M/S TRIDENT GROUP LIMITED,CHANDIGARH vs. PR.CIT-1, CHANDIGARH

The brief facts of the case are that the ld.PCIT noted from the assessment records that the investments of the assessee company stood at Rs.1,24,76,60,685/- as on

In reply, the assessee submitted that as per the provisions of Section 14A of the Income Tax Act, the assessee had given the suo-moto computation of disallowance u/s 14A of the Income Tax Act. Further referring to the provisions of Section 14A of the Income Tax Act, it was submitted that recourse to formula prescribed under Rule 8D could have been made if the A.O, having regard to the accounts of the assessee, was not satisfied with the suo-moto disallowance computed by the assessee. It was further submitted that the details of computation of disallowance was duly submitted before the AO which was also part of the audit report. The AO considered and accepted the same. Therefore, since the AO has not recorded any satisfaction that the computation made by the assessee was wrong or not justified, therefore, the recourse to the formula prescribed under Rule 8D of the IT Rules could not

The ld.PCIT, however, held that the AO had not made requisite enquiries, therefore, the order of the AO was erroneous in so far as it was prejudicial to the interest of Revenue. He, therefore, set aside the assessment order with a direction to the AO to re-examine and re-enquire into the facts/details of investment/interest expenses made by the assessee company and its claim of earning of no exempt income, as also the computation of administrative expenses @ 1% of the average investment u/s 14A of the Income Tax Act read with Rule 8D of the Income Tax Rules. He further directed that the AO will allow the assessee opportunity of being heard and make submissions and then to compute the disallowance in line with the provisions of Section 14A read with Rule 8D of the Income Tax Rules.

Being aggrieved by the said order of the ld.PCIT, the assessee has come in appeal before us.

After getting the reply of the assessee, the ld.PCIT firstly proceeded on the footing that the assessee has claimed that it had not earned any exempt income, however, there is no such claim of the assessee that it had not earned any tax exempt income. The ld.PCIT has made discussion running into several pages on this issue holding that if the assessee had not earned any exempt income, the disallowance u/s 14A was attracted, however, we find that this issue does not germane from the assessment order as the assessee has not claimed that it has not earned any exempt income. The ld. PCIT further observed in para 7 of the impugned order that assessment order was prima-facie erroneous and prejudicial to the interests of the Revenue as the order has been passed without applying the formula of disallowing interest payment proportionate to those applicable on exempt income under Rule 8D read with Section 14A of the Income Tax Act. It is to be noted that since the assessee had not made any interest expenditure therefore, the question of disallowance of interest u/s 14A did not arise in this case. Moreover, as per the provisions of

In the result, appeal of the assessee stands allowed.