M/s. J. Chandrakant & Company, Rajkot V. The Pr. CIT-1, Rajkot, Rajkot

ITA 41/RJT/2022

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 9395 (ITAT-RAJKOT)
• Duration Of Justice: 6 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2017-2018
• Appeal Filed On: 27-02-2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: DEEPAK RINDANI
• Keywords: Earning of tax free income; Assessment record; Rule 8D
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 143(3); 92; 14A; 48

Judgement Text

आयकर अपीलीय अिधकरण, राजकोट Ɋायपीठ IN THE INCOME TAX APPELLATE TRIBUNAL, RAJKOT BENCH, RAJKOT BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER And SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER आयकर अपील सं./ITA No. 41/Rjt/2022 िनधाᭅरण वषᭅ/Asstt. Years: 2017-2018 J. Chandrakant & Company, Arthik Bhavan, Gondal Road, Rajkot-360003. PAN: AABFJ6029K Vs. The Principal Commissioner of Income Tax, Rajkot-1, Rajkot. (Applicant) (Respondent) Assessee by : Shri Deepak Rindani, A.R Revenue by : Shri Aarsi Prasad, CIT.D.R सुनवाई कᳱ तारीख/Date of Hearing : 07/07/2022 घोषणा कᳱ तारीख /Date of Pronouncement: 07/09/2022 आदेश/O R D E R PER BENCH : The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Principal Commissioner of Income, Rajkot-1, dated 31/01/2022 arising in the matter of assessment order passed under s. 263 of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2017-18. ITA no.41/Rjt/2022 A.Y. 2017-18 2 2. The assessee has raised the following grounds of appeal: 1. The learned Principal Commissioner of Income-tax Rajkot-1, Rajkot erred in assuming jurisdiction u/s. 263 of the Act, particularly in the light of reasons stated by him in the show cause notice and in the order passed u/s.263 of the Act and hence the impugned order is bad in law. 2. The learned Principal Commissioner of Income-tax, Rajkot-1, Rajkot erred in setting aside the assessment order framed u/s.143(3) of the Act by holding that assessment was made by assessing officer without making any inquiries or verification respect of disallowance under sec. 14A of the Act. 3. The learned Principal Commissioner of Income-tax, Rajkot-1, Rajkot failed to appreciate that the impugned issue was duly examined by the assessing officer by way of specific inquiry/notice and reply thereto, while finalizing assessment proceedings u/s. 143(3) of the Act. 4. The appellant craves leave to add, amend, alter and withdraw any ground of appeal anytime up to the hearing of this appeal. 3. The only grievance of the assessee is that the learned PCIT erred in holding that assessment framed by the AO under section 143(3) of the Act is erroneous insofar prejudicial to the interest of revenue. 4. The facts in brief are that the assessee in the present case is a partnership firm and engaged in the business of trading of engines, fertilisers, hosepipe etc. The assessee in the year under consideration has declared an exempted income of Rs. 23,35,768.00 which was claimed as exempted under section 10(38) of the Act. However the assessee has made the disallowance against the exempted income under the provisions of section 14A read with rule 8D of income tax rules by filing the revised computation of income. As such the assessee has made the disallowance of the hundred percent of exempted income of Rs. 23,35,768.00 under the provisions of section 14A read with rule 8D of income tax rules. 5. However the learned PCIT on examination of the assessment records was of the view that the disallowance against the exempted income has not been made as per the rule 8D of income tax rule read with section 14A of the Act which was worked out at ₹1,69,63,526.00 only. Thus learned PCIT was of the view that the ITA no.41/Rjt/2022 A.Y. 2017-18 3 AO has not applied the provisions of the Income Tax Act correctly and thus he set aside the assessment order by holding the same as erroneous insofar prejudicial to the interest of revenue on account of non-verification of the expenditure to be disallowed under the provisions of section 14A read with rule 8D of income tax rule. Being aggrieved by the order of the learned PCIT the assessee is in appeal before us. 6. The learned AR before us filed a paper book running from pages 1 to 48 and contended that assessment was framed by the AO after necessary verification of the case records as well as after applying the provisions of law. According to the learned AR the disallowance under the provisions of section 14A read with rule 8D cannot exceed the amount of exempted income as per the judgment of Hon’ble Supreme Court in the case of Principal Commissioner of Income-tax-2 v. Caraf Builders & Constructions (P.) Ltd reported in 112 taxmann.com 322. 7. On the other hand, the learned DR vehemently supported the order of the authorities below. 8. We have heard the rival contentions of both the parties and perused the materials available on record. There is no dispute to the fact that the assessment order can be revised under section 263 of the Act if it is found erroneous insofar prejudicial to the interest of revenue. If any of the condition is not satisfied then the same cannot be made subject to revision under the provisions of section 263 of the Act. Admittedly, the law declared by the Hon’ble Supreme Court becomes the law of the land. The Hon’ble Supreme Court in the case of Caraf Builders & Constructions (P.)(supra) has held that the disallowance under section 14A read with rule 8D cannot exceed the amount of exempted income. The relevant head note of the judgment is reproduced as under: SLP dismissed against High Court ruling that disallowance under section 14A cannot exceed exempt income of relevant year ITA no.41/Rjt/2022 A.Y. 2017-18 4 8.1 From the above there remains no ambiguity that the disallowance under section 14A read with rule 8D cannot exceed the amount of exempted income. As such the assessee in the present case has made the disallowance to the extent of the exempted income which is the maximum limit for the disallowance in terms of the judgment of Hon’ble Supreme Court cited above. Thus, we hold that there is no error in the assessment order and therefore the same cannot be made subject to revision under the provisions of section 263 of the Act. Hence the ground of appeal of the assessee is allowed. 9. In the result, the appeal filed by the assessee is allowed. Order pronounced in the Court on 07/09/2022 at Ahmedabad. Sd/- Sd/- (SIDDHARTHA NAUTIYAL) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 07/09/2022 Manish