2012 (8) TMI 43 - AT - Income Tax

Justification of CIT(A) assuming jurisdiction u/s.264 - wrong carry forward of speculation loss - Held that - Sec. 73(4) was amended with effect from 1.4.2006 to the effect that no loss shall be carried forward under this section for more than four assessment years immediately succeeding the assessment year for which the loss was first computed. The assessee was having brought forward speculation loss pertaining to A.Y. 2000-01 which the AO has allowed to be carry forward. However, in the assessee s case, the brought forward loss of A.Y. 2000-01 has already expired in A.Y. 2004-05 - set aside with order with direction that the Assessing Officer should verify whether the assessee is eligible to avail carry forward speculation loss pertaining to the A.Y. 2000-01 in view of the amended provisions of sub-section (4) of Sec. 73. Computation of book profit u/s 115JB without adding the amount disallowed u/s 14A - Held that - As the expenditure disallowed interest of the exempted income was not added back while computing book profit for the purpose of Section 115JB though, it was required to be added back under clause (f) of Explanation 1 of Section 115JB the Order is also set aside to the file of the AO for re-adjudication, as the details and explanations submitted by the assessee during the course of proceedings us. 263 were not adjudicated by the AO - No infirmity into the order passed by CIT as is evident from the records that AO has not applied his mind whether clause (f) of the Explanation 1 of Section 115JB was applicable or not and as also not examined the issue of eligibility of set off of carry forward speculation loss as provided in amended Section 73(4).

Summary

Issues Involved:
1. Jurisdiction of the CIT under Section 263 of the Income-tax Act, 1961.
2. Validity of the carry forward of speculation loss from AY 2000-01.
3. Applicability of disallowance under Section 14A while computing book profit under Section 115JB.

Issue-Wise Detailed Analysis:

1. Jurisdiction of the CIT under Section 263 of the Income-tax Act, 1961:

The assessee contested that the order passed under Section 263 was void due to lack of jurisdiction. The CIT had issued a notice under Section 263, observing that the Assessing Officer (AO) had allowed the wrong carry forward of speculation loss and had not added back the disallowed expenditure under Section 14A while computing book profit under Section 115JB. The CIT concluded that the AO had not made proper inquiries or verifications, rendering the assessment order erroneous and prejudicial to the interest of the revenue. The Tribunal upheld the CIT's jurisdiction under Section 263, emphasizing that the AO's failure to conduct proper inquiries justified the CIT's intervention.

2. Validity of the carry forward of speculation loss from AY 2000-01:

The assessee argued that the speculation loss of Rs. 69,62,778 from AY 2000-01 should be allowed to be carried forward for eight years as per the provisions in force at that time. The Finance Act, 2005, amended Section 73(4) to reduce the carry forward period to four years, effective from AY 2006-07. The assessee contended that this amendment should not apply retrospectively to losses determined in earlier years. The CIT, however, noted that the AO had allowed the carry forward of the loss without verifying its eligibility under the amended provisions. The Tribunal upheld the CIT's order, directing the AO to re-adjudicate the issue in light of the amended Section 73(4).

3. Applicability of disallowance under Section 14A while computing book profit under Section 115JB:

The assessee contended that the disallowance under Section 14A, made by invoking Rule 8D, should not be added back while computing book profit under Section 115JB. The CIT observed that the AO had not added back the disallowed expenditure of Rs. 64.35 lakh, which was required under clause (f) of Explanation 1 to Section 115JB. The Tribunal noted that the AO had not applied his mind to the applicability of this clause and had not examined the issue properly. Consequently, the Tribunal upheld the CIT's order, directing the AO to re-adjudicate the matter according to law.

Conclusion:

The Tribunal dismissed the assessee's appeal, affirming the CIT's order under Section 263. The Tribunal emphasized the necessity for the AO to conduct proper inquiries and verifications regarding the carry forward of speculation loss and the applicability of disallowance under Section 14A while computing book profit under Section 115JB. The AO was directed to re-adjudicate these issues, providing the assessee with sufficient opportunities to present their case.