M.D. OVERSEAS PVT. LTD.,NEW DELHI V. ACIT, CENTRAL CIRCLE-14, NEW DELHI

ITA 4455/DEL/2024

AI Insights

The case involves M.D. Overseas Pvt. Ltd., the appellant, contesting a rectification order by the Assessing Officer (AO) under section 154 of the Income Tax Act, 1961, which sought to enhance a disallowance initially made under section 14A. The original assessment under section 143(3) did not include this disallowance, but following a show cause notice, the AO proposed an additional disallowance based on a percentage of the average monthly investment value. The Tribunal agreed with the appellant that the rectification was essentially a review of the assessment and involved a debatable issue, which is beyond the scope of section 154.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 34230 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2018-2019
• Other Referred Cases: Pr.CIT-7, Delhi vs U K Paints India Pvt. Ltd., H. T. Media Ltd. vs Pr.CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMIT KATOCH
• Assessee Lawyers: VED JAIN; UMA UPADHYAY
• Keywords: Set aside; Rectification of order; Earning of tax free income; Rule 8D
• Section: 143(3); 250; 154; 14A

Judgement Text

"ITA No.4455/Del/2024 Page | 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI “E” BENCH: NEW DELHI BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SHRI YOGESH KUMAR US, JUDICIAL MEMBER ITA No.4455/Del/2024 [Assessment Year : 2018-19] M.D. Overseas Pvt.Ltd. 43, Babar Road, Bengali Market, New Delhi-110001 PAN-AACCM9507F vs ACIT Central Circle-14 New Delhi APPELLANT RESPONDENT Appellant by Shri Ved Jain, Adv. & Ms. Uma Upadhyay, CA Respondent by Shri Amit Katoch, Sr. DR Date of Hearing 19.02.2025 Date of Pronouncement 27.02.2025 ORDER PER PRADIP KUMAR KEDIA, AM : The instant appeal has been filed at the instance of the assessee seeking to assail the First Appellate order dated 14.08.2024 passed by Ld. Commissioner of Income Tax (A)-26, New Delhi [“CIT(A)”] u/s 250 of the Income Tax Act, 1961 [“the Act”] arising from the assessment order dated 20.04.2021 passed u/s 143(3) of the Act pertaining to assessment year 2018-19. 2. As per the grounds of appeal, the assessee has challenged the rectification carried out by the AO by invoking the provision of s. 154 of the Act whereby total income assessed in the assessment order framed under s. 143(3) of the Act was sought to be enhanced towards disallowance contemplated under s. 14A r.w. Rule 8D of the Income Tax Rules, 1962. 3. When the matter was called for hearing, the Ld. Counsel for the assessee adverted to the notice issued under s.143(2) of the Act dated 16.12.2020 in the course of original assessment proceedings wherein specific questions were raised in relation to disallowance under s. 14A of the Act. In response thereto, ITA No.4455/Del/2024 Page | 2 the assessee filed reply dated 25.03.2021. In the reply, the assessee provided the relevant facts such as exempt income earned from investment of Mutual Funds amounting to INR 12,32,39,534/-. The assessee also pointed out to the AO that suo-motto disallowance of INR 39,07,599/- has been carried out. Based on the information made available, the AO passed order under s. 143(3) of the Act without resorting to any disallowance under s. 14A of the Act. However, after the completion of the assessment, a notice dated 29.04.2022 was issued under s. 14A of the Act. As per the show cause notice, it was pointed out to the assessee that the disallowance under s. 14A was worked out to INR 1,57,19,080/- being 1 % of the average value of monthly investment whereas suo-motto disallowance has been carried out at INR 39,07,599/- only. The AO thus proposed to make disallowance of the balance amount. The AO eventually passed rectification order making disallowance of the differential amount. In this backdrop, the Ld. Counsel pointed out that it is a matter of record that proper inquiries were carried out and all relevant facts were placed on record in the original assessment proceedings. The show cause notice issued under s. 154 proposing to make further disallowance is nothing but the review of the assessment order in the garb of rectification. The Ld. Counsel also points out that the issue towards disallowance under s. 14A is highly debatable and not a simple mathematical calculation. 4. The Ld. Counsel next submitted that once suo-motto disallowance has been carried out, the provision of s.14A can be invoked only after recording express dissatisfaction with the disallowance offered by the assessee. In the absence of recording any dissatisfaction, invocation of s. 14A read with Rule 8D of the Rules is jurisdictionally defective and legally unsustainable as held in judgements delivered by the Hon’ble Delhi High Court in the case of Pr.CIT-7, Delhi vs U K Paints India Pvt. Ltd. [2024] (12) TMI 650 dated 03.12.2024 and H. T. Media Ltd. vs Pr.CIT [2017] DHC 4694-DB and large number of judgements delivered by the Co-ordinate Benches. The so-called mistakes rectified under s. 154 thus do not fall in the league of ‘mistake apparent from record’ and hence the rectification carried out under challenge is void ab-initio. ITA No.4455/Del/2024 Page | 3 5. We completely agree with the aforesaid contentions. S. 154 of the Act empowers the AO to rectify the mistake of apparent nature. A mistake if any, which requires long drawn process of reasoning or involves any kind of debate is ousted from the jurisdiction available under s. 154 of the Act. In the instant case, suo-motto disallowance carried out under s. 14A of the Act by the assessee was sought to be modified and enhanced in the proceedings under s. 154 of the Act. Such disallowance on the face of it, cannot be regarded as apparent mistake contemplated under s. 154 of the Act. The first appellate order thus requires to be set aside and the rectification order passed under s. 154 dated 16.02.2023 is liable to be quashed. 6. In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on 27th February, 2025. Sd/- Sd/- (YOGESH KUMAR US) JUDICIAL MEMBER *Amit Kumar, Sr.P.S* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT (PRADIP KUMAR KEDIA) ACCOUNTANT MEMBER ASSISTANT REGISTRAR ITAT, NEW DELHI "