2016 (7) TMI 1543 - AT - Income Tax

Rectification u/s. 154 - HELD THAT - Tribunal had restored the matter to the file of the AO for a fresh decision . It was not a case of simple direction to the AO, wherein he has to give appeal effect only. If the Tribunal directs the Revenue Authorities to verify certain facts like arithmetic calculations or to decide a particular ground of appeal that remained to be adjudicated, it can safely be said that the time limit prescribed by the section 153(2A) would not be applicable. But, in a case like this, where the AO had to not only decide the applicability of certain sections, but also had to decide the nature of the sections, would be covered by the provisions of 153(2A) of the Act. Tribunal had directed the AO to decide as to whether the sub-sections (2) and (3) of subsection 14A of the Act were retroactive in operation. Thus, it was a case of fresh adjudication. Therefore, in our opinion, the FAA was not justified in holding that the provisions of section 153(3)(iii) were applicable to the case under consideration. Reversing his order, we hold that the order passed by the AO was not valid and was barred by time-limit as prescribed by the provisions of section with 153(2A) of the Act. First ground of appeal, raised by the assessee, is decided in its favour. As we have held that order of the AO was not a valid order, therefore, we are not deciding the merits of the case. As the order of the AO has been held to be an invalid order, therefore, all the three matters (Appeal by the AO, appeal filed by the assessee with regard to the order passed u/s.154 of the Act and the CO filed by the assessee) become infructuous

Summary

Issues Involved:
1. Validity and timeliness of the Assessing Officer's (AO) order.
2. Disallowance under Section 14A of the Income Tax Act.
3. Enhancement of disallowance by the First Appellate Authority (FAA).
4. Applicability of Rule 8D of the Income Tax Rules, 1962.
5. Jurisdictional issues and applicability of Section 153(2A) of the Income Tax Act.

Detailed Analysis:

1. Validity and Timeliness of the AO's Order:
The primary issue was whether the order passed by the AO on 02/12/2008, u/s. 143(3) read with Section 254 of the Act, was barred by limitation. The Tribunal referenced the case of Instruments and Control Co. (349 ITR 571) of the Hon’ble Gujarat High Court, which dealt extensively with the issue of time limits under Section 153. The Tribunal concluded that the AO's order was not valid and was barred by the time limit prescribed by Section 153(2A) of the Act. The Tribunal held that the FAA was incorrect in applying Section 153(3)(ii) and reversed the FAA's order, deciding the first ground of appeal in favor of the assessee.

2. Disallowance under Section 14A:
The AO had disallowed expenses under Section 14A related to earning exempt income. The FAA partly allowed the appeal, reducing the disallowance but still attributing ?4 Crores to interest expenditure and ?20 lakhs to administrative and managerial expenses. The Tribunal noted that the FAA did not follow due process under Section 251(2) of the Act for enhancement and did not provide the assessee a reasonable opportunity of hearing. The Tribunal also held that no disallowance under Section 14A could be made where there was no exempt income.

3. Enhancement of Disallowance by FAA:
The FAA had enhanced the disallowance without following due process, as required by Section 251(2) of the Act. The Tribunal noted that the FAA did not provide the assessee a reasonable opportunity of hearing before making the enhancement. The Tribunal emphasized that the enhancement was not justified and that the FAA's approach was procedurally flawed.

4. Applicability of Rule 8D:
The FAA held that Rule 8D of the Income Tax Rules, 1962, was not applicable for the year under consideration as it provided a reasonable method and basis for the AY 2008-09 and subsequent years. The Tribunal agreed with this view, noting that the provisions of Rule 8D were not applicable for the assessment year in question.

5. Jurisdictional Issues and Applicability of Section 153(2A):
The Tribunal examined whether the case fell under Section 153(2A) or Section 153(3) of the Act. The Tribunal concluded that the case involved a fresh adjudication and thus fell under Section 153(2A), which prescribes a two-year limitation period. The Tribunal noted that the AO's order was not merely a direction for verification but required a fresh decision on the applicability and nature of certain sections. Consequently, the Tribunal held that the AO's order was invalid as it was barred by the time limit.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, holding that the AO's order was invalid and barred by limitation. Consequently, the appeals filed by the AO and the assessee, as well as the cross-objection, were treated as infructuous. The Tribunal's decision emphasized the importance of adhering to procedural requirements and time limits prescribed by the Income Tax Act.