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2021 (7) TMI 569 - AT - Income TaxRevision u/s 263 - deduction on account of unrealized gain on mutual fund while computing book profit u/s 115JB - HELD THAT - As specifically provided in clause (a) of Explanation 2 below Section 263 if in the opinion of Pr. CIT, an order passed by the AO is without making enquiries or verifications, which should have been made, the same shall be deemed to be erroneous in so far as it is prejudicial to the interest of revenue for the purpose of Section 263 calling for exercise of revisionary power. As regards the contention raised by assessee in support of the assessee s claim for deduction on account of unrealized gain on mutual fund while computing book profit u/s 115JB of the Act on merit, we agree with the contention of the Ld. CIT DR that the same is not relevant at this stage as the said issue has not been decided by the Pr. CIT on merit in his impugned order passed u/s 263. While setting aside the order of the AO passed u/s 263, he has directed the AO to frame the assessment de novo after making proper verification / enquiry on the issue of allowability of assessee s claim for deduction on account of unrealized gain on mutual fund while computing book profit u/s 115JB in accordance with law and after giving the assessee-company a reasonable opportunity of being heard. CIT thus has left this issue to be decided by the AO on merit in accordance with law after giving the assessee-company a reasonable opportunity of being heard and the assessee, therefore, is at liberty to support and substantiate its claim on this issue on merit before the AO by relying on the relevant judicial pronouncements. We uphold the impugned order passed by the Ld. Pr. CIT u/s 263 and dismiss this appeal of the assessee.
Issues Involved:
1. Whether the assessment order dated 29.12.2017 (as rectified on 03.07.2018) was erroneous and prejudicial to the interest of the revenue. 2. Whether the deduction claimed by the assessee on account of "unrealized gain on mutual fund" was allowable under Section 115JB of the Income Tax Act, 1961. Issue-wise Detailed Analysis: 1. Erroneous and Prejudicial to Revenue: The assessee-company, engaged in the business of manufacturing edible oil, had its book profit computed at ?79,52,383/- under Section 115JB of the Income Tax Act, 1961, as declared in its return. The Ld. Pr. CIT observed that the assessee had claimed a deduction of ?4,23,84,000/- for "unrealized gain on mutual fund," which was allowed by the AO without proper enquiry. The Ld. Pr. CIT noted that this deduction was not covered under any of the allowable items in clauses (i) to (viii) of Explanation 1 below Section 115JB. Consequently, the assessment order was deemed erroneous and prejudicial to the interest of the revenue, warranting revision under Section 263. 2. Allowability of Deduction under Section 115JB: The assessee argued that the amount of ?4,23,84,000/- was a notional gain based on the NAV of mutual funds as of 31.03.2015 and did not constitute actual income. The investment was in a Fixed Maturity Plan (FMP) maturing on 04.04.2017, and the gain was only a provision for financial reporting purposes. The assessee cited Explanation (iie)(B) of Section 115JB, arguing that notional gains are deductible. However, the Ld. Pr. CIT rejected this argument, stating that the specific provision cited did not apply to the nature of the units held by the assessee. Findings: The Ld. Pr. CIT found that the AO had accepted the assessee's claim without conducting any enquiry, thus making the order erroneous. The Ld. Pr. CIT emphasized that deductions under Section 115JB must be explicitly covered under clauses (i) to (viii) of Explanation 1, which was not the case here. The Ld. Pr. CIT also referenced the Hon'ble Calcutta High Court's decision in CIT vs Maithan International, which supports the revision of orders lacking proper enquiry. Conclusion: The Tribunal upheld the Ld. Pr. CIT's order, agreeing that the AO's failure to make necessary enquiries rendered the assessment order erroneous and prejudicial to the revenue. The Tribunal dismissed the assessee's appeal and directed the AO to re-examine the issue of allowability of the deduction on account of "unrealized gain on mutual fund" while computing the book profit under Section 115JB, following proper verification and enquiry. Order Pronounced: The appeal of the assessee was dismissed, and the order was pronounced in the open court on 9th July 2021.
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