2017 (1) TMI 260 - AT - Income Tax

Tribunal rules CIT lacked authority to revise AO's orders under Section 263, sets aside CIT's order

The Tribunal held that the Commissioner of Income Tax (CIT) lacked the authority to revise the Assessing Officer's orders under Section 263 as they were ... Revision u/s 263 - disallowance u/s 14A - Held that:- As Assessing Officer has passed the order after obtaining necessary approval from Addl.CIT u/s.153D of the I.T. Act, therefore, the CIT has no power to revise the order u/s.263 of the I.T. Act in the instant case since the same has been passed with the approval of the Addl.CIT u/s.153D of the I.T. Act. Even on merit also, we find the issue relating to disallowance of expenditure u/s.14A since the Assessment Years involved are A.Yrs. 2004-05 to 2006-07 Rule 8D is not applicable. So far as disallowance of administrative expenditure is concerned, the same is debatable issue in the instant case considering the totality of the facts of the case since the entire dividend is from investment in mutual funds. Further only adhoc disallowance of nominal expenditure has been sustained by the Tribunal. We therefore are of the opinion that the Ld.CIT was not justified in assuming jurisdiction u/s.263 of the I.T. Act on the issue of disallowance u/s.14A Similarly, the issue relating to depreciation on assets of Hyderabad Division has been decided by the Tribunal in favour of the assessee for A.Y. 2004-05 onwards by observing that the concept of “Block of Asset” w.e.f. 01-04-1988, individual assets had lost their identity once it entered with the Block of Assets and only the Block of Assets had to be considered. It was held that the test of user had to be applied upon the block of assets as a whole and not on individual assets. On appeal by the Revenue, the Hon’ble High Court in f G.R. Shipping Ltd. [2009 (7) TMI 1169 - BOMBAY HIGH COURT ] dismissed the appeal filed by the Revenue. Therefore, since the Ld.CIT(A) in the instant case has allowed the claim of depreciation on the block of assets installed at Hyderabad Division which were not used during the impugned assessment year by following the decision of Hon’ble Bombay High Court, therefore, in absence of any contrary material brought to our notice we do not find any infirmity in the order of the CIT(A). - Decided in favour of assessee Issues Involved:1. Invocation of Section 263 by CIT2. Disallowance under Section 14A3. Depreciation on assets of the Hyderabad unitIssue-wise Detailed Analysis:1. Invocation of Section 263 by CIT:The CIT invoked Section 263, asserting that the Assessing Officer's (AO) orders for the relevant assessment years were erroneous and prejudicial to the interest of the revenue. The CIT noted that the AO failed to disallow expenditure under Section 14A and depreciation on the Hyderabad unit's assets. The assessee contended that the AO's orders were passed with the prior approval of the Addl.CIT under Section 153D, thus the CIT had no jurisdiction to revise these orders under Section 263. The Tribunal found merit in the assessee's contention, citing various judicial precedents, including decisions from the Hyderabad Bench and the Lucknow Bench of the Tribunal, which held that an assessment order approved under Section 153D cannot be subjected to revision under Section 263.2. Disallowance under Section 14A:For the assessment years 2004-05 to 2006-07, the CIT observed that the AO did not disallow any expenditure under Section 14A despite the assessee having exempt income in the form of dividends. The Tribunal noted that the issue of disallowance under Section 14A had already been partly decided in favor of the assessee by the Tribunal in earlier proceedings. Specifically, the Tribunal had upheld a nominal disallowance of administrative expenses, considering the totality of the facts and the nature of the investments. The Tribunal thus concluded that the CIT was not justified in assuming jurisdiction under Section 263 on this issue, as it was a debatable matter and had already been adjudicated.3. Depreciation on Assets of the Hyderabad Unit:The CIT also noted that the AO had not disallowed depreciation on the Hyderabad unit's assets, which were not in use during the relevant periods. The Tribunal referred to its earlier decision in the assessee's own case, where it had allowed the claim of depreciation on the block of assets, including those of the defunct Hyderabad unit. The Tribunal cited the decision of the Hon’ble Bombay High Court in the case of G.R. Shipping Ltd., which held that after the concept of 'Block of Assets' was introduced, the test of user had to be applied to the block as a whole, not on individual assets. Consequently, the Tribunal found that the CIT was not justified in revising the AO's order on this ground either.Conclusion:The Tribunal concluded that the CIT had no power to revise the AO's orders under Section 263 since they were passed with the approval of the Addl.CIT under Section 153D. Additionally, on the merits, the issues of disallowance under Section 14A and depreciation on the Hyderabad unit's assets had already been decided in favor of the assessee. Therefore, the Tribunal set aside the CIT's order and allowed the appeals filed by the assessee.