Rashleela Enterprises Private Limited, Jaipur V. The PCIT (Central), Jaipur

ITA 461/JPR/2024

• Counselvise Citation: [2024] 130 COUNSELVISE.COM (IT) 5391 (ITAT-JAIPUR)
• Duration Of Justice: 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 19-08-2024
• Assessment Year: 2019-2020
• Appeal Filed On: 09-04-2024
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ARVIND KUMAR
• Assessee Lawyers: TARUN MITTAL
• Keywords: Set aside; Reassessment proceedings; Business expenditure; Question of law; Tax effect; Capital Gains; TDS; Search and seizure; Earning of tax free income; Assessment record; Rule 8D; Revision of order; Tax effect
• Section: 143(3); 142(1); 263; 64; 132; 43; 13; 139; 14A; 2(A)

Judgement Text

vk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, “A” JAIPUR Mk0 ,l- lhrky{eh] U;kf;d lnL; ,oa Jh jkBksM deys'k t;UrHkkbZ] ys[kk lnL; ds le{k BEFORE: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, vk;dj vihy la-@ITA No. 461/JPR/2024 fu/kZkj.k o"kZ@Assessment Year : 2019-20 Rashleela Enterprises Pvt. Ltd., Jaipur cuke Vs. PCIT (Central) Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AADCR 2594 J vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Sh. Tarun Mittal, CA jktLo dh vksj ls@ Revenue by : Sh. Arvind Kumar, CIT-DR lquokbZ dh rkjh[k@ Date of Hearing : 20/08/2024 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 05/09/2024 vkns'k@ ORDER PER: RATHOD KAMLESH JAYANTBHAI, A.M. This appeal is filed by the assessee aggrieved from the order of Pr. Commissioner of Income Tax (Central), Jaipur [ for short PCIT] for the assessment year 2019-20 dated 21.03.2024. The ld. PCIT passed that the order under challenges in this appeal as per provisions of section 263 of the Income Tax Act (for short “Act’) while examining the assessment record of the above-named assessee which was passed by ACIT, Central Circle-03, Jaipur ITA No. 461/JP/2024 Rashleela Enterprises Pvt. Ltd. vs. PCIT 2 dated 24.06.2021 as per provisions of section 143(3) of the Income Tax Act. 2. The assessee has taken following grounds in this appeal; “1. On the facts and in the circumstances of the case and in law, Id. PCIT has erred in passing order u/s 263 dated 21.3.2024, by holding that assessment order passed u/s 143(3) of the Income Tax Act, 1961 dated 24.6.2021 is erroneous in so far as it is prejudicial to the interest of the revenue, arbitrarily. 1.1 That, Id. PCIT has further erred in holding that Id.AO has passed the order in routine manner and without making adequate enquiries with regards to the applicability of provision of section 14A r.w.rule 8D and thereby issuing directions to re consider the applicability of provisions of section 14A r.w.rule 8D in respect of expenditure incurred for earning exempt income. Appellant prays that all the necessary records were duly available and were examined by ld.AO and assessment was made after due application of mind, thus the action of Id. PCIT in holding the order as erroneous and prejudicial to the interest of the revenue deserves to be set aside. 1.2 That, Id. PCIT has erred in issuing directions for consideration of applicability of provisions of section 14A r.w.rule 8D, without considering the submission made by the assessee against applicability of provision of section 14A in the wake of various judicial pronouncement. Appellant prays that directions issued vide Revision order are against such judicial pronouncements and deserves to be set aside. 2. On the facts and in the circumstances of the case and in law, ld. PCIT has erred in issuing directions for consideration of applicability of provisions of section 14A r.wrule 8D in respect of total finance cost incurred at Rs. 86,73,560/- by ignoring the submission filed by the assessee that entire finance cost is incurred on specified and identifiable items and no part of the finance cost is directly related to investment made in shares and therefore in absence of any expenditure no disallowance can be made as per the provision of Rule 8D of the IT Rules 1962. ITA No. 461/JP/2024 Rashleela Enterprises Pvt. Ltd. vs. PCIT 3 3. That the appellant craves the right to add, delete, amend or abandon any of grounds of appeal either before or at the time of hearing of appeal.” 3. The brief facts as culled out from the records are that Search & Seizure action were conducted on 23.01.2019 in the case of "Agarwal Group" of Kotputli, Jaipur to which the assessee belongs. Various assets/books of account and documents were found and seized as per annexure prepared while search proceedings. The assessee e-filed return of income on 30.10.2019, declaring total income at Rs.65,03,820/- for the Assessment Year 2019-20. The assessee company is engaged in providing mining and transportation services, apart from income from other source being interest income. As there was search in the case of the assessee notice u/s 143(2) & 142(1) of the Income tax, 1961 were issued along with questionnaire requiring certain details / information, which was duly served upon the assessee. Relevant details have been filed which were placed on record and examined by ld. AO. After examination of the details available on record and verification of facts with reference to details filed by assessee, returned income was considered and assessed as such. The ld. AO passed the order after obtaining prior approval u/s 153D of the I.T. Act, 1961 of the ITA No. 461/JP/2024 Rashleela Enterprises Pvt. Ltd. vs. PCIT 4 Jt. Commissioner of Income-tax, Central Range, Jaipur vide her office letter No. Jt.CIT(C)/Approval, u/s 153D/2020-21/659 dated 24.06.2021. 4. On culmination of the assessment proceedings, the ld. PCIT called for the assessment records as per provision of section 263 of the Act to examine the same. Ld. PCIT upon examination noted that in this case, the ld. AO has not applied proper provisions of the Act on the income declared and offered in the return of income so filed. Therefore, ld. PCIT considered that the order passed by the assessing officer is erroneous and prejudicial to the interest of revenue and the action was initiated by invoking of section 263 of the Act and a show cause notice as per provisions of 263 of the Act was issued to the assessee. Against which the assessee filed a detailed reply. The ld. PCIT considered all the facts and circumstances as detailed in the reply filed by the assessee but not found the reply convincing and thereby ld. PCIT thus held as under:- “Thus considering the facts on record, the judicial pronouncement, and the explanation to section 14A, it is crystal clear that the assessing officer failed to examine the applicability of section 14A r.w. rule 8DD in the case of assessee and hence failed to make addition in regard to ITA No. 461/JP/2024 Rashleela Enterprises Pvt. Ltd. vs. PCIT 5 disallowance of expenditure in respect of exempt income, thus causing the assessment order to be erroneous & prejudicial to the interest of revenue. Therefore the assessment order is liable to be set aside for the purpose of making fresh assessment in line with the issues discussed in the order. I wish to make it clear that I am not disturbing the assessment that has already been made. I am only passing an order applicability of provisions of section 14A r.w.rule 8D of the Income Tax Rule that too based upon independent satisfaction of the assessing officer, who will duly consider the replies of the taxpayer. The order of the AO is, therefore, liable to revision under the explanation (2) clause (a) of section 263 of the Act. The assessment order is set aside and restored to the file of Assessing Officer to verifying applicability of provisions of section 14A r.w.rule 8D of the Income Tax Rule.” 5. Feeling aggrieved from the above order of the PCIT passed u/s. 263 of the Act, the present appeal is filed by the assessee challenging the finding recorded thereon. Apropos to the ground so raised by the assessee, the ld. AR appearing on behalf of the assessee has placed on record their written submission which is reproduced herein below; “ Assessee is a Private Limited Company and the core activity of the Company is to provide mining and bulk transportation services. A search and seizure operation was carried out u/s 132 of the Act at the business and residential premises of the assessee on 23.01.2019. During the course of search the statements of the directors and their relatives and employees of the assessee company were recorded and various loose papers and documents were seized in addition to the seizure of valuables and cash in terms of the panchnama prepared during the course of search. Also, the return of income for the year under consideration was e-filed on 30.10.2019 declaring total income as Rs. 65,03,820/- (APB 1-11) after disclosing loss from partnership firms to the tune of Rs. 1,12,80,788/- and Rs. 12,437/- as exempt income being dividend earned. Thereafter, the assessment was completed after taking into consideration replies filed before Ld. AO along with requisite evidences and recording satisfaction vide an order passed u/s 143(3) dated 24.06.2021 assessing the total income at Rs. ITA No. 461/JP/2024 Rashleela Enterprises Pvt. Ltd. vs. PCIT 6 65,03,820/- (APB 12-14) i.e. without making any additions to the returned income. Further, Ld. PCIT- Jaipur, issued show cause notice on 05.03.2024 proposing to revise the assessment completed u/s 143(3) (APB 12-14) alleging that Ld. AO has neither made any query on the applicability of section 14A r.w.r. 8D on the assessee company nor has examined it for disallowance u/s 14A of the Act. Detailed submission along with supporting evidences were filed before Ld. PCIT, who without considering the submission made by the assessee company, proceeded to complete revision proceedings vide order u/s 263 of the Act dated 21.03.2024, whereby order passed by Ld.AO u/s 143(3) was held to be erroneous and prejudicial to the interest of the revenue on abovementioned issued and thus order of Ld. AO has been set aside with directions for fresh assessment proceedings to take place. Present appeal has been filed by the assessee against the order so passed by Ld. PCIT (Jaipur). With this background, ground wise submission is made as under: Grounds of Appeal No. 1 to 2: In grounds of appeal no. 1 & 1.1, assessee challenged the action of Ld. PCIT in holding the order passed by ld.AO as erroneous in so far as being prejudicial to the interest of revenue and thereby setting aside the same. In grounds of appeal no. 1.2 to 2, assessee has challenged the action ld. PCIT in issuing directions for fresh assessment proceedings on matter relating to sec 14A r.w. rule 8D of the Act without considering the submission furnished by assessee. As all these grounds of appeal are interconnected, same are canvassed together for sake of convenience. In this regard, it is reiterated that a search & seizure action were conducted on 23.01.2019 in the case of “Agarwal Group” of Kotputli, Jaipur to which the assessee belongs. During the course of search, various assets, books of accounts and documents were seized and re- assessment proceedings were initiated for the block period covered under the search. It is reiterated assessee filed his return of income u/s 139 of the Income Tax Act, 1961 declaring the total income as Rs. 65,03,820/- on 30.10.2019 (APB 1-11). The assessee mainly disclosed income from mining and transportation services under the Income from Profit and gain from Business and Profession and also disclosed Income from Other Sources. It is further pointed out that in the computation of total income for the captioned assessment year, assessee has adjusted the loss incurred in the partnership firms in which assessee is a partner to the tune of Rs. 1,12,80,788/- and added back the same while computing the profit and loss from the business ITA No. 461/JP/2024 Rashleela Enterprises Pvt. Ltd. vs. PCIT 7 and also disclosed an exempt income to the tune of Rs. 12,437/- being dividend earned from shares. Further, the assessment order in the case of assessee was passed after thorough examination of all the factual aspects on which directions have been issued by Ld. PCIT. However, Ld. PCIT issued show cause notice u/s 263 alleging that Ld. AO has neither made any query on the applicability of section 14A r.w.r. 8D on the assessee company nor has examined it for disallowance u/s 14A of the Act. During Revision proceedings, assessee duly explained all the facts and submitted necessary documentary evidences on the issues raised in show cause notice, however Ld. PCIT brushed them aside and proceeded to pass an order with observations that “it is crystal clear that the assessing officer failed to examine the applicability of section 14A r.w.rule 8DD in the case of assessee and hence failed to make addition in regard to disallowance of expenditure in respect of exempt income , thus causing the assessment order to be erroneous & prejudicial to the interest of revenue . Therefore, the assessment order is liable to be set aside for the purpose of making fresh assessment in line with the issues discussed in the order” Basically, vide above order, Ld. PCIT has issued directions for revision of assessment order on the issue pertaining to disallowance of interest of Rs. 58,18,692/- u/s 14A read with rule 8D of the Income Tax Rules, 1962 by observing that the order so passed by the Ld. AO u/s 143(3) is erroneous and prejudicial to the interest of revenue. Further as per the observations of Ld. PCIT, assessee has non-current investments in equity amounting to Rs. 17.91 crore on which assessee was earning or was going to earn exempt income within the meaning of section 14A of the Income Tax Act, 1961. Hence it was obligatory for Ld. AO to examine the applicability of the provisions of section 14A r.w.r. 8D of the Income Tax Rules, 1962 and Ld. AO has neither made any query on the topic nor examined the applicability. In the matter, at the outset, it is submitted that the assessee is engaged in the investment activities as a part of its business and during the course of assessment proceedings, the Ld. AO vide notice dated 27.01.2021 issued u/s 142(1) of the Act (as submitted along with submission) on the assessee company, sought the details of interest paid and received during the year under consideration in respect of loans and advances which was duly complied by the assessee and all the requisite documents along with details were furnished before Ld. AO. Ld. AO after examining the details furnished and documents produced and being satisfied with the fact that interest expenses were incurred wholly and exclusively for the purpose of business and were thus allowable u/s 36(1)(iii), did not found it necessary to seek explanation w,r,t. disallowance u/s 14A. Moreover, as the assessee had earned meagre sum of Rs. 12,437/- only as dividend (that too in ITA No. 461/JP/2024 Rashleela Enterprises Pvt. Ltd. vs. PCIT 8 respect of investment made long back) as against total investments of Rs. 1,79,069,581/-, therefore no disallowance was made u/s 14A by ld.AO. Assessment proceedings were completed by ld.AO by passing an order u/s 143(3) dated 24.06.2021 (APB 12-14) wherein returned income was accepted i.e. Rs. 65,03,820/- by observing as under: “4. After examination of the details available on record and verification of facts with reference to details filed by assessee, returned income is assessed.” On perusal of the above, it is evident that the issue of allowability of interest expenses was duly considered by ld.AO and the Assessment order passed cannot be considered as erroneous. It is further submitted that ld. PCIT proceeded to initiate the Revision proceedings by applying the provisions of Rule 8D as were applicable prior to amendment brought on vide notification 43/2016 dated 02.06.2016 and which are applicable to the year under consideration. At this juncture, kind attention of your honours is invited to the formulae as provided by Rule 8D to compute disallowance u/s 14A as originally inserted vide Finance Act 2006, w.e.f. 1.4.2007 and as amended vide notification dated 02.06.2016, which are applicable to the year under consideration: Method of computation as applicable w.e.f 01.04.2007 till A.Y 2016-17 1. Expenses directly incurred to earn exempt income 2. Interest expenditure incurred by the taxpayer (not directly attributable to any particular income) computed as a proportion of the average value of investment earning exempt income to total assets i.e. using below formulae = Interest/ finance cost paid * Investment in exempted assets / Total Assets ; and 3. 0.5% of the average value of investment income from which is exempt. Method of computation as applicable w.e.f AY 2017-18 1. Expenses directly incurred to earn exempt income 2. 1% of the annual average of the monthly averages of the opening and closing balances of the value of investment which does not or shall not form part of the total income It is pertinent to note here that formulae as is applicable to the year under consideration, provides only two scenarios, i.e. (i) where interest expense is directly attributable to earning exempt income- entire such interest is disallowed and (ii) where there is no direct nexus established in respect of utilization of funds for making investment earning exempt income- 1% of Average Investments is to be disallowed. Whereas, ld. PCIT has computed the disallowance as per Rule 8D as under: ITA No. 461/JP/2024 Rashleela Enterprises Pvt. Ltd. vs. PCIT 9 = Interest/ finance cost paid * Investment in exempted assets / Total Assets = 86,73,560 * 17,90,69,581 / 34,41,23,306 = 45,13,413 + 13,05,279 (1% of annual average of opening and closing balances of total investment) = 58,18,6692/- Thus, the disallowance to the tune of Rs. 58,18,692/- as proposed to be made by ld. PCIT by apportioning interest in the ratio of Total Investments to Total Assets is not correct. Also, It is held by various judicial pronouncements that while computing the disallowance u/s 14A r.w.r.8D, only investments which have actually earned exempt income need to be considered and not the entire investments. In the present case, exempt income of Rs. 12,437/- in the form of dividend has actually been earned i.e. from investment in shares of ITC Limited. Further, there is no fresh investment in the shares of ITC Limited in the year under consideration, rather this investment has been made by assessee company long back before AY 2014-15. Thus Ld. PCIT has also erroneously considered the total investment taking average rather than the investments in respect of which exempt income has been earned by assessee company. In support of this reliance is placed on the judgement of Hon’ble Delhi high Court in the case of Cargo Motors Pvt. Ltd. vs Dy Commissioner of Income Tax decided vide appeal no. ITA 7/2020 & CM APPL.943/2020 dated 07.10.2022 wherein it was held that only the investments from which exempt income is earned shall be considered for computation of amount of disallowance as per rule 8D(2)(ii) of the Income Tax Rules, 1962. Gist of the decision is reproduced as under: Section 14A of the Income-tax Act, 1961, read with rule 8D of the Income-tax Rules, 1962 - Expenditure incurred in relation to income not includible in total income (Computation of) - During year, assessee had earned exempt dividend income of certain amount - Assessing Officer made disallowance of expenses by invoking section 14A read with rule 8D and by applying 0.5 per cent of total average investments instead of average investments which had yielded dividend income - Whether for purpose of making disallowance of expenses under section 14A as per rule 8D, only those investments were to be considered for computing average value of investments which yielded exempt income during relevant assessment year - Held, yes [Para 21] [In favour of assessee] Hon’ble High Court of Calcutta in case of Principal Commissioner of Income Tax, Central 1, Kolkata vs. M/s Shalimar Pellet Feeds Ltd. on 22.02.2022 held as under: “The next substantial question of law is with regard to the disallowance under section 14A of the Act. The tribunal after noting several decisions has directed ITA No. 461/JP/2024 Rashleela Enterprises Pvt. Ltd. vs. PCIT 10 the assessing officer to compute the disallowance as per Rule 8D by taking into consideration only those shares which have yielded dividend income in the year under consideration. Though the Tribunal has noted the decision of the Tribunal in REI Agro Ltd. Vs. DCIT (2013) 35 taxmann.com 404, there are several other decisions on the said point and the machinery provision under Rule 8D can be applied only with regard to the shares which yielded dividend income in the year under consideration. Therefore, we find that the tribunal rightly applied the legal principle and granted relief. Accordingly, the substantial question of law framed on the said issue, namely, the deduction under Section 14A of the Act is decided against the revenue.” Hon’ble Delhi high Court in the case of ACB India Limited (Formerly M/s Aryan Coal Benefications (P) Ltd. vs Assistant Commissioner of Income Tax decided vide appeal no. ITA 615/2014 & CM APPL. 16296/2014 dated 24.03.2015 held as under: “4. The AO, instead of adopting the average value of investment of which income is not part of the total income i.e. the value of tax exempt investment, chose to factor in the total investment itself. Even though the CIT(Appeals) noticed the exact value of the investment which yielded taxable income, he did not correct the error but chose to apply his own equity. Given the record that had to be done so to substitute the figure of `38,61,09,287/- with the figure of `3,53,26,800/- and thereafter arrive at the exact disallowance of .05%. 5. In view of the above reasoning, the findings of the ITAT and the lower authorities are hereby set aside. The appeal is allowed and the matter is remitted to work out the tax effect to the AO who shall do so after giving due notice to the party.” Further relying on the judgement of Hon’ble Delhi Court in the case ACB India Limited (Formerly M/s Aryan Coal Benefications (P) Ltd. (supra), the Hon’ble bench in the case of Pr. Commissioner of Income Tax vs. M/s Caraf Builders & Constructions Pvt. Ltd. dated 13.11.2018 in ITA 1260/2018 held as under: “26. There is another error made by the Assessing Officer in computing the disallowance under clauses (ii) of Rule 8D (2) with reference to the formula prescribed. Numerical B in clause (ii) refers to average value of the investment, income from which does not form part or shall not form part of the total income. The Assessing Officer for numerical B in clause (ii) had taken the total value of the investment and not the investment that had yielded exempt income. The Delhi High Court in ITA No. 615/2014, ACB India Ltd. vs. Asstt. Commissioner of Income Tax decided on 24th March, 2015 has held that only average value of the entire investment that does not form part of the total income is the factor which could be covered by the numerical B for computing disallowance under clause (ii) of Rule 8D(2) of the Rules.” Madras High Court in the case of The Commissioner of Income tax vs. Shriram Ownership Trust vide TCA no. 242 of 2018 dated 08.12.2020 wherein it was held as under by the hon’ble court: ITA No. 461/JP/2024 Rashleela Enterprises Pvt. Ltd. vs. PCIT 11 "2.The following substantial questions of law have been framed for consideration of this Court:- "1.Whether the Tribunal was correct in holding that the investment which yielded no exempt income was to be excluded while computing deduction u/s.14A when the Act as well as Rules framed do not provide for any such exception, and further such investment shall always remain in tax free territory?" ....... ...... ...... 39.The first substantial question of law raised by the revenue in this appeal is whether the Tribunal was right in holding that the investment which yielded no exempt income was to be excluded while computing deduction under Section 14A when the Act as well as the Rules do not provide for any such exception. An identical question was raised by the revenue in the assessee's own case in T.C.A.No.241 of 2018 for the assessment year 2013-14. When the said tax case appeal was heard, we noted that the substantial question of law has to be answered in favour of the assessee in the light of the decision of the Hon'ble Division Bench in the case of M/s.Marg Limited vs. CIT, Chennai [T.C.A.Nos.41 to 43 and 220 of 2017 dated 30.09.2020]. However, the appeal filed by the revenue was dismissed on 08.07.2020 owing to low tax effect. The revenue cannot dispute the fact that the above substantial question of law was decided in favour of the assessee. In the case of M/s.Marg Limited, in which the decision of the High Court of Karnataka in Pragathi Krishna Gramin Bank vs. JCIT [(2018) 95 Taxman.com 41(Kar.)] was followed. Further, the Delhi Bench of ITAT in the case of ACIT, Circle 17(1), New Delhi vs. Vireet Investment (P) Ltd. [(2017) 82 Taxman.com 415 (Delhi-Trib.) (SB)] also decided the said issue in favour of the assessee. Thus, following the above referred decision, substantial question of law No.1 is answered in favour of the assessee and against the revenue." Moreover, the issue was also covered by the decision of Madras High Court in the case of CIT v. Chettinad Logistics (P) Ltd., (2017) 80 taxmann.com 221, wherein the Hon’ble High Court considering the decision of Coordinate Bench of Hon’ble Madras High Court in the case of Redington (India) Ltd., vs. Addl.CIT, (2017) 77 taxmann.com 257 held as under: - “11. Furthermore, we may note that a similar argument was sought to be advanced by the Revenue in the matter concerning, M/s.Redington (India) Limited Vs. The Additional Commissioner of Income Tax, which was, subject matter of T.C.A.No.520 of 2016. 11.1. A Co-ordinate Bench of this Court, vide judgment dated 23.12.2016, rejected the plea of the Revenue advanced in that behalf. 11.2. As a matter of fact, a perusal of the judgment would show that the Revenue had sought to argue that because exempt income could be earned in future years, therefore, recourse could be taken to the ITA No. 461/JP/2024 Rashleela Enterprises Pvt. Ltd. vs. PCIT 12 provisions of Section 14A of the Act, to disallow expenditure. In other words the stand taken by the Revenue was irrespective of the fact whether or not income was earned in the concerned assessment year expenditure under Section 14A could be disallowed against anticipated income. 11.3. Pertinently, the Division Bench in M/s. Redington (India) Limited case has repelled this precise argument. 12. The Division Bench, in our view, quiet correctly held that, the computation of total income, in terms of Section 5 of the Act, is made qua real income and not, vis-a-vis, notional income. 12.1. The Division Bench went on to hold that Section 4 of the Act brings to tax, that income, which is relatable to the assessment year in issue. The Division Bench, thus, held that where no exempt income is earned in the previous year, relevant to the assessment year in issue, provisions of Section 14 A of the Act, read with Rule 8 D could not be invoked. 12.2. While coming to this conclusion, the Division Bench also took note of the aforementioned Circular, issued by the Board. 12.3. The reasoning of the Division Bench is contained in the following part of the judgment: 4. The admitted position is that no exempt income has been earned by the assessee in the financial year relevant to the assessment year in issue. The order of assessment records a finding of fact to that effect. The issue to be decided thus lies within the short compass of whether a disallowance in terms of s.14A of the Act read with Rule 8D of the Rules can be contemplated even in a situation where no exempt income has admittedly been earned by the assessee in the relevant financial year. 7. Per contra, Sri.T.Ravikumar appearing on behalf of the revenue drew our attention to the marginal notes of s.14 A pointing out that the provision would apply not only where exempted income is 'included' in the total income, but also where exempt income is 'includable' in total income. 8. He relied upon a Circular issued by the Central Board of Direct taxes in Circular No.5 of 2014 dated 11.2.2014 to the effect that s.14A was intended to cover even those situations whether there is a possibility of exempt income being earned in future. The Circular, at paragraph 4, states that it is not necessary for exempt income to have been included in the income of a particular year for the disallowance to be triggered. According to the Learned Standing Counsel, the provisions of s.14A are made applicable, in terms of sub section (1) thereof to income 'under the act' and not 'of the year' and a disallowance under s.14A r.w.Rule 8D can thus be effected even in a situation where a tax payer has not earned any taxable income in a particular year. 9. We are unable to subscribe to the aforesaid view. The provisions of section 14A were inserted as a response to the judgments of ITA No. 461/JP/2024 Rashleela Enterprises Pvt. Ltd. vs. PCIT 13 the Supreme Court in Commissioner of Income Tax Vs. Maharashtra Sugar Mills Limited (1971) (82 ITR 452) and Rajasthan State Ware Housing Corporation Vs. Commissioner of Income Tax ((2002) 242 ITR 450) in terms of which, expenditure incurred by an assessee carrying on a composite business giving rise to both taxable as well as non-taxable income, was allowable in entirety without apportionment. It was thus that s.14A was inserted providing that no deduction shall be allowable in respect of expenditure incurred in relation to the earning of income exempt from taxation. As observed by the Supreme Court in the judgment in the case of Commissioner of Income Tax vs. Walfort Share and Stock Brokers (P) Ltd (2010) 326 ITR 1 '.... The mandate of s.14A is clear. It desires to curb the practice to claim deduction of expenses incurred in relation to exempt income against taxable income and at the same time avail of the tax incentive by way of an exemption of exempt income without making any apportionment of expenses incurred in relation to exempt income.' 10. The provision this is clearly relatable to the earning of actual income and not notional or anticipated income. The submission of the Department to the effect that s.14A would be attracted even to exempt income 'includable' in total income would entail the assessment of notional income, assumed to be exempt in the future, in the present assessment year. The computation of total income in terms of s.5 of the Act is on real income and there is no sanction in law for the assessment of admittedly notional income, particularly in the context of effecting a disallowance in connection therewith. 11. The computation of disallowance in terms of Rule 8D is by way of a determination involving direct as well as indirect attribution. Thus, accepting the submission of the Revenue would result in the imposition of an artificial method of computation on notional and assumed income. We believe this would be carrying the artifice too far. (emphasis is ours)” Hence in this view of above, as there is no expense directly incurred for the purpose of earning exempt income, disallowance has to be made only on account of indirect expenses, which can be worked out as under: Annual Average of investments will be = (2,11,749+ 2,11,749) / 2 = 2,11,749/- 1% of annual average = 1% of 2,11,749 = Rs. 2,118/- ITA No. 461/JP/2024 Rashleela Enterprises Pvt. Ltd. vs. PCIT 14 Thus, though no expenses were actually incurred for earning exempt income, still if at all, any disallowance u/s 14A of the Act could have been made, the same can be at Rs. 2,118/- only as against what is actually proposed by Ld. PCIT of Rs. 58,18,692/-. Hence in view of the above explanation, it can be concluded that the order so passed by the Ld. PCIT for initiating Revision proceedings to invoke the provisions of section 14A read with rule 8D is not correct as the twin conditions, i.e. the assessment proceedings completed were erroneous and also prejudicial to the interest of revenue have to be fulfilled simultaneously. While on the basis of the above explanation, it is observed that the assessment order passed dated 24.06.2021 was not erroneous as proper examination was done the Ld. AO before passing an order u/s 143(3) nor prejudicial to the interest of revenue as the amount of disallowance as the amount of disallowance according to the provisions of Rule 8D as applicable for the year under consideration would be merely Rs. 2,118/- on account of indirect expenses and nil on account of direct expenses as there were no directly attributable expenses. In view of above, it is prayed that the order passed by ld.AO is neither erroneous nor prejudicial to the interest of the revenue and Revision order passed by ld. PCIT deserves to be set aside. It is further submitted that the observation made by the Ld. PCIT is incorrect as the Non-current Investments as appearing in the Balance Sheet of the assessee for the captioned assessment year amounts to Rs. 17,90,69,581/- which includes investments in various assets like investment in Partnerships firms, Government securities, Listed and Unlisted Equity Shares (APB 64). The summary of the Non-current Investments made by the assessee is produced: Table A: Non-Current Investment particulars Amt. As on 31.03.2019 Amt. As on 31.03.2018 Additional Investment made in FY 18- 19 Investment in Partnership Firms/LLP as capital contribution & loans 9,92,43,186.00 84,92,898.00 9,07,50,288.00 Investment in Equity of Subsidiary and Associates Enterprises 6,64,92,625.00 6,64,92,625.00 0.00 Investment in Other Non-Listed Equity 57,19,000.00 57,19,000.00 0.00 ITA No. 461/JP/2024 Rashleela Enterprises Pvt. Ltd. vs. PCIT 15 Investment in Listed Equity 75,64,770.00 12,31,749.00 63,33,021.00 Investment in Govt. Securities 50,000.00 50,000.00 0.00 Total 17,90,69,581.00 8,19,86,972.00 On the basis of above explanation, it is clear that the observation of the Ld. PCIT alleging the whole of the amount of Non-current Investments i.e. Rs. 17.91 crore are investments in equity shares is incorrect. With regard to the allegation that income from the Non-current Investments is not forming part of the total income and hence the provisions of section 14A of the Act shall apply. In this matter, it is submitted that according to the Clause 9 of the Main Objectives of the assessee as per Memorandum of Association (APB 24-47), one of the object of the assessee is to buy, sale, hold and invest in any kind of security, body corporates, partnerships firms etc. Hence the investments made by the assessee in the listed and unlisted shares, Government securities and partnership firms were classified under Non-Current Investments and therefore any income from these investments was also forming part of the net profit or loss from the business activities. Apart from this it is also submitted that most of the investments are made in various preceding years and mainly upto A.Y. 2014-15 (and before that period) for which the necessary copy of financials of AY 2014-15 (APB 69-70) are enclosed and a comparative view of non- current investments as reflecting in balance sheet of AY 2019-20 with their value in AY 2014-15 is summarized as under: Table B March 2019 March 2014 Difference APB A. Investment in Shares (At cost) Unquoted & Trade i. Associate Company Cocetra Merchants Pvt. Ltd. 2,130,000 2,130,000 - 64 ii. Subsidiary companies- Goldiam Real Home Pvt. Ltd. 3,000,000 3,000,000 - 64 Third Eye Infratech Pvt. Ltd. 15,500,000 15,500,000 - 64 Rashleela Realtors Pvt. Ltd. 21,758,400 21,758,400 - 64 Rashleela Papers Pvt. Ltd. 24,104,225 15,621,725 8,482,500 64 ITA No. 461/JP/2024 Rashleela Enterprises Pvt. Ltd. vs. PCIT 16 iii. Other Companies RMC Med Ltd. 5,719,000 2,907,000 2,812,000 64 Quoated & Trade ITC Limited 211,749 211,749 - 64 JP Infratech Ltd. 1,020,000 1,020,000 - 64 Share of Punjab Alkalies & Chemical Ltd. 6,333,021 - 6,333,021 64 B. Investments in Partnership firms Mahabali Associates 2,332,336 - 2,332,336 64 Rashleela Infraprojects LLP 5,704,682 - 5,704,682 64 Rudra Mintech LLP 702,839 - 702,839 64 Shree Kunj Mintrade LLP 12,894,620 - 12,894,620 64 Shreenathji Aggregate LLP 8,382,357 - 8,382,357 64 Gunin Infrastructure LLP 69,226,352 - 69,226,352 64 It is further submitted that on the perusal of “Table A & B” above, it is evident that majority of investments made by assessee company are in the Partnership firms of the assessee on which the provisions of section 14A are not applicable as the portion of investment in partnership firms is in substance loan advanced to them amounting to Rs. 10,96,70,696/- and the differential portion consist of the capital invested and loss from partnership firms. Further the provisions of section 14A of the Act are also not applicable on the investments made in subsidiary and associates firms as the investments made in those firms are strategic investments and as submitted above the business of the appellant is of mining and bulk transportation services. Thus, investment in subsidiaries and associates were definitely not with the intention to earn dividend or tax-free incomes, but to obtain controlling rights in those entities. Earning of certain exempt income is never be the criteria for making investments which is made solely to acquire and keep-up the controlling rights, to ensure continuous income generation. It is also very relevant to mention here the fact that, the said private limited companies, whose controlling interest has been acquired by the appellant, has not declared any dividend in the year under consideration. An ordinary investor would always be interested in earning dividend income on the investments in shares which is the sole motive behind the investment, as he does not have knowledge of the internal affairs of the company. On the contrary, the APPELLANT being at the helm of the affairs of the companies promoted by him along with ITA No. 461/JP/2024 Rashleela Enterprises Pvt. Ltd. vs. PCIT 17 his family members does have thorough knowledge about the internal financial position and also have knowledge about the modes of obtaining monetary benefits by exercising the rights acquired by way of having controlling interest. Your honour would appreciate that the investments made by the appellant are out of business expediency as no prudent businessman would spare such huge amount of funds whether borrowed or own, just in the hope of petty exempt income, which may or may not arise actually. Hence investments made in these subsidiaries and associate concerns clearly comes under the ambit of “Strategic Investment”, which are not made with the motive to earn exempt income in the shape of dividend or capital gain. These investments are meant to enhance the business interest of the appellant. The appellant is not a trader in shares of group and associate companies. Therefore, these investments are outside the purview of provisions of section 14A. In support of this, reliance is placed on below judgements: Mumbai ITAT Bench in case of Garware Wall Ropes Ltd. vs. ACIT 5408/Mum/2012 No disallowance if primary object of investment is to hold controlling stake in group concern and not to earn tax free income. Chennai ITAT bench in the case of EIH Associated Hotels Ltd. v. DCIT I.T.A. No. 1503/Mds/2012 [2014-ITRV-ITAT-CHN-162] Held that investments made by the assessee in the subsidiary company were not on account of investment for earning capital gains or dividend income. Such investments had been made by the assessee to promote subsidiary company into the hotel industry and were on account of business expediency and dividend there from is purely incidental. Therefore, the investment made by the assessee in its subsidiary is not to be reckoned for disallowance u/s 14A r.w. rule 8D. Delhi ITAT in ITO v. Pioneer Radio Training Services Pvt. Ltd. I.T.A. No. 4448/Del/2013 [2015-ITRV-ITAT-DEL-104] Held that (i) Expenditure (like audit fees) required to be incurred irrespective of income cannot be disallowed, (ii) investments in subsidiaries are not to earn dividend income and cannot be considered for disallowance. ITAT Mumbai in JM Financial Limited vs. ACIT [2014-ITRV-ITAT-MUM- 085] Held that there would be no s. 14A/ Rule 8D disallowance for investment made in shares of subsidiaries & Joint Ventures. 8. Delhi High Court in CIT vs. Oriental Structural Engineers P. Ltd. [2013-ITRV- HC-DEL- 163] expenditure on acquiring shares out of “commercial expediency” & to earn taxable income cannot be disallowed u/s 14A / Rule 8 D ITA No. 461/JP/2024 Rashleela Enterprises Pvt. Ltd. vs. PCIT 18 Thus in view of above, it is evidently clear that the investment made in the share capital of various companies was with a sole motive of obtaining controlling interest in them, earing of any dividend or capital gain as a motive was never in sight, and therefore such strategic investment were outside the scope of provisions of sec 14A of the Act, in so far as any expenditure incurred (if any) for such strategic investment made, is fully allowable u/s 36(1) of the Act. Hence in view of above, it is clear that the provisions of section 14A of the Act will not be applicable on investments made in partnership firms, subsidiaries and associates and the remaining little portion is invested in securities amounting to Rs. 1,33,33,770/-. Amongst the total investment in securities, fresh investment of Rs. 63,33,021/- is done in listed equity during the year under consideration and no further investment was made in securities. With regard to the source of the investment made in securities during the captioned year, it is submitted that the investment was made from free reserves amounting to Rs. 20,14,88,995/- and share capital of Rs. 4,35,95,480/- available with the assessee company totaling to Rs. 24,50,84,475/- at the opening of the captioned assessment year. It is again clarified that no borrowed funds were utilized while making the investments rather investments were made from the free reserves and share capital available with the assessee company, thus the provisions of section 14A of the Act are not applicable on the investments made and therefore, the order of Ld. PCIT for setting aside the assessment order passed by Ld. AO deserves to be cancelled/ quashed. In support of above, reliance is placed on following judgements by the Hon’ble Apex Court. CIT vs. Reliance Industries Limited (Supreme Court) S. 14A/ 36(1)(iii): If the interest free funds available to the assessee are sufficient to meet its investment, it could be presumed that the investments are made from the interest free funds available with the assessee and not from borrowed funds. Hero Cycles (P) Ltd vs. CIT (Supreme Court) S. 36(1)(iii): Law on when interest expenditure on loans diverted to sister concerns and directors can be allowed as business expenditure explained. (i) Insofar as loans to the sister concern / subsidiary company are concerned, law in this behalf is recapitulated by this Court in the case of ‘S.A. Builders Ltd. v. Commissioner of Income Tax (Appeals) and Another’ [2007 (288) ITR 1 (SC)]. Once it is established that there is nexus between the expenditure and the purpose of business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the Board of Directors and assume ITA No. 461/JP/2024 Rashleela Enterprises Pvt. Ltd. vs. PCIT 19 the role to decide how much is reasonable expenditure having regard to the circumstances of the case. It further held that no businessman can be compelled to maximize his profit and that the income tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own view point but that of a prudent businessman. Furthermore, with regard to the interest cost incurred by the assessee during the year under consideration, it is submitted that majority of the loans borrowed by the assessee are earmarked loans i.e. the same are incurred specifically for the purpose for which they are borrowed. Below is the summarized view of nature of loans taken and interest paid thereon. Particulars Amount claimed in A.Y. 2019-20 Interest on Bank CC Limit 31,37,593.00 Interest on Loans for car, equipment and real estate 55,26,664.00 Interest on Late compliance of TDS 9,303.00 Total 86,73,560.00 From the perusal of the above table and also as per the Interest expenses ledger (APB 68), it is evident that major portion of finance cost has being incurred on loans taken for purchasing any vehicle or equipment or real estate property for the assessee’s business to the tune of Rs. 55,26,664/- and assessee has used these loans for the intended purpose. Furthermore, it is also ensured by the financial institutes or banks as well that the loans are utilized for the purpose for which the loans are taken and are not used elsewhere. The remaining finance cost incurred amounting to Rs. 31,37,593/- pertains to interest paid on account of CC limit taken from bank for meeting the working capital requirements and day-to-day expenditure incurred for the furtherance of the business. Hence on the basis of the above explanation, it is again clarified that the investment made in securities during the year under consideration were not made by utilizing the borrowed funds rather the same were made from the free reserves and share capital available with the assessee. Therefore, the allegation of the Ld. PCIT that borrowed funds were utilized for making an investment in securities does not hold good. ITA No. 461/JP/2024 Rashleela Enterprises Pvt. Ltd. vs. PCIT 20 In the circumstances and in view above, it is evident that no inquiry was made nor satisfaction was recorded that the provisions of Sections 14A r.w. rule 8D of the Income Tax Rules, 1962 were applicable on the assessee company by the Ld. PCIT before initiation of the proceedings and even while passing an order for fresh assessment, thus, it is submitted that the fresh proceedings as suggested by Ld. PCIT are not required to be initiated and the order passed by the Ld. PCIT deserves to be quashed. In this regard, reliance is placed on: 243 ITR 83 (SC) Malabar Industrial Co. Ltd. Vs. CIT “A bare reading of section 263 of the Income Tax Act, 1961, makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suomotu under it, is that the order of the Income Tax Officer is erroneous is so far as it is 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 the Revenue. If one of them is absent – if the order of the Income Tax Officer is erroneous but is not prejudicial to th Revenue or if it is not erroneous but is prejudicial to the Revenue – recourse cannot be had to section 263(1) of the Act.” 295 ITR 282 (SC) CIT v. Max India Ltd. The phrase “prejudicial to the interests of the Revenue” in section 263 of the Income-tax Act, 1961, has to be read in conjunction with the expression “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 the Assessing Officer adopts one of two 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 an erroneous order prejudicial to the Revenue, unless the view taken by the Assessing Officer is unsustainable in law. Hon’ble Jurisdictional High Court (2014) 51 TW (IV) 186 (Raj HC) CIT Vs. M/s Deepak Real Estate Developers P. Ltd. It is no longer res-integra that the revisional jurisdiction available to a Commissioner u/s 263 of the Act, is essentially circumscribed by the determinant that the order of the Assessing Officer is erroneous so much so that it is prejudicial to the interest of the revenue. This statutory enjoinment carves out an extremely constricted ambit of such discretionary jurisdiction. The word ‘considers’ applied in the statutory provision involved, signifies a genuine satisfaction of that authority that ITA No. 461/JP/2024 Rashleela Enterprises Pvt. Ltd. vs. PCIT 21 the order of the Assessing Officer is erroneous and that the interest of revenue is prejudicing thereby. Any exercise of the revisional jurisdiction, bereft of such satisfaction and / or finding that the order of the Assessing Officer is erroneous and that it is prejudicial to the interest of the revenue and that too, based on tangible materials on record, is impermissible rendering the resultant order void. 314 ITR 81 (SC) CIT Vs. Green World Corporation The Income-tax Officer, while passing an order of assessment performs a judicial function. A revision application lies before the Commissioner. It is trite that the jurisdiction exercised by the revisional authority pertains to his appellate jurisdiction. The jurisdiction under section 263 can be exercised only when both the following conditions are satisfied (i) the order of the Assessing Officer should be erroneous, and (ii) it should be prejudicial to the interests of the Revenue. These conditions are conjunctive. An order of assessment passed by the Assessing Officer should not be interfered with only because another view is possible. M/s Hariom Stones Vs. PCIT in ITA No. 534/Jp/2016, wherein the hon’ble bench of Jaipur ITAT has held as under: “7....Thus, these facts suggest that the Assessing Officer has taken into consideration the material before him and after due application of law and of facts and then reached at the conclusion to conclude the assessment U/s 143(3) of the Act. It was not a case where Assessing Officer completed the assessment without conducting necessary and proper enquiries. The issue raised by the ld. Pr.CIT has been considered by the Assessing Officer at the time of assessment and the assessee has submitted evidences and details in support of its claim made in P&L account. Therefore, in our considered view, the order passed by the Assessing Officer U/s 143(3) of the Act on 24/3/2014 was not an erroneous order, which could be said to be prejudicial to the interest of the revenue. Considering the ratio laid down in various case laws relied upon, we set aside the order passed by the ld. Pr.CIT. Shri Narayan Tatu Rane vs ITO ITA No.2690 & 2691/Mum/16 dated 06.05.2016 wherein hon’ble Mumbai bench of ITAT has held as under : “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 ITA No. 461/JP/2024 Rashleela Enterprises Pvt. Ltd. vs. PCIT 22 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 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 out 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.” Commissioner of Income Tax vs Ganpat Ram Bishnoi [2006] 152 Taxman 242 (Raj.) Para 11 of the decision is reproduced as under: 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 fat 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. Jhunjhunu Kraya Vikraya Sahkari Samiti Ltd. vs PCIT ITA No. 150/JP/2022 (Jaipur ITAT) (Relevant extracts reproduced): 11. Clearly, therefore, as long as the action of the Assessing Officer cannot be said to be lacking bonafides, his action in accepting an explanation of the assessee cannot be faulted merely because it could have been lawful to make mere detailed inquiries or ITA No. 461/JP/2024 Rashleela Enterprises Pvt. Ltd. vs. PCIT 23 because he did not write specific reasons of accepting the explanation. As for learned PCIT's observations regarding accepting the explanation "in a routine and perfunctory manner", there is nothing to question the bonfides of the Assessing Officer or to elaborate as to what should have been 'appropriate' evidence. The fact remains that the specific issue mentioned and has been examined and the contention of the assessee accepted by the Assessing officer. Merely because the Assessing Officer did not write specific reasons for accepting the explanation of the assessee cannot be reason enough to invoke powers under section 263, and non-mentioning of these reasons do not render the assessment order "erroneous and prejudicial to the interest of the revenue". 12. In view of the above discussions, as also bearing in mind entirety of the case we vacate the impugned revision order. The assessee gets the relief accordingly. It is further submitted that, the Hon’ble Bombay High Court in the case of CIT Vs. Gabrial India Ltd., reported in 203 ITR 108, has held that, “CIT cannot revise order merely because he disagrees with the conclusion arrived at by the ITO”. Further, in the case of CIT Vs. Sunbeam Auto Ltd., reported in 227 CTR 133, the Hon’ble Delhi High Court drew a distinction between “Lack of inquiry” and “inadequate enquiry” and held that, ‘in the case of inadequate enquiry, provisions under section 263 cannot be invoked.’ Hon’ble Bombay High Court in Moil Ltd. Vs. CIT [81 Taxmann.com 420] observed that if a query is raised during the assessment proceedings which was responded to by the assessee, the mere fact that the query was not dealt with in the assessment order then it would not lead to a conclusion that no mind has been applied to it and the Assessing Officer is not expected to raise more queries, if he was satisfied about the admissibility of claim on the basis of the material and the details supplied. Reliance Industries Ltd. vs PCIT ITA No.578/Mum/2021 decision dated 01.09.2021 (Mumbai ITAT)(Relevant extracts) 5.In the present case, we find that the issue was duly considered by Ld. AO after considering assessee’s detailed submissions. The view could not be said to be unsustainable view and it was one of the possible view. Therefore, on the given facts and circumstances, we find that the subject matter of proposed revision was already deliberated upon by Ld. AO and a possible was taken in the matter. That view could not be said to be contrary to law, perverse or unsustainable in law, in any manner and the same would be a possible view keeping in mind the assessee’s submissions during reassessment proceedings. This being the case, the assessment order could not be subjected to revision u/s 263 and the action of Ld. Pr.CIT in invoking jurisdiction u/s 263 could ITA No. 461/JP/2024 Rashleela Enterprises Pvt. Ltd. vs. PCIT 24 not be sustained in the eyes of law. Similar is the view of the Tribunal in assessee’s group concern i.e. M/s Reliance Corporate IT Park Ltd. V/s Pr. CIT (ITA No.2748/Mum/2015 dated 08/03/2017) wherein it has been observed by the coordinate bench that when Ld. AO had applied his mind on the given facts and material on record and took a possible view then such an assessment order could not be cancelled u/s 263 unless it was shown that the view was not tenable either in law or on facts. 6. The Ld. CIT-DR has relied upon the decision of Hon’ble Allahabad High Court in the case of CIT V/s Bhagwan Dass (272 ITR 367) which is a case wherein it was held that the order was passed without application of mind by Ld. AO. The same is not the case here. The case law of Chennai Tribunal in Bharat Overseas Bank V/s CIT (152 TTJ 546) was a similar case wherein no inquiry was made by Ld.AO during the course of assessment proceedings. Therefore, these case laws are distinguishable on facts and not applicable to the facts of the present case. 7. Finally, on the facts and circumstances of the case, we quash the order passed by Ld. Pr. CIT in terms of settled legal position as enumerated by us in opening paragraphs. Ground nos. 1 to 3 stands allowed which render adjudication of ground no.4 merely academic in nature. 8. The appeal stands allowed in terms of our above order.” Torrent Pharmaceuticals Ltd. vs DCIT: Ahmedabad ITAT I.T.A. No. 164/Ahd/2018 9.5 We thus find merit in the plea of the assessee that the Revisional Commissioner is expected show that the view taken by the AO is wholly unsustainable in law before embarking upon exercise of revisionary powers. The revisional powers cannot be exercised for directing a fuller inquiry to merely find out if earlier view taken is erroneous particularly when a view was already taken after inquiry. If such course of action as interpreted by the Revisional Commissioner in the light of the Explanation 2 is permitted, Revisional Commissioner can possibly find fault with each and every assessment order without himself making any inquiry or verification and without establishing that assessment order is not sustainable in law. This would inevitably mean that every order of the lower authority would thus become susceptible to Section 263 of the Act and, in turn, will cause serious unintended hardship to the tax payer concerned for no fault on his part. Apparently, this is not intended by the Explanation. Howsoever wide the scope of Explanation 2(a) may be, its limits are implicit in it. It is only in a very gross case of inadequacy inquiry or where inquiry is per se mandated on the basis of record available before the AO and such inquiry was not conducted, the revisional power so conferred can be exercised to invalidate the action of AO. The AO in the present case has not ITA No. 461/JP/2024 Rashleela Enterprises Pvt. Ltd. vs. PCIT 25 accepted the submissions of the assessee on various issues summarily but has shown appetite for inquiry and verifications. The AO has passed the order in great detail after making several allowances and disallowances on the issues involved impliedly after due application of mind. Therefore, the Explanation 2 to Section 263 of the Act do not, in our view, thwart the assessment process in the facts and the context of the case. Consequently, we find that the foundation for exercise of revisional jurisdiction is surely missing in the present case. Resultantly, the order of the Pr.CIT passed under s.263 of the Act is set aside and cancelled and the order of the AO under s.143(3) is restored.” Indus Best Hospitality & Realtors Pvt. Ltd vs. PCIT (ITAT Mumbai) ITA No. 3125/JP/2017 S. 263 Revision: Explanation 2 to s. 263 inserted by the FA 2015 (which confers power upon the CIT to revise assessments where inadequate inquiries have been conducted by the AO) is prospective in nature and does not apply even to a case where the CIT passed the order after Explanation 2 came on the statute. The CIT should show that the view taken by the AO is unsustainable in law. The action of the CIT in directing the AO to conduct enquiry in a particular manner is contrary to the law interpreted by the Delhi High Court in CIT v. Goetze (India) Ltd 361 ITR 505. If such course of action is permitted, the CIT can find fault with each and every assessment order without making any enquiry or verification in order to establish that the assessment order is not sustainable in law. Amira Pure Foods Pvt. Ltd vs. Pr CIT (ITAT Delhi) ITA No. 3205/Del/2017 S. 263 Revision: Explanation 2 to s. 263 inserted w.e.f. 01.06.2015 does not override the law as interpreted by the various High Courts whereby it is held that the CIT cannot treat the AO's order as being erroneous and prejudicial to the interest of revenue without conducting an enquiry and recording a finding. If the Explanation is interpreted otherwise, the CIT will be empowered to find fault with each and every assessment order and also to force the AO to conduct enquiries in the manner preferred by the CIT, thus prejudicing the mind of the AO, This will lead to unending litigation and no finality in the legal proceedings which cannot be the intention of the legislature in inserting the Explanation. Without prejudice to above, it is further submitted that according to the judgment passed in the case of M/s. Marg Limited vs Commissioner of Income Tax, Chennai by the Hon’ble Madras High Court vide Tax Case Appeal nos. 41 to 43 & 220 of 2017 dated 30.09.2020, it was held that the amount of disallowance on expenditure u/s 14A r..w. rule 8D cannot exceed the exempt income earned by the assessee for the relevant assessment year. Relevant para of the judgment is re-produced below for ease: ITA No. 461/JP/2024 Rashleela Enterprises Pvt. Ltd. vs. PCIT 26 “22. We, therefore, dispose of the present appeal by answering question of law in favour of the Assessee and against the Revenue and by holding that the disallowance under Rule 8D of the IT Rules read with Section 14A of the Act can never exceed the exempted income earned by the Assesee during the particular assessment year and further, without recording the satisfaction by the Assessing Authority that the apportionment of such disallowable expenditure made by the Assessee with respect to the exempted income is not acceptable for reasons to be assigned the Assessing Authority, he cannot resort to the computation method under Rule 8D of the Income Tax Rules, 1962.” Further reliance is placed on the following judicial pronouncements: - Hon’ble Apex Court in the case of Maxopp Investment Ltd. v. CIT (2018) 402 ITR 640/164 has also held that disallowance cannot be more than the exempt income earned. Furthermore, relying upon the order of Supreme Court in case of Maxopp Investment Ltd. v. CIT (2018), the Hon’ble Apex Court in the case of PCIT vs Caraf Builders & Constructions (P.) Ltd. (2019) (SC) dismissed the appeal of the revenue and held that, disallowance cannot be made when there is no income exempt from tax. Referred Maxopp Investment Ltd v. CIT (2018) 402 ITR 640 (SC). - Hon’ble Supreme Court in the case of Pr. CIT v. State Bank of Patiala [2018] 99 taxmann.com 286/259 Taxman 314 (SC) held that where the High Court took a view that amount of disallowance under section 14A of the Act could be restricted to amount of exempt income only, SLP filed against said order was to be dismissed. The Revenue filed an appeal against the decision of the Punjab & Haryana High Court in the case of Pr. CIT v. State Bank of Patiala [2018] 99 taxmann.com 285 wherein the High Court concurred with its earlier decision in the case of the very same assessee in Pr. CIT v. State Bank of Patiala [2017] 88 taxmann.com 667 (Punj. & Har.) wherein it was held that "the amount of disallowance under Section 14A was restricted to the amount of exempt income only and not at a higher figure" The High Court, in this case, thus held that "no substantial question of law arises in the present appeal and consequently, the appeal stands dismissed." - Hon’ble Income Tax Appellate Tribunal, Mumbai Bench decided in the case of The Dy. Commissioner of Income Tax vs. Anant Raj Limited vide ITA 625 & 626/Mum/2023 dated 22.05.2023 as under: “8. We have considered the various decisions of Hon’ble Supreme Court and High Courts referred by the ld. Counsel that disallowance u/s 14A cannot exceed the amount of exempt income earned during the year. Hon’ble Supreme Court in the case of State Bank of Patiala (2018) 99 taxman.com 286 (SC) and Hon’ble Delhi High Court in the ITA No. 461/JP/2024 Rashleela Enterprises Pvt. Ltd. vs. PCIT 27 case of CIT Vs. Joint Investment Pvt. Ltd. (2015) 372 ITR 69 (Delhi) held that disallowance is to be restricted to the extent of exempt income earned by the assessee. Therefore, following the decision of Hon’ble Apex Court and High Court, we direct the A.O to restrict the disallowance to the extent of exempt income earned by the assessee. Therefore, we don’t find any infirmity in the decision of ld. CIT(A). Accordingly, the ground of appeal of the revenue stand dismissed.” - Hon’ble Income Tax Appellate Tribunal, Delhi Bench in the case of M/s Sara International Private Limited vs. Addl.CIT decided vide ITA No.3307/Del/2019 on 13.10.2023 held as under: “11. In view of the aforesaid observations and respectfully following the judicial precedents relied upon herein above, we hold that the disallowance u/s 14A of the Act should be restricted to Rs.5,56,500/- only. Accordingly, the ground Nos.1 & 2 raised by the assessee are partly allowed and Grounds No.1 & 2 raised by the Revenue are partly allowed.” On the basis of above, it is clear that the disallowance of expenditure on account of section 14A r.w. rule 8D can never exceed the exempt income earned d uring the year and hence the proceedings so initiated by the Ld. PCIT deserves to ceased.” 6. To support the contention so raised in the written submission reliance was placed on the following evidence / records : S. No. PARTICULARS PAGE NOS. 1. Copy of income tax return filed u/s 139 of the Income Tax Act, 1961 along with computation of total income. 1-11 2. Copy of Assessment Order passed u/s 143(3) dated 24.06.2021 relevant to A.Y. 2019-20. 1214 3. Copy of hearing notice issued u/s 263 of the Income tax Act , 1961 dated 05.03.2024. 15-17 4. Copy of reply dated 12.03.2024 filed in response to the above notice along with following enclosures: 18-23 a) Copy of Memorandum of Associations of Rashleela Enterprises Private Limited. 24-47 b) Copy of Audited Financial Statements for A.Y. 2019-20. 48-67 c) Copy of Interest Summary for A.Y. 2019-20. 68 ITA No. 461/JP/2024 Rashleela Enterprises Pvt. Ltd. vs. PCIT 28 d) Copy of Audited Financial Statements for AY. 2015-16. 69-70 7. The ld. AR of the assessee in addition to the above written submission so filed argued that the issue that the PCIT has raised is already verified by the ld. AO vide issue of questionnaire dated 27.01.2021 vide question no. 7 (page 25) and 13 (page 27) wherein he has examined the interest income received and paid and the exempt income earned by the assessee. Now the ld. PCIT’s observation that the ld. AO has not examined the issue of 14A disallowance is incorrect and the ld. PCIT is imposing his view upon ld. AO’s view. When the ld. AO has examined the issue and taken a plausible view on the matter the ld. PCIT cannot invoke the provision of section 263 of the Act. The ld. AR of the assessee also submitted that the formule as is applicable to the year under consideration, provide only two scenarios, i.e. (i) where interest expenses is directly attributable to earning exempt income – entire such interest is disallowed and (ii) where there is no direct nexus established in respect of utilization of funds for making investment earning exempt income – 1 % of average investment is to be disallowed. Whereas the ld. PCIT has considered the proposed disallowance as per rule 8 D which is ITA No. 461/JP/2024 Rashleela Enterprises Pvt. Ltd. vs. PCIT 29 based on the apportioning interest in the ratio to total investment to total assets is not correct. He also submitted that while computing the disallowance u/s. 14A r.w.r. 8D only investments which have earned exempt income need to be considered and not the entire investments. To drive home to the contention he relied upon the decision of Hon’ble Delhi High Court in the case of Cargo Motors Private Limited Vs. DCIT and various others cases. 8. Per contra, the ld. DR relied upon the order of ld. PCIT which is passed after considering all the aspect of the matter as argued by the assessee. The ld. DR also drawn our attention to the finding of the ld. PCIT that in earlier year considering the decision of the Apex court decision in the case of Abhisar Buildwell Private Limited the proposal of 263 dropped whereas in the case the assessment is regular assessment. The ld. DR also submitted that the contention raised by the assessee on merits of the case has also been discussed. Based on these arguments ld. DR supported the finding recorded in the order of ld. PCIT. 9. We have heard the rival contentions, perused the material placed on record and gone through the submissions made along ITA No. 461/JP/2024 Rashleela Enterprises Pvt. Ltd. vs. PCIT 30 with the oral arguments advanced at the time of hearing of the present appeal. All the grounds raised by the assessee challenges the finding of the ld. PCIT on merits and on legal grounds, so the same being interrelated are decided all together. The brief facts of the case is that Search & Seizure action were conducted on 23.01.2019 in the case of "Agarwal Group" of Kotputli, Jaipur to which the assessee belongs. Various assets/books of account and documents were found and seized as per annexure prepared during search proceedings. For the year under consideration the assessee has filed the return of income declaring total income at Rs.65,03,820/-. The source of income of the assessee company from the activities of providing mining and transportation services, apart from income from other source being interest income. On account of the search action the case of the assessee was selected for scrutiny. In the scrutiny assessment ld. AO called for the details which were examined and placed on record and after examination of the details available on record and verification of facts with reference to details filed by assessee, returned income was considered and assessed as such. That order of the assessment was passed after obtaining prior approval u/s 153D of ITA No. 461/JP/2024 Rashleela Enterprises Pvt. Ltd. vs. PCIT 31 the I.T. Act, 1961 of the Jt. Commissioner of Income-tax, Central Range, Jaipur vide her office letter dated 24.06.2021. 10. The assessment record was subjected to the verification based on the provision of section 263 of the Act. In that process the ld. PCIT noted in this case, the ld. AO has not applied proper provisions of the Act on the income declared and offered in the return of income so filed. She noted that the explanation to section 14A, is clear so as to make the disallowance u/s. 14A of the Act and that aspect of the matter has not been examined by the ld. AO. As the ld. AO has not verified the applicability of section 14A r.w.r. 8DD in the case of assessee and failed to make addition regarding disallowance of expenditure in respect of exempt income. This in action has resulted the assessment order to be erroneous & prejudicial to the interest of revenue and according she quashed the assessment order so as to verify the applicability of provisions of section 14A r.w.rule 8D of the Income Tax Rule that too based upon independent satisfaction of the assessing officer, who will duly consider the replies of the taxpayer. She therefore, held the assessment order liable to revision under the explanation (2) clause (a) of section 263 of the Act. ITA No. 461/JP/2024 Rashleela Enterprises Pvt. Ltd. vs. PCIT 32 11. As is evident from the records that ld. PCIT quashed the order of the assessment to examine the applicability of provision of section 14A of the Act read with rule 8D of the IT Rules. On this aspect of the matter, we note that the ld. AO in the assessment proceeding vide notice dated 27.01.2021 issued a detailed questionnaire wherein we note that question no. 7 wherein the ld. AO called for the details of the interest paid and received both on the different format. The question so raised reads as under: ITA No. 461/JP/2024 Rashleela Enterprises Pvt. Ltd. vs. PCIT 33 As is evident from the above information called for by the ld. AO wherein she is conscious about the allowability of interest paid and asked the assessee to submit the reasons as to how the same is allowable and she also asked the assessee to prove its nexus otherwise she proposed to disallow the interest. Further in the same questionnaire vide question no. 13, she asked the assessee to furnish the details with evidence of exempt income (along with expenses related to such income ) if any claimed by the assessee. Thus, it is clear from both the question so put forth by the ld. AO we note that the ld. AO was conscious about the issue though may not be by mentioning the specific provision of section 14A of the Act, but as is evident the allowability of interest vis a vis the exempt income is verified by the ld. AO. Not only that this order has been passed by the approval of the Joint Commissioner of Income Tax, Central Jaipur. Thus, on merits of the issue which the ld. PCIT is raising in the proceeding u/s. 263 of the Act as is evident from the records that the same is examined by the ld. AO. 12. Thus, the bench noted that the issue of allowability of interest vis a vis exempt income and related disallowance has been verified ITA No. 461/JP/2024 Rashleela Enterprises Pvt. Ltd. vs. PCIT 34 as is evident from the records. Ld. AO raised the issue and plausible view has already been taken by the ld. AO after considering the reply of the assessee. The bench noted that before invoking the provision of section 263 of the Act the law provide that the Twin conditions needs to be satisfied before exercising revisional jurisdiction under section 263 by the Commissioner. The twin conditions are that the order of the Assessing Officer must be erroneous and so far as prejudicial to the interest of the revenue. In the following circumstances, the order of the Assessing Officer can be held to be erroneous order, that is (i) if the Assessing Officer's order was passed on incorrect assumption of fact; or (ii) incorrect application of law; or (iii) Assessing Officer's order is in violation of the principle of natural justice; or (iv) if the order is passed by the Assessing Officer without application of mind; (v) if the Assessing Officer has not investigated the issue before him; then the order passed by the Assessing Officer can be termed as erroneous order. Coming next to the second limb, which is required to be examined as to whether the actions of the Assessing Officer can be termed as prejudicial to the interest of the revenue. This phrase, i.e., prejudicial to the interest of the revenue has to be read in conjunction with an erroneous order passed by ITA No. 461/JP/2024 Rashleela Enterprises Pvt. Ltd. vs. PCIT 35 the Assessing Officer. As held that every loss of the revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of the revenue. When the Assessing Officer adopted one of the courses permissible in law and it has resulted in loss to the 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 an erroneous order prejudicial to the interest of the revenue unless the view taken by the Assessing Officer is unsustainable in law. Thus, here we note that the ld. AO has raised the issue of allowability of interest paid by the assessee and he has also checked that whether the assessee has exempt income and related expenses has been claimed by the assessee or not. Thus, we note that the assessee has provided the details on both the issue and after examining the reply the ld. AO has considered that aspect of the matter and has not considered any disallowance of interest claimed by the assessee. Thus, the view taken by the ld. AO is plausible view and the ld. PCIT failed to establish that the twin condition exist in this case and the order passed u/s. 263 of the Act is unsustainable. ITA No. 461/JP/2024 Rashleela Enterprises Pvt. Ltd. vs. PCIT 36 13. Even otherwise on the merits of the issue the ld. PCIT has proposed the disallowance of Rs. 58,18,692/- by apportioning interest in the ratio of Total investment to total assets is not correct, because while computing the disallowance u/s. 14A r.w.r. 8D only investments which have earned exempt income need to be considered and not the entire investments. As is evident from the records that in the case of the assessee exempt income of Rs. 12,437/- in the form of a dividend has actually been earned i.e. investment in the shares of ITC Limited. In the year under consideration there is no fresh investment rather this investment has been made by the assessee in the year 2014-15. As held by the Hon’ble Delhi high Court in the case of Cargo Motors Pvt. Ltd. vs Dy Commissioner of Income Tax decided vide appeal no. ITA 7/2020 & CM APPL.943/2020 dated 07.10.2022 wherein it was held that only the investments from which exempt income is earned shall be considered for computation of amount of disallowance as per rule 8D(2)(ii) of the Income Tax Rules, 1962. Similarly, Hon’ble High Court of Calcutta in case of Principal Commissioner of Income Tax, Central 1, Kolkata vs. M/s Shalimar Pellet Feeds Ltd. on 22.02.2022 held that disallowance as per Rule 8D by taking into consideration only those shares which have yielded dividend ITA No. 461/JP/2024 Rashleela Enterprises Pvt. Ltd. vs. PCIT 37 income in the year under consideration to be considered. The ld. DR did not controvert this basic factual aspect of the matter and also did not deal with the fact that there is no expense directly incurred for the purpose of earning exempt income but as contended by the assessee that the same shall be worked out at Rs. 2,118/- only. Since as is evident that no expenses were actually incurred for earning exempt income the dividend income of the ITC shares no disallowance can be made and alternatively it has to be made for an amount of Rs. Rs. 2,118/- only as against what is proposed by Ld. PCIT of Rs. 58,18,692/-. Thus, even on merits also the order of the ld. PCIT is not sustainable. 14. Based on the discussion recorded the bench noted that every inadequacy of the enquiry conducted by an AO as against the no enquiry cannot form a basis for setting aside an assessment order which has been passed by AO. In the instance case as discussed herein above the issue raised and ld. AO takes a plausible view so as to establish that on that issue the order is not erroneous. Thus, when based on the submission and discussion so recorded at is evident that the inquiry has been made and considering the submission of the assessee ld. AO considered the submission of the assessee and has not disallowed the interest as alleged by the ITA No. 461/JP/2024 Rashleela Enterprises Pvt. Ltd. vs. PCIT 38 PCIT. Thus, the contention made by the ld. AO is one of the views based on the submission placed on record cannot be considered as erroneous and prejudicial to the interest of the revenue. Therefore, the order passed by the ld. PCIT dated 21.03.2024 cannot be sustained in law merely because the original assessment order does not exactly advert to the issue which the ld. PCIT is seeing. Hence, the PCIT could not have exercised the powers conferred upon her u/s. 263 of the Act only on the reasons that she had a different view or perspective in the matter. The principle of law enunciated by the Supreme Court in Malabar Industrial Co. Ltd. has set up a standard concerning the width and amplitude of power vested for exercising revisionary jurisdiction under Section 263 of the Act. While exercising power under the said provision, the concerned officer must be satisfied that the twin conditions provided therein stand fulfilled, i.e., the order passed by the AO, which is sought to be revised, is erroneous and is also prejudicial to the interest of the revenue. In other words, if one of the two conditions is not satisfied, the revisionary power under the said provision cannot be invoked. 15. Ergo, we quash the order passed by the PCIT, Central Jaipur. ITA No. 461/JP/2024 Rashleela Enterprises Pvt. Ltd. vs. PCIT 39 In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 05/09/2024. Sd/- Sd/- ¼ Mk0 ,l- lhrky{eh ½ ¼ jkBksM deys'k t;UrHkkbZ ½ (Dr. S. Seethalakshmi) (Rathod Kamlesh Jayantbhai) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 05/09/2024 *Ganesh Kumar, Sr. PS vkns'k dh izfrfyfi vxzsf’kr@Copy of the order forwarded to: 1. vihykFkhZ@The Appellant- Rashleela Enterprises Pvt. Ltd., Jaipur 2. izR;FkhZ@ The Respondent- PCIT (Central), Jaipur 3. vk;dj vk;qDr@ CIT 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. 461/JP/2024} vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar