R K POWERGEN P LTD,CHENNAI vs. PCIT CENTRAL I CHENNAI, CHENNAI

आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. By way of this appeal, the assessee challenges the revisional jurisdiction u/s. 263 as exercised by learned Principal Commissioner of Income Tax (Central), Chennai-1 [Pr.CIT] vide order dated 07-03-2022. The assessment for this year has been framed by Ld. AO u/s 143(3) on 27.12.2019. 2. The Ld. AR advanced arguments supporting the assessment order which has been controverted by Ld. CIT-DR. The Ld. AR submitted that the amendment as referred to by Ld. Pr. CIT in the - 2 - impugned order would not change the settled legal position that the disallowance u/s 14A was to be restricted to the extent of exempt income earned by the assessee. Having heard rival submissions, the appeal is disposed off as under. The grounds raised

by the assessee read as under: -

1. The order of the Learned PCIT is contrary to law and the facts of the case.

3. The Learned PCIT erred in holding that after the amendment to Rule 8D with effect from Assessment Year 2017-18 the principle of law enunciated by the various courts that the disallowance under Section 14A could not exceed the quantum of exempt income would no longer apply.

4. The Learned PCIT ought to have appreciated that Section 14A had not been amended and that consequently the law laid down by the Hon'ble Supreme Court would continue to apply.

5. The Learned PCIT ought to have appreciated that the strategic investments made by the Appellant could not be included in computing the disallowance.

6. The Learned PCIT erred in setting aside the Assessment Order under section 263 and directing the Assessing Officer to consider the applicability of the decision of the Hon'ble Madras High Court as well as the issue of strategic investments thereby indicating that the Learned PCIT had come to no conclusions as to the erroneousness of the Assessment Order.

7. The Appellant craves leave to raise additional grounds.

3. Upon perusal of the assessment order, it could be seen that the assessee earned exempt income of Rs.20255/- which led ld. AO to invoke disallowance u/s 14A. The assessee computed disallowance of Rs.138.90 Lacs as per Rule 8D but relied on the decision of Hon’ble Supreme Court in the case of State Bank of Patiala (99 Taxmann.com 286) for the submission that the disallowance was to be restricted to the extent of exempt income earned by the assessee. Accepting the same, Ld. AO restricted the disallowance to the extent of exempt income earned by the assessee.

ITA No.259Chny/2022 - 3 - 4. Subsequently, upon perusal of case records, Ld. Pr.CIT, invoking the provisions of Sec.263, held the order to be erroneous and prejudicial to the interests of revenue. The stem from the observation that Rule 8D was amended with effect from 02.06.2016 and as per the amendment, the amount of disallowance would not exceed the total expenditure claimed by the assessee. There was no mention in the rules that the disallowance was to be restricted to the extent of exempt income. This aspect was not considered by Ld. AO. The assessee relied on the decision of Hon’ble High Court of Madras in Marg Limited (275 Taxman 502) to support the working of Ld. AO. Further, the provisions of Sec.14A which were interpreted by Higher Courts had not undergone any amendment. However, rejecting the same, Ld. Pr. CIT directed Ld. AO to determine the disallowance afresh, inter-alia, after considering the cited decision of Hon’ble High Court of Madras. Aggrieved, the assessee has assailed the validity of revisional order.