2011 (6) TMI 960 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the order passed u/s 263 of the Income Tax Act, 1961.
2. Allowability and carry forward of Long Term Capital Loss (LTCL) from conversion of UTI US64 units to tax-free bonds.

Summary:

1. Validity of the order passed u/s 263 of the Income Tax Act, 1961:

The appeal was directed against the order dated 25.3.2009 passed by the Commissioner of Income Tax-14, Mumbai u/s 263 of the Income Tax Act, 1961. The Commissioner observed that the AO allowed the assessee's claim of Rs. 62,53,815/- as LTCL carried forward to the subsequent year, which was incorrect as per section 10(33) of the Act. The Commissioner held that any income arising from the transfer of units of UTI US64 is exempt from tax, and similarly, the loss from such units cannot be carried forward. Consequently, the Commissioner directed the AO to recompute the total income by disallowing the LTCL of Rs. 1,01,23,377/-.

The Tribunal noted that the Commissioner did not record a finding that the AO's order was erroneous and prejudicial to the interests of the Revenue. The Tribunal emphasized that for invoking section 263, both conditions must be satisfied. The Tribunal cited the Supreme Court's decision in Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 (SC) and other relevant judgments to support its view that the Commissioner cannot assume jurisdiction without a positive finding of error and prejudice to the Revenue. The Tribunal concluded that the Commissioner's order was invalid as it lacked the necessary findings and improperly directed the AO to complete the assessment in a specific manner.

2. Allowability and carry forward of Long Term Capital Loss (LTCL) from conversion of UTI US64 units to tax-free bonds:

The assessee argued that the LTCL from the conversion of UTI US64 units should be allowed to be set off against other capital gains and carried forward. The assessee relied on the expert opinion of Shri V. H. Patil and various judicial precedents, including the Tribunal's decision in Navin Bharat Industries Ltd. Vs. Dy. CIT (2004) 90 ITD 1 (Mum) (TM).

The Commissioner, however, held that as per section 10(33), any income from the transfer of UTI US64 units is exempt from tax, and thus, the loss from such units cannot be set off against other capital gains or carried forward. The Commissioner relied on the decisions in Dalmia Jain & Co. (65 ITR 408) (Pat) and Harprasad And Co. P. Ltd. (99 ITR 118) (SC) to support his view.

The Tribunal, after considering the submissions and relevant case laws, held that the AO had adopted one of the permissible views in law by allowing the LTCL to be set off and carried forward. The Tribunal noted that the Commissioner cannot direct the AO to complete the assessment in a particular manner, especially when the AO's view is a possible and valid interpretation of the law. The Tribunal concluded that the Commissioner's order u/s 263 was outside the purview of the section and thus, cancelled it.

Conclusion:

The Tribunal allowed the assessee's appeal, holding that the order passed by the Commissioner of Income Tax u/s 263 was invalid and the AO's original assessment allowing the LTCL was a permissible view in law.