2023 (7) TMI 1579 - AT - Income Tax

Profit on Sale/Redemption of Investments - denying benefit of exemption u/s 10(38) - HELD THAT - A similar issue was considered at para-6 of its order and at para 6.1 the coordinate Bench followed the order of this Tribunal for A.Y.2011-12 and concluded the issue is decided in favour of the assessee and AO is directed to verify about the status of STT payment and accordingly allow the exemption u/s. 10 (38) of the Act. On finding parity of facts we order accordingly. Depreciation allowance claimed by the appellant u/s 32 allowed. Disallowance being Provision made for Standard Assets allowed. Adjustments made by the AO while computing taxable book profits - AO is directed to re-compute the book profit u/s. 115JB of the Act giving reasons for making adjustments and after affording a reasonable opportunity of being heard to the assessee.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal include:

(a) Whether the addition of Rs. 5,94,12,31,837/- to total income on account of profit on sale/redemption of investments was justified, particularly regarding the denial of exemption under section 10(38) of the Income Tax Act;

(b) Whether the appellant was entitled to concessional tax rates under sections 111A and/or 112 of the Income Tax Act;

(c) The validity of the disallowance of Rs. 18,92,695/- from the total depreciation allowance claimed under section 32;

(d) The correctness of disallowing Rs. 92,70,000/- as provision made for standard assets;

(e) The appropriateness of adjustments made by the Assessing Officer (AO) while computing taxable "book profits" under section 115JB, specifically additions on account of provisions for standard assets and disallowance of depreciation;

(f) The legal validity of the assessment order passed under section 143(3); and

(g) The validity of the Commissioner of Income-Tax (Appeals) order to the extent it upheld the assessment order.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Addition on account of Profit on Sale/Redemption of Investments and Denial of Exemption under Section 10(38)

Legal Framework and Precedents: Section 10(38) exempts long-term capital gains arising from the transfer of equity shares or units of equity-oriented mutual funds where Securities Transaction Tax (STT) has been paid. The Tribunal referred to its earlier decisions in the assessee's own case for assessment years 2011-12 and 2013-14, which had addressed similar issues.

Court's Interpretation and Reasoning: The Tribunal noted that the issue had been thoroughly examined and decided in favor of the assessee in prior years. The Tribunal specifically referenced the coordinate Bench's order for AY 2013-14, which directed the AO to verify the status of STT payment and allow exemption under section 10(38) accordingly.

Key Evidence and Findings: The assessee's counsel submitted the earlier Tribunal judgments, which the Revenue could not distinguish or counter with any contrary precedent.

Application of Law to Facts: Given the parity of facts with earlier years, the Tribunal directed the AO to apply the exemption under section 10(38) after verifying STT payment.

Treatment of Competing Arguments: The Revenue relied on the orders of lower authorities but failed to produce distinguishing facts or legal principles. The Tribunal favored the assessee's position based on binding precedents.

Conclusion: The addition on account of profit on sale/redemption of investments was not sustainable, and exemption under section 10(38) was to be allowed subject to verification of STT payment.

Issue (b): Denial of Concessional Tax Rates under Sections 111A and/or 112

Analysis: This ground was considered consequential and without prejudice to the decision on issue (a). Since exemption under section 10(38) was to be allowed, separate adjudication on concessional tax rates was deemed unnecessary.

Issue (c): Disallowance of Depreciation of Rs. 18,92,695/- under Section 32

Legal Framework and Precedents: Depreciation claims under section 32 are allowable subject to compliance with prescribed conditions and proper documentation. The Tribunal relied on its prior decisions in the assessee's own case for AY 2011-12 and 2013-14.

Court's Interpretation and Reasoning: The Tribunal observed that the Revenue failed to point out any distinguishing facts or deficiencies in the claim. The coordinate Bench had restored the issue to the AO to decide afresh after considering all relevant details.

Key Evidence and Findings: The assessee had placed all necessary details on record. The AO and CIT(A) did not adequately justify the disallowance.

Application of Law to Facts: The Tribunal directed the AO to reconsider the depreciation claim in light of the earlier decisions and the evidence on record.

Treatment of Competing Arguments: The Revenue's arguments were found unsubstantiated in the absence of any distinguishing facts.

Conclusion: The disallowance was set aside, and the issue was remanded for fresh consideration.

Issue (d): Disallowance of Provision for Standard Assets of Rs. 92,70,000/-

Legal Framework and Precedents: Provisions for standard assets are generally allowable if made in accordance with prescribed accounting standards and prudential norms. The Tribunal relied on its earlier decisions favoring the assessee.

Court's Interpretation and Reasoning: The coordinate Bench had decided this issue in favor of the assessee for AY 2011-12 and 2013-14, and the Tribunal followed the same reasoning.

Application of Law to Facts: Since facts were similar, the disallowance was not justified.

Conclusion: The disallowance was set aside in favor of the assessee.

Issue (e): Adjustments in Computing Taxable Book Profits under Section 115JB

Legal Framework: Section 115JB mandates computation of book profits for Minimum Alternate Tax (MAT). Adjustments must be justified with reasons and after affording the assessee a reasonable opportunity of being heard.

Court's Interpretation and Reasoning: The Tribunal directed the AO to re-compute book profits under section 115JB, providing reasons for adjustments such as provisions for standard assets and depreciation disallowance, and to afford the assessee a fair hearing.

Application of Law to Facts: The AO's adjustments were not upheld outright but required re-examination with procedural fairness.

Conclusion: The matter was remanded for fresh computation of book profits in accordance with law.

Issue (f) and (g): Validity of Assessment Order under Section 143(3) and CIT(A) Order

Analysis: These grounds were raised but not separately adjudicated by the Tribunal, as the substantive issues were addressed and the appeal was partly allowed.

3. SIGNIFICANT HOLDINGS

"Accordingly, the issue is decided in favour of the assessee and Ld. AO is directed to verify about the status of STT payment and accordingly allow the exemption u/s. 10 (38) of the Act."

"Ld. DR has not pointed and distinguishing the facts so the ground is decided in favour of the assessee and issue restored to the file of Ld. AO to decide afresh as directed for A.Y.2010-11 to 2011-12."

"The issue No.14 is decided in favour of the assessee."

The Tribunal established the principle that where identical issues have been decided in earlier years in favor of the assessee, the same reasoning applies unless distinguishing facts are demonstrated. The Tribunal emphasized the necessity of verifying STT payment for exemption under section 10(38) and mandated procedural fairness in adjustments under section 115JB.

Final determinations