CHETTINAD LIGNITE TRANSPORT SERVICES PVT LTD,CHENNAI vs. PCIT-1, COIMBATORE

Both the appeals filed by the assessee are directed against separate orders of the ld. Principal Commissioner of Income Tax-1, Coimbatore both dated 05.02.2020 relevant to the assessment years 205-16 and 2016-17.

Against the order passed by the ld. PCIT under section 263 of the Income Tax Act, 1961 [“Act” in short], both the appeals were filed on 26.05.2020, thereby, there is a delay of 41days in filing the appeals.

So far as merits of the case are concerned, the ld. Counsel for the assessee has submitted that the case of the assessee was selected for limited scrutiny only and therefore, the ld. PCIT has erroneously invoked the provisions of section 263 of the Act and directed the Assessing Officer to re-do the assessment by considering the method for determining the amount of expenditure brought in force w.e.f. 02.06.2016. It was submitted that the revision order is not correct and the amended provision has no application to the assessment year 2015-16. He relied on various case law. He also further submitted that the ld. PCIT has given a finding as to how to compute the disallowance under section 14A of the Act and directed the Assessing Officer to re- do the assessment and the same is contrary to the law.

On the other hand, the ld. DR has submitted that the case of the assessee was selected for limited scrutiny relating to expenses incurred by the assessee, which includes expenditure relating to dividend income also. Therefore, the Assessing Officer has not examined all the expenditure and thus, the assessment order passed by the Assessing Officer was erroneous and prejudicial to the interest of Revenue and it was submitted that the ld. PCIT has rightly invoked the power conferred under section 263 of the Act.

We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. It is a fact that the case of the assessee was selected for limited scrutiny for examination of entire expenditure incurred by the assessee. The Assessing Officer has looked into the expenditure incurred by the assessee limiting to earning of dividend income. Therefore, in our opinion, the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. So far as merits of the case are concerned, we are of the opinion that the Assessing Officer has to examine the expenditure incurred by the assessee with reference to the dividend income without influencing the observations made by the ld. PCIT with respect to the amended Rule w.e.f. 02.06.2016. Accordingly, we modify the order passed by the ld. PCIT to the extent as indicated above.

So far as is concerned, the ld. Counsel for the assessee has submitted the assessment was completed under section 143(3) of the Act dated 28.12.2018 after considering the details furnished by the assessee. It was further submission of the ld. Counsel that the ld. PCIT has erroneously invoked the provisions of section 263 of the Act and gave a finding that as per amended Rule 8D(2)(iii) r.w.s. 14A of the Act w.e.f. 02.06.2016, the disallowance of expenses has to be computed @1% of the annual average of the monthly averages of the opening and closing balances of the value of investment and directed the Assessing Officer to re-do the assessment, which is contrary to the law.

On the other hand, the ld. DR strongly supported the order passed by the ld. PCIT.

We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. On perusal of the assessment order, the Assessing Officer has failed to examine the entire expenditure incurred by the assessee including the expenditure relating to dividend income. From the assessment records, the ld. PCIT has noted that the assessee has earned dividend income of ₹.27,16,300/- during the period relevant to the assessment year. Moreover, as on 31.03.2016, the non-current investments stood at ₹.249,78,39,023/- and having earned the exempt income, the expenditure incurred in relation to income not includible in the total income is liable to be disallowed as per the provisions of section 14A r.w.s. Rule 8D, which was not done in the assessment order. Therefore, the ld. PCIT was of the opinion that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. After considering the revision order passed under section 263 of the Act as well as assessment order, it is amply clear that the assessment order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue and the ld. PCIT has rightly directed the Assessing Officer to re-do the assessment in accordance with law. One of the arguments raised by the ld. Counsel for the assessee is that while passing the order under section 263 of the Act, the ld. PCIT has given a finding that 1% of the annual average of the monthly averages of the opening and closing balances of the value of investment has to be disallowed is contrary to the statute. We find from the revision order that the ld. PCIT has not given any finding and it is only his observation and explaining the legal position and directed the Assessing Officer to re-do the assessment. In our opinion, the ld. PCIT has expressed his opinion on the issue and there is every possibility that the Assessing Officer obviously influenced by the opinion expressed by the ld. PCIT. Accordingly, we modify the order passed by the ld. PCIT and direct the Assessing Officer to pass fresh assessment order in accordance with law without influencing the observations made by the ld. PCIT. Accordingly, the appeal filed by the assessee is dismissed.

In the result, both the appeals filed by the assessee are dismissed.