2019 (11) TMI 1356 - AT - Income Tax

Revision u/s 263 - Regarding the brought forward losses and the unabsorbed appreciation - HELD THAT - At the outset we note that, the Ld. AR at the time of hearing did not dispute the finding of the Ld. CIT under section 263 of the Act. Therefore, we do not find any reason to interfere in the order of the Ld. CIT to the extent of brought forward losses and the unabsorbed depreciation. Dividend income - It is settled law that the order of the AO can be held as erroneous insofar prejudicial to the interest of Revenue on the satisfaction of the twin conditions. Firstly, it has to be erroneous and secondly such error should cause prejudice to the interest of Revenue. In the instant case, there is no loss to the Revenue on account of reducing the dividend incomes against the disallowance of the expense under section 14A read with rule 8D of Income Tax Rule. In the instant case the assessee has offered the exempted income to tax which needs to be reduced from the taxable income. As such the Revenue has to allow the rightful claims to the assessee despite the same were not claimed by the assessee. If the amount of dividend income is not reduced against the disallowance of the expenses, then such income has to be treated as exempted income under section 10(34). Finally, the amount of dividend will be reduced and disallowance of the expenses will increase. Thus in effect the entire exercise will be tax neutral. Therefore, in our considered view the order passed by the AO at the most can be held as erroneous but it does not cause any prejudice to the interest of Revenue. Thus in our considered view, on this count, the order of the AO cannot be held as erroneous insofar prejudicial to the interest of Revenue. Prior period expenses - HELD THAT - There is no error in the order of the AO as alleged by the Ld. CIT. Hence in our considered view the order of the AO cannot be held erroneous insofar prejudicial to the interest of Revenue on this reasoning. AO is erroneous in so far prejudicial to the interest of revenue to the extent of the benefit granted by the AO on account of brought forward losses and unabsorbed depreciation. The assessee on this count fails. However, the assessee on other 2 items as discussed above succeeds for the reasons elaborated hereinabove. Hence the appeal of the assessee is partly allowed.

Issues Involved:
1. Erroneous and prejudicial assessment order under section 263 of the IT Act.
2. Set-off of brought forward business losses and unabsorbed depreciation.
3. Disallowance under section 14A read with Rule 8D concerning dividend income.
4. Verification of prior period expenses disallowance.

Detailed Analysis:

1. Erroneous and Prejudicial Assessment Order:
The assessee challenged the order passed by the Principal Commissioner of Income Tax (CIT) under section 263, which held the assessment framed by the Assessing Officer (AO) under section 143(3) as erroneous and prejudicial to the interest of Revenue. The CIT opined that the AO failed to properly examine records and appreciate facts and law, leading to an erroneous assessment order.

2. Set-off of Brought Forward Business Losses and Unabsorbed Depreciation:
The CIT observed that the assessee claimed set-off of brought forward losses and unabsorbed depreciation amounting to ?371,58,34,739 and ?3,35,82,000, respectively, against taxable income for the relevant assessment year. However, these amounts were already claimed in earlier assessment years (2008-09, 2009-10, and 2010-11). The CIT directed the AO to verify and recompute the set-off claims.

The assessee contended that these brought forward losses and depreciation were apportioned due to the demerger of the erstwhile GEB and were pending appeal effects for earlier years. The Tribunal noted that the assessee did not dispute the CIT's findings regarding the brought forward losses and unabsorbed depreciation, and thus, upheld the CIT's order on this issue.

3. Disallowance Under Section 14A Read with Rule 8D Concerning Dividend Income:
The CIT noted that the AO reduced the amount of dividend income of ?11,60,62,000 from the disallowance made under section 14A read with Rule 8D, effectively reducing the disallowance from ?148,83,18,280 to ?137,22,56,280. The assessee argued that the dividend income was not claimed as exempt, and thus, should be reduced from the disallowance.

The Tribunal held that the order of the AO could be erroneous but did not cause prejudice to the interest of Revenue. It emphasized that the Revenue must allow rightful claims to the assessee, even if not claimed by the assessee, referencing CBDT Circular no 14(XL-35) dated 11-04-1955. The Tribunal concluded that the entire exercise would be tax-neutral, and thus, the AO's order on this count was not prejudicial to the Revenue's interest.

4. Verification of Prior Period Expenses Disallowance:
The CIT directed the AO to verify the disallowance of prior period expenses amounting to ?2,15,28,000, noting that the AO had already added these expenses under normal provisions but omitted them under MAT computation.

The assessee contended that these expenses were already added to the book profit computed under section 115JB. The Tribunal verified this from the AO's order and concluded that there was no error in the AO's order regarding prior period expenses. Therefore, the AO's order was not erroneous or prejudicial to the Revenue's interest on this issue.

Conclusion:
The Tribunal held that the AO's order was erroneous and prejudicial to the interest of Revenue concerning the set-off of brought forward losses and unabsorbed depreciation, and thus, upheld the CIT's order on this count. However, the Tribunal found no error or prejudice in the AO's order regarding the disallowance under section 14A read with Rule 8D and the verification of prior period expenses. Consequently, the appeal of the assessee was partly allowed.

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