The Commissioner Of Income Tax 9, Aaykar Bhavan v. M/S. Future Corporate Resources Ltd

jsn 901-itxa-1275-2017.doc IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.1275 OF 2017 The Commissioner of Income tax 9, Aaykar Bhavan …Appellant Versus M/s. Future Corporate Resources Ltd. …Respondent ---------- Mr. Tejveer Singh for the Appellant. Ms. Dinkle H. Hariya for the Respondent. ---------- CORAM :K.R. SHRIRAM &R.I. CHAGLA, JJ. DATE : 29 SEPTEMBER, 2021. (THROUGH VIDEO CONFERENCING) ORDER : 1.This appeal has been filed in view of the order dated26th October 2016 passed by the ITAT setting aside order passed bythe Principle Commissioner of Income Tax under Section 263 of theIncome Tax Act, 1961 (“the Act”). The Principal Commissioner ofIncome Tax (“PCIT”) had exercised the powers under Section 263 ofthe Act on the grounds that the order passed by the Assessing Officer was erroneous and it was prejudicial to the interest of the revenue. 2.After the assessment order was passed, the PCIT foundthat the Assessing Officer had failed to examine the interest expensesrelated to the borrowing made for the investment purposes was abusiness expenditure allowable under Section 36(1) (iii) or was it anexpenditure incurred for earning dividend income allowable underSection 57 (iii) of the Act which is determinant of the applicability ofSection 14A to the facts of the case. 3.An order under Section 143 (3) of the Act had beenpassed on 23rd March 2014 computing the total income of theassessee for AY 2011-12 at a loss of Rs.6,56,21,270/-. According tothe PCIT in the assessment order it has been recorded that theassessee was holding investment of Rs.1,15,974.91 lakhs andRs.1,30,265.91 lakhs at the beginning and at the end of the year,respectively. Income arising from such investment being dividenddoes not form part of the total income but stillthe assessee haddebited substantial amount as interest in its P & L A/c. In response tothe question whether any disallowance was required under Section14A of the Act r. w. Rule 8D, it was explained by respondent during 901-itxa-1275-2017.doc the assessment proceedings (a) that the investment had been madeby the assessee in its associate and subsidiary companies as apromoter solely and exclusively for purpose and in course of thebusiness as part of business strategy, (b) the intention was not to earndividend income but to build long term business prospects andincrease the efficiency in each division of the sector, (c) out of thetotal investment appearing in the balance Rs.1,30,265.26 lacsapproximately 93% i.e. Rs.1,21,686324 lacs had been made in theassociate and subsidiary companies and (d) out of the total revenueof the assessee company of Rs.15,264.23 lacs, revenue from associateand subsidiary companies was Rs.8118.20 lacs, i.e., approximately53%. 4.According to the PCIT the Assessing Officer failed tomake a disallowance of interest under the provisions of Section 14Aread with Rule 8 (D) (ii) and therefore order of Assessing Officer waserroneous and prejudicial to the interest of revenue. The PCIT setaside the order of the Assessing Officer with the directions to frame afresh assessment order. Against this order the respondent preferredan appeal before the Income Tax Appellate Tribunal (ITAT). The ITAT,by an order pronounced on 26th October 2016 set aside the order of the PCIT passed under Section 263 of the Act. 5.We have heard the counsels and considered the orderpassed by the PCIT and the order of the tribunal and we see noreason to frame any question of law. 4.According to the PCIT the Assessing Officer failed tomake a disallowance of interest under the provisions of Section 14Aread with Rule 8 (D) (ii) and therefore order of Assessing Officer waserroneous and prejudicial to the interest of revenue. The PCIT setaside the order of the Assessing Officer with the directions to frame afresh assessment order. Against this order the respondent preferredan appeal before the Income Tax Appellate Tribunal (ITAT). The ITAT,by an order pronounced on 26th October 2016 set aside the order of the PCIT passed under Section 263 of the Act. 5.We have heard the counsels and considered the orderpassed by the PCIT and the order of the tribunal and we see noreason to frame any question of law. 6.Mr. Tejveer Singh in fairness agreed that the law is veryclear and in as much as if there are two possible views and theAssessing Officer has chosen one of the possible views then there isno reason to exercise power of revision and revisional powers cannotbe exercised for directing a full inquiry to find out if that view takenafter an inquiry is erroneous. Moreover, the power of revision canonly be exercised where no inquiry as required under the law iscarried out and even in case of inadequate inquiry by the AssessingOfficer, the order of the Assessing Officer could not be reviewed. 7.In the order of PCIT it is stated “in paragraph 4.3 of theassessment order, the Assessing Officer has recorded that from thedetails submitted by the assessee and the explanation given by him,it was observed that assessee had regular business connection withthe company in which investment had been made and also there was 901-itxa-1275-2017.doc business income to the assessee from the same. Therefore, interestexpense debited by the assessee has not been considered for thecalculation of disallowance under Section 14A because the same hasbeen incurred for the purpose of business.” The PCIT therefore agrees that the Assessing Officer hasrecorded from the details submitted by respondent and theexplanation given by respondent that the assessee had regularbusiness connection with the company in which investment has beenmade and also there was a business income to the assessee from thesame. He notes that the Assessing Officer, therefore did not considerthe calculation of disallowance under Section 14A the interestexpense debited by the assessee because the same has been incurredfor the purpose of business. The PCIT though was unhappy with theview of the Assessing Officer, the PCIT himself does not say why itshould have been considered for the calculation of disallowanceunder Section 14A. Even if one assumes that he has, after reading ofthe order expressed his views, but still the position is two viewstherefore were possible. Therefore, if one of the two possible viewswas taken by the Assessing Officer, the PCIT could not have exercisedhis powers under Section 263 of the Act. 901-itxa-1275-2017.doc 8.Another point which we noticed from the order of PCIT,which has been noted by the ITAT is that the PCIT has not disputedthe nature of the investments being strategic investment made for thepurpose and in course of the business of the assessee. The PCIT hasonly looked at the matter from a different legal view on the same setof facts. It was for these reasons, the ITAT had interfered and heldthat the order passed by PCIT under Section 263 of the Act was notsustainable and accordingly set aside that order. 9.In our view, the Tribunal has not committed anyperversity or applied incorrect principles to the given facts and whenthe facts and circumstances are properly analyzed and correct test isapplied to decide the issue at hand, then, we do not think thatquestion as pressed raises any substantial question of law. 10.The appeal is devoid of merits and it is dismissed withno order as to costs. [R.I. CHAGLA J.] [K.R. SHRIRAM, J.]