Tribunal quashes CIT's order, allowing appeal on Section 263. Disallowance under Section 14A not warranted.

M/s. Super Tech Forgings (India) Pvt. Ltd., Versus Dy. C.I.T., Circle –IV, Jalandhar.

M/s. Super Tech Forgings (India) Pvt. Ltd., Versus Dy. C.I.T., Circle –IV, Jalandhar. - [2018] 62 ITR (Trib) 26 Issues Involved:
1. Invocation of Section 263 by the CIT.
2. Disallowance under Section 14A in the absence of exempt income.
3. Examination and addition by the Assessing Officer (AO) under Section 14A.
4. Jurisdiction and applicability of Section 263.

Issue-wise Detailed Analysis:

1. Invocation of Section 263 by the CIT:
The appellant contested the CIT's invocation of Section 263, arguing that the CIT erred in setting aside the AO's order under Section 143(3) by wrongly invoking Section 263. The appellant maintained that the AO had already examined the issue of disallowance under Section 14A and made an addition of Rs. 5 lacs. The Tribunal noted that the AO had indeed investigated the matter during the assessment proceedings and had taken a plausible view. Therefore, the CIT's action under Section 263 was deemed unjustified.

2. Disallowance under Section 14A in the Absence of Exempt Income:
The appellant argued that no disallowance under Section 14A was warranted as no exempt income was earned during the year. The Tribunal supported this view, referencing various court rulings, including the Hon'ble Madras High Court in the case of Redington (India) Ltd. Vs. ACIT, which held that in the absence of exempt income, the provisions of Section 14A read with Rule 8D are not applicable. The Tribunal found that the AO had already examined the aspect of disallowance under Section 14A and made an addition, thus the CIT's order was unsustainable.

3. Examination and Addition by the AO under Section 14A:
The Tribunal reviewed the AO's assessment order, which included a detailed inquiry into disallowance under Section 14A. The AO had disallowed Rs. 5 lacs after discussions and considering the submissions. The Tribunal emphasized that the AO had already carried out the necessary investigations and made a plausible addition. Therefore, the CIT's directive to re-examine the disallowance under Section 14A was not justified.

4. Jurisdiction and Applicability of Section 263:
The Tribunal highlighted that Section 263 is not applicable when the AO has examined a particular issue and taken a plausible view. The Tribunal cited multiple judgments, including the Hon'ble Delhi High Court in CIT Vs. DLF Ltd., which held that where there is no exempt income, no disallowance can be made under Section 14A, and the view taken by the AO was sustainable. The Tribunal concluded that the CIT's order under Section 263 was not sustainable as the AO had already examined the issue and made a plausible addition.

Conclusion:
The Tribunal quashed the CIT's order under Section 263, allowing the appeal filed by the assessee. The Tribunal emphasized that in the absence of exempt income, no disallowance under Section 14A was warranted, and the AO's original assessment was not erroneous or prejudicial to the interest of revenue. The appeal was allowed, and the order was pronounced in the open court on 30.11.2017.