2025 (2) TMI 919 - AT - Income Tax

PCIT's revision under section 263 invalid as twin conditions not satisfied for previously examined matters

Adani Infrastructure and Developers Private Limited Versus The Principal Commissioner of Income Tax-1, Ahmedabad

ITAT Ahmedabad held that PCIT's revision u/s 263 was invalid as twin conditions were not satisfied. The AO had already examined disallowance u/s 14A and ... Revision u/s 263 - issues not verified by AO during the course of assessment proceedings on Disallowance u/s 14A read with Rule 8D and Payment of compensation being allegedly not allowable as deduction u/s 28 to 44DA - HELD THAT:- AO has made disallowance which stands deleted by the CIT(A). Since the issue has already been examined by the AO, adjudicated by the Ld. CIT(A), the same issue cannot be again taken up the PCIT u/s 263. Further, disallowance u/s 14A cannot be made for investments made in partnership firm and the profit earned thereof. Even on merits, we find no prejudice is caused to the Revenue and hence the order of the Ld. PCIT on this issue cannot be upheld. Compensation paid - PCIT held that assessee had neither disallowed such expense nor the Assessing Officer had verified the expense as it is not allowable within the provisions of section 28 to 44DA - Compensation expenses paid in year under consideration is on account of contractual payment and not on account of any violation of any law and hence, no disallowance in this regard is warranted under the provisions of the Act. Since no disallowance is warranted as enumerated above, the assessment order passed u/s 143(3) of the Act by Assessing Officer can neither be held as 'erroneous' nor 'prejudicial or fatal to the interest of revenue'. We find that the AO has also examined the issue during the assessment proceedings as found in the notice issued u/s 142(1). Therefore, twin pre-conditions to assume revisionary jurisdiction u/s 263 of the Act are not satisfied in the issue on hand. Appeal of the assessee is allowed. The appeal was filed by the Assessee against the order passed by the Ld. Principal Commissioner of Income-tax, Ahmedabad-1 under Section 263 of the Income-tax Act, 1961, for the Assessment Year 2018-19. The issues raised in the appeal included the disallowance under Section 14A of the Act and the treatment of compensation expenses incurred by the Assessee. The Assessee argued that the assessment order was neither erroneous nor prejudicial to the interest of the revenue.Regarding the disallowance under Section 14A of the Act, the Assessee contended that the Assessing Officer had already considered this issue in the previous assessment year, and the disallowance made for that year was subsequently deleted by the Ld. CIT(A). The Assessee argued that no disallowance should be made for investments in a partnership firm and that the administrative expenses incurred were for the main business purpose, not for earning tax-free income. The Tribunal found that the issue had been adequately examined by the Assessing Officer and the Ld. CIT(A), and no prejudice was caused to the revenue. Therefore, the Tribunal did not uphold the Ld. PCIT's order on this issue.Regarding the compensation expenses of Rs. 60,00,000, the Ld. PCIT observed that the Assessing Officer had not verified the allowability of this expense under the relevant provisions of the Act. The Assessee explained that the compensation was paid as per the terms of a Memorandum of Understanding for the purchase of property, and it was a contractual payment, not a penalty for any violation of law. The Tribunal found that the compensation expenses were incurred for the purpose of the Assessee's business and were not disallowable under the Act. As such, the assessment order passed by the Assessing Officer was not erroneous or prejudicial to the revenue's interest. The Tribunal concluded that the twin pre-conditions for assuming revisionary jurisdiction under Section 263 of the Act were not satisfied in this case.In conclusion, the Tribunal allowed the appeal of the Assessee, finding in favor of the Assessee on both the disallowance under Section 14A and the treatment of compensation expenses. The Tribunal held that the assessment order was not erroneous or prejudicial to the interest of the revenue, and therefore, the appeal was allowed.