INCOME TAX ACT, 1961

Section 263

Revision under section 263 - Erroneous and prejudicial order - Non-application of mind by AO -

AO made disallowance under section 14A. However, CIT(A) passed an order under section 263 and directed the AO to pass fresh orders on the disallowance of expenses under section 14A relatable to exempted dividend income. Assessee contended that it had not incurred any direct expenditure in earning the dividend income. Held: Order passed by AO exhibits non-application of mind as it was the duty of AO to verify whether assessee had incurred any expenditure attributable to earning of dividend income and if so, whether the provisions of section 14A got attracted. Therefore, the order of AO was erroneous and prejudicial to the interest of the Revenue as the error directly goes to disallow the expenditure. Hence, CIT had rightly passed an order under section 263. Besides this, the appeal of assessee had become infructuous.

REFERRED :

FAVOUR : Against the assessee.

A.Y. : 2002-03

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