2019 (6) TMI 473 - AT - Income Tax

Rebate u/s 88E - Rebate in respect of securities transaction tax - claim admissible in respect of income of an assessee, chargeable under the head Profits and gains of business or profession , arising from taxable securities transaction. restriction of claim by CIT-A - allocation of expenses towards incomes on which rebate U/s 88E not allowed to the assessee - HELD THAT - There is no ambiguity regarding statutory provisions U/s 88E, to the extent that rebate u/s 88E is admissible to the assessee only in respect of the income of an assessee in a previous year, chargeable under the head Profits and gains of business or profession , arising from taxable securities transactions. Orders of the lower authorities, CIT(A) and AO, restricting the rebate u/s 88E to income chargeable under the head Profits and gains of business or profession , arising from taxable security transaction, is upheld. The assessee s claim to allocate expenses against such incomes which had been excluded from the profits of the business in computing rebate u/s 88E is a reasonable claim. Merely, because income on which rebate U/s 88E was not allowable was only 3.32% of the total income, such allocation of expenses cannot denied. The opinion expressed by the AO as well as Ld. CIT(A) that such incomes would not require expenditure of substantial amounts is not based on any credible materials. Neither the AO nor the CIT(A) has supported this view, on the basis of facts of the case. We disapprove this approach adopted by the AO and CIT(A), in refusing to allocate any expenses towards incomes on which rebate u/s 88E was not allowed to the assessee. Direct the AO to allocate expenses to incomes on which rebate u/s 88E has been denied to the assessee and re-compute the rebate U/s 88E, accordingly. For this limited purpose, we are setting aside the order of the Ld. CIT(A) and remanding the matter to the file of the AO. - Appeal of the assessee is partly allowed for statistical purposes

Summary

Issues Involved:
Assessee's appeal against the order of the Learned Commissioner of Income Tax (Appeals) regarding the claim of rebate under section 88E of the Income Tax Act, 1961.

Analysis:

Issue 1: Claim of Rebate under Section 88E
The primary issue in this case revolves around the assessee's claim of rebate under section 88E of the Income Tax Act. The assessee contended that the rebate should be allowed based on the proportionate allocation of expenses against incomes excluded from the profits of the business for computing the rebate. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) (CIT(A)) restricted the rebate to the income chargeable under the head "Profits and gains of business or profession" arising from taxable security transactions only. The Income Tax Appellate Tribunal (ITAT) upheld this restriction but found merit in the assessee's argument for allocating expenses against excluded incomes.

Issue 1.1: Allocation of Expenses
The ITAT acknowledged the reasonableness of the assessee's claim to allocate expenses against the excluded incomes, despite the fact that the incomes not eligible for rebate under section 88E constituted only 3.32% of the total income. The AO and CIT(A) had denied such allocation, asserting that most of the excluded incomes did not require substantial expenses for their generation. However, the ITAT disagreed with this view, emphasizing the lack of credible evidence supporting the assumption that excluded incomes did not entail significant expenditures.

Issue 1.2: Judicial Direction
The ITAT directed the AO to allocate expenses to incomes for which the rebate under section 88E was denied to the assessee and instructed a re-computation of the rebate accordingly. By setting aside the CIT(A)'s order and remanding the matter to the AO, the ITAT aimed to ensure a fair assessment that considers the allocation of expenses against excluded incomes. This decision was made to rectify the AO and CIT(A)'s refusal to allocate expenses, which the ITAT deemed unjustified based on the facts of the case.

Conclusion:
The ITAT partially allowed the assessee's appeal, emphasizing the statutory provisions of section 88E while directing the AO to allocate expenses against excluded incomes for computing the rebate. The judgment highlights the importance of a reasonable allocation of expenses and the need for credible evidence to support decisions related to income tax rebates. The case serves as a reminder of the necessity for thorough assessments in tax matters to ensure fairness and compliance with legal provisions.