SHREE SIDDHI INFRABUILD PRIVATE LIMITED,AHMEDABAD V. THE PR. CIT-3, AHMEDABAD

ITA 1021/AHD/2024

AI Insights

The case involves Shree Siddhi Infrabuild Private Limited appealing against a revision order by the PCIT, which was based on the miscalculation of disallowance under section 14A of the Income Tax Act in the original assessment. The PCIT found that the AO had incorrectly applied 0.5% instead of the required 1% for calculating the disallowance on investments yielding tax-exempt income. The assessee argued that the AO had made a conscious decision after thorough examination, and that the issue was debatable, thus not warranting revision under section 263. However, the Tribunal agreed with the PCIT, emphasizing that the error was not a mere change of opinion but a clear misapplication of the statutory provision, justifying the exercise of revisionary powers under section 263.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 712934 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Assessment Year: 2018-2019
• Other Referred Cases: CIT, Bhopal vs. Ralson Industries Ltd., CIT vs. Shiv Narain Karmendra Narain, Dasrathsinh Ghanshyamsinh vs. PCIT
• Laws Referred To: Income Tax Act, 1961, Income Tax Rules, 1962
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: R. P. RASTOGI
• Assessee Lawyers: SHRUNJAL SHAH
• Keywords: Set aside; Difference of opinion; Change of opinion; Opportunity of being heard; Rectification of order; Earning of tax free income; Assessment record; Rule 8D
• Section: 154; 263; 14A; 80HHC

Judgement Text

" आयकर अपीलीय अिधकरण, अहमदाबाद \u0011ायपीठ “बी“ ,अहमदाबाद । IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, AHMEDABAD \u0015ी संजय गग\u001a, \u0011ाियक सद\u001b एवं \u0015ी मकरंद वसंत महादेवकर, लेखा सद\u001b क े सम!। ] ] Before Shri Sanjay Garg, Judicial Member And Shri Makarand V. Mahadeokar, Accountant Member आयकर अपील सं /ITA No.1021/Ahd/2024 िनधा \u000fरण वष\u000f /Assessment Year : 2018-19 Shree Siddhi Infrabuild Private Limited D-1001, Ganesh Meridian Opp. Kargil Petrol Pump Nr. Gujarat High Court Ahmedabad – 380 060 बनाम/ v/s. The Principal Commissioner of Income tax-3 Ambawadi Ahmedabad – 380 014 \u0013थायी लेखा सं./PAN: AALCS 4509 A (अपीलाथ$/ Appellant) (%& यथ$/ Respondent) Assessee by : Ms.Shrunjal Shah, AR Revenue by : Shri R.P. Rastogi, CIT-DR सुनवाई की तारीख/Date of Hearing : 24/06/2025 घोषणा की तारीख /Date of Pronouncement: 31/07/2025 आदेश/O R D E R Per Sanjay Garg, Judicial Member: The present appeal has been preferred by the assessee against the revision order passed by the Principal Commissioner of Income Tax (hereinafter referred to as “PCIT”) dated 15/03/2024 passed u/s.263 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for the Assessment Year (AY) 2018-19. 2. The brief facts of the case are that on verification of assessment records, the Ld.PCIT found that the Assessing Officer (AO) in the assessment order Printed from counselvise.com ITA No. 1021/Ahd/2024 Shree Siddhi Infrabuild Private Limited vs. The Pr.CIT-3 Asst.Year : 2018-19 2 had determined the amount of expenditure disallowable u/s.14A of the Income Tax Act, 1961 read with Rule 8D of the Income Tax Rules, 1962 at Rs.38,22,268/-. He observed that while computing the aforesaid disallowance of expenditure, the AO miscalculated the amount. That, while computing the disallowance, the AO applied 0.5% of the average value of investment, whereas, as per relevant Rule 8D(2)(ii) of the IT Rules, the AO was supposed to compute the disallowance by applying 1% of the annual average of the monthly averages of the opening and closing balances of the value of investment, income from which does not or shall not form part of total income. He, therefore, show-caused the assessee as to why the order of the AO be not revised and the amount of Rs.38,22,268/- should not be disallowed by passing revision order u/s.263 of the Act. In response to the aforesaid show-cause notice, the assessee filed detailed submissions stating inter alia, that the AO had duly applied his mind while dealing with the issue and has taken a conscious decision; That the assessee has used interest-free funds available with it for the purpose of investment, therefore, no disallowance was warranted; That the AO had made thorough enquiries before passing the assessment order. It was, therefore, contended that the exercise of revision jurisdiction by the Ld.PCIT was not justified. It was inter alia stated that, in fact, no disallowance u/s.14A of the Act was attracted in this case and that the assessee had already filed appeal before the CIT(A) against the disallowance made by the AO. The Ld.PCIT, however, did not agree with the submissions made by the assessee. He observed that the assessment order dated 10/04/2021 passed by the AO u/s.143(3) of the Act, was erroneous and prejudicial to the interest of revenue on the issue of failure to make accurate disallowance u/s.14A of the Act. He, therefore, exercised his revision jurisdiction and set aside the order passed u/s.143(3) of the Act Printed from counselvise.com ITA No. 1021/Ahd/2024 Shree Siddhi Infrabuild Private Limited vs. The Pr.CIT-3 Asst.Year : 2018-19 3 dated 10/04/2021 on the aforesaid issue and directed the AO to pass a fresh assessment order and be compute the disallowance u/s.14A of the Act as per Rule 8D of IT Rules, after giving adequate opportunity of being heard to the assessee. 3. Being aggrieved by the said order of the Ld.PCIT, the assessee has come in appeal before us. 4. The Ld.AR of the assessee has vehemently submitted that the impugned assessment order passed by the AO was neither erroneous nor prejudicial to the interest of revenue. That the assessment order in question was passed by the AO after due application of mind and considering all the submissions made by the assessee. That, the view taken by the AO was the plausible view and that the Ld.PCIT cannot substitute his own view with that of the AO. That, it was a mere case of change of opinion and hence, the assessment order under the circumstances cannot be said to be erroneous. She has vehemently argued that computation of the disallowance u/s.14A of the Act read with Rule 8D(2)(ii) of the IT Rules was not a debatable issue and, therefore, the Ld.PCIT did not have jurisdiction u/s.263 of the Act to revise the assessment order. She has further contended that the AO could have invoked the provisions of section 154 of the Act, to rectify the mistake apparent on record, however, the exercise of revision jurisdiction by the Ld.PCIT u/s.263 of the Act was not justified in this case. She has submitted that the scope and ambit of a proceeding for a rectification of an order u/s.154 of the Act and a proceeding for a revision of an order u/s.263 of the Act are distinct and different. That it, at the most, was a case rectification of assessment order u/s.154 of the Act and not a case of exercise of revision Printed from counselvise.com ITA No. 1021/Ahd/2024 Shree Siddhi Infrabuild Private Limited vs. The Pr.CIT-3 Asst.Year : 2018-19 4 jurisdiction u/s.263 of the Act. She, in this respect, has relied upon the judgement of the Hon’ble Supreme Court in the case of CIT, Bhopal vs. Ralson Industries Ltd. Industries Ltd. [in case No. Appeal (Civil) 10 of 2007] judgement dated 04/01/2007. She has also relied upon the judgement of Hon’ble Allahabad High Court in the case of CIT vs. Shiv Narain Karmendra Narain reported at (2005) 145 Taxmann 398 (Allahabad). She has also placed reliance on the decision of Co-ordinate Bench in the case of Dasrathsinh Ghanshyamsinh vs. PCIT in ITA No.223/Ahd/2021 dated 08/08/2024. 5. The Ld.DR, on the other hand, has relied on the order of Ld.PCIT. 6. We have heard the rival contentions and gone through the record. In this case, during the course of assessment proceedings, though the case of the assessee was that no disallowance u/s.14A of the Act was attracted, however, the AO held that the assessee had earned tax exempt income from the investments made out of interest-bearing funds. He, therefore, rejected the contention of the assessee that the assessee has used its own/interest-free funds available with it for the purpose of investments out of which tax exempt income was earned. He also observed that the assessee could not show that no expenses were incurred to earn the tax exempt income. He, therefore, held that the disallowance u/s.14A of the Act was attracted and he proceeded to determine the amount of disallowance as per Rule 8D of the IT Rules. However, while computing the disallowance, he applied 0.5% of the average value of investments appearing in the balance-sheet instead of 1% of the average value of investments as provided under the relevant Rule 8D. In Printed from counselvise.com ITA No. 1021/Ahd/2024 Shree Siddhi Infrabuild Private Limited vs. The Pr.CIT-3 Asst.Year : 2018-19 5 this regard, it will be relevant to reproduce, hereunder, the relevant Rule 8D(2) of the IT Rules. “Rule 8D. [(2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely:— (i) the amount of expenditure directly relating to income which does not form part of total income; and (ii) an amount equal to one per cent of the annual average of the monthly averages of the opening and closing balances of the value of investment, income from which does not or shall not form part of total income: Provided that the amount referred to in clause (i) and clause (ii) shall not exceed the total expenditure claimed by the assessee.]” 6,.1. A perusal of aforesaid Rule 8D(2)(ii) of the IT Rules would reveal that for the purpose of computation of disallowance u/s.14A of the Act read with Rule 8D(2)(ii) of the IT Rules, the disallowance at the rate of 1% of the average value of investments has to be made and not at the rate of 0.5%. The aforesaid Rule was substituted with effect from 02/06/2016. Prior to that, there was a separate formula for the purpose of computation of disallowance of interest expenditure under Rule 8D(2)(ii) and disallowance of administrative expenditure. Under Rule 8D(2)(iii) of IT Rules, an amount equal to 0.5% of the average value of investments was disallowable on account of administrative expenses. However, the said Rule 8D(2)(ii) and 8D(2)(iii) of the IT Rules were substituted with the new Rule 8D(2)(ii), which prescribes disallowance @ 1% of the average value of investments instead of calculating separately the disallowance of interest expenditure and administrative expenses. The AO while calculating the disallowance has wrongly calculated the disallowance @0.5% of the average value of investment under the misconception and, therefore, made a lesser disallowance u/s.14A read Printed from counselvise.com ITA No. 1021/Ahd/2024 Shree Siddhi Infrabuild Private Limited vs. The Pr.CIT-3 Asst.Year : 2018-19 6 with Rule 8D of the IT Rules. The AO, thus, has made an error while computing the disallowance u/s.14A of the Act read with Rule 8D of the IT Rules. The AO has not computed the same at the rate prescribed under the Rules. This error in the assessment order has made the assessment order erroneous. Further, since error has financial implications in computing lesser disallowance and thereby lesser chargeable tax as compared to that has been prescribed under the statutory rules, therefore, this order is also prejudicial to the interest of revenue. Therefore, both the conditions required to exercise the jurisdiction by the Ld.PCIT u/s.263 of the Act, i.e. order must be erroneous and prejudicial to the interest of revenue, have been fulfilled in this case. 6.2. Once the AO had rejected the plea of the assessee that no disallowance u/s.14A of the Act was attracted in this case and he had proceeded to determine the disallowance as per the formula prescribed under relevant Income Tax Rules, and if an error has been committed in computing the disallowance as per the said statutory provisions, that, in our view, cannot be said to be a plausible view of the AO. In the facts and circumstances of the case, so far as the question as to at what rate the disallowance under Rule 8D(ii) has to be calculated, only one view was plausible, i.e. disallowance has to be computed at the rate of 1% of the average value of investment. In this case, AO has erroneously calculated the disallowance by adopting 0.5% of the average value of the investments, which is against the statutory provisions and hence, that cannot be said to be a legally plausible view and even the issue cannot be said to be an issue of difference of opinion. There is only one plausible view in these facts, which is that the AO has to apply at the rate of 1% of the average value of investment for the purpose of computation of this Printed from counselvise.com ITA No. 1021/Ahd/2024 Shree Siddhi Infrabuild Private Limited vs. The Pr.CIT-3 Asst.Year : 2018-19 7 disallowance and none else. While holding so, we are not giving any finding on the issue as to whether the disallowance u/s.14A of the Act was actually attracted in this case or not. The assessee has already agitated the issue about the attraction of disallowance u/s.14A of the Act before the first appellate authority and the said plea will be adjudicated by the Ld.CIT(A) in accordance with law. Any observation made in this order will not have any bearing on the order of the CIT(A) regarding the validity of invoking of the provisions of section 14A of the Act by the A.O.. Our findings in this case are restricted to the issue that the A.O. after having proceeded to calculate the disallowance as per Rule 8D(2), if he has wrongly calculated it, the Ld.PCIT can exercise his jurisdiction u/s.263 of the Act and direct the AO to compute it correctly as the rate prescribed under the said Rule 8D(2). 6.3. So far as the contention of the Ld.AR of the assessee that it is not a debatable issue, hence, the Ld.PCIT cannot exercise his jurisdiction u/s.263 of the Act is concerned, we fail to understand that how this contention of the Ld.AR will help her. The settled law is that if the issue is a debatable issue and the AO has taken one of the plausible views, but, the Ld.PCIT is of the other view, then the Ld.PCIT would not be justified in invoking the provisions of section 263 of the Act, as it will be a case of change of opinion. However, in this case, since the issue is not debatable and the view taken by the AO is apparently erroneous and, therefore, the provisions of section 263 of the Act are squarely applicable in this case. 6.4. So far as reliance of the Ld.AR on the judgement of Hon’ble Supreme Court in the case of CIT, Bhopal vs. Ralson Industries (supra) is concerned, we note that in the said case, the Commissioner invoked the jurisdiction Printed from counselvise.com ITA No. 1021/Ahd/2024 Shree Siddhi Infrabuild Private Limited vs. The Pr.CIT-3 Asst.Year : 2018-19 8 u/s.263 of the Act by setting aside the order of assessment excluding certain amount towards transport receipts and interest from the assessee’s total income in the light of provisions of section 80HHC and 80-I of the Act. The plea of the assessee before the Hon’ble Supreme Court was that after the order u/s.143(3) of the Act was passed, the AO had issued notice u/s.154 of the Act for rectification of mistake, wherein, he had considered the aforesaid issue of exclusion of transport receipts and interest, however, he did not make any modification/amendment in the order in regard to the purported exclusion of aforesaid income u/s.80HHC and 80-I of the Act. It was contended before the Hon’ble Supreme Court that since the AO in the rectification order passed u/s.154 of the Act had not made any rectification/amendment on the aforesaid issue, therefore, the Ld.Commissioner could not have exercised jurisdiction u/s.263 of the Act on the same issue. The Hon’ble Supreme Court further held that only because an order of assessment has undergone rectification at the hands of the Assessing Officer, the same would not mean that the revisional authority shall be denuded of exercising its revisional jurisdiction. The Hon’ble Supreme Court observed that such an interpretation, in their view, would run counter to the scheme of the Act. The Hon’ble Supreme Court further held that an order of assessment is subject to exercise of an order of a revisional jurisdiction u/s.263 of the Act. That the doctrine of merger, in such a case, will have no application. The Hon’ble Supreme Court, however, observed that initiation of a proceeding u/s.263 of the Act cannot be held to have become bad in law only because an order of rectification was passed. However, it will be open to an assessee to bring to the notice of the Commissioner regarding the fact of rectification order passed, if any, by the AO so as to enable him to take into consideration the subsequent events also. Printed from counselvise.com ITA No. 1021/Ahd/2024 Shree Siddhi Infrabuild Private Limited vs. The Pr.CIT-3 Asst.Year : 2018-19 9 However, it would not be correct to contend that only because of a proceeding for a rectification was initiated, the revisional jurisdiction could not have been invoked under the circumstances. The Hon’ble Supreme Court thus has categorically held that the powers of the AO u/s.154 of the Act are limited and it does not confirm any power of Review, whereas, the assessment order as well as subsequent rectification order can be subjected to the revision jurisdictional of the Commissioner u/s.263 of the Act. The case law cited by the Ld.Counsel for the assessee, in fact, squarely covered the case of the assessee in favour of Revenue and against the assessee. In view of this, there is no merit in the contentions raised by the Ld.counsel for the assessee. The assessment order is not only erroneous but also prejudicial to the interest of Revenue, therefore, we do not find any ambiguity or illegality in the order of the Commissioner in invoking jurisdiction u/s.263 of the Act. There is no merit in the appeal of the assessee and the same is, accordingly, dismissed. 7. In the result, the appeal of the assessee is dismissed. Order pronounced in the Open Court on 31/07/2025. Sd/- Sd/- (Makarand V. Mahadeokar) Accountant Member ( Sanjay Garg ) Judicial Member अहमदाबाद/Ahmedabad, िदनांक/Dated 31/07/2025 टी.सी.नायर, व.िन.स./T.C. NAIR, Sr. PS Printed from counselvise.com ITA No. 1021/Ahd/2024 Shree Siddhi Infrabuild Private Limited vs. The Pr.CIT-3 Asst.Year : 2018-19 10 आदेश की #ितिलिप अ$ेिषत/Copy of the Order forwarded to : 1. अपीलाथ% / The Appellant 2. #&थ% / The Respondent. 3. संबंिधत आयकर आयु' / Concerned CIT 4. आयकर आयु' ) अपील ( / The CIT(A)/PCIT , Ahmedabad-3 5. िवभागीय #ितिनिध , अिधकरण अपीलीय आयकर , अहमदाबाद /DR,ITAT, Ahmedabad. 6. गाड\u000f फाईल / Guard file. आदेशानुसार/ BY ORDER, स&ािपत #ित //True Copy// सहायक पंजीकार (Asstt. Registrar) आयकर अपीलीय अिधकरण, ITAT, Ahmedabad 1. Date of dictation (dictation pad is attached with the file)) : 9.7. 2025 2. Date on which the typed draft is placed before the Dictating Member. : 9.7. 2025/30.7.25 3. Date on which the approved draft comes to the Sr.P.S./P.S : 4. Date on which the fair order is placed before the Dictating Member for pronouncement. : 5. Date on which fair order placed before Other Member : 6. Date on which the fair order comes back to the Sr.P.S./P.S. : 31.7.25 7. Date on which the file goes to the Bench Clerk. : 31.7.25 8. Date on which the file goes to the Head Clerk. : 9. The date on which the file goes to the Assistant Registrar for signature on the order. : 10. Date of Despatch of the Order : Printed from counselvise.com "