2024 (12) TMI 1601 - AT - Income Tax

Revision u/s 263 - as per CIT assessment order passed u/s 153A are erroneous and prejudicial to the interest of the Revenue and the same are set aside to the file of the AO to pass an order afresh on the disallowance u/s 14A r/w Rule 8D of the I.T. Rules - HELD THAT - Where the assessee had not earned any exempt income in the relevant assessment year there could be no disallowance in terms of section 14A read with Rule 8D the decision rendered in the case of PCIT Vs. IL FS Energy Development Company Ltd. 2017 (8) TMI 732 - DELHI HIGH COURT which decision was rendered much prior to the completion of assessment by the AO on 27.09.2021 u/s 153A for the AY 2018-19. Therefore in our considered view since the assessee had not earned any exempt income there cannot be any disallowance u/s 14A and we hold that the assessment orders passed by the AO u/s 153A are not erroneous and prejudicial to the interest of the Revenue as the twin conditions are not satisfied for invoking the provision of section 263 - Assessee appeal allowed.

Summary

ISSUES:

• Whether disallowance under section 14A of the Income Tax Act, 1961 read with Rule 8D of the Income Tax Rules can be made when no exempt income (such as dividend income) is earned during the relevant assessment year.
• Whether the assessment orders passed under section 153A of the Income Tax Act, 1961 for the assessment years 2018-19 and 2019-20 are erroneous and prejudicial to the interest of the Revenue so as to justify revision under section 263.

RULINGS / HOLDINGS:

• The Court held that "where the assessee had not earned any exempt income in the relevant assessment year there could be no disallowance in terms of section 14A read with Rule 8D."
• The assessment orders passed under section 153A for the assessment years 2018-19 and 2019-20 were found to be "not erroneous and prejudicial to the interest of the Revenue" as the "twin conditions are not satisfied for invoking the provision of section 263."
• The orders passed under section 263 revising the assessment orders on the ground of disallowance under section 14A were quashed.

RATIONALE:

• The Court relied on binding decisions of the jurisdictional High Court which held that disallowance under section 14A read with Rule 8D cannot be made in the absence of exempt income.
• The Court noted that the Assessing Officer had issued notices and the assessee had submitted replies confirming no exempt income or deductions under chapter VI or section 10 were claimed.
• The Court distinguished the non-jurisdictional High Court decisions relied upon by the revising authority and emphasized adherence to jurisdictional High Court precedents.
• The Court applied the statutory framework of sections 14A, 153A, and 263 of the Income Tax Act, 1961, and the relevant Rules, confirming that revision under section 263 requires the assessment order to be both erroneous and prejudicial to the Revenue's interest, which was not established here.