Facts of the Case

The Revenue filed an appeal under Section 260A of the Income-tax Act, 1961 challenging the common order dated 31.12.2024 passed by the Income Tax Appellate Tribunal in ITA Nos. 2747/Del/2024 and 2748/Del/2024 relating to Assessment Years 2018–19 and 2019–20. The appeal before the High Court was confined to Assessment Year 2018–19.

The Principal Commissioner of Income Tax had invoked revisional jurisdiction under Section 263 and held that the assessment order passed by the Assessing Officer under Section 153A for AY 2018–19 was erroneous and prejudicial to the interests of the Revenue on the ground that no disallowance was made under Section 14A read with Rule 8D. The Assessing Officer had accepted the assessee’s explanation that no exempt income was earned during the relevant year and therefore no disallowance was warranted.

Issues Involved

Whether disallowance under Section 14A of the Act can be made in a year where the assessee has not earned any exempt income, whether the Assessing Officer’s view in not making such disallowance was a plausible view in law, and whether the Principal Commissioner could invoke Section 263 to revise the assessment on this issue.

Petitioner’s Arguments

The Revenue contended that the Principal Commissioner was justified in invoking Section 263 as the Assessing Officer failed to make a mandatory disallowance under Section 14A, irrespective of whether exempt income was earned during the year. It was argued that the Assessing Officer’s order was erroneous and prejudicial to the interests of the Revenue.

Respondent’s Arguments

The assessee submitted that it had not earned any exempt income during AY 2018–19 and therefore no disallowance under Section 14A could be made. It was argued that this position was settled by binding judgments of the Delhi High Court, including PCIT-04 vs. IL & FS Energy Development Company Limited and PCIT (Central)-2 vs. Era Infrastructure (India) Limited. The assessee contended that the Assessing Officer had adopted a legally sustainable and plausible view, and therefore the jurisdiction under Section 263 could not be invoked.

Court Order / Findings

The Delhi High Court noted that the ITAT had correctly relied upon binding decisions of the jurisdictional High Court holding that where no exempt income is earned during the relevant assessment year, no disallowance under Section 14A read with Rule 8D can be made. The Court observed that the Principal Commissioner had relied on non-jurisdictional High Court decisions while ignoring binding precedents of the Delhi High Court.

The Court held that in light of the settled legal position, the assessment order passed by the Assessing Officer could not be regarded as erroneous or prejudicial to the interests of the Revenue. It was further held that, in any event, the view taken by the Assessing Officer was a plausible view and therefore did not warrant interference under Section 263 of the Act. The Court concluded that no substantial question of law arose for consideration.

Important Clarification

The Court clarified that Section 263 cannot be invoked merely because the Principal Commissioner holds a different view from that adopted by the Assessing Officer. Where the Assessing Officer’s view is supported by binding judicial precedents and is a plausible view in law, the twin conditions of Section 263 are not satisfied.

Final Outcome

The appeal filed by the Revenue was dismissed. The Delhi High Court upheld the order of the Income Tax Appellate Tribunal quashing the revisional order passed under Section 263 for Assessment Year 2018–19. It was held that no substantial question of law arose for consideration, and the decision was rendered in favour of the assessee and against the Revenue.

 

Link to Download Order- https://www.mytaxexpert.co.in/uploads/1769595030_PR.COMMISSIONEROFINCOMETAXCENTRAL2VsHINDUSTANPOWERPROJECTSPVT.LTD.pdf

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