2018 (8) TMI 1042 - AT - Income Tax

Tribunal quashes PCIT's revision order on disallowance of expenses under section 14A

M/s The Cricket Club of India Versus Principal Commissioner of Income Tax-1, Mumbai

M/s The Cricket Club of India Versus Principal Commissioner of Income Tax-1, Mumbai - [2018] 66 ITR (Trib) 644 Issues Involved:1. Validity of the revision order passed by the Principal Commissioner of Income Tax (PCIT) under section 263 of the Income Tax Act, 1961.2. Disallowance of expenses related to exempt income under section 14A read with Rule 8D of the Income Tax Rules, 1962.Issue-wise Detailed Analysis:1. Validity of the Revision Order under Section 263:The assessee challenged the revision order passed by the PCIT under section 263 of the Income Tax Act, arguing that it was 'void ab-initio and bad in law.' The assessee contended that the Assessing Officer (AO) had completed the assessment after making all possible inquiries and proper application of mind, thus the revisionary power under section 263 was invoked without justification. The Tribunal noted that the AO had indeed examined the issue of disallowance of expenses related to exempt income under section 14A and had made a conscious decision to disallow 2% of the exempt income. The Tribunal cited the case of CIT vs. Gabriel India Ltd. (203 ITR 109) (Bom) and the Supreme Court decision in CIT vs. Max India Ltd (2007) 295 ITR 282(SC), which clarified that the power of revision under section 263 can only be exercised if the order is erroneous and prejudicial to the interests of the revenue. The Tribunal concluded that the AO's order was neither erroneous nor prejudicial to the interests of the revenue, as the AO had applied his mind and followed a permissible course of action.2. Disallowance of Expenses under Section 14A read with Rule 8D:The PCIT had directed the AO to reframe the assessment by applying Rule 8D for the disallowance of expenses related to exempt income, arguing that the AO's earlier disallowance of 2% was not in accordance with the Rules. The assessee argued that no additional disallowance could be made under section 14A in the absence of any claim for deduction of such expenditure. The Tribunal found that the AO had conducted a thorough inquiry and had made a reasoned decision to disallow 2% of the exempt income, which was consistent with the Tribunal's decision for earlier years. The Tribunal emphasized that the AO's decision was based on a permissible view and that the PCIT could not substitute his own judgment for that of the AO. The Tribunal held that the PCIT had not demonstrated how the AO's order was erroneous or how the computation of disallowance was prejudicial to the interests of the revenue. Consequently, the Tribunal quashed the revision order passed by the PCIT.Conclusion:The Tribunal allowed the appeal of the assessee, quashing the revision order passed by the PCIT under section 263. It held that the AO had made a reasoned and permissible decision regarding the disallowance of expenses related to exempt income under section 14A, and the PCIT had not justified the invocation of revisionary powers. The Tribunal reiterated that where two views are possible, the PCIT cannot exercise his power under section 263 to differ with the AO's view, even if there has been a loss of revenue.Order Pronounced:The appeal of the assessee was allowed, and the order was pronounced in the open court on 03-08-2018.