MUKHUNDHAN GOPALAN,TRICHY vs. ACIT CIRCLE 1(1), TRICHY

This appeal by the assessee is arising out of the Revision order passed by the Principal Commissioner of Income Tax, Madurai – 1 in Order No. ITBA/REV/F/REV5/2022-23/1050429409 (1) dated 06.03.2023. The assessment was framed by the Additional/ Joint/Deputy/Assistant Commissioner of Income Tax/Income-tax Officer, National e-Assessment Centre, Delhi for the assessment year 2018-19 u/s.143(3) r.w.s.143(3A) & 143(3B) of the Income Tax Act, 1961 (hereinafter the ‘Act’) vide order dated 19.10.2020.

The only issue in this appeal of assessee is against the revision order passed by the PCIT u/s.263 of the Act revising the assessment completed by AO u/s.143(3) of the Act dated 19.10.2020 without making enquiry in regard to expenses relatable to exempt income u/s.14A r.w.rule 8D(2)(ii) of the Income Tax Rules, 1962 (hereinafter the ‘Rules’). For this, assessee has raised many grounds which are argumentative and exhaustive and hence, need not be reproduced.

Brief facts are that the original assessment was completed by the AO u/s.143(3) of the Act vide order dated 19.10.2020 for the relevant assessment year 2018-19 accepting the returned income. The assessee’s case was selected for scrutiny i.e., limited scrutiny to verify and assess on the following, (i) High income reported in the return and no entry in Schedule Assets and Liabilities of return of income and (ii) Large short term capital gains declared u/s 111A. Subsequently, the PCIT issued show-cause notice dated 14.02.2023 requiring the assessee as to why the expenses relatable to exempt income be not disallowed u/s.14A of the Act, for the reasons that the assessment was completed u/s.143(3) of the Act is erroneous insofar as prejudicial to the interest of Revenue u/s.263 of the Act. The assessee before CIT(A) filed written submissions claimed that the entire details were filed before the AO during the course of - 3 - PCIT not convinced by the reply of the assessee held that the assessment order framed u/s.143(3) of the Act by the AO is erroneous insofar as prejudicial to the interest of Revenue and hence, set aside with the following directions:- “7. In view of the above, I am satisfied that the order dated 19/10/2020 passed by the Assessing Officer u/s.143(3) of Act for A.Y.2018-19 is erroneous in so far it is prejudicial to the interest of the revenue. Therefore, in exercise of powers conferred u/s 263 of the Act, I set aside the aforesaid order for the limited purpose of applicability of section 14A of the Act and Rule 8D(2)(ii) as discussed in para (5) & (5.1) above. The assessing officer shall pass fresh order in accordance with law after making necessary enquiries and verification with regard to the claim of the assessee as discussed above in accordance with law after allowing reasonable opportunity of being heard to the assessee.”

The ld.counsel for the assessee before us pointed out from the paper-book particularly from accounts of assessee that only expenditure claimed by assessee on interest of loan is Rs.87,649/- which is taken for purchase of car being IDBI car loan of Rs.18,92,608/-. When this fact was pointed out to ld. CIT-DR, he could not controvert the above fact situation but he argued that the revision powers are with PCIT and he has only set aside the matter back to the file of the AO and AO can verify this fact and then decide the claim. He asked the Bench to uphold the revision order.

We noted that the only revision exercise taken by PCIT is as regards to expenses relatable to exempt income u/s.14A r.w.rule - 4 - 8D(2)(ii) being interest payment as is noted by PCIT in para 7 of his order. We noted that the interest expenditure claimed by assessee is only Rs.87,649/-, which is on direct loan taken for purchase of car being ‘IDBI car loan’ of Rs.18,92,608/-. There is no other interest expenditure and the Rule 8D(2)(ii) of the Rules relates to interest disallowance only. Hence, we are of the view that there is no error pointed out by PCIT in the order of AO or on merits, we find no error in the order of AO, whereby disallowance can be restored to under Rule 8D(2)(ii). The only item of interest of Rs.87,649/- is relatable to IDBI car loan of Rs.18,92,608/-, which has direct nexus and there is no other interest payment by assessee. Once this is the case, we are of the view that the revision order passed by PCIT has no sound footing on facts and in law. Hence, we quash the revision order and allow the appeal of assessee.

In the result, the appeal filed by the assessee is allowed.