2017 (10) TMI 1340 - HC - Income Tax

Revision u/s 263 - Disallowance under Section 14A - Held that - As decided in The Commissioner of Income Tax, Thrissur v. Paul John 2010 (1) TMI 646 - KERALA HIGH COURT we are of the view that the proviso to Section 14A is intended to provide finality for concluded assessments where deductions for earning exempted income would have been allowed and therefore unless the proviso applies to Commissioner of Income tax as well, the purpose of the proviso will be defeated. Further, in our view, the bar against the assessing officer passing an order enhancing the assessment stated in the proviso takes in an order which the Officer may have to pass pursuant to the direction issued by the Commissioner under Section 263. the assessing officer has the authority to increase the liability of the assessee pursuant to orders issued under Section 263 by the Commissioner and pursuant to orders of enhancement which the Commissioner of Income Tax (Appeals) can issue under Section 251(1) (a) while deciding the appeal tiled by the assessee. We therefore hold that the proviso to Section 14A prohibits all situations where the Officer is otherwise entitled or required to revise an assessment which includes orders issued by the Commissioner under Section 263 or order of enhancement issued by the CIT (Appeals) in exercise of his power above referred - decided in favour of assessee

Summary

Issues:
Appeal against orders of Income Tax Appellate Tribunal concerning assessment year 1998-1999; Interpretation of Section 14A of the Income Tax Act.

Analysis:
The appeals were filed by the Revenue challenging the orders of the Income Tax Appellate Tribunal regarding the assessment year 1998-1999. The Tribunal had considered various issues, including loss on revaluation of investments, disallowance of expenditure, and applicability of Section 14A of the Income Tax Act. The Tribunal's decision was based on previous judgments, such as Commissioner of Income Tax v. Nedungadi Bank Limited and India Cements Limited v. Commissioner of Income Tax. The Tribunal disallowed a certain amount under Section 14A, which was challenged by the Revenue in ITA 1264/09. The questions framed for consideration included the Tribunal's compliance with the High Court's order and the interpretation of Section 14A to the facts of the case.

The High Court, after hearing arguments from both sides, referred to previous judgments to address the issues raised. The court cited Commissioner of Income Tax v. Dhanalakshmy Bank Limited to clarify that disallowance under Section 14A was intended for pending assessments and those from 2001-2002 onwards. The Revenue's argument that the proviso only restricted the Assessing Officer's powers was rejected, citing The Commissioner of Income Tax, Thrissur v. Paul John. The court emphasized that the proviso aimed to provide finality for concluded assessments and prevented any revision that could increase the assessee's liability, even under Section 263 or orders of enhancement by the CIT (Appeals).

Ultimately, the court dismissed the Revenue's appeal, concluding that the proviso to Section 14A applied to various situations where assessment revisions might occur, including orders under Section 263 and enhancements by the CIT (Appeals). The questions of law were answered against the Revenue, and the appeals were disposed of in favor of the assessee.