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Facts
The assessee appealed the PCIT's order for AY 2019-20, which revised the Assessing Officer's 143(3) assessment under section 263. The PCIT deemed the original assessment erroneous due to a lack of inquiry regarding disallowance under section 14A. The assessee contended that no exempt income was derived in the relevant year, rendering section 14A inapplicable.
Held
The Tribunal found no merit in the Revenue's arguments supporting the PCIT's revision. Citing jurisdictional High Court judgments, it held that section 14A (Explanation) does not apply in the absence of any exempt income with retrospective effect. As there was no material indicating the assessee derived exempt income, the Tribunal reversed the PCIT's revisional directions.
Key Issues
Whether a revisionary order under section 263 is justified for lack of inquiry on section 14A disallowance when no exempt income is derived by the assessee.
Sections Cited
143(3), 263, 14A, Rule 8D
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Income Tax Appellate Tribunal, DELHI BENCH: ‘E’ NEW DELHI
Before: SHRI SATBEER SINGH GODARA & SHRI M. BALAGANESH
This assessee’s appeal for assessment year 2019-20 is directed against the Principal Commissioner of Income Tax (Central) [in short, the “PCIT”], Delhi’s order dated 13.03.2024 passed in case no. ITBA/REV/F/REV5/2023-24/1062530408(1), involving proceedings under sections 143(3) r.w.s. 263 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’).
Heard both the parties at length. Case file perused.
We find during the course of hearing that the learned PCIT(Central)’s, Delhi-2, impugned revision direction under section 263 of the Act have held the Assessing Officer’s section 143(3) regular assessment framed in assessee’s case on 18.09.2021, as an erroneous one causing prejudice to interest of the Revenue, on the ground that there was no inquiry or verification carried out so as to invoke disallowance under section 14A of the Act.
Mr. Yadav vehemently supports the impugned revision order that the PCIT herein has only restored the assessment back to the Assessing Officer on the issue of section 14A read with Rule 8D disallowance and therefore, the assessee does not suffer any prejudice.
The assessee’s case on the other hand is that it has not derived any exempt income in the relevant previous year so as to be exigible to the foregoing disallowance.
Faced with this situation, learned departmental representative quotes section 14A’s Explanation inserted by the 2 | P a g e Finance Act, 2022 w.e.f. 01.04.2022 that whether any actual exempt income is derived or not in the relevant previous year is no more a relevant factor.
We have given our thoughtful consideration to the foregoing rival submissions and find no merit in the Revenue’s arguments supporting the PCIT’s action invoking his section 263 revision jurisdiction regarding section 14A read with Rule 8D disallowance. This is for the precise reason that hon’ble jurisdictional high court in case of Era Infrastructure (India) Ltd (2022) 141 taxmann.com 289 (Del. HC) and Williamson Financial Services Ltd. v. Commissioner of Income-tax Citation [2024] 166 taxmann.com 607 (Gauhati) and PCIT Vs. Avantha Realty Ltd. (2024) 64 taxmann.com 376 (Calcutta) have already settled the instant issue in assessee’s favour and against the department whilst concluding that section 14A Explanation (supra) does not apply in absence of any exempt income with retrospective effect. We further deem it appropriate to clarify that there is no material in the case file indicating the assessee to have derived any exempt income in the relevant previous year. We thus reverse the learned PCIT’s impugned revisional directions in very terms. Ordered accordingly.