TaxTMI 
TaxTMI 
2012 (8) TMI 43
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.... and after completely ignoring the appellant's written submissions dated 9.3.2011: "5. The assessee's submission has been considered carefully and the same are found not acceptable. --- --" 2.1 Without prejudice to the foregoing, in law and in the facts and circumstances of the appellant's case, the learned CIT has grossly erred in proceeding on the basis, in justification of his assuming jurisdiction u/s.264, that the Assessing Officer passing he assessment order u/s. 143(3) for the present assessment year, had granted carry forward of loss of speculation business pertaining to A.Y 2001-002 without making proper enquiry/verification. 2.2 The learned CIT has similarly grossly erred in proceeding on the basis, in justification of his assuming jurisdiction u/s. 263, that the Assessing Officer passing the assessment order u/s. 143(3) for the present assessment year had computed the appellant's book profit under Section 115JB without adding the amount of Rs. 64.35 lacs disallowed by him under Section 14A without making proper enquiry/verification. 3. Without prejudice to the foregojng grounds, in law and in the facts and circumstances of the....
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....n loss. The assessee had claimed carry forward of speculation loss of Rs. 69,62,778/- pertaining to the assessment year 2000-01 and assessment was allowed to the carry forward while finalization on u/s. 143(3) of the Act. However, in view of the amended provisions of Section 73(4) of the Act no loss of speculation business shall be carried forward while assessment year immediately closing assessment year in the case of assessee-company, loss was incurred in the A.Y. 2000-01 and the period of four years had expired in the A.Y. 2004-05 as per Ld. CIT. Further, it is observed by Ld. CIT in the case of assessee-company an amount of Rs. 64.35 lakh was disallowed u/s. 14A r.w.s. Rule 8D of the I.T. Rules, 1962 by the Assessing Officer while finalization the assessment u/s. 143(3) of the Act. and after allowing set off of brought forward business loss and unabsorbed depreciation of previous year tax was calculated u/s. 115JB of the Act. However, it is noticed that from working of MAT that the expenditure disallowed of Rs. 64.35 lakh in respect of exempted income (dividend income u/s. 10(34)) was not added back while computing book profit for the purpose of Section 115JB of the Act thou....
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....f his contention that case considering applicability of clause (f) of the Explanation 1 to Section 115JB suffers from non-application of mind and is erroneous prejudicial to the Revenue. He further relied upon the judgment of Hon'ble Madras High Court in the case of CIT v. South India Shipping Corporation Ltd. (1998) 233 ITR 546 (Mad), in support of his contention that lack of proper enquiry by the Assessing Officer rendered the assessment order as erroneous and prejudicial to the interest of Revenue. 6. We have heard the rival submissions, perused the materials available on record and case law cited by the parties. We find that Ld. AR in the synopsis as reported the submission made before Ld. CIT. In response to notice u/s. 263(1) of the Act the Ld. CIT has issued a show-cause notice u/s. 263(1) of the Act of his order, which reads as under:- "On examination of the records, it is noticed that your company had claimed carry forward of speculation loss of Rs. 69,,62,778/- pertaining to A.Y. 2000-01 which was allowed to be carried forward by the Assessing Officer while finalizing the assessment u/s. 143(3) of the I.T. Act. However, in view of the provisions of Section 73(....
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.... requested to show cause as to why an appropriate Order U/s. 263(1) of the I.T. Act, 1961 should not be passed in your case. Hearing in your case is fixed on 24/09/2010 at 11.30 A.M at the above address and you are requested to attend either personally or through your authorized representative on the appointed date along with the documents/books of accounts on which you may rely or furnish your written submission in this regard on or before the said date. Please note that in case, nothing is heard from you by the said date, it shall be presumed that you have nothing to say in the matter and have no objection to the proposed action and the matter shall be decided on merits." In response to the aforesaid notice, the assessee made following written submission, which is reproduced for the sake of applicable:- "We strongly believe that the action proposed in the Notice in respect of both the issues is entirely misplaced and, therefore, the proposal deserves to be dropped. In order that Your Honour may appreciate this, we beg to narrate the relevant facts and make our submissions. FACTS (in respect of the First Issue of Unabsorbed Speculation Loss) OUR assessment for....
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....ly succeeding the assessment year for which it was first computed [vide sub-section (4)] ... ... ... Thus when our am for A.Y. 2000-01 was made, it not only involved computation of the quantum of the unabsorbed loss for being set off against the Speculation Profit of succeeding assessment years but further, it also involved determination of the precise assessment year upto which the unabsorbed loss so determined could be carried forward for being set off. This is for the simple reason that the assessment year upto which unabsorbed speculation loss could be set off was required by the provisions of Section 73 to be reckoned from the assessment year in which the loss from Speculation Business was first computed. Accordingly, when our assessment for A.Y. 2000-01 was made, not only was the quantum of the unabsorbed Speculation Loss to be carried forward in pursuance of the provisions of Section 73 computed but further, it was also determined, once and for all, and that too, in pursuance of the same provisions of Section 73, that, that unabsorbed loss would be carried forward for being set off upto A.Y. 2008-09, that being the eighth assessment year reckoned from A.Y. ....
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....ision of law which is substantive in nature can be given retrospective effect unless the Legislature has expressly provide for the same. It is equally well settled that vested rights cannot be taken away except by making express provisions having retrospective effect. As explained before, the provisions of Section 73 are substantive in nature. Equally, when any unabsorbed speculation loss is computed in the assessment of any assessment year for being carried forward and set off against profits or gains of a speculation business for eight succeeding assessment years in pursuance of the then existing provisions of Section 73, the assessee gets a vested right to carry it forward for those eight assessment years. It is submitted that it is only axiomatic that this right to carry forward the loss for as may as eight years is a vested right of substantive nature and cannot be taken away or impaired (by reducing the number of years for which it can be carried forward, from eight to four) without the Legislature making an express provision in that behalf. On the other hand, only a plain reading of Clause 20 of Finance Bill, 2005 and of the relevant portions of the Notes on Clauses and the ....
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....ber of subsequent yeas is a substantive and vested right, that, that is so has been categorically held by none other than the Supreme Court in its decision in CIT v. Shah Sadiq and Sons (166 ITR 102) 8.2 We would also take this opportunity to draw Your Honour's attention to the following authorities which show how well settled the legal position concerning prospective application of a substantive provision is and also that vested rights cannot be taken away except by means of expression provisions in that behalf: (a) Following portion of the Head Notes of the Supreme Court decision in CIT v. Varas International p Ltd. (283 ITR 484) clearly shows that the legal position that amendment of a Statute can be construed as being retrospective only if the amended provision itself indicates, either in terms or by necessary implication, that it is to operate retrospectively, has been conclusively determined by the Supreme Court consistently holding it to be so for a period of years: "Held, that it has been consistently held by the Supreme Court that for an amendment of a statute to be construed as being retrospective, the amended provision itself should indicate ei....
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....s from eight to four would be misplaced since it would result in absurdity. In order to demonstrate the absurdity, the following illustration may be considered: Assessment year in which the unabsorbed loss was first computed 2000-01 Assessment year upto which the above loss can be carried forward under S.73((4) as it existed then 2008-09 Assuming that the amendment with effect from 1-4-2006 has retrospective effect, the aforesaid loss first computed in A.Y. 2000-01 can be carried forward and set off only upto assessment year. 2004-05 Assuming further that in the Finance Act, 2007, yet another amendment to sub-section (4) of Section 73 is made to increase the number of assessment years from four to eight with effect from 1-4-2008, since that amendment too will have to be treated as retrospective, the assessment year upto which the loss first computed in A.Y. 2000-01 can be carried forward will have to be taken to be. 2008-09 10.2 A careful consideration of the above would show that even though the amendment made by the Finance Act, 2005 remained on the Statute Book for as many as two years (from 1-4-2006 to 31-3-2008), it would have had absolutely no....
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....cable to unabsorbed speculation loss computed for the first time in A.Y 2006-07 and thereafter. Following are the relevant extracts from this decision (emphasis supplied): '2. Though as many as six grounds have been taken, the effective issue is whether the income-tax authorities were right in law in not allowing the set off of unabsorbed speculation loss of Rs. 4,55,30,494/- relating to the assessment year 2001-02 against the speculation income for the current year. 3. ... ... ... 4. On appeal the assessee contended that he had a vested right to carry forward the speculation loss for a period of eight assessment years following the assessment year 2001-02 according to section 73(4) as it stood before being amended by the Finance Act, 2005 with effect from 01.04.2006, that before the amendment the assessee was by law allowed to carry forward the loss for eight assessment years following the assessment year 2001-02 and such vested right cannot be taken away and at any rate section 73(4) did not expressly or even by implication take away such a right. It was further contended that the result of the amendment was only that any loss computed from the assessme....
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....see under the 1922 Act. On the contrary, section 6(c) of the General Clauses Act indicates that right should be preserved.' Again at page 109 of the report, the Supreme Court observed as under:- 'That fact that the right created by the operation of section 24(2) is a vested right cannot, in our opinion, be disputed. See in this connection the observations of this court in Gujarat Electricity Bard Vs. Shantilal R Desai (1969) 1 SCR 580, 587 and Isha Valimohamad Vs. Haji Gulam Mohanad & Haji Dada Trust (1975) 1 SCR 720, 723. Under the Income-tax Act of 1922, the assessee was entitled to carry forward the losses of the speculation business and set off such losses against profits made from that business in future years. The right of carrying forward and set off accrued to the assessee under the Act of 1922. A right which had accrued and had become vested continued to be capable of being enforced notwithstanding the repeal of the statute under which that right accrued unless the repealing statute took away such right expressly. This is the effect of section 6 of the General Clauses Act, 1897' Again at page 110 of the report, the impact of section 6(c) of the G....
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....nsidering all that has been submitted above, we would urge upon Your Honour for kindly dropping the first proposal contained in your Notice seeking to limit carry forward of the impugned Speculation Loss of Rs. 69,62,778, which was computed for the first time in A.Y. 2000-01, to four subsequent assessment years instead of eight subsequent assessment years for which it was already entitled. The Second Proposal in the Notice 14.1 That takes us to the second proposal contained in paras 4, 4.1 and 5 of the present Notice. In order that our submissions in this regard maybe appreciated, we beg to reproduce herebelow the relevant portion of Explanation 1 below sub-section (2) of Section 115JB (Emphasis supplied): 'Explanation 1. - For the puro0ses of this section, "book profit": means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2), as increased by - (a) ... ... ... ... (f) the amount or amounts of expenditure relatable to any income to which section 10 [other than the provisions contained in clause (38) thereof] or section 11 or section 12 apply; or If any amount ref....
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....It is seen that the assessee has earned dividend income to the tune of Rs. 42,940/- which is exempt from tax. The assessee has made investment of Rs. 12911.42 lacs as on 31/03/2006. The assessee has taken loans of Rs. 12334.25 lacs on which no interest has been claimed by the assessee. But, some administrative/other expenses must be incurred to earn tax free income. Therefore, some disallowance u/s. 14A of the I.T. Act is warranted. In this regard the assessee vide order sheet entry dated 19/11/2008 was show caused to explain as to why disallowance u/s. 14A should not be made. But, the assessee did not offer any explanation in this regard. Section 14A clearly stipulates as under: --- ---- ---- ---- ---- Further the assessee must have incurred administrative expenses such as documentation, salaries of employees, handling the investment port folio, administrative other heads like stationery, telephone, computer, office equipments, vehicles etc., every year, a part of which can be attributed to the investment port folio. The management is taking decisions whether to investment or disinvest in shares and staff is devoting time on executing such decisions. Thi....
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....t for MAT, to go behind the audited accounts of an assessee. 18.2 We must hasten to add that as explained before, the disallowance made by the learned Assessing Officer under Rule 8D cannot be regarded as any item of expenditure as such which has been debited to the Profit & Loss Account so that a question can at all arise for the Assessing Officer, and failing him, for the Hon'ble CIT exercising jurisdiction under Section 263, to assume jurisdiction pursuant to Explanation 1 below sub-section (2) of Section 115JB which has been saved by the Supreme Court in its above decision. We may re-emphasise, in this connection, that a disallowance under Rule 8D being of the nature of a gross, rough and artificial estimate, it cannot be regarded as an item of expenditure debited to the Profit & Loss Account and for that reason, recourse cannot be taken to the aforesaid Explanation 1 under the pretext that is done under its clause (f). This is all the more so with the impugned disallowance of Rs. 64.35 lacs which, as explained at para 15.2 above, having itself been arrived at @ 0.5% of average investments, is not in respect of any particular item or items debited to our Profit & Loss ....
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....e aforesaid Explanation 1, the same was bound to have been taken into consideration by the Accountant in his aforesaid Report. In our humble submission, in this background of the legal position and the facts of our case the ratio of the aforesaid decision of the Supreme Court should apply all the more. In our humble submission, therefore, when the learned Assessing Officer did not consider the disallowed amount of Rs. 64.35 lacs for the purpose of computing book profit for the purposes of MAT u/s. 115JB, he only acted in conformity with the law as categorically laid down by the Supreme Court. It can, therefore, not be open to Your Honour to suggest that in doing so, the learned Assessing Officer committed an error so that action u/s. 263 may warranted. 21. Considering all that has been submitted above, we would urge upon Your Honour for dropping both the proposals contained in the above Notice. For that act of kindness, we shall be very grateful." Ld. CIT has decided this issue in para-5 to 8 of his order, which is reproduced for the sake of facility. "5. The assessee's submissions has been considered carefully and the same are found not acceptable. From ....
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....R 546 (Mad) 6. In view of the above referred facts and legal position it is held that the assessment order u/s. 143(3) dated 31.12.2008 passed by the AO for the A.Y. 2006-07 in the case of the assessee is erroneous and prejudicial to the interest of Revenue. 7. In view of the above referred facts and legal position it is held that the assessment order u/s. 143(3) dated 31.12.2008 passed by the AO for the A.Y. 2006-07 in the case of the assessee is erroneous and prejudicial to the interest of Revenue. In the interest of justice the above referred issue needs to be set aside to the file of the Assessing Officer for re-adjudication. Accordingly, the above referred assessment order dated 31.12.2008 is set aside with direction that the Assessing Officer should verify whether the assessee is eligible to avail carry forward speculation loss pertaining to the A.Y. 2000-01 in view of the amended provisions of sub-section (4) of Sec. 73 of the I.T. Act, 1961. Further, the issue of applicability of clause(f) of Explanation 1 o Sec. 115JB and adding back of expenditure relatable to earning of dividend for computation of book profit for the purpose of Sec. 115JB is al....