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2024 (11) TMI 1263 - AT - Income TaxRevision u/s 263 - Disallowance u/s 14A - assessee has not declared any exempt income - HELD THAT - We observed that the assessee has not declared any exempt income during the year even though it has made several investments as recorded in its balance sheet. As far as disallowance of section 14A is concerned, it is settled law, as per which no disallowance can be made wherein no exempt income is declared by the assessee during the year. It is fact on record that assessee has not earned any exempt income during the year and ld. PCIT has invoked the provisions of section 14A with the observation that investments do have potential to earn exempt income in the future and it has hidden and embedded expenses in making such investments which are exempt from tax. Accordingly we are inclined to set aside the order passed u/s 263 of the Act and ld. PCIT has not brought on record any mistake apparent on record or the action of the assessing officer is against the law. Assessee appeal allowed.
Issues:
1. Disallowance under section 14A of the Income Tax Act for non-declaration of exempt income. 2. Validity of the order passed by the ld. PCIT under section 263 of the Income Tax Act. Analysis: Issue 1: Disallowance under section 14A of the Income Tax Act for non-declaration of exempt income The appeal was filed against the order of the ld. Pr. Commissioner of Income-tax (PCIT) for Assessment Year 2018-19. The ld. PCIT observed that the assessee had invested in non-current investments without making any disallowance under section 14A of the Act, even though the investments had the potential to earn exempt income in the future. The ld. PCIT directed the assessing officer to disallow 1% of the average value of investment. The assessee contended that no exempt income was earned during the year, and relied on a decision overruling the special bench of ITAT. The tribunal noted that as per settled law, no disallowance can be made when no exempt income is declared, and the ld. PCIT had not demonstrated any mistake apparent on record or any violation of the law by the assessing officer. Therefore, the tribunal set aside the order passed by the ld. PCIT under section 263 of the Act. Issue 2: Validity of the order passed by the ld. PCIT under section 263 of the Income Tax Act The assessee raised grounds of appeal challenging the order passed by the ld. PCIT under section 263 of the Income Tax Act. The grounds included contentions that the assessment order was not erroneous or prejudicial to the interest of revenue, and that the ld. PCIT erred in directing the disallowance under section 14A without proper appreciation of facts. The tribunal considered the arguments presented by the ld. AR for the assessee, emphasizing that no exempt income was earned during the year. It was noted that the ld. PCIT had relied on a decision that was overruled by the Hon'ble Delhi High Court. The tribunal concluded that the ld. PCIT had not established any error in the assessing officer's actions, and thus set aside the order passed under section 263 of the Act, allowing the appeal filed by the assessee. In conclusion, the tribunal allowed the appeal filed by the assessee, setting aside the order passed by the ld. PCIT under section 263 of the Income Tax Act.
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