2017 (5) TMI 843 - HC - Income Tax

Revision u/s 263 - disallowance under section 14A - Held that - we notice that the issue on the merits has been decided in favour of the assessee in State Bank of Patiala s case (2017 (2) TMI 125 - PUNJAB AND HARYANA HIGH COURT ). The amount of disallowance under section 14A was restricted to the amount of exempt income only and not at a higher figure. Once that was so, we do not consider it appropriate to discuss the scope of section 263 of the Act as the same has been rendered academic in view of the issue being answered in favour of the assessee on the merits. Thus, no substantial question of law arises. Consequently, the appeal stands dismissed.

Summary

Issues:
- Appeal under section 260A of the Income-tax Act against the order of the Income-tax Appellate Tribunal quashing the order under section 263 of the Act for assessment year 2009-10.
- Disallowance under section 14A of the Act limited by the Assessing Officer, challenged by the Commissioner of Income-tax, enhanced to a higher figure, and subsequently quashed by the Tribunal.
- Interpretation of section 263 of the Act in relation to the disallowance under section 14A.
- Application of revisional jurisdiction under section 263 of the Act in light of the decision favoring the assessee in a similar case.

Analysis:
The appeal was filed by the Revenue against the order of the Income-tax Appellate Tribunal quashing the order under section 263 of the Income-tax Act for the assessment year 2009-10. The Assessing Officer had made a disallowance under section 14A of the Act, which was limited to the amount of exempt dividend income. However, the Commissioner of Income-tax sought to enhance this disallowance to a higher figure of ?45.76 crores. The Tribunal, in its order, noted that since it had already deleted the addition made by the Assessing Officer under section 14A of the Act in the assessee's appeal for the same year, the action of the Commissioner of Income-tax under section 263 was also quashed. The Revenue challenged this decision through the appeal.

During the hearing, the counsel for the assessee argued that the Commissioner of Income-tax, in exercising revisional jurisdiction under section 263, aimed to make the disallowance under section 14A irrespective of the amount of exempt dividend income. Reference was made to a previous case where a similar issue was decided in favor of the assessee. The counsel contended that since the issue was already decided in favor of the assessee on its merits, the exercise of revisional jurisdiction under section 263 was improper.

On the other hand, the counsel for the appellant-Revenue argued that even though the issue was decided in favor of the assessee, invoking section 263 could still be considered appropriate based on the facts and circumstances of the case. After considering the arguments, the Court observed that the issue had already been decided in favor of the assessee in a previous case. As a result, the Court deemed it unnecessary to delve into the scope of section 263 since the issue had been resolved in favor of the assessee on its merits. Consequently, the Court dismissed the appeal, stating that no substantial question of law arose in this case.