2020 (10) TMI 611 - AT - Income Tax

Deduction u/s 43B - Provision for diminution in the value of Investments - year of creation of provision - Claim rejected by the A.O on the ground that he had no authority to allow any relief or deduction which had not been claimed in the return - HELD THAT - CIT(A) was not justified in declining to consider the assessee s claim that as the Provision for diminution in the value of Investments was disallowed/added back by the assessee while computing its income for the year in which it was created i.e A.Y 2013-14, the same thus could not have been included in its income for the year in question i.e A.Y 2017-18 in which it was reversed. As observed we are of a strong conviction that as no deduction for the aforesaid provision was claimed by the assessee while computing its income for the year in which it was created i.e A.Y 2013-14, the inclusion of the same on its reversal in the books of account during the year in question i.e A.Y 2017-18 would undoubtedly lead to a double taxation in its hands. Such extraction of tax from an assessee without the authority of law is prohibited as per Article 265 of the Constitution of India. See M/S. DILIP KUMAR AND COMPANY ORS. 2018 (7) TMI 1826 - SUPREME COURT We find ourselves to be in agreement with the claim of the assessee that as the Provision for diminution in the value of Investments was disallowed/added back by the assessee while computing its income for the year in which it was created i.e A.Y 2013-14, the same thus could not have been included in its income for the year under consideration i.e A.Y 2017-18 in which it was reversed. We thus in terms of our aforesaid observations set aside the order of the CIT(A) who as observed by us hereinabove had declined to deal with the aforesaid claim of the assessee, and direct the A.O to vacate the impugned addition - Decided in favour of assessee.

Issues Involved:
1. Upward adjustment for reversal of provision for diminution in value of investments.
2. Validity of addition made under section 143(3) of the Income Tax Act.
3. Computation of income and demand raised under section 156 of the Act.
4. Levy of interest under sections 234B and 234C of the Act.

Issue-Wise Detailed Analysis:

1. Upward adjustment for reversal of provision for diminution in value of investments:
The assessee, a wholly-owned subsidiary of BNP Paribas SA, created a "Provision for diminution in the value of Investments" amounting to ?81,72,24,557 during the financial year 2012-13, which was disallowed in its return for AY 2013-14. The same provision was reversed in AY 2017-18, but the reversal was not offered for tax under any head of income, as it was already disallowed in AY 2013-14. The Central Processing Center (CPC) issued an intimation under Sec. 143(1)(a) proposing an upward adjustment of ?81,72,24,557, which the assessee objected to. The CPC, however, made the upward adjustment under the head "Profits and gains from Business or profession," resulting in an additional demand of ?36,61,35,993. The Tribunal observed that since the provision was disallowed in AY 2013-14, it could not be included in the income for AY 2017-18, as this would lead to double taxation.

2. Validity of addition made under section 143(3) of the Income Tax Act:
The Assessing Officer (A.O) assessed the income at ?89,30,72,400, which included the upward adjustment made by the CPC. The CIT(A) upheld the A.O's order, stating that the addition did not emanate from the order passed under section 143(3). The Tribunal, however, noted that the A.O had the power to rectify the adjustment made under section 143(1) while framing the assessment under section 143(3). The Tribunal cited judicial precedents to support the view that an assessee can raise additional claims during assessment proceedings, even if not claimed in the return of income.

3. Computation of income and demand raised under section 156 of the Act:
The Tribunal highlighted that the inclusion of the provision for diminution in the value of investments in the income for AY 2017-18 was incorrect, as it was already disallowed in AY 2013-14. The Tribunal emphasized that taxing the same amount twice is against the principles of law and would lead to unjust enrichment of the revenue. The Tribunal directed the A.O to vacate the impugned addition and rectify the computation of income and the demand raised under section 156 accordingly.

4. Levy of interest under sections 234B and 234C of the Act:
The assessee contested the levy of interest under sections 234B and 234C amounting to ?7,66,13,553 and ?1,42,61,232, respectively. The Tribunal, while addressing the primary issue of double taxation, implicitly acknowledged that the incorrect addition led to an erroneous computation of interest. By directing the A.O to vacate the impugned addition, the Tribunal also implied that the interest levied under sections 234B and 234C should be recalculated based on the corrected income.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, setting aside the order of the CIT(A) and directing the A.O to vacate the addition of ?81,72,24,557. The Tribunal emphasized that the provision for diminution in the value of investments, already disallowed in AY 2013-14, could not be included in the income for AY 2017-18 to avoid double taxation. The Tribunal's decision was based on established judicial principles and aimed at ensuring that the correct tax liability was assessed in accordance with the law.

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