2022 (1) TMI 1144 - AT - Income Tax

Revision u/s 263 - addition u/s 14A - CIT disregarded the contention of the assessee by taking view that Rule 8D is mandatory in nature from A.Y. 2008-09 and the AO is bound to compute disallowance as per formulae provided under Rule 8D - HELD THAT - The assessee has earned exempt income in the form of dividend income of ₹ 202,377/-. Further the AO while passing the original assessment order has already disallowed Rs. ₹ 2,35,039/ under section 14A. Now, it is settled position under the law that disallowance under section 14A must not exceed the exempt income. Thus, the order passed by the AO is not erroneous. Therefore, the twin condition as enumerated in section 263 of the Act is not fulfilled in the present case, therefore, the order passed by the ld. Pr. CIT is not sustainable in law, which we set-aside. Thus, the assessee succeeded on the primary submissions of the ld. AR of the assessee. - Decided in favour of assessee.

Summary

Issues:
1. Disallowance under section 14A of the Income Tax Act.
2. Revision of assessment order under section 263 of the Act.
3. Limitation period for revising assessment order.

Analysis:
1. The appeal was against the order passed by the Principal Commissioner of Income Tax under section 263 for the Assessment Year 2012-13. The Assessing Officer had disallowed &8377; 2,35,039 under section 14A during the original assessment. The case was reopened under section 147 for deduction claimed under section 80IA. The Principal Commissioner revised the assessment order, stating that the disallowance under Rule 8D should have been &8377; 5,25,310 instead of &8377; 2,35,039, resulting in an under-assessment of &8377; 2,90,271. The assessee challenged this revision.

2. The assessee argued that the disallowance under section 14A should not exceed the exempt income, which was &8377; 2,02,337. The AO's disallowance of &8377; 2,35,039 was accepted by the assessee during the original assessment. The Principal Commissioner's revision order was contested on the grounds that the AO's order was not erroneous as it did not exceed the exempt income. The revision order was deemed unsustainable as it did not meet the conditions of section 263.

3. The Revenue contended that the original assessment became nonest after reassessment, and the Principal Commissioner's revision was within the limitation period. However, the Tribunal found that the disallowance should not exceed the exempt income, and thus, the AO's order was not erroneous. The revision order was set aside, and the assessee's appeal was allowed. The Tribunal concluded that the primary contention of the assessee was accepted, making the discussion on the limitation period academic.

In conclusion, the Tribunal allowed the appeal of the assessee, setting aside the revision order under section 263 as the disallowance under section 14A did not exceed the exempt income. The Tribunal emphasized that the disallowance should not surpass the exempt income, leading to the decision in favor of the assessee.