TaxTMI 
TaxTMI 
2025 (5) TMI 427
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 2. Alternatively and without prejudice to ground no. 1, the CIT(A) erred in deleting the disallowance u/s 14A of Rs. 3,89,56,740/-. 3. The CIT(A) erred in ignoring CBDT's Circular No. 5 of 2014 dated 11.02.2014. 4. The CIT(A) erred in ignoring the Supreme Court decision in the case of CIT Vs Walfort Share of Stock Brokers Pvt Ltd (326 ITR 1), wherein it was held that the mandate of section 14A was to curb the practice of claiming deduction of expenses incurred in relation to exempt income against taxable income and at the same time avail of the tax incentive by way of exempt income without making any apportionment of expenses incurred in relation to exempt income. 5. The CIT(A) erred in deleting the disallowance u/s 36(1)(va) r.w.s 2(24)(x) of Rs. 29,45,613/-. 6. The CIT(A) erred in ignoring CBDT's Circular No. 22 of 2015 dated 17.12.2015. 7. Any other ground that may be urged at the time of hearing. 3. Ground No. 1 is regarding non-payment of self- assessment tax. At the time of hearing, the learned DR has accepted the fact that the assessee has already paid the self - assessment tax and therefore, this ground becomes infru....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n there is no exempt income earned by the assessee from alleged investment. He has further submitted that even there is no fresh investment made by the assessee but the investment, in question, as shown in the balance sheet of the assessee are only in pursuant to the share held by the assessee in foreign companies including the foreign subsidiaries and therefore, the dividend from foreign companies is taxable. He has further submitted that except the shares in one Indian company namely Lanco Net Ltd, all other investment are in the subsidiaries of the assessee which are foreign company. Even the Indian company Lanco Net Ltd has not declared any dividend and the investments are made in the earlier years and not during the year under consideration. 6. We have considered the rival submissions as well as the relevant material available on record. The Assessing Officer has not disputed the fact that the assessee has not earned any dividend income from the investment in shares of the subsidiaries companies of the assessee as well as in the shares of M/s. Lanco Net Ltd. Though the Assessing Officer has not given the details of the investment except the total amount of investment shown ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ck-in-trade', certain dividend is also earned, though incidentally, which is also an income. However, by virtue of Section 10 (34) of the Act, this dividend income is not to be included in the total income and is exempt from tax. This triggers the applicability of Section 14A of the Act which is based on the theory of apportionment of expenditure between taxable and non-taxable income as held in Walfort Share and Stock Brokers P Ltd. case. Therefore, to that extent, depending upon the facts of each case, the expenditure incurred in acquiring those shares will have to be apportioned. 40. We note from the facts in the State Bank of Patiala cases that the AO, while passing the assessment order, had already restricted the disallowance to the amount which was claimed as exempt income by applying the formula contained in Rule 8D of the Rules and holding that section 14A of the Act would be applicable. In spite of this exercise of apportionment of expenditure carried out by the AO, CIT(A) disallowed the entire deduction of expenditure. That view of the CIT(A) was clearly untenable and rightly set aside by the ITAT. Therefore, on facts, the Punjab and Haryana High Court has ar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cided against the assessee by the Hon'ble Supreme Court in the case of Checkmate Services (P) vs. CIT (Supra), wherein it has been held that the employees' contribution to PF & ESI, if not remitted before the due date prescribed in the respective enactments, cannot be allowed as a deduction. Accordingly, the impugned order of the learned CIT (A) qua this issue is set aside and the order of the Assessing Officer is also restored. ITA No.1769/Hyd/2018 (Assessee's appeal) 12. In assessee's appeal, the following grounds are raised: M/s. Lycos Internet Limited, Asst. Year 2012-13 GROUNDS OF APPEAL 1. The order u/s 263 of the Income Tax Act, 1961 (hereinafter referred to as ' Act') passed by the Ld. Pr. Commissioner of Income Tax is erroneous both in law and on facts. 2. The Pr. CIT erred in passing order u/s 263 of the Act without affording reasonable opportunity of being heard to the appellant. 3. The Ld. Pr. CIT erred in rejecting the submissions of the appellant merely on presumption that neither the Assessing Officer examined the issue in question nor the appellant furnished any explanation on the issue du....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the profit of the US Branch would be taxable in India and the assessee would be entitled to credit of taxes paid by the assessee in USA. However, there is no evidence of tax paid in USA and also the assessee has not claimed credit of such taxes. The learned Pr. CIT further observed that the assessment was completed u/s 143(3) of the Act without examining/verifying the above issue. Therefore, the order passed by the Assessing Officer without making inquiries or verification which should have been made is erroneous and prejudicial to the interest of the Revenue. Accordingly, a show-cause notice u/s 263 of the Act, dated 20/12/2017 was issued by the learned Pr. CIT. The assessee filed a reply to the show-cause notice and questioned the jurisdiction of the learned Pr. CIT to invoke provisions of section 263 of the I.T. Act, 1961 when the Assessing Officer has duly carried out the inquiry by issuing notice u/s 142(1) of the Act which were duly replied by the assessee by furnishing the relevant record and details. It was contended by the assessee that the Assessing Officer was satisfied with the reply filed by the assessee and hence it is not a case of lack of inquiry on the part of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the assessee. Thus, the learned AR has submitted that the learned Pr. CIT wrongly invoked the jurisdiction u/s 263 of the Act without appreciating the facts and circumstances of the case that the Assessing Officer has duly conducted an inquiry and only on satisfaction of the reply filed by the assessee he has accepted the book profit u/s 115JB of the Act though various additions have been made in computation of income under the normal provisions of the Act which were challenged before the learned CIT (A) by the assessee. He has further contended that the assessment order passed by the Assessing Officer can be revised only after satisfying the twin conditions namely (i) the order of the Assessing Officer sought to be erroneous and (ii) it is prejudice to the interest of the Revenue. These conditions are mutually exclusive. He has further contended that during the course of assessement proceedings, the Assessing Officer has examined all the issues including the issue in question, taken by the learned Pr. CIT in the proceedings u/s 263 of the Act. Thus, the assessment order was passed by the Assessing Officer after due application of mind. The assessee explained the issue before the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to the P&L Account forming part of the Annual Report of the assessee. He has referred to the show cause notice issued by the learned Pr. CIT and submitted that these facts have been duly recorded in the show cause notice. However, the Assessing Officer has passed the assessment order without conducting a proper inquiry on this issue. It is a clear case of lack of inquiry on the part of the Assessing Officer while passing the assessment order and therefore, the question of change of opinion, on the part of the learned Pr. CIT does not arise. He has relied upon the order of the learned Pr. CIT passed u/s 263 of the I.T. Act, 1961. 16. We have considered the rival submissions as well as the relevant material available on record. The learned Pr. CIT has invoked the provisions of section 263 of the I.T. Act, 1961, on the premises that there is a discrepancy in the net profit shown in the P&L Account forming part of the Annual Report in comparison to the P&L Account schedule to the ITR-6. The relevant reasons for invoking the provisions of section 263 are recorded in Para-2 of the impugned order: "2. On perusal of Return of Income and other financial statements filed by asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d material available on record. As seen from the notices u/s 1421) dated 15.06.2015, 06.07.2015 issued by the A.O. no query was raised regarding the discrepancies between the incomes, expenses and net profit as per profit and loss account forming part of the annual report of the assessee for F.Y 2011-2012 and the schedule P&. account of ITR-6 filed for A.Y 2012-2013. Further, as seen from the replies furnished oy the assessee to the said notices, no information on the above discrepancies was furnished. Further, during the course of hearings conducted on 26.02.2016 and 29 03 2016 nether the assessing officer examined the above discrepancies nor the assessee furnished any reconciliation explaining the discrepancies. In the written submissions reproduced above it is not even contended by the assessee that the above discrepancies were inquired into or examined by the A.O. during the assessment proceedings. As the assessing officer failed to examine the above discrepancies, the assessment order passed by him u/s 143(3) of the Income Tax Act, 1961 on 29.03.2016 shall be deemed to be erroneous in So far it is prejudicial to the interests of Revenue as per clause(a) and (c) of Expl. 2 to S....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and other foreign countries are separate tax entities under the foreign tax jurisdiction and therefore, their income cannot be considered as income of the assessee for the purpose of income tax Act. However, the assessee may report the income of the 100% subsidiaries in the Annual Report for disclosure purpose and other compliances. Therefore, merely because the assessee is having an entity in the foreign country does not ipso fact liable to tax on the income, such entity assessable to tax in foreign jurisdiction. Further, the international transactions of the assessee were subject to transfer pricing proceedings and were found to be at Arms' Length and therefore, it is apparent that the Assessing Officer has conducted a thorough inquiry on all these issues including the issue of the income of US entity reported in the consolidated and standalone financial statements as per of the annual report. Once all the relevant record was available before the Assessing Officer as well as before the Pr. CIT, then the learned Pr. CIT ought to have given a conclusive findings as to how the discrepancy has resulted a loss of revenue falling in the ambit of prejudicial to the interest of Reven....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., it is not open to the Commissioner, on the ground that a different view is possible, to reopen the assessment on the ground that the Assessing Officer did not make an elaborate discussion in that regard. 35. Admittedly, the assessee had given full details of these transactions in its letter/reply dated 29.08.2008 to the Assessing Officers letter dated 04.08.2008, giving details of dates of acquisition of the shares in question and dates of sale of shares. As such this material was available before the Assessing Officer. In its reply dt. 09-03-2011 to the revised show cause notice issued by the respondent also, the appellant had enclosed the list of transactions in relation to the scrips of M/s. Amara Raja Battery, M/s. Reliance Industries, M/s. Gujarat NRE Coke and M/s. Andhra Sugars Limited contending that having purchased the shares of the said companies, it had retained them for periods ranging from 1 year 2 months to 3 years 6 months before selling them. The counsel for the appellants has taken us through the said statements/list of transactions." 23. Therefore, merely because, the Assessing Officer has not given an elaborate reasoning and findings does not lead t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al to the interest of Revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged "inadequate investigation", it will be difficult to hold that the order of the Assessing Officer, who had conducted enquiries and had acted as an investigator, is erroneous, without CIT conducting verification/ inquiry. The order of the Assessing Officer may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the CIT to ask the Assessing Officer to decide whether the order was erroneous. This is not permissible. An order is not erroneous, unless the CIT hold and records reasons why it is erroneous. An order will not become erroneous because on remit, the Assessing Officer may decide that the order is erroneous. Therefore, CIT must after recording reasons hold that the order is erroneous. The jurisdictional precondition stipulated is that the CIT must come to the conclusion that the order is erroneous and is unsustainable in law. We may notice that the material which the CIT can rely includes not only the record as it stands at the time when the order in question wa....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., if the CIT had examined and verified the said transaction himself and given a finding on merits. As held above, a distinction must be drawn in the cases where the Assessing Officer does not conduct an enquiry; as lack of enquiry by itself renders the order being erroneous and prejudicial to the interest of the Revenue and cases where the Assessing Officer conducts enquiry but finding recorded is erroneous and which is also prejudicial to the interest of the Revenue. In latter cases, the CIT has to examine the order of the Assessing Officer on merits or the decision taken by the Assessing Officer on merits and then hold and form an opinion on merits that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. In the second set of cases, CIT cannot direct the Assessing Officer to conduct further enquiry to verify and find out whether the order passed is erroneous or not." 24. Therefore, once the Assessing Officer has adopted one of the courses permissible and available to him, and this has resulted in loss to the Revenue to which the learned Pr. CIT may not agree, the said order cannot be treated as an erroneous order prejudice to t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....vestments 5,093,225,722 742,107,032 Document 2 8. The Ld. Pr. CIT ought to have appreciated the fact that the Assessing Officer had completed the assessment u/s. 143(3) of the Act, after duly examining the explanations and submissions on all issues including the issue in question placed before him during the course of assessment proceedings. 9. The Ld. Pr. CIT ought to have appreciated the fact that when the A.O has taken a view that income earned in United States of America is not taxable, the Ld. Pr. CIT can not treat the order of the A.O as erroneous and revise the order u/s 263 of the Act, by taking different view. 10. The Ld. Pr. CIT ought to have appreciated the fact that it is not justified on his part to revise the assessment order, when the appeal proceedings against the assessment order are in progress. 11. Without prejudice to other grounds of appeal, the Ld. Pr. CIT ought to have appreciated the fact that difference of Rs. 27,01,46,332/- in net profit relates to the income earned by the appellant in United States of America which is assessable in USA and not assessable in India as per the provisions of the Act and the DTAA between India and USA. 12. The ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e as DCIT, Circle 16(1), Hyderabad and this notice is consequence incumbency. Year In connection with the assessment for the Asst. (a) 03, 7"" Floor, at 3,00 p.m (b) Produce or cause to be produced before me at my office at Room No. Aayakar Bhavan, Basheerbagh, Hyderabad-500004 on or before 25/06/2015 the information as under - 1. Hard copy of the return of income filed of the Form ITR-V and acknowledgment Computation of total income statement including MAT computation and Copy of Annual Report for the FY 2011 -12 including audit report, profit and loss account and the relevant schedules. All audit reports as applicable and IV. 3CD, Form 3CEB etc. Detailed note on the business activities v. Details of the present address of all 5 branches etc., of the company. Yours faithfully. MUJUMDAR) (R.M. MUJUMDAR) Deputy Commissioner of Income-tax, Circle-16(1), Hyderabad. Received on 1.1/2015 Document 4 NOTICE u/s. 142(1) OF THE INCOME-TAX ACT, 1961 2 Office of the Deputy Commissioner of Income-tax, Circle-16(1), 7"" Floor, Aayakar Bhavan, Basheerbagh, Hyderabad 500 004, Date:06-07-2015 F.No.DCIT C-16(1)/ 53/14....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pital (including share application money) made during the year, including the number of shares, face value of the share and price paid per share. Also furnish the details of dividends received, if any, during the year. 13. Quantitative and value-wise break-up of valuation of closing stock. 14. Books of account in CD in excel format with vouchers and bill for verification. 15. Computation of income, 16. Reconcile the sales with Sales Tax Return / Service Tax Return and purchases with VAT statement. Also furnish copies of the sales-tax return and VAT return for the relevant financial year. 17. Reconcile the amount offered for taxation with the amount received as per the TDS statements / 26AS. 18. Details of other operating revenue of Rs.592151550 and non-operating income of Rs.1794546/ -. 19. Details of forex income of Rs.60741789/ -. 20. Comparative statement of gross profit and net profit for the last three years. Reasons for fall in profits, if any, may also be furnished. 21. Detailed note on the deductions and exemptions claimed under different sections of I.T. Act with explanation on their allowability with supporting evidence. 22. Details of expens....