2024 (10) TMI 310 - AT - Income Tax

Revision u/s 263 - disallowances u/s 14A as per Rule 8D was pending before Ld CIT(A) - PCIT has held the order passed by A.O making disallowance u/s. 14A is erroneous and prejudicial to the interest of revenue as the AO has taken cost of investment rather than fair value of investment in the computation as per Rule 8D(2). HELD THAT - The assessee has filed appeal before Ld. CIT(A) against the disallowance made as per Rule 8D by the AO. As per clause (c) of Explanation-1 to Section 263 of the Act, if any order passed by the A.O has been the subject matter of appeal the power of Ld. PCIT is limited only to such matter as had not been considered and decided in such appeal. In the above case, the computation of disallowance u/s. 14A of the Act as per Rule 8D of the Rules is subject matter of appeal before Ld. CIT(A) and the Ld CIT(A) appeal has all power to correct the computation as per Rule 8D . As in the case of Smt. Renuka Philip 2018 (12) TMI 129 - MADRAS HIGH COURT has held that when larger issue is pending before the Commissioner of Appeal , the PCIT could not exercise power u/s 263 to revise the assessment order. We therefore, held that revision order u/s. 263 of the Act passed by Ld PCIT is bad in law and therefore, liable to be quashed. Appeal filed by the assessee is allowed.

Summary

Issues:
Jurisdiction to invoke revisionary power under section 263 of the Income-tax Act when subject matter pending before CIT(A).

Analysis:
The appeal pertains to the Assessment Year 2018-19 arising from the order of the Principal Commissioner of Income Tax invoking revisionary power under section 263 of the Income-tax Act. The main issue to be decided is whether the Principal Commissioner had the jurisdiction to exercise revisionary power when the subject matter, specifically disallowances under section 14A of the Act as per Rule 8D, was already pending before the Commissioner of Income Tax (Appeals) [CIT(A)]. The assessee had filed its return of income, which led to a scrutiny assessment where disallowance under section 14A was proposed by the Assessing Officer (AO) and subsequently confirmed at Rs. 1,98,74,810. The assessee appealed this disallowance before the CIT(A) while the Principal Commissioner issued a show-cause notice proposing revision under section 263 to rework the disallowance based on fair value of investment. The assessee objected, citing that the subject matter was pending before the CIT(A), making the revision proceedings impermissible under Explanation-1 to Section 263 of the Act.

The Authorized Representative of the assessee argued that the AO had already made the disallowance as per Rule 8D(2) in the assessment order, and the appeal was before the CIT(A), rendering the Principal Commissioner's revision order impermissible under Explanation-1 to Section 263. On the other hand, the Departmental Representative supported the Principal Commissioner's order, contending that the AO had erred in computing the disallowance.

Upon considering the submissions and the record, it was observed that the Principal Commissioner found the AO's order erroneous and prejudicial to revenue due to the incorrect computation of disallowance under section 14A. The Tribunal noted that the computation of disallowance under Rule 8D was the subject matter of the appeal before the CIT(A), and the CIT(A) had the authority to correct such computation. Referring to a judgment of the Madras High Court, it was held that when a larger issue is pending before the Commissioner of Appeal, the Principal Commissioner cannot exercise power under section 263 to revise the assessment order. Consequently, the Tribunal concluded that the revision order by the Principal Commissioner was legally flawed and therefore liable to be quashed, ultimately allowing the appeal filed by the assessee.

The judgment was pronounced on 30th September 2024.