SHREE GLOBAL TRADEFIN LTD,MUMBAI vs. DCIT CEN CIR 5(1), MUMBAI

Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा लेखा सद�य लेखा लेखा सद�य सद�य, राजे�� सद�य राजे�� राजे�� केकेकेके अनुसार राजे�� अनुसार अनुसार /PER RAJENDRA, AM- अनुसार Challenging the order dated 29/07/2016, of CIT(A)-53, Mumbai the assessee has filed the present appeal.Assessee-company,engaged in the business of trading of iron and steel and various investment activities,filed its return of income on 27/09/2012,declaring total income at Rs.Nil.The Assessing Officer (AO)completed the assessment u/s.143(3)of the Act, determi -ning the total income of the assessee at Rs.60.74 lakhs. 2.During the assessment proceedings the AO found that the assessee had shown dividend income of Rs.30.22 lakhs,that it had earned Long Term Capital Gain (LTCG) of Rs.3,00, 85,985/-,that the assessee had made a suo moto disallowance of Rs.30.12 lakhs.After considering the opening and closing investments,he disallowed 0.5% of the average invest - ment i.e. Rs.2.40 crores as per the provisions of section 14A r.w.r.8D of the income tax Rules (Rules)1962.Taking into consideration disallowance of Rs.31.12 lakhs made by the assessee itself,the AO added sum of Rs.2.08 crores to its income. 2.1.Aggrieved by the order of the AO he preferred an appeal before the First Appellate Authority (FAA) and made elaborate submissions.After considering the available material,he held that the assessee had opening investment of Rs.444.97 crores, that the closing investment was of Rs.723.55 crores,that it had made fresh investment of Rs.278.58 crores during the year under consideration,that the AO had not properly examined the working of disallowance,that he had also not expressed any opinion about the correctness of assessee’s ‘ I.T.A./6319/Mum/2016, /A Y: 2012-13- Shree Global Tradefin Ltd.

claim that such a lapse was a procedural lapse, that the power of FAA is co-terminus with the power of the AO, that the assessee had adopted an adhoc and arbitrary approach for making disallowance,that investment of assessee had increased during the year under consideration, that the assessee had debited Rs.25.32 crores.Finally, he restored the matter to the file of the AO for verifying and ascertaining the quantum of financial cost and other expenses to be apportioned/disallowed towards earning of exempt income.He further held that AO was free to make disallowance of any financial expenses u/r 8D (2) (ii) or u/r.8D (2)(iii) of the Rules,if he would find that financial cost and expenses were incurred and same were not attributable to trading activity. 2.2.During the course of hearing before us,the AR stated that the FAA had no power to set aside the matter to the file of the AO,that he had enhanced the disallowance, that while giving effect to the order of the FAA, the AO had accepted the income returned by the assessee,that he did not make any further addition,that the disallowance should be restricted to Rs.31.12 lakhs.The Departmental Representative (DR) left the issue to the discretion of the Bench. 2.3.We have heard the rival submissions and perused the material before us. We find that while giving effect to the order of the FAA the AO had accepted the stand taken by the assessee,that the FAA had set aside the issue to the file of the AO.In our opinion,setting aside the matter by the FAA is not permitted by the provisions of the Act.Considering both the factors,mentioned above,we decide the first effective Ground of appeal in favour of the assessee. 3.Second effective Ground of appeal is about direction given by the FAA to add the disallow -ance,made u/s. 14A of the Act,while computing the book profit u/s.115JB of the Act. 3.1.Before us,the AR contended that the assessee had not raised any issue before him regarding computation of income as per MAT provisions, that the FAA on his own gave the direction to the AO,that he had not issued a notice u/s. 251(2) of the Act before enhancing the income of the assessee.The DR stated that the matter should be taken/decided on merits. 3.2.We find that the AO had,while computing the income of the assessee,had not made any disallowance under MAT,that the FAA without informing the assessee had enhanced the income of the assessee,as he had directed the AO to add the 14A disallowance for MAT purposes.In our opinion,the order of the FAA is not a valid order,as he did not follow the principles of natural justice.We have taken note of the order passed by the AO to give effect I.T.A./6319/Mum/2016, /A Y: 2012-13- Shree Global Tradefin Ltd.