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Income Tax Appellate Tribunal, MUMBAI BENCH “C”, MUMBAI
Before: SHRI G.S.PANNU & SHRI PAWAN SINGH
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “C”, MUMBAI BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER
ITA No. 6602/Mum/2012 (Assessment Year : 2007-08) ITA No. 6603/Mum/2012 (Assessment Year : 2008-09)
The ACIT 2(1) Room No.561, 5th Floor, Aaykar Bhavan,M.K.Road, Mumbai 400 020 ...... Appellant Vs. Chokhani Securities Ltd., 5A, Maker Bhavan No.2, Sir Vithaldas Thakersey Marg, New Marine Lines, Mumbai -20 PAN:AAACC2069E .... Respondent Appellant by : Shri B.S.Bist Respondent by : Shri Jayesh Dedhia Date of hearing : 05/08/2016 Date of pronouncement : 10/08/2016
ORDER PER G.S.PANNU,A.M:
The captioned two appeals by the Revenue relate to the same assessee and involve a common issue and, therefore, they have been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity.
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The common dispute in both the appeals relates to the validity of the proceedings initiated by the Assessing Officer by issuance of notice under section 147/148 of the Act and also the manner of allowing rebate for Securities Transaction Tax (STT) under section 88E of the Income Tax Act, 1961 (in short the Act) in a case where an assessee is also exigible to tax under section 115JB of the Act. Since the facts and circumstances in both the years are similar, the appeal for assessment year 2007-08, vide ITA No.6602/Mum/12 is being taken as the lead case.
ITA No.6602/Mum/12:-
In this appeal, Revenue has raised the following Grounds of appeal:-
“On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in allowing relief to the assessee to the extent impugned in the grounds enumerated below:- 1. The order of the CIT(A) is opposed to law and facts of the case. 2(a) "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in quashing the proceedings of re-assessment u/s 148 holding that no new fact had come to the notice of the AO and that there is no escapement of income thereby overlooking the judicial pronouncement in the decision of jurisdictional High Court in the case of IPCA Laboratories Vs DCIT 251 ITR 420 which clearly applies to - the present case". 2(b) "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in ignoring the provisions contained in Explanation 2(c)(ii) to section 147 which are clearly applicable in the present case. " 3. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in granting rebate under section.88E of the IT Act thereby, overlooking the crucial fact that Securities Transaction Tax is an indirect tax and if cannot be equated with prepaid taxes like Advance tax and hence, its rebate cannot be provided u/s 115JB, which is self contained taxation statute".
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"For these and other grounds that may be urged at the time of hearing, the decision of the CIT(A) may be set aside and that of the AO restored". 4. Briefly put, the relevant facts are that assessee is a company incorporated under the provisions of the Companies Act, 1956 and is, inter-alia, engaged in the business of dealing in shares and securities. For assessment year 2007-08, assessee company filed a return of income on 27/10/2007 declaring an income of Rs.3,15,37,230/-. The tax payable by the assessee was computed at Rs.11,666/- by claiming the rebate of STT under section 88E of the Act. The return of income filed by the assessee was subject to scrutiny assessment under section 143(3) of the Act dated 11/9/2009, wherein the only additions made were on account of section 14A of Rs.817530/- and under section 94(7) of the Act of Rs.10,848/-. Subsequently, the Assessing Officer issued notice under section 148 of the Act and reopened the assessment on the ground that assessee was liable to pay tax as per the provisions of section 115JB of the Act as the book profits of the assessee was Rs.3,14,98,344/- and the resultant tax thereon would be higher than the tax determined under the normal provisions of the Act. In the ensuing assessment, assessee, inter-alia, objected to the initiation of reassessment proceedings on the ground that there is no escapement of income. The assessee company pointed out that tax payable under the normal provisions of the Act was liable to be compared with the tax liability arising on account of section 115JB of the Act before allowance of rebate under section 88E of the Act. It was pointed out that once the matter was considered in that perspective, there would be no escapement of income so as to justify
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the initiation of reassessment proceedings. The Assessing Officer however, disagreed with the assessee and proceeded to compute the tax liability of the assessee in terms of section 115JB of the Act. In this manner, the book profit was determined at Rs.3,14,98,344/- and the tax liability has been determined at Rs.35,34,113/-. In appeal before the CIT(A), assessee not only challenged the validity of the proceedings initiated under section 148 of the Act but also the merits of the action of the Assessing Officer. The CIT(A) has considered both the pleas and found it is expedient to set-aside the action of the Assessing Officer. Firstly, with regard to reasons for initiation of reassessment under section 147/148 of the Act, the CIT(A) records a finding that neither any new facts came to the notice of the Assessing Officer and nor any escapement of income was established in law, and therefore, the notice issued under section 148 of the Act was liable to be quashed. According to the CIT(A) the initiation of proceedings was based on a wrong interpretation of the provisions of section 115JB of the Act and accordingly he has quashed the assessment. Even on merits, the claim of the assessee has been upheld. In this manner, the Revenue is in appeal before us.
At the outset, the Ld. Representative for the respondent- assessee pointed out that an identical controversy came up before the Tribunal in the case of M/s. R.R.Chokhani Stock Brokers Private Limited, in ITA No.1491/Mum/2012 dated 26/3/2013, wherein the Tribunal by relying on the judgment of the Hon’ble Karnataka High Court in the case of M/s. Horizon Capital Ltd. dated 24/10/2011 in ITA No.434 of 2010 held that for the purpose of determining
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applicability of section 115JB, tax liability under the normal provisions of the Act has to be compared with the tax liability under section 115JB of the Act on gross basis i.e. before allowing the rebate under section 88E of the Act. According to him, the controversy in the present appeal is fully covered by the said precedent. In this context, we find that in the case of M/s. R.R.Chokhani Stock Brokers Private Limited (supra) one of the Grounds of appeal raised read as under:-
“2. (a) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the rebate u/s. 88E. (b) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing Rebate u/s. 88E while computing tax liability under the MAT Provisions and in making the comparison between the tax determined under Normal Provisions of the I.T. Act and provisions u/s.115JB for the purpose of determining applicability of the Provisions of Section 115JB on gross before allowing Rebate u/s. 88E of the Income Tax Act, 1961 from the Income Tax determined under Normal Provisions of the Act and Rebate u/s. 88E would also be available to the assessee against the tax payable u/s.115JB of the Act.” The said controversy was addressed by the Tribunal in the following words:-
Next Ground of Appeal raised by the AO is about allowing rebate u/s. 88E of the Act,while computing tax liability under the Minimum Alternate Tax (MAT) provisions.During the assessment proceedings, AO found that assessee had paid tax under the normal provisions of the Act and same worked out Rs. 5.84 Crores before rebate u/s. 88E.He found that while arriving at the Book Profit, assessee had not added Securities Transactions Tax (STT) of Rs. 5.50 Crores to its Books Profit. AO directed the assessee to justify the computation of MAT u/s. 115JB of the Act and also to explain as to why tax should not be taken as per MAT provisions. 7.1.After considering the submissions of the assessee-company, AO held that provisions of Section 115JB were made to ensure collection of Corporate Tax targets year over year from the corporate assessees having earned profit as per book results but the tax liability. Under the normal provisions of Act was much less, that the provisions of Section 115JB dealt with payment of Income Tax in contrast to computation of Income Tax chargeable u/s. 87(1), that the provisions of Section 87 allowed rebate u/s. 88 in respect of L.I.P. and P.F. etc., that payment of STT qualify for tax by way of rebate of similar footing as for payment of L.I.P. etc., and not at
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par with TDS or advance tax which were treated as payment of tax u/s. 199 and 219 of the Act, that the provisions of Section 88E applied only to those cases where the total income of the assessee included income chargeable under the head ‘Profits and Gains of Business/Profession arising from Taxable Securities Transaction’, that provisions of Section 115JB were applicable to an assessee, being a company irrespective of the head of the income chargeable. 7.2.Assessee preferred an appeal before the FAA. After considering the submissions, he held that from ITR 6 (where taxable worked out under normal provisions of the Act or under the MAT) entries of far ITR 6 had to be considered while calculating, income u/s. 115JB of the Act, that there was no prohibition in claiming rebate in respect of STT paid against Income Tax payable under MAT under the provisions of Section 115JB. He finally held that comparison between tax determined under normal provisions of the Act and that determined u/s. 115JB should be made for the purpose of determining the applicability of the provisions of Section 115JB on gross basis before allowing debit u/s. 88E from the Income Tax determined under normal provisions of the Act, that rebate u/s. 88E could also be available to the assessee against the tax payable u/s. 115JB. He relied upon the orders of M/s. Horizon Capital Ltd.,(ITA No. 592/Bangalore/10 AY. 2005-06);M/s.MBL & Co. Ltd.,(ITA No. 2478/ Del /2010 AY. 2007-08) and Naman Securities & Finance Pvt. Ltd., 7.3.Before us, Departmental Representative (DR) relied upon the order of the AO.AR submitted that tax rebate was a step which would arise after determining income tax payable on total income computed as per applicable provisions including MAT, that comparison u/s. 115JB was between Income tax payable on total income and 10% on Book Profit had to be carried out, that same view emerged from the Income Tax return (ITR 6) prescribed by the Central Board of Direct Taxes wherein the gross tax liability before claim of rebate u/s. 88E was first to be confirmed with the tax computed under MAT. He further stated that the decision of the Bangalore Tribunal in the case of M/s. Horizon Capital Ltd., (supra) had been upheld by the High Court of Karnataka vide judgment dt. 24-10-2011 (ITA No.434/2010). 8.We have heard the rival submissions and perused the material put before us. We find that issue is squarely covered by the decisions relied upon by the FAA and the order of the Hon’ble High Court of Karnataka. In the said judgment Hon’ble High Court has observed as under: “Section 115JB provides that if the tax payable on the total income is less than 7.5 per cent of the book profit, the tax payable under this provision shall be the amount of income tax at the rate of 7.5 per cent of book profit. In other words, if computation of income is done under the provisions of the Act and if the tax payable is less than 7.5 per cent of the book profit and the assessee is a company, then the minimum tax payable by such a company is 7.5 per cent of the book profit. Except to that extent, all other provisions in the Act are applicable in respect of both type of assessment. As is clear from sections 87 and 88E, the said provision does not give any indication as to its applicability to the
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computation of amount of income tax on the total income of an assessee under any particular provision of law under the Act. If after such computation of the amount of the income tax payable on the total income of the assessee under the Act, if such an assessee has paid tax under the aforesaid provisions mentioned in the said section to the extent of the tax paid under that section is deductible as rebate. Under section 88E, where the total income of an assessee in a previous year includes any income, chargeable under the head ‘profits and gains of business or profession’, arising from taxable securities transactions, he shall be entitled to a deduction, from the amount of income-tax on such income arising from such transactions. Therefore, it is clear that the assessee is liable to pay securities transaction tax when he enters into securities transaction. The tax is payable simultaneously after realizing the consideration. However, if that transaction is included in the total income of the assessee where the total income is assessed either under the provisions of the Act or under section 115JB when tax chargeble on such income is arrived at, he is given the benefit of tax deductions of the amount, which he has paid under section 88E by virtue of section 87. When under section 82A, the assessee is made liable to pay tax with an assurance that it will be deducted and section 87 gives effect to such promise made under the statute. That is the reason why the word used is rebate. The amount paid is handed back to the assessee. In other words, payment of tax twice on the same income is avoided. Therefore, the contention that this benefit is not available to the assessee whose total income is assessed under section 115JB has no substance. In other words, when the total income is assessed and the tax chargeable is computed, it is from that tax which is chargeable, the tax paid under section 88E is given deduction, by way of rebate, under section 87. This is the legislative intent. That is a promise to give deduction of the tax already paid. This is the mode in which tax already paid is handed back at the time of final computation. Therefore, the order passed by the Tribunal is strictly in accordance with law and does not suffer from any legal infirmity, which called for interference. No substantial question of law is involved in this appeal, which merits admission. The appeal is dismissed.” Respectfully following the above decision of the Hon’ble Karnataka High Court and the orders of the coordinating benches we decide Ground no.2 against the AO.
Quite clearly, the aforesaid decision of the Tribunal is based on the judgment of the Hon’ble Karnataka High Court(supra) and no decision to the contrary has been cited before us, and therefore the finding of the CIT(A), which are in consonance with the aforesaid
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precedent is hereby affirmed. As a result, we hereby affirm the order of the CIT(A) and Revenue fails on this aspect.
The other aspect challenged by the Revenue is that the CIT(A) erred in invalidating the reassessment proceedings initiated under section 147/148 of the Act. The CIT(A) quashed the reassessment on twin grounds, firstly that no new facts came to the notice of the Assessing Officer so as to justify initiation of proceedings under section 147/148 of the Act; and, secondly, that there was no escapement of income as the belief of the Assessing Officer was based on a wrong interpretation of the provisions of Section 115JB of the Act. The CIT(A) has reached to the above conclusion on the basis of the following discussion :-
“5. I have considered the facts of the case and submissions of the assessee. Section 115JB clearly states that 10% of the book-profit will be taken as income of the assessee if it is higher than the income-tax payable on total income computed under the Act. Gross Income-tax payable is to be considered for comparison with 10% of book-profit without any adjustment of advance payment of tax or any other rebate which may be available to the assessee against any tax payable which is in the same nature as advance payment of tax or TDS etc. The A.O. wants to compare the net tax payable after reduction of STT with 10% of book-profit, but such a comparison is not warranted u/s. 115JB because STT is like any other tax paid and it is not to be reduced from the tax liability before comparison with 10% of book-profit. STT is allowed deduction from income-tax payable whether it is calculated and payable under the normal provisions of the Act or payable u/s.115JB and, therefore, the tax liability is to be considered under the normal provisions of the Act before deduction of STT, it is also clear from the return of income form – the relevant part B of form No. 6, which is as follows : A. “Part B” of the form No. 6 for return of income 1 Tax payable on deemed total income u/s.115JB (7 of Schedule MAT) 2 Tax payable on total income in item 11 of Part B-TI a. Tax at normal rates b. Tax at special rates (11 of Schedule S1) c. Tax payable on total income in item 11 of Part B-T1 (2a + 2b) 3 Gross tax payable (enter higher of 2c and 1)
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4 Credit under section 115JAA of tax paid in earlier years (if 1 is more than 2c) (7 of Schedule MATC) 5 Tax payable after credit under section 115JAA [(3-4)] 6 Rebate under section 88E (4 of Schedule-STTC) 7 Balance tax payable (5-6) 8 Surcharge on 7 9 Education Cess on (7+8) 10 Gross tax liability (7+8+9) 11 Tax relief a. Section 90 b. Section 91 c. (11a + 11b)
It is clear in the above mentioned part B of the return of income that at Point No. 3 the tax payable under the normal provisions of law and the deemed income u/s. 115JB i.e. 10% of book-profit are to be compared before any rebate for STT u/s. 88E at Point 6 of the form. Therefore, it is clear that neither any new fact had come to the notice of the A.O. nor there was any escapement of income and it was merely a wrong interpretation of the provisions of section 115JB which resulted in the belief of the A.O. for issue of notice u/s. 148, but as discussed above there is no escapement of income, therefore, there was no basis for issue of notice u/s. 148, hence the assessment made pursuant to notice u/s. 148 is quashed and the grounds of appeal of the assessee are allowed.”
In the course of hearing, the Ld. DR defended the action of the Assessing Officer by pointing out that at the stage of initiation of proceedings under section 147/148 of the Act what is required is to form only a prima facie view and, therefore, the CIT(A) ought not to have invalidated the initiation of reassessment proceedings.
On the other hand, the learned representative for the assessee pointed out that the view of the Assessing Officer was clearly untenable in law, as held by CIT(A) and, therefore, the initiation of proceedings under section 147/148 of the Act was itself bad in law.
We have carefully considered the rival submissions and find that the action of CIT(A) deserves to be affirmed. The CIT(A) has
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clearly brought out the error on the part of the Assessing Officer while forming a belief about the escapement of income. Section 88E of the Act provides for a rebate in respect of STT paid. Ostensibly, such rebate is available against the income-tax payable by an assessee subject to other conditions specified in the section. If we read the relevant provisions, it is quite clear that Section 88E of the Act does not envisage any distinction between total income computable under the normal provisions of the Act and that computable under Section 115JB of the Act so far as it relates to the granting of rebate against the amount of income-tax payable. Therefore, in our view, it would not be wrong to conclude that the interpretation sought to be placed by the Assessing Officer even at the time of formation of belief for issuance of notice under section 147/148 of the Act was not borne out of the bare provisions of the Act. Of course, the stand of the Assessing Officer is also contrary to the judgment of the Hon’ble Karnataka High Court in the case of M/s. Horizon Capital Ltd. (supra), but that decision is of a date later than the date on which the Assessing Officer initiated the proceedings under section 147/148 of the Act. Be that as it may, in our view, the CIT(A) has succinctly brought out that the interpretation made by the Assessing Officer to form the belief about escapement of income is not supported by the bare provisions of the Act also, which we hereby affirm. As a consequence, we affirm the action of CIT(A) in treating the initiation of proceedings under section 147/148 of the Act as invalid. Thus, on this aspect also Revenue fails.
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Since the facts and circumstances in the ITA No. 6603/Mum/2012 for assessment year 2008-09 are pari-materia to those considered by us in ITA No. 6602/Mum/2012 for assessment year 2007-08, our decision therein shall apply mutatis mutandis in the appeal for assessment year 2008-09 also.
In the result, appeals filed by the Revenue are dismissed.
Order pronounced in the open court on 10/08/2016
Sd/- Sd/- (PAWAN SINGH) (G.S. PANNU) JUDICIAL MEMBER ACCOCUNTANT MEMBER Mumbai, Dated 10/08/2016 Vm, Sr. PS Copy of the Order forwarded to : 1. The Appellant , 2. The Respondent. 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, //True Copy//
(Dy./Asstt. Registrar) ITAT, Mumbai