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2020 (4) TMI 29 - AT - Income TaxRevision u/s 263 - restriction on carrying forward any loss similar to provision contained in section 115BBE and section 115BBDA - HELD THAT - After careful reading of section 115BBD, we agree with the submission of Ld. AR that there is no provision in that section to eliminate the dividend income from specified foreign company before setting off of loss and similar to the provisions and specific direction present in section 115BBE. Taxable income has to be determined as per the provisions of Income Tax Act i.e. first to compute the total income based on the Chapter-IV and then apply the Chapter-VI and VIA in order to compare the aggregation and set off of losses. After determining the taxable income by applying the above Chapters and if still there is profit, then such taxable profit has to be taxed according to the prevailing rates as per the various applicable provisions of the Act. Since assessee is having substantial loss and as per the provision of Chapter-VI, the taxable income has to be adjusted first before applying any other provisions contained in the Act particularly when there is no specific provision contained in section 115BBD wherein to impose restriction on carrying forward any loss similar to provision contained in section 115BBE and section 115BBDA. Therefore, we do not see any reason to treat this assessment as erroneous nor it is passed by erroneous interpretation of facts or law. Accordingly, the order passed u/s 263 of the Act by Ld. CIT is not as per provisions contained therein or as per the jurisdictional precedence. Hence, it is set aside. Resultantly, the grounds raised by the assessee are allowed.
Issues Involved:
1. Validity of proceedings under Section 263 of the Income Tax Act. 2. Taxation of dividend income received from specified foreign companies under Section 115BBD of the Income Tax Act. Issue-wise Detailed Analysis: 1. Validity of Proceedings under Section 263 of the Income Tax Act: The assessee challenged the invocation of Section 263 by the Commissioner of Income Tax (CIT), arguing that the conditions set out in Explanation 2 to sub-section 1 of Section 263 were not satisfied. The assessee contended that the assessment order was neither erroneous nor prejudicial to the interests of the Revenue. The assessee emphasized that the Assessing Officer (AO) had made inquiries and verified the details during the assessment proceedings, including the dividend income from specified foreign companies. The assessee cited several judicial precedents to support its argument that an order passed after due inquiry and verification cannot be deemed erroneous merely because it did not elaborate on every aspect. The CIT, however, held that the AO's order was erroneous and prejudicial to the interests of the Revenue. The CIT observed that the AO had not properly applied the statutory provisions and judicial positions on the issue, resulting in a short levy of tax. The CIT directed the AO to tax the dividend income received from specified foreign companies separately at 15% and withdraw the MAT credit given to the assessee. The Tribunal, after considering the submissions and judicial precedents, concluded that the AO had duly verified the information and applied the relevant provisions of the Act. It held that the assessment order was not erroneous nor prejudicial to the interests of the Revenue. Consequently, the Tribunal set aside the order passed under Section 263 by the CIT. 2. Taxation of Dividend Income Received from Specified Foreign Companies under Section 115BBD: The assessee argued that the dividend income received from specified foreign companies should be set off against the business loss as per Section 71 of the Act before applying the tax rate specified under Section 115BBD. The assessee contended that Section 115BBD does not contain any provision to exclude the dividend income from specified foreign companies from the total income before setting off losses. The assessee further argued that the term "expenditure" or "allowance" under Section 115BBD(2) does not include "loss," and hence, the business loss should be allowed to be set off against the dividend income. The CIT, however, held that the dividend income from specified foreign companies should be taxed separately at 15% without allowing the set-off of business loss. The CIT directed the AO to withdraw the MAT credit given to the assessee. The Tribunal agreed with the assessee's contention that there is no provision in Section 115BBD to exclude the dividend income from specified foreign companies before setting off losses. The Tribunal observed that the taxable income should be determined as per the provisions of the Income Tax Act, which includes the application of Chapter IV (computation of total income) and Chapter VI (aggregation and set-off of losses). The Tribunal held that since the assessee had substantial losses, the provisions of Section 71 should be applied first before determining the tax liability under Section 115BBD. The Tribunal concluded that the AO's order was not erroneous nor prejudicial to the interests of the Revenue and set aside the CIT's order under Section 263. Conclusion: The Tribunal allowed the appeal filed by the assessee, holding that the proceedings under Section 263 were invalid and that the AO had correctly applied the provisions of the Income Tax Act in determining the taxable income and tax liability of the assessee. The Tribunal emphasized the importance of following the statutory provisions and judicial precedents in assessing the tax liability of an assessee.
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