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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI SHAILENDRA KUMAR YADAV, JM & SHRI RAJESH KUMAR, AM
O R D E R PER RAJESH KUMAR, A. M: This is an appeal filed by the assessee and challenging the order dated 28.11.2013 of ld.CIT(A)-29, Mumbai, for assessment year 2006-07.
The sole issue raised by the assessee in the ground of appeal is with respect to confirmation of disallowance u/s 88E of the Income Tax Act, 1961 amounting to Rs.16,46,695/- by CIT(A) by ignoring the facts that the assessee has Short Term Capital Gains (STCG) which is taxable at the rate of 10% and also the fact that rebate u/s 88E was calculated at the average rate of tax which is inclusive of STCG tax also.
2 2/Mum/2014
Brief facts of the case are that the assessee has filed his return of income on 23.10.2007 declaring the total income of Rs.6,45,37,707/-. The case of the assessee was selected for scrutiny and the statutory notices u/s 143(2) and 142(1) were issued and served upon the assessee. Thereafter considering the submissions of the assessee from time to time , the assessment was framed u/s 143(3) of the Act on 14.11.2008 at an income of Rs.2,78,57,848/-. Thereafter vide order dated 11.10.2012 passed under section 154 of the Act, the AO observed that of rebate u/s 88E of the Act was wrongly allowed at an amount of Rs.38,80,251/- whereas the actual rebate allowable under section 88E of the Act worked out to Rs.22,33,556/-. The AO calculated the rebate by applying the formula as prescribed in sub- section (2) to section 88E of the Act as under:
Taxable income from securities transactions X Tax liability before rebate, surcharge Net income or the total income 1,20,97,465 X 51,43,396 =22,33,556 2,78,57,848 Thus, the AO found that the rebate under section 88E was allowed excess to the extent of Rs.16,46,695/-resulting into short levy of tax of Rs.18,47,592/- excluding surcharge and deduction which required to be rectified under 3 2/Mum/2014 section 154 of the Act. Accordingly, the AO passed order under section 154 withdrawing the excess rebate allowed u/s 88E of the Act to the extent of Rs.16,46,695/- after considering the submissions of the assessee. Aggrieved by the order of AO, the assessee preferred an appeal before the ld.CIT(A), who after considering the reply of the assessee vide letter dated 27.8.2013 dismissed the appeal of the assessee by observing and holding as under :
“10. The AO has taken into consideration the tax rate applicable for short term capital gains @ 10% and the business Income from security transactions @ 30% thereby taking the average rate of both the rates and arrived at average rate of taxation at 18%, which in my opinion is correct.
The rebate u/s 88E is allowable as per the mathematical formula provided for calculating such rebate. The AO has simply applied this mathematical formula with the figures of taxable income from securities transaction, net income and the tax liability and calculated the rebate allowable u/s 88E at Rs. 22,33,556/-. For applying the above formula, the AO has taken the figures supplied by the appellant himself in the return of income filed for the year under consideration. The AO has simply substituted these figures in the formula and calculated the rebate u/s 88E.
In. view of the facts and circumstances explained above, in my considered opinion, the rectification order passed u/s 154 working out the rebate u/s 88E at Rs. 22,33,556/- as against the rebate allowed under the same section earlier at Rs. 38,80,251/- as claimed by the assessee in the return of income filed for the year under consideration. The rectification made u/s 154 is in order and does need any interference at this end. This ground f appeal therefore is rejected.
We have carefully considered the rival contentions of the parties and perused the material placed before us including the orders of authorities below. Before deciding the issue we would like to refer to the provisions of 4 2/Mum/2014 section 88E of the Act which are extracted for the purpose of better understanding as under: “Rebate in respect of securities transaction tax. 88E. (1) 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, computed in the manner provided in sub-section (2), of an amount equal to the securities transaction tax paid by him in respect of the taxable securities transactions entered into in the course of his business during that previous year: Provided that no deduction under this sub-section shall be allowed unless the assessee furnishes along with the return of income, evidence of payment of securities transaction tax in the prescribed form: Provided further that the amount of deduction under this sub-section shall not exceed the amount of income-tax on such income computed in the manner provided in sub-section (2). (2) For the purposes of sub-section (1), the amount of income-tax on the income arising from the taxable securities transactions, referred to in that sub-section, shall be equal to the amount calculated by applying the average rate of income-tax on such income. 53[(3) No deduction under this section shall be allowed in, or after, the assessment year beginning on the 1st day of April, 2009.] Explanation.—For the purposes of this section, the expressions, “taxable securities transaction” and “securities transaction tax” shall have the same meanings respectively assigned to them under Chapter VII of the Finance (No. 2) Act, 2004.]”
The close perusal of the above provisions reveals that the assessee is entitled to rebate under section 88E where the total income of the assessee in the previous year includes any income chargeable under the head profit and gains or profession which arose from the taxable securities transition then he
5 2/Mum/2014 shall be entitled to reduction from the amount of tax on such income arising from such transactions computed by applying average rate of interest tax on such income as provided under subsection (2) as reproduced above. The ld. AR before us submitted that the assessee had rightly calculated and claimed the amount of rebate under section 88E whereas the calculation as made by the AO and confirmed by the ld.CIT(A) were fallacious and wrong and therefore prayed that the order of the ld. CIT(A) be set aside and the AO be directed to allow rebate under section 88E as claimed by the assessee. On the contrary, the ld. DR submitted before us that the excess claim of rebate u/s 88E in respect of transaction liable for securities transaction tax as included in the income from profit and profession was rightly withdrawn by the AO and therefore the order passed by the ld.CIT (A) be affirmed by dismissing the appeal of the assessee. We have carefully considered the provisions of section 88E of the Act viz-a-viz the claim of the assessee and find that the AO has rightly reduced the rebate under section 88E of the Act by restricting the amount to Rs.22,33,556/- as against Rs.38,80,250/- as claimed by the assessee. The methodology of calculation of rebate under section 88E has been provided under sub-section (2) of the said section and therefore there is hardly any room for any deviation or departure from the said formula. In our opinion, the AO has correctly applied the formula as per sub-section (2) of section 88E of the Act. We, therefore, are in agreement with the opinion of the AO and First Appellate Authority that the assessee
6 2/Mum/2014 has claimed excess rebate to the tune of Rs.16,46,695/- u/s 88E and accordingly uphold the order of CIT(A) by dismissing the appeal of the assessee.
In the result, the appeal of the assessee is dismissed.