RARE ENTERPRISES, MUMBAI V. CIT CEN CIR IV, MUMBAI

ITA 2820/MUM/2013

• Counselvise Citation: 282019914 RSA 2013
• Duration Of Justice: 1 year(s) 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 17-07-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 10-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S C TIWARI; NATASHA MANGAT
• Assessee Lawyers: R R PRASAD
• Keywords: Principle of natural justice; Assessment record; Prejudicial to interest
• Section: 143(3); 14A; 263

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN (AM) AND SANJAY GARG, (JM) .. , , ./I.T.A. NO.2820/MUM/2013 ( / ASSESSMENT YEAR : 2008-09) M/S RARE ENTERPRISES, 105, SIR VITHALDAS CHAMBERS, 16, MUMBAI SAMACHAR MARG, FORT, MUMBAI-400023. / VS. THE COMMISSIONER OF INCOME TAX CENTRAL-IV, AAYAKAR BHAVAN, M K ROAD, MUMBAI-400020 ( !' / APPELLANT) .. ( #$!' / RESPONDENT) ! ./ % ./PAN/GIR NO. : AAEFR8176J !' & / REVENUE BY : SHRI S C TIWARI AND MS.NATASHA MANGAT #$!' ' & /ASSESSEE BY : SHRI R R PR ASAD ( ) ' *+ / DATE OF HEARING : 17.7.2014 ,- ' *+ /DATE OF PRONOUNCEMENT : 28.8.2014 / O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE REVISION ORDER DATED 18.3.2013 PASSED BY LD CIT, CENTRAL IV, MUMBA I U/S 263 OF THE ACT AND IT RELATES TO THE ASSESSMENT YEAR 2008-09. THE ASSESS EE IS CHALLENGING THE VALIDITY OF REVISION ORDER PASSED BY LD CIT. 2. THE FACTS THAT LED TO THE PASSING OF REVISION OR DER ARE SET OUT IN BRIEF. THE ASSESSEE HEREIN IS A PARTNERSHIP FIRM AND IS ENGAGE D IN THE BUSINESS OF TRADING OF SHARES. IT FILED ITS RETURN OF INCOME FOR THE Y EAR UNDER CONSIDERATION DECLARING I.T.A. NO.2820/MUM/2013 2 A TOTAL INCOME OF RS.119.23 CRORES. THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT BY THE ADDITIONAL COMMISSIONER OF INCOME TAX-12(1) ON 29-12-2010. 3. LATER THE LD CIT EXAMINED THE ASSESSMENT RECORD AND TOOK THE VIEW THAT THE ASSESSMENT ORDER PASSED BY THE AO WAS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE ON THE ISSUE RELATING TO THE D ISALLOWANCE MADE U/S 14A OF THE ACT. THE LD CIT NOTICED THAT THE ASSESSEE HAS RECEIVED FOLLOWING EXEMPTED INCOME DURING THE YEAR UNDER CONSIDERATION:- (A) DIVIDEND INCOME RS. 1 ,99,80,161/- (B) SURPLUS FROM PARTNERSHIP FIRM (RARE INVESTMENT )-RS.12,42,62,603/- THE LD CIT FURTHER NOTICED THAT THE ASSESSING OFFIC ER HAS DISALLOWED A SUM OF RS.8,20,304/- ONLY U/S 14A OF THE ACT. THE LD CIT TOOK THE VIEW THAT THE DISALLOWANCE IS REQUIRED TO BE MADE IN TERMS OF RUL E 8D OF THE INCOME TAX RULES, WHICH PROVIDE FOR MAKING DISALLOWANCE IN THE FOLLOW ING MANNER:- (A) 8D(2)(I) : EXPENDITURE DIRECTLY RELATING TO INCOME . (B) 8D(2)(II) : INTEREST EXPENSES NOT DIRECTLY ATTRIBU TABLE TO ANY INCOME OR RECEIPT. (C) 8D(2)(III) : THE AMOUNT OF PERCENT OF THE AVERAG E VALUE OF INVESTMENT. ACCORDING TO LD CIT, THE ASSESSING OFFICER HAS MADE DISALLOWANCE IN TERMS OF RULE 8D(2)(I) OF THE RULES ONLY. THE LD CIT TOOK T HE VIEW THAT THE ASSESSING OFFICER HAS FAILED TO MAKE DISALLOWANCE UNDER RULE 8D(2)(II) AND RULE 8D(2)(III). THE LD CIT NOTICED THAT THE ASSESSEE HAS PAID INTER EST OF RS.19.04 CRORES AND THE INVESTMENTS WERE REFLECTED TO THE EXTENT OF RS. 83.34 CRORES. ACCORDINGLY, THE I.T.A. NO.2820/MUM/2013 3 LD CIT HELD THAT THE IMPUGNED ASSESSMENT ORDER HAS BEEN RENDERED ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. 4. THE ASSESSEE SUBMITTED BEFORE THE LD CIT TH AT THE INVESTMENT IN PARTNERSHIP FIRM WAS MADE OUT OF ITS OWN FUNDS. TH E ASSESSEE, BY PLACING RELIANCE ON THE DECISION RENDERED BY HONBLE SUPREM E COURT IN THE CASE OF CIT VS. A.W. FIGGIES & CO. & ORS.(24 ITR 405)(SC), FURT HER SUBMITTED THAT THE PARTNERSHIP FIRM, PER SE, DOES NOT HAVE SEPARATE LE GAL EXISTENCE FROM ITS PARTNERS. ACCORDINGLY IT WAS CONTENDED THAT THE IN COME EARNED BY A PARTNER FROM THE PARTNERSHIP FIRM SHOULD NOT BE CONSIDERED AS EXEMPTED INCOME. THE ASSESSEE FURTHER SUBMITTED THAT THE TRIBUNAL IN THE CASE OF YATISH TRADING COMPANY HAS HELD THAT THE INTEREST PAID ON ACQUISIT ION OF SHARES HELD AS STOCK IN TRADE NEED NOT BE DISALLOWED AGAINST THE DIVIDEND I NCOME. THE ASSESSEE SUBMITTED THAT EVEN IN THE CASE OF DAGA CAPITAL MAN AGEMENT P LTD (117 ITD 169), TWO MEMBERS HAD TAKEN CONTRARY VIEW AND THE D ECISION WAS RENDERED ON A MAJORITY VIEW. ACCORDINGLY THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER HAS TAKEN ONE OF THE POSSIBLE VIEWS. THE ASSESSEE ALSO SUBMITTED THAT THE ASSESSING OFFICER, BEFORE INVOKING RULE 8D, SHOULD ARRIVE AT SATISFACTION THAT THE CLAIM MADE BY THE ASSESSEE IS NOT CORRECT. ACCORDINGLY, THE A SSESSEE CONTENDED BEFORE THE LD CIT THE IMPUGNED ASSESSMENT ORDER CANNOT BE CONS IDERED TO BE ERRONEOUS, SINCE THE AO HAS TAKEN ONE OF THE POSSIBLE VIEWS. 5. THE LD CIT WAS NOT CONVINCED WITH THE CONTEN TIONS OF THE ASSESSEE. BY PLACING RELIANCE ON THE DECISION OF HONBLE JURISDI CTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG CO. LTD (234 CTR 1)(BOM), THE LD CIT HELD THAT THE PROCEDURE PRESCRIBED UNDER RULE 8D FOR MAKING DISAL LOWANCE U/S 14A TAKES I.T.A. NO.2820/MUM/2013 4 EFFECT FROM THE ASSESSMENT YEAR 2008-09 ONWARDS. F URTHER, BY PLACING RELIANCE ON THE SPECIAL BENCH OF TRIBUNAL IN THE CASE OF DAG A CAPITAL MANAGEMENT (P) LTD (SUPRA), THE LD CIT HELD THAT THE INTEREST PAID ON BORROWED CAPITAL UTILIZED FOR ACQUIRING SHARES HELD AS STOCK IN TRADE IS REQUIRED TO BE INCLUDED IN COMPUTING DISALLOWANCE U/S 14A OF THE ACT. THE LD CIT FURTH ER NOTICED THAT THE ASSESSEE HAS NOT FURNISHED A SEPARATE CASH FLOW STATEMENT WH ICH CAN CONVINCINGLY PROVE THAT THE FUNDS UTILIZED FOR INVESTMENT WAS NOT OUT OF BORROWED FUNDS. ACCORDINGLY, THE LD CIT HELD THAT THE DISALLOWANCE COMPUTED U/S 14A BY THE AO IS NOT IN ACCORDANCE WITH RULE 8D OF THE IT RULES A ND THE SAME IS ERRONEOUS AND PREJUDICIAL INTEREST OF THE REVENUE. THE LD CIT AL SO FELT THAT THE ASSESSING OFFICER DID NOT MAKE PROPER ENQUIRIES IN THIS REGARD. IN SUPPORT OF HIS VIEWS, THE LD CIT PLACED RELIANCE ON THE FOLLOWING CASE LAW:- (A) PAUL MATHEW AND SONS VS. CIT (263 ITR 101)(KE RALA) (B) CIT VS. SOUTH INDIA SHIPPING CORPN. LTD (233 ITR 546)(MAD) (C) RAMPYARI DEVI SARAOGI VS. CIT (67 ITR 84)(SC) (D) SMT. TARA DEVI AGGARWAL VS. CIT (88 ITR 323)( SC) (E) ADDL. CIT VS. MUKUL CORPORATION (111 ITR 312) (GUJ) ACCORDINGLY, THE LD CIT SET ASIDE THE ORDER OF THE AO AND DIRECTED HIM TO COMPUTE THE DISALLOWANCE U/S 14A OF THE ACT AS PER THE PROVISIONS OF RULE 8D OF THE INCOME TAX RULE BY CONSIDERING THE FACTS DISCUS SED BY HIM AND AFTER PROVIDING REASONABLE OPPORTUNITY FOR BEING HEARD TO THE ASSESSEE. AGGRIEVED, THE ASSESSEE HAS FILED THIS APPEAL. 6. THE LD COUNSEL APPEARING FOR THE ASSESSEE S UBMITTED THAT THE LD CIT HAS ERRED IN LAW IN PRESUMING THAT THE INCOME FROM PART NERSHIP FIRM FALLS IN THE CATEGORY OF EXEMPTED INCOME AS CONTEMPLATED IN SEC. 14A OF THE ACT. HE SUBMITTED THAT, UNDER THE PARTNERSHIP ACT, THE PART NERS ARE INDIVIDUALLY CALLED I.T.A. NO.2820/MUM/2013 5 PARTNERS AND COLLECTIVELY AS FIRM. AS SUCH BOTH THE PARTNERS AND THE FIRM REPRESENTS ONE AND SAME ENTITY ONLY, WHICH IS MADE CLEAR BY HONBLE SUPREME COURT IN THE CASE OF A.W. FIGGIES & CO. & ORS (SUPR A). HE SUBMITTED THAT THE INCOME OF THE PARTNERSHIP FIRM IS ASSESSED TO TAX I N THE HANDS OF THE PARTNERSHIP FIRM ITSELF AND HENCE THE SHARE INCOME RECEIVED BY THE ASSESSEE HAS SUFFERED TAX ALREADY. HENCE, IT CANNOT BE EQUATED WITH DIVIDEND INCOME AND CANNOT BE CONSIDERED AS EXEMPTED INCOME. HE FURTHER SUBMITTE D THAT THE ASSESSEE HEREIN IS HAVING BOTH OWN FUNDS AND BORROWED FUNDS. THE I NVESTMENTS MADE IN THE PARTNERSHIP FIRM IS COVERED BY THE OWN FUNDS ALONE. HE SUBMITTED THAT WHEN THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE IS SUFFICIENT TO MEET ITS INVESTMENTS AND THE ASSESSEE HAD ALSO RAISED A LOAN , THEN IT CAN BE PRESUMED THAT THE INVESTMENTS WERE MADE FROM THE INTEREST FR EE FUNDS AVAILABLE. FOR THIS PROPOSITION, THE LD A.R PLACED RELIANCE ON THE DECI SION RENDERED BY HONBLE JURISDICTIONAL BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD (313 ITR 340). 7. HE FURTHER SUBMITTED THAT THE LD CIT WAS NOT CORRECT IN LAW IN PRESUMING THAT THE DISALLOWANCE U/S 14A IS REQUIRED TO BE COM PUTED COMPULSORILY UNDER RULE 8D OF THE I.T RULES. IN THIS REGARD, THE LD A .R INVITED OUR ATTENTION TO THE DECISION RENDERED BY HONBLE BOMBAY HIGH COURT IN T HE CASE OF GODREJ & BOYCE MFG. CO. LTD VS. DCIT (2010)(328 ITR 81), WHEREIN T HE HONBLE HIGH COURT HAS HELD THAT THE PROVISIONS OF SEC. 14A DOES NOT AUTHO RIZE OR EMPOWER THE AO TO APPLY THE PRESCRIBED METHOD IRRESPECTIVE OF THE CLA IM MADE BY THE ASSESSEE. ACCORDINGLY HE SUBMITTED THAT THE VIEW ENTERTAINED BY LD CIT IS NOT SUSTAINABLE IN LAW AND HENCE THE IMPUGNED REVISION ORDER NEEDS TO QUASHED. I.T.A. NO.2820/MUM/2013 6 8. THE LD A.R FURTHER SUBMITTED THAT THE HONBL E SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD VS. CIT (2000)(243 ITR 8 3)(SC) HAS HELD AS UNDER:- THE PHRASE PREJUDICIAL TO THE INTERESTS OF REVENU E HAS TO BE READ IN CONJUNCTION WITH AN ERRONEOUS ORDER PASSED BY THE A O. EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF AO CANNOT B E TREATED AS PREJUDICIAL TO THE INTERESTS OF REVENUE, FOR EXAMPL E, WHEN AN ITO ADOPTED ONE OF THE COURSES PERMISSIBLE IN LAW AND IT HAS RE SULTED IN LOSS OF REVENUE; OR WHERE TWO VIEWS ARE POSSIBLE AND THE IT O HAS TAKEN ONE VIEW WITH WHICH THE CIT DOES NOT AGREE, IT CANNOT BE TRE ATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE INTERESTS OF REVENUE UNLES S THE VIEW TAKEN BY THE ITO IS UNSUSTAINABLE IN LAW. THE LD A.R SUBMITTED THAT THE ABOVE SAID VIEW WAS R EITERATED BY THE HONBLE SUPREME COURT AGAIN IN THE CASE OF CIT VS. MAX INDI A LTD (2007)(295 ITR 282). THE LD A.R SUBMITTED THAT THE ASSESSING OFFICER, IN THE INSTANT CASE, HAS APPLIED HIS MIND WITH REGARD TO THE DISALLOWANCE TO BE MADE U/S 14A OF THE ACT AND HAS COMPUTED THE DISALLOWANCE BY CONSIDERING THE ACCOUN TS OF THE ASSESSEE. ACCORDINGLY HE SUBMITTED THAT THE ASSESSING OFFICER HAS ADOPTED ONE OF THE POSSIBLE COURSES PERMISSIBLE IN LAW AND HENCE THE L D CIT WAS NOT JUSTIFIED IN HOLDING THAT THE ASSESSMENT ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE, SIMPLY BECAUSE THE LD CIT WAS UNDER THE BE LIEF THAT THE DISALLOWANCE IS REQUIRED TO BE MADE AS PRESCRIBED UNDER RULE 8D OF THE I.T RULES. 9. THE LD D.R, ON THE CONTRARY, SUBMITTED THAT THE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD (SUPRA) HAS HELD THAT THE PROVISIONS OF RULE 8D SHALL APPLY TO THE YEAR UNDER CONSIDERATION , VIZ., ASSESSMENT YEAR 2008- 09. THE LD D.R FURTHER SUBMITTED THAT THE ASSESSEE HAS FAILED TO FURNISH THE DETAILS AND ALSO FAILED TO PROVE BEFORE THE LD CIT THAT INTEREST BEARING FUNDS WERE NOT UTILIZED FOR MAKING INVESTMENTS IN THE PAR TNERSHIP FIRM. HE FURTHER I.T.A. NO.2820/MUM/2013 7 SUBMITTED THAT THE ASSESSING OFFICER HAS FAILED TO APPLY HIS MIND ON THIS ASPECT AND HENCE THE ASSESSMENT ORDER WILL BE RENDERED ERR ONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE. IN THIS REGARD, THE LD D .R PLACED RELIANCE ON THE DECISION RENDERED BY HONBLE SUPREME COURT IN THE C ASE OF MALABAR INDUSTRIAL CO.LTD (SUPRA) AND ALSO THE DECISION RENDERED BY HO NBLE KARNATAKA HIGH COURT IN THE CASE OF INFOSIS TECHNOLOGIES (341 ITR 293)(K AR). 10. IN THE REJOINDER, THE LD A.R SUBMITTED THAT THE ASSESSING OFFICER HAS ADOPTED ONE OF THE POSSIBLE COURSES PERMISSIBLE IN LAW AND HENCE THE LD CIT WAS NOT JUSTIFIED IN PASSING THE IMPUGNED REVISION ORDE R. HE SUBMITTED THAT THE VIEW ENTERTAINED BY LD CIT THAT THE RULE 8D IS MANDATORY IS CONTRARY TO THE BINDING DECISION OF HONBLE BOMBAY HIGH COURT. ACCORDINGLY , HE CONTENDED THAT THE IMPUGNED REVISION ORDER CANNOT BE SUSTAINED. 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAR EFULLY PERUSED THE RECORD. THE SCOPE OF REVISION PROCEEDINGS INITIATED UNDER S ECTION 263 OF THE ACT WAS CONSIDERED BY HON'BLE BOMBAY HIGH COURT IN THE CASE OF GRASIM INDUSTRIES LTD. V CIT (321 ITR 92) BY TAKING INTO ACCOUNT THE LAW LAI D DOWN BY THE HON'BLE SUPREME COURT. THE RELEVANT OBSERVATIONS ARE EXTRA CTED BELOW: SECTION 263 OF THE INCOME-TAX ACT, 1961 EMPOWERS T HE COMMISSIONER TO CALL FOR AND EXAMINE THE RECORD O F ANY PROCEEDINGS UNDER THE ACT AND, IF HE CONSIDERS THAT ANY ORDER P ASSED THEREIN, BY THE ASSESSING OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, TO PASS AN ORDER UPON HEA RING THE ASSESSEE AND AFTER AN ENQUIRY AS IS NECESSARY, ENHANCING OR MODIFYING THE ASSESSMENT OR CANCELLING THE ASSESSMENT AND DIRECTI NG A FRESH ASSESSMENT. THE KEY WORDS THAT ARE USED BY SECTION 263 ARE THAT THE ORDER MUST BE CONSIDERED BY THE COMMISSIONER TO BE ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE RE VENUE. THIS PROVISION HAS BEEN INTERPRETED BY THE SUPREME COURT IN SEVERA L JUDGMENTS TO WHICH IT IS NOW NECESSARY TO TURN. IN MALABAR INDUS TRIAL CO. LTD. V. CIT [2000] 243 ITR 83, THE SUPREME COURT HELD THA T THE PROVISION CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR I.T.A. NO.2820/MUM/2013 8 ERROR COMMITTED BY THE ASSESSING OFFICER AND IT IS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTRACT ED. THE SUPREME COURT HELD THAT AN INCORRECT ASSUMPTION OF FACT OR AN INCORRECT APPLICATION OF LAW, WILL SATISFY THE REQUIREMENT OF THE ORDER BEING ERRONEOUS. AN ORDER PASSED IN VIOLATION OF THE PRIN CIPLES OF NATURAL JUSTICE OR WITHOUT APPLICATION OF MIND, WOULD BE AN ORDER FALLING IN THAT CATEGORY. THE EXPRESSION PREJUDICIAL TO THE I NTERESTS OF THE REVENUE, THE SUPREME COURT HELD, IT IS OF WIDE IMP ORT AND IS NOT CONFINED TO A LOSS OF TAX. WHAT IS PREJUDICIAL TO T HE INTEREST OF THE REVENUE IS EXPLAINED IN THE JUDGMENT OF THE SUPREME COURT (HEAD NOTE) : THE PHRASE PREJUDICIAL TO THE INTERESTS OF THE RE VENUE HAS TO BE READ IN CONJUNCTION WITH AN ERRONEOUS ORDER PASSED BY THE ASSESSING OFFICER. 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 INCOME-TAX OFFICE R ADOPTED ONE OF THE COURSES PERMISSIBLE IN LAW AND IT HAS RESULT ED IN LOSS OF REVENUE, OR WHERE TWO VIEWS ARE POSSIBLE AND THE IN COME-TAX OFFICER 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 INCOME-TAX OFFICER IS UNSUSTAINABLE IN LAW. THE PRINCIPLE WHICH HAS BEEN LAID DOWN IN MALABAR I NDUSTRIAL CO. LTD. [2000] 243 ITR 83 (SC) HAS BEEN FOLLOWED AND EXPLAI NED IN A SUBSEQUENT JUDGMENT OF THE SUPREME COURT IN CIT V . MAX INDIA LTD. [2007] 295 ITR 282. 12. IN GABRIEL INDIA LTD. [1993] (203 ITR 108) (BOM), LAW ON THIS ASPECT WAS DISCUSSED IN THE FOLLOWING MANNER BY THE HONBLE J URISDICTIONAL HIGH COURT (PAGE 113) : . . . FROM A READING OF SUB-SECTION (1) OF SECTIO N 263, IT IS CLEAR THAT THE POWER OF SUO MOTU REVISION CAN BE EXERCISE D BY THE COMMISSIONER ONLY IF, ON EXAMINATION OF THE RECORDS OF ANY PROCEEDINGS UNDER THIS ACT, HE CONSIDERS THAT ANY O RDER PASSED THEREIN BY THE INCOME-TAX OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE . I T IS NOT AN ARBITRARY OR UNCHARTERED POWER, IT CAN BE EXERCISED ONLY ON FULFILLMENT OF THE REQUIREMENTS LAID DOWN IN SUB-SE CTION (1). THE CONSIDERATION OF THE COMMISSIONER AS TO WHETHER AN ORDER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, MUST BE BASED ON MATERIALS ON THE RECORD O F THE PROCEEDINGS CALLED FOR BY HIM. IF THERE ARE NO MATE RIALS ON RECORD ON THE BASIS OF WHICH IT CAN BE SAID THAT TH E COMMISSIONER ACTING IN A REASONABLE MANNER COULD HA VE COME I.T.A. NO.2820/MUM/2013 9 TO SUCH A CONCLUSION, THE VERY INITIATION OF PROCEE DINGS BY HIM WILL BE ILLEGAL AND WITHOUT JURISDICTION. THE COMMI SSIONER CANNOT INITIATE PROCEEDINGS WITH A VIEW TO STARTING FISHING AND ROVING ENQUIRIES IN MATTERS OR ORDERS WHICH ARE A LREADY CONCLUDED. SUCH ACTION WILL BE AGAINST THE WELL-ACCEPTED POLI CY OF LAW THAT THERE MUST BE A POINT OF FINALITY IN AL L LEGAL PROCEEDINGS, THAT STALE ISSUES SHOULD NOT BE REACTI VATED BEYOND A PARTICULAR STAGE AND THAT LAPSE OF TIME MU ST INDUCE REPOSE IN AND SET AT REST JUDICIAL AND QUASI-JUDICI AL CONTROVERSIES AS IT MUST IN OTHER SPHERES OF HUMAN ACTIVITY. (SEE PARASHURAM POTTERY WORKS CO. LTD. V. ITO [19 77] 106 ITR 1 (SC) AT PAGE 10) . . . 13. ON A CAREFUL PERUSAL OF THE LAW DISCUSSED B Y THE HONBLE JURISDICTIONAL HIGH COURT AND THE HONBLE SUPREME COURT, IT IS CL EAR THAT AN ORDER CANNOT BE TERMED AS ERRONEOUS UNLESS IT IS NOT IN ACCORDANCE WITH LAW. THIS SECTION DOES NOT VISUALIZE A CASE OF SUBSTITUTION OF THE JUDGMEN T OF THE COMMISSIONER FOR THAT OF THE INCOME-TAX OFFICER, WHO PASSED THE ORDER UNL ESS THE DECISION IS HELD TO BE ERRONEOUS. IF THE INCOME-TAX OFFICER HAD APPLIED HIS MIND WHILE MAKING AN ASSESSMENT AND DETERMINES THE INCOME EITHER BY ACCE PTING THE ACCOUNTS OR BY MAKING SOME ESTIMATE HIMSELF AFTER MAKING DUE ENQUI RIES, THEN THE SAID ASSESSMENT ORDER CANNOT BE TERMED AS ERRONEOUS SIMP LY BECAUSE, THE COMMISSIONER, ON PERUSAL OF THE RECORDS, MAY BE OF THE OPINION THAT THE ESTIMATE MADE BY THE OFFICER CONCERNED WAS ON THE L OWER SIDE. THAT WOULD NOT VEST THE COMMISSIONER WITH POWER TO RE-EXAMINE THE ACCOUNTS AND DETERMINE THE INCOME HIMSELF AT A HIGHER FIGURE. HENCE, THER E MUST BE SOME PRIMA FACIE MATERIAL ON RECORD TO SHOW THAT TAX WHICH WAS LAWFU LLY EXIGIBLE HAS NOT BEEN IMPOSED OR THAT BY THE APPLICATION OF THE RELEVANT STATUTE ON AN INCORRECT OR INCOMPLETE INTERPRETATION A LESSER TAX THAN WHAT WA S JUST HAS BEEN IMPOSED . I.T.A. NO.2820/MUM/2013 10 14. NOW, WE SHALL EXAMINE THE ISSUE BEFORE US B Y CONSIDERING THE FACTS PREVAILING IN THE INSTANT CASE AND ALSO APPLYING TH E LAW AS INTERPRETED BY THE JURISDICTIONAL HIGH COURT AND HONBLE SUPREME COURT . A PERUSAL OF THE REVISION ORDER PASSED BY LD CIT, IT MAY BE SEEN THAT THE LD CIT HAS CONSIDERED THE IMPUGNED ASSESSMENT ORDER AS ERRONEOUS AND PREJUDIC IAL TO THE INTERESTS OF REVENUE FOR THE FOLLOWING REASONS:- (A) THE ASSESSING OFFICER IS REQUIRED TO COMPUTE THE DISALLOWANCE U/S 14A OF THE ACT AS PER THE PROCEDURE LAID DOWN IN RU LE 8D OF THE IT RULES AS PER THE DECISION OF GODREJ & BOYCE MFG CO LTD (S UPRA), WHICH IS EFFECTIVE FROM AY 2008-09. (B) INTEREST PAID ON BORROWED CAPITAL UTILIZED FO R ACQUIRING SHARES HELD AS STOCK IN TRADE IS TO BE INCLUDED IN THE CALCULATION OF DISALLOWANCE TO BE MADE U/S 14A AS PER RULE 8D IN TERMS OF THE SPECIAL BENCH DECISION IN THE CASE OF DAGA CAPITAL MANAGEMENT (P) LTD (SUPRA) IT CAN BE SEEN THAT THE SECOND GROUND FLOWS FROM TH E FIRST GROUND ONLY. HOWEVER, THE LD A.R HAS POINTED OUT TO US THAT THE HONBLE BOMBAY HIGH COURT, IN THE CASE OF GODREJ & BOYCE MFG CO LTD (SUPRA), HAS CLEARLY HELD THAT THE PROVISIONS OF SEC. 14A DOES NOT AUTHORIZE OR EMPOWE R THE AO TO APPLY THE PRESCRIBED METHOD IRRESPECTIVE OF THE CLAIM MADE BY THE ASSESSEE. IT IS NOW WELL SETTLED PROPOSITION THAT THE ASSESSING OFFICER SHOU LD EXAMINE THE CLAIM OF THE ASSESSEE HAVING REGARD TO THE ACCOUNTS MAINTAINED B Y THE ASSESSEE AND ONLY, IF HE IS NOT SATISFIED WITH THE CLAIM, THEN HE CAN PRO CEED TO COMPUTE THE DISALLOWANCE U/S 14A OF THE ACT IN TERMS OF RULE 8D OF THE I.T RULES. THE HONBLE BOMBAY HIGH COURT IN THE ABOVE SAID CASE HA S CLEARLY STATED THAT THE SATISFACTION OF THE AO HAS TO BE OBJECTIVELY ARRIVE D AT ON THE BASIS OF THE ACCOUNTS AND AFTER CONSIDERING ALL THE RELEVANT FAC TS AND CIRCUMSTANCES. IN THIS REGARD, IT CAN BE SEEN THAT THE HONBLE DELHI HIGH COURT HAS ALSO EXPRESSED I.T.A. NO.2820/MUM/2013 11 IDENTICAL VIEW IN THE CASE OF MAXOPP INVESTMENT LTD VS. CIT (2012)(347 ITR 272)(DELHI). 15. IN THE INSTANT CASE, WE HAVE NOTICED THAT T HE LD CIT HAS INITIATED THE REVISION PROCEEDINGS MAINLY ON THE REASONING THAT T HE ASSESSING OFFICER HAS FAILED TO FOLLOW THE PROCEDURE PRESCRIBED UNDER RULE 8D OF THE I.T RULES. HOWEVER, IT CAN BE SEEN THAT THE VIEW ENTERTAINED BY THE LD CIT IS NOT CORRECT IN VIEW OF THE DECISION RENDERED BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD (SUPRA) AND ALSO THE DECISION RENDERED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD (SUPRA). THUS, THE VERY FOUNDATION, ON WHICH THE REVISION PROCEEDING WAS INITIATED IN T HE INSTANT CASE, WAS FOUND TO BE NOT CORRECT. IN THAT CASE, THE IMPUGNED REVISIO N PROCEEDING IS LIABLE TO BE QUASHED, AS THE VIEW ENTERTAINED BY LD CIT ON THE I SSUE OF DISALLOWANCE U/S 14A IS NOT IN ACCORDANCE WITH THE LAW. 16. FURTHER, IT IS THE CASE OF THE ASSESSEE THAT IT WAS HAVING BOTH INTEREST FREE FUNDS AND INTEREST BEARING FUNDS. THUS, BY RELYING ON THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF RELIANCE U TILITIES & POWER LTD (SUPRA), THE ASSESSEE HAS CONTENDED BEFORE LD CIT THAT THE INVES TMENTS IN THE PARTNERSHIP FIRM HAS BEEN MADE OUT OF OWN FUNDS ONLY. 17. A PERUSAL OF THE ASSESSMENT ORDER WOULD SHO W THAT THE ASSESSING OFFICER HAS EXAMINED THE ISSUE OF DISALLOWANCE TO BE MADE U /S 14A OF THE ACT. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD DECL ARED A DIVIDEND INCOME OF RS.1.99 CRORES AND THE NET PROFIT RETURNED BY IT WA S 129.34 CRORES. ACCORDINGLY, IT WAS CONTENDED BY THE ASSESSEE BEFORE THE AO, DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS, THAT THERE IS NO REQUIREMEN T OF MAKING ANY I.T.A. NO.2820/MUM/2013 12 DISALLOWANCE OF INTEREST OR FOR INVOKING RULE 8-D. THUS, IT IS SEEN THAT THE ISSUE RELATING TO INVOKING OF THE PROVISIONS OF RULE 8D W AS SPECIFICALLY QUESTIONED BY THE ASSESSING OFFICER AND THE ASSESSEE HAS GIVEN AB OVE SAID REPLY. THERE AFTER, IT IS SEEN THAT THE ASSESSING OFFICER HAS PROCEEDED TO COMPUTE THE DISALLOWANCE AT RS.8,20,304/-. THUS, IT IS SEEN THAT THE ASSESSING OFFICER HAS EXAMINED THE APPLICABILITY OF RULE 8D TO THE CASE OF THE ASSESSE E HEREIN. AFTER CONSIDERING THE EXPLANATIONS GIVEN BY THE ASSESSEE, THE ASSESSING O FFICER HAS COMPUTED THE DISALLOWANCE CITED ABOVE. 18. THUS, IT IS SEEN THAT THE ASSESSING OFFICER HAS EXAMINED THE ISSUE OF DISALLOWANCE TO BE MADE U/S 14A OF THE ACT AND HAS ADOPTED ONE OF THE COURSES PERMISSIBLE IN LAW. HENCE, THE ASSESSMENT ORDER CA NNOT BE TERMED AS ERRONEOUS AND PREJUDICIAL TO INTERESTS OF REVENUE S IMPLY BECAUSE THE LD CIT IS HAVING A DIFFERENT VIEW IN THIS MATTER. IN ANY CAS E, WE HAVE SEEN THAT THE VIEW ENTERTAINED BY THE LD CIT IS NOT CORRECT IN LAW. U NDER THESE CIRCUMSTANCES, IN OUR VIEW, THE LD CIT WAS NOT JUSTIFIED IN PASSING T HE IMPUGNED REVISION ORDER. 19. ACCORDINGLY, WE SET ASIDE THE IMPUGNED REVI SION ORDER PASSED BY LD CIT. 20. IN THE RESULT, THE APPEAL FILED BY THE ASSE SSEE IS ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 28TH AUG , 2014. ,- ( ./ 0 1 28TH AUG, 2014 - ' ) 2 SD SD ( /SANJAY GARG) ( .. / B.R. BASKARAN ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER . ( ) MUMBAI: 28TH AUG,2014. I.T.A. NO.2820/MUM/2013 13 . . ./ SRL , SR. PS ! '#$%& '&($ / COPY OF THE ORDER FORWARDED TO : 1. !' / THE APPELLANT 2. # $!' / THE RESPONDENT. 3. ( 4* ( ) / THE CIT(A)- CONCERNED 4. ( 4* / CIT CONCERNED 5. 56 #* 7 , + 7 , . ( ) / DR, ITAT, MUMBAI CONCERNED 6. 8) / GUARD FILE. 9 ( / BY ORDER, TRUE COPY : (ASSTT. REGISTRAR) + 7 , . ( ) /ITAT, MUMBAI