Siddhartha Nautiyal ORDER
Siddhartha Nautiyal, Member (J)
1. This is an appeal filed by the assessee against the order of the ld. Principal Commissioner of Income Tax-3, Ahmedabad, in proceeding u/s. 263 of the Act vide order dated 17/03/2020 passed for the assessment year 2015-16.
2. The assessee has taken the following grounds of appeal:-
"1. The learned Pr. CIT has erred in law and on facts in passing the order u/s. 263 of the Act treating the assessment order u/s. 143(3) of the Act for A.Y. 2015/2106 passed by the DOT Circle 3(1)(1) Ahmedabad [AO] on 12/12/2017 as erroneous and prejudicial to the revenue inasmuch as disallowance made by the AO u/s. 14A of the Act is concerned.
2. The learned Pr. CIT erred in law and on facts for not considering the submission of the appellant in right perspective before passing the impugned order u/s. 263 of the Act.
3. The learned Pr. CIT has erred in law and on facts in failing to consider the fact that the one of the reason/ground for selection of scrutiny assessment was in relation to section 14A disallowance and when AO has come to a definite conclusion and took the particular view after considering material/records as available on record as well as submission of the appellant and made the disallowance U/S. 14A which has also not been challenged by the appellant, the mere fact that the learned Pr. CIT was of a different view, it cannot be a basis for action for revision of the assessment order on the ground that the same was erroneous and prejudicial to the interest of revenue. The impugned order of revision u/s. 263 of the Act is thus wholly justified and bad in law and requires to be quashed.
4. The learned Pr. CIT has erred in law and on facts in failing to consider the fact that when the AO has exercised the quasi judicial power vested in him in accordance with the laws and arrived at a conclusion on the fact and law then such conclusion could not be termed to be erroneous simply because the learned Pr. CIT did not feel satisfied with the conclusion. The section does not visualize the case of substitution of the judgment of the CIT for that of the AO.
The appellant craves leave to add, amend, modify, alter or delete all or any of the above grounds as well as to raise additional grounds at the time of hearing of the appeal."
3. At the outset, we observe that the appeal of the assessee is time barred by 470 days. The Ld. Counsel for the assessee submitted that delay is caused due to the fact that the appeal has been filed during the Covid pandemic period and accordingly, the delay was caused by circumstances beyond the control of the assessee. We note that the assessee company received the order of Ld. CIT(Appeals) on 25-03-2020. However, in view of the nation-wide lockdown from 24th March 2020, the Apex Court in Cognizance for Extension of Limitation, In re MANU/SC/0358/2021 : [2021] 127 taxmann.com 72 (SC), took suo motu cognizance of the situation arising out of the challenge faced by the country on account of COVID-19 Virus and resultant difficulties that could be faced by the litigants across the country. Consequently, it was directed vide order dated 23-3-2020 that the period of limitation in filing petitions/applications/suits/appeals/all other proceedings, irrespective of the period of limitation prescribed under the general or special laws, shall stand extended with effect from 15-3-2020 till further orders. The suo motu proceedings were, disposed of issuing the directions in computing the period of limitation for any suit, appeal, application or proceeding, the period from 15-3-2020 till 14-3-2021 shall stand excluded. Consequently, the balance period of limitation remaining as on 15-3-2020, if any, shall become available with effect from 15-3-2021. Thereafter, in the case of Cognizance for Extension of Limitation, In re MANU/SC/0108/2022 : [2022] 134 taxmann.com 307 (SC), held that in view of spread of new variant of COVID-19 and drastic surge in number of COVID cases across the country, period from 15-3-2020 till 28-2-2022 shall stand excluded for purpose of limitation as may be prescribed under any general or special law in respect of all judicial or quasi-judicial proceedings. in cases where limitation would have expired during period between 15-3-2020 till 28-2-2022, notwithstanding actual balance period of limitation remaining, all persons shall have a limitation period of 90 days from 1-3-2022; in event actual balance period of limitation remaining, with effect from 1-3-2022, is greater than 90 days, that longer period shall apply In view of the above, since the delay of 470 days in filing appeal is falling within the Covid pandemic period, the delay is hereby being condoned.
4. On merits, the brief facts of the case are that the assessee filed its return of income for assessment year 2015-16 declaring total income of ` 50,49,400/-. The case of the assessee was selected for limited scrutiny through CASS and assessment was completed under section 143(3) of the Act assessing the total income at ` 51,45,844/- after making disallowance under section 14A of ` 96,444/-. The PCIT observed that the assessee had claimed exempt dividend income of ` 360/- and the assessee had claimed interest expenditure of ` 17.53 lakhs. In the assessment order, the AO made disallowance under section 14A of ` 96,444/- on account of administrative expenses. However, as per the PCIT, while computing the disallowance under section 14A, the element of interest expenses was not taken into consideration by the AO. According to the PCIT, after considering the interest expenses, amount disallowable under section 14A read with Rule 8D would come to ` 5,38,799/-. Therefore, the PCIT held that as such total expenditure of ` 5,38,799/- under section 14A read with rule 8D was required to be disallowed as against disallowance of ` 96,444/- made in the assessment order. Accordingly, the PCIT held that the order passed under section 143(3) passed by the AO is erroneous in so far as it is prejudicial to the interest of the Revenue.
5. Before us, at the outset the counsel for the assessee submitted that in the instant facts, the case of the assessee was opened under limited scrutiny for verifying the "high interest expenses related to exempt income under section 14A (investment and balance sheet, interest expenses in P&L account and exempt income in a schedule EI of ITR)". Accordingly, the counsel for the assessee submitted that the assessing Officer has enquired in great detail about the interest expenditure claimed by the assessee for the purpose of claiming exemption under section 14A of the Act and after analysing the same, the Ld. Assessing Officer disallowed a sum of ` 96,444/- against exempt dividend income of ` 360/- claimed in the return of income. Secondly, the counsel for the assessee submitted that various judicial precedents have held that disallowance under section 14A of the Act cannot exceed the amount of income claimed to be exempt. However, in the instant case, the assessing Officer has disallowed a sum of ` 96,444/- on account of administrative expenses as against exempt dividend income of ` 360/- claimed by the assessee in the return of income. Accordingly, in the instant facts, there is no infirmity in the order of ld. Assessing Officer and there is no scope of invocation of provisions of 263 in the instant set of facts. In response, DR relied upon the observations made by the PCIT in the 263 order.
6. We have heard the rival contentions and perused the material on record. In our view, it is a well-settled principle that expenditure to be disallowed under section 14A cannot exceed the exempt income claimed by the assessee in the return of income. In the case of State Bank of Patiala MANU/SC/0388/2018 : [2018] 99 taxmann.com 286 (SC), the Hon'ble Supreme Court held that where High Court took a view that amount of disallowance under section 14A could be restricted to amount of exempt income only, SLP filed against said order was to be dismissed. In the case of Chettinad Logistics (P.) Ltd. MANU/SCOR/52788/2018 : [2018] 95 taxmann.com 250 (SC), the Hon'ble Supreme Court dismissed SLP against High Court ruling that section 14A cannot be invoked where no exempt income was earned by assessee in relevant assessment year. In the case of DCIT v. Asian Granito India Ltd. MANU/IB/0375/2019 : 113 taxmann.com 445 (Ahmedabad - Trib.), the Ahmedabad ITAT held that disallowance of expenses under section 14A read with rule 8D of 1962 Rules cannot be made in absence of exempt income. In the case of DCIT v. Edelweiss Financial Advisors Ltd. MANU/IB/0257/2020 : 124 taxmann.com 361 (Ahmedabad - Trib.), the Ahmedabad ITAT held that disallowance of expenses under section 14A read with Rule 8D could not exceed amount of exempted income. In the case of Addlife Investments (P.) Ltd. v. DCIT MANU/IB/0247/2020 : 124 taxmann.com 572 (Ahmedabad - Trib.), the Ahmedabad ITAT held that disallowances made under section 14A read with rule 8D could not exceed amount of exempt income earned by assessee during year. In the case of Sapphire Land Development (P.) Ltd. v. DCIT MANU/IU/0983/2022 : 147 taxmann.com 50 (Mumbai - Trib.), the ITAT held that where assessee had incurred direct expenses such as demat charges etc. for earning exempt dividend income but did not make suo motu disallowance under section 14A, Assessing Officer rightly made disallowance of expenses under said section as per rule 8D, however, total disallowance of expenses calculated under section 14A read with rule 8D was to be restricted only to extent of exempt income earned by assessee during year. The ITAT Mumbai in the case of K. Raheja (P.) Ltd. v. DCIT MANU/IU/0842/2021 : 142 taxmann.com 171 (Mumbai - Trib.) held that disallowance under section 14A was to be restricted to extent of exempt income earned by assessee. Accordingly, we observe that in the instant set of facts, the assessing Officer disallowed a sum of ` 96,444/- against exempt income of ` 360/- claimed by the assessee in the return of income. Therefore, the assessing Officer has already disallowed a sum higher than the amount of exempt income under section 14A of the Act. Further, we observe that the issue of disallowance of expenditure under section 14A with respect to exempt dividend income was examined during the course of assessment proceedings, and after considering the submissions of the assessee placed before him during the course of assessment proceedings, he disallowed the sum of ` 96,444/- on account of administrative expenses. Accordingly, we find no infirmity in the order of the Assessing Officer in the instant set of facts. Therefore, in the light of the above observations, we are of the considered view that the order passed by the learned PCIT u/s. 263 of the Act is liable to be set aside in the instant set of facts.
7. In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 17-03-2023
© Manupatra Information Solutions Pvt. Ltd.