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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Per CHANDRA POOJARI, AM: This appeal filed by the assessee is directed against the order of the CIT, Kochi dated 28/12/2017 passed u/s. 263 of the I.T. Act and pertains to the assessment year 2013-14.
The assessee has raised the following grounds:
The Order of Principal Commissioner of Income Tax is against facts and law.
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Rule 8D(iii) requires the value of investment , the income from which is exempt from tax alone to be considered for the disallowance. The provision for diminution in value of investment written off during the year is in respect of joint venture in Dubai in Peninsular Middle East DMCC. The income from this investment is not exempt from tax and hence the same need not be considered for disallowance under section 14A read with Rule 8D. Thus there was no error in the assessment order and hence the order under section 263 was not correct. The ITAT in appellant's own case for the assessment year 2012-13 in ITA 555/Coch/2015 dated 24.3.2017 had held that "The rule requires the value of investment, the income from which is exempt from tax alone to be considered for the disallowance. The sum of Rs. 8,94,800/- written off during the year is in respect of joint venture in Dubai in Peninsular Middle East DMCC. The Income from this investment is not exempt from tax and hence the same need not be considered for disallowance u/s 14A r.w.r 8D. Therefore, it cannot be said that there is error in the assessment order". Hence, the order u/s 263 is not correct. 3. The Commissioner of Income tax is not justified in passing an order under section 263 on the ground that the AO has omitted to consider the disallowance u/s 14A while computing the book profit u/s 115JB(2). The Commissioner of Income Tax failed to consider the various decisions cited by the appellant where it was held that disallowance u/s 14A need not be considered for arriving at the book profit. Further, the Special Bench of ITAT in ACIT vs Vireet Investment Private Ltd (58 ITR Trib 313 SB) has held that "the disallowance under section 14A read with Rule 8D could not be added while computing the book profits in terms of section 115JB as the explanation to that section did not specifically mention section 14A of the Act. Hence, the computation under clause (f) of explanation 1 to section 115JB(2) was to be made without resorting to the computation as contemplated under section 14A with rule 8D of the Rules " Thus, There is no error in the assessment since assessing authority has taken one of the possible view and hence the action under section 263 was not warranted.
The facts of the case are that the assessee is engaged in online share trading and e-fiied its Return of Income on 30-09-2013 declaring loss of Rs.29,18,973/-. Scrutiny assessment for the assessment year 2012-13 was completed under Section 143(3) on 19-02-2016 determining total income at Rs.18,50,661/-. In the assessment order, the Assessing Officer disallowed
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Rs.11,58,176/- under Section 14A of the Act being the expenses relating to exempt income and Rs.36,11,458/- on account of loss on trading in shares and derivatives treating it as speculative loss which can be set off only against speculative gain and such speculative loss can be carried forward for four years only.
From perusal of records, the CIT noticed that the Assessment Order under Section 143(3) of the Act dated 19-02-2016 passed by the Assessing Officer was erroneous in so far as it was prejudicial to the interest of revenue for the reason that while making disallowance under Section 14A of the Act, the amount of value of investment for the purpose of computation of disallowance was taken as Rs.6,27,87,589/- instead of Rs,6,54,71,989/- which had resulted in short computation of disallowance to the extent of Rs.49,516/-. It was also noticed that the book profit of Rs.19,22,574/- was arrived in the Return of Income after deducting dividend income of Rs.18,47,777/- as specified in Explanation (ii) below Section 115JB(2). However, expenditure of Rs.12,07,692/- in respect of exempt income as computed under Section 14A r. w. Rule 8D was not added to the net profit for computation of book profit as required in Explanation (f) below Section 115JB(2) of the Act. Accordingly, the CIT proposed for revision of assessment u/s. 263 of the Act and set aside the assessment order on the above two issues for de novo examination and passing a speaking order in accordance with law after affording due opportunity to the assessee.
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Against this, the assessee is in appeal before us. The Ld. AR submitted that the proposed revision is bad in law because action under Section 263 of the Act can be initiated only if the order of the Assessing Office is erroneous in so far as it is prejudicial to the interest of the revenue. Thus, the twin conditions should be satisfied i.e., the assessment order should be erroneous and it should have been prejudicial to the interest of the revenue. When two views are possible the department ought not to exercise the powers under Section 263 of the Act as the view taken is not prejudicial to the interest of revenue. The assessee relied upon the judgment of the High Court of Kerala in the case of CIT vs. D.C. Mills Pvt Ltd (387 ITR 64).
The Ld. DR relied on the order of the CIT.
After hearing both the parties, we find that the above issue relating to disallowance made u/s. 14A r.w.r. 8D came up for consideration of this Tribunal in assessee’s own case in ITA No. 555/Coch/2015 for the assessment year 2012- 13 vide order dated 24/03/2017 in para 6.4 wherein it was held as under: “6.4 Investment written off during the year amounting to Rs. 8,94,800/-was not considered for arriving at disallowance u/r 8D(iii) Rules 8D(iii) of the IT Rules read as under: "An amount equal to one half per cent of the average of the value of investment, income from which does not or shall not form part of the
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total income, as appearing in the balance sheet of the assessee, on the first day and the last day f the previous year." The rule requires the value of investment, the income from which is exempt from tax alone to be considered for the disallowance. The sum of Rs. 8,94,800/- written off during the year is in respect of joint venture in Dubai in Peninsular Middle East DMCC. The Income from this investment is not exempt from tax and hence the same need not be considered for disallowance u/s 14A r.w.r 8D. Therefore, it cannot be said that there is error in the assessment order.”
In view of the above order of the Tribunal in assessee’s own case, we are of the opinion that the Assessing Officer’s decision is in conformity with the order of the Tribunal cited supra. Being so, we cannot say that the order of the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the Revenue. Thus, the twin conditions, namely (i) the assessment is erroneous and (ii) it is prejudicial to the interests of the Revenue are not satisfied, the CIT’s exercise of jurisdiction u/s. 263 of the Act is not proper on this issue. Hence, this ground of appeal of the assessee is allowed.
The next ground is with regard to the disallowance u/s 14A while computing the book profit u/s 115JB(2).
After hearing both the parties, we find that this issue came up for consideration before the Special Bench, ITAT, Delhi in the case of ACIT vs. Vireet Investment (P) Ltd. (82 taxmann.com 415 (Delhi – Trib. (SB) wherein it was held that computation of book profit under clause (f) of Explanation 1 to section
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115JB(2) is to be made without resorting to the computation as contemplated u/s. 14A r.w.r. 8D of the Income Tax Rules, 1962. Hence, the order of the Assessing Officer on this issue also is in conformity with the order of the Special Bench, ITAT, Delhi cited supra.
11.1 In view of the above order of the Tribunal, we are inclined to set aside the order of the CIT passed u/s. 263 of the Act and decide the issue in favour of the assessee and against the Revenue. Hence, this ground of appeal of the assessee is allowed.
In the result, the appeal filed by the assessee is allowed. Order pronounced in the open Court on this 24th September, 2018.
sd/- sd/- (GEORGE GEORGE K.) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER Place: Kochi Dated: 24th September, 2018 GJ Copy to: 1. M/s. Acumen Capital market India Ltd., S.T. Reddiar & Sons Bldg., 3rd Floor, Veekshanam Road, Ernakulam, Kochi-682 035. 2. The Income Tax Officer, Corporate Ward-1(1), Kochi. 3. The Pr. Commissioner of Income-tax, Kochi. 4. D.R., I.T.A.T., Cochin Bench, Cochin. 5. Guard File. By Order
(ASSISTANT REGISTRAR) I.T.A.T., Cochin
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