Castamet Works Private Limited, Kharwa V. Principle Commissioner of Income Tax, Udaipur

ITA 187/JPR/2022

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 1603 (ITAT-JAIPUR)
• Duration Of Justice: 4 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-10-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 11-07-2022
• Assessment Year: 2017-2018
• Appeal Filed On: 16-05-2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PRAKUL KHURANA
• Keywords: Business income; Revision of order; Depreciation; Transfer pricing; Opportunity of being heard; Principle of natural justice; Earning of tax free income; Difference of opinion; Assessment record; Prejudicial to interest; Change of opinion; Revenue expenditure; Rule 8D; Set aside
• Section: 147; 263; 43B; 139; 143(3); 142(1); 14A; 139(5); 143(1); 195; 143(2); 207; 139(1); 113; 2(A); 119; 92CA

Judgement Text

vk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,’B’ JAIPUR Jh laanhi xkslkbZ] U;kf;d lnL; ,oa Jh jkBkSM deys’k t;arHkkbZ] ys[kk lnL; ds le{k BEFORE: SHRI SANDEEP GOSAIN, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA No. 187/JP/2022 fu/kZkj.k o"kZ@Assessment Year :2017-18 Castamet Works Private Limited Village – Kharwa,Tehsil- Masuda Kharwa, Ajmer cuke Vs. Principle Commissioner of Income Tax, Udaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AADCC 5624 L vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Sh. Prakul Khurana (Adv.) & Sh. Mukesh Soni (CA) jktLo dh vksj ls@ Revenue by : Sh. Sanjay Dhariwal (CIT) lquokbZ dh rkjh[k@ Date of Hearing : 12/07/2022 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 04/10/2022 vkns'k@ ORDER PER: RATHOD KAMLESH JAYANTBHAI, A.M. This appeal is filed by the assessee aggrieved from the order of the Pr. Commissioner of Income Tax, PCIT- Udaipur [ Here in after referred as Ld. PCIT ] for the assessment year 2017-18 dated 26.03.2022 which in turn arises from the order passed by the ACIT, Circle- 2, Ajmer passed under Section 143(3) of the Income tax Act, 1961 (in short 'the Act') dated 14.12.2019. ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 2 2. Aggrieved form the order of the ld. PCIT the assessee has marched this appeal on the following grounds; “1. Under the facts and circumstances of the case and in law, Ld. PCIT, Udaipur failed to appreciate that the Assessment Order was neither erroneous nor prejudicial to the interest of revenue and thus order passed u/s 263 of the Act is perverse, arbitrary, non-speaking, bad in law and without jurisdiction. 2. Under the fact and circumstances of the case and in law, the Ld. PCIT, Udaipur has erred in passing the impugned Order without providing an adequate opportunity of being heard. 3. Under the facts and the circumstances of the case and in law, the PCIT, Udaipur has grossly erred in holding that the Assessing Officer has failed to make proper enquiry without appreciating that specific query was raised in the assessment proceeding on the issues of: • Computation of disallowance of expenditure u/s 14A of the Act and • Deduction of employee's contribution for the purpose of Section 36(1)(va) of the Act 4. Under the facts and the circumstances of the case and in law, PCIT Udaipur has grossly erred in passing order u/s 263 of the Act in respect of issues for which reasonable and plausible view was taken by Ld. AO considering judicial precedents and sufficient material available on record. 5. Under the facts and circumstances of the case and without prejudice to ground no. 1 to 3 above, the Ld. PCIT was not justified and has grossly erred in directing AO to examine the issue of disallowance of expenses u/s 14A of the Act and deduction u/s 36(1)(va) of the Act. 6. The Appellant craves leave to add, amend, and modify all or any grounds of appeal on or before the date of hearing.” ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 3 3. The brief fact as culled out from the records is that the assessee is a private limited company engaged in the production of grinding media and various casting products. The assessee company e-filed its original return of income for the year under consideration declaring total income of Rs. 6,88,75,950/- on 14.10.2017. The assessee also filed revised return of income on 04.07.2018, same was processed u/s. 143(1) Act, at a total income of Rs. 6,89,95,950/-. The case of the assessee was selected under CASS for complete scrutiny. Notices were issued and the assessee submitted the reply. The AO in his order noted the assessee company submitted the documents and evidences called in the assessment proceedings. He further observed that on examination of these documents, no adverse inference has been made and total income declared by the assessee accepted as assessed income. 4. After culmination of the assessment proceedings, the Pr. CIT called for the assessment records of the assessee company. From the record she observed that the assessee company’s case was selected for complete scrutiny and assessing officer has ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 4 accepted the returned income. On perusal of the records, she further observed that, during the year under consideration exempt dividend income of Rs. 36,68,377/- was disclosed by the assessee on its investment made in equities/MF. The investment of the assessee in the equities/MF as on 31.03.2016 was of Rs. 1,49,61,000/- and Rs. 6,47,45,423/- as on 31.03.2017. Amount of Rs. 1.20 lacs were disallowed by the assessee u/s 14A of the IT Act out of misc. expenditure and staff salary in proportion exempt income to the total turnover. The amount of disallowance u/s 14A was to be calculated as per the provisions of Rule 8D of the income Tax Rules, which was not made by the assessee. As per Rule 8D, the amount of disallowance comes to Rs 7,07,227/-. The Assessing Officer failed to make any verification of the amount disallowed by the assessee u/s 14A of the IT Act. She on perusal of the 3CD report further observed that contribution of the employees made towards the PF &ESI were deposited by the assessee in the relevant fund beyond the prescribed due dates under the relevant Acts and thus were disallowable u/s 36(1)(va) r.w.s. 2(24)(x) of the Income Tax Act. Particular Amount Collected from employees (in Rs.) Due date of depositing Actual date of deposit PF 87,093 15.07.2016 19.07.2016 ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 5 PF 1,01,548 15.01.2017 20.01.2017 ESI 11,261 21.09.2016 18.11.2016 ESI 11,742 21.10.2016 18.11.2016 ESI 20,037 21.01.2017 23.01.2017 Total 2,31,681/- Thus, the above amount of Rs. 2,31,681/- was required to be disallowed u/s 36(1)(va) of the Act which was not done by the Assessing Officer while passing the assessment order u/s 143(3) of the Act. No such disallowance was made by the Assessing Officer while passing the assessment order. Based on the above observations she stated that the assessment order passed u/s 143(3) of the IT Act 1961 in the case of the assessee company for the assessment year 2017-18 completed on 14.12.2019 is erroneous and prejudicial to the interest of revenue. 5. Based on the said findings a show cause notice u/s. 263 of the Act was issued by the PCIT on 26.02.2022 to the assessee to explain its case on the issues mentioned in the show cause notice. In compliance to the notice the assessee company has filed its rely though online/ITBA. The reply of the assessee is extracted here in below : “Respected Sir/Madam, ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 6 This is with reference to the captioned notice, wherein your goodself has proposed to modify the order dated 14.12.2019 passed u/s 143(3) of the Act, by exercising the power u/s 263 of the Act. In this regard, the Assessee vehemently objects to the initiation of the revision proceeding on the issue duly assessed u/s 143(3) of the Act vide assessment order dated 14.12.2019. Thus, the impugned notice is perse without jurisdiction. The humble Assessee objects to the proposed revision proceeding u/s 263 of the Act on various grounds as follows: 1. At the outset, it is humbly submitted that the order passed by Ld. AO is not erroneous and prejudicial to interest of revenue. Accordingly, no action u/s 263 is required. 2. In this context, it is humbly submitted that from the bare perusal of the impugned notice it is evident that your goodself is of the view that the Assessing officer has erred in passing the Assessment order without making any inquiries or verification on certain issues as mentioned in the notice. Although no basis has been provided in the impugned notice as to how the Assessing Officer has failed to make sufficient inquiries or verification on issues so as to entitle your goodself to exercise its revisionary power u/s 263 of the Act, despite the fact that the Ld. AO made sufficient inquiries and verification on the issues alleged to be revised in the impugned notice, which are as follows: 1. Alleged non deposit of Employee contribution of PF and ESI within the prescribed time limit of the relevant statue of PF and ESI. 2. Expenditure of Finance Cost alleged to be having direct bearing on exempt income earned by the Assessee out of the interest free funds. Limited Scope of Section 263 of the Act: 3. In this regard it is submitted that proposed action by your goodself is against the settled jurisprudence of provision of Section 263 of the Act. In this context, the relevant extract of the provision of Section 263 of the Act is reproduced herein below for your kind perusal: Section 263: Revision of orders prejudicial to revenue (1) The 67 [Principal Chief Commissioner or Chief Commissioner or Principal Commissioner] or Commissioner may call for and examine the ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 7 record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. 4. From the bare perusal of provision of Section 263 of the Act, it is evident that the expression “erroneous” as stipulated under Section 263(1) of the Act, means ‘involving error’, ‘deviating from the law’. Thereby, meaning that the order cannot be termed as erroneous unless it is not in accordance with the law. An Assessment order may be termed as erroneous in so far as it is prejudicial to the interest of revenue, only when in the opinion of Chief Commissioner or Principal Commissioner or Commissioner: i. the order is passed without making inquiries or verification which should have been made, or ii. the order is passed allowing any relief without inquiring into the claim, or iii. the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119, or iv. the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. In the impugned notice, your good self has not established as to how the case of the Assessee falls within the scope and ambit of the aforementioned cases and also, as to how the Assessment Order passed by the Ld. Assessing Officer can be called “erroneous in so far as it is prejudicial to the interests of the revenue”. Therefore, exercising the revisional power u/s 263 of the Act is devoid of the authority of law. 5. One of the perquisite condition for invoking provision of Section 263 of the Act is when the Assessment Order passed is without making inquiries. In this regard it is humbly submitted that during the course of scrutiny assessment various notices were issued by Assessing Officer from time to time. In the notice issued u/s 142(1) of the Act, dated 07.11.2019, the Ld. AO has made the detailed inquiry on various issues including the issue pertaining to the disallowance of expenditure incurred ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 8 on exempt income for the purpose of Section 14A of the Act as well as on the issue of deduction u/s 36(1)(va) of the Act for depositing the employee’s contribution on or before the due date of filing return of income. 6. In response to the said notice issued on 07.11.2019 u/s 142(1) of the Act, the Assessee has submitted its befitting reply dated 10.12.2019 wherein with respect to issue pertaining to Section 36(1)(va) of the Act, the Assessee has strenuously submitted and justified that no disallowance u/s 36(1)(va) is required for having deposited the employee’s contribution to relevant fund before the due date of filing of return of income and even before the end of the relevant previous year. 7. Further with respect to the issue pertaining to suo-moto disallowance of expenditure on exempt income u/s 14A of the Act, the Assessee has submitted the detailed working note and other relevant documents in support of the calculation of disallowance made of Rs. 1,20,000/- u/s 14A of the Act, giving proper justification for apportionment of expenditure attributable to earning exempt income. 8. Accordingly, based upon the detailed justification along with the supporting documents given by the Assessee with respect to both the issues for which independent inquiry was conducted and after making adequate examination of the same by the Ld. AO, the scrutiny assessment was completed by order u/s 143(3) of the Act dated 14.12.2019 wherein no further disallowance was made u/s 14A of the Act, as interest cost on borrowed funds was not attributable to earning exempt dividend income and also deduction for employee’s contribution u/s 36(1)(va) of the Act, deposited before due date of filing return of income was duly allowed/accepted. 9. Thus, it is evident that the Ld. AO has conducted sufficient inquiry for the issues against which your goodself is exercising its revisionary power. Thus, no revision proceedings u/s 263 could be initiated for the Assessment Order in the present case as it has been passed after making proper enquiries and verification and after taking a plausible view on settled judicial position on these two issues. 10. Without prejudice to the above, even if it is assumed but not accepted that the Assessing Officer has not conducted proper inquiry on verifiable facts, the inadequacy of inquiry is no ground for exercising ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 9 revisional power u/s 263 of the Act. Similar view was upheld by the Hon’ble High Court of Karnataka in the case of Commissioner of Income Tax, Bangalore vs. Cyber Park Development & Construction Ltd. [2020] 121 taxmann.com 172 where the question presented before the Hon’ble High Court was that “Whether the Tribunal was correct in holding that the assessee having furnished the details that the lease hold rights were intangible assets before the Assessing Officer it should be deemed that the details was deemed to have been examined and relief granted in favour of the assessee by the Assessing Officer and the finding recorded by the Commissioner to the contrary was not correct? ” and the Hon’ble High Court ruled in affirmation to the question stating that “....The Tribunal has held that mere inadequacy of an enquiry or insufficiency of material on record cannot be a ground to invoke powers under section 263 of the Act. The view taken by the Tribunal is in consonance with well settled legal principles....”. 11. Without prejudice to the above, it appears that your goodself in the garb of provision of Section 263 of the Act has started a fishing and roving inquiry for the issue of disallowance of expenditure of Finance Cost, and issue pertaining to the deduction of employee’s contribution for the purpose of Section 36(1)(va) of the Act, which remained verified during scrutiny assessment and are further supported from various judicial precedents. 12. The above fact is supported from the captioned notice itself wherein no basis/finding are provided in the captioned notice as to why the earlier finding of the Assessing Officer was erroneous and prejudicial to the interest of revenue, which itself justify the fact that the sole basis for initiating the revision proceeding u/s 263 of the Act is for making a fishing and roving inquiries against the fact which was duly examined by the Ld. AO. 13. It is trite law that no proceeding under the garb of provision of Section 263 of the Act could be initiated for making a fishing and roving inquiries. In this context, the reliance is invited to judicial precedents: Commissioner to Income-tax v. Gabriel India Ltd [1993] 71 Taxman 585 (Bombay) From a reading 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 records of any proceedings under this Act, he ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 10 considers that any order passed therein by the ITO is 'erroneous insofar as it is prejudicial to the interests of the revenue'. It is not an arbitrary or unchartered power. It can be exercised only on fulfilment of the requirements laid down in sub-section (1). The consideration of the Commissioner as to whether an order is erroneous insofar as it is prejudicial to the interests of the revenue, must be based on materials on the record of the proceedings 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 without 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- [See Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 (SC), at page 10]. 14. From the above discussion it is evident that the Assessment order dated 14.12.2019 is dehors the scope of provision of Section 263 of the Act, because the said section having limited scope to the extent that it is incumbent upon the commissioner to establish that the Assessment order passed was erroneous in so far is prejudicial to the interest of the revenue, which in our case is completely lacking. The order u/s 143(3) of the Act is not erroneous as the order is passed in consonance with the binding decision of Hon’ble Courts 15. It is trite law that, when the Assessing Officer has passed an order in consonance with the law laid down by the binding decision, it cannot be said that the Assessing Officer’s order is erroneous so as to entitle the commissioner to exercise his revision power u/s 263 of the Act. 16. The Assessee places his reliance of settled judicial precedents as follows: Garden Silk Mills Ltd. v. Commissioner of Income-tax [1996] 221 ITR 861 (Gujarat) ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 11 The order of the assessing authority could not be said to be erroneous as he had rendered the decision following the decision of a higher authority or a court on the same point. It was required to be noted that the decisions reached by the Tribunal or the High Court are binding upon the Assessing Officer and discipline demands that he should follow the decision of the Tribunal or the High Court, as the case may be. It is not open for him to ignore the same on the ground that the Tribunal's or the High Court's ruling on the question is the subject-matter of revision or appeal before the higher forum. If he is permitted to take such a view, it would introduce nothing but judicial indiscipline, which is not called for. It would lead to a chaotic situation. The grievance of the revenue may be real and substantial in certain cases but such situation cannot be provided for by judicial interpretation by courts but only by an appropriate agency. Commissioner of Income Tax vs. Paul Brothers (16.10.1992 - BOMHC), Income-tax Reference No. 358 of 1987, MANU/MH/0244/1992 MANU/MH/0244/1992 5. The Calcutta High Court in the case of Russell Properties Pvt. Ltd. v. A. Chowdhury, Addl. CIT MANU/WB/0144/1976 : [1977]109ITR229(Cal) and the Allahabad High Court in K. N. Agrawal v. CIT [1991] 189 ITR 769 have held that where the Income Tax Officer's order is passed on the basis of a binding decision, revisional power under section 263 cannot be exercised to undo the said order. The Income Tax Officer is a quasi-judicial authority and the principle laid down is sound. We endorse the same. 17. In view of the above, no revision u/s 263 of the Act is warranted on this ground also. Taking different view cannot be termed as erroneous: 18. In this context, it is humbly submitted that the view taken by the Ld. AO during scrutiny assessment was after relying upon the settled jurisprudence of provision of Section 14A of the Act, and Section 36(1)(va) of the Act as well as supporting documents submitted by the Assessee. 19. The Assessing officer has taken a plausible view that no interest charges are attributable for earning exempt dividend income and depositing the employees contribution before due date of filing return of ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 12 income is allowable deduction u/s 36(1)(va). The view of the Ld. Assessing Officer cannot be called as erroneous just because of the reason that he has taken a difference plausible view in the current matter from the view being taken by your goodself. Similar issue was presented before the Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83, wherein the Hon’ble Supreme Court held that “Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the ITO is unsustainable in law. “ WITHOUT PREJUDICE TO THE LEGAL CONTENTION RAISED HEREIN ABOVE , THE SUBMISSION OF THE ASSESSEE SUPPORTING THE ORDER OF THE LD. AO NOT BEING ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE ON THE ISSUES RAISED VIDE A IMPUGNED NOTICE ARE MADE AS FOLLOWS: Observation of Ld. AO on Finance Cost and deduction u/s 36(1)(va) of the Act is not erroneous: A. Issue of disallowance u/s 14A of the Act. 20. Without prejudice to the fact that no basis has been provided in the impugned notice as to how the order dated 14.12.2019 is erroneous, even otherwise, the action of the Ld. AO could not be assumed to be “erroneous” for invoking provision of Section 263 of the Act. 21. As far as issue of disallowance u/s 14A of the Act is concerned, it is humbly submitted that all the investment are made by the Assessee for earning exempt dividend income are from surplus own funds/interest free funds only. 22. Further, it is humbly submitted that, the Finance cost being interest expenditure have no nexus/relation in whatsoever manner with the exempt dividend income of the Assessee earned in equities and Mutual Funds. In this context the reliance is invited to the audited ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 13 financial statements of the Assessee Company wherein in the profit and loss account wherein out of the amount of Finance Cost of Rs. 13,99,651/-, the amount of Rs. 7,20,412/- is paid as interest for cash credit limits from various banks and amount of Rs. 6,73,928/- is towards bank charges. 23. Further, it is imperative to bring to your kind attention that as far as bank charges of Rs. 6,73,928/- is concerned, the same being common expense has been considered by the Assessee for disallowance u/s 14A of the Act at Rs.5,347/- calculated as per its detailed working submitted during assessment. The copy of the same is enclosed as Annexure___ for your ready reference. However, expenditure of Rs. 7,20,412/- is a specific expense have been used for the business purposes only and is not attributable for earning any exempt dividend income. Therefore, no disallowance is warranted. 24. Accordingly, being satisfied with the basis of computation of disallowance u/s 14A, the Ld. AO has taken plausible view on allowability of the same which is legally allowed as it is usual that interest free funds would be first utilized for investment rather borrowed funds. The reliance in this context is placed on binding judicial precedents in support of the contentions raised herein above: Commissioner of Income-tax v. Reliance Utilities & Power Ltd. [2009] 178 Taxman 135 (Bombay) If there are funds available both, interest-free and overdraft and/or loans are taken, then a presumption would arise that investments would be out of the interest-free fund generated or available with the company, if the interest-free funds are sufficient to meet the investments. In the instant case said presumption was established considering the findings of fact, both by the Commissioner (Appeals) and the Tribunal. [Para 10] Commissioner of Income-tax, Jalandhar-1, Jalandhar v. Max India Ltd. [2017] 80 taxmann.com 98 (Punjab & Haryana) 9. This presumption is unfounded. Merely because the interestfreefunds with the assessee have decreased during any period, it does not follow that the funds borrowed on interest were utilized for the purpose of investing in assets yielding exempt income. If even after the decrease the assessee has interestfreefunds sufficient to make the investment in assets yielding the exempt income, the presumption that it was such funds that were utilized for the said ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 14 investment remains. There is no reason for it not to. The basis of the presumption as we will elaborate later is that an assessee would invest its funds to its advantage. It gains nothing by investing interestfreefunds towards other assets merely on account of the interestfreefunds having decreased. In that event so long as even after the decrease thereof there are sufficient interestfreefunds the presumption that they would be first used to invest in assets yielding exempt income applies with equal force." Commissioner of Income-tax-III, Pune v. Sharada Erectors (P.) Ltd. [2016] 76 taxmann.com 107 (Bombay) 7. On the examination of the Remand Report of the Assessing Officer and the submission of the Assessee, the Tribunal in the impugned order rendered a finding of fact that the Respondent-Assessee had its own sufficient funds available to make advances it had made to its sister concern. This on the basis that the assertions of Respondent-Assessee to the above effect were not controverted before the Tribunal at the time of hearing nor in the remand report of the Assessing Officer. The Tribunal in its impugned order also placed reliance upon the decision of this Court in CIT v. Reliance Utilities & Power Ltd. [2009] 313 ITR 340/178 Taxman 135 (Bom.) to hold that where interest- freefunds available with an Assessee are sufficient to meet its investment then it shall be presumed that the investments have been made from interest-freefunds available and not out of borrowed funds. Thus, holding that disallowance of partial interest paid on loan taken by the Respondent-Assessee, was not justified. 25. The view taken by the Ld. AO, in view of the aforesaid facts and circumstances and having regard to judicial precedents discussed above, is not erroneous as well as prejudicial to interest of revenue as the Ld. AO has taken legally justifiable view on the issue of disallowance u/s 14A of the Act. In other words, having satisfied with the method adopted by the Assessee in determining the expenditure incurred on the exempt dividend income, as well as correctness of the claim of the Assessee and further in utmost regard to the settled jurisprudence of provision of Section 14A of the Act, the Ld. AO after making a detailed inquiry has not disputed the working related to the disallowance of Rs. 1,20,000/- made by the Assessee. Accordingly, Rule 8D of Income Tax Rules, 1962 has no applicability in the present case. Thus, no interference is required in the order of the Ld. AO. ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 15 26. In this context, the relevant extract of rule 8D of Income Tax Rule is reproduced herein below for your kind perusal: 8D. (1) Where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with— (a) the correctness of the claim of expenditure made by the assessee; or (b) the claim made by the assessee that no expenditure has been incurred, in relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2). 27. From the bare perusal of the Rule 8D of Income Tax Rules, it is evident that the applicability of the said rule is arises only after dissatisfaction of the Assessing Officer with respect to the correctness of claim of expenditure on exempt income. In the present case, having satisfied with the correctness of the claim , the case of the Assessee is outside the scope of Rule 8D. Even otherwise, direct resort to rule 8D is not permitted as per plain language of the Section 14A(2) of the Act, which reads as under: 14A. (1) For the purposes of computing the total income under this Chapter, 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. (2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed 1 , if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. (3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act : Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 16 enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001. 28. The correctness of the claim of the Assessee for the purpose of Section 14A read with Rule 8D is further supported from the fact that no expenditure in the nature of interest expenditure was incurred for earning exempt income as interest free funds were available with the Assessee, which was duly explained and submitted during assessment proceedings. 29. Without prejudice to the above, it is humbly submitted that beside the fact that the Assessing Officer has conducted the detailed inquiry with respect to the specific issue of disallowance u/s 14A of the Act, the Assessee has submitted various documentary evidences such as breakup of Finance Cost, Investment sheet, on perusal of the same, it is established that interest cost of Rs. 7,25,723/- have no bearing on exempt dividend income of the Assessee. Accordingly, there is no deviation for correctness of claim made by Assessee. 30. In view of above, from the face of documentary evidence submitted during scrutiny assessment, it is ostensibly clear that though investment in equities/MF were made out of interest free funds as credit limit was not utilized for said purpose. Accordingly in the absence of utilization of cash credit limit for making any investment, no interest charges could be said to be attributable to earning exempt income. 31. All the investment made in equities and MF were from surplus own funds. In support of the same bank statement as well as breakup of investment chart was submitted which is self-speaking in nature and further support and establish the fact that the Assessee having sufficient funds for making any investment in MF and equities. Therefore, no borrowed funds were utilized by the Assessee for making any investment. Accordingly, with respect to the issue pertaining to disallowance of expenditure u/s 14A of the Act, the Assessment order dated 14.12.2019 is not “erroneous in so far as prejudicial to interest of revenue” to fall within the scope of Section 263 of the Act. B. Issue of deduction u/s 36(1)(va) of the Act ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 17 32. As far as observation of the Assessing Officer with respect to the issue of deduction u/s 36(1)(va) of the Act is concerned, in this context, it is humbly submitted that assessment proceeding u/s 143(3) of the Act was completed based upon the reply dated 10.12.2019 filed along with justification of claim of deduction of Rs. 231681/-, and relied upon judgment of the jurisdictional High Court affirmed by Hon’ble Apex court in the case of CIT VS Rajasthan State Beverage Corpn . Ltd. [2017] 84 taxmann.com 185(SC). The Ld. AO accordingly taking judicious view on the allowability of deduction, has allowed the same vide assessment order dated 19.12.2019 passed u/s 143(3) of the Act. 33. Without prejudice to above, it is submitted that for the month of January 2017, the PF amount was deposited within the extended due date under the relevant statue. 34. From the above, it is evident that the Ld. AO has passed the assessment order with respect to both the issues after taking into consideration the jurisprudence of the respective section as interpreted by various Hon’ble Courts, which are binding upon the lower authorities. The said plausible and reasonable view of the Ld. AO does not render his assessment order erroneous as well as prejudicial to interest of revenue for exercise of power u/s 263 of the Act. 35. In view of the above, it is evident that the order passed dated 14.12.2019 is not erroneous as well as prejudicial to interest of revenue, as the order passed by the Ld. AO is in light of the binding decision of Hon’ble Courts and on verification/examination of facts. Therefore, proposed revision proceeding is prayed to be dropped by your goodself. In any case, opportunity of being heard may kindly be provided to the Assessee before taking any adverse action against the Assessee.” 6. From the reply of the assessee in the proceeding before her, she stated that the she has considered the facts of the case, written submissions along with enclosures filed by the assessee. She further stated the contentions raised by the assessee is not ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 18 tenable. The issue of disallowance to be made u/s. 14A of the Act is not disputed by the assessee and has disallowed the amount but in the assessment proceedings a query letter issued by the Assessing Officer. Though the assessing officer show caused for making disallowance as per Rule 8D of the Income Tax Rules, but did not conduct proper verification whether the amount or disallowance made by the assessee itself was as per the method provided in Rule 8D or not. Thus, she believed that the assessing officer failed to make proper verification of the amount of disallowance made u/s. 14A by the assessee even though the same was not worked as per the prescribed rule. As regards the issue of disallowance u/s. 36(1)(va) of the Act, the provision of section are clear that deduction under this section is restricted to the employees account in the relevant fund or funds on or before the “due date” and the due date is also defined. Since, the assessee has deposited the sum beyond the prescribed due dates the said sums were not allowable. Thus, the assessing officer failed to examine the facts of the case and apply the correct provision of law. Thus, based on these observations and the various decision cited in her order she hold a view that the order passed by the ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 19 assessing officer is prejudicial and erroneous. The relevant observations is extracted here in below : “7. Accordingly, by virtue of powers conferred on the undersigned under the provisions of section 263 of the Income-tax Act, 1961, I hold that the order passed by the Assessing Officer u/s 143 (3) of the IT Act, 1961 dated 14.12.2019 for AY 2017-18, is erroneous in so far it is prejudicial to the interest of revenue as the said order has been passed by the Assessing Officer in a routine and perfunctory manner without verifying the amount of disallowance u/s 14A of the IT Act and not verifying the quantum of the allowance to be made u/s 36(1)(va). The order of the Assessing Officer is therefore, liable to revision under the Explanation-2 clause (b) and clause (a) of Section 263 of the Income- tax Act, 1961. Hence, the assessment order is set aside for doing it de- novo in the light of the observation made in this order and with direction to the Assessing Officer to verify and examine and finalize the assessment in accordance with the prevailing law; quantify the correct income of the assessee liable to tax for AY 2017-18 after according reasonable opportunity to the assessee. 8. The assessment order u/s 143(3) of the I.T. Act for the A.Y. 2017-18 dated: 14.12.2019 was passed by the Assessing Officer in this case, without making proper enquiries or without doing any verification of the issue as discussed in preceding paras The order of the AO is, therefore, liable to revision under the explanation (2) clause (b) and clause (a) of section 263 of the income tax act. Thus, both issues have remained unverified and required examination. Hence, assessment order u/s 143(3) of the I.T. Act for the A.Y. 2017-18 dated 14.12.2019 is erroneous and prejudicial to interest of revenue. The same is therefore set-aside to the file of AQ, with the direction to pass fresh assessment order after conducting proper verification and enquiries on the above issues as directed in earlier paragraphs of this order and based on outcome of such enquiries and verification, he is directed to take appropriate action as per law. However, the AO is directed to ensure that reasonable opportunity of being heard is accorded to the assessee before passing the order.” 7. Aggrieved from the said order of the ld. Pr. CIT the assessee carried the matter in appeal before us challenging the order passed u/s. 263 of the Act. On merits the ld. AR appearing on behalf of the ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 20 assessee submitted a detailed written submission and the same is extracted here in below: “1. The Appellant is private limited company engaged in the production of grinding media and various casting product. The Appellant for the year under consideration has filed its original return of income u/s 139(1) of the Act on 14.10.2017 declaring income of Rs. 6,88,75,950/-, which was subsequently revised u/s 139(5) of the Act on 04.07.2018 at total income of Rs. 6,89,95,950/-. 2. The return income filed by the Appellant was duly processed u/s 143(1) of the Act. After which, the case of the Appellant was selected for complete scrutiny with issuance of notice u/s 143(2) of the Act. During the assessment proceedings, the notice u/s 142(1) of the Act was issued on 07.11.2019 (PB No. 20-22) wherein the Ld. AO also raised specific query with respect to the two relevant issues being deduction u/s 36(1)(a) of the Act and disallowance u/s 14A of the Act. The relevant extract of the notice issued u/s 142(1) of the Act is reproduced herein below for ready reference: Notice dated 07.11.2019 2.Provide why the employee contributions received for PF fund and ESI fund but deposited to the respective fund after due date should not be treated as your income for AY 2017-18 as per the provisions of section 36(1)(va). 3. Provide if any disallowance has been made in the ITR for expenditure incurred for earning exempt income. If yes, provide a working note on the same and if not, justify why disallowance should not be made as per the provisions of section 14A of the Act and Rule 8D. 3. In response to the query raised, the Assessee submitted its reply dated 10.12.2019 (copy of which is available at page no. 23-34 of PB) wherein Assessee submitted detailed justification with respect to both the query raised by the Ld. AO which is also duly supported from the verifiable documentary evidence submitted as well as binding judicial precedent as far as the claim of allowability of the same is concerned. 4. With respect to the query regarding employee contribution received for PF Fund and ESI fund, the Appellant strenuously submitted in its reply dated 10.12.2019 that the Appellant has deposited the employee’s contribution to the relevant fund within extended due date of the respective Act as evident from PF notification ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 21 no. 26308 dated 12.01.2017 (PB No. 35). Beside this the employee’s contribution was also deposited before due date of filing return of income in some cases. The Appellant also placed on records relevant judicial precedents including the binding judicial precedent of Jurisdictional High Court on the relevant issues under consideration. 5. Further with respect to the query raised against the disallowance u/s 14A of the Act, the Appellant submitted detailed working note duly justifying the disallowance of Rs. 1,20,000/- made by the Appellant u/s 14A of the Act in respect of common and other administrative expenditures incurred also in relation to earning exempt income. The said working note was duly verified by the Ld. AO during the assessment proceedings and having regard to proper allocation of expenses attributable to earning exempt income and appreciation of the fact that no borrowed funds were utilized for investment, the Ld. AO accepted the claim of suo-moto disallowance made Assessee after due verification of working submitted with relevant documents submitted. 6. After due verification of records and having regard to well settled judicial precedents, the Ld. AO passed the assessment order on 14.12.2019 in accordance with the applicable law. 7. Thereafter, the Ld. the Principal Commissioner of Income tax (PCIT), Udaipur without any inquiry or verification or examination and against the records, considered the Assessment Order dated 14.12.2019 for revision by invalidly invoking provisions of Section 263 of the Act. 8. In the impugned show cause dated 26.02.2022/08.03.2022 issued during proceedings u/s 263 of the Act, Ld. PCIT alleged that the assessment order passed by Ld. AO dated 14.12.2019 was erroneous and prejudicial to the interest of revenue on the whimsical grounds in respect of two relevant issues that: a. Ld. AO allowed deduction u/s 36(1)(va) of the Act, without inquiry and verification (as against the fact that the Assessing Officer duly examined and verified the claim after considering detailed reply dated 10.12.2019 submitted during assessment proceedings) b. Ld. AO while considering the disallowance u/s 14A of the Act, did not included major amount of Finance Cost i.e. interest expenditure of Rs. 7,20,412/- (as against the factual position well placed during assessment proceedings and duly verified by Ld. AO that no interest expenditure was incurred for earning exempt income as whatever investments were made, the same were from interest free funds). ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 22 9. The copy of show cause notice is available at page no. 45-48 of Paper Book. Against the said show cause notice dated 08.03.2022, Assessee submitted its reply 16.03.2022 though against the notice dated 26.02.2022, adjournment was filed by Assessee. The said notice and reply are available at Page 45-48 and 49-63 respectively of Paper Book. 10. In the reply dated 16.03.2022 the Appellant submitted its written submission, wherein Appellant countered the very assumption of jurisdiction u/s 263 of the Act on various grounds, which are summarized herein below for your kind perusal: 10.1 The Ld. AO passed order dated 14.12.2019 after making detailed inquiries and verification of records submitted during course of assessment proceeding. 10.2 Assessment order passed is not erroneous as the order is passed in consonance with the binding decision of the Hon’ble Court and in accordance with applicable law. 10.3 Taking of different view against settled jurisprudence of provision of Section 14A and 36(1) va of the Act cannot be considered as erroneous. 10.4 Ld. AO took plausible view while allowing expenditure or deduction to Assessee, which view was in accordance with law 10.5 Show cause notice failed to establish as to how the order dated 14.12.2019 is erroneous for invoking provision of Section 263 of the Act. The said reply forms part of the paper book and is available at page no. 49-63 of said paper book. 11 Thereafter, the Ld. PCIT without appreciating the documentary evidences placed on record and without appreciating that Ld. AO conducted due inquiry and verification, passed the Order u/s 263 of the Act on 26.03.2022(”Impugned Order” for short) by allegedly concluding that the order passed by the Ld. AO is erroneous in so far as prejudicial to the interest of the revenue as per provision contained under Section 263 of the Act and directed the Ld. AO to make a fresh assessment after conducting proper enquiries. 12 In the Impugned Order, the Ld. PCIT proposed the following disallowance as against the law applicable for the assessment year under consideration: ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 23 • Disallowance as per Rule 8D amounting to Rs. 7,07,227/- after wrongly taking interest expenditure into consideration despite the fact no such expenditure was incurred for earning exempt income • Disallowance of Employee’s contribution for Rs. 2,31,681/- u/s 36(1)(va) of the Act, though the contribution was deposited on due time and before due date of return of income. 13 Aggrieved by the said order of Ld. PCIT the Appellant filed appeal before your good self on the various grounds, against which the submissions are made as under: “GROUND NO.1 Under the facts and the circumstances of the case and in law, the Ld. PCIT, Udaipur failed to appreciate that the Assessment Order was neither erroneous nor prejudicial to the interest of revenue, thus, order passed u/s 263 of the Act is perverse, arbitrary, bad in law and without jurisdiction. SUBMISSIONS 14. At the very outset, it is humbly submitted that the Ld. PCIT, has mechanically invoked the Section 263 of the Act without considering the Assessment Order passed by the Ld. AO and without going through the assessment records which establishes beyond doubt that proper inquiries were done in detail and post which assessment of the Appellant was completed by order dated 14.12.2019. 15. Section 263 of the Act inter alia empowers the PCIT or Commissioner to examine the record of any proceeding under the Act and in case, it is found that the order passed the by the Ld. AO is erroneous and prejudicial to the interest of revenue, then the PCIT or Commissioner can revise such order or can direct to the AO to pass a fresh Assessment Order. The relevant extract of said section is being reproduced herein below for your ready reference: "Section 263. Revision of orders prejudicial to revenue. (1) The Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment." ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 24 16. After having going through the above provision, it is evident that before invoking the provision of this section following two conditions must be satisfy simultaneously: a. Order passed by the Assessing Officer is erroneous and b. Prejudicial to the interest of the revenue. 17. 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. 18. Further, an order cannot be termed erroneous unless it can be shown to be an order, which is not in accordance with law. If the Ld. AO, acting in accordance with law, makes certain assessment, the same cannot be termed as erroneous by the Ld. PCIT merely because revenue wants assessment to be in different manner. In this context, reliance is placed on following judicial pronouncement: • NABHA INVESTMENTS (P.) LTD. V. UNION OF INDIA [2000] 112 TAXMAN 465 (DELHI) • Commissioner of Income-tax vs. Gabriel India Ltd. [1993] 71 Taxman 585 (Bom.) • J.P. Srivastava & Sons (Kanpur) Ltd. vs. Commissioner of Income-Tax {1978] 111 ITR 326 (ALL.) • 19. In light of the above, the Appellant humbly submits that during the assessment proceedings, various notices were issued including notice u/s 142(1) of the Act dated 07.11.2019 was issued by the Ld. AO specifically asking for information in order to verify the disallowance made by the Appellant u/s 14A of the Act and reasons as to why employee's contribution received for PF Fund and ESI Fund deposited during the extended period of respective Act and before due date of filing return of income should not be treated as income of the Appellant as per provision of Section 36(1)(va) of the Act. The copy of the abovementioned notice is available at Page no. 20-22 of paper book for your reference. 20. In response to such notices, reply in detail dated 10.12.2019 was filed by the Appellant wherein each and every question raised by the Ld. AO was answered and later on verified by Ld. AO himself. Accordingly, after proper verification of the claim of the Appellant, the Ld. AO was satisfied with the claim of the Appellant, which action of the Ld. AO is also justified in view of settled and binding judicial ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 25 precedents. The copy of the reply dated 10.12.2019 is available at Page no. 23-34 of paper book. 21. It is further reiterated that the Ld. AO after conducting inquiry and after going through the details/information in as much as after verifying the documents produced for verification regarding working note on disallowance made by the Appellant u/s 14A of the Act and having regard to settled jurisprudence of provision of Section 36(1)(va) of the Act took a plausible view for making assessment after accepting the claim of the Appellant. Further, for passing the assessment order Ld. AO also complied with the requisite procedure to be followed by him as per Income Tax Act. Hence, it is evident that the Ld. AO passed an order in accordance with the law and thus, it cannot be termed as erroneous. 22. It is pertinent to mention here that the first notice of the assessment proceedings u/s 143(2) of the Act was issued on 27.09.2018 whereas assessment was completed on 14.12.2019 which itself establishes that that ample time was taken by the Ld. AO to analyze, check and verify the assessment documents/ details in all aspects. Thus, it is only after examination of documents and settled judicial precedents, the Ld. AO took plausible view of allowing the expenditures to Assessee. 23. It is claimed in the Impugned Order that Ld. PCIT has exercised its power u/s 263 of the Act by invoking Explanation 2 clause(a) and clause(b) of the Section 263 of the Act. At the outset, it is humbly submitted that Ld. PCIT has directly invoked the clause (a) and (b) of Explanation 2 to Section 263, (though the same are not applicable) in its Impugned Order, the same was not part of the show cause notice issued during the proceedings. 24. In this context, relevant extract of Explanation 2 of Section 263 of the Act is reproduced herein below for ready reference: Section 263: Revision of orders prejudicial to revenue. (1) The "[Principal Chief Commissioner or Chief Commissioner or Principal Commissioner] or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer for the Transfer Pricing Officer, as the case may be, is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including- (i) an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment; or (ii) an order modifying the order under section 92CA: or ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 26 (ii) an order cancelling the order under section 97CA and directing a fresh order under the said section] Explanation 1.-For the removal of doubts, it is hereby declared that, for the purposes of this sub-section. (a) an order passed on or before or after the 1st day of June, 1988] by the Assessing Officer for the Transfer Pricing Officer, as the case may be, I shall include (f) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income-tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A: (i) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer for the Transfer Pricing Officer, as the case may be.] conferred on, or assigned to, him under the orders or directions issued by the Board or by the Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General or Principal Commissioner or Commissioner authorised by the Board in this behalf under section 120; (iii) an order under section 92CA by the Transfer Pricing Officer:] (b) "record" shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Principal Chief Commissioner or Chief Commissioner or Principal] Commissioner or Commissioner; (c) where any order referred to in this sub-section and passed by the Assessing Officer for the Transfer Pricing Officer, as the case may be.I had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Principal Commissioner or Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal. Explanation 2.-For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer 24[or the Transfer Pricing Officer, as the case may be] shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion se the Principal [Chief Commissioner or Chief Commissioner Principal] Commissioner or Commissioner, - (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 27 Court or Supreme Court in the case of the assessee or any other person. 25. From the bare perusal of the aforesaid section, it is evident that for exercising power u/s 263 of the Act by taking resort to clause (a) and (b) of Explanation 2 to said Section, it is necessary that the case of the Assessee falls under any of the clauses (a) to clause(d) of Explanation 2 to Section 263 of the Act, which is entirely not applicable in case of Appellant, as explained herein below: Non-Applicability of Clause (a) of Explanation 2 to Section 263 of the Act 26. From the bare perusal of clause (a) of Explanation 2 to Section 263 of the Act, it is evident that the said clause is applicable under the circumstances wherein the assessment order is passed without making inquiry which a reasonable or prudent officer would have carried out. In other words, before invoking clause (a) of Explanation 2 to Section 263 of the Act, it is incumbent upon the Ld. PCIT to show that enquiries conducted by the AO was not in accordance with the enquiries or verification that would have been carried out by prudent officer. Since in the instance case, the Ld. AO carried out enquiries as required under the law, therefore, the assessment order is not attracted by clause (a) of Explanation 2 to Section 263 of the Act. • Narayan Tatu Rane vs. Income-tax Officer, Ward 27(1)(1), Mumbai [2016] 70 taxmann.com 227 (Mumbai – Trib.) 28. In the present case the Assessment Order was passed after making detail enquiry with respect to the issue of disallowance made u/s 14A of the Act and with respect to the deduction of employee's contribution for the purpose of Section 36(1)(va) of the Act as evident from the notice dated 07.11.2019 and reply filed in response thereto on 10.12.2019. Thus, the Ld. AO has conducted the reasonable inquiry which a prudent officer is expected to do so as evident from bare perusal of the said notice. Accordingly, the Appellant in response to the notice dated 07.11.2019 necessary details/reply to the questionnaires was filed/produced by the Appellant and the same were examined by the Ld. AO, therefore, it is not a case of wherein the assessment is carrie out without inquiries or verification as the Ld. AO has made detailed inquiries and applied his mind on the documents/submission made by the Appellant during assessment proceedings. 29. In view of the above, the Ld. PCIT has grossly erred in invoking the powers u/s 263 as it is a settled law that no revision order can be passed by the Ld. PCIT u/s 263 of the Act, where on part of the Ld. AO detailed enquiry has already been made. In support of the contentions ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 28 raised herein above, reliance is placed on following judicial pronouncements: • Commissioner of Income tax, Central –III vs. Nirav Modi [2017] 291 CTR 245 (Bombay) • Torrent Pharmaceuticals Ltd. vs. Deputy Commissioner of Income-tax, Circle-4(1)(2), Ahmedabad [2018] 97 taxmann.com 671 (Ahmedabad-Trib.) 30. In view of the above, the Ld. PCIT was not justified in arbitrarily holding that her action are supported by clause (a) of the Explanation 2 to Section 263 of the Act. Non Applicability of Clause (b) of Explanation 2 to Section 263 31. As far as invoking clause (b) of Explanation 2 to Section 263 is concerned, in this regard it is submitted that said clause is also not applicable to the assessment order passed by Ld. AO as the same have very limited applicability to the extent if the Assessment Order passed by the Assessing Officer is without inquiring into the claim of the Appellant. 32. As stated above the claim of the Appellant with respect to the issue of disallowance u/s 14A of the Act and deduction u/s 36(1)(va) of the Act was duly enquired by the Ld. AO vide query notice u/s 142(1) of the Act dated 07.11.2019 issued during assessment proceedings. Therefore, resort to clause (b) of Explanation 2 to Section 263 of the Act, taken by the Ld. PCIT is not legally tenable. 33. That, the very basis on account of which the Ld. PCIT has directly taken resort of clause (a) and clause (b) of Explanation 2 to Section 263 of the Act is mentioned as under in the Impugned Order: "The assessment order u/s 143(3) of the 1.T. Act for the A.Y. 2017-18 dated: 14.12.2019 was passed by the Assessing Officer in this case, without making proper enquiries or without doing any verification of the issue as discussed in preceding paras.". 34. In this context, it is humbly submitted that aforesaid findings of the Ld. PCIT are factually incorrect having regard to the fact that the specific query was raised during the assessment proceeding as evident from the notice issued u/s 142(1) of the Act dated 07.11.2019, therefore it is not case wherein no exercise of verification was done by the Ld. AO. Accordingly, the Appellant is outside the scope of clause (a) and clause (b) of Explanation 2 to Section 263 of the Act. Hence the action of the Ld. PCIT u/s 263 of the Act is not justified and accordingly deserves to be set aside by Hon'ble Bench. ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 29 35. Without prejudice to the above, it is further submitted before your goodself that in the show cause notice dated 26.02.2022, there is no discussion regarding invocation of clause(a) and clause (b) of Explanation 2 to Section 263 of the Act. Rather, the Ld. PCIT directly in the Impugned Order has invoked clause(a) and clause (b) of Explanation 2 to Section 263 of the Act, which is in gross violation of principle of natural justice as the action of Ld. PCIT is beyond the scope of show cause notice issued during the proceedings. 36. In this context, reliance is placed on the decision of Hon'ble Apex Court in case of Principal Commissioner of Income-tax, Surat-2 v. Shreeji Prints (P.) Ltd. [2021] 130 taxmann.com 294 (SC), wherein it was held that: .....It was contended by the Learned Counsel that clause (a) & (b) of Explanation 2 of Section 263 are not applicable as the Assessing Officer has made enquiry and verification which should have been made. Further, in the show cause notice, the Explanation-2 of section 263 was not invoked by the PCIT and it was referred in the order u/s.263 of the Act. Therefore, in the light of decision of the Co-ordinate Bench of Mumbai ga in the case of Narayan Tatu Rane 70 taxmann.com 227 (Mum. Trt.) [PB 153-1561 wherein held that explanation cannot laid to have over ridden the law as interpreted/the various High Courts where the High Courts have held that before reaching the conclusion that the order of the Assessing Officer is erroneous prejudicial to the interest of Revenue. The CIT himself has to undertake some enquiry to establish that the assessment order is erroneous and prejudicial to the interest of Revenue..... 37. Without prejudice to the above, it is submitted that as per the mandate under the law, the Ld. PCIT before invoking provision of Section 263 of the Act, needs to conduct adequate inquiry so as to justify that the case of the Assessee is fit case for exercising revisionary power u/ s 263 of the Act. In the present case without conducing any inquiry and verification of records, the Ld. PCIT directly came to conclusion and passed the Impugned Order. 38. There was no independent inquiry conducted by the Ld. PCIT on both the issues against which the Ld. PCIT has exercised its revisionary power u/ s 263 of the Act. With respect to the disallowance u/ s, 14A of the Act is concerned, there was no independent inquiry conducted by Ld. PCIT on verifiable facts whether the investment made is from borrowed funds or surplus own funds/interest-free funds, before concluding that the interest expenditure is attributable to earning exempt dividend income. With respect to the disallowance u/s 36(1)(va) of the Act, there was also no inquiry conducted by Ld. PCIT to check whether the employee's contribution was deposited after the due date of the respective act, ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 30 as against the fact that the employee's contribution was deposited within the extended due date of the respective Act and before filing return of income. 39. It is trite law that Ld. PCIT is required to give specific findings and conduct adequate inquiries to establish how the assessment order was passed not in accordance with law to fall within the meaning of erroneous and prejudicial to interest of revenue. However, no such attempt and finding are made by Ld. PCIT in Impugned Order, thus assumption of jurisdiction u/s 263 of the Act is invalid and bad in law. In this context, reliance is placed on following judicial pronouncements: Principal Commissioner of Income-tax Vs. Delhi Airport Metro Express (P.) Ltd [2018] 99 taxmann.com 382 (Delhi) Sh. Sanjay Jain vs The PCIT, (Central) Ludhiana, ITA No. 140/CHD/2021 40. Without prejudice to the above, as stated above during the assessment proceedings the Ld. AO has made detailed inquiries and verification and the assessment order was passed by the Ld. AO taking the view in the light of relevant law applicable in this regard. However, the different view being taken by the Ld. PCIT on the same issue, against the settled judicial precedent and the basis of factually incorrect findings cannot be basis to invoke provisions of section 263 of the Act. 41. It is settled judicial law, if there are two plausible view possible on any legal position and ld. Assessing Officer has taken plausible view based on binding judicial precedents and applicable law, the order of Ld. AO cannot be held erroneous and prejudicial to interest to invoke provision of Section 263 of the Act. The said contentions of the Appellant are supported by following judicial precedents: Commissioner of Income-tax v. Gokuldas Exports [2011] 333 ITR 214 (Karnataka) Commissioner of Income-tax v. Srinivasa Hatcheries (P.) Ltd. [2015] 60 taxmann.com 207 (Andhra Pradesh and Telangana) 42. Furthermore, the second limb to invoke Section 263 of the Act is that the order passed by the Assessing Officer should be "prejudicial to the interests of the revenue". Therefore, the said limb ought to be understood so as to understand what can be classified as 'prejudicial to the interests of revenue'. As the said phrase hasn't been defined under the law, legal precedents may be perused regarding the same. Some relevant extracts have been reproduced hereunder for ready reference: The judgement of Delhi High Court in the case of P.C. Puri v. CIT [1984] 18 Taxman 158 (Delhi) [23.02.1984] Though not defined, the term 'prejudicial to the interests of the means that the lawful revenue due to the State has not been realised. [Para 6] ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 31 43. Thus, in view of the above all the submissions made, it is evident that detailed inquires and requisites notices as prescribed by law have been issued to the Appellant by Ld. AO, in response to which necessary documents have been furnished by the Appellant during the assessment proceedings which have been examined and verified by AO. Further, the issues under consideration are also not prejudicial to the interests of revenue as the same is merely a change of opinion. Thus, the case of the Appellant neither falls within the ambit of the "erroneous" nor in so far as "prejudicial to the interest of revenue" as mentioned in the Section 263 of the Act. Therefore, it is evident that the Ld. PCIT has legally erred in holding that the impugned assessment order was erroneous and prejudicial to the interest of revenue. Hence, the impugned order u/ s 263 is without jurisdiction and not maintainable. 44. Thus, the Assessment order passed by the Assessing Officer is not prejudicial to the interest of revenue as whatever revenue which revenue is lawfully eligible to generate has already been generated, considering the fact that revenue has passed the order within the parameters of binding judicial precedents and having regard to the law applicable during that assessment year under consideration. By no stretch of imagination, the Assessment Order could be assumed to be prejudicial to the interest of revenue as what is lawfully required to be done has been done, and there is no lawfully loss of revenue to the tax authorities. 45. Further, it is humbly submitted that just because in subsequent year different view is possible due to change in law, though not applicable in the year under consideration, the view taken by the ld. AO having regard to the law applicable during that assessment year cannot be said to be prejudicial to the interest of revenue. As Income Tax Authorities, being a quasi-judicial body are bound to act within the four corners of law as applicable for that year. 46. The above contentions of the Appellant are supported by order of Hon'ble Apex Court in the case of Malabar Industrial Co. Ltd. v. Commissioner of Income-tax [2000] 109 Taxman 66 (SC), wherein the Hon'ble Court has interpreted the meaning of word " prejudicial", the relevant extract of the judgment is reproduced herein below for your kind perusal: The phrase prejudicial to the interests of the revenue' is not an expression of art and is not defined in the Act. Understood in its ordinary meaning, it is of wide import and is not confined to loss of tax. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the revenue. If due to an erroneous order of the ITO, the revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the revenue. ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 32 47. The view taken by the Ld. AO that employee's contribution u/ s 36(1)(va) of the Act deposited within the extended due date of the respective Act, and before due date of filing return of income is allowable deduction, considering the binding decision of jurisdictional High Court. Merely because amendment are brought upon by the Finance Act, 2021 u/ s 36(1)(va) of the Act, which are unforeseen, and is also not applicable for the year under consideration, the plausible view taken by the Ld. AO cannot be said to be prejudicial to the interest of revenue. Besides this the plausible view taken by the Ld. AO with respect to the disallowance made by the Appellant u/ s 14A of the Act, because correctness of suo-moto disallowance was not disputed having regard to nature of accounts of the assessee, rule 8D is not automatically applicable. Accordingly, the Assessment Order cannot be said to be prejudicial to the interest of revenue. 48. It is further submitted that the case of the Appellant is squarely covered by various judicial pronouncements wherein on the similar issue jurisdiction of the Ld. PCIT u/s 263 of the Act was not upheld and order u/s 263 of the Act was set aside. The excerpts of some of these judgments are mentioned herein below, which is relied upon by the Appellant: Commissioner of Income-tax v. Future Corporate Resources Ltd [2021] 132 taxmann.com 173 (Bombay) Commissioner of Income Tax, Bangalore vs. Chemsworth (P) Ltd. (2020) 119 taxmann.com 358 (Karnataka) Shringar Marketing (P.) Ltd. v. Principal Commissioner of Income-tax-4, Kolkata [2021] 128 taxmann.com 199 (Kolkata Trib.) 48. In view of the above, Impugned Order passed u/s 263 is without authority of law and Ld. PCIT was not justified in exercising jurisdiction u/s 263 of the Act. GROUND NO. 2 Under the facts and the circumstances of the case and in law, the Ld. PCIT, has erred in passing the Impugned Order without providing an adequate opportunity of being heard: SUBMISSIONS 50. In this context, it is humbly submitted that the Impugned Order dated 26.03.2022 is without providing an adequate opportunity of being heard and accordingly the Impugned Order deserves to be set aside, as the same is in violation of principle of natural justice. 51. It is humbly submitted that against the show cause notice dated 26.02.2022, the Appellant has submitted its detail reply dated 16.03.2022 and has sought the opportunity of being heard by way of appearance before the Ld. PCIT. Though the specific request of the Appellant seeking for appearance in the captioned matter has not been provided by the Ld. PCIT and arbitrarily passed the Impugned Order. 52. Besides this the Impugned Order passed is outside the scope of show cause notice as in the impugned show cause notice the Ld. PCIT failed to specify the limb under which the Ld. PCIT is exercising its ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 33 revisionary power u/s 263 of the Act and even the reply made by the Appellant in response to the show cause notice has skipped the Ld. PCIT attention and even the Ld. PCIT failed to adduced any findings as to how the reply of the Appellant was not tenable. 53. In view of the above, the Impugned Order passed is without providing an adequate opportunity of being head, therefore, it is humbly requested before your goodself to provide appropriate/consequential relief to the Appellant. GROUND NO. 3 Under the facts and the circumstances of the case and in law, the Ld. PCIT, Udaipur has grossly erred in holding that the Assessing Officer has failed to make proper enquiry without appreciating that specific query was raised in the assessment proceeding on the issues of: • Computation of disallowance of expenditure u/s 14A of the Act • Deduction of employee's contribution for the purpose of Section 36(1)(va) of the Act. FACTS: The relevant facts of the ground under consideration has been stated in Brief Facts in initial paras of this submission and the same are not repeated for the sake of brevity. Findings or Allegations of Ld. PCIT: 1. I hold that the order passed by the Assessing Officer u/s 143 (3) of the IT Act, 1961 dated 14.12.2019 for AY 2017-18, is erroneous in so far it is prejudicial to the interest of revenue. 2. as the said order has been passed by the Assessing Officer in a routine and perfunctory manner 3. without verifying the amount of disallowance u/s 14A of the IT Act and not verifying the quantum of the allowance to be made u/s 36(1)(va). SUBMISSIONS 54. At the very outset, it is humbly submitted that Ld. PCIT is factually and legally incorrect to hold that Ld. AO did not make inquiry or verification as required under the law. As stated above, the Ld. AO during the course of assessment proceeding enquired about disallowance made by the Appellant u/s 14A of the Act and also enquired about the deposit of the employee contribution u/s 36(1) of the Act. Thus deduction u/s 36(1)(va) of the Act and suo motto disallowance made by the Appellant u/s 14A of the Act was duly verified and examined by the Ld. AO and was undisputedly allowed while passing the Order u/s 143(3) of the Act. 55. The Ld.AO has categorically recorded following findings in the Assessment order. “4. The assessee company submitted the documents and evidences called for during the assessment proceedings. On examination of these documents, no adverse inference has been made. Therefore, the total income of the assessee is accepted at return income." 56. It is pertinent to note that the Ld. AO has taken consideration of the submissions made by the Appellant including with respect to claim of ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 34 deduction under Section 36(1)(va) of the Act and working related to disallowance made by the Appellant u/s 14A of the Act and made no addition in the relevant section to the returned income. Therefore, the Ld. AO after duly applying his mind and examining the information and documents placed before him vis a vis applicable law concluded the assessment, wherein deduction u/s 36(1)(va) of the Act was allowed as employee's contribution was deposited during extended period of relevant act and before due date of filing return of income. Further working on disallowance u/s 14A of the Act was justifiable in view of the fact that interest expense not attributable for earning exempt dividend income, therefore, there was no incorrectness in the claim of the Assessee. Accordingly resort to rule 8D was not justified in view of specific provisions of Section 14A of the Act. The said view taken by the Ld. AO while passing assessment order is justified in view of binding judicial precedents and jurisdictional High Court judgment as discussed in detail in submissions pertaining to relevant ground of appeal. 57. At the cost of repetition it is stated that during the assessment proceedings, the notice u/s 142(1) of the Act was issued on 07.11.2019 (PB No 20-22) wherein the Ld. AO also raised specific query with respect to the two relevant issues being deduction u/s 36(1)(a) of the Act and disallowance u/s 14A of the Act. The relevant extract of the notice issued u/s 142(1) of the Act is reproduced herein below for ready reference: Notice dated 07.11.2019 2. Provide why the employee contributions received for PF fund and ESI fund but deposited to the respective fund after due date should not be treated as your income for AY 2017-18 as per the provisions of section 36(1)(va). 3. Provide if any disallowance has been made in the ITR for expenditure incurred for eaming exempt income. If yes, provide a working note on the same and if not, justify why disallowance should not be made as per the provisions of section 14A of the Act and Rule 8D. 58. In response to the query raised, the Assessee submitted its reply dated 10.12.2019 (copy of which is available at page no. 29-34 of PB) wherein Assessee submitted detailed justification with respect to both the query raised by the Ld. AO which is also duly supported from the verifiable documentary evidence submitted as well as binding judicial precedent as far as the claim of allowability of the same is concerned. 59. In view of the above, the Ld. PCIT had no jurisdiction to initiate the revisionary proceedings when the Ld. AO has already framed an opinion on the given facts, that too supported from the binding decision of jurisdictional High Court. Rather, assuming power to revise the well- opined assessment order shall mean change of opinion and in no case, can a proceeding be initiated on account of change of opinion. The ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 35 various Hon'ble's courts while adjudicating the said issue held that if the assessing officer have passed an order after making an inquiry and after carefully examining the replies of the assessee with proper application of mind, it must not be treated as a case of "no inquiry and the proceeding u/s 263 of the said Act cannot take place and the order should not be subject to revision just because another view is possible on the issue inquired by the AO. 60. The present case of the Appellant is supported from judicial precedents relevant extract of the same is reproduced herein below for your kind perusal: Commissioner of Income-tax v. Vodafone Essar South Ltd. 2012] 28 taxmann.com 273 (Delhi) [20.11.2012] Commissioner of Income-tax v. Anil Kumar Sharma [2010] 194 Taxman 504 (Delhi) [24.02.2010] Commissioner of Income-tax v. Gokuldas Exports [2011] 333 ITR 214 (Karnataka) Commissioner of Income-tax v. Srinivasa Hatcheries (P.) Ltd. [2015] 60 taxmann.com 207 (Andhra Pradesh and Telangana) 61. Therefore, despite the fact that the proceeding u/s 143(3) has been culminated following the due process of law, the Ld. PCIT wrongly assumed its jurisdiction to direct for revision of the assessment order in light of deduction claimed by the Appellant u/s 36(1)(va) of the Act, and disallowance made by the Appellant u/s 14A of the Act, which was already inquired and examined at length by the Ld. AO. Thus, Ld. PCIT was not justified in holding that Ld. AO did not conduced inquiry or verification on the issues under consideration. 62. Without prejudice to the above, it is submitted that it appears that the Ld. PCIT taken a negative view against the Appellant based on the assumption that that there is no narration of opinion drawn by the Assessing Officer with respect to the claim made by the Appellant. In this regard it is submitted that it is settled position of law that the Assessment Orders ought to necessarily deal only with the claims being disallowed and not with the claims being allowed and thus. where in case, a thorough inquiry has been conducted on the deductions claimed by the assessee and the same has not been negated in the final order, it simply implies that the Assessing Officer concurs with the claim made by the assessee and thus, no disallowance has been made in this regard. The said contention of Appellant is substantiated by following judicial precedents: Commissioner of Income Tax Vs. Nirma Chemicals Works P. Ltd. (2009) 222 CTR 593 (Guj) [04.02.2008], Rayon Silk Mills Versus Commissioner of Income-Tax. (1996) State Bank of India vs. Assistant Commissioner of Income tax and Ors. [2019] 411 ITR 664 (Bom) [15.06.2018] ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 36 63. In view of the above, Ld. PCIT was not justified in exercising jurisdiction u/s 263 of the Act against the Appellant on factually and legally inconsistent findings and allegations. WITHOUT PREJUDICE TO ABOVE, COUNTER SUBMISSION ON THE FINDINGS AND ALLEGATION OF THE LD. PCIT ARE MADE AS FOLLOWS: 64. The Ld. PCIT alleged that "I hold that the order passed by the Assessing Officer u/s 143 (3) of the IT Act, 1961 dated 14.12.2019 for AY 2017 18, is erroneous in so far it is prejudicial to the interest of revenue as the said order has been passed by the Assessing Officer in a routine and perfunctory manner without verifying the amount of disallowance u/s 14A of the IT Act and not verifying the quantum of the allowance to be made u/s 36(1)(va).". 65. In this context, it is submitted that as stated above that the specific query was raised during the assessment proceeding, vide notice dated 07.11.2019, regarding the verification of issue for which the Ld. PCIT has invalidly exercised its revisionary power u/s 263 of the Act. The Assessment Order dated 14.12.2019 was passed after duly making verification u/s 36(1)(va) and 14A of the Act. The Impugned Order in passed u/s 263 of the Act is thus based on incorrect facts that the Assessment order was passed by the Ld. AO without verifying the disallowance u/s 14A of the Act and disallowance made u/s 36(1)(va) of the Act. 66. Without prejudice to the above, beside the fact that the Assessment Order dated 14.12.2019 is not erroneous in as much as prejudicial to the interest of revenue, various incorrect findings were also given in the Impugned Order which is the basis on account of which the Ld. PCIT has exercised its revisionary power u/s 263 of the Act which is not justifiable. 67. Specific instances to demonstrate as to how the Impugned Order contain various incorrect findings of the case are as follows: 67.1. The Appellant for the year under consideration deposited the employee's contribution during the extended due date of respective act and before due date of filing return of income. The said facts of the case were well before the Ld. AO during the course of assessment proceeding and were also submitted before the Ld. PCIT in the reply dated 16.03.2022. Despite the same, with predetermined mindset, and without looking into the records, the Ld. PCIT alleged that the Appellant has not deposited the employee's contribution within due date of the respective Act. ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 37 67.2. Further, it has been incorrectly stated in the Impugned Order that no verification has been done by the Ld. AO against the facts that proper inquiry was made by the Ld. AO which is evident from the notice issued u/s 142(1) of the Act dated 07.11.2019 and reply filed thereto. 67.3. Also it has been incorrectly stated in the Impugned Order that the Appellant has not disputed the issue of disallowance to be made u/s 14A of the Act. It appears that the reply filed dated 16.03.2022 in response to show cause notice 26.02.2022 has skipped the Ld. PCIT attention. In the reply, the Appellant has abundantly explained as to how Section 14A read with rule 8D is not applicable in the present case, as the Ld. AO while framing the Assessment was duly satisfied with the claim of disallowance made by the Appellant and accordingly, no further disallowance u/s 14A r.w. Rule 8D is warranted. In this regard reference is invited to Para NO. 25 to Para No. 29 of reply dated 16.03.2022 is reproduced herein below for your ready reference. 25. The view taken by the Ld. AO, in view of the aforesaid facts and circumstances and having regard to judicial precedents discussed above, is not erroneous as well as prejudicial to interest of revenue as the Ld. AO has taken legally justifiable view on the issue of disallowance u/s 14A of the Act. In other words, having satisfied with the method adopted by the Assessee in determining the expenditure incurred on the exempt dividend income, as well as correctness of the claim of the Assessee and further in utmost regard to the settled jurisprudence of provision of Section 14A of the Act, the Ld. AO after making a detailed inquiry has not disputed the working related to the disallowance of Rs. 1,20,000/- made by the Assessee. Accordingly, Rule 8D of Income Tax Rules, 1962 has no applicability in the present case. Thus, no interference is required in the order of the Ld. AO. 26. In this context, the relevant extract of rule 8D of Income Tax Rule is reproduced herein below for your kind perusal 8D. (1) Where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with (a) the correctness of the claim of expenditure made by the assessee; or (b) the claim made by the assessee that no expenditure has been incurred. in relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2). ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 38 27. From the bare perusal of the Rule 8D of Income Tax Rules, it is evident that the applicability of the said rule is arises only after dissatisfaction of the Assessing Officer with respect to the correctness of claim of expenditure on exempt income. In the present case, having satisfied with the correctness of the claim, the case of the Assessee is outside the scope of Rule 8D. Even otherwise, direct resort to rule 8D is not permitted as per plain language of the Section 14A(2) of the Act, which reads as under 14A. (1) For the purposes of computing the total income under this Chapter, 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. (2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed 1, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. (3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act: Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001. 28. The correctness of the claim of the Assessee for the purpose of Section 14A read with Rule 8D is further supported from the fact that no expenditure in the nature of interest expenditure was incurred for eaming exempt income as interest free funds were available with the Assessee, which was duly explained and submitted during assessment proceedings. 29. Without prejudice to the above, it is humbly submitted that beside the fact that the Assessing Officer has conducted the detailed inquiry with respect to the specific issue of disallowance u/s 14A of the Act, the Assessee has submitted various documentary evidences (Kindly make reference to the Paper Book) such as breakup of Finance Cost, Investment sheet, on perusal of the same, it is established that interest cost of Rs. ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 39 7,25,723/- have no bearing on exempt dividend income of the Assessee. Accordingly, there is no deviation for correctness of claim made by Assessee. 68. In view of the above, the power under 263 was wrongly exercised by the Ld. PCIT because allegation of the Ld. PCIT is based upon incorrect factual and legal position. The case of the Appellant is squarely covered by following judicial precedent: Vijay Kumar Megotia v. Commissioner of Income-tax [2010] 195 TAXMAN 63 (PAT.)(MAG) 69. In view of the above, impugned order deserves to be set aside and consequential relief may kindly be granted to Appellant. GROUND NO.4 Under the facts and the circumstances of the case and in law, PCIT Udaipur has grossly erred in passing order u/s 263 of the Act in respect of issues for which plausible was taken by Ld. AO considering judicial precedents and sufficient material available on record. GROUND NO.5 Under the facts and circumstances of the case and without prejudice to the ground no. 1 to 3 above, the Ld. PCIT was not justified and has grossly erred in directing AO to examine the issue of disallowance of expenses u/s 14A of the Act and deduction u/s 36(1)(va) of the Act. FACTS IN BRIEF: 70. Relevant facts pertaining to the issue of deduction u/s 36(1)(va) of the Act are such that the Appellant for the year under consideration deposited the employee's contribution within the extended due date of the respective act and even before due date of filing return of income. Since the deposit of employee's contribution was made well before due date of return of income and even during extended period under respective Act, no disallowance was made by Ld. AO while passing assessment order in accordance with the law applicable for year under consideration. 71. That as far as issue of disallowance of interest expenditure u/s 14A of the Act is concerned, relevant facts for the said issue are that investment in mutual fund and equity was made by the Appellant from its interest free funds without utilizing the Cash Credit Limit. The said facts are evident from the bank statement available at Page No.39-44 of the Paper Book, which facts was duly verified by Ld. AO during ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 40 assessment proceedings while passing assessment order and also got verified to Ld. PCIT during the proceedings. 72. While making disallowance u/s 14A of the Act, proportionate common expenditure including Bank Charges as attributable for earning exempt dividend income were suo-moto disallowed by the Appellant as per working submitted during assessment proceedings which is available in Paper book at page no. 36 of paper book. 73. The said working is reproduced herein for ready reference: Castamet Works Private Limited Financial Expenses 2016-17 Disallowance of Expenses U/S 14 A 74. Along with the aforesaid working (PB No. 36), the Appellant also submitted the detailed working of source of each investment made by Appellant (PB No. 37), which along with bank statement submitted during assessment as well as revisionary proceedings (PB No. 39, 40), which duly establishes that Ld. AO has taken correct view for being satisfied with the Appellant's contention that interest charges is not ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 41 attributable to any business income. For ready references, the relevant pages are reproduced herein for ready reference: ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 42 ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 43 75. From the bare perusal of the aforesaid documentary evidences, it evident that investments were made out of internal accruals only and interest charges were not attributable to exempt income. For example, on the date of investment on 25.04.2016 and 24.05.2016, there were credit proceedings from business (internal accrual/interest free funds), which were utilized for investment in mutual fund/equities. 76. In view of the above, it is evident that Appellant availed cash credit limits for his business purpose and not for investment purpose, accordingly interest expense on such borrowed funds being specific expense incurred for business purpose have no nexus with whatsoever manner with the investment made by the Appellant in mutual funds and equities and dividend income earned by the Appellant from that investments. Findings of Ld. PCIT 1. "the issue of disallowance to be made u/s 14A of IT Act is not disputed by the Assessee. 2. "the Assessing Officer failed to examine the facts of the case and apply the correct provision of law". 3. Clause (2) of Section 14A of the IT Act clearly provide that the amount of the disallowance u/s 14A of the IT Act is to be determined in accordance with such method as may be prescribed. 4. The Assessing Officer failed to make proper verification of the amount of disallowance made u/s 14A by the Assessee even though the same was not worked out as per the prescribed rules". 5. AO did not conduct proper verification whether the amount of disallowance made by the Assessee itself was as per the method provided under Rule 8D.The Assessing Officer failed to make proper verification of the amount of disallowance made u/s 14A by the Assessee even though the same was not worked out as per the prescribed rules 6. Ld. PCIT Directed Assessing Officer to verify and examine and finalize the assessment in accordance with the prevailing late 7. Judgments relied upon by Ld. PCIT i. Malabar Industrial Limited V/S CIT2431TR ii. TTK LIG Ltd.. v/s. ACIT(Mad) 51 DTR 228 iii. Arvee international v/s. Addl. CIT (ITAT, Mum) 101 ITD 495, iv. CIT v/s. Raisons Industries Ltd., 288 ITR 322 (SC v. Seshasayee Paper & Boards Ltd. [2000] 242 ITR 490 (Mad.) ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 44 SUBMISSION: 77. The submission on this ground is without prejudice to the fact that no basis has been provided in the impugned order as to how the order dated 14.12.2019 is erroneous in as much is prejudicial to the interest of revenue as duly contended in ground no 1 and 2 above. 78. The submissions in this ground of appeal are divided in following paras Issue of disallowance u/s 14A of the Act Issue of deduction u/s 36(1)(v) of the Act View taken by Ld. AO is based on binding judicial precedents and plausible view in accordance with law Issue of disallowance u/s 14A of the Act 79. It is humbly submitted that all the investment are made by the Assessee for earning exempt dividend income were from surplus own funds/interest free funds only, which is evident from bare perusal of bank statement and detailed chart explaining the utilization of funds(PB No. 39-44 and. 80. It is submitted that the Finance Cost being interest expenditure of Rs. 7,20,412/- have no nexus/relation in whatsoever manner with the exempt dividend income of the Appellant earned from investment in equities and Mutual Therefore, as per working submitted by Appellant during assessment proceedings, these were not considered for the purpose of disallowance u/s 14A of the Act as these expenditure are incurred purely for business purpose and not for making investments. 81. Accordingly, being satisfied with the basis of computation of disallowance u/s 14A of the Act, the Ld.AO taken a plausible view on allowability of the same which is legally allowed as it is usual that interest free funds would be first utilized for investment rather borrowed funds. 82. In this context, reliance is invited to decision of Hon'ble Apex Court in the case of Maxopp Investment Ltd. V. Commissioner of Income Tax, New Delhi [2018] taxmann.com 154 (SC), wherein it has held that: In the first instance, it needs to be recognised that as per section 14A(1), deduction of that expenditure is not to be allowed which has been incurred by the assessee in relation to income which does not form part of the total income under this Act. Axiomatically, it is that expenditure alone which has been incurred in relation to the income which is includible in total income that has to be disallowed. If an expenditure incurred has ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 45 no causal connection with the exempted income, then such an expenditure would obviously be treated as not related to the income that is exempted from tax, and such expenditure would be allowed as business expenditure. To put it differently, such expenditure would then be considered as incurred in respect of other income which is to be treated as part of the total income.(Para 32] 83. Apart from this the Assessce places his reliance on the decision of jurisdictional High Court which was further upheld by the Apex Court in the case of Rajasthan State Warehousing Corpn. Commissioner of Income-tax [2000] 109 Taxman 145 (SC) wherein the Apex Court held that, "if the exempted income and the taxable income are earned from one and indivisible business, then the apportionment of the expenditure cannot be sustained". 84. Thus, it is evident that Ld. AO took judicious view with respect to the computation of disallowance of expenditure u/s 14A of the Act, which is also supported from decision of various Hon'ble Court, relevant extract of the which is reproduced herein below for your kind perusal: Commissioner of Income-tax v. Reliance Utilities & Power Ltd. [2009] 178 Taxman 135 (Bombay) Commissioner of Income-tax, Jalandhar-1, Jalandhar v. Max India Ltd. [2017] 80 taxmann.com 98 (Punjab & Haryana) Commissioner of Income-tax-III, Pune v. Sharada Erectors (P.) Ltd. [2016] 76 taxmann.com 107 (Bombay) 85. In view of the above, no further disallowance was required as against the suo-moto disallowance made by the Appellant, which Ld. AO has accepted in view of forgoing judicial precedents and basis facts on record, which clear establishes that no borrowed funds were utilized for making investment in mutual fund/securities. Issue of deduction u/s 36(1)(v) of the Act 86. It is humbly submitted that view taken by the Ld. AO that depositing the employee contribution before due date of filing return of income is allowable deduction u/s. 36(1)(va) of the Act, is well supported by decision rendered by the jurisdictional High Court in the case of CIT VS Rajasthan State Beverage Corpn. Ltd. [2017] 84 taxmann.com 185(SC). ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 46 87. In view of the above, claim of deduction u/s 36(1)(v) of the Act is duly allowed to Appellant by the Ld. AO while passing assessment order. 88. Thus, it is evident that the Ld. AO has passed the assessment order with respect to both the issues after taking into consideration the jurisprudence of the respective section as interpreted by various Hon'ble Courts, which are binding upon the lower authorities. The said plausible and reasonable view of the Ld. AO does not render his assessment order erroneous as well as prejudicial to interest of revenue for exercise of power u/s 263 of the Act. View taken by Ld. AO is based on binding judicial precedents and plausible view in accordance with law 89. It is trite law that, when the Assessing Officer has passed an order in consonance with the law laid down by the binding decision, it cannot be said that the Assessing Officer's order is erroneous so as to entitle the commissioner to exercise his revision power u/s 263 of the Act. 90. The Assessee places his reliance of settled judicial precedents as follows: Garden Silk Mills Ltd. v. Commissioner of Income-tax [1996] 221 ITR 861 (Gujarat) Commissioner of Income Tax vs. Paul Brothers (16.10.1992 - BOMHC), Income-tax Reference No. 358 of 1987, MANU/MH/0244/1992 MANU/MH/0244/1992 91. In view of the above, order u/s 263 of the Act is devoid of authority of law and accordingly deserves to be set aside. WITHOUT PREJUDICE TO ABOVE, COUNTER SUBMISSION ON ALLEGATION AND FINDING OF THE LD. PCIT IS MADE AS UNDER: The issue of disallowance to be made u/s 14A of IT Act is not disputed by the Assessee. 92. In this regard, it is submitted that in response to the show cause notice dated 26.02.2022 the Appellant has submitted its details submission dated 16.03.2022 wherein the Appellant has objected the disallowance to be made by the Ld. PCIT u/s 14A of the Act by stating that the said Section is applicable to the extent of the dissatisfaction of the Assessing Officer with respect to the correctness claim of expenditure on exempt income. However beside various contentions raised by the Appellant in its reply dated 16.03.2022, the said ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 47 contention of the Appellant has also skipped the Ld. PCIT attention. Thus, it is apparent that the Ld. PCIT has proceeded with the predetermined mindset only and on factually incorrect finding and allegations. Accordingly, this allegation and findings of the LD. PCIT is negated being factually incorrect and inconsistent finding. Clause (2) of Section 14A of the IT Act clearly provide that the amount of the disallowance u/s 14A of the IT Act is to be determined in accordance with such method as may be prescribed. 93. This finding of the Ld. PCIT is also not legally tenable. In this context relevant extract of clause (2) of Section 14A of the Act is reproduced herein below for your kind perusal: Section 14A: Expenditure incurred in relation to income not includible in total income. (2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. 94. From bare perusal of the said section it is evident that the Section 14A(2) of the Act is applicable only if the Assessing Officer is not satisfied with the correctness of claim of the Assessee. In the present case the Ld. AO was duly satisfied with the correctness of the claim of the Assessee which is evident from the Assessment Order dated 14.12.2019 passed u/s 143(3) of the Act, wherein no negative inference has been drew by the Ld. AO. The said action of the Ld. AO is duly supported by judicial precedents as discussed herein above. Thus, the case of the Appellant is outside the scope of clause (2) of Section 14A of the Act. Accordingly, Ld. PCIT has wrongly interpreted the provision of Section 14A(2) to mean that AO is required to make resort to rule 8D of IT Rules in each case without even examining the claim of the Assessee. 95. AO did not conduct proper verification whether the amount of disallowance made by the Assessee itself was as per the method provided under Rule 8D. “The Assessing Officer failed to make proper verification of the amount of disallowance made u/s 14A by the Assessee even though the same was not worked out as per the prescribed rules". ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 48 96. This finding of the Ld. PCIT is also not legally tenable. In this context, relevant para of Rule 8D of Income Tax Rules, 1962 is reproduced herein below for your kind perusal: Rule 8D: Method for determining amount of expenditure in relation to income not includible in total income. Where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with a) the correctness of the claim of expenditure made by the assessee; or (b) the claim made by the assessee that no expenditure has been incurred, in relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2). From the bare perusal of the Rule 8D it is evident that Rule 8D has limited applicability to the extent if the Assessing Officer was not satisfied with the claim of disallowance made by the Appellant u/s 14A of the Act. Thus, without finding any incorrectness in claim or working of disallowance made by Assessee, direct resort to rule 8D is not envisaged in the law, which interpretation has been wrongly given by the Ld. PCIT. It is submitted that incorrect findings are given in the Impugned Order that the Assessing Officer has failed to conduct proper verification of the amount of disallowance made by the Assessee. In the notice dated 07.11.2019 wherein specific query with regard to the disallowance of the expenditure made by the Appellant u/s 14A was made by the Ld. AO. In response to which the Appellant submitted its working note of disallowance of expenditure done u/s 14A of the Act. Accordingly, having satisfied with the correctness of the claim of the Appellant, the Assessment of the Appellant was completed by order dated 14.12.2019. Accordingly, rule 8D is not applicable in the case of the Appellant, which view has been taken by Ld. AO plausible on plain reading of the provision of Section 14A of the Act. The said interpretation is also justified in view of following judgments: Maxopp Investment Ltd. v.Commissioner of Income Tax, New Delhi [2018] 91 taxmann.com 154 (SC) Principal Commissioner of Income Tax-2 v. Bombay Stock Exchange Ltd [2020] 113 303 (Bombay) • Shringar Marketing (P.) Ltd. v. Principal Commissioner of Income-tax-4, Kolkata [2021] 128 taxmann.com 199 (Kolkata Trib.) (Supra) ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 49 Direction to the Assessing Officer to verify and examine and finalize the assessment in accordance with the prevailing law;. 97. The Appellant vehemently objects to the direction being given by the Ld. PCIT to the Assessing Officer for framing de-novo assessment in the case of the Appellant because of the reason that the Assessment of the Appellant was completed as per the law applicable during the year under consideration which is also supported from binding decision of jurisdictional High Court. Accordingly disturbing the completed assessment under the garb of provision of Section 263 of the Act is not justified. The Assessing Officer failed to examine the facts of the case and apply the correct provision of law. 98. The said allegation of the Ld. PCIT is pertaining to issue of deduction taken u/s 36(1)(va) of the Act. In this context, it is submitted that the plausible view taken by the Ld. AO regarding depositing the employee's contribution to the relevant fund before due date of filing return of income is an allowable deduction is having regard to binding decision of the jurisdictional high court which is further affirmed by the Hon'ble Apex Court. It appears that the different view was taken by the Ld. PCIT is with respect to the amendment under Section 36(1)(va) of the Act by Finance Act, 2021. 99. In this regard, it is submitted that the amendment u/s 36(1)(va) of the Act are only applicable to AY 2021-22 and subsequent AY as the amendment is effective from 1st April,2021. The view taken by the Ld. AO while framing assessment u/s 143(3) of the Act is having regard to the settled law which was applicable during that period of time. The Subsequent amendment u/s 36(1)(va) of the Act by Finance Act, 2021 does not render the plausible taken by the Ld. AO as invalid, considering the fact that the view taken by the Ld. AO was in accordance with the settled jurisprudence of Section 36(1)(va) of the Act as in force during that year. 100. In reaching adverse conclusion against the Appellant, the Ld. PCIT has relied upon following judicial precedents by placing misinterpretation to same or without appreciating that the same were rendered in different set of facts and circumstances. The counter submission against those judgments are made as follows: 100.1. Malabar Industrial Limited V/S CIT 243 ITR and TTK LIF LTD., v/s ACIT 9Mad) 51 DTR 228. It is humbly submitted that said judgment is applicable where Ld. AO has misapplied provision of law or has incorrectly assumed facts of the case. ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 50 In the Impugned Order, it has not been establish as to how the Assessing Officer has misapplied the provision of law. The said findings of the Ld. PCIT is missing in the Impugned Order. Rather assessment made by Ld. AO is in accordance with applicable law, which is also supported from the settled jurisprudence set by the binding decision of Jurisdictional High Courts. 100.2. Arvee international v/s Addl. CITItat, Mum) 101 ITD 495, and Seshasayee Paper & Boards Ltd[2000] 242 ITR 490(Mad.). 100.3. CIT vs. Raison Industries Ltd. 288 ITR 322(SC). In the present case the Ld. PCIT failed to establish as to how the carlier order of Ld.AO was prejudicial to the revenue, as the order dated 14.12.2019 was passed having regard to the settled law as well as binding decision of the Hon'ble Court. Merely a second thought of the Ld. PCIT to deal with the issue differently does not give him the right to exercise power u/s 263 of the Act and cannot termed the order prejudicial to the interest of revenue. Thus, reliance placed by Ld. PCIT on this judgment is totally misconceived. 101. In view of the above, it is humbly submitted that the observations of the Ld. PCIT is factually and legally incorrect and the order of the Ld. AO is neither erroneous nor prejudicial to the interest of revenue. Accordingly, it is requested to set aside the Impugned Order passed by Ld. PCIT and allow consequential relief to the Appellant. GROUND NO. 6 The appellant Company craves leave to add, amend and modify all or any ground of appeal on or before the date of hearing.” 8. The ld. AR of the assessee has also relied upon the following judicial decisions driving home to the various contentions raised by him: S.N. Case Title Gist of case law Page No. Erroneous and Prejudicial to the Interests of Revenue 1. Malabar Industrial Co. Ltd. v. The pre-requisite to the exercise of 1-6 ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 51 CIT [2000] 243 ITR 83 (SC)[10.02.2000] jurisdiction by the Commissioner under Section 263 is that the order of the Assessing Officer is erroneous insofar as prejudicial to the interests of the revenue. The commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of revenue. If one of them is absent – if the order of the Assessing Officer is erroneous but is not prejudicial to the interests of revenue – recourse cannot be had to section 263 (1). There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer; it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category falls orders passed without applying the principles of natural justice or without application of mind. [Para 6] The phrase ‘prejudicial to the interests of revenue’ has to be read in conjunction with an ]lerroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of the order of the Assessing Officer cannot be treated as prejudicial to the interests of revenue. For example, if the Assessing Officer has adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Assessing officer has taken one view with which the Commissioner does not agree, it cannot be treated as prejudicial to the interests of the revenue, unless the view taken by the Assessing Officer is unsustainable in law. Where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer without application of mind as such will be erroneous and prejudicial to the interests of the revenue.” [Para 9] ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 52 Erroneous 2. Nabha Investments (P.) Ltd. V. Union of India [2000] 112 Taxman 465 (Delhi) [24.07.2000] It is not necessary that every order passed by the Assessing Officer, which may result in loss of revenue, is to be treated as an erroneous order in as much as it is prejudicial to the interests of the revenue. An order is erroneous if the view taken by the Assessing Officer is not in accordance with law. If an order is in accordance with law, the decision of the ITO cannot be regarded as erroneous merely because in the opinion of the Commissioner it should have been made or written in a different manner. [Para 16] 7-14 3. Commissioner to Income- tax v. Gabriel India Ltd. [1993] 71 Taxman 585 (Bom.)[15.04.1993] We may now examine the facts of the present case in the light of the powers of the Commissioner set out above. The ITO in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given detailed explanation in that regard by a letter in writing. All these are part of the record of the case. Evidently, the claim was allowed by the ITO on being satisfied with the explanation of the assessee. Such decision of the ITO cannot be held to be 'erroneous' simply because in his order he did not make an elaborate discussion in that regard. [Para 14] 15-20 Prejudicial 4. P.C. Puri v. CIT [1984] 18 Taxman 158 (Delhi) [23.02.1984] Though not defined, the term 'prejudicial to the interests of the means that the lawful revenue due to the State has not been realised. [Para 6] 21-34 5. J.P. Srivastava & Sons (Kanpur) Ltd. Vs. Commissioner Of Income-Tax [1978] 111 ITR 326 (ALL.)[26.04.1972] Failure of the ITO to deal with the claim of the assessee in the assessment order might be an error, but an erroneous order by itself was not enough to give jurisdiction to the Commissioner to revise it under section 33B of the 1922 Act. It must further be shown that the order was prejudicial to the interests of the revenue. It is not each and every order passed by the ITO which can be revised under section 33B of the 1922 Act 35-36 ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 53 [Page no. 2] Inquiries conducted by the Ld. AO 6. Narayan Tatu Rane v. Income-tax Officer, Ward 27(1)(1), Mumbai [2016] 70 taxmann.com 227 (Mumbai - Trib.), 20. Further clause (a) of Explanation states that an order shall be deemed to be erroneous, if it has been passed without making enquiries or verification, which should have been made. In our considered view, this provision shall apply, if the order has been passed without making enquiries or verification which a reasonable and prudent officer shall have carried out in such cases, which means that the opinion formed by Ld Pr. CIT cannot be taken as final one, without scrutinising the nature of enquiry or verification carried out 6/13/22, 3:53 PM 11/12 POOJA by the AO vis-à-vis its reasonableness in the facts and circumstances of the case. Hence, in our considered view, what is relevant for clause (a) of Explanation 2 to sec. 263 is whether the AO has passed the order after carrying our enquiries or verification, which a reasonable and prudent officer would have carried out or not. It does not authorise or give unfettered powers to the Ld Pr. CIT to revise each and every order, if in his opinion, the same has been passed without making enquiries or verification which should have been made. In our view, it is the responsibility of the Ld Pr. CIT to show that the enquiries or verification conducted by the AO was not in accordance with the enquries or verification that would have been carried out by a prudent officer. Hence, in our view, the question as to whether the amendment brought in by way of Explanation 2(a) shall have retrospective or prospective application shall not be relevant. [Para No. 20] 37-48 7. Torrent Pharmaceuticals Ltd. v. Deputy Commissioner of Income-tax, Circle-4(1)(2), Ahmedabad [2018] 97 taxmann.com 671 . However, in the same vain where the preponderance of evidence indicates absence of culpability, an onerous burden cannot obviously be fastened upon the AO while making assessment in the name of 49-76 ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 54 (Ahmedabad - Trib.) inadequacy in inquiries or verification as perceived in the opinion of the Revisional Authority. It goes without saying that the exercise of statutory powers is dependent on existence of objective facts. The powers outlined under section 263 of the Act are extraordinary and drastic in nature and thus cannot be read to hold that an uncontrolled, unguided and uncanalised powers are vested with the competent authority. The powers under section 263 of the Act howsoever sweeping are not blanket nevertheless. The AO cannot be expected to go to the last mile in an enquiry on the issue or indulge in fleeting inquiries. The action of the Revisional Commissioner based on such expectation requires to be struck down[Para No. 9.2] Power exercised by the Ld. PCIT is beyond the scope of show cause notice 8. Principal Commissioner of Income-tax, Surat-2 v. Shreeji Prints (P.) Ltd. [2021] 130 taxmann.com 294 (SC) .... ........It was contended by the Learned Counsel that clause -(a) & (b) of Explanation 2 of Section 263 are not applicable as the Assessing Officer has made enquiry and verification which should have been made. Further, in the show cause notice, the Explanation-2 of section 263 was not invoked by the PCIT and it was referred in the order u/s.263 of the Act. Therefore, in the light of decision of the Co-ordinate Bench of Mumbai ga in the case of Narayan Tatu Rane - 70 taxmann.com 227 (Mum. Trt.) [PB 153-1561 wherein held that explanation cannot laid to have over ridden the law as interpreted/the various High Courts where the High Courts have held that before reaching the conclusion that the order of the Assessing Officer is erroneous prejudicial to the interest of Revenue. The CIT himself has to undertake some enquiry to establish that the assessment order is erroneous and prejudicial to the interest of Revenue. ....... [Para No. 15] 77-82 ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 55 No independent inquiry was conducted by the Ld. PCIT 9. Principal Commissioner of Income-tax v. DelhiAirportMetro Express (P.) Ltd [2018] 99 taxmann.com 382 (Delhi) 10. For the purposes of exercising jurisdiction under section 263 of the Act, the conclusion that the order of the Assessing Officer is erroneous and prejudicial to the interests of the Revenue has to be preceded by some minimal inquiry. In fact, if the Principal Commissioner of Income-tax is of the view that the Assessing Officer did not undertake any inquiry, it becomes incumbent on the Principal Commissioner of Income-tax to conduct such inquiry. All that the Principal Commissioner of Income-tax has done in the impugned order is to refer to the circular of the Central Board of Direct Taxes and conclude that "in the case of the assessee- company, the Assessing Officer was duty- bound to calculate and allow depreciation on the BOT in conformity of the Central Board of Direct Taxes Circular No. 9 of 2014 but the Assessing Officer failed to do so. Therefore, the order of the Assessing Officer is erroneous insofar as prejudicial to the interests of the Revenue". 11. In the considered view of the court, this can hardly constitute the reasons required to be given by the Principal Commissioner of Income-tax to justify the exercise of jurisdiction under section 263 of the Act. In the context of the present case if, as urged by the Revenue, the assessee has wrongly claimed depreciation on assets like land and building, it was incumbent upon the Principal Commissioner of Income-tax to undertake an inquiry as regards which of the assets were purchased and installed by the assessee out of its own funds during the assessment year in question and, which were those assets that were handedover to it by the DMRC. That basic exercise of determining to what extent the depreciation was claimed in excess has not been undertaken by the Principal 83-86 ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 56 Commissioner of Income-tax. [Para 10 and 11] 10. Sh. Sanjay Jain vs The PCIT, (Central) Ludhiana, ITA No. 140/CHD/2021 9.7.........Accordingly, we hold that the proceedings u/s 263 of the Act were bad in law in all the captioned four appeals and we quash the revisionary proceedings for the reason that the AO had made adequate enquiries is all the four cases and further the Ld. PCIT had not conducted any independent enquiry on his own before coming to an incorrect conclusion that the assessment orders were erroneous as being prejudicial to the interest of the revenue and were liable to be set aside 87-118 Two plausible view not erroneous and prejudicial 11. Commissioner of Income-tax v. Gokuldas Exports [2011] 333 ITR 214 (Karnataka) “By a long catena of judgments of various High Courts and the Supreme Court, it is too well settled that if in the given facts and circumstances of the case, two views are possible and one view has been adopted by the Assessing Officer, then that alone would not be sufficient to exercise the powers under section 263 of the Act by the Commissioner of Income-tax.” 119- 128 ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 57 [Para No.15] 12. Commissioner of Income-tax v. Srinivasa Hatcheries (P.) Ltd. [2015] 60 taxmann.com 207 (Andhra Pradesh and Telangana) .....The principle governing the exercise of power in a revision was taken note of. The principle is to the effect that where two views of a particular aspect are possible, for an Income-tax Officer, and he has chosen one, the Commissioner cannot reopen the matter on the ground that another view is possible...... [Para No.4] 129- 130 Similar Issue order u/s 263 was set aside 13. Commissioner of Income-tax v. Future Corporate Resources Ltd [2021] 132 taxmann.com 173 (Bombay) 7. In the order of PCIT it is stated "in paragraph 4.3 of the assessment order, the Assessing Officer has recorded that from the details submitted by the assessee and the explanation given by him, it was observed that assessee had regular business connection with the company in which investment had been made and also there was business income to the assessee from the same. Therefore, interest expense debited by the assessee has not been considered for the calculation of disallowance under section 14A because the same has been incurred for the purpose of business." The PCIT therefore agrees that the Assessing Officer has recorded from the details submitted by respondent and the explanation given by respondent that the assessee had regular business connection with the company in which investment has been made and also there was a business income to the assessee from the same. He notes that the Assessing Officer, therefore did not consider the calculation of disallowance under section 14A the interest expense debited by the assessee because the same has been incurred for the purpose of business. The PCIT though was unhappy with the view of the Assessing Officer, the PCIT himself does not say why it should have been considered for the calculation of 131- 136 ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 58 disallowance under section 14A. Even if one assumes that he has, after reading of the order expressed his views, but still the position is two views therefore were possible. Therefore, if one of the two possible views was taken by the Assessing Officer, the PCIT could not have exercised his powers under section 263 of the Act. [Para No.7] 14. Commissioner of Income Tax, Bangalore v. Chemsworth (P.) Ltd. [2020] 119 taxmann.com 358 (Karnataka The Assessing Officer in the order of assessment is not required to give detailed reasoning in respect of each and every item of deduction and, therefore, the question whether there has been an application of mind before allowing expenditure has to be examined from the record of the case. The question of lack of enquiry/inadequate enquiry is also required to be kept in mind and mere inadequacy of the enquiry would not confer jurisdiction on the Commissioner under section 263. In the instant case, the Commissioner has held that the enquiry conducted by the Assessing Officer is inadequate and has assumed the revisional jurisdiction. The assessee has filed all the details before the Assessing Officer and Assessing Officer has accepted the contention of the assessee that no expenditure is attributable to the exempt income during the relevant assessment year. Thus, while recording the aforesaid finding, the Assessing Officer has taken one of the plausible views in allowing the claim of the assessee and, therefore, the Commissioner could not have set aside the order of assessment merely on the ground of inadequacy of enquiry. The order passed by the Commissioner is not sustainable in law and the same has rightly been set aside by the Tribunal. [Para 8] 137- 144 15. Shringar Marketing (P.) Ltd. v. Principal Commissioner of Income-tax-4, Kolkata [2021] ........This is a condition precedent while rejecting the claim of the assessee, with regard to incurring of expenditure or no 145- 156 ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 59 128 taxmann.com 199 (Kolkata - Trib.) expenditure in relation to exempt income. The AO will have to indicate cogent reasons for the same and Rule 8D comes into play only when the AO records a finding that he is not satisfied with the assessee's method. In the case in hand the AO has not made any such recording of satisfaction and has accepted the disallowance made u/s 14A by the assessee. In such circumstances it is not open for the ld. CIT to come to a conclusion that the AO should have invoked Rule 8D, without himself recording the satisfaction that the calculation given by the assessee in its disallowance made suo moto u/s 14A is not correct. Coming to the other expenses claimed, the ld. CIT has simply collected information after raising queries and has not given any finding whatsoever that there is an error made by the AO or that the circumstances was such that would require and warrant further inquiry or investigation. No error in the assessment order has been pointed out and it is not stated as to how prejudice was caused to the revenue. The finding that the AO had failed to properly scrutinise the above aspects does not give powers to the ld. CIT to revise the assessment u/s 263 of the Act. Making rowing enquiries is not a finding of an error. Assessments cannot be set aside for fresh enquiries unless a specific error is pointed out at not making proper enquiry cannot be equated with no enquiry. In view of the above we quash the order passed u/s 263 of the Act and allow the appeal of the assessee. [Para No. 17] No 263 on incorrect factual and legal position 16. Vijay Kumar Megotia* v. Commissioner of Income-tax [2010] 195 TAXMAN 63 (PAT.)(MAG) The Commissioner had cancelled the assessment order on the ground that relevant enquiries were not made by the Assessing Officer. It was specifically stated in the assessment order passed by the Assessing Officer that he had examined, verified and test-checked the entries made in the books of account, sales and purchase 157- 158 ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 60 invoices, purchase ledger, bank account, etc. It was further stated that the loans were supported by confirmations. There was no finding by the Commissioner to show as to how the aforesaid observations made by the Assessing Officer in his assessment order were factually incorrect. In the absence of any material to rebut the finding recorded by the Assessing Officer in the assessment order, the Commissioner was not correct in cancelling the assessment and directing the Assessing Officer to make a fresh assessment. In that view of the matter, the order passed by the Commissioner was to be quashed. The appeal filed by the assessee was to be allowed. Issue 1: 14A disallowance 17. Maxopp Investment Ltd. V. Commissioner of Income Tax, New Delhi [2018] 91 taxmann.com 154 (SC), In the first instance, it needs to be recognised that as per section 14A(1), deduction of that expenditure is not to be allowed which has been incurred by the assessee in relation to income which does not form part of the total income under this Act. Axiomatically, it is that expenditure alone which has been incurred in relation to the income which is includible in total income that has to be disallowed. If an expenditure incurred has no causal connection with the exempted income, then such an expenditure would obviously be treated as not related to the income that is exempted from tax, and such expenditure would be allowed as business expenditure. To put it differently, such expenditure would then be considered as incurred in respect of other income which is to be treated as part of the total income.[Para 32] 159- 176 18. Rajasthan State Warehousing Corpn. v. Commissioner of Income-tax* [2000] 109 Taxman 145 (SC) “if the exempted income and the taxable income are earned from one and indivisible business, then the apportionment of the expenditure cannot be sustained”. 177- 180 19. Principal Commissioner of Income Tax-2 v. Bombay Stock Exchange Ltd [2020] 113 taxmann.com 303 Non-satisfaction with the disallowance offered by the assessee has to be arrived at on the basis of the accounts submitted by the assessee. In this case, the Assessing Officer 181- 184 ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 61 (Bombay) had not carried out the aforesaid exercise but rejected the disallowance claimed by the assessee only on the ground that it was not in accordance with rule8D. The application of rule8D would only arise once the Assessing Officer is not satisfied on an objective criteria in the context of its accounts, that suo motu disallowance claimed by the assessee is not proper. [Para 11] 20. Commissioner of Income-tax, Jalandhar-1, Jalandhar v. Max India Ltd. [2017] 80 taxmann.com 98 (Punjab & Haryana) 9. This presumption is unfounded. Merely because the interestfreefunds with the assessee have decreased during any period, it does not follow that the funds borrowed on interest were utilized for the purpose of investing in assets yielding exempt income. If even after the decrease the assessee has interestfreefunds sufficient to make the investment in assets yielding the exempt income, the presumption that it was such funds that were utilized for the said investment remains. There is no reason for it not to. The basis of the presumption as we will elaborate later is that an assessee would invest its funds to its advantage. It gains nothing by investing interestfreefunds towards other assets merely on account of the interestfreefunds having decreased. In that event so long as even after the decrease thereof there are sufficient interestfreefunds the presumption that they would be first used to invest in assets yielding exempt income applies with equal force." [Para No. 9] 185- 188 21. Commissioner of Income-tax- III, Pune v. Sharada Erectors (P.) Ltd. [2016] 76 taxmann.com 107 (Bombay) 7. On the examination of the Remand Report of the Assessing Officer and the submission of the Assessee, the Tribunal in the impugned order rendered a finding of fact that the Respondent-Assessee had its own sufficient funds available to make advances it had made to its sister concern. This on the basis that the assertions of Respondent-Assessee to the above effect were not controverted before the Tribunal at the time of hearing nor in the remand report of the Assessing Officer. The Tribunal in its impugned order also placed reliance upon the decision of this 189- 192 ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 62 Court in CIT v. Reliance Utilities & Power Ltd. [2009] 313 ITR 340/178 Taxman 135 (Bom.) to hold that where interest-freefunds available with an Assessee are sufficient to meet its investment then it shall be presumed that the investments have been made from interest-freefunds available and not out of borrowed funds. Thus, holding that disallowance of partial interest paid on loan taken by the Respondent-Assessee, was not justified. Issue 2: Deduction u/s 36(1)(va) of the Act 22. CIT VS Rajasthan State Beverage Corpn. Ltd. [2017] 84 taxmann.com 185(SC) 5. So far as the question relating to privilege fees amounting to Rs.26.00 Crores in the instant year as well as the deduction of claim of Rs.17,80,765/- on account of Provident Fund (PF) and ESI is concerned, this Court has extensively considered the aforesaid two questions in assessee's own case vide judgment and order dt.26.05.2016 referred to (supra) and has held that the privilege fees being a revenue expenditure, is required to be allowed as a revenue expenditure. This court in the aforesaid case has also allowed the claim of the assessee, in so far as payment of PF & ESI etc. is concerned, on the finding of fact that the amounts in question were deposited on or before the due date of furnishing of the return of income and taking in consideration judgment of this Court in CIT v. State Bank of Bikaner & Jaipur [2014] 363 ITR 70/43 taxmann.com 411/225 Taxman 6 (Mag.) (Raj.) and CIT v. Jaipur Vidhut Vitaran Nigam Ltd. [2014] 363 ITR 307/49 taxmann.com 540/[2015] 228 Taxman 214 (Mag.) (Raj.) and accordingly both the questions are covered by the aforesaid judgment and against the revenue. 193- 198 Plausible View taken by the Ld. AO 23. Garden Silk Mills Ltd. v. Commissioner of Income-tax [1996] 221 ITR 861 (Gujarat) The order of the assessing authority could not be said to be erroneous as he had rendered the decision following the decision of a higher authority or a court on the same point. It was required to be noted that the decisions reached by the Tribunal or the High Court are binding upon the Assessing 199- 204 ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 63 Officer and discipline demands that he should follow the decision of the Tribunal or the High Court, as the case may be. It is not open for him to ignore the same on the ground that the Tribunal's or the High Court's ruling on the question is the subject- matter of revision or appeal before the higher forum. If he is permitted to take such a view, it would introduce nothing but judicial indiscipline, which is not called for. It would lead to a chaotic situation. The grievance of the revenue may be real and substantial in certain cases but such situation cannot be provided for by judicial interpretation by courts but only by an appropriate agency. 24. Commissioner of Income Tax vs. Paul Brothers 79 Taxman 378(Bombay) 5. The Calcutta High Court in the case of Russell Properties Pvt. Ltd. v. A. Chowdhury, Addl. CIT MANU/WB/0144/1976 : [1977]109ITR229(Cal) and the Allahabad High Court in K. N. Agrawal v. CIT [1991] 189 ITR 769 have held that where the Income Tax Officer's order is passed on the basis of a binding decision, revisional power under section 263 cannot be exercised to undo the said order. The Income Tax Officer is a quasi-judicial authority and the principle laid down is sound. We endorse the same. [Para No. 5] 205- 208 25. Ajeet Singh Vs. ITO, Ward-6(1), Jaipur. ITA. No. 263/JP/2021 By considering the totality of the facts and the various judicial pronouncements, we are of the view that the amendment brought in the statue i.e., by Finance Act, 2021, the provisions of Section 36(1)(va) r.w.s. 43B of the Act amended by inserting explanation 2 is prospective and not retrospective. Hence, the amended provisions of Section 43B r.w.s. 36(1)(va) of the Act are not applicable for the assessment year under consideration i.e. 2018-19 but will apply from assessment year 2021-22 and subsequent assessment years. Hence, this issue raised in assessee’s appeal is allowed [para No. 19] 209- 235 9. In addition to the above written submission the ld. AR of the assessee submitted that the issue raised by the ld. PCIT has ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 64 already been considered by the AO while passing the assessment order. For that he has drawn our attention to attention to the notice issued u/s. 142(1) of the Act dated 07.11.2019 where in the issue raised by the PCIT has already been seen and relevant details were called by the assessing officer in the proceeding before her. For that the ld. AR of the assessee drawn our attention to the said notice (assessee paper book page 20 & 21) and the relevant questions raised by the AO is reiterated here in below: “2. Provide why the employee contributions received for PF fund and ESI fund but deposited to the respective fund after due date should not be treated as your income for A. Y. 2017-18 as per the provision of section 36(1)(va). 3. Provide if any disallowance has been made in the ITR for expenditure incurred for earning exempt income. If yes, provide a working note on the same and if not justify why disallowance should not be made as per the provisions of section 14A of the Act and Rule 8D.” 10. We have also gone through the reply submitted by the assessee company in the assessment proceedings. The same is reiterated herein below for the sake of brevity of the facts: “Justification on eligibility of allowance u/s 36(1)(va) on employee’s contribution 1.0 Facts 1.1 The assessee company has received contribution from employees towards Provident Fund and ESI Fund throughout the year. However, in following cases, the assessee company has deposited the employee's contribution to relevant fund after due date of respective Act but before due date of filing of return of income u/s 139(1) i.e. 30-Nov- 2017. Name of Fund Month Employee’s Contribution Due Date of Deposit Actual Date of Deposit Remarks PF Jun-16 87,093 15-Jul-16 19-Jul-16 The payment ESI Aug-16 11,261 21-Sep-18-Nov-16 ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 65 16 has been made prior to filing of return ESI Sep-16 11,742 21-Oct-16 18-Nov-16 ESI Dec-16 20,037 21-Jan-17 23-Jan-17 PF Dec-16 1,01,548 15-Jan-17 20-Jan-17 Challan showing deposit of aforesaid amount is enclosed as Exhibit-1. 1.2 As the assessee company has deposited the aforesaid amount before last date of filing of return of income u/s 139(1) of Income Tax Act. 1961, accordingly is admissible in view of following settled judicial pronouncements of jurisdictional High Court. 2.0 Judicial Pronouncements 2.1 Rajasthan High Court in case of Jaipur Vidyut Vitran Nigam Ltd. (2014 (49) taxmann.com 540) held that amount claimed on payment of PF and ESI could not be paid on or before due date under relevant Acts but deposited on or before due date of filing of returns u/s 139 could not be disallowed u/s 36(1)(va). Relevant extract is reproduced for ease of reference: "6. We have considered the arguments advanced by the learned counsel for the Revenue and have also gone through the impugned orders. In our view no substantial question of law arises out of the orders of the Tribunal as it is an admitted fact that the entire amount was deposited by the respondent assessee at least on or before the due date of filing of the returns under 139 of the IT Act and being a concurrent finding of fact by the respective authorities and in the light of the judgments rendered by this Court in the case of CIT v. State Bank of Bikaner & Jaipur Jaipur Vidyut Vitran Nigam Ltd. [2014] 363 ITR 70/43 taxmann.com 411 of even date wherein it has been held that if the amount has been deposited on or before the due date of filing the return under 1. 139 and admittedly it was deposited on or before the due date then the amount cannot be disallowed under s. 438 of the IT Act or under s 36(1)(va) of the Act." 2.2 Rajasthan High Court has given similar decisions in following cases: 2.2.1 CIT vs Udaipur Dugdh Utpadak Sahakari Sangh Limited (12014) 366 (TR 163) 2.2.2 CIT vs State Bank of Bikaner & Jaipur (2014) 363 ITR 70) 2.2.3 CIT vs Rajasthan State Beverages Corpn. Ltd. 2.3 Further, Karnataka High Court in case of Essae Teraoka (P) Ltd. (2014 (43) taxmann.com 33) held that in order to claim deduction u/s 36(1)(va), payment of employees' contribution to Employees' Provident Fund, Labour Welfare Fund and Employees' State Insurance can be made before the due date of filing of return of income u/s 139(1), Relevant extract is reproduced for ease of reference: "20. Paragraph-38 of the PF Scheme provides for Mode of payment of contributions. As provided in sub-para(1), the employer shall, before paying the member, his wages, deduct his ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 66 contribution from his wages and deposit the same together with his own contribution and other charges as stipulated therein with the provident fund or the fund under the ESI Act within fifteen days of the closure of every month pay. It is clear that the word "contribution" used in Clause(b) of Section 438 of the IT Act means the contribution of the employer and the employee. That being so, if the contribution is made on or before the due date for furnishing the return of income under sub-section (1) of Section 139 of the IT Act is made, the employer is entitled for deduction." 2.4 Similarly Delhi High Court in case of AIMIL. Ltd. (2010 (188) taxmann 265) held that employees' contribution towards provident fund and ESI would qualify for deduction even if paid after due date prescribed under Provident Fund Act/ESI Act but before due date of filing of return. Relevant extract is reproduced for ease of reference: "17. We may only add that if the employees' contribution is not deposited by the due date prescribed under the relevant Acts and is deposited late. the employer not only pays interest on delayed payment but can incur penalties also, for which specific provisions are made in the Provident Fund Act as well as the ESI Act. Therefore, the Act permits the employer to make the deposit with some delays, subject to the aforesaid consequences. Insofar as the Income-tax Act is concerned, the assessee can get the benefit if the actual payment is made before the return is filled, as per the principle laid down by the Supreme Court in Vinay Cement Ltd.'s case (supra)," 3.0 In view of the above, it is submitted that amount deposited as employees contribution towards Provident Fund and ESI Fund after due date under respective Act but before due date of filing of return of income u/s 139(1) would be eligible to deduction u/s 36(1)(va) of IT Act.” “Reply of assessee company 1.0 ACIT vide notice u/s 142(1) dated 07/11/2019 has asked whether any disallowance has been made in the ITR for expenditure incurred for earning exempt income. 2.0 In this regard, it is humbly submitted that the assessee company has disallowed Rs. 1,20,000/- under section 14A of Income Tax Act, 1961 which has been duly reported at clause 8 - 'Expenses debited to profit and loss account which relate to exempt income of Schedule BP. 3.0 The working of the disallowance made u/s 14A is enclosed as Exhibit-1. 4.0 In view of above, assessee company has already made compliance of Section 14A of Income Tax Act, 1961 by suo-moto offering expenditure of Rs. 1,20,000/-. ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 67 11. Based on the above clarification the ld. AR of the assessee submitted that both the issues already raised by the assessing officer in the assessment proceedings and the ld. AO has already analyzed the issues, sought explanation from the assessee and taken a plausible view. There cannot be a gauge that the enquiry conducted is sufficient or not when the specific issue has already been considered in the assessment proceedings before her. As regards the disallowance u/s. 14A the specific detailed working and explanation along with the evidence that the sufficient fund was available with the assessee company to make the investment even though the disallowance under section 14A r.w.r 8D was made by ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 68 the assessee company. For this ld. AR submitted that all the relevant information was also placed on record to decide the issue on hand by the AO. The same is supported by a detailed submission before the assessment proceedings. Thus, the issue was considered by the ld. AO based on the submission and material placed on record. Whereas in respect of the second issue respectfully following the jurisdictional high court the ld. AO has allowed the deduction of the payment made before the due date of filling return for PF and ESI which is also a one of the views based on the submission made by the assessee company. So, on both the issue the ld. AO has given his attention and sufficient enquiry was conducted by the ld. AO. On the contrary PCIT has not specified what enquiry should have been done by the ld. AO. In the absence such clear finding how the order is prejudicial and erroneous. The ld. PCIT cannot gauge that what the specific level up to which the ld. AO has ask the details so as to reach the level of enquiry which that the PCIT deem it fit. Even the amended provision of section 263 inserting explanation 2 does not deal with that situation and for that ld. AR of the assessee draw our attention ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 69 to the said explanation 2 of section 263. The same is extracted here in below: Explanation 2.—For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer 94 [or the Transfer Pricing Officer, as the case may be,] shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal 95 [Chief Commissioner or Chief Commissioner or Principal] Commissioner or Commissioner,— (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. 12. The ld. AR of the assessee explained that none of the condition specified in the Act is applicable in the present facts of the case. He further submitted that the AO has not granted any relief or claim in the present case without verification which is the subject matter in the case. The order is passed after making proper and sufficient enquiry in the proceeding. The AO has not violated any direction or instruction of the board. The order also not violates any binding judicial decision. He further submitted that the issue raised by the PCIT has already been raised and the relevant aspect of the facts on the same very issue is seen by the AO. The ld. AR demonstrate before us that the AO has raised which the ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 70 PCIT is contending in the proceeding under section 263 of the Act. He has also demonstrated before us that the AO has made necessary enquiry on the issue based on the submission made by the assessee. The ld. AO has taken the plausible view on both the issue as per the submission placed on record. This action of the AO is not proved to be prejudicial or erroneous on any of the angel by the PCIT while issuing the show cause notice to the assessee company. In that circumstance the provision of section 263 and its explanation 2 will not apply. 13. Per contra, the ld. DR has vehemently supported the order of the PCIT and submitted that in the working of disallowance the assessee has calculated the disallowance in accordance with rule 8D. The ld. DR further submitted that after the amendment made in the section 14A in 2022 and after considering the judgement of the Guhati bench of ITAT considering the amendment as retrospective the disallowance is strictly required to be completed in accordance with section 14A r.w.r. 8D. The basis considered for the disallowance is only for staff salary and no direct expenses is considered by the assessee company while computing the ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 71 disallowance. Even the assessee has not considered the interest paid by them. The disallowance should also be considered in accordance with the overall scheme of the Act. The ld. DR further submitted that while considering the provision of section 263 the ld. PCIT is only supposed to give the opportunity of being heard to the assessee and should not demonstrate all the requirement mentioned in the explanation 2 of section 263. The ld. AO has not given any specific finding on the issue that she has considered. Thus, based on the legal decision cited by the PCIT and above arguments ld. DR supported the order of the PCIT. 14. In the rejoinder to the points raised the ld. DR, ld. AR of the assessee submitted that the judgment of Gahuati Bench of ITAT holding the provision of section 14A retrospectively is reversed by the Delhi HC holding that the provision is prospective in nature. Not only that when the disallowance is already made there is not subject matter of that aspect in this case. That case deal with the disallowance to be made or not whereas in the case of hand the disallowance is already made. As regards the non-mentioning of the fact in the order the same is already held the decision of the ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 72 jurisdictional Honourable Rajasthan high that it is not relevant that whether the same is mentioned in the order or not but what is to be seen that the issue is verified in the proceeding or not. As regards the disallowance computed on both the issue the ld AO has taken a plausible view which cannot be a subject matter of revision. The ld. AR of the assessee relied on the decision of PCIT Vs. Shreeji Prints P. Ltd. 130 Taxmann.com 294 (SC). The relied upon part of the judgement is reproduced here in below : It was contended by the Learned Counsel that clause -(a) & (b) of Explanation 2 of Section 263 are not applicable as the Assessing Officer has made enquiry and verification which should have been made. Further, in the show cause notice, the Explanation-2 of section 263 was not invoked by the PCIT and it was referred in the order u/s.263 of the Act. Therefore, in the light of decision of the Co-ordinate Bench of Mumbai ga in the case of Narayan Tatu Rane - 70 taxmann.com 227 (Mum. Trt.) [PB 153-1561 wherein held that explanation cannot laid to have over ridden the law as interpreted/the various High Courts where the High Courts have held that before reaching the conclusion that the order of the Assessing Officer is erroneous prejudicial to the interest of Revenue. The CIT himself has to undertake some enquiry to establish that the assessment order is erroneous and prejudicial to the interest of Revenue. ...[Para No. 15] 15. We have heard the rival contentions, carefully considered the finding recorded in the impugned order passed under S. 263, the rival contentions raised by both the parties and the material placed on record as well as gone through the judicial pronouncements relied upon by both the parties to drive home to their contentions. ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 73 From the fact, we noticed that the assessee is a private limited company and filed return for the year under consideration which was taken up for complete scrutiny. For this year the ld. AO has called for the details required to complete the assessment based on the reason of selection under CASS, assessee submitted the details called for and ld. AO taken a plausible view on the issue of disallowance u/s. 14A and disallowance u/s. 36(1)(va) of the Act. Whereas the ld. Pr. CIT considered that the same has not been seen by the AO in light of the observations made by her in the proceedings before her as depicted by her in the show cause notice issued by her. The bench notes 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 Principal 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 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 ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 74 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, then 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 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. 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: ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 75 "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 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." 16. Thus, based on this decision it is also noteworthy to mention that one of the pre-requisites before invoking S. 263 and the allegation of the Ld. Pr. CIT 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 30.12.2019 and in the findings recorded in the order under challenge, we do not find any incorrectness and incompleteness in the appreciation of facts made by the AO after hearing the arguments of both the parts. In the light of these observations, we do not agree on this aspect to this extent with Ld. Pr. CIT. 17. We now proceed to consider whether the AO has also incorrectly appreciated and assumed the law while making the ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 76 subjected assessment to be termed, as erroneous and prejudicial to the interest of the revenue? The facts are not disputed that the in the assessment proceeding both the issue which are raised by the PCIT is raised by the AO too. On both the issue the assessing officer called for the information from the assessee on the issue under dispute in the order of the PCIT and has considered the issue by taking a plausible view of the matter. It is also not in dispute that the assessee has provided all the relevant details in the assessment proceedings. The ld. AO based on the information provided by the assessee applied mind on both the issue. On the other hand, the ld. DR did not demonstrate that what are the error apparent on the issue which the ld. PCIT is raising and has not been considered by the AO. Even the assessee has submitted their version on the issues in the assessment proceedings and based on the submission the ld. AO has taken a view which is also a plausible view on the matter based on the complete facts placed before AO. Whereas, the ld. AR also proved from the paper book filed that the related aspect of the issue has been duly considered in the assessment proceeding. The ld. AR also pointed out that the ld. PCIT failed to demonstrate as to why the view taken by the AO ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 77 is incorrect in law. The view taken by him is even not violates the conditions prescribed under the explanation 2 of section 263 of the Act. The ld. AR controverted on all the aspect argued the ld. DR and submitted that disallowance u/s. 14A is made in terms of the specific facts of the case. Considering the fact, that assessee has sufficient funds which are non-interest-bearing fund and even though the disallowance u/s. 14A was made. The AO has considered this disallowance of 14A issue and on issue of ESI and PF AO has considered the jurisdictional High Court judgement and has considered the claim of the assessee. The ld. Pr. CIT evidently did not place on record any apparent error on the part of the AO so as to substantiate that order passed by the ld. AO is prejudicial to the interest of revenue. 18. The AO has raised the issue with in the legal frame work and based on the circumstances and facts presented he has accepted the facts and considered the plausible view which is not proved to be illegal. He only mentioned that the detailed investigation was required to be conducted in order to verify the disallowance. There is no further defect found from the record from that the submission ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 78 and contentions raised and placed on record by the AO, why and how against the provision of law. Since, in this case ld. AO has clearly conducted the enquiry and revenue did not pin point the error on the part of the assessing officer the order passed after due application of mind cannot be subjected to proceeding u/s. 263 of the Act. At this stage it is required to be noted that the ITAT Mumbai bench in the Mrs. Khatiza S. Oomerbhoy addressed the issue of 263 proceeding elaborately after referring to number of cases on revisionary powers vested in the Commissioner of Income-tax under section 263 of the Act and summed up the fundamental principles emerging from several cases as under- (i) The CIT must record satisfaction that the order of the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. Both the conditions must be fulfilled. (ii) Sec. 263 of the Act cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer and it was only when an order is erroneous that the section will be attracted. (iii) An incorrect assumption of facts or an incorrect application of law will suffice the requirement of order being erroneous. (iv) If the order is passed without application of mind, such order will fall under the category of erroneous order. (v) Every loss of revenue cannot be treated as prejudicial to the interests of the Revenue and if the Assessing Officer has adopted one of the courses permissible under law or where two views are possible and the Assessing Officer has taken ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 79 one view with which the does not agree. If cannot be treated as an erroneous order, unless the view taken by the Assessing Officer is unsustainable under law (vi) If while making the assessment, the Assessing Officer examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determine the income, the Commissioner of Income-tax, while exercising his power under section 263 of the Act is not permitted to substitute his estimate of income in place of the income estimated by the Assessing Officer. (vii) The Assessing Officer exercises quasi-judicial power vested in his and if he exercises such power in accordance with law and arrive at a conclusion, such conclusion cannot be termed to be erroneous simply because the Commissioner of Income-tax does not fee stratified with the conclusion. (viii) The Commissioner of Income-tax, before exercising his jurisdiction under section 263 of the Act must have material on record to arrive at a satisfaction and (ix) If the Assessing Officer has made enquiries during the course of assessment proceedings on the relevant issues and the assessee has given detailed explanation by a letter in writing and the Assessing Officer allows the claim on being satisfied with the explanation of the assessee, the decision of the Assessing Officer cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in that regard. 19. Be that as it may, in our considered view, as the A.O while framing the assessment had taken a possible view, and revenue did not demonstrate the error remain on the part of the ld. AO the order is not prejudicial and erroneous. In fact, when the ld. AO has conducted the required enquiry and not violated any of the ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 80 conditions mentioned for revision of order as required by Explanation 2 of Section 263 of the Act, the order passed by the Assessing Officer cannot be termed as erroneous so as to be prejudicial to the interests of the revenue. In the present case none of the condition laid down is fulfilled in the show cause notice for revision issued and also not specifically dealt with in the order so as to invoke the provision of section 263 of the Act. Therefore, the Pr. CIT was in error in exercising his revisional jurisdiction u/s 263 of the Act. Accordingly, we find finding no justification on the part of the Pr. CIT, who in exercise of his powers under Sec. 263 of the Act, had dislodged the view that was taken by the AO. 20. Thus, we found from the above discussion and evidences placed before us that the issue has already been raised in the assessment proceedings and was after deliberation was considered. Based on the contentions and judicial precedent cited by the assessee the assessing officer satiated himself and has taken a plausible view. Based on the set of evidence before him the AO has taken a view which is also one of the views and there is no clear finding of the ld. Pr. CIT as to why and how the view taken ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 81 by the assessing officer is not legally correct when he has asked the relevant information and taken a view in the matter. The ld. AR of the assessee based on the similar set of circumstance relied on the decision of the Honurable Jurisdiction High Court in the case of CIT Vs. Ganpat Ram Bishnoi 152 Taxman 242 where in the court observed that : 10. From the record of the proceedings, in the present case, no presumption can be drawn that the Assessing Officer had not applied its mind to the various aspects of the matter. In such circumstances, without even prima facie laying foundation for holding that assessment order is erroneous and prejudicial to interest in any matter merely on spacious ground that the Assessing Officer was required to make an enquiry, cannot be held to satisfy the test of existing necessary condition for invoking jurisdiction under section 263 of the Income-tax Act. 11. Undoubtedly, the jurisdiction under section 263 is wide and is meant to ensure that due revenue ought to reach the public treasury and if it does not reach on account of some mistake of law or fact committed by the Assessing Officer, the CIT can cancel that order and require the concerned Assessing Officer to pass a fresh order in accordance with law after holding a detailed enquiry. But when enquiry in fact has been conducted and the Assessing Officer has reached a particular conclusion, though reference to such enquiries has not been made in the order of the assessment, but the same is apparent from the record of the proceedings, in the present case, without anything to say how and why the enquiry conducted by the Assessing Officer was not in accordance with law, the invocation of jurisdiction by the CIT was unsustainable. As the exercise of jurisdiction by the CIT is founded on no material, it was liable to be set aside. Jurisdiction under section 263 cannot be invoked for making short enquiries or to go into the process of assessment again and again merely on the basis that more enquiry ought to have been conducted to find something. 12. The finding of the Tribunal that the ITO had passed assessment order after relevant enquiries and considering the aspects of the matter required by the CIT to be considered by him is a finding of fact and on the basis of which, the jurisdiction assumed by the CIT being non- existent must be held to be not sustainable. ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 82 21. Being consistent from the decision of the jurisdictional High Court and various other decisions cited by the ld. AR of the assessee and after giving our careful consideration of the facts, detailed deliberated arguments advanced by both the parties as discussed here in above and in the entirety of facts and circumstances of the case, the bench note that there is no basis to hold that the order passed by the Assessing officer is erroneous so far as prejudicial to the interest of the Revenue. Thus, the order of the ld. Pr. CIT is hereby set-aside and that of the Assessing officer order dated 14.12.2019 is sustained. 22. Resultantly, the appeal filed by the assessee is allowed. Order pronounced in the open Court on 04/10/2022. Sd/- Sd/- ¼ lanhi xkslkbZ ½ ¼ jkBkSM deys’k t;arHkkbZ ½ (Sandeep Gosain) (Rathod Kamlesh Jayantbhai) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 04/10/2022 *Ganesh Kr. vkns'k dh izfrfyfi vxzsf’kr@Copy of the order forwarded to: 1. vihykFkhZ@The Appellant- Castamet Works Private Limited, Ajmer 2. izR;FkhZ@ The Respondent- Principle Commissioner of Income Tax, Udaipur 3. vk;dj vk;qDr@ CIT ITA No. 187/JP/2022 Castamet Works Private Limited vs. PCIT 83 4. vk;dj vk;qDr@ CIT(A) 5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur. 6. xkMZ QkbZy@ Guard File {ITA No. 187/JP/2022} vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar