Saurashtra Cement Ltd. Vs PCIT (ITAT Rajkot)
No Section 263 Revision Where No Exempt Income & Sufficient Own Funds — ITAT Rajkot Quashes PCIT Order
The Rajkot Bench of the ITAT allowed the assessee’s appeal for AY 2018-19 and quashed the revisionary order passed under section 263, holding that the assessment order u/s 143(3) was neither erroneous nor prejudicial to the interests of Revenue.
Key holdings of the Tribunal:
- Section 14A not applicable without exempt income: The assessee had not earned any exempt income during the year, as evidenced by the tax audit report (Form 3CD). Relying on Supreme Court rulings in Oil Industry Development Board and GVK Project, the Tribunal held that no disallowance u/s 14A can be made in absence of exempt income, rendering PCIT’s revision on this issue unsustainable.
- CBDT Circular cannot override courts: The PCIT’s reliance on CBDT Circular No. 5/2014 was rejected, as judicial precedents of the Supreme Court and High Courts prevail.
- No disallowance u/s 36(1)(iii): Interest-free advances to group concerns were given in earlier years, not during the year under consideration. Moreover, the assessee had ample interest-free own funds (share capital and reserves exceeding ₹416 crore), invoking the settled presumption that advances were made out of own funds.
- AO’s view legally sustainable: The assessment order reflected a permissible view in law; mere lack of discussion does not make it erroneous. The twin conditions for section 263—error and prejudice—were not satisfied.
- Malabar Industries principle applied: Where two views are possible and the AO adopts one that is legally tenable, section 263 cannot be invoked.
Accordingly, the ITAT set aside the PCIT’s order dated 19-03-2024 and restored the assessment, allowing the assessee’s appeal in full.
FULL TEXT OF THE ORDER OF ITAT RAJKOT
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