BRITE INFRASTRUCTURE PVT. LTD.,NEW DELHI vs. ACIT ,CIRCLE - 5(1), NEW DELHI

Before us at the outset the Ld AR submitted that if the issue in ground no. 1.1 is decided in favour of the assessee then the other grounds raised on the merits of disallowance under section 14A would not require any adjudication.

With respect to ground No 1.1, learned AR pointed to the assessment order passed under section 143(3) and pointing to para 2 of the order submitted that the case was selected for limited scrutiny for examining the following things namely (i) Low income in comparison to high loans/ advances/ investments in shares. (ii) To examine the large increase in investment in listed Page | 3 equities during the year. He submitted that AO thereafter in the assessment order passed under section 143(3) has made addition by disallowing expenditure under section 14A of the Act which was not part for which the case initially selected for scrutiny under CASS. He submitted that when the case which is initially selected for “limited scrutiny” and is thereafter converted into “complete scrutiny”, the AO is required to take administrative approval from PCIT/ CIT in terms of instructions no. 5/2016 dated 14.07.2016 issued by CBDT and he is also required to comply with the directions contained therein. He submitted that in the present case, no administrative approval from the competent authority was obtained by the AO and in such a situation, the order passed by the AO being contrary to the instructions issued by the CBDT, is null and void and in support of his aforesaid contention, he relied on the following decisions:- i. Urban Improvement Company Co. Pvt. Ltd,. vs. ITO in order dated 7.2.2020. ii. CBS International Projects Pvt. Ltd., vs. ACIT in ITA No. 144/Del/2019 order dated 28.02.2019. iii. Uday Punj (HUF) vs. ITO in ITA No. 643/Del/2020 order dated 26.08.2020.

On the merits of the disallowance made under section 14A, he submitted that the AO nowhere recorded the mandatory satisfaction as to why the claim of the assessee of having not incurred any expenditure for earning exempt income is not Page | 4 correct and the AO also did not examine the books of accounts to reach a conclusion that the expenses have been incurred which needs to be disallowed under section 14A. He submitted that in the absence of mandatory satisfaction, the AO could not proceed to disallow the expenditure under section 14A and for this proposition, he relied on the decision of Hon’ble Delhi High Court in the case of CIT vs. Taikisha Engineering India Limited reported in 215 (54) taxmann.com 109 Delhi. He thereafter submitted that the AO mechanically applied the format of Rule 8D without identifying any expenses incurred for earning exempt income. He submitted that in the absence of identification of such expenses, no disallowance can be made and for this proposition he relied on the decisions in the case of CIT vs. Hero Cycles Ltd., 233 CTR PH 74 and CIT vs. Torent Power Ltd., 363 ITR 474 Gujarat. He thereafter submitted that calculation made by the AO for working out the disallowance under section 14A was also wrong in view of the fact that the AO considered all the investments whether such investments earned exempt income or not and also the shares of unlisted companies which did not declared any dividend at all. He submitted that if the correct calculation by excluding the investments from which assessee has not earned any exempt income is worked out, the disallowance under section 14A will work out to Rs. 50,636/-. For the proposition that for working out the disallowance only those investments have to be considered from which the assessee has earned exempt income, he relied on the decision of Hon’ble Delhi High Court in the case of ACB India Ltd. vs. ACIT 374 ITR Delhi 178. He thus submitted that in the present case, no disallowance under section 14A is called for.

Learned DR on the other hand relying on the order of the CIT(A) supported the order of the lower authorities.

We have heard the rival submissions, perused the material on record. The issue in the present appeal is with respect to disallowance under section 14A.

We first proceed to dispose ground no 1.1 raised by the assessee. From the fact noted by the AO in the assessment order, it is an undisputed fact that the case of the assessee was selected for limited scrutiny through CASS. The relevant portion noted by the AO in para 2 of the assessment order reads as under:- “2. The case was selected in Limited Scrutiny through CASS for examining the details in complete manner with specific emphasis on the following items/information available in the return of income filed by the assessee company:-  Low Income in comparison to high loans/advances/investment in shares  Large increase in investment in listed equities during the year.”

It is also an undisputed fact that no administrative approval from the competent authority was obtained by the AO for converting the case of the assessee from “limited scrutiny” into “complete scrutiny” case. We find that instruction no. 5 of 2016 dated 14.07.2016 issued by CBDT has inter alia laid down the procedure which is required to be followed by the AO to consider the case which are originally earmarked for “limited scrutiny” to “complete scrutiny” and also requires the administrative approval from PCIT / CIT.

Reliance is also being placed in the order of the Co-ordinate Bench of ITAT in the case of CBS International Projects Pvt. Ltd. Vs ACIT, New Delhi in and order of the Hon'ble Jurisdictional High Court in the case of Best Plastics Pvt. Ltd. 295 ITR 256 wherein it was held that the assessment order passed by the Assessing Officer disregarding the instructions of the CBDT are liable to the set aside and no substantial of law arises. The said judgment relied upon the decision of Hon'ble Supreme Court in the case of Commissioner of Customs Vs Indian Oil Corporation and also the judgment of Hon'ble Supreme Court in the case of UCO Bank Vs CIT: 237 ITR 889. Hence, we hold that the Assessing Officer can widen the scope of scrutiny even the case is selected for limited scrutiny under CASS, however, the condition precedent for such widening of the scope is that the Assessing Officer has to seek prior approval of the authorities mentioned. Such prior approval and the permission of the PCIT is lacking in the instant case. There was no satisfaction about the merits of the issue which necessitated complete scrutiny in the instant case. Hence, the assessment framed by the assessee on the issues which are not inconsonance of the instruction of CBDT are liable to be quashed. The addition u/s 43CA, since beyond the scope of the limited scrutiny is hereby ordered to be deleted.”

Before us Revenue has neither pointed out any distinguishing features in the facts of the present case and that of Urban Improvement Cooperative Bank Limited (supra) nor has placed any material on record to demonstrate that the order of the Tribunal in the case of Urban Improvement Cooperative Pvt. Ltd., (supra) has been set aside/ stayed/ overruled by higher judicial forum. We therefore, following the aforesaid decision of Page | 8 the Coordinate Bench in the case of Urban Improvement Cooperative Pvt. Ltd. (supra) and for similar reasons hold that the impugned assessment order passed by the AO under section 143(3) to be null and void and thus the ground no. 1.1 of the assessee is allowed.

Since we have held the assessment order passed by the AO to be null and void, the other grounds raised by the assessee on merits have been rendered academic and therefore do not require any adjudication.

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