TaxTMI 
TaxTMI 
2026 (1) TMI 877
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....isions of Section 263 of the Act were not applicable to the case of the assessee. 3 The learned Principal CIT has erred in law as well as on facts in setting aside the assessment order passed by the A.O. u/s. 143(3) to the extent of examining the applicability of provisions of Section 14A of the Act without appreciating the fact that there is no exempted income earned and the assessee has not incurred any expenditure. 4. The learned Principal CIT has erred in law as well as on facts in setting aside the assessment order passed by the A.O. u/s. 143(3) to the extent of examining the applicability of provisions of 36(1)(iii) in respect of interest on borrowed capital without appreciating the fact that there is no diversion of interest bearing funds. 2. The relevant material facts, as culled out from the material on record, are as follows. In this case, the assessee has filed return of income for the assessment year (AY) 2018-19, on 28/09/2018, declaring total income of Rs. 5,87,87,300/- after claiming deduction under chapter VI-A of the Act, amounting to Rs. 33,24,12,992/-, under normal provisions and Book Profit of Rs. 46,83,48,940/-. The case of the assessee was....
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....o Rs. 25,73,859/- and the same was required to be disallowed by the assessing officer at the time of finalizing the assessment order passed u/s 143(3) rws 144C(3) rws 144B of the Act dated 29/10/2021. This has resulted under assessment of Rs. 25,73,859/-, Such failure on the part of the assessing officer has rendered the assessment order erroneous and prejudicial to the interest of the revenue within the meaning of the provisions of section 263 of the Act. 6. In response to the above, assessee, submitted its written reply before learned PCIT, vide letter dated 22/01/2024.The assessee submitted that in the assessment proceedings, if the A.O. has not verified any specific issues which were not within the scope of selection of scrutiny, such assessment order cannot be said to be erroneous or prejudicial to the interest of revenue and therefore, the proposed revision on the issues, viz:(i)Disallowance u/s 14A of the Act r.w.r. 8D of Income-tax Rule in respect of expenses incurred for earning exempt income, and (ii)Disallowance u/s 36(1)(iii) of the Act, for interest in respect of capital borrowed, as these were not subject matter of verification before the A.O. under the limited scr....
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....ome earned during the year under consideration, there is no question of disallowance of expenditure u/s. 14A of the Act. Besides, it is also evident from the fact that the assessee- company has plenty of own interest free funds in the form of Share Capital and Reserves & Surplus amounting to Rs. 41,638.78 Lakhs which are more than the loans and deposit amount and it a settled position of the law that the interest free advances, if any, are to be considered as made out of interest free funds and not otherwise. Therefore, order passed by the assessing officer is neither erroneous nor prejudicial to the interest of revenue. 10. On the other hand, Ld.CIT- D.R. for the Revenue, has primarily reiterated the stand taken by the ld.PCIT, which we have already noted in our earlier para and is not being repeated for the sake of brevity. Learned DR for the revenue also submitted that assessee`s case was selected for complete scrutiny and not for limited scrutiny, therefore, there is no findings in the assessment order that assessing officer has examined these issues which were raised by the learned PCIT, therefore order passed by the assessing officer is erroneous and prejudicial to the int....
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....sioner of Income-tax-l, Chandigarh vs. Vardhman Chemtech (P.) Ltd. - [2019] 102 taxmann.com 132 (Punjab & Haryana) (ii) Principal Commissioner of Income-tax, New Delhi vs. McDonald's India (P.) Ltd. [2019] 101 taxmann.com 86 (Delhi) (iii) Principal Commissioner of Income-tax-2, vs. Caraf Builders & Constructions (P.) Ltd. - [2019] 101 taxmann.com 167 (Delhi) (iv) Deputy Commissioner of Income-tax, Ahmedabad vs. Asian Grantio India Ltd - [2020] 113 taxmann.com 445 (Ahmedabad - Trib.) 12. As regards applicability of disallowance u/s. 14A in view of the CBDT Circular No. 05/2014 dated 11/02/2014 even where taxpayer in a particular year has not earned any exempt income from investment, it is submitted by assessee that the said view of the CBDT has been completely negated by the Hon'ble Supreme Court (supra) and various High Courts in the following judicial pronouncements wherein the Hon'ble High Courts have held that disallowance u/s. 14A cannot exceed the exempted income after specifically considering therein the CBDT Circular No. 05/2014 dated 11/02/2014.In this connection, reliance is also placed on the following judicial pronouncements wher....
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....nd Reserves & Surplus amounting to Rs. 41,638.78 Lakhs which are more than the loans and deposit amount and it a settled position of the law that the interest free advances, if any, are to be considered as made out of interest free funds and not otherwise. In this regard assessee placed reliance on the judgment in case of Commissioner of Income Tax, Central Circle, Bangalore vs. Brindavan Beverages (P.) Ltd. [2017] 88 taxmann.com 477 (Karnataka) wherein it was held that where Tribunal having found that assessee had sufficient own funds well covering loan and advances made to its directors and sister concern, allowed deduction of interest on loan, no substantial question of law arose out of impugned order. Further, reliance is placed on judgement in case of Commissioner of Income-tax, Central Circle, Chennai vs. VGP Housing (P.) Ltd. [2016] 66 taxmann.com 354 (Madras)/[2014] 368 ITR 565 (Madras) [04-08-2014] wherein it was held that where advance to group companies without interest was made in earlier year and that too out of interest free funds, disallowance of interest expenditure for such advance in subsequent year was not proper and the Hon'ble High Court decided the issue i....