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2023 (5) TMI 418 - HC - Income TaxRevision u/s 263 by CIT - disallowance u/s 14A - Tribunal as analysed the factual position and found that the case of the assessee was selected for limited scrutiny under CASS and the issue which the Commissioner sought to reopen namely, the issue of disallowance u/s 14A read with Rule 8D in respect of the exempt income was not one of the issues which was selected for scrutiny - HELD THAT - A bare reading of Instruction No.7 of 2014, dated 26th September, 2014 clearly shows that the PCIT cannot make a roving enquiry in the guise of a limited scrutiny and as such the instruction issued by the CBDT is binding on the Department. We find that on facts the Tribunal has granted relief in favour of the assessee. As appearing for the respondent points out that the PCIT in its order has relied upon a decision of Sunrise Academy of Medical Specialities (India) Pvt. Ltd. 2018 (5) TMI 1492 - KERALA HIGH COURT but on a reading of the said order, we find that the said order supports the case of the assessee rather than the revenue. No substantial question of law
Issues:
1. Jurisdiction of Principal Commissioner of Income Tax under Section 263 of the Income Tax Act. 2. Validity of the order passed by the Income Tax Appellate Tribunal regarding disallowance under Section 14A. 3. Justification of the Income Tax Appellate Tribunal's decision on the limited scrutiny issue. Jurisdiction of Principal Commissioner of Income Tax under Section 263: The High Court analyzed whether the assumption of jurisdiction by the Principal Commissioner of Income Tax under Section 263 of the Income Tax Act was justified. The Tribunal found that the case was selected for limited scrutiny under CASS, and the issue of disallowance under Section 14A was not part of the selected scrutiny issues. The Tribunal highlighted the specific issues chosen for scrutiny, which did not include the disallowance under Section 14A. Referring to CBDT Instruction No.7 of 2014, the Court emphasized that the Principal Commissioner cannot conduct a roving enquiry during limited scrutiny, as the instructions by CBDT are binding on the Department. The Court concluded that the Tribunal's decision in favor of the assessee was based on factual justifications and upheld it. Validity of the Tribunal's Order on Disallowance under Section 14A: The Court examined whether the Tribunal's decision to allow the appeal of the assessee on the disallowance issue under Section 14A, not originally selected for limited scrutiny, was justified. The Tribunal pointed out that the issue of disallowance was not part of the selected scrutiny items. The Court noted that the Tribunal correctly referenced CBDT instructions, emphasizing the limitations of a limited scrutiny exercise. The Court agreed with the Tribunal's reasoning and found that the decision to grant relief to the assessee was appropriate based on the facts presented. Justification of the Tribunal's Decision on Limited Scrutiny Issue: The Court considered whether the Tribunal's decision not to appreciate the connection between the introduction of capital in NBFC/Investment Companies and the issue of disallowance under Section 14A was justified. The Tribunal had identified specific scrutiny items, none of which included the disallowance under Section 14A. The Court reiterated the limitations of a limited scrutiny exercise as per CBDT instructions, emphasizing the need for specific verification in such cases. The Court upheld the Tribunal's decision in favor of the assessee, stating that there was no substantial question of law arising for consideration in the appeal. Consequently, the appeal was dismissed, and the application for stay was also rejected.
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