INCOME TAX ACT, 1961

Section 263

Revision under section 263 - Validity - Estimation of gross profit -

Assessee was engaged in the business of manufacturing of Indian made foreign liquor. The assessment was completed under section 143(3) by making addition towards disallowance under section 14A. Case has been subsequently taken up for revision under section 263 by Pr. CIT and taken up the issue of disallowance of expenditure incurred in relation of exempt income under section 14A and was of the opinion that although AO disallowed expenditure in relation to exempt income under section 14A read with rule 8D(2)(iii), however, failed to consider disallowance of interest expenditure under rule 8D2(ii), although the assessee has incurred huge financial cost for the relevant year which rendered the assessment order is erroneous in so far as it is prejudicial to the interest of the revenue. Held: AO considered disallowance of expenditure under section 14A and has computed total disallowance under rule 8D(2)(iii) at the rate of 0.5% on average investments. Assessee had preferred further appeal before the ITAT on the same issue which was pending for disposal. Issue of disallowance of expenditure under section 14A was a subject matter of appeal before the appellate authority and further, once an issue is before the appellate authority, then assessment order merged with appellate order and the appellate authority shall have all powers including enhancement of income. Therefore, when the Appellate Commissioner was having power to examine the issue, then Pr. CIT cannot have parallel jurisdiction to examine the same issue under section 263 proceedings, because if Pr. CIT is allowed to have jurisdiction on said issue then it leads to multiple proceedings which is not the intention of Legislature. Hence, Pr. CIT had erred in revising assessment order under section 263.

Followed:Malabar Industrial Co. Ltd. v. CIT 2000 TaxPub(DT) 1227Reelied:CIT v. K. Sera Sera Productions Ltd. (2015) 374 ITR 503 (Bom-HC) : 2015 TaxPub(DT) 2427 (Bom-HC), Ranka Jewellers v. Addl. CIT & Anr. (2010) 328 ITR 148 (Bom-HC) : 2010 TaxPub(DT) 1717 (Bom-HC) and CIT v. Farida Prime Tannery (2003) 259 ITR 342 (Mad-HC) : 2003 TaxPub(DT) 0385 (Mad-HC).