2016 (7) TMI 746 - AT - Income Tax

Revision u/s 263 - profit on sale of mutual funds and derivatives to be assessed under the head income from business - Held that - In the instant case, we find that the ld AO had accepted the profit on sale of mutual funds and derivatives to be assessed under the head income from business which is also accepted by the ld CIT. The ld AO had allowed the claim of deduction towards keyman insurance premium in the sum of ₹ 2,28,780/- by placing reliance on the CBDT Circular No. 762 dated 18.2.1998 which is binding on him. In fact, we find that the ld AO though had reopened the assessment initially on the pretext that there was no business carried on by the assessee and accordingly keyman insurance premium and depreciation are not allowable business expenditure, was thoroughly convinced on the fact that the assessee was carrying on business and allowed the deduction towards keyman insurance premium by placing reliance on the CBDT Circular No. 762 dated 18.2.1998 which Circular is actually binding on him. However, he proceeded to disallow the portion of the claim of depreciation on car as not used for business purposes as assessee had not substantiated the usage of the same for the purpose of business. These facts go to prove beyond doubt that the ld AO had duly applied his mind on the aspect as to whether the assessee had indeed carried on any business during the year or not. It is not in dispute that the ld AO had allowed the claim of other administrative expenses as allowable business expenditure. Hence it could be safely concluded that the ld AO had indeed made requisite enquiry in the given set of facts and circumstances of the case and had taken a judicious view on the entire issue. Hence his order cannot be termed as erroneous within the meaning of section 263 of the Act. We find that even the ld CIT had not disturbed the claim of administrative expenses to be allowed under the head income from business . Hence either way, no prejudice is caused to the interest of the revenue by the order of the ld AO. Hence the twin conditions required for section 263 of the Act are not satisfied. - Decided in favour of assessee.

Summary

Issues Involved:

1. Justification of the CIT invoking revisionary jurisdiction under Section 263 of the Income Tax Act.
2. Legitimacy of the deductions claimed by the assessee, specifically keyman insurance premium and depreciation on assets.

Detailed Analysis:

1. Justification of the CIT invoking revisionary jurisdiction under Section 263 of the Income Tax Act:

The primary issue in this appeal is whether the CIT was justified in invoking revisionary jurisdiction under Section 263 of the Income Tax Act. The assessee filed a return of income for the Assessment Year (AY) 2006-07, which was subsequently assessed under Section 143(3) of the Act. The assessment was later reopened under Section 147 for reasons including an ineligible insurance claim and disallowed depreciation due to the absence of business activity.

The CIT issued a show cause notice seeking to revise the assessment, arguing that the AO's allowance of deductions for keyman insurance and depreciation was erroneous due to the lack of business activity. The assessee contended that it was engaged in trading shares, mutual funds, and derivatives, which was accepted by the AO in both original and reassessment proceedings.

The Tribunal found that the CIT's partial acceptance of administrative expenses as business expenditure contradicted his stance on keyman insurance and depreciation. The Tribunal concluded that the AO had made a judicious decision based on the facts and applicable CBDT Circulars, and thus, the order was neither erroneous nor prejudicial to the interest of the revenue.

2. Legitimacy of the deductions claimed by the assessee, specifically keyman insurance premium and depreciation on assets:

The AO initially allowed the deduction for keyman insurance premium based on CBDT Circular No. 762 and disallowed a portion of the depreciation on the car due to insufficient evidence of business use. The CIT sought to disallow these deductions, arguing that no business was conducted during the year.

The Tribunal noted that the AO had recognized the assessee's business activities, including profits from mutual funds and derivatives, and allowed other administrative expenses. The Tribunal referenced the Delhi Tribunal's decision in M/s Radials International vs ACIT, which supported the treatment of PMS profits as business income.

The Tribunal emphasized that the AO had conducted a thorough inquiry and made a reasoned decision, which was not erroneous. The Tribunal also cited judicial precedents, including Malabar Industries Co Ltd vs CIT and Bongaigaon Refinery and Petrochemicals Ltd vs Union of India, to assert that differing views do not justify revision under Section 263.

Conclusion:

The Tribunal quashed the CIT's order under Section 263, affirming the AO's decision and allowing the assessee's appeal. The Tribunal held that the conditions for invoking Section 263 were not met, as the AO's order was neither erroneous nor prejudicial to the revenue. The appeal was allowed, and the order was pronounced on 15.07.2016.