2019 (11) TMI 337 - AT - Income Tax

Revision u/s 263 - disallowance u/s 14A computation - doctrine of merger - CIT (A) deleted this disallowance and the appeal of the department against the order of the Ld. CIT (A) before this Tribunal was also dismissed 2017 (2) TMI 1254 - ITAT DELHI - HELD THAT - On the factual matrix of the case, the doctrine of merger will apply. The logic underlying the doctrine of merger is that there cannot be more than one decree or operative order governing the same subject-matter at a given point of time. The question before the Hon ble Madhya Pradesh High Court in NARPAT SINGH MALKHAN SINGH 1980 (7) TMI 66 - MADHYA PRADESH HIGH COURT was whether the Ld. CIT, while exercising power u/s 263, could set aside the assessment order after the appellate order was made by the AAC. The Division Bench took the view that the Ld. CIT could not have invoked power u/s 263 as the ITO s order had merged with the order of the AAC. In the present appeal before us, going by the doctrine of merger, since the Ld. CIT (A) had already decided the issue in favour of the assessee, the Ld. Pr. CIT could not have exercised his revisionary powers u/s 263 of the Act. If the department was aggrieved by the order of the Tribunal deleting the disallowance, proper recourse would have been to approach the higher forum. Therefore, we are of the considered opinion that the jurisdiction u/s 263 of the Act could not have been invoked by the Pr. CIT in this case. Accordingly we quash the assumption of jurisdiction u/s 263 of the Act by the Ld. Pr. CIT. We have not examined other merits of the matter. Appeal filed by the assessee is allowed.

Summary

Issues Involved:
1. Validity of the disallowance under Section 14A of the Income Tax Act.
2. Applicability of Rule 8D for computing disallowance.
3. Assumption of jurisdiction under Section 263 by the Principal Commissioner of Income Tax (PCIT).

Issue-wise Detailed Analysis:

1. Validity of the Disallowance under Section 14A of the Income Tax Act:
The assessee filed a return declaring a total income of ?66,00,44,440/-, which included a dividend income of ?1,10,58,833/- claimed as exempt. The assessee made a suo moto disallowance of ?2.13 crores under Section 14A for administrative and personal expenditure. However, the Assessing Officer (AO) was unconvinced and recomputed the disallowance to ?4,05,51,458/- under Rule 8D (2)(iii). The CIT (A) deleted this additional disallowance, stating that the disallowance made by the AO cannot exceed the total expenditure incurred by the assessee, which was already added back by the assessee in its computation of income. The Tribunal upheld this view, referencing the Delhi High Court's decision in Joint Investments vs. ACIT and the Punjab & Haryana High Court's decision in Pr. CIT vs. Empire Package Pvt. Ltd., which held that disallowance under Section 14A must not exceed the actual exempt income received by the assessee.

2. Applicability of Rule 8D for Computing Disallowance:
The PCIT issued a show-cause notice under Section 263, proposing to revise the assessment order, alleging that the AO had incorrectly computed the disallowance under Section 14A at ?4,05,51,458/- instead of ?14,45,00,128/-. The PCIT argued that the AO should have computed the disallowance under Rule 8D (2) separately for each clause and given credit only for the specific disallowance made by the assessee. The PCIT contended that the AO's failure to properly verify the claims and compute the disallowance under various limbs of Rule 8D rendered the assessment order erroneous and prejudicial to the interest of the revenue.

3. Assumption of Jurisdiction under Section 263 by the Principal Commissioner of Income Tax (PCIT):
The Tribunal examined whether the PCIT validly assumed jurisdiction under Section 263. The assessee argued that the disallowance under Section 14A cannot exceed the exempt income and that the issue had already been examined and decided by the AO and CIT (A). The Tribunal noted that the doctrine of merger applied, meaning that once the CIT (A) had decided the issue, the PCIT could not invoke Section 263. The Tribunal referenced the Madhya Pradesh High Court's decision in CIT vs. Narpat Singh Malkhan Singh, which illustrated that the CIT could not revise an order that had merged with an appellate order. The Tribunal concluded that the PCIT's assumption of jurisdiction under Section 263 was invalid, as the issue had already been decided by the CIT (A) and upheld by the Tribunal.

Conclusion:
The Tribunal quashed the assumption of jurisdiction under Section 263 by the PCIT, ruling that the PCIT could not revise the assessment order since the issue had already been decided by the CIT (A) and upheld by the Tribunal. The appeal filed by the assessee was allowed.