TMI Blog2020 (4) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... o specific provision contained in section 115BBD wherein to impose restriction on carrying forward any loss similar to provision contained in section 115BBE and section 115BBDA. Therefore, we do not see any reason to treat this assessment as erroneous nor it is passed by erroneous interpretation of facts or law. Accordingly, the order passed u/s 263 of the Act by Ld. CIT is not as per provisions contained therein or as per the jurisdictional precedence. Hence, it is set aside. Resultantly, the grounds raised by the assessee are allowed. - I.T.A. No. 3424/Mum/2019 - - - Dated:- 6-3-2020 - Shri C. N. Prasad, JM And Shri S. Rifaur Rahman, AM For the Appellant : Shri Raja Vora Shri Nikhil Tiwari, ARs. For the Respondent : Shri R. Manjunatha Swamy, DR ORDER PER S. RIFAUR RAHMAN, ACCOUNTANT MEMBER: The present Appeal has been filed by the assessee against the order of Ld. Commissioner of Income Tax (LTU) in short referred as Ld. CIT , Mumbai, dated 25.03.19 for Assessment Year (in short AY) 2013-14. 2. The brief facts of the case are, assessee is a company engaged in the business of manufacturing of chassis and vehicles for transport of goods and passe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2016. The Ld. AO called upon the assesse to furnish details in respect of all dividends received vide Point No. 4 of the Notice doted 17:10:2016 (refer Annexure 3 above). The Company furnished the details during the course of assessment hearings vide its letter dated 24,10.2016 (refer Annexure 4 above) which were examined and verified by the Id. AO. b) the order is passed allowing any relief without Inquiring into the claim the Company Had furnished the details in respect of the issue for which revision is proposed in its computation of income arid the Notes thereof. Based on the Computation and the Notes, the id. AO had asked the Company to furnish the further details of dividend received and the Company had duly submitted the said details. c) the order has not been made in accordance, with any order, direction or instruction issued by the C3 T under Section 119 of the Act The order has not been made in violation of any order, direction or instruction issued by the CBDT under Section 11? of the Act. d) the. order has not been passed in accordance with any decision which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;ble. Supreme Court has observed that orders passed without applying the principle of natural justice or without application of mind3 could be considered as erroneous. The Guwahati High Court in Smt. Lila Choudhary [ZOOB] (167 Taxman 1) (coy enclosed as Exhibit C of the Case Laws Compilation) held that an erroneous order would be an order which suffers from a patent lack of jurisdiction. Prejudicial to the interest of the revenue would mean an erroneous order which goes against the interests of revenue. Therefore, both the conditions must pre-exist to exercise revision u/S: 263 of the Act. The Hon'ble jurisdictional. Bombay High Court in Gabriel India ltd. [1993] (203 ITR 108) (copy enclosed its Exhibit 0 of the Case Laws Compilation) held that in cases where the assessing officer passes an order after considering the documents and information submitted to him but without making elaborate discussion in the order, that does not make such an order passed by the AO as erroneous. In the above case, the order prejudicial to the interest of revenue but not erroneous and hence revision was held to be invalid. The Hon'ble jurisdictional Bombay High Court in CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... poration (314 ITR 81) (enclosed as Exhibit 6 of the Case Laws Compilation) wherein it has held that Section. 263 of the Act cannot be invoked merely because another, view of a subject matter is possible. In view of the above decisions and observations of the Hon'ble Supreme Court, it is submitted that the order of the assessing officer dated 25.01.2017 is not 'erroneous'. Prejudicial to Interest of the Revenue 3:6. Without prejudice to the above, we would like to state that it is also in the interest of the Kevenue to permit setoff of Business Loss against the foreign dividend as the Unabsorbed Depredation and the Business Loss if not allowed for set-off would result in the same being carried forward for set-off against income of subsequent years on which maximum marginal rate of 30%- is applicable. In the assessment order u/s 143(3) r.w.s 144C(_3) dated 25.01.2017, further rectified vide Order u/s 154 dated.16:06.2017, the Income under normal was assessed under following Heads Sr. No. Heads of Income Aa per order dated 25.01.17 further rectified vide order dated 16.06.17 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uest your Honour to kindly drop the proceedings initiated u/s 263 of the Act. Without prejudice and in alternative, in the ensuing paras our submissions on merits of the issue is also furnished for your Honor's kind consideration. Submissions on merits 4. Taxability u/s 115BBD of dividend received from specified foreign companies separately @ 15% without set-off of business loss 4.1. In connection with Para 3 of the captioned notice, we have to submit that during the earlier year, the assesses Company has earned dividend income from specified foreign companies amounting to ₹ 1421.97.83.025/- from M/s TML Holdings Pte Ltd., Singapore and ₹ 13,31,028/- from Nita Co. Ltd., Bangladesh. The assessee Company was holding more than 26% in both 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 ₹ 1422,11,14,053/-. 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 11BBD of the Act for separately being taxed at 15% is ₹ 1421,97,83,025/- as against ₹ 1422,11,14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sult of the computation under any head of income, other than Capita! gains , is a loss and the assesses has no income under the head Capital gains , he shall, subject to the provisions of this Chapter, be entitled to have the amount of such loss set off against his income, if any, assessable for that assessment year under any other head. (2) Where in respect of any assessment year, the net result of the computation under any head of income, other than Capital gains , is a loss and the assessee has income assessable under the head Capita! gains , such loss may, subject to the provisions of this Chapter, be set off against his income, if any, assessable for that assessment year under any head of income including the head Capital gains (whether relating to short-term capital assets or any other capital assets). (2A) Notwithstanding anything contained in sub-section (1) or sub-section (2), where in respect of any assessment year, the net result of the computation under the head Profits and gains of business or profession is a loss and the assesses has income assessable under the head Salaries , the assesses shall not be entitled to have such loss set off against such inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld like to draw your Honour's kind attention to the decision of the Hon'ble Bombay High Court in the case of British Insulated Calenders' Ltd. (202 ITR 354) (refer Exhibit H of Case Laws Compilation'), wherein it has been held that though dividend income was taxable at concessional rate of tax, the assessee is liable to first set off its loss under one head of income against income from other head of income u/s. 71 of the Act and only the balance loss available after set-off is allowed to be carried forward in subsequent years. 4.9. Thus, your Honour would appreciate that the law is very clear on the point that income taxable at specified rate must first be set-off against income/ (loss) taxable at higher rate. It is also a settled position that any income taxable at specified rate has to be set-off against Income / (loss) under any head taxable at normal rate unless there is an express provision, otherwise, u/s. 71 of the Act. 4.10. We, therefore, humbly request your Honour to kindly permit the set-off of Business Loss for the year against Foreign Dividend that is offered for tax by the assessee under the head 'Income from Other Sources' as provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m whatever source derived which is received or deemed to be received, accrued or arises or is deemed to accrue or arise or accrues outside India for a person who is resident/ non-resident, as the case may be. 4.15. Apart from reference to Income u/s. 5 of the Act (as discussed above), total income t's required to be computed in the manner laid down in this Act. It thus, follows that income under various heads included in total income are required to be computed independently, as per the provisions guiding the same as per Chapter IV of the Act, which deals with Computation of Total Income and then the aggregation of income. The Set-off and carry forward of losses are required to be computed as provided under Chapter VI of the Act before setting off any deductions from the total income as provided under Chapter VI-A of the Act. 4.16. In this regard, we would like to draw your Honour's kind attention to the decision of the Hon'ble Kolkata Tribunal in the case of Industrial Investment Bank of India Limited v. DCTT (1416/Kol/2014) refer Exhibit I of Case. Laws Compilation) where it has been held that Chapter V deals with inclusion in the total income of an assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d while computing Foreign Dividend Income and working out tax thereon. While it does not prohibit set-off of losses against the said dividend income. 4.22.The provisions of sub-section (2) of section 115BBD of the Act expressly deals with non-allowability of deduction of any 'expenditure' or 'allowance' against dividend income, however the Act does not prohibit set-off of losses against the said dividend income. It is settled legal position that the term 'expenditure or 'allowance' is different from loss' and it cannot be used interchangeably. 4.23.In this regard, we would like to draw your Honour's kind attention to the decision of the Hon'ble Supreme Court in the case of CTT v. Waif art Share Stock Brokers (P.) Ltd. (326 ITR l)(refer Exhibit J of Case Laws Compilation) where the Apex Court while adjudicating on the issue relating to whether the loss arising in the course of dividend stripping transaction prior to 01.04.2002 was disallowable on the ground that it was artificial and not business transaction dealt at great, length on the terms 'expenditure' and 'loss' while touching upon the provisions of section 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not convey the desired intention, resulting in the. matter being litigated, as can be seen in the following judicial pronouncements: ACIT v. MA. Rah/7 Agencies (ITA No. 4413/M/2014) (Mum. TTAT); ACIT v. Sanjay Bairathi Gems Ltd. (166 ITO 445) (Jaipur ITAT); Satish Kumar Goyal v. JCIT (ITA No. 143/Ag/2014) 4.27 In order to avoid unnecessary litigation, sub-section (2) of section 115BBE was amended by Taxation Laws (Second Amendment) Act. 2016 (w.e.f. 01.04.2017) as under: (2) Notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance or set-off of any loss (emphasis supplied) shall be allowed to the assesses under any provision of this Act in computing his income, referred to in clause (a) of sub-section (1). 4.28 From the above, your Honour will observe that the Legislature suitably amended the above section in order to categorically not allow deduction in respect of set off of any loss while computing the income referred to in the above sections and this amendment was brought into effect prospectively. 4.29. brewing analogy from the above section which was introduced and subsequently amended suitably to set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such dividend is taxable at the rate of thirty per cent plus applicable surcharge and cess. It is proposed to insert a new section 115BBD to provide that where total income of an Indian company fair the previous year relevant to the assessment year 2012-13 includes any income by way of dividends received from a foreign subsidiary company, then such dividends shall be taxable at the rate of fifteen per cent (plus applicable surcharge and cess) on the gross amount of dividends. No expenditure in respect of such dividends shall be allowed under the Act. This amendment is proposed to take, effect from 1st April, 2012 and will accordingly, apply in relation to the assessment year ZO12-13. 4. 34. Further, the relevant extract of the Budget speech to Finance Act, 2011, is also reproduced hereunder: 146. It has been represented that the taxation of foreign dividends in the hands of resident taxpayers at full rate is a disincentive for their repatriation to India and they continue to remain invested abroad. For the year 2011-12, I propose a lower rate of 15 per cent tax on dividends received by an Indian company from its foreign subsidiary. I do hope these funds will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss Loss during the year against the foreign dividend income offered to tax under Income from Other sources. 4. 40. Thus, it is submitted that the Ld. AO in the assessment order dated 25.01.2017 has corrected taxed the dividend income received form specified foreign companies as referred in section 115BBC) of the Act in conformity with section 71 of the Act. 3. After considering the detail submission of the assessee, Ld. CIT rejected the contentions of the assessee and he observed that proceedings u/s 263 are proper and as per the provisions. According to his opinion, the assessment has been completed without proper application of mind to the existing statutory provisions and judicial position on this issue. The mere fact that the documents were available to the AO cannot provide immunity to the taxpayer because the AO made erroneous interpretation of facts and law. Consequently, made an order prejudicial to the revenue. Further, he observed that M/s Tata Daewoo Commercial Vehicle Co. Ltd. is a wholly owned subsidiary company and therefore is a specified foreign company as defined u/s 115BBD and it is undisputed fact. Accordingly, he directed the AO to tax the dividend inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income u/s. 71 of the Act, the chargeability provision as per section 115BBD of 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. The appellant craves leave to add, alter, delete or substitute all or any of the aforesaid grounds of appeal during the course of or prior to hearing of the appeal. 5. Before us, Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee asked to carry forward loss without adjusting the dividend income, erstwhile profit earned by the assessee is chargeable @ 30%, whereas the department will tax the dividend only @ 15%. He further brought to our notice that income has to be determined chapter wise i.e. from 4 to 7 and only after determining the taxable income rates of tax will be applied subsequently. Since assessee has incurred huge loss, the provision of section 71 has to be applied before application of section 115BBD. He further submitted that the provision of section 115BBD does not contain restriction to exclude the dividend received from specified foreign company in order to determine the taxable income and further it is submitted that 115BBD talks only to expenditure relating to earning of dividend income from specified foreign company. Even though assessee has made such detail submission before Ld. CIT, how the assessee s case not falling under provisions of section 263 of the Act either on erroneous nor prejudicial to the interest of revenue. We observed that Ld. CIT instead of addressing the issue raised by the assessee, he rejected the submission of the assessee and observed and accepted that a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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