Spandana Sphoorty Financial Ltd.,, ... vs Assessee

This is an appeal filed by the assessee against the order of

the CIT-III Hyderabad dated 20.03.2014 passed for A.Y 2009-10.

2. Briefly stated, the assessee company M/s. Spandana

Sphoorty Financials Ltd is engaged in the business of micro

finance and filed its return of income for A.Y 2009-10 on

30.09.2009 declaring total income of Rs.1,53,31,02,225/-. The

same was processed u/s 143(1) of the Act. Subsequently the case

was selected for scrutiny under CASS and notice u/s 143(2) was

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issued and served. The assessment was completed u/s 143(3) on

30.12.2011 determining the total income at Rs.1,67,70,53,680.

3. Aggrieved by the order of the AO, assessee preferred an

appeal before the CIT (A) and raised grounds against the issue of

disallowance of Rs.14,23,29,696 u/s 14A of the Act. The CIT (A)

by its order dated 31.08.2012 dismissed the appeal of the

assessee.

4. The CIT-III Hyderabad assuming jurisdiction u/s 263 of the

Act held as follows:

"1.2 On an examination of facts available on record, it was seen that the company had invested an amount of Rs.2,95,05,66,475 in mutual funds and earned dividend income of Rs.90.34 lakhs which was exempt from taxation. The AO had disallowed an amount of Rs.14,23,29,696 u/s 14A of the Act. While working out the disallowance, the AO considered the interest expenditure of Rs.13,49,17,666 and an amount of Rs.74,12,030 which was equal to 0.5% of the average value of investments. The AO failed to note that the assessee had also incurred expenditure on account of processing fee and other charges of Rs.7,03,88,613 which was to be considered u/s 14A of the Act. The failure of the AO to consider the amount of processing fee while making the disallowance u/s 14A has rendered the assessment erroneous and prejudicial to the interests of the revenue.

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2. 1. Notice u/s 263 dated 10.01.2013 was issued and served on the assessee asking to show cause why the assessment completed on 26.12.2011 u/s 143(3) should not be revised under the provisions of section 263".

5. Aggrieved, the assessee is in appeal before us and has filed

the following grounds:

"1 The order of the ld CIT is contrary to the facts and also the law applicable to the facts.

2. The ld CIT is not justified in assuming jurisdiction u/s 263 of the Act in as much as the assessment order dt. 30.12.2011 u/s 143(3) of the Act is neither erroneous nor prejudicial to the interests of revenue.

3. The ld CIT is not justified in directing the AO to re- work the disallowance u/s 14A by taking into account the amount of Rs.7,03,88,613 incurred towards processing fee.

4. The ld CIT ought to have appreciated that the issue of disallowance u/s 14A was duly considered by the AO and merely because the ld CIT entertains a different view the assessment cannot be termed as erroneous.

5. The ld CIT ought to have appreciated that the issue of disallowance u/s 14A having merged into the order of the ld CIT (A), it is no more within the jurisdiction of CIT u/s 263 of the Act to consider the sufficiency of disallowance".

6. At Ground No.5 the assessee objected to the jurisdiction

assumed by the CIT u/s 263 of the Act and on the ground that

the order of AO merged with order of the CIT (A) and CIT has no

jurisdiction to revise u/s 263. The ld Counsel for the assessee

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relied on the decision in the case of S.K. Jain vs. CIT (127 ITD

217).

7. We have perused the records and find that the order

passed by the CIT (A)-IV dated 31.08.2012 and the order passed

u/s 263 is dated 20.03.2014 and hence the order of the CIT u/s

263 is subsequent to the order of the CIT (A) on the very same

issue. Once a particular matter has been considered and decided

in appeal, on the issue of inclusion of processing fee incurred

during the year for inclusion of disallowance u/s 14A of the Act

the order of A.O has got merged with the order of the CIT (A) and

the CIT has no jurisdiction to invoke the provisions of section

263 on the very same issue. Reliance is placed on the following

decision by us. The Bombay High Court in the case of CIT vs. P.

Muncherji & Co. (167 ITR 671) held as follows:

"The principle underlying section 263 of the Income Tax Act, 1961, corresponding to section 33B of the Indian Income Tax Act, 1992 is that it is only the order of the Income Tax Officer which can be revised by the Commissioner. Once the order of assessment is confirmed by the Appellate Assistant Commissioner or any order with regard to the assessment has been made by him, that becomes a final order of assessment and the only right the Department has is the right of appeal to the Appellate Tribunal.

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8. Further, the Hon'ble High Court with respect to the

Doctrine of merger at Page 676 held as follows:

"9. We have considered rival contentions carefully. In our opinion, this Court's decision in Tejaji Farasram Kharawala's case (supra) still holds the field and is binding on us. Chief Justice Chagla in that case has categorically held that the principle underlying section 33B of the Indian Income-tax Act, 1922 ('the 1922 Act'), corresponding to section 263 of the 1961 Act, is that it is only the order of the ITO which can be revised by the Commissioner. Once the order of assessment is confirmed by the AAC or any order with regard to the assessment has been made by him, that becomes a final order of assessment and the only right the department has is the right of appeal to the Tribunal. The right of the Commissioner continues so long as the order of the ITO is not merged in the order of the AAC. As regards the powers of the AAC, the learned Chief Justice has gone on to say that once an appeal was preferred by the assessee, it was open to the Commissioner to raise before the AAC any matter dealing with the assessment of the assessee. It is not as if the power of the AAC was confined to only those questions which had been raised before him by the assessee. He has widest jurisdiction. The Commissioner has no right of appeal from an order of the assessment passed by the ITO. The right of appeal is confined to the assessee only and until section 33B was enacted the position in law was that if the assessee did not appeal against the order of the assessment, that order became final and conclusive. If the assessee appealed against the order of the ITO the widest jurisdiction was given to the AAC in appeal. He had the power to confirm, reduce, enhance or annul the assessment; he had the power to direct the ITO to make a fresh assessment and the only limitation on the exercise of jurisdiction was that if he wanted to enhance the assessment he must give the assessee reasonable opportunity of being heard against enhancement.

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It was concluded that the Commissioner completely went out of the picture once the AAC passed orders in appeal from the decision of the Income Tax Officer"

9. Respectfully following the decision of the Hon'ble Bombay

High Court in the case of CIT vs. Tejaji Farasram Kharawala

(1953) (23 ITR 412), we hold that the jurisdiction assumed u/s

263 of the Act is erroneous on the ground that the order of the

AO has merged with the order of the CIT (A) and the CIT has no

jurisdiction to revise u/s 263 of the Act.

10. In the result, appeal of the assessee is allowed.

Order pronounced in the Open Court on 20th March, 2015.

Sd/- Sd/- (P.M. Jagtap) (Asha Vijayaraghavan) Accountant Member Judicial Member

Hyderabad, dated 20th March, 2015.

Vnodan/sps Copy to:

1. Spandana Sphoorty Financial Ltd. Plot No.79, Care Crystal, Near IDBI Bank, Vinayak Nagar, Gachibowli, Hyderabad

2. The Dy. CIT, Circle 3(2) Hyderabad

3. The CIT(A) - IV Hyderabad

4. The CIT - III Hyderabad

5. The DR, ITAT, Hyderabad

6. Guard File

By Order

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