Revision Upheld for Inadequate Inquiry on Section 14A Disallowance and Alleged Accommodation Entries:

Revision Upheld for Inadequate Inquiry on Section 14A Disallowance and Alleged Accommodation Entries The assessee, Ambuja Cements Limited, was assessed for AY 2019-20 under Section 143(3) read with Section 144B, determining total income at Rs. 14,82,47,32,193. During the year, the assessee earned exempt dividend income of Rs. 274.21 crore and made a suo motu disallowance of only Rs. 1.82 crore under Section 14A. The assessee also held strategic investments aggregating Rs. 11,813.76 crore, for which no proportionate disallowance was computed. The Principal Commissioner of Income Tax invoked Section 263, holding that the Assessing Officer had accepted the assessee’s computation without independently applying Rule 8D or recording satisfaction as mandated by law. Holding that both issues reflected lack of enquiry, the PCIT set aside the assessment for fresh examination. The assessee challenged the revisionary order before the Tribunal. Main Issue: Whether the assessment order could be revised under Section 263 on the ground that the Assessing Officer failed to make proper inquiries regarding disallowance under Section 14A read with Rule 8D and alleged accommodation entries reflected in the INSIGHT portal. Tribunal Ruled: The Tribunal upheld the revisionary jurisdiction exercised under Section 263. It held that the Assessing Officer merely accepted the assessee’s suo motu disallowance of Rs. 1.82 crore without examining its correctness in light of substantial exempt income and large strategic investments, and without applying Rule 8D as required. The Tribunal found this to be a clear case of lack of enquiry, squarely covered by Explanation 2(a) to Section 263. The Tribunal noted that the AO had completely ignored vital information available on the INSIGHT portal concerning alleged transactions linked to the Sankalp Group. This failure to examine material already on record also amounted to no enquiry. The PCIT’s order setting aside the assessment for fresh verification was held to be valid. The assessee’s appeal was accordingly dismissed. To Read Full Judgment, Download PDF Given Below