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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI MAHAVIR SINGHAND SHRI MANOJ KUMAR AGGARWAL
आयकर अपीलीय अिधकरण, ‘बी’ �यायपीठ, चे�ई IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH, CHENNAI �ी महावीर �संह, उपा�य� एवं �ी मनोज कुमार अ�वाल, लेखा सद�य के सम� BEFORE SHRI MAHAVIR SINGH, VICE PRESIDENTAND SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER
आयकर अपील सं./ ITA No. 366/Chny/2022 (िनधा�रण वष� / Assessment Years: 2017-18) Integrated Investment PCIT, Chennai -1 Management Services LLP No. 121, Mahatma Gandhi बनाम/ 5A, 5th Floor Kences Tower, Road, Vs. No.1, Ramakrishna Street, Nungambakkam, Chennai Chennai – 600 017. – 34. �थायी लेखा सं./जीआइ आर सं./PAN/GIR No. AAFFI-3857-E (अपीलाथ�/Appellant) (��थ� / Respondent) :
अपीलाथ� की ओरसे/ Appellant by : Shri R. Sivaraman, Advocate ��थ� की ओरसे/Respondent by : Shri Guru Bashyam, CIT(DR)
सुनवाई की तारीख/ : 21.07.2022 Date of Hearing घोषणा की तारीख / : 03.08.2022 Date of Pronouncement आदेश / O R D E R PER MAHAVIR SINGH, VICE PRESIDENT:
This appeal by assessee is arising out of the revision order of Principal Commissioner of Income Tax, Chennai-1 passed u/s. 263 of the Income-tax Act, 1961 (herein after referred to as ‘the Act’) vide revision no. PCIT,Chennai- 1/Revision-263/100000321780/2022 order dated 29.03.2022. Assessment
ITA No: 366/Chny/2022 - 2 - was framed by Income Tax Officer, Non Corporate Ward1(2), Chennai for the AY 2017-18 u/s. 143(3) of the Act vide order dated 16.12.2019.
The only issue in this appeal is against the revision order passed by PCIT that, whether the assessment framed u/s. 143(3) of the Act passed in limited scrutiny where the issue of expenses debited to P&L a/c for earning of exempt income was considered, the PCIT can revise the assessment on the issue of disallowance of expenses by invoking provisions of section 14A r.w.r. 8D2(iii) of the Income-tax Rules, 1962 (herein after referred to as ‘the Rules’). On the issue of Rule 8D2(iii) i.e., average value of investment and in view of clause (b) of Explanation to section 115BBDA of the Act, can PCIT revise the assessment order? For this assessee has raised various grounds which need not to be reproduced.
Brief facts are that the assessee filed its return of income for the AY 2017-18 electronically on 13.10.2017 and subsequently assessee’s case was selected for limited scrutiny assessment by issuing notice u/s. 143(2) of the Act and the limited scrutiny was to verify the following two: 1. Expenses debited to P&L account for earning exempt income as per schedule BP of ITR is significantly lower as compared to investments made to earn exempt income. 2. Large short term capital gains declared u/s. 111A.
ITA No: 366/Chny/2022 - 3 - 3.1 Accordingly, Assessing Officer after calling details vide notice u/s. 142(2) dated 23.07.2019 and 04.11.2019 examined the details and framed assessment u/s. 143(3) of the Act vide order dated 16.12.2019.
Subsequently, PCIT issued show cause notice for revising the assessment framed by Assessing Officer by issuing notice u/s. 263 of the Act for the reason that there was increase in investment made during the year and the assessee has also offered income which was exempt from income tax but no disallowance u/s. 14A of the Act has been made by the AO. According to PCIT, the disallowance u/s. 14A of the Act has not been made and hence considering one percent of average investment disallowance of Rs. 10,68,728/- is required to be made and therefore there was short levy of tax and interest to the extent of Rs. 5,47,398/-. According to PCIT, the assessment framed u/s. 143(3) is erroneous and prejudicial to the interest of revenue within the meaning of section 263 of the Act. The assessee was given show cause notice to explain because the assessment order was passed without examining the issues and without carrying out necessary enquiry and verification.
The assessee replied to show cause notice that the assessee during the year under consideration has earned dividend income of Rs. 33,15,361/- and after deducting the basic exemption limit of Rs. 10 Lacs u/s. 115BBDA of the Act, offered the net income of Rs. 23,15,361/- as taxable @ 10% tax on dividend u/s. 115BBDA of the Act. The assessee also replied during the course
ITA No: 366/Chny/2022 - 4 - of assessment proceedings in view of query raised by Assessing Officer vide letter dated 06.12.2019 and the relevant query reads as under: “1. Prove computation of disallowance u/s. 14 r.w.Rule 8D. Provide the reason for having failed to undertake disallowance u/s. 14A, though large interest expenses is debited to your P&L Account.”
5.1 The assessee replied this query vide letter dated 13.12.2019 before AO during assessment proceedings and the relevant answer reads as under: 2) As mentioned in our previous submission, the LLP has not earned any exempted income. The LLP during the year has earned a dividend income of Rs. 33,15,361. After deducting Rs. 10 Lacs under section 115BBDA from the dividend income, the LLP offered Rs. 23,15,361 for tax. 3) As the LLP did not have any income which is an exempt income under Income Tax Act, there is no disallowance warranted under section 14A.”
The PCIT was not convinced and noted that since assessment order framed u/s. 143(3) dated 16.12.2019 is passed without making the necessary enquiry and verification and without proper correlation of facts and evidences on record, therefore, the assessment order is erroneous in so far as it is prejudicial to the interest of revenue within the meaning of section 263 of the Act and accordingly set aside the assessment u/s. 263 of the Act with the direction to the AO to examine the relevant aspects and pass fresh assessment order after granting opportunity of being heard to the assessee. Aggrieved assessee preferred appeal before Tribunal.
We have heard rival contentions and gone through the facts and circumstances of the case. Before us Ld. Counsel for the assessee reiterated the same arguments and filed all the evidences which were filed during the course of
ITA No: 366/Chny/2022 - 5 - original assessment proceedings. Ld. Counsel for the assessee stated that the assessee has not earned any exempt income of dividend earned at Rs. 33,15,361/- , but after claiming basic exemption limit of Rs. 10 Lacs u/s. 115BBDA of the Act from such dividend income, offered taxable income of Rs. 28,15,361/- being dividend income under clause (b) of Explanation to section 115BBDA and paid tax @ 10% on the dividend received from domestic companies for the year under consideration. Ld. Counsel for the assessee stated that the assessee has not earned any exempt income or has not claimed any exempt income in the return of income. He stated that the assessee has filed complete details before AO during the course of assessment proceedings in relation to the expenses incurred to earn its dividend income and also replied the Assessing Officer in view of his query as noted above on the facts of the case. On the other hand, Ld. CIT(DR) relied on the revision order passed by PCIT and he took us through the assessment order and stated that the assessment order nowhere states what is the dividend income and how the assessee’s dividend income is taxable. According to him once the AO has not made any query or has not verified the facts, the PCIT can always revise the assessment u/s. 263 of the Act.
We noted that there is no dispute about the above fact that the AO during the course of original assessment proceedings carried out investigation by issuing show cause notice asking for the details of expenses and computation of disallowance u/s. 14A of the Act r.w.r. 8D of the Rules. The assessee has replied the same stating that the assessee has not earned any exempt income and dividend income earned by assessee is taxable u/s. 115BBDA of the Act after deducting basic exemption of Rs. 10 Lacs. We noted that the order of the AO is
ITA No: 366/Chny/2022 - 6 - neither erroneous nor prejudicial to the interest of revenue. Even from the details it is clear that the AO has examined the issue in proper perspective and raised a specific query regarding the issue and finally after satisfying that the assesee has not earned any exempt income or has not made any claim that it has earned exempt income, he framed assessment u/s. 143(3) of the Act. He has formed a definite opinion and which is correct opinion. According to us, the revision order passed by the CIT(A) is within jurisdiction and hence quashed.
In the result, the appeal filed by the assessee is allowed.
Order pronounced on 3rd August, 2022.
Sd/- Sd/- (मनोज कुमार अ�वाल) (महावीर �सह ) (MANOJ KUMAR AGGARWAL) (MAHAVIR SINGH) लेखा सद�य /ACCOUNTANT MEMBER उपा�य� /VICE PRESIDENT
चे�ई / Chennai; िदनांक / Dated :03-08-2022 JPV आदेश की �ितिलिप अ�ेिषत/Copy of the Order forwarded to : 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु�त (अपील)/CIT(A) 4. आयकर आयु�त/CIT 5. �वभागीय ��त�न�ध/DR 6. गाड� फाईल/GF