2023 (11) TMI 933 - AT - Income Tax

ITAT allows appeal against revision under section 263 for non-disallowance under section 14A without exempted income

The ITAT Ahmedabad allowed the assessee's appeal against revision u/s 263. The CIT sought to revise the assessment for non-disallowance u/s 14A when the ... Revision u/s 263 - Non making disallowance u/s 14A when assessee has made huge investment in shares and securities which can generate exempted income u/s 10(34) - As per CIT assessee has not made any disallowance under the provision of section 14A r.w.Rule 8D of Income-tax Rules which was compulsory to have been made in pursuance to the CBDT Circular No. 05/2014 dated 11/02/2014, even in a situation when the assessee has not earned any exempted income - HELD THAT:- In revising the Assessment Order u/s 263 of the Act, the twin conditions need to be satisfied being erroneous in so far prejudicial to the interest of revenue. If any of the condition is missing, then the assessment cannot be revised u/s 263 of the Act. Admittedly, in the given case, there is no exempted income u/s 10(34) of the Act for the year under consideration. The Hon’ble Courts time and again held that there cannot be any disallowance under the provision of section 14A r.w.Rule 8D of Income tax Rules in a situation where there is no exempt income earned by the assessee. Now it has become law of the land by virtue of the findings of the Hon’ble SC that there cannot be any disallowance u/s 14A r.w. Rule 8D of Income-tax Rules in a situation where the assessee has not earned any exempted income until and unless there is some change under the provisions of law. The fact that the assessee has not earned exempt income has nowhere been disputed by the Ld. DR appearing on behalf of the revenue. Accordingly, we hold that there is no error causing any prejudice to the interest of revenue in the assessment framed u/s 143(3) of the Act. Scope of amendment under the provision of section 14A by way insertion of an explanation clarifying that the disallowance needs to be made u/s 14A even there is no exempt income earned by the assessee - We find that such amendment is not applicable for the year under consideration by virtue of the order of the ITAT in the case of DCIT Vs. M/s CLP India Pvt. Ltd [2022 (11) TMI 422 - ITAT AHMEDABAD] - Appeal of assessee allowed. Issues Involved:1. Whether the Principal Commissioner of Income Tax (PCIT) erred in holding the assessment framed by the Assessing Officer (AO) as erroneous and prejudicial to the interest of revenue under section 263 of the Income Tax Act, 1961.2. Applicability of Section 14A read with Rule 8D of the Income Tax Rules in the absence of exempt income.Summary:Issue 1: Assessment Order under Section 263The appeal was filed by the Assessee against the order of the Learned Principal Commissioner of Income Tax (PCIT), Ahmedabad-1, which set aside the assessment framed by the AO under section 143(3) of the Income Tax Act, 1961, on the grounds that it was erroneous and prejudicial to the interest of revenue. The PCIT observed that the assessee had made significant investments in shares and securities that could generate exempted income under section 10(34) of the Act. However, no disallowance was made under section 14A read with Rule 8D of the Income Tax Rules, despite the CBDT Circular No. 05/2014 mandating such disallowance even if no exempt income was earned. The PCIT directed the AO to reassess after necessary inquiries.Issue 2: Applicability of Section 14A read with Rule 8DThe Assessee contended that since no exempted income was received during the year, the provisions of section 14A read with Rule 8D were not applicable. The Assessee relied on the judgment of the Hon'ble Jurisdictional High Court in CIT vs. Corrtech Energy Pvt Ltd., which was upheld by the Hon'ble Supreme Court in CIT vs. Chettinad Logistics Pvt. Ltd. The Revenue, however, supported the PCIT's action, citing the judgment of the Hon'ble Bombay High Court in Vedanta Ltd vs. CIT.Tribunal's Findings:The Tribunal noted that for revising an assessment order under section 263, the twin conditions of the order being erroneous and prejudicial to the interest of revenue must be satisfied. Given that no exempt income was earned by the assessee, the Tribunal held that no disallowance under section 14A read with Rule 8D could be made. The Tribunal relied on the Jurisdictional High Court's decision in Corrtech Energy Pvt. Ltd., which was affirmed by the Supreme Court in Chettinad Logistics Pvt. Ltd., stating that section 14A could not be invoked in the absence of exempt income.The Tribunal further addressed the amendment to section 14A by the Finance Act, 2022, clarifying that the disallowance needs to be made even if no exempt income is earned. However, it was held that this amendment is applicable from the assessment year 2022-23 onwards and not retrospectively. The Tribunal also distinguished the facts of the present case from the cited judgment of Vedanta Ltd.Conclusion:The Tribunal quashed the revisional order passed by the PCIT under section 263 of the Act, holding that there was no error causing any prejudice to the interest of revenue in the assessment framed under section 143(3). The appeal filed by the assessee was allowed.Order Pronounced:The order was pronounced in the Court on 20/10/2023 at Ahmedabad.