2022 (12) TMI 837 - AT - Income Tax

Tribunal upholds order for fresh assessment correcting errors in Income Tax Act

The Tribunal upheld the Principal Commissioner of Income Tax's order under section 263, affirming that the Assessing Officer's assessment order was ... Revision u/s 263 - Disallowance u/s 14A r.w.r. 8D - PCIT noted that no inquiry in this regard has been made by the assessing officer in the course of assessment proceedings and order was passed without application of his mind - HELD THAT:- As share received from Joint Venture is exempt income therefore disallowance under section 14A of the Act would attract. After getting the details and information from the assessee, the assessing officer has failed to compute the disallowance under section 14A of the Act, therefore jurisdiction exercised by ld PCIT under section 263 of the Act is valid in law. As noted investments were not examined by the assessing officer. There is no discussion in the assessment order framed by the assessing officer under section 143(3) in respect of these investments. There is no reference in the assessment order that these investments did not earn any exempt income nor assessee has filed details before the assessing officer. Therefore, assessment order passed by the assessing officer is erroneous and prejudicial to the interest of Revenue. The reliance can be placed on the decision in the case of Indian Textiles [1985 (2) TMI 23 - MADRAS HIGH COURT] wherein it was held that provisions of section 263 can be invoked even where full facts are disclosed but the AO has not examined these details as per correct provisions of law. Therefore, considering the facts and circumstances, as narrated above, we uphold the order passed by ld PCIT under section 263 of the Act and dismiss the appeal of the assessee. Issues Involved:1. Legitimacy of the order passed by the Principal Commissioner of Income Tax (PCIT) under section 263 of the Income Tax Act, 1961.2. Applicability of disallowance under section 14A of the Income Tax Act, 1961, in the absence of exempt income.Issue-wise Detailed Analysis:1. Legitimacy of the order passed by the Principal Commissioner of Income Tax (PCIT) under section 263 of the Income Tax Act, 1961:The assessee challenged the correctness of the order passed by the PCIT under section 263 of the Income Tax Act, 1961, for the assessment year 2017-18. The PCIT observed that the assessee-company had made significant investments in unquoted shares that could earn exempt income. The PCIT noted that the Assessing Officer (AO) did not inquire into the issue of disallowance to be made under section 14A of the Act, thereby making the assessment order erroneous and prejudicial to the interest of the Revenue.The PCIT initiated proceedings for revision of the order under section 263 of the Act, issuing a show-cause notice to the assessee. Despite the assessee's submission that no exempt income was earned during the year, the PCIT held that the AO failed to apply his mind and make the necessary disallowance under section 14A. Consequently, the PCIT set aside the assessment order and directed the AO to pass a fresh assessment order.2. Applicability of disallowance under section 14A of the Income Tax Act, 1961, in the absence of exempt income:The assessee contended that no disallowance under section 14A was warranted as there was no exempt income during the year. The assessee argued that the AO had already examined the issue during the assessment proceedings and had concluded that no disallowance was necessary. The assessee provided details indicating that the income claimed as exempt pertained to the share of a Joint Venture (JV), which is exempt under section 86 of the Income-Tax Act, 1961.However, the PCIT and the Tribunal noted that the AO did not properly examine the issue of disallowance under section 14A, despite the assessee's submission. The Tribunal emphasized that the AO's failure to investigate the issue and apply the correct legal provisions rendered the assessment order erroneous. The Tribunal referred to judicial precedents, including the Supreme Court's decision in Malabar Industries Ltd. vs. CIT, which established that an order could be considered erroneous if it was passed without proper inquiry or application of mind.The Tribunal also cited the decisions of ITAT Pune and ITAT Mumbai, which held that share received from a Joint Venture is exempt income and thus attracts disallowance under section 14A. The Tribunal concluded that the AO's failure to make the necessary disallowance under section 14A justified the PCIT's exercise of jurisdiction under section 263.Conclusion:The Tribunal upheld the PCIT's order under section 263, affirming that the AO's assessment order was erroneous and prejudicial to the interest of the Revenue. The Tribunal dismissed the appeal filed by the assessee, validating the PCIT's directive for a fresh assessment order to correctly address the disallowance under section 14A.