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2020 (1) TMI 451 - AT - Income TaxRevision u/s 263 - Disallowance u/s 14A - HELD THAT - Decision of Delhi Special Bench in case of ACIT vs Vireet Investments Pvt. Ltd. 2017 (6) TMI 1124 - ITAT DELHI was passed on 16/06/17, whereas impugned order under 263 by CIT has been passed on 30/03/2017. On date, when order under 263 was passed by Ld. CIT, Delhi Special Bench in case of ACIT vs Vireet Investments Pvt. Ltd. (supra) was not available to the benefit of assessee. In the present scenario as decision is available, we cannot uphold order impugned as considering 14A disallowance while computing book profit is contrary to view adopted by Delhi Special Bench in case of ACIT vs Vireet Investments Pvt. Ltd. (supra). We place reliance upon decision of Hon ble Supreme Court in case of CIT vs.Vegetable Products Ltd. 1973 (1) TMI 1 - SUPREME COURT wherein, it has been held that decision favourable to assessee should be followed. We therefore, hold order passed by Ld.CIT to be bad in law and the same is quashed and set aside. - Decided in favour of assessee.
Issues:
1. Validity of the order passed by the Learned CIT under section 263 of the Income-tax Act, 1961. 2. Consideration of 14A disallowance for computing book profit under section 115JB of the Act. 3. Applicability of Rule 8D of the Income-tax Rules, 1962 to Clause (f) of Explanation 1 to Sec 115JB of the Act. 4. Erroneous and prejudicial nature of the assessment order under section 143(3) read with 144C of the Act. 5. Impact of the decision of the Delhi Special Bench in ACIT vs Vireet Investments Pvt. Ltd. on the present case. Analysis: 1. Validity of the order under section 263: The Appellant challenged the order passed by the Learned CIT under section 263 of the Act, contending that the CIT erred in concluding that the AO's order was erroneous and prejudicial to the interests of revenue. The Appellant argued that the CIT did not quantify the alleged excess deduction and only set aside the AO's order, directing a reconsideration of the disallowance related to expenses for exempt income under section 10 of the Act. The Appellant further argued that the CIT should have accepted that minimal expenses were incurred for earning tax-free income due to the limited investments made during the year. 2. Consideration of 14A disallowance for book profit computation: The Ld.CIT observed that the addition made under section 14A was not considered for computing book profit under section 115JB of the Act. Consequently, the Ld.CIT issued a notice to the assessee, deeming the assessment order erroneous and prejudicial to the revenue's interest. The Ld.CIT set aside the issue for reconsideration by the AO after providing the assessee with a hearing opportunity. The Ld.AO, upon receipt of the order under section 263, modified the addition by including the 14A disallowance in the book profit under section 115JB of the Act. 3. Applicability of Rule 8D to Clause (f) of Explanation 1 to Sec 115JB: The Appellant contended that Rule 8D of the Income-tax Rules, 1962, applies only to provisions of Sec 14A of the Act and not to Clause (f) of Explanation 1 to Sec 115JB of the Act. The Appellant argued that the rigors of Rule 8D should not be extended to Clause (f) of Explanation 1 to Sec 115JB. 4. Erroneous nature of the assessment order under section 143(3) read with 144C: The Ld.CIT found the assessment order dated 30/05/14 to be erroneous as the 14A disallowance was not considered for computing the book profit under section 115JB of the Act. The Ld.CIT held that the order was prejudicial to the revenue's interest and remitted the issue back to the Ld.AO for reconsideration. 5. Impact of Delhi Special Bench decision: The Ld.AR argued that the decision of the Delhi Special Bench in ACIT vs Vireet Investments Pvt. Ltd. rendered the view adopted by the Ld.CIT invalid. The Delhi Special Bench held that the computation under Clause (f) of Explanation 1 to section 115JB should be made without resorting to the computation under section 14A read with Rule 8D. The Tribunal, relying on the decision of the Hon'ble Supreme Court in CIT vs. Vegetable Products Ltd., held that the order passed by the Ld.CIT was bad in law and quashed it, allowing the grounds raised by the assessee. In conclusion, the Tribunal allowed the appeal filed by the assessee, setting aside the order passed by the Ld.CIT under section 263 of the Income-tax Act, 1961.
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