKE SUCH AN INQUIRY. THE ORDER BECOMES ERRONEOUS BECAUSE SUCH AN INQUIRY HAS NOT BEEN MADE AND NOT BECAUSE THERE IS ANYTHING WRONG WITH THE ORDER IF ALL THE FACTS STATED THEREIN ARE ASSUMED TO BE CORRECT.' 1 1 . THE HONBLE BOMBAY HIGH C OURT IN CIT VS. GABRIEL INDIA LTD. (1993) 203 ITR 108 (BOM) HAD HELD AS UNDER: - ... FROM A RENDING OF SUB - SECTION (1) OF SECTION 263, IT IS CLEAR THAT THE POWER OF SUO MOTU REVISION CAN BE EXERCISED BY THE COMMISSIONER ONLY IF, ON EXAMINATION OF THE RECOR DS OF ANY PROCEEDINGS UNDER THIS ACT, HE CONSIDERS THAT ANY ORDER PASSED THEREIN BY THE INCOME - TAX OFFICER IS 'ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE' . IT IS NOT AN ARBITRARY OR UNCHARTERED POWER, IT CAN BE EXERCISED ONLY ON FULFILLMENT OF THE REQUIREMENTS LAID DOWN IN SUB - SECTION (1). THE CONSIDERATION OF THE COMMISSIONER AS TO WHETHER AN ORDER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, MUST BE BASED ON MATERIALS ON THE RECORD OF THE PROC EEDINGS CALLED FOR BY HIM. IF THERE ARE NO MATERIALS ON RECORD ON THE BASIS OF WHICH IT CAN BE SAID THAT THE COMMISSIONER ACTING IN A REASONABLE MANNER COULD HAVE COME TO SUCH A CONCLUSION, THE VERY INITIATION OF PROCEEDINGS BY HIM WILL BE ILLEGAL AND WITH OUT JURISDICTION. THE COMMISSIONER CANNOT INITIATE PROCEEDINGS WITH A VIEW WITH OUT JURISDICTION. THE COMMISSIONER CANNOT INITIATE PROCEEDINGS WITH A VIEW TO STARTING FISHING AND ROVING ENQUIRIES IN MATTERS OR ORDERS WHICH ARE ALREADY CONCLUDED. SUCH ACTION WILL BE AGAINST THE WELL - ACCEPTED POLICY OF LAW THAT THERE MUST BE A POINT OF FINALITY IN ALL LEGAL PROCEEDINGS, THAT STALE ISSUES SHOULD NOT BE REACTIVATED BEYOND A PARTICULAR STAGE AND THAT LAPSE OF TIME MUST INDUCE REPOSE IN AND SET AT REST JUDICIAL AND QUASI - JUDICIAL CONTROVERSIES AS IT MUST IN OTHER SPHERES OF HUMAN ACTIVITY. 12. IN CASES WHERE, TWO VIEWS ARE POSSIBLE AND THE ASSESSING OFFICER HAD TAKEN ONE VIEW, WITH WHICH THE COMMISSIONER MAY NOT AGREE, THE SAID ORDER CANNOT BE TERMED AS ERRONEOUS AS HELD BY THE HONBLE SUPREME COURT IN MALABAR INDUSTRIAL CO. LTD. VS. CIT , R EPORTED IN 109 TAXMAN 66 (SC) . FURTHER, THE HONBLE SUPREME COURT HAD OBSERVED THAT THE PHRASE PREJUDICIAL TO INTEREST OF REVENUE HAS TO BE READ IN CONJUNCTION WITH AN ERRONEOUS ORDER PASSED BY THE ASSESSING OFFICER. HOWEVER, LOSS OF REVENUE AS A CONSE QUENCE TO ORDER OF THE ASSESSING OFFICER CANNOT BE TREATED AS PREJUDICIAL TO THE INTEREST OF REVENUE. THE HONBLE APEX COURT (SUPRA) FURTHER HELD THAT WHERE THE ASSESSING OFFICER HAD ADOPTED ONE OF THE COURSES PERMISSIBLE AND AVAILABLE TO HIM, WHICH IN TU RN, ITA NO. 1211 /PN/20 1 3 KALYANI CONSULTANTS PVT. LTD. 8 HAD RESULTED IN LOSS TO THE REVENUE, CANNOT MAKE THE ORDER PREJUDICIAL TO THE INTEREST OF REVENUE. IN CASE, WHERE THE COMMISSIONER GIVES HIS FINDING THAT THE VIEW TAKEN BY THE ASSESSING OFFICER IS UN - SUSTAINABLE IN LAW AND THEREFORE, THE ORDER IS ERRO NEOUS, WHICH IN TURN, WAS PREJUDICIAL TO THE INTEREST OF REVENUE, THEN THE EXERCISE OF POWER BY THE COMMISSIONER UNDER SECTION 263 OF THE ACT IS TO BE UPHELD. 13. THE RATIOS LAID DOWN IN THE ABOVE SAID DECISIONS HAVE TO BE KEPT IN MIND BY THE COMMISSIONER WHILE EXERCISING THE POWER UNDER SECTION 263 OF THE ACT. WHERE THE ASSESSING OFFICER HAS ADOPTED ONE OF THE COURSES PERMISSIBLE, WHICH IN TURN, HAS RESULTED IN LOSS OF REVENUE OR TWO VIEWS ARE POSSIBLE AND THE ASSESSING OFFICER HAD TAKEN ONE OF THE VIEWS , WITH WHICH THE COMMISSIONER DOES NOT AGREE, THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER CANNOT BE TREATED AS ERR ONEOUS ORDER PREJUDICIAL TO THE INTEREST OF REVENUE, UNLESS THE VIEW TAKEN BY THE ASSESSING OFFICER WAS UNSUSTAINABLE IN LAW. WHERE THERE IS VIEW TAKEN BY THE ASSESSING OFFICER WAS UNSUSTAINABLE IN LAW. WHERE THERE IS A FINDING OF FACT AND AS APPARENT FROM THE RECORD OF PROCEEDING THAT THE ASSESSING OFFICER HAD FRAMED THE ASSESSMENT AFTER DUE APPLICATION OF MIND AND HOLDING ENQUIRIES MERELY BECAUSE, THE COMMISSIONER IS OF THE VIEW THAT NO ENQUIRIES AND / OR NON - SUFFICIENT ENQUIRIES HAD BEEN CONDUCTED BY THE ASSESSING OFFICER, DOES NOT EMPOWER THE COMMISSIONER TO EXERCISE THE JURISDICTION UNDER SECTION 263 OF THE ACT. IT IS THE RECORD OF PROCEEDINGS FROM WHICH THE PRESUMPTION CAN BE DRAWN AS TO WHETHER THE ASSES SING OFFICER HAD APPLIED HIS MIND TO THE VARIOUS ASPECTS OF THE MATTER OR NOT. IN CASE, THE ASSESSING OFFICER HAD APPLIED HIS MIND AND COME TO A CONCLUSION TO WHICH THE COMMISSIONER DOES NOT AGREE AND MERELY ON SUCH GROUNDS CANNOT SATISFY THE TEST OF THE NECESSARY CONDITIONS FOR INVOKING THE JURISDICTION UNDER SECTION 263 OF THE ACT. WHERE THE PERUSAL OF RECORD REFLECTS THAT ENQUIRIES HAVE BEEN MADE BY THE ASSESSING OFFICER AND A PARTICULAR CONCLUSION WAS REACHED BY THE ITA NO. 1211 /PN/20 1 3 KALYANI CONSULTANTS PVT. LTD. 9 ASSESSING OFFICER, WITH REFERENCE T O SUCH ENQUIRIES MADE DURING THE COURSE OF ASSESSMENT AND IF THE SAME IS APPARENT FROM THE PERUSAL OF THE RECORD OF PROCEEDINGS, THEN THE INVOCATION OF JURISDICTION BY THE COMMISSIONER UNDER SUCH CIRCUMSTANCES UNDER SECTION 263 OF THE ACT IS NOT SUSTAINABL E. THE FINDING OF THE COMMISSIONER MUST BE CLEAR, UN - AMBIGUOUS AND NOT DEBATABLE. THE MATTER CANNOT BE SET - ASIDE TO THE FILE OF ASSESSING OFFICER TO MAKE FURTHER ENQUIRIES WITHOUT A FINDING AS TO THE ORDER BEING ERRONEOUS. IT HAS BEEN HELD BY THE HONBL E BOMBAY HIGH COURT IN CIT VS. GABRIEL INDIA LTD. (SUPRA) THAT EXERCISE OF JURISDICTION UNDER SECTION 263 OF THE ACT CANNOT BE INVOKED FOR MAKING SHORT ENQUIRIES OR TO GO INTO THE PROCESS OF ASSESSMENT AGAIN AND AGAIN MERELY ON THE BASIS THAT MORE ENQUIRIE S OUGHT TO HAVE BEEN CONDUCTED TO FIND SOMETHING . 14. IN THE FACTS OF THE PRESENT CASE, THE EXERCISE OF JURISDICTION BY THE COMMISSIONER UNDER SECTION 263 OF THE ACT IS IN RESPECT OF APPLICATION OF COMMISSIONER UNDER SECTION 263 OF THE ACT IS IN RESPECT OF APPLICATION OF PROVISIONS OF RULE 8D OF THE RULES. THE ASSESSEE IN THE RETURN OF INCOME HAD CLAIMED CERTAIN INCOME AS EXEMPT, AGAINST WHICH IT HAD WORKED OUT THE DISALLOWANCE UNDER SECTION 14A OF THE ACT TO THE EXTENT OF RS.10,50,000/ - . THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS HAD DEALT WITH THE SAID ISSUE OF DISALLOWANCE UNDER SECTION 14A OF THE ACT AND HAD ACCEPTED THE DISALLOWANCE WORKED OUT BY THE ASSESSEE. ON THE OTHER HAND, THE COMMISSIONER WAS OF THE VIEW THAT IN VIEW OF THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN GODREJ & BOYCE MF G. CO. LTD. VS. DCIT (SUPRA) , THE APPLICATION OF RULE 8D OF THE RULES WAS MANDATORY FROM ASSESSMENT YEAR 2008 - 09 ONWARDS AND SINCE THE ASSESSING OFFICER HAD NOT APPLIED THE SAID PROVISIONS, THE ORDER PASSED BY THE ASSESSING OFFICER WAS ERRONEOUS. 15. THE PERUSAL OF THE DECISION OF HONBLE BOMBAY HIGH COURT IN GODREJ & BOYCE MFG. CO. LTD. VS. DCIT (SUPRA) REFLECTS THAT UNDER SUB - SECTION (2) TO ITA NO. 1211 /PN/20 1 3 KALYANI CONSULTANTS PVT. LTD. 10 SECTION 14A OF THE ACT, THE ASSESSING OFFICER IS REQUIRED TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED BY THE AS SESSEE IN RELATION TO SUCH INCOME, WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT, IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBE D. THE HONBLE HIGH COURT (SUPRA) FURTHER HELD THAT THE JURISDICTION OF ASSESSING OFFICER ARISES WHERE HE W AS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF ASSESSEE IN RESPECT OF THE EXPENDITURE, WHICH HE CLAIMS TO HAVE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. IN THIS REGARD, SATISFACTION OF THE ASSESSING OFFICER HAS TO BE ARRIVED AT, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. THE HONBLE HIGH COURT (SUPRA) , IN VIEW THEREOF, OBSERVED THAT H ENCE, SUB - SECTION (2) DOES NOT IPSO FACTO ENABLE THE ASSESSING OFFICER TO APPLY THE METHOD PRESCRIBED BY THE RULES STRAIGHTAWAY WIT HOUT CONSIDERING WHETHER THE CLAIM MADE BY THE ASSESSEE IN RESPECT OF THE EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME IS CORRECT. THE ASSESSING OFFICER MUST, IN THE FIRST INSTANCE, DETERMINE WHETHER THE CLAIM OF THE ASSESSEE IN THAT REGARD IS CORRECT AND THE DETERMINATION MUST BE MADE HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. THE SATISFACTION OF THE ASSESSING OFFICER MUST BE ARRIVED AT ON AN OBJECTIVE BASIS. IT IS ONLY WHEN THE ASSESSING OFFICER IS NOT SATISF IED WITH THE CLAIM OF THE ASSESSEE, THAT THE LEGISLATURE DIRECTS HIM TO FOLLOW THE METHOD THAT MAY BE PRESCRIBED. IN A SITUATION WHERE THE ACCOUNTS OF THE ASSESSEE FURNISH AN OBJECTIVE BASIS FOR THE ASSESSING OFFICER TO ARRIVE AT A SATISFACTION IN REGARD T O THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE OF THE EXPENDITURE WHICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME, THERE WOULD BE NO WARRANT FOR TAKING RECOURSE TO THE METHOD PRESCRIBED BY THE RULES. FOR, IT IS ON LY IN THE EVENT OF THE ASSESSING OFFICER NOT BEING SO SATISFIED THAT RECOURSE TO THE PRESCRIBED METHOD IS MANDATED BY LAW. 16. FURTHER, THE HONBLE DELHI HIGH COURT IN CIT VS. I.P. SUPPORT SERVICES INDIA (P.) LTD. (SUPRA) HAD, IN TURN, RELIED ON THE RATIO LAID DOWN BY THE HONBLE ITA NO. 1211 /PN/20 1 3 KALYANI CONSULTANTS PVT. LTD. 11 DELHI HIGH COURT IN MAXOPP INVESTMENTS (P) LTD. VS. CIT (2012) 347 ITR 272 (DEL) AND FURTHER ON ANOTHER DECISION OF THE SAME COURT IN CIT VS. TAIKISHA ENGINEERING INDIA LTD. , REPORTED IN 370 ITR 338 (DEL) AND LAID DOWN THAT RECORD ING OF SATISFACTION BY THE ASSESSING OFFICER AS TO WHY THE VOLUNTARY DISALLOWANCE MADE BY THE ASSESSEE WAS UNREASONABLE AND UNSATISFACTORY, WAS A MANDATORY REQUIREMENT OF LAW. 17. APPLYING THE ABOVE SAID PRINCIPLES TO THE FACTS BEFORE US, THE ASSESSING OFFICER WHILE PASSING THE ASSESSMENT ORDER IS MANDATORILY REQUIRED TO RECORD A SATISFACTION AS TO WHY SUO MOT O DISALLOWANCE MADE BY THE ASSESSEE OF THE EXPENDITURE RELATABLE TO EXEMPT INCOME WAS UNREASONABLE AND UNSATISFACTORY, UNDER SUB - SECTION (2) TO SEC TION 14A OF THE ACT AND THEREAFTER, RESORT IS TO BE MADE TO THE PROVISIONS OF RULE 8D OF THE RULES. IN CASE, WHERE THE ASSESSING OFFICER IS SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF THE EXPENDITURE RELATABLE TO THE EXEMPT I NCOME, THEN THERE IS NO REASON TO OF THE EXPENDITURE RELATABLE TO THE EXEMPT I NCOME, THEN THERE IS NO REASON TO APPLY THE METHOD PRESCRIBED BY THE RULES AS LAID DOWN BY THE JURISDICTIONAL HIGH COURT IN GODREJ & BOYCE MFG. CO. LTD. VS. DCIT (SUPRA) . AS P OINTED OUT BY US IN THE PARAS HEREINABOVE AND ALSO AS NOTED BY THE COMMISSIONER, THE ASSESSING OFFICER HAD VERIFIED THE CLAIM OF THE ASSESSEE IN RESPECT OF EXPENDITURE DISALLOWED UNDER SECTION 14A OF THE ACT AND HAD ACCEPTED THE DISALLOWANCE MADE SUO MOTO . IN SUCH CIRCUMSTANCES, WHERE THE MATTER HAS ALREADY BEEN CONSIDERED BY THE ASS ESSING OFFICER WHILE COMPLETING ASSESSMENT IN THE HANDS OF THE ASSESSEE, THE COMMISSIONER HAS NO AUTHORITY TO INITIATE PROCEEDINGS UNDER SECTION 263 OF THE ACT IN DIRECTING THE ASSESSING OFFICER TO RE - LOOK AT THE FACTS AND APPLY THE PROVISIONS OF RULE 8D O F THE RULES IN ORDER TO WORK OUT THE DISALLOWANCE UNDER SECTION 14A OF THE ACT. WE FIND NO MERIT IN THE SAID DIRECTIONS OF THE COMMISSIONER, WHERE THE ASSESSING OFFICER HAD APPLIED HIS MIND AND WAS SATISFIED WITH THE WORKING OF ASSESSEE AND HAD ITA NO. 1211 /PN/20 1 3 KALYANI CONSULTANTS PVT. LTD. 12 NOT RESORT ED TO THE PROVISIONS OF RULE 8D OF THE RULES, AND SINCE ONE VIEW HAS BEEN TAKEN BY THE ASSESSING OFFICER, THE SAME CANNOT BE SUBSTITUTED BY THE COMMISSIONER IN THE GARB OF EXERCISE OF JURISDICTION UNDER SECTION 263 OF THE ACT. IN CASE, WHERE THE ASSESSING OFFICER HAD RECORDED THE SATISFACTION AS REQUIRED UNDER SECTION 14A OF THE ACT, MADE ENQUIRIES AND ACCEPTED THE CALCULATIONS OF THE ASSESSEE, SUCH AN ORDER PASSED BY THE ASSESSING OFFICER CANNOT BE SAID TO BE ERRONEOUS AS THE SAME HAS BEEN PASSED IN LINE WITH THE PROVISIONS OF THE ACT. IN THIS REGARD, WE FIND NO MERIT IN THE EXERCISE OF JURISDICTION BY THE COMMISSIONER UNDER SECTION 263 OF THE ACT AND THE SAME IS HELD TO BE INVALID. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE THUS, ALLOWED. 18 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THIS 20 TH DAY OF JANUARY , 201 6 . SD/ - SD/ - (PRADIP KUMAR KEDIA) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 20 TH JANUARY , 201 6 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APP ELLANT ; 2. / THE RESPONDENT; 3. / THE CIT - I , PUNE ; 4 . , , / DR A , ITAT, PUNE; 5 . / GUARD FILE . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE