R K Powergen P Ltd, Chennai V. PCIT Central i Chennai, Chennai

ITA 259/CHNY/2022

• Counselvise Citation: [2022] 103 COUNSELVISE.COM (IT) 9166 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-11-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 01-11-2022
• Assessment Year: 2017-2018
• Appeal Filed On: 24-04-2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Rule 8D
• Section: 263; 143(3); 14A

Judgement Text

आयकर अपीलीय अिधकरण ‘बी’ ायपीठ चे ई म । IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH, CHENNAI माननीय +ी वी. द ु गा1 राव, ाियक सद3 एवं माननीय +ी मनोज कु मार अ8वाल ,लेखा सद3 के सम:। BEFORE HON’BLE SHRI V. DURGA RAO, JUDICIAL MEMBER AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM आयकर अपील सं./ ITA No.259/Chny/2022 (िनधा1रण वष1 / Assessment Year: 2017-18) RK Powergen Pvt. Ltd. 14, Dr. Giriappa Road, T. Nagar, Chennai – 600 017. बनाम/ V s. ACIT Central Circle-1(1), Chennai. थायी लेखा सं./जीआइ आर सं./P AN /GI R No . AAB C R -8 6 8 0 - H (अपीलाथ /Appellant) : ( थ / Respondent) अपीलाथ की ओरसे/ Appellant by : Shri V. Ravichandran (CA) – Ld. AR थ की ओरसे/Respondent by : Shri S. Senthilkumaran (CIT) – Ld. DR सुनवाई की तारीख/Date of Hearing : 02-11-2022 घोषणा की तारीख /Date of Pronouncement : 02-11-2022 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. By way of this appeal, the assessee challenges the revisional jurisdiction u/s. 263 as exercised by learned Principal Commissioner of Income Tax (Central), Chennai-1 [Pr.CIT] vide order dated 07-03-2022. The assessment for this year has been framed by Ld. AO u/s 143(3) on 27.12.2019. 2. The Ld. AR advanced arguments supporting the assessment order which has been controverted by Ld. CIT-DR. The Ld. AR submitted that the amendment as referred to by Ld. Pr. CIT in the ITA No.259Chny/2022 - 2 - impugned order would not change the settled legal position that the disallowance u/s 14A was to be restricted to the extent of exempt income earned by the assessee. Having heard rival submissions, the appeal is disposed off as under. The grounds raised by the assessee read as under: - 1. The order of the Learned PCIT is contrary to law and the facts of the case. 2. The Learned PCIT has erred in holding that the order of assessment was erroneous when the Assessing Officer had restricted the disallowance under Section 14A to the amount of exempt income received applying the decisions of the Hon'ble Supreme Court of India and the Hon'ble Madras High Court. 3. The Learned PCIT erred in holding that after the amendment to Rule 8D with effect from Assessment Year 2017-18 the principle of law enunciated by the various courts that the disallowance under Section 14A could not exceed the quantum of exempt income would no longer apply. 4. The Learned PCIT ought to have appreciated that Section 14A had not been amended and that consequently the law laid down by the Hon'ble Supreme Court would continue to apply. 5. The Learned PCIT ought to have appreciated that the strategic investments made by the Appellant could not be included in computing the disallowance. 6. The Learned PCIT erred in setting aside the Assessment Order under section 263 and directing the Assessing Officer to consider the applicability of the decision of the Hon'ble Madras High Court as well as the issue of strategic investments thereby indicating that the Learned PCIT had come to no conclusions as to the erroneousness of the Assessment Order. 7. The Appellant craves leave to raise additional grounds. 3. Upon perusal of the assessment order, it could be seen that the assessee earned exempt income of Rs.20255/- which led ld. AO to invoke disallowance u/s 14A. The assessee computed disallowance of Rs.138.90 Lacs as per Rule 8D but relied on the decision of Hon’ble Supreme Court in the case of State Bank of Patiala (99 Taxmann.com 286) for the submission that the disallowance was to be restricted to the extent of exempt income earned by the assessee. Accepting the same, Ld. AO restricted the disallowance to the extent of exempt income earned by the assessee. ITA No.259Chny/2022 - 3 - 4. Subsequently, upon perusal of case records, Ld. Pr.CIT, invoking the provisions of Sec.263, held the order to be erroneous and prejudicial to the interests of revenue. The stem from the observation that Rule 8D was amended with effect from 02.06.2016 and as per the amendment, the amount of disallowance would not exceed the total expenditure claimed by the assessee. There was no mention in the rules that the disallowance was to be restricted to the extent of exempt income. This aspect was not considered by Ld. AO. The assessee relied on the decision of Hon’ble High Court of Madras in Marg Limited (275 Taxman 502) to support the working of Ld. AO. Further, the provisions of Sec.14A which were interpreted by Higher Courts had not undergone any amendment. However, rejecting the same, Ld. Pr. CIT directed Ld. AO to determine the disallowance afresh, inter-alia, after considering the cited decision of Hon’ble High Court of Madras. Aggrieved, the assessee has assailed the validity of revisional order. 5. We find that the action of Ld. AO in restricting the disallowance u/s 14A to the extent of exempt income is in consonance with the settled legal position. The case law of Hon’ble Supreme Court in the case of State Bank of Patiala (99 Taxmann.com 286) duly support this view. The Rule 8D prescribe a formula to compute the deduction. The amendment to Rule 8D w.e.f. 02.06.2016 has merely stated that the computation so made as per the mechanism of Rule 8D shall not exceed the expenditure claimed by the assessee. The logic is simple. The Rule 8D provides a formula to work out the disallowance. The sub- clause (2) to Rule 8D(2) provide that an amount equal to one percent of the annual average of the monthly average of opening an closing balances of value of investments was to be considered as ITA No.259Chny/2022 - 4 - disallowance. The computation, in this manner, may result into a situation wherein the disallowance itself exceeds the total expenditure claimed by the assessee in the Profit & Loss Account and hence the insertion of proviso to avoid such a situation. This amendment, in our opinion, has not disturbed the settled legal position that the disallowance is not to exceed exempt income. Therefore, the revision of the order could not be upheld. In the result, the primary condition to invoke the revisional jurisdiction u/s 263 remains unsatisfied. Therefore, we quash the impugned order passed by Ld. Pr. CIT u/s 263. We order so. 6. The appeal stands allowed. Order pronounced on 02 nd November, 2022. Sd/- (V. DURGA RAO) ाियक सद3 /JUDICIAL MEMBER Sd/- (MANOJ KUMAR AGGARWAL) लेखा सद3 / ACCOUNTANT MEMBER चे)ई / Chennai; िदनांक / Dated : 02-11-2022 EDN/- आदेश की Uितिलिप अ 8ेिषत/Copy of the Order forwarded to : 1. अपीलाथ /Appellant 2. यथ /Respondent 3. आयकर आयु (अपील)/CIT(A) 4. आयकर आयु /CIT 5. िवभागीय ितिनिध/DR 6. गाड फाईल/GF