TaxTMI 
TaxTMI 
2021 (4) TMI 473
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.... passed by the Assessing Officer ("AO") u/s. 143(3) r.w.s. 144C(13) of the Act dated 27.02.2017 is erroneous and prejudicial to the interest of the revenue, without appreciating that the assessment order cannot be said to be erroneous where the AO has taken one of the permissible views. The learned CIT ought to have appreciated that if two views are possible, revision u/s. 263 of the Act is not permissible. 1.2 The learned CIT has erred in law and on facts in holding that the order passed by the AO is not correct without appreciating that the AO has passed the order after enquiring and verifying the facts and documents on record, duly supported by various precedents including the judgements of the Hon'ble Supreme Court and Jurisdictional High Court which were available at the time of the assessment. 1.3 The learned CIT failed to appreciate and ought to have held that the action of the AO in allowing set-off of loss of current year against the dividend income received from specified foreign companies u/s. 115BBD of the Act is neither erroneous nor prejudicial to the interest of the Revenue inasmuch as if such dividend income is taxed in current year without all....
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....the Act fails to apply; 3.2 The learned CIT ought to have appreciated the fact that provisions of section 115BBD(2) of the Act which begins with non-obstante clause restricts allowability of only 'expenditure' or 'allowance' and thus, in the absence of any express provision for restriction on allowability of 'loss', the said business loss of current year is allowable to be set-off against such foreign dividend income as per provisions of section 71 of the Act; 3.3 The learned CIT ought to have appreciated that it is settled legal position that the term 'expenditure' and 'loss' are conceptually different and cannot be used interchangeably and thus, merely because restriction on allowability of 'expenditure' is provided u/s. 115BBD(2) of the Act, the same cannot be interpreted as loss' to be disallowed set off as provided under section 71 of the Act." 3. We have heard rival submissions and perused the materials available on record. We find that assessee is a public limited company engaged in the business of manufacturing of chassis and vehicles for transport of goods and passengers including motor car and parts ....
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....e 8D on earning this income. Q.No.30. Furnish details of Long term capital gains. Q.No.38. Furnish details of loss incurred on redeeming preference shares. 3.2. We find that assessee had duly replied to these questionnaires vide its letter dated 28/10/2015 responding to various queries raised by the assessee more particularly the specific queries in respect of Question No.4,30 & 38 which are reproduced hereunder:- 4. Details of dividend income In connection with the information requested by your goodself at point no. 4, we enclose herewith details of dividend income earned during the year as Annexure 3. 22. Long term capital gains / (loss) In connection with information requested by your goodself at point no. 30, we enclose herewith statement giving requested details as Annexure 16. 30. Note on Jaguar business In connection with information requested by your good self at point no. 47, we enclose herewith a note on jaguar business as Annexure 20. Details of Dividend Received Sr. No. Particulars Amount in Rs. Exempt Dividend 1 Automobile Corporation of Goa Ltd. 4,37,....
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....tal Gain /(Loss) (10,15,16,08,586) 3.3. We find that assessee had further made submissions before the ld. AO on 24/02/2016 pursuant to further clarification sought by the ld. AO in respect of Point No.30 comprising of details of long term capital loss, to which the assessee replied as under:- "8. Details of Long term capital gains/(losses) In connection with information requested by your good self at point no. (f) of the Order Sheet and point no. 30 of the questionnaire, we draw your goodselfs kind attention to the details of long term capital gains/(loss) submitted earlier vide our letter dated 28.10.2015. Further to the said details of the long term capital gains/floss we enclose herewith the supporting documents for redemption of preference shares at far as Annexure 7, the documents for buy back of equity shares as Annexure 8 and sample documents for sale of Magna Dies being capital item as Annexure 9." 3.4. We find that assessee had filed all the supporting documents relating to redemption of preference shares of TML Holdings Pte Ltd., and further subscription of 2020000 cumulative preference shares of....
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....ndustrial Company Ltd., reported in 243 ITR 83 b) Decision of Hon'ble Gauhati High Court in the case of Smt. Lila Choudhury reported in 167 Taxmann 1 c) Decision of Hon'ble Jurisdictional High Court in the case of Gabriel India Ltd., reported in 203 ITR 108. d) Decision of Hon'ble Jurisdictional High Court in the case of CIT vs. Development Credit Bank Ltd., reported in 323 ITR 206. e) Decision of Hon'ble Delhi High Court in the case of Vodafone Essar South Ltd., reported in 28 Taxmann.com 273. 3.7. It was specifically pointed out that the order passed by the ld. AO was not passed on incorrect assumption of fact or incorrect application of law on the impugned subject. It was also pointed out that provisions of Section 263 of the Act could not be invoked for "inadequate enquiry". 3.8. We find that the ld. PCIT brushed aside all these technical contentions raised by the assessee and proceeded to set aside the order passed by the ld. AO by treating it as erroneous and prejudicial to the interest of the revenue with a direction to disallow the excess carry forward of long term capital loss and further direction to tax the foreign dividend income o....
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....nt case. Once adequate enquiries were made by the ld. AO and the assessment has been framed accordingly, merely because no mention about those impugned issues has been recorded in the assessment order by the ld. AO, the said assessment order cannot be termed as erroneous even if it is found to be prejudicial to the interest of the revenue. Reliance in this regard has been rightly placed by the ld. AR on the decision of the Hon'ble Jurisdictional High Court in the case of Nirav Modi reported in 390 ITR 292 (Bom) wherein the Hon'ble Bombay High Court placed reliance on its earlier decision in the case of Idea Cellular Ltd., vs. DCIT reported in 301 ITR 407 (Bom) by holding that if during the assessment proceedings, queries were raised and the assessee responded to the same, then even if the assessment order does not mention the same, it does not mean that the Assessing Officer has not applied his mind to the issue. Moreover, it is now very well settled that for invoking revisionary jurisdiction u/s.263 of the Act, the twin conditions should be cumulatively satisfied i.e. (a) the order of the ld. AO should be erroneous and (b) it should be prejudicial to the interest of the revenue. I....
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....eemable Preference Shares of TML Holdings Pie Ltd (Singapore). Further, it is seen from the Standalone Financials for AY 2012-13 (p.149) under current Investments that the assessee has disclosed that it redeemed 70,55,000 6.25% Cumulative Redeemable Preference Shares of TML Holdings Pie ltd (Singapore) and acquired 20,20,000 6.25% Cumulative Redeemable Preference Shares of TML Holdings Pte Ltd (Singapore). 3.2 Thus, the assessee acquired the same 6.25% Cumulative Redeemable Preference Shares of TML Holdings Pte Ltd (Singapore) which it had redeemed earlier. Thus, the .said exercise was a clear case of conversion of one kind of shares into another kind. It seems that only the allotment numbers of shares were changed in respect of 20,20,0000 shares. Ax the- said conversion was not covered under transfer in light of the provisions quoted above, the loss claimed in respect of 20,20,000 shares was notional only and required to be disallowed. This resulted in excess carry forward of Long Term Capital Losses to future years for set off from future LTC'G resulted in underassessment of income of Rs. 367,93,42,008/-. 6.2. In this connection we have to submit th....
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.... of the CRPS was Rs. 4438,13,92,393/- and the consideration received from TMLHS on the redemption of the CRPS was Rs. 3153,10,17,211/-. Accordingly, a LTCL of Rs. 1285,03,75,182/- was claimed by the assessee company. During the course of assessment, the assessee company furnished the statement of computation of LTCL of Rs. 1285,03,75,1827- as per Annexure 16 to letter dated 28.10.2015 which is enclosed in Annexure 4 above (refer Page No, 83 of the factual paper book. Below is the summary of the computation of long term capital loss on redemption of the aforesaid CRPS: No. of shares Cost of Acquisition Cost of Acquisition in !NR Indexed Cost of Acquisition in INR Sale Consideration in INR Long Term Capital Loss in IN'R 5,00,000 5,00,00,000 2,43,18,62,500 3,28,00,89,454 2,23,46,57,492 1,04,54,31,962 20,48,999 20,48,99,900 8,36,19,21,837 11,27,85,37,185 9,15,76,21,933 2,12,09,15,252 45,06,001 45,06,00,100 22,11,06,36,520 29,82,27,65,754 20,13,87,37,787 9,68,40,27,967 70,55,000 70,55,00,000 32,90,44,20,857 44,38,13,92,393 31,53,10,17,212 1285,03,75,181 6.4. During the course ....
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.... 6.6. Based on the above documents, it is pertinent to note that both the transactions of redemption and subsequent acquisition are separate transactions, mutually exclusive and thus, cannot be merged into one transaction and treated to be "conversion" of CRPS. Your Honour will appreciate that had it been a case of conversion of 70,55,000 CRPS into 20.20,000 CRPS. the assessee company would not have received any amount of consideration on safe of 70,55,000 CRPS. Thus, redemption/sale of 70.55,000 CRPS by TMLHS amounts to 'transfer' u/s. 2(47) of the Act and is covered within the provisions of section 45 of the Act. 6.7. Your Honour would appreciate that it is also a settled law laid by the Hon'ble Apex Court in the case of Amirkali Sarabhai v. CIT (224 ITR 422) (enclosed as Exhibit L of Case Laws Compilation) that redemption of preference shares squarely comes within the phrase "sale, exchange, or relinquishment of the asset" and is hence, liable for capital gains tax u/s. 45 r.w.s 2(47) of the Act. 6.8. Considering the above facts of the case, it is respectfully submitted to your Honour that the in the captioned notice, reliance placed upon th....
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....the foreign companies and hence the aggregate amount of dividend income received from specified foreign companies as referred in section 115BBD of the Act is Rs. 22,20,40.0537-. We would like to submit to your Honour that in the captioned notice dated 15.03.2019 the amount proposed to be considered u/s 1 15BBD of the Act for separately being taxed at 15% is Rs. 21,99,53,5907-as against Rs. 22,20,40,053/-. 7.3. The assessee company has in its computation of Total Income offered this foreign dividend income aggregating to Rs. 22,20.40.0537- under 'income from Other Sources'. The said dividend income has been assessed vide the order dated 27.02.2017 also under "Income from Other Sources'. The Income/ (Loss) computed under various heads of Income is tabulated herein below:- Sr.No. Heads of Income As per Return As per Order dated 27.02.2017 I Profits and Gains of Business or Profession (23.19,44,19.948) (21,86.10,04,552) 2 Income from House Property 4,36,42,053 4,36,42.053 3. Capital Gains (STCG) 29,77,8 1,355 29,77,81,355 4 Income from Other Sources (including foreign dividend income of Rs. 22.20 crores) 35.7....
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....tal gains " is a loss and the assesses has income assessable under any of her head of income, the assessee shall not he entitled to have such loss set off against income under the other head. (4) Where the net result of the computation under the head "Income from house property" is a loss, in respect of the assessment years commencing on the 1st day of April, 1995 and the 1st day of April, 1996, such loss shall he first set off under sub-sections (I) and (2) and thereafter the loss referred to m section 71A shall be set off in the relevant assessment year in accordance with the provisions of that section. " 7.6. In view of the above provisions, your Honour will appreciate that except when there is a Joss under the head 'Capital Gains' as per sub-section (3) above and in case assessee has income under the head 'Salaries' as per sub-section (2A) above, Income under any head, say Income from House Property, Income from Capital Gains and Income from Other Sources, such income are entitled for being set-off against the loss under the head ''Profits and Gains of Business or Profession " 7.7. Accordingly, during the year, the assessee com....
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....f section 71 of the Act. which provides for set-off of Business Loss against any head of Income except "Income from Salary'. 7.13. As regards the applicability of the provisions of section 115BBD of the Act, we would at the outset first like to reproduce the provisions of section, which reads as under: "115BBD. (1) Where the Total Income of an assessee. being an Indian company, includes any income by way of dividends declared, distributed or paid by a specified foreign company, the income-tax payable shall be the aggregate of- (a) the amount of income-tax calculated on the income by way of such dividends, at the rale of fifteen per cent; and (b) the amount of income-tax wish which the assessee would have been chargeable had its Total Income been reduced by the aforesaid income by way of dividends. (2) Notwithstanding anything contained in this Act no deduction in respect of any expenditure^ or allowance shall be allowed to the assessee under any provision of this Ad in computing its income by way of dividends referred to in sub-section (I). (3) In this section,- d) "dividends " shall have the same meaning as is give....
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....of Total Income and set-off or carry forward of losses. Dividend income is chargeable to tax u/s. 56 in Chapter V of the Act, subject to the aggregation of the Total Income and set off or carry forward of losses as per Chapter VI of the Act. Section 71 tailing under Chapter VI of the Act provides for set-off of Business Loss against Income from Other Sources including dividend income. Section 71 of the Act docs not provide any restriction on set-off of Business Loss against such dividend income taxable u/s 56 of the Act. 7.18. In the case of the assessee company, the total assessed income being loss of Rs. 2,116.17 crores was rightly computed by the Ld. AO as per the provisions of the Act taking into consideration the provisions of Chapter I to V! of the Act. There being a total loss, the assessee company did not lodge any claim under the provisions of Chapter VI-A of the Act. 7.19. Basis the provisions of section 115BBD of the Act, as the Total Income in the case of the assessee, as computed in the manner laid down under the Act and as defined u/s. 2(45) of the Act is a loss, the question of applicability of specified tax rate of 15% to foreign dividend income, d....
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....e provisions of section 14A and section 94(7) of the Act. The Hon'ble Apex Court categorically held that the two terms are conceptually different and cannot be used interchangeably. 7.25. Without prejudice to the above, we would like to submit that had the Legislature intended that no set-off of loss would be allowed against the foreign dividend income then it would have expressly provided so in the said section itself, as is provided in section 115BBE of the Act (inserted by the Finance Act 2012, w.e.f. 01.04.2013) and section 115BBDA of the Act (inserted by the Finance Act 2016, w.e.f. 01.04.2017). 7.26. On taxation of income at specified rate, as referred to in section i I5BBE and section II5BBDA of the Act, we would like to further elaborate as under: Section 115BBE of the Act which deals with specified rate of tax on income referred to in section 68. 69, 69A, 69B, 69C or 69D was inserted vide Finance Act, 2012 (w.e.f. 01,04.2013) which read as under: - " 115BBE. [(}) Where the Total Income of an assessee,- (a) includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D and refl....
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....was brought into effect prospectively. Drawing analogy from the above section which was introduced and subsequently amended suitably to set at rest the litigation arising therefrom, had the Legislature intended not to allow deduction for set-off of losses, it could very well have amended sub-section (2) of section 1 15BBD of the Act prospective!)' as was done in the case of section i 15BBE of the Act. 7.32. The Legislature based on experiences gathered from past enactments with regard to "Chapter XII ~ Determination of Tax in certain Special Cases', while introducing section 1 15BBDA of the Act, which deals with tax on certain dividends received from domestic companies inserted by Finance Act 2016 (w.e.f 01.04.2017), ensured that subsection (2) which deals with non-availability of any deduction, expressly provided for non deduction of set-off of loss in computing the income by way of dividends at the time of insertion of the section itself. We would like to further draw your Honour's kind attention to section 115BBF of (he Act which deals with tax on income from patent which was also inserted from Finance Act 2016 (w.e.f. 01.4.2017) wherein su....
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....dian company from its foreign subsidiary.1 do hope these funds will now flow to India, " 7.36. In addition to the above, we also draw your Honours kind attention to the CBDT's Circular No. 02/2012 dated 22,05.2012 and Circular No. 1/20i 5, dated 21.01.2015. the relevant extract is enclosed herewith in Annexure 7 which deal with the period of applicability of the section and its subsequent extension. 7.37. In view of the foregoing discussion, your Honour will appreciate that under Chapter XII - Determination of Tax in Certain Special Cases, section 1I5BBD of the Act has been introduced to provide for concessional rate of tax @ 15% on foreign dividend income instead of the maximum marginal rate of 30% so as to incentivize repatriation of foreign currency into the country. Being an incentive provision there was no restriction imposed with respect to any set-off of losses as per Chapter VI of the Act. Section 115BBD of the Act being a beneficial provision, to incentivize an assessee on repatriation of foreign currency into the country, cannot be interpreted to penalize the assessee Company with a tax of 15% when the assessee is otherwise in loss, ....
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....rted to take a divergent view than that taken by the ld. AO in the facts and circumstances of the instant case. In any case, we hold that revision jurisdictional u/s.263 of the Act is not permissible when a possible view has been taken by the ld. AO (though this is a case where no two views are possible) while framing the assessment and further revision u/s.263 could not be made merely because the ld. PCIT is trying to substitute his view in the view already taken by the ld. AO. Reliance in this regard has been rightly placed by the ld. AR on the decision of the Hon'ble Jurisdictional High Court in the case of CIT vs. Gabriel India Ltd., reported in 203 ITR 108. Hence, we hold that the assessee had also made out its case before the ld. PCIT as well as before the ld. AO on merits. These contentions were duly appreciated by the ld. AO while framing the assessment. However, the ld. PCIT did not appreciate the said contentions and directly concluded without giving proper reasoning thereon, that the claim of the carry forward of long term loss of the assessee need to be disallowed. This action of the ld. PCIT is unsustainable in the eyes of law as far as the first issue is concerned. ....