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Income Tax Appellate Tribunal, KOLKATA BENCH ‘(A
Before: SHRI P.M. JAGTAP, HON’BLE(KZ) & SHRI A. T. VARKEY, HON’BLE]
IN THE INCOME TAX APPELLATE TRIBUNALKOLKATA BENCH ‘(A)’, KOLKATA [BEFORE SHRI P.M. JAGTAP, HON’BLE VICE PRESIDENT (KZ) & SHRI A. T. VARKEY, HON’BLE JUDICIAL MEMBER] [Through Virtual Court] Assessment Year: 2015-16 M/s. Budge Budge Refineries Ltd....................................................................................Appellant P-336, 2nd Floor, CIT Scheme No. VIM, Phool Bagan, Kolkata – 700 054. [PAN: AABCB 2880 M] Vs Pr. Commissioner of Income Tax, Central – 1, Kolkata...................………………Respondent Appearances by: Shri A.K. Tibrewal, FCA appearing on behalf of the Assessee. Shri Manish Kanojia, CIT, DR appearing on behalf of the Revenue. Date of concluding the hearing : July 06, 2021 Date of pronouncing the order : July 09 , 2021 ORDER PER P.M. JAGTAP, VICE-PRESIDENT (KZ)
This appeal filed by the assessee is directed against the order of Ld. Pr. CIT, Central - 1, Kolkata dated 28.02.2020 passed u/s 263 of the Income Tax Act, 1961.
The assessee in the present case is a company which is engaged in the business of manufacturing of edible oil. In the assessment completed u/s 143(3) of the Act vide an order dated 29.12.2017 read with the rectification order dated 03.07.2018 passed u/s 154, the book profit of the assessee-company for the year under consideration was computed by the AO at Rs. 79,52,383/- u/s 115JB of the Act as declared by the assessee-company in its return of income. On M/s. Budge Budge Refineries Ltd. examination of the records of the said assessment, it was noticed by the concerned Ld. Pr. CIT that an amount of Rs. 4,23,84,000/- declared by the assessee-company as deduction while computing the book profit u/s 115JB of the Act on account of “unrealized gain on mutual fund” was wrongly allowed by the AO as the same was nowhere covered as in allowable item of deduction in clauses (i) to (viii) of Explanation 1 below Section 115JB of the Act. He accordingly treated the assessment order dated 29.12.2017 as rectified on 03.07.2018 as erroneous as well as prejudicial to the interest of the revenue and issues a notice u/s 263 giving the assessee an opportunity to show cause as to why the same should not be revised, which read as under: “Sub: Opportunity of being heard u/s 263 of Income Tax Act, 1961, in respect of order passed u/s 143(3) of Income Tax Act dt. 29/12/2017 (as rectified u/s 154 on 03.07.2018) A.Y. 2015-16, PAN:: AABCB 2880 M – In your case return of income for A.Y. 2015-16 declaring total income of Rs. Nil (Normal computation) and Book Profit u/s 115JB of Rs. 79,52,383/- was filed on 30.09.2015. It was assessed vide order u/s 143(3) dt. 29.12.2017 determining assessed total income at Rs. Nil (Normal computation and assessed Book Profit u/s 115JB of Rs. 79,52,383/- . The order dt. 29.12.2017 was subsequently modified by AO on 03.07.2018 whereby also, the MAT liability under section 115JB of the Act, was calculated at Rs. 15,15,327/-, as was computed in initial order dt. 29.12.2017. It is observed by me from assessment record of your case for A.Y. 2015-16 that while computing Book Profits u/s 115JB of the Act, an amount of Rs. 4,23,84,000/- had been claimed against book profits under the head “unrealized gain on mutual fund” which was wrongly allowed by assessing officer to you while finalizing your assessment on 29.12.2017 which was modified on 03.07.2018. For the purpose of computation of chargeable book profits, the items which could have been deducted against book profits, are clearly mentioned at cl. (i) to (viii) of Explanation 1 below Sec. 115JB of the Act. It is noticed by me that the deduction on account of “unrealized gain on mutual fund”, is not M/s. Budge Budge Refineries Ltd. covered under any of the clause (i) to (viii) of said Explanation 1. Therefore, the amount so deducted of Rs. 4,23,84,000/- under the head “unrealized gain on mutual fund”, is not found to be an eligible item of deduction, for the purpose of computing chargeable Book Profits u/s 115JB of Income Tax Act. In view of above facts, I am of the view that at the time of computing chargeable book profits while finalizing scrutiny assessment on 29.12.2017, which was modified on 03.07.2018, the assessing officer has wrongly allowed the claim on account of “unrealized gain on mutual fund”, by wrong application of provision of law, without making any enquiry whatsoever, on the issue of allowability of claim of “unrealized gain on mutual fund” against book profits. Accordingly, the order dt. 29.12.2017 (modified on 03.07.2018) is found to be an erroneous order by undersigned in so far as the same is prejudicial to the interest of revenue. In view of above, you are hereby allowed an opportunity of being heard under provision of Sec. 263 of the Act, to explain as to why such omission to disallow the deduction claimed in respect of “unrealized gain on mutual fund”, while computing the chargeable book profits u/s 115JB of the Act should not be considered to have made the order under reference, as erroneous and prejudicial to the interest of revenue, under provision of Sec. 263 of Income Tax Act.”
In reply to the notice issued by the Ld. Pr. CIT u/s 263, the following submissions were made on behalf of the assessee-company in writing: “A. (i) The Assessee Company during the previous year relevant to A.Y. 2015-16 did not receive any income amounting to Rs. 4,23,84,000/- by way of redemption of Mutual Fund. The said amount credited to the profit and loss account was only a provision for notional amount based on the NAV as on 31.03.2015. The said amount being a notional amount and did not accrue to the assessee company in the year under consideration, was not chargeable to tax. The said amount was invested in Birla Sunlife fixed Term Plan – Corporate Bind Series A (1170 days). The maturity of the said investment was on 04.04.2017. ii. The aforesaid investment was made in a FMP (Fixed Maturity Plan) which is a debt fund and said fund only matures after a pre-specified period only on maturity date of the fund (i.e. 04.04.2017 in company’s case)
M/s. Budge Budge Refineries Ltd. iii. The said details were duly explained at Note 34 of the Audited Financials of the assessee-company. A copy of the said financials has been filed along with reply dated 14.02.2020 in the notes, it was duly mentioned that the said investment was made as a tool for interest arbitrage and the units have been pledged with the bank against short term borrowing / letter of Credit (LC) since the date of investment. As the assessee-company had incurred substantial interest costs on its borrowing which had been debited to the profit and loss account. In order to offset the said costs and to show correct financial gain on the said transaction, the said investment was valued at carrying value as on 31.03.2015. iv. The said details were explained to the AO in the course of assessment proceedings. The said amount was not accrued to the assessee-company during the year, it was only a notional provision as the investment was valued at carrying cost on the date of the balance sheet and not chargeable to tax in the year under consideration both under normal provisions as well as under section 115JB of the Act. v. It was also stated that provisions for notional gain resulting from any change in carrying amount of the units are allowable as deductions while computing book profits under section 115JB of the Act. For this proposition the reliance was placed by the ld. AR on explanation (iie)(B) which states as under: ‘if any amount referred to in clauses (a) to (i) is debited to the [statement of profit and loss] or if any amount referred to in clause (i) is not credited to the [statement of profit and loss] and as reduced by – i. the amount withdrawn………………… ii. ………………………………………………….. …………………………………………………. iii. the amount representing – iv. notional gain on transfer of a capital asset, being share of a special purpose vehicle to a business trust in exchange of units allotted by that trust referred to in clause (xvii) of section 47 or; v. notional gain resulting from any change in carrying amount of said units; or vi. ………………………………………………..
In view of the above reliance, Ld. AR was of the view that said deduction claimed by the assessee-company being notional gain on mutual fund units, is an allowable deduction under section 115JB of the Act.
M/s. Budge Budge Refineries Ltd. B. It was further argument of Ld. AR that the assessment order dated 29.12.2017 (as rectified u/s 154 of the Act on 03.07.2018) is neither erroneous nor prejudicial to the interest of revenue. As per AR, it is a settled law that when an assessing officer is satisfied that the return, filed by the assessee, was in accordance with law, he was under no obligation to justify as to why he was satisfied. The fact that the details of notional income amounting to Rs. 4,23,84,000/- by way of redemption of Mutual Fund were duly explained at Note 34 of the Audited financials of the assessee-company and which was before the Assessing Officer show that the view taken by him is a possible view. It is a settled law that if the Assessing Officer has taken a possible view, it cannot be said that the view taken by him is erroneous nor the order of the Assessing Officer in that case can be set aside in revision. As per AR, it has to be shown unmistakably that the order of the Assessing Officer is unsustainable in law.
C. Ld. AR concluded his written submission stating that the assessment order passed by Assessing Officer under section 143(3) of the Act on dated 29.12.2017 (as rectified u/s 154 of the Act on 03.07.2018) is neither erroneous nor prejudicial to the interest of revenue and therefore the proceedings under section 263 initiated may be dropped.”
The Ld. Pr. CIT did not find merit in the above submissions made on behalf of the assessee-company and rejected the same for the following reasons given in his impugned order passed u/s 263: “I have considered the submissions made by the Ld. AR, the assessment order dated 29.12.2017 (Revised on 03.07.2018) passed by AO along with the position in law so far as allowability of claim of Rs. 4,23,84,000/- under the head “unrealized gain on mutual fund”, for the purpose of computation of book profits u/s 115JB of the Act, is concerned. The issue raised by the Ld. AR are being dealt as here under: i. The first issue raised by Ld. AR in his submission is that said details of claim were explained to the AO during course of assessment proceeding. On this aspect of the matter, the assessment record of assessee-company, for A.Y. 2015-16 has been look into. It is noticed that while finalising the scrutiny assessment, AO has simply accepted the returned income, without necessary application of mind and without raising any enquiry whatsoever on the assessee, on the aspect of allowability of deduction for “unrealized gain on mutual fund”, for the purpose of computation of taxable book profits u/s 115JB of Income Tax Act. Once there was no enquiry made on the M/s. Budge Budge Refineries Ltd. subject matter under consideration by AO then there was no occasion to file any reply by assessee-company on the issue of allowability of claim of “unrealized gain on mutual fund”, which is the subject matter before me. Therefore submission of Ld. AR that said details were explained before AO during course of assessment proceeding is not found to be correct on fact as neither any evidence to that effect is available on assessment record nor Ld. AR could produce before me anything in that regard when opportunity for same was allowed to him during 263 proceedings.
ii. The second issue raised by the Ld. AR is that necessary details were explained in note 34 of the audited financial result of assessee-company. It was only a notional provision, as investment in mutual fund had been valued at carrying cost on 31.03.2015 therefore same was not chargeable to tax under normal provision as well as under provision of section 115JB of the Act, as per Ld. AR. The question involved here is not that whether unrealized gain on mutual fund were taxable under normal provision of the Act or not but the real question involved here is whether deduction for “unrealized gain on mutual fund” could have been claimed by assessee- company for the purpose of computation of 115JB book profits, once it was undisputed fact that corresponding amount of Rs. 4,23,84,000/- was in fact credited to profit and loss account of assessee-company for period ending on 31.03.2015, which was prepared under provisions of company Act. Once the amount under consideration of Rs. 4,23,84,000/- was credited in P&L account then any deduction could have been allowed to assessee-company if the same was allowable under provision of explanation 1. Clause (i) to (viii) as appeared in section 115JB of the Income Tax Act. No such deduction is found to be allowable to the assessee-company under any of the clause (i) to (viii) of explanation 1 therefore, the argument taken by Ld. AR that the notional provision under the head “unrealized gain on mutual fund” is not chargeable under provision of section 115JB of the Act, is not found to be legally tenable. iii. The third issue raised by Ld. AR on which heavy reliance was placed is that the benefit of claim can be allowed to assessee-company under explanation (iie)(B) of explanation 1, which reads as under: - (iie) the amount representing – A. notional gain on transfer of a capital asset being share of a special purpose vehicle to a business trust in exchange of units allotted by that trust referred to in clause (xvii) of section 47 or; B. notional gain resulting from any change in carrying amount of sold units; or M/s. Budge Budge Refineries Ltd. I have considered the above provisions contained in explanation (iie) (B) to whichreference has been made by Ld. AR. The said provision refer to the notional gain or transfer of capital asset, being share of a SPV to a business trust in exchange of units allotted in that trust referred to in clause (xvii) of section 47 or the notional gain resulting from any change in carrying amount of said units. So the units being refer to in explanation (iie) are totally different from the units on which the assessee has realized the gain. Therefore, after examining facts of assessee’s case, I am of the considered view that benefit of explanation (iie) of explanation 1, is not at all applicable to assessee’s case as in present matter of the assessee, the units were of Birla Sun Life fixed term plan (Corporate series) and not the units of the nature of explanation (iie) for which deduction could have been allowed to assessee company. Accordingly, based on said factual position, it emerges to me that the reliance placed on explanation (iie) for the purpose of argument that deduction could be allowed to the assessee-company for computation of 115JB of the Act, is without any merit and same does not go to held assessee’ case. iv. The fourth argument taken by Ld. AR is that it is a settled law that if AO has taken a possible view then it cannot be said that the view taken by him is erroneous hence the order of AO cannot be set aside in proposed revision. Here in assessee’s case the facts are quite clear and distinguishable. The AO has taken a view of allowing the claim of Rs. 4,23,84,000/- under the head “unrealized gain on mutual fund” for the purpose of computation of chargeable book profits u/s 115JB of the Act. This view of AO is found to be patently wrong view as said claim could not have been allowed as the same was not a deductible item of claim / expenditure under any of the clause (i) to (viii) of explanation 1 appearing below section 115JB of the Act. The settled position in law is that an incorrect assumption of fact or incorrect application of law would go to satisfy the requirement of order being erroneous under section 263 of the Act. Here the assessment order has been passed by the AO on incorrect application of law therefore the assessment order dated 29.12.2017 passed by AO (revised on 03.07.2018) is definitely an erroneous order. If due to that erroneous order passed by AO, the revenue is losing the lawful taxes payable by the assessee-company then the order passed by AO is certainly prejudicial to the interest of Revenue as well. Here also the argument taken by Ld. AR that the view taken by AO was a possible view, is not found to be legally tenable as the view taken by the AO is not found to be permissible view under the provision of law as contained in explanation 1 below section 115JB of the Act.”
M/s. Budge Budge Refineries Ltd.
For the reasons given above and by relying on the decision of Hon’ble Calcutta High Court in the case of CIT vs Maithan International (2015) 56 taxmann.com 283 (Calcutta), the Ld. Pr. CIT held the assessment order passed by the AO dated 29.12.2017 u/s 143(3) for the year under consideration as erroneous as well as prejudicial to the interest of the revenue vide his order dated 28.02.2020 passed u/s 263 with the direction to the AO to frame the same afresh after making proper verification and enquiry on the issue of allowability of assessee’s claim for deduction on account of “unrealized gain on mutual fund” while compute book profit u/s 115JB of the Act. Aggrieved by the order of the Ld. Pr. CIT passed u/s 263, the assessee has preferred this appeal before the Tribunal.
The learned counsel for the assessee submitted that investment of Rs. 30 crores was made by the assessee-company in Birla Sun Life Mutual Find and the NAV of the same had increased by Rs. 4,23,84,000/- on 31.03.2015 resulting into a gain to that extent. He submitted a maturity date of the said mutual fund however was on 4th April, 2017 and thus the said gain though accrued to the assessee- company had not become due. He submitted that although this unrealized gain was credited in the profit and loss account of the assessee-company for the year under consideration, the same did not constitute the income of the assessee-company for the year under consideration as it had not become due to the assessee-company. He pointed out that this position was clearly indicated by the assessee- company in Note No. 34 to the financial statements and it was accepted by the AO while determining the total income of the M/s. Budge Budge Refineries Ltd. assessee as per the normal provisions of the Act where the deduction claimed by the assessee was duly allowed by the AO. He contended that the amount in question representing unrealized gain on mutual fund thus did not constitute the income of the assessee for the year consideration and there was no question of including the same in the book profit computed u/s 115JB of the Act. In support of this contention, the learned counsel for the assessee relied on the following judicial pronouncements: i. Pr. Commissioner of Income Tax vs Ankit Metal & Power Ltd., of 2018 dated 09.07.2019 of Calcutta High Court. ii. Tata Metaliks Ltd. vs ITO, Ward – 3(2), ITA Nos. 439 & 478/Kol/2016 of Kolkata Bench of ITAT. iii. Shivalik Venture (P) Ltd. vs DCIT, (2015) 60 taxmann.com 314 (Mumbai – Trib.).
The learned counsel for the assessee contended that there was thus no error in the order of the AO passed u/s 143(3) allowing the claim of the assessee for deduction on account of “unrealized gain on mutual fund” while computing the book profit u/s 115JB of the Act and the Ld. Pr. CIT is not justified in setting aside the same by exercising his revisionary power u/s 263 of the Act.
The Ld. CIT DR, on the other hand submitted that the issue relating to the assessee’s claim for deduction on account of “unrealized gain on mutual fund” as allowed by the AO u/s 143(3) is not decided on merit by the Ld. Pr. CIT vide his impugned order passed u/s 263. He invited our attention to the notice issued by the Ld. Pr. CIT u/s 263 to point out that the order passed by the AO u/s 143(3) was sought to be held as erroneous as well as prejudicial to the interest of the revenue on the ground that the claim of the M/s. Budge Budge Refineries Ltd. assessee for deduction on account of unrealized gain on mutual fund while computing the book profit u/s 115JB of the Act was allowed by the AO without making any enquiry whatsoever. He also invited our attention to the finding record by the Ld. Pr. CIT in paragraph No. 5(i) of the impugned order, after considering the submissions made on behalf of the assessee-company and examining the relevant assessment records, that while finalising the scrutiny assessment, the AO had simply accepted the returned income without necessary application of mind and without raising any enquiry whatsoever on the assessee, on the aspect of allowability of deduction on account of “unrealized gain on mutual fund” for the purpose of computation of book profit u/s 115JB of the Act. He contended that the order passed by the AO u/s 143(3) thus was found to be passed without making proper enquiry and proper examination of the claim made by the assessee for deduction on account of “unrealized gain on mutual fund” and by relying on the decision of Hon’ble Calcutta High Court in the case of Maithan International (supra), the same was rightly set aside by the Ld. Pr. CIT vide his impugned order passed u/s 263 by treating the same as erroneous as well as prejudicial to the interest of the revenue. He also invited our attention to the concluding para no. 7 of the impugned order of Ld. Pr. CIT to point out that the AO has been directed by the Ld. Pr. CIT to examine the issues relating to the assessee’s claim for deduction on account of “unrealized gain on mutual fund” while computing the book profit u/s 115JB of the Act thoroughly and decide the same by applying proper provision of law as contained in 115JB after giving the assessee-company a reasonable opportunity of being heard.
M/s. Budge Budge Refineries Ltd.
We have considered the rival submissions of both the sides and also perused the relevant material available on record. As rightly contended by the Ld. CIT DR, it was found by the Ld. Pr. CIT on verification of the assessment record that the claim of the assessee for deduction on account of “unrealized gain on mutual fund” was allowed by the Assessing Officer in the assessment completed u/s 143(3) without making any enquiry whatsoever and this error was specifically pointed out by him in the notice issued u/s 263 to the assessee. In reply to the said notice, written submissions were filed by the assessee-company offering its explanation in the matter and after considering the same as well as examining the relevant assessment records, it was found by the Ld. Pr. CIT that while finalising the scrutiny assessment, the AO had simply accepted the returned income without necessary application of mind and without raising any enquiry whatsoever on the aspect of allowability of the assessee’s claim for deduction on account of “unrealized gain on mutual fund” while computing the book profit u/s 115JB of the Act. At the time of hearing before the Tribunal, the learned counsel for the assessee has not been able to rebut or controvert this finding of fact specifically recorded by the Ld. Pr. CIT in his impugned order. Even in reply to a query raised by the bench, he has not been able to bring anything on record to show that any enquiry whatsoever was made by the AO during the course of assessment proceedings before allowing the claim of the assessee-company for deduction on account of “unrealized gain on mutual fund” while computing the book profit u/s 115JB of the Act. As held by the Hon’ble Calcutta High Court in the case of Maithan International (supra) relied upon by the Ld. Pr. CIT in his impugned order, the role of the Assessing Officer is that of an M/s. Budge Budge Refineries Ltd. investigator as well as adjudicator and where relevant enquiry was not undertaken before allowing the claim of the assessee for deduction, the order become erroneous as well as prejudicial to the interest of the revenue calling for revision u/s 263. Moreover, as specifically provided in clause (a) of Explanation 2 below Section 263 if in the opinion of Pr. CIT, an order passed by the AO is without making enquiries or verifications, which should have been made, the same shall be deemed to be erroneous in so far as it is prejudicial to the interest of revenue for the purpose of Section 263 calling for exercise of revisionary power
As regards the contention raised by the learned counsel for the assessee in support of the assessee’s claim for deduction on account of “unrealized gain on mutual fund” while computing book profit u/s 115JB of the Act on merit, we agree with the contention of the Ld. CIT DR that the same is not relevant at this stage as the said issue has not been decided by the Ld. Pr. CIT on merit in his impugned order passed u/s 263. While setting aside the order of the AO passed u/s 263, he has directed the AO to frame the assessment de novo after making proper verification / enquiry on the issue of allowability of assessee’s claim for deduction on account of “unrealized gain on mutual fund” while computing book profit u/s 115JB in accordance with law and after giving the assessee-company a reasonable opportunity of being heard. The Ld. Pr. CIT thus has left this issue to be decided by the AO on merit in accordance with law after giving the assessee-company a reasonable opportunity of being heard and the assessee, therefore, is at liberty to support and substantiate its claim M/s. Budge Budge Refineries Ltd. on this issue on merit before the AO by relying on the relevant judicial pronouncements.
Keeping in view the foregoing discussion, we uphold the impugned order passed by the Ld. Pr. CIT u/s 263 and dismiss this appeal of the assessee.
In the result, the appeal of the assessee is dismissed.
Order Pronounced in the Open Court on 9th July, 2021.