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2021 (11) TMI 629 - AT - Income TaxRevision u/s 263 by CIT - Disallowance u/s 14A - HELD THAT - Hon'ble Delhi High Court in the case of M/s. Holcim India P. Ltd 2014 (9) TMI 434 - DELHI HIGH COURT held that no disallowance can be made u/s.14A if there is no exempt income in the relevant year. PCIT has not disputed the fact that the assessee has not earned any exempt income. Hence, in view of the judicial pronouncement, we hereby hold that the order the AO is not prejudicial to the interest of the revenue. Hence, we hereby hold that the order passed by the ld. PCIT u/s. 263 is legally not sustainable. Decided in favour of assessee.
Issues Involved:
- Jurisdiction under section 263 of the Income Tax Act - Applicability of section 14A and Circular No. 5/2014 - Principle of natural justice and opportunity to explain the case Analysis: Jurisdiction under section 263: The Appellate Tribunal heard appeals against orders by the ld. PCIT, New Delhi dated 30.10.2017. The issues in all appeals were deemed identical. The appellant challenged the regular assessment order dated 27-12-2016, arguing that the Ld. AO conducted necessary inquiries and the order was in accordance with the law. The appellant also contested the direction of the Ld. Pr. CIT under section 263, asserting that the order was not erroneous or prejudicial to revenue. The Tribunal reviewed the order passed under section 263, which highlighted the investment of the assessee in shares potentially yielding exempt income, leading to the application of Section 14A and Rule 8D. The Tribunal considered the objections raised by the assessee, citing Circular No. 5/2014 and the provisions of Section 263 of the IT Act. Ultimately, the Tribunal found the assessment order to be erroneous and prejudicial to revenue, directing a fresh assessment. Applicability of section 14A and Circular No. 5/2014: The Tribunal delved into the provisions of Section 14A, which disallows expenditure related to income not forming part of the total income. The Tribunal referred to judicial precedents, including the decision of the Delhi High Court in M/s. Holcim India P. Ltd. vs. CIT-IV, emphasizing that no disallowance can be made under Section 14A if no exempt income was earned in the relevant year. The Tribunal also cited decisions from other High Courts, reinforcing the principle that Section 14A cannot be invoked in the absence of exempt income. In the case at hand, the Tribunal noted that the assessee did not earn any exempt income, leading to the conclusion that the order by the Assessing Officer was not prejudicial to revenue, rendering the order under section 263 legally unsustainable. Principle of natural justice and opportunity to explain the case: The appellant contended that the assessment order was passed without regard to the principles of natural justice, alleging a lack of opportunity to explain the case. However, the Tribunal's detailed analysis focused on the substantive issues of jurisdiction under section 263 and the applicability of Section 14A, ultimately leading to the decision to allow all the appeals of the assessee. The Tribunal pronounced the order in open court on 18/10/2021, providing a comprehensive resolution to the issues raised in the appeals.
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