2021 (4) TMI 206 - AT - Income Tax

Revision u/s 263 - Disallowance u/s 14A - HELD THAT - As per the provision of section 263(2) of the Act, no order shall be made under sub-section (1) after expiry of two (02) years from the end of financial year in his order said to be revised was passed. As noted above, the assessment order was passed on 30.01.2015. Admittedly, the assessment was reopened under section 147 on the issue of deduction under section 80IA of the Act. In the re-assessment order the A.O. has not examined the issue of section 14A. Thus, from the facts it is clear that the Ld. PCIT, while revising the assessment order in fact revised the assessment order date 30.01.2015 passed under section 143(3). The ld. PCIT passed order under section 263(1) of the Act on 07.12.2018, which is beyond the two (02) years period of limitation, therefore, the order passed by the ld. PCIT is barred by limitation, which we hold so. Even on merit, we find that the assessee in reply to show cause notice under section 263 of the Act has specifically stated that the assessee has earned total exempt income of ₹ 2,02,337/- and the maximum disallowance should not exceed to the exempt income. The ld. PCIT instead of accepting the contention of assessee proceeded to direct the AO to frame the de-novo assessment. Considering the fact that it is settled law that disallowance under section 14A of the Act should not exceed the exempt income, thus, we are of the view that the assessment order dated 30.01.2015 was otherwise not erroneous. Thus, the assessee is also succeeded on merit.

Summary

Issues:
1. Validity of the order passed under section 263 of the Income Tax Act, 1961.
2. Correctness of disallowance under section 14A and Rule 8D.
3. Compliance with the limitation period for passing the order under section 263.
4. Maximum disallowance under section 14A not exceeding exempt income.

Issue 1: Validity of the order passed under section 263:
The appeal was filed against the order of the Learned Principal Commissioner of Income Tax under section 263 for the A.Y. 2012-13. The Assessee contended that the assessment order passed under section 147 r.w.s. 143(3) was not erroneous or prejudicial to the revenue's interest. The Ld. PCIT held that the disallowance under section 14A was incorrectly computed, resulting in an underassessment of income. The Ld. PCIT set aside the assessment order, directing a de-novo assessment. The Assessee argued that the order was beyond the two-year limitation period from the end of the relevant assessment year, citing relevant case laws. The Tribunal held that the order passed by the Ld. PCIT was indeed barred by limitation, and the Assessee succeeded on this ground.

Issue 2: Correctness of disallowance under section 14A and Rule 8D:
The Assessing Officer made disallowances under section 14A of the Act, invoking Rule 8D, which were challenged by the Assessee. The Ld. PCIT found the disallowance under section 14A to be incorrectly computed, leading to an underassessment of income. The Assessee argued that the disallowance should not exceed the exempt income earned. The Tribunal agreed with the Assessee, stating that the disallowance under section 14A should not exceed the exempt income. Consequently, the Tribunal held that the assessment order was not erroneous, and the Assessee succeeded on this issue as well.

Issue 3: Compliance with the limitation period for passing the order under section 263:
The Tribunal noted that the order passed by the Ld. PCIT under section 263 was beyond the two-year limitation period prescribed by the Act. As the assessment order was passed on 30.01.2015, and the order under section 263 was issued on 07.12.2018, it was held that the order was barred by limitation. Therefore, the Tribunal ruled in favor of the Assessee on this ground.

Issue 4: Maximum disallowance under section 14A not exceeding exempt income:
The Assessee contended that the disallowance under section 14A should not exceed the exempt income earned, which was &8377; 2,02,337/-. The Ld. PCIT directed the AO to frame a de-novo assessment, disregarding the Assessee's argument. The Tribunal, considering settled law, agreed with the Assessee that the disallowance under section 14A should not exceed the exempt income. Consequently, the Tribunal held that the assessment order was not erroneous, and the Assessee succeeded on this issue.

In conclusion, the Tribunal allowed the Assessee's appeal, holding that the order passed by the Ld. PCIT was barred by limitation and that the assessment order was not erroneous regarding the disallowance under section 14A.