SUNDHARAMS PVT. LTD.,CHENNAI vs. ACIT, CORPORATE CIRCLE-6(2), CHENNAI

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ITA 226/CHNY/2022Status: DisposedITAT Chennai05 December 2022AY 2017-183 pages

In favour of the Revenue: the assessee's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the Pr. CIT's invocation of Section 263 was justified as the AO failed to consider the current investments as per the prescribed formula under Rule 8D. However, the Tribunal did not express any opinion on the merits of the case.

What were the facts?

The assessee made a suo-motu disallowance under Section 14A. The Assessing Officer (AO) computed a higher disallowance. The Principal Commissioner (Pr. CIT) initiated revision proceedings, stating the AO failed to consider 'current investments' and that the assessment order was erroneous and prejudicial to revenue.

What were the issues?

Whether the Pr. CIT correctly exercised revisional jurisdiction under Section 263 when the AO failed to consider certain investments in the disallowance computation under Section 14A read with Rule 8D.

Which sections of the Income-tax Act were involved?

Section 14A,Section 263,Section 143(3)

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI

Before: HON’BLE SHRI MAHAVIR SINGH & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM

आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. By way of this appeal, the assessee contest validity of revisional jurisdiction u/s 263 as exercised by learned Principal Commissioner of Income Tax, Chennai-3 [Pr. CIT] vide order dated 15-03-2022 against an assessment framed by Ld. Assessing Officer [AO] u/s. 143(3) of the Act on 12-12-2019 for Assessment Year (AY) 2017-18. The grounds taken by the assessee are as under:

1.

1. 1. The order passed by the Learned Principal Commissioner of Income Tax-3 ("PCIT") is contrary to law and facts of the case.

2. The Learned PCIT has grossly erred in assuming jurisdiction u/s 263 of the Act on the ground that the impugned assessment order is erroneous in so far as it is prejudicial to the interest of the revenue when the subject matter of disallowance under section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 was already dealt with by the Assessing Officer in the Assessment order after thoroughly taken into consideration all relevant and necessary facts and particulars furnished by the Appellant during the course of scrutiny assessment 3. The Learned PCIT has erred in coming to a conclusion that the order of the Assessing Officer passed u/s 143(3) of the Act is erroneous and prejudicial to the interests of the Revenue.

4. The Learned PCIT has erred in observing that the Appellant has not given any specific reasons for not considering the amount of Rs.6,15,69,239/- which is shown as "Current Investments" in item 2(a) of the balance sheet for disallowance u/s.14A read with Rule 8D without appreciating the detailed submission made by the Appellant on 05-02-2022 with a specific mention that only income yielding investments alone were considered for the said disallowance.

5. The Learned PCIT has erred in disregarding the fact that the Appellant itself disallowed a sum of Rs.10,79,805/- u/s 14A of the Act read with Rule 8D of Income-tax Rules, 1962, by taking into account all the investments which yielded income during the relevant assessment year.

6.

The Learned PCIT has erred in invoking the powers under section 263 to give directions to the Assessing Officer to include current investments which have not yielded income during the year for the purposes of computing disallowance under Rule 8D which is contrary to the decision of jurisdictional High Court in the case of CIT, Central-1 Vs. Chettinad Logistics Pvt. Ltd. reported in 80 Taxmann221 (2017).

Having heard rival submissions, the appeal is disposed-off as under.

2.

The assessee offered suo-motu disallowance u/s 14A for Rs.10.79 Lacs by considering those investments which actually yielded exempt income during the year. However, Ld. AO, applying Rule 8D, computed disallowance of Rs.20.44 Lacs u/r 8D(2)(iii) @1% of annual average of monthly average of opening and closing balances of value of investments whose income is or shall be exempt. Accordingly, differential of Rs.9.64 Lacs was added to the income of the assessee while framing the assessment.

3.

Subsequently, Ld. Pr. CIT sought revision of the order on the ground that current investments of Rs.615.69 Lacs as shown in the Balance Sheet was not considered in the computations and therefore, the order was erroneous and prejudicial to the interest of the revenue.

3 - Accordingly, Ld. AO was directed to redo the assessment after considering the stated amount. Aggrieved, the assessee is in further appeal before us.

4.

We find that in terms of Rule 8D(2)(ii), as amended w.e.f. 02.06.2016, Ld. AO has to compute disallowance for an amount equal to 1% of the annual average of the monthly averages of the opening and closing balances of the value of investment, income from which does not or shall not form part of total income. Admittedly, the assessee as well as Ld. AO has computed disallowance by applying Rule 8D. However, Ld. AO has failed to consider the current investments as shown in the Balance Sheet while making the computations. To correct this error, Ld. Pr. CT has invoked powers u/s 263 which could not be faulted with for the reason that the computations have not been made by Ld. AO as per the prescribed formula. Therefore, we decline to interfere in the matter of revision. However, nothing in this order shall construe to have any expression on merits of the case which shall be considered by Ld. AO in the revisional proceedings.

5.

The appeal stand dismissed. Order pronounced on 05th December, 2022.

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