Section 253(3) of the Income Tax Act
Income-tax Act, 2025: s.362
Section 253(3) falls under section 253 of the Income-tax Act, 1961, which corresponds to section 362 (Appeals to Appellate Tribunal) of the Income-tax Act, 2025.
Read section 362 of the 2025 Act
Correspondence checked against the ICAI tabular mapping of the two Acts and the BharatTax.co section commentary.
The decision most relied on for Section 253(3) is PCIT v. IL&FS Energy Development Company Ltd. (84 Taxmann.com 186), cited in 255 of the 455 judgments on BharatTax that turn on this section.
Leading authorities on Section 253(3)
Disallowance under Section 14A of the Income-tax Act, 1961 is not permissible where the assessee has not earned any exempt income during the relevant assessment year. A CBDT Circular cannot override the express provisions of Section 14A read with Rule 8D to mandate such a disallowance.
No disallowance under Section 14A can be made when no exempt income has been earned by the assessee, and investments made for business purposes in subsidiaries do not warrant disallowance under Section 14A, even if no dividend income is earned.
No disallowance for investments made out of surplus funds can be made if tax-free dividends are earned on such investments.
When an assessee has sufficient own or surplus non-interest-bearing funds to cover investments yielding exempt income, no disallowance of expenditure under Section 14A is warranted, and Rule 8D for estimating such expenditure does not apply.
A penalty under sections like 271D or 271E is not automatically imposed if the assessee proves there was a reasonable cause for the failure. The interpretation of 'reasonable cause' is that which would prevent a person of average intelligence and ordinary prudence from acting negligently or in bad faith.
When an assessee has mixed funds, investments yielding tax-free income are presumed to be made from interest-free funds, thereby preventing disallowance of interest expenditure under Section 14A.
Amendments made to Section 14A by the Finance Act, 2022, inserting a non-obstante clause and an explanation, are prospective from April 1, 2022, and cannot be applied retrospectively. Further, where no exempt income is earned, Section 14A read with Rule 8D cannot be applied.
Disallowance under Section 14A cannot be made if the assessee has not earned any exempt income during the relevant assessment year.
Disallowance under section 14A of the Income-tax Act is not permissible if the assessee has not earned any exempt income in the relevant assessment year. This position is affirmed by the dismissal of a Special Leave Petition by the Supreme Court.
The explanation inserted to Section 14A of the Income Tax Act, 1961, by the Finance Act, 2022, is prospective in nature and not retrospective.
