Kirloskar Oil Engines Ltd. , Pune V. Pr. Commissioner of Income-Tax -6, Pune

ITA 467/PUN/2020

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 3948 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-10-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 07-10-2021
• Assessment Year: 2015-2016
• Appeal Filed On: 09-07-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Rule 8D
• Section: 263; 14A; 64

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER ITA NO.467/PUN/2020 / ASSESSMENT YEAR: 2015-16 KIRLOSKAR OIL ENGINES LTD., 13, LAXMANRAO KIRLOSKAR ROAD, KHADKI, PUNE 411 003 PAN : AADCK5714H VS. PCIT, CIRCLE-6, PUNE APPELLANT RESPONDENT / ORDER PER R.S.SYAL, VP : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DA TED 06-03-2020 PASSED BY THE PRINCIPAL COMMISSIONER OF INCOME -TAX U/S.263 OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) IN RELATION TO THE ASSESSMENT YEAR 2015-16. 2. THERE IS A DELAY OF 64 DAYS IN PRESENTING THIS APPEAL BE FORE THE TRIBUNAL. THE ASSESSEE HAS FILED A LETTER DATED 08-07-2020 IN SUPPORT OF THE REASONS WHICH LED TO THE FILING OF THE INSTANT AP PEAL BELATEDLY. WE ARE SATISFIED WITH THE REASONS. AS SUCH, THE DELAY IS CONDONED AND THE APPEAL IS ADMITTED FOR DISPOSAL ON MERITS. ASSESSEE BY SHRI C.H. NANIWADEKAR REVENUE BY SHRI DEEPAK GARG DATE OF HEARING 07-10-2021 DATE OF PRONOUNCEMENT 08-10-2021 ITA NO.467/PUN/2020 KIRLOSKAR OIL ENGINES LIMITED 2 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSE E FILED ITS RETURN DECLARING TOTAL INCOME OF RS.161.07 CRORE. THE ASSESSMENT U/S.143(3) OF THE ACT WAS TAKEN UP IN WHICH THE ASSESSING OFFICER (AO) OBSERVED THAT THE ASSESSEE COMPA NY HAD MADE INVESTMENTS IN MUTUAL FUNDS UNDER DIVIDEND OPTION SCHEM E UP TO 30-09-2014 AND FROM 01-10-2014 ONWARDS THE INVE STMENTS WERE SHIFTED FROM DIVIDEND OPTION SCHEME TO GROWTH FUNDS. TH E ASSESSEE EARNED DIVIDEND AMOUNTING TO RS.21,93,20,990/- WHICH WAS RECEIVED UP TO 30-09-2014. FROM 01-10-2014 TO 31-0 3-2015, THE ASSESSEE RECEIVED SHORT TERM CAPITAL GAIN OF RS.28.68 CRORE, WHICH WAS OFFERED FOR TAXATION. THE AMOUNT OF INVESTMENT O N 30- 09-2014 STOOD AT RS.704.83 CRORE. THE ASSESSEE OFFERE D DISALLOWANCE U/S.14A ONLY AMOUNTING TO RS.4,73,480/-. ON B EING CALLED UPON TO EXPLAIN AS TO WHY THE DISALLOWANCE BE NOT MADE UNDER SECTION 14A AS PER THE MANDATE OF RULE 8D, THE ASSE SSEE TENDERED ITS EXPLANATION. THE AO COMPUTED DISALLOWANCE UNDER RULE 8D(2)(I) AT RS.4,73,480/-, BEING, THE EXPENDITURE DIR ECTLY RELATING TO EXEMPT INCOME. NO DISALLOWANCE WAS MADE UNDER RULE 8D(2)(II) TOWARDS INTEREST AND DISALLOWANCE UNDER RULE 8D(2 )(III) WAS MADE AT 0.25% OF THE AVERAGE VALUE OF INVESTMENTS AS ON ITA NO.467/PUN/2020 KIRLOSKAR OIL ENGINES LIMITED 3 01-04-2014 AND 30-09-2014, THUS, COMPUTING THE FURTHER AMOUNT DISALLOWABLE UNDER THIS CLAUSE AT RS.1,64,06,810/-. THE LD . PCIT OBSERVED THAT THE AO PASSED ORDER IN AN ERRONEOUS MANN ER WHICH WAS PREJUDICIAL TO THE INTEREST OF THE REVENUE INASMUCH AS THE DISALLOWANCE UNDER CLAUSE (III) OF RULE 8D(2) WAS COMPUTED A T 0.25% AS AGAINST THE MANDATORILY PRESCRIBED RATE OF 0.50%. HE, THEREFORE, SET-ASIDE THE ASSESSMENT ORDER AND DIRECTED THE AO TO RE- COMPUTE THE DISALLOWANCE UNDER THE CLAUSE AT 0.50%. AGG RIEVED THEREBY, THE ASSESSEE HAS COME UP IN APPEAL BEFORE THE T RIBUNAL. 4. THE LD. AR WAS FAIR ENOUGH TO CONCEDE THAT THE A SSESSMENT ORDER WAS DEFINITELY ERRONEOUS INASMUCH AS THE DISALLOWANCE UNDER CLAUSE (III) OF RULE 8D(2) OUGHT TO HAVE BEEN MADE AT 0.5 0% INSTEAD OF 0.25%. HE, HOWEVER, CONTENDED THAT THE ASSESSMENT OR DER WAS NOT PREJUDICIAL TO THE INTEREST OF THE REVENUE. HE BOLSTERED TH IS ARGUMENT BY PLACING ON RECORD AN ALTERNATIVE DETERMINATION U NDER CLAUSE (III) OF RULE 8D(2) COMPUTING THE AMOUNT DISALLOWABLE UN DER SUCH CLAUSE AT RS.1,51,92,814/- (BY TAKING AVERAGE VALUE OF INVESTMENT WITH OPENING FIGURE AS ON 01-04-2014 AT RS.607. 71 CRORE AND NIL FIGURE AS ON 31-03-2015 GIVING AVERAGE VALUE OF INVESTMENTS AT RS.303.85 CRORE) AS AGAINST THE AMOUNT DISA LLOWED ITA NO.467/PUN/2020 KIRLOSKAR OIL ENGINES LIMITED 4 BY THE AO AT RS.1.64 CRORE (WITH AVERAGE VALUE OF INVESTM ENTS AT 01-04-2014 TO 30-09-2014). FOR TAKING NIL FIGURE OF INVES TMENTS AT THE END OF THE YEAR, THE LD. AR RELIED ON ACB INDIA LTD. VS. CIT (2015) 374 ITR 108 (DEL) HOLDING THAT THE AVERAGE VALUE OF INVESTMENTS, FOR THE PURPOSES OF RULE 8D(2)(III), SHOULD B E CONFINED TO THOSE SECURITIES IN RESPECT OF WHICH EXEMPT INCOME IS EARN ED AND NOT THE TOTAL INVESTMENTS. 5. WE HAVE HEARD BOTH THE SIDES AND GONE THROUGH THE RELE VANT MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT THE ASSESSE E WAS HOLDING INVESTMENTS IN MUTUAL FUNDS IN DIVIDEND OPTION SCHEME UP TO 30-09-2014 AND THEREAFTER SWITCHED OVER TO GROWTH FUNDS. THE AMOUNT OF EXEMPT DIVIDEND INCOME UP TO 30-09-2014 STOOD AT RS.21.93 CRORE. THE ONLY DISPUTE IS ON COMPUTATION OF DISA LLOWANCE UNDER CLAUSE (III) OF RULE 8D(2). WHEREAS THE AO COMPUTED THE DISALLOWANCE AT 0.25% BY TAKING THE AVERAGE VALUE OF INVES TMENT AS ON 01-04-2014 AND 30-09-2014, THE LD. PCIT HAS CANVASS ED A VIEW THAT THE DISALLOWANCE HAS TO BE MADE AT 0.50% IRRESPECTIVE OF THE PERIOD DURING WHICH THE INVESTMENTS YIELDED EXEMPT INCOME. 6. SECTION 263 OF THE ACT UNEQUIVOCALLY PROVIDES THAT AN ASSESSMENT ORDER CAN BE REVISED IF THE CIT CONSIDERS THAT ANY ITA NO.467/PUN/2020 KIRLOSKAR OIL ENGINES LIMITED 5 ORDER PASSED THEREIN BY THE AO IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE . THUS, IT IS OSTENSIBLE THAT AN ASSESSMENT ORDER MUST BE BOTH ERRONEOUS AND PREJUDIC IAL TO THE INTEREST OF THE REVENUE SO AS TO CALL FOR REVISION. IF AN ASSESSMENT ORDER IS ONLY ERRONEOUS BUT NOT PREJUDICIAL TO THE INTEREST OF TH E REVENUE, THE SAME CANNOT BE COVERED WITHIN THE FOLD OF SE CTION 263. SIMILAR IS THE POSITION WHERE THE ASSESSMENT ORDER IS NOT ERRO NEOUS BUT ONLY PREJUDICIAL TO THE INTEREST OF THE REVENUE. THUS, IT BE COMES MANIFEST THAT THE POWER U/S.263 CAN BE INVOKED ONLY WHEN THE ASSESSMENT ORDER IS FOUND TO BE BOTH ERRONEOUS AS WELL A S PREJUDICIAL TO THE INTEREST OF THE REVENUE. IF ONE OF THESE TWO ELEME NTS IS MISSING, THEN THE POWER UNDER THIS SECTION IS OUSTED. THE LD . AR HAS MADE OUT A CASE THAT THE ASSESSMENT ORDER IN THIS CASE IS C ERTAINLY ERRONEOUS BUT NOT PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE CALCULATION PUT FORTH BEFORE THE TRIBUNAL FOR DEMONSTRATING THA T THE ASSESSMENT ORDER WAS NOT PREJUDICIAL TO THE INTEREST OF THE REV ENUE HAS NEITHER BEEN VETTED BY THE AO OR THE LD. CIT. WE REFR AIN FROM MAKING ANY COMMENT ON ITS CORRECTNESS WITHOUT CONSIDERING THE CORRESPONDING DETAILS. IN OUR CONSIDERED OPINION, IT WOULD B E IN THE FITNESS OF THE THINGS IF THE IMPUGNED ORDER IS SET-ASIDE A ND THE MATTER ITA NO.467/PUN/2020 KIRLOSKAR OIL ENGINES LIMITED 6 IS RESTORED TO THE FILE OF LD. CIT FOR ASCERTAINING IF THE ORDE R PASSED BY THE AO IS ALSO PREJUDICIAL TO THE INTEREST OF THE REVENUE IN THE MANNER IN WHICH THE ASSESSEE IS TRYING TO MAKE OUT SO AS TO CLOTHE HIM WITH THE JURISDICTION TO TAKE ACTION UNDER SECTION 263 OF THE ACT. IF THE CALCULATION OF THE ASSESSEE IS FOUND TO BE FLAWED AND THE ASSESSMENT ORDER ALSO REMAINS PREJUDICIAL TO THE INTEREST OF THE REVENUE, THEN THE IMPUGNED ORDER REVISING THE ORIGINAL ORDER HAS TO BE UPHELD. IN THE OTHERWISE SCENARIO, THE POWER OF THE LD . PCIT FOR REVISING THE ASSESSMENT ORDER WOULD BE LACKING IF THE ASSESS MENT ORDER IS FOUND TO BE ONLY ERRONEOUS BUT NOT PREJUDICIAL TO THE INTEREST OF THE REVENUE. NEEDLESS TO SAY, THE ASSESSEE WILL BE ALLO WED A REASONABLE OPPORTUNITY OF HEARING BY THE LD. CIT BEFORE EM BARKING UPON THE ABOVE FRESH EXERCISE. 7. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNCED IN THE OPEN COURT ON 08 TH OCTOBER, 2021. SD/- SD/- (PARTHA SARATHI CHAUDHURY) (R.S.SYAL) JUDICIAL MEMBER VICE P RESIDENT PUNE; DATED : 08 TH OCTOBER , 2021 SATISH ITA NO.467/PUN/2020 KIRLOSKAR OIL ENGINES LIMITED 7 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. THE PCIT, CIRCLE-6, PUNE 4. 5. THE JT. CIT, RANGE-14, PUNE , , A / DR A, ITAT, PUNE 6. / GUARD FILE / BY ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE DATE 1. DRAFT DICTATED ON 07-10-2021 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 08-10-2021 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. DATE OF UPLOADING ORDER SR.PS 8. FILE SENT TO THE BENCH CLERK SR.PS 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK 10. DATE ON WHICH FILE GOES TO THE A.R. 11. DATE OF DISPATCH OF ORDER. *