Dhani Loans & Services Ltd. vs PCIT (Central)-1, Delhi

1.

“That the Learned PCIT (Central), Delhi-1, erred, on facts and in law, in opining, that the Assessment Order passed u/s 143(3) of the Act is erroneous in so far as it is prejudicial to the interest of revenue.

2.

That the Ld. PCIT (Central) Delhi-1, erred, on facts and in law, in enhancing the income of the assessee on account of disallowance u/s 14A amounting to Rs. 11,59,13,240/-.

3.

That the appellant craves leave to add, amend, alter or omit any of the above grounds of appeal as the circumstances may warrant.”

d)

Interest paid on the fund utilized.

II Kindly provide monthly opening and closing balance during the year with respect to investments.

III Provide following details

IV) Computation as per Rule 8D read with section 14A of the Income Tax Act.”

7...

III With respect to investment in shares, provide the following details:

Name of the shares held	Quantity of the share held	Purchase price per unit and total purchase consideration	Date of purchase	Source of funds for investment	Date of sale	Sale consideration	Calculation of capital gain/loss on sale”

13 That vide reply dated 30.12.2020 (pages 46-50 of Paper Book) the appellant had submitted as under:

“9 Detail of exempt income received Detail of same alongwith mutual fund statement enclosed as Annexure 12 & 13 respectively (pages 153-162 and 169-172 of Paper Book).

10 Computation under section 14A including monthly balances Computation made under section 14A is enclosed as Annexure 14 (page 152 of Paper Book) ...

13 Detail of investment Detail of investment as on 31.3.2018 is enclosed as Annexure 16” page 151 of Paper Book)

14 That on 23.2.2021 (pages 51-52 of Paper Book) a notice was issued u/s 142(1) of the Act from the learned Assessing Officer wherein following information was sought from the appellant company:

“1 As per the balance sheet:

Total current investment (as on 31st Mar 2018)	Rs. 376,44,46,817
Current Investment (As on 31st Mar 2017)	Rs. 112,50,00,000
Non current investment (as on 31st Mar 2018)	Rs. 67,72,25,356

However, the number do not match with the details provided by you with reply dated 30.12.2020. Kindly reconcile the difference for application of section 14A read with rule 8D.”:

15 That vide reply dated 24.2.2021 (pages 62-64 of Paper Book) the appellant had submitted as under:

“1 Query No. 1: Computation under section 14A

Your goodself has correctly quantified the various investment made by the Assessee Company in the notice issued however your goodself would appreciate that the Assessee has earned exempt income of Rs.1.97 crs (as submitted in annexure 12 (page 151 of Paper Book) along with submission dated 30.12.2020) from the mutual funds only out of the total investment made. Accordingly, while computing disallowance u/s 14A, Assessee has considered investment made in dividend earning investment (computation as submitted as Annexure 14 (page 152 of Paper Book) alongwith submission dated 30.12.2020).

With reference to the applicability of section 14A in the instant case, it is submitted that the assessee has already made suo-moto disallowance u/s 14A amounting to Rs. 1,69,45,588/-, computed as per Rule 8D, as the expenses attributable to exempt income. In the humble submission of the assessee, the claim of the assessee is strengthen by its facts and also has the approval of judiciary through battery of case laws.

In the case of ACB India Limited vs. ACIT (TS 176 HC-2015IDELI (Copy enclosed as Annexure 11, wherein Hon'ble Jurisdictional High Court has very categorically stated that

“4 The AO, instead of adopting the average value of investment of which income is not part of the total income le 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.”

Prior to the above decision of the Delhi High Court, similar view was also taken by the Kolkata Bench of the Tribunal in the case of REI Agro Ltd vs DCIT (2013-TIOL-540-ITAT-KOL) (Copy enclosed as Annexure 2), wherein Hon'ble Kolkata ITAT has very categorically stated that-

"thus, not all investments become the subject-matter of consideration while computing disallowance under section 14A read with rule 80 The disallowance under section 14A read with rule 80 is to be in relation to the income which does not form part of the total income and this can be done only by taking into consideration the investment which has give rise to this income which does not form part of the total income."

In the instant case, as no dividend income has been earned from investment other than investment made in mutual funds, hence these investments should not become the subject matter of consideration while computing disallowance under section 14A read with rule 8D.

From the above, it is quite evident that Assessee has made suo-moto disallowance as per Rule 8D read with Section 14A; hence no further disallowance is warranted.

In respect to your query No 5, please find enclosed copy of financial statement for Financial Year 2017-18 (Copy enclosed as Annexure 3) (pages 2-34 of Paper Book), along with copy of Income Tax Acknowledgement for Assessment Year 2018-19 (Copy enclosed as Annexure 4) (pge 1 of Paper Book), of M/s Dhani Services Limited (Formerly Indiabulls Ventures Limited). Further we are in the process of collation the remaining and documents FU and will submit the same shortly.

Hope you would find above in order. Further Assessee requests your goodself to grant us 2-week time to collate and submit balance details and documents."

16 That on 28.9.2021 (pages 73-74 of Paper Book) a notice was issued u/s 142(1) of the Act from the learned Assessing Officer wherein following information was sought from the appellant company:

"1 A notice u/s 142(1) had been issued to you dated 8.12.2020 seeking your replies on the 20 points specified therein. In your reply dated 30.12.2020, you have stated that no property has been sold during the year. However, loss under the head capital gains is reported in the ITR. You are requested to submit details of capital assets sold during the year."

28.

“From perusal of above details, it is observed that the assessee has not made any disallowance on account of purchase and sale of equity shares during the year of Rs. 135,20,99,392 and Rs. 68,78,93,521 respectively resulting in STCL. Also, the total purchase consideration of mutual funds was Rs.12467,74,61,325 and the sale value of the mutual funds was Rs. 12406,75,52,786. As per above computation of disallowance u/s 14A submitted by the assessee, it is evident that the effect of this sale purchase has not been considered. The monthly average value of the investment based upon purchases value in the mutual funds and shares is taken at Rs. 1050,25,46,724 (Rs. 12603,05,60,717/12) which is required to be added to the average value of investment for the purpose of computing disallowance uls 14A of the Act. In addition to above, the value of average investment in respect of the value shown in its books is Rs.278,33,36,086, In view of the above, the average value of investment is computed at Rs. 1328,58,82,812 (1050,25,46,724+278,33,36,086). The 1% of average value of investment come to Rs. 13,38,58,828. In view of provisions of Rule BD read with section-14A-of I.T. Act, it is held that the assessee was required to make disallowance u/s 14A of Rs. 13,38,58,828. Since the assessee has itself disallowed Rs. 1,69,45,588 in its return of income, balance amount of Rs. 11,69,13,240 is further required to be disallowed u/s 14A of 1.T. Act.”

25.

“It is submitted that perusal of the order read with show cause notice would show that the learned Principal Commissioner of Income Tax has proceeded on fundamental factual misconception. It is thus not a case of "lack of enquiry" or "lack of investigation" wherein Commissioner is empowered to exercise his revisional powers by calling for and examining the records of any proceedings under the Act and passing orders thereon. The Hon'ble Delhi High Court in the case of CIT vs. Vikas Polymers reported in 341 ITR 537 has held as under:

13.

It is also trite that there is a fine though subtle distinction between "lack of inquiry" and "inadequate inquiry". It is only in cases of "lack of inquiry" that the Commissioner is empowered to exercise his revisional powers by calling for and examining the records of anv proceedings under the Act and passing orders thereon. In Gabriel India Ltd. (supra), it was expressly observed:-"The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity [see Parashuram Pottery Works Co. Ltd. vs. ITO, (1977) 106 ITR 1 (SC)]."

26.

The Hon'ble Delhi high Court in the case of CIT vs. Sunbeam Auto Ltd. reported in 332 ITR 16) it has held as under:

"Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between "lack of inquiry" and "inadequate inquiry". If there was any inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under Section 263 of the Act, merely because he has different opinion in the matter. It is only in cases of "lack of inquiry" that such a course of action would be open."

27.

Further in the case of ITO vs. D.G. Housing Projects Ltd. reported in 343 ITR 329 to has held that in cases of wrong opinion or wrong finding on merits, the CIT has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under Section 263 is passed. It was held as under:

"19.

In the present case, the findings recorded by the Tribunal are correct as the CIT has not gone into and has not given any reason for observing that the order passed by the Assessing Officer was erroneous. The finding recorded by the CIT is that "order passed by the Assessing Officer may be erroneous". The CIT had doubts about the valuation and sale consideration received but the CIT should have examined the said aspect himself and given a finding that the order passed by the Assessing Officer was erroneous. He came to the conclusion and finding that the Assessing Officer had examined the said aspect and accepted the respondent's computation figures but he had reservations. The CIT in the order has recorded that the consideration receivable was examined by the Assessing Officer but was not properly examined and therefore the assessment order is "erroneous". The said finding will be correct, if the CIT had examined and verified the said transaction himself and given a finding on merits. As held above, a distinction must be drawn in the cases where the Assessing Officer does not conduct an enquiry; as lack of enquiry by itself renders the order being erroneous and prejudicial to the interest of the Revenue and cases where the Assessing Officer conducts enquiry but finding recorded is erroneous and which is also prejudicial to the interest of the Revenue. In latter cases, the CIT has to examine the order of the Assessing Officer on merits or the decision taken by the Assessing Officer on merits and then hold and form an opinion on merits that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. In the second set of cases, CIT cannot direct the Assessing Officer to conduct further enquiry to verify and find out whether the order passed is erroneous or not." [Emphasis supplied]

"10.

For the purposes of exercising jurisdiction under Section 263 of the Act, the conclusion that the order of the AO is erroneous and prejudicial to the interests of the Revenue has to be preceded by some minimal inquiry. In fact, if the PCIT is of the view that the AO did not undertake any inquiry, it becomes incumbent on the PCIT to conduct such inquiry. All that PCIT has done in the impugned order is to refer to the Circular of the CBDT and conclude that "in the case of the Assessee company, the AO was duty bound to calculate and allow depreciation on the BOT in conformity of the CBDT Circular 9/2014 but the AO failed to do so.

Therefore, the order of the AO is erroneous insofar as prejudicial to the interest of revenue". 11. In the considered view of the Court, this can hardly constitute the reasons required to be given by the PCIT to justify the exercise of jurisdiction under Section 263 of the Act. In the context of the present case if, as urged by the Revenue, the Assessee has wrongly claimed depreciation on assets like land and building, it was incumbent upon the PCIT to undertake an inquiry as regards which of the assets were purchased and installed by the Assessee out of its own funds during the AY in question and, which were those assets that were handed over to it by the DMRC. That basic exercise of determining to what extent the depreciation was claimed in excess has not been undertaken by the PCIT. ………..

13.

Therefore, the Court is of the view that the ITAT was not in error in setting aside the impugned order of the PCIT under Section 263 of the Act. No substantial question of law arises."

43.

“On each of the issues discussed above i.e., investment made by the assessee in various funds whether these are equity-oriented funds or not and liable to capital gain tax under the head 'long term capital gain' to be taxed under Section 112A of the Act or normal provisions under the head 'short term capital gain', secondly, the nil ALV or lower ALV as discussed in regard to above stated properties, in the above part of this order vide Paragraph No. 07 to 40, and non-initiation of penalty proceedings under Section 271C of the Act, whether these attract the revision provisions under Section 263 of the Act or not. We note that the learned PCIT was of the view that the investment made by the assessee in funds was not equity-oriented funds and once these are not equity-oriented funds, these are not to be taxed under the special rate of taxation under Section 112A of the Act. We note that the assessee could explain before us that the funds are equity-oriented funds and we have given a clear finding in paragraph 6 of this order. We also find that the PCIT has not given a finding or has not observed that how these funds are not equity-oriented funds and without that, the PCIT cannot invoke the revisionary power. We are of the view that consideration of the PCIT as to whether an order is erroneous insofar as it is prejudicial to the interest of the Revenue must be based on materials on record of the proceedings called for by him. If there is no such material on record on the basis of which it can be said that the PCIT acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without justification. In similar circumstances, Hon'ble Bombay High Court in the case of CIT Vs. Gabriel India Ltd. (199) 203 ITR 108 (Bom) held the similar views. We are of the view, though, it is not expected of the PCIT to record his final conclusion in the order passed in revision proceedings under Section 263 of the Act, but, he must, at least indicate in his order how the order of the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. The revisional power under Section 263 of the Act is not meant to be exercised to correct every error of fact, but the error must be of such a nature that it is erroneous and prejudicial to the interest of the Revenue. The PCIT, in revisional proceedings under Section 263 of the Act, has no jurisdiction to set aside the order of assessment merely to conduct another Investigation without finding the basis or without any material that the order is erroneous one and also prejudicial to the interest of the Revenue. We noted from the findings of the PCIT, in the present case before us, on various issues that the PCIT has not recorded reason for his conclusion, which is necessary for any quasi-judicial order required to be made by a quasi-judicial authority. The necessary consequence of revision order is that while passing the order revising an order passed by a subordinate authority, the PCIT must record reasons in support of his conclusion that the order is revised being erroneous and that it would be prejudicial to the interest of the Revenue due to such errors. In case the PCIT does not indicate the reasons for invoking the provisions of Section 263, his order cannot be held to be valid. In the present case, the entire material in regard to all the funds and the properties where ALV was questioned by the PCIT, the assessee has produced relevant material and offered explanations in pursuance to the notices issued under Section 142(1) and 143(2) of the Act and, after considering the materials and explanations, the Assessing Officer passed the assessment order and came to a conclusion and accepted the explanation. The mere fact that a different view can be taken, should not be the basis for an action or invocation of Section 263 of the Act. Such action, if taken, cannot be held to be justified because the material was there in the assessment record and the said material was considered by the Assessing Officer and a particular view was taken. This view of ours is supported by the decision of Hon'ble Supreme Court in the case of The Malabar Industrial Co.Ltd. Vs. CIT (2000) 243 ITR 83 (Supreme Court).”