ITAT Favors Micromax in ₹16 Cr FD Interest and Section 14A Dispute; Quashes Revision Order [Read Order]

In a recent ruling, the Delhi Bench of the Income Tax Appellate Tribunal (ITAT) granted relief to Micromax Informatics Ltd. by quashing a revision order concerning Rs. 16 crore fixed deposit (FD) interest and disallowance under Section 14A made during the original assessment.

Micromax Informatics Ltd., a company engaged in the trading of electronic goods, filed its income tax return for the Assessment Year 2018-19, declaring a loss of over Rs. 158 crore. The return was scrutinized, and the AO completed the assessment under Section 143(3), accepting the returned income after making detailed inquiries.

Later, the PCIT passed a revision order under Section 263, arguing that the AO had failed to tax Rs. 16.18 crore in interest income earned from fixed deposits and had inadequately disallowed expenses under Section 14A related to tax-exempt income. The PCIT claimed that these errors made the assessment both erroneous and prejudicial to the interests of the revenue and directed a fresh assessment.

Before the ITAT, the company argued that the AO had already examined and taxed the fixed deposit interest and had also scrutinized the disallowance under Section 14A. The company’s counsel pointed out that a suo motu disallowance of Rs. 7.9 lakh was made and accepted after a proper inquiry. The counsel further argued that the PCIT’s order was based merely on a difference of opinion, not on any actual error in law or fact.

The department’s counsel argued that the AO had failed to carry out a detailed inquiry into both issues and had not recorded satisfaction under Section 14A, which made the assessment order unsustainable and warranted revision under Section 263 of the Income Tax Act.

The two-member bench comprising Kul Bharat (Judicial Member) and Pradip Kumar Kedia (Accountant Member) observed that the AO had in fact assessed the FD interest and that there was no income that had escaped assessment. Concerning Section 14A issue, the tribunal found that the AO had asked specific questions, received detailed replies, and applied his mind to the matter.

The tribunal explained that for revision under Section 263 to be valid, there must be both an error in the order and loss to the revenue, and merely having a different view is not enough. The tribunal referred to earlier judgments, including that of the Delhi High Court in the case of Clix Capital Services Pvt. Ltd., to support its conclusion.

The ITAT allowed the appeal and quashed the revision order, ruling that the assessment made by the AO was neither erroneous nor prejudicial to the interests of the revenue. The appeal was allowed in favour of Micromax Informatics Ltd.

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