ANDHRA PRADESH POWER DEVELOPMENT COMPANY LIMITED,HYDERABAD vs. DCIT., CIRCLE-1(1), HYDERABAD

Brief facts of the case are that, the assessee viz., M/s. Andhra Pradesh Power Development Corporation Limited is owned by Government of Andhra Pradesh which has established for supply of electricity. The assessee- company filed it’s return of income for the assessment year 2020-2021 on 21.10.2020 declaring Rs.NIL income. The case was selected for scrutiny under CASS. The assessment was completed by Faceless Assessment Unit [in short “FAU”] u/sec.143(3) r.w.sec.144B of the Income Tax Act, 1961 [in short “the Act”] on 22.09.2022 accepting the NIL income returned by the assessee.

Subsequently, the case has been taken-up for revision proceedings by Pr. CIT, Hyderabad-1 and a show

In response, the assessee-company vide letter dated 26.12.2024 submitted that, the order passed by the Assessing Officer is neither erroneous nor prejudicial to the interests of Revenue on the issue of disallowance u/sec.14A read with Rule 8D of I.T. Rules, 1962 because, the assessee- company does not earn any exempt income and claimed exemption u/sec.10(34) of the Act. Further ,the assessee- company has not incurred any expenditure in relation to exempt income and, therefore, the question of disallowance of expenditure u/sec.14A read with Rule 8D of I.T. Rules, 1962 does not arise. The assessee further submitted that, during the course of assessment proceedings, the Assessing Officer called-for necessary information with regard to substantial amount of investments/advances/loans in the assets side of the balance-sheet and corresponding income

The learned PCIT after considering the relevant submissions of the assessee-company and also taking note of provisions of section 263 of the Act observed that, the assessee-company company received Rs.2000 crore APPFC bonds from APDICOMs against sale of power on 24.04.2019, out of which, it has disbursed Rs.1670.90 crores against the liability. The remaining amount of Rs.329.10 crore has been invested, on which, it has earned interest income of Rs.92.09 crores. The assessee-company has not furnished

Aggrieved by the Order of the learned PCIT, the assessee is, now in appeal before the Tribunal.

CA, Srinivas Rao, Learned Counsel for the Assessee submitted that, the learned PCIT was erred in invoking jurisdiction under section 263 of the Act and set

Dr. Narendra Kumar Naik, learned CIT-DR for the Revenue, on the other hand, supporting the order of the learned PCIT submitted that, the order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of Revenue because, the Assessing Officer has failed to carry out required enquiry, which he ought to have carried-out in respect of huge investments and relevant exempt income, if any, earned by the assessee-company

We have heard both the parties, perused the material on record and the orders of the authorities below. The learned PCIT invoked jurisdiction under section 263 of the Act and set-aside the assessment order passed by the Assessing Officer under section 143(3) read with section 144B of the Act dated 22.09.2022 on the ground that, the order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of Revenue. The learned PCIT has discussed the issue of disallowance u/sec.14A read with Rule 8D of I.T. Rules, 1962 and observed that, the investment made by the assessee-company are capable of 11 ITA.No.677/Hyd./2025 earning exempt income in future and this fact has not been examined by the Assessing Officer. Otherwise, there is no finding from the PCIT that, the assessee-company has earned exempt income for the year under consideration from the said investment and also incurred various expenditure relatable to exempt income and the same has not been disallowed either by the assessee-company on its own or by the Assessing Officer during the assessment proceedings, which renders the assessment order erroneous in so far as it is prejudicial to the interests of Revenue. In our considered view, the learned PCIT cannot assume jurisdiction and set-aside the assessment order passed by the Assessing Officer for making further enquiry to ascertain, whether the assessee-company has earned exempt income and incurred any expenditure relatable to the said exempt income. In our considered view, once the learned PCIT has invoked jurisdiction under section 263 of the Act, he should give a specific finding that, the Assessing Officer has failed to carry-out required enquiry which he ought to have carried-out and because of this, lawful

In the present case, going by the reasons given by the learned PCIT in the order passed under section 263 of the Act, nowhere, the learned PCIT has made out a case that, assessee-company has earned exempt income and resultant expenditure relatable to exempt income has not been disallowed. On the contrary, the learned PCIT observed that, investment made by the assessee-company are capable of earning exempt income in future and further, the assessee-company has not maintained separate books of accounts for the investment activity. In our considered view, the said finding of the learned PCIT is not based on appraisal going by the assessment order passed by the 13 ITA.No.677/Hyd./2025 Assessing Officer, where the Assessing Officer has caused detailed enquiry on the issue of large investment as on the end of the balance-sheet date and consequent exempt income, if any, earned by the assessee-company for the relevant assessment year. In response to a specific question, the assessee-company has explained that, the Company has received Rs.2000 crores from APDISOMs against sale of power and out of which, Rs.1670.90 crores was disbursed against the liabilities of the assessee-company and the remaining amount of Rs.329.10 crores were shown as investment in balance sheet as on 31.03.2020, on which, it has earned interest of Rs.92.09 crores which is taxable under law. Further, the assessee-company has also filed relevant evidences to prove that, interest income of Rs.92.10 crores has been offered to tax. The Assessing Officer after considering the relevant facts, has rightly accepted the explanation of assessee-company and has not made any disallowance u/sec.14A read with Rule 8D of I.T. Rules, 1962. The learned PCIT without appreciating the relevant facts and also without bringing on record any reasons as to 14 ITA.No.677/Hyd./2025 how the order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of Revenue, has simply with an assumption set-aside the assessment order passed by the Assessing Officer in terms of section 263 of the Act.

Further, the view taken by the Assessing Officer is fully covered by the decision of Hon’ble Supreme Court in the case of CIT vs., Cheminvest Ltd., where the Hon’ble Supreme Court dismissed the SLP filed by the Revenue against the decision of Hon’ble Delhi High Court in the case of Cheminvest Ltd., vs., CIT (supra) where it has been clearly held that, “where there is no exempt income, question of disallowance of expenses relatable to exempt income does not arise.” Similar view has been taken by the Hon’ble Madras High Court in the case of CIT vs., Chettinad Logistics Pvt. Ltd., where it has been clearly held that, “if no exempt income, no disallowance u/sec.14A of the Act. Similar view has been taken by the Co-ordinate Bench of ITAT, Hyderabad in the case of DCIT, Circle-1(1), Hyderabad vs., M/s. AP Power Generation Corporation Ltd., Hyderabad

In this view of the matter and considering the facts and circumstances of the case, we are of the considered view that, the learned PCIT was erred in invoking

In the result appeal of the assessee is allowed.