2022 (1) TMI 1201 - AT - Income Tax

Revision u/s 263 - Disallowance u/s 14A r.w.r. 8D - HELD THAT - No addition has been made on account of reverse merger which would support the argument of Ld. AR that original assessment order would could not be termed as erroneous and prejudicial to the interest of the revenue on this count. We concur with these arguments and would accordingly, hold that revision u/s. 263 was not justified on this issue. So far as the disallowance u/s. 14A is concerned, it is quite discernible that this disallowance was subject matter of original assessment proceedings and Ld. CIT(A) had already deleted the disallowance vide order dated 30.01.2019. The revenue's ground of appeal, on this issue, stood dismissed by Tribunal vide order dated 08.09.2021. Nevertheless, it could not be said that Ld. AO failed to make proper enquiries as to disallowance u/s. 14A as alleged by Ld. Pr. CIT. As on the date of revisions, the issue of disallowance u/s. 14A was already adjudicated by learned first appellate authority and the order of Ld. AO stood merged with the appellate order on that date. Therefore, revision of order, on this issue, would have no legs to stand and are liable to be quashed.

Summary

Issues:
Validity of revisional jurisdiction exercised by Principal Commissioner of Income Tax u/s 263 for AY 2014-15.

Analysis:
1. The appellant challenged the validity of revisional jurisdiction exercised by the Principal Commissioner of Income Tax-6, Chennai u/s 263 for AY 2014-15. The grounds raised by the appellant included contentions regarding the erroneous nature of the order passed by the Principal CIT, especially concerning the disallowance u/s 14A and the issue of transfer of shares on account of reverse merger.
2. The appellant's representative argued that the revision was invoked based on incorrect exemption from capital gains tax due to reverse merger and incorrect working of disallowance u/s 14A. The representative highlighted that the Assessing Officer had already examined the capital gain issue related to the reverse merger and made no adjustments. Regarding disallowance u/s 14A, it was emphasized that the appellant had not earned any exempt income during the year, and the issue had been resolved in the appellant's favor by the Tribunal.
3. The assessment for the year in question involved a disallowance u/s 14A for a specified amount, which was later deleted by the CIT(A) due to the absence of any exempt income earned by the appellant during that period. The revenue's appeal against this decision was dismissed by the Tribunal based on relevant case law.
4. Subsequently, the Principal CIT initiated a revision of the original assessment order u/s 263, citing incorrect exemption from capital gains tax due to reverse merger and incorrect working of disallowance u/s 14A. The Principal CIT alleged that the disallowance u/r 8D(2)(i) & 8D(2)(ii) needed to be calculated, and there was a discrepancy in the share value received by the appellant from the reverse merger.
5. The appellant refuted these allegations, stating that the amalgamation was court-approved, and no capital gain liability arose. The Principal CIT, however, found the original assessment order to be erroneous and prejudicial to revenue, directing the AO to conduct a thorough inquiry on both aspects after providing a hearing to the appellant.
6. In the subsequent assessment, the AO made certain disallowances but did not add anything regarding the reverse merger, supporting the argument that the original assessment order was not erroneous on this count. The Tribunal concurred with this view and held that revision u/s 263 was not justified in this regard.
7. Regarding the disallowance u/s 14A, the Tribunal noted that this issue had already been settled in the appellant's favor during the original assessment proceedings and subsequent appeals. The Tribunal found no failure on the part of the AO to make proper inquiries on this matter, leading to the conclusion that the revision of the order on this issue was unwarranted and liable to be quashed.
8. Ultimately, considering the facts and circumstances of the case, the Tribunal decided to quash the revisional order u/s 263 passed by the Principal CIT on 30.03.2019, allowing the appeal in favor of the appellant.