2024 (8) TMI 1230 - AT - Income Tax

Revision u/s 263 - disallowance u/s. 14A - HELD THAT - PCIT has simpliciter carried out unnecessary exercise without analyzing that the assessee has received the exempt income - PCIT has not noted any error in the assessment order or any prejudice caused to the Revenue by the assessment order. Further for revising the assessment, the PCIT has to give a clear cut finding that the order passed by the AO u/s. 143(3) of the Act suffers from the twin conditions i.e., erroneous insofar as prejudicial to the interest of Revenue, which is sine qua non to invoke the powers u/s. 263 Loss of sale of assets - Claim being capital in nature was disallowed by the assessee company while computing taxable income for the relevant assessment year and moreover, the disallowance of this loss on sale of assets was duly disclosed in the return of income filed for the relevant assessment year and appropriate disclosure was made in TAR filed by the assessee for the relevant assessment year. PCIT has nowhere recorded finding of fact that the assessment order is erroneous insofar as prejudicial to the interest of Revenue and once this twin conditions is not mentioned or not probed, the PCIT has no power to exercise powers u/s. 263 of the Act for revising the assessment. Satisfaction as noted by CIT - For invoking the revisionary powers u/s. 263 of the Act, it is necessary for the PCIT to state in what manner he consider the assessment order as erroneous and prejudicial to the interest of Revenue and what the basis and material for such conclusion. Though the provisions of section 263 of the Act vests power in PCIT in subjective terms, but even when an enactment vests discretion in any authority saying, if it appears , if he satisfied , if he considers necessary , that does not mean that it is a matter only of subjective satisfaction and such authority has not to judge the circumstances in an objective manner. PCIT must give his own reasons for being satisfied that the order passed by the AO is erroneous and prejudicial to the interests of Revenue and this provision postulates a scrutiny by PCIT of all the relevant facts for holding that the order is erroneous and is also prejudicial to the interest of Revenue. In the present case none is the finding qua that and PCIT has not given any reasoning for setting aside the assessment order and directing the AO verification without any basis. Assessee appeal allowed.

Summary

Issues:
Appeals arising from Revision orders by Principal Commissioner of Income-Tax, Chennai-1 under section 263 of the Income Tax Act, 1961 regarding disallowance on loss of sale of assets and disallowance under section 14A of the Act.

Analysis:
The appeals by the assessee were against the revision orders passed by the Principal Commissioner of Income-Tax, Chennai-1, under section 263 of the Income Tax Act, 1961. The common issue in both appeals was the revision order passed by the PCIT regarding disallowance on loss of sale of assets and disallowance under section 14A of the Act. The PCIT directed the AO to verify these issues. The assessee contended that there was no error in the assessment order that could cause prejudice to the Revenue. The PCIT had not provided clear findings to invoke the powers under section 263. The Tribunal noted that the PCIT did not establish how the assessment order was erroneous and prejudicial to the Revenue, which is essential for invoking section 263. The Tribunal emphasized the necessity for the PCIT to state the basis and material for such a conclusion. As the PCIT failed to provide sufficient reasoning, the Tribunal quashed the revision order and allowed the appeal of the assessee for both assessment years.

In the first issue regarding disallowance under section 14A of the Act, the PCIT proposed disallowance based on the exempt income received by the assessee. However, the assessee had already made a disallowance greater than the exempt income earned. The PCIT did not find any error in the assessment order or any prejudice to the Revenue. The Tribunal held that the PCIT's actions were unnecessary and lacked proper analysis. The PCIT failed to establish the twin conditions required under section 263, leading the Tribunal to quash the revision order.

Regarding the second issue of disallowance on the loss of sale of assets, the assessee had correctly disallowed the loss on sale of assets in the computation of income. The PCIT acknowledged this fact but did not provide a factual finding that the assessment order was erroneous and prejudicial to the Revenue. The Tribunal emphasized the need for the PCIT to give clear reasons for invoking section 263. As the PCIT did not provide adequate reasoning, the Tribunal quashed the revision order and allowed the appeal of the assessee for both assessment years.

The Tribunal found the facts and circumstances in both assessment years to be similar, leading to a consistent decision to quash the revision order and allow the appeals of the assessee for both assessment years. Consequently, both appeals filed by the assessee were allowed by the Tribunal, and the revision orders passed by the PCIT were quashed.