Rathore Freight Carriers Pvt. Ltd., Kutch V. The Pr. CIT-3, Ahmedabad

ITA 62/AHD/2021

AI Insights

The case involves Rathore Freight Carriers Pvt. Ltd., which appealed against the revision order passed by the Principal Commissioner of Income Tax, Ahmedabad-3. The revision was based on the grounds that the Assessing Officer failed to make a disallowance under section 14A read with Rule 8D for the assessment year 2016-17, despite the assessee having made investments in equity instruments. The Tribunal found that the assessee had not earned any exempt income from these investments, and thus, the provisions of section 14A did not apply. The Tribunal's decision was influenced by precedents from the Jurisdictional High Court and the Supreme Court, which clarified that disallowances under section 14A are not applicable in the absence of exempt income.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 114247 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 8 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-01-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 16-01-2023
• Assessment Year: 2016-2017
• Appeal Filed On: 26-04-2021
• Other Referred Cases: CIT vs. Corrtech Energy (P. Ltd.), PCIT vs. GVK Project and Technical Services Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Earning of tax free income; Prejudicial to interest; Rule 8D; Set aside
• Section: 263; 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “C” BENCH Before: Shri Waseem Ahmed, Accountant Member And Shri T.R. Senthil Kumar, Judicial Member Rathore Freight Carriers Pvt. Ltd. Plot No. 68, Rathore Chamber, National Highway, Sector-9, Gandhidham, Kutch, Gandhidham, Gujarat-370201 PAN No:AABCR0134L (Appellant) Vs The Pr. CIT, Ahmedabad-3, Ahmedabad (Respondent) Assessee Represented: None (Written Submission) Revenue Represented : Shri A.P. Singh, CIT Date of hearing : 17-01-2023 Date of pronouncement : 25-01-2023 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:- This appeal is filed by the Assessee as against the Revision order dated 31.03.2021 passed by the Ld. Principal Commissioner of Income Tax, Ahmedabad-3, under section 263 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year (A.Y) 2016-17. ITA No. 62/Ahd/2021 Assessment Year 2016-17 I.T.A No. 62/Ahd/2021 A.Y. 2016-17 Page No Rathore Freight Carriers Pvt. Ltd. vs. Pr.CIT 2 2. The brief facts of the case is that the assessee is a Private Limited Company engaged in the business of Transportation. For the Assessment Year 2016-17, the assessee filed its Return of Income on 15.10.2016 declaring total income of Rs. 5,75,660/-. The return was selected for scrutiny assessment and made disallowance u/s. 36(1)(iii) of Rs. 5,69,766/- on the ground that the assessee has not charged any interest on the “loans and advances” given to various parties. The assessee accepted the above assessment order and paid taxes thereon. 2.1. On scrutiny of the above assessment records, the Ld. PCIT found that the assessee made investment in equity instruments of Rs. 2,00,24,50/-. However the assessee has not made any disallowance u/s. 14A of the Act and further verification of the previous year’s Balance sheet, it is noticed that the assessee had not made any new investment during the year under consideration. As per Rule 8D of the I.T. Rules, 0.5% of the average investment was required to be disallowed u/s. 14A read with Rule 8D. Thus the Assessing Officer failed to verify the details or any supporting documents with regard to the applicability of Section 14A r.w. Rule 8D during the assessment proceedings. The Assessing Officer ought to have disallowed under Rule 8D, an amount of Rs.1,00,122/- being 0.5% of the average investment made by the assessee. Therefore the assessment order passed u/s. 143(3) dated 27.12.208 is an erroneous and in so far as it is prejudicial to the interest of Revenue. I.T.A No. 62/Ahd/2021 A.Y. 2016-17 Page No Rathore Freight Carriers Pvt. Ltd. vs. Pr.CIT 3 2.2. Therefore a show cause notice dated 12.03.2021 was issued to the assessee as to why the provisions of Section 263 not to be invoked and directing the Assessing Officer to make fresh assessment after proper examination and enquiry to make disallowance u/s. 14A r.w. Rule 8D of the I.T. Act/Rules. 2.3. In reply thereto, the assessee submitted that it had not earned any exempt income by way of dividend during the Assessment Year 2016-17 from the investment made in the shares. Therefore the provisions of Section 14A of the Act shall not be applicable to the facts of the case. It is the settled jurisprudence wherein it is held that in absence of income which is not includible in the total income, no disallowance u/s. 14A of the Act should be made. The Jurisdictional High Court in the case of CIT vs. Corrtech Energy (P. Ltd. [2014] 45 taxmann.com 116 (Guj.) wherein it is held that ‘where the Assessee did not make any claim for exemption, section 14A of the Income Tax Act, 1961 could have no application.’ 2.4. The assessee further submitted that the Hon’ble Apex Court had after a long-drawn litigation with respect to disallowance u/s. 14A of the Act, held in the case of PCIT vs. GVK Project and Technical Services Ltd. [2019] 106 taxmann.com 181 (SC) held as follows: “Section 14A of the Income-tax Act, 1961 – Expenditure incurred in relation to income not includible in total income (Applicability of) – Assessment Year 2013-14 – In course of assessment, Assessing Officer proceeded to calculate disallowance under section 14A on basis of investments made by assessee – Tribunal opined that in absence of any exempt income reported by assessee, disallowance could not be made under section 14A – Tribunal thus deleted disallowance made by Assessing Officer – High I.T.A No. 62/Ahd/2021 A.Y. 2016-17 Page No Rathore Freight Carriers Pvt. Ltd. vs. Pr.CIT 4 Court upheld Tribunal’s order – Whether, on facts, SLP filed against order of High Court was to be dismissed – Held, Yeas [Para 1] [ In favour of assessee]” 2.5. Thus it is a settled legal position of law that no disallowance u/s. 14A of the Act shall be made, if the assessee had not claimed any income as exempt from tax. Therefore requested the Ld. PCIT to drop the Revision proceedings initiated u/s. 263 of the Act. If any contrary view is to be taken on the above disallowance u/s. 14A, an amount of Rs. 1,00,122/- being 0.5% of the average investment made by the assessee other provisions also not be attracted since there is no new investment made by the assessee during the Financial Year 2015-16. Thus Rule 8D is also not applicable for the shares invested in the earlier years. 2.6. The above submissions and case laws filed by the assessee were examined by the Ld. PCIT and held that the facts of the case are distinguishable. There is no evidence on record that the Assessing Officer carried out any inquiry in respect of the investments made by the assessee and not invoked disallowance u/s. 14A r.w. Rule 8D of the Act. This is absolute failure on the part of the Assessing Officer, which calls for a Revision u/s. 263 of the Act. Therefore Ld. PCIT set aside the assessment order dated 27.12.2018 with a direction to the Assessing Officer to make fresh inquiries and proper verification with regard to the issue of disallowance u/s. 14A r.w. Rule 8D of the Act and directed the A.O. to redo the assessment de-novo after due consideration of the facts and law by affording adequate opportunity of being heard to the assessee, with relevant documents. I.T.A No. 62/Ahd/2021 A.Y. 2016-17 Page No Rathore Freight Carriers Pvt. Ltd. vs. Pr.CIT 5 3. Aggrieved against the same, the assessee is in appeal before us raising the following Grounds of Appeal: 1. The Id. Pr. CIT erred on facts and in law in initiating revision proceedings u/s 263 without appreciating that case of the appellant was selected for scrutiny on the basis of parameter at para 1(i) of the Manual Compulsory guidelines of CBDT issued vide instruction no. 5/2017 dated 07/07/2017. 2. The Id. Pr. CIT erred on facts and in law in setting aside the order passed by Assessing Officer by invoking provisions of section 263 of the Act. 3. The Id. Pr. CIT erred on facts and in law in holding that the Appellant had an investments which has yielded exempt income and the Assessing officer failed to make proper enquiry with respect to investments for the purpose of working of disallowance under section 14A read with rule 8D. There was no exempt income earned during the year and therefore, provisions of section 14A read with rule 8D shall not be applicable in appellant's case. 4. The Id. Pr. CIT erred on facts and in law set aside the order passed by the Assessing officer by holding that there is no evidence on record which substantiate that the Assessing officer carried out proper inquiries with respect to Investments yielding exempt income for the purpose of disallowance under section 14A read with rule 8D capital gain earned by appellant was not long-term capital gains and consequently deductions/ exemptions claimed in ITR were not available to the appellant. 3.1. None appeared on behalf of the assessee but a written submission dated 29.08.2022 is filed before us. 4. Per contra, Ld. D.R. appearing for the Revenue supported the Revision order passed by the Ld. PCIT. Further the Assessing Officer had already given effect to the Revision order by passing an order dated 25.03.2022 and prayed that the present appeal is to be dismissed. I.T.A No. 62/Ahd/2021 A.Y. 2016-17 Page No Rathore Freight Carriers Pvt. Ltd. vs. Pr.CIT 6 5. We have given our thoughtful consideration and perused the materials available on record. The assessee in his submission made that there is no exempt income earned from the investment in shares. Therefore Section 14A of the Act shall not be applicable to the facts of the case. This position is not cotrovented either by the Assessing Officer or by the Ld. PCIT in their proceedings. It is settled principle of law by the Jurisdictional High Court in the case of CIT vs. Corrtech Energy (P.) Ltd. (cited supra) when the assessee did not make any claim of exempt, Section 14A of the Act could have no application. This view has been upheld by the Hon’ble Supreme Court in the case of GVK Project and Technical Services Ltd. (cited supra) when there is no exempt income earned by the assessee. The question of disallowance u/s. 14A does not arise. Therefore the Revision proceedings initiated by the Ld. PCIT for making disallowance u/s. 14A is unwarranted exercise. Since there is no prejudicial interest of the Revenue, as the assessee has not made any claim of exempt income. 5.1. In our considered view, the Revision proceedings initiated by the Ld. PCIT is against the settled principle of law by the Jurisdictional High Court, therefore the same is unjustifiable in law. Therefore we have no hesitation in quashing the Revision order dated 31.03.2021 passed by the Ld. Principal Commissioner of Income Tax, Ahmedabad-3. I.T.A No. 62/Ahd/2021 A.Y. 2016-17 Page No Rathore Freight Carriers Pvt. Ltd. vs. Pr.CIT 7 6. In the result, the appeal filed by the Assessee is hereby allowed. Order pronounced in the open court on 25-01-2023 Sd/- Sd/- (WASEEM AHMED) (T.R. SENTHIL KUMAR) ACCOUNTANT MEMBER True Copy JUDICIAL MEMBER Ahmedabad : Dated 25/01/2023 आदेश कȧ ĤǓतͧलͪप अĒेͪषत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपीलȣय अͬधकरण, अहमदाबाद