2021 (10) TMI 230 - AT - Income Tax

Reopening of assessment u/s 147 - Disallowance u/s 14A r.w.r. 8D - petition filed by the respondent-assessee under rule 27 of the Income Tax Appellate Tribunal Rules, 1963, wherein the respondent-assessee has raised a grievance against reopening of the assessment - CIT-A deleted by holding that the AO cannot go beyond the provisions of Section 44 and Schedule 1 of the Act - Assessee is a public sector undertaking engaged mainly in the business of providing life insurance - HELD THAT - In a situation in which the respondent to an appeal has not filed a cross-appeal or a cross-objection, but has simply moved the petition under rule 27, one of the limitations of invoking rule 27 is that the appellant cannot be worse off vis- -vis the position he was in when he presented the present appeal. In the present case, if entire reassessment proceedings are to be quashed- as is sought by way of a petition under rule 27, the Assessing Officer will be in a worse position vis- -vis the position if he was not to come in appeal, in the sense that even admitted liability in respect of the incorrect foreign tax credits of ₹ 7.57 crores will stand nullified. What the respondent-assessee can at best seek is the position as on at the outcome of the first appellate order, and that is what he gets anyway when the appeal of the Assessing Officer is dismissed. The relief being sought by this petition rule 27 is thus much more than what is permissible in law. Be that as it may, the appeal of the Assessing Officer having been dismissed on merits, and, thus, the net position as at the time of the outcome of the first appeal having been allowed to be sustained, the present petition under rule 27 becomes wholly academic and infructuous, and it does not therefore call for any adjudication on merits. We, therefore, dismiss the petition as infructuous.

Summary

Issues Involved:
1. Deletion of disallowance under Section 14A read with Rule 8D.
2. Reopening of assessment under Section 147.
3. Withdrawal of excessive foreign tax credit.

Detailed Analysis:

1. Deletion of Disallowance under Section 14A read with Rule 8D:
The Assessing Officer (AO) challenged the deletion of a disallowance amounting to ?854.96 crores under Section 14A read with Rule 8D by the CIT(A). The AO's view was that disallowance under Section 14A is applicable and computed based on Rule 8D. However, the CIT(A) held that the AO cannot go beyond the provisions of Section 44 and Schedule 1 of the Income Tax Act, 1961. The assessment of income from life insurance business is conducted under Section 44 read with the First Schedule, where taxable income is calculated based on the annual average of the surplus from the actuarial valuation. The CIT(A)'s decision was supported by several precedents from coordinate benches, including cases like Birla Sunlife Insurance Co Ltd Vs DCIT and Oriental Insurance Co. Ltd. vs. ACIT. The tribunal saw no reason to deviate from these precedents and upheld the CIT(A)'s order, dismissing the AO's appeal.

2. Reopening of Assessment under Section 147:
The respondent-assessee filed a petition under Rule 27 of the Income Tax Appellate Tribunal Rules, 1963, challenging the reopening of the assessment. The initial assessment was completed on 30th December 2011, and the reassessment was initiated on 19th February 2015, citing two reasons: disallowance under Section 14A and inadmissibility of excessive foreign tax credit. The reassessment was finalized on 29th February 2016, including the disallowance of ?854.96 crores and withdrawal of foreign tax credit of ?7.57 crores. The CIT(A) deleted the disallowance under Section 14A but the assessee did not challenge the withdrawal of the foreign tax credit. The tribunal noted that the respondent-assessee could not seek more relief than what was granted by the CIT(A). Since the appeal of the AO was dismissed, the petition under Rule 27 became academic and infructuous, and thus, it was dismissed without adjudication on merits.

3. Withdrawal of Excessive Foreign Tax Credit:
The reassessment included the withdrawal of excessive foreign tax credit amounting to ?7.57 crores, which the assessee accepted by not appealing against it. The tribunal observed that the foreign tax credit claim was incorrect as it exceeded the related Indian income tax liability. The correct legal position, as elaborated in the case of Bank of India Vs ACIT, is that foreign tax credit cannot exceed the Indian tax liability on the related income taxed abroad. The tribunal emphasized that the respondent-assessee, by filing a petition under Rule 27, could not nullify the withdrawal of the foreign tax credit, which was not challenged before the CIT(A). The tribunal held that the relief sought under Rule 27 cannot exceed what was granted by the CIT(A), and thus, the petition was dismissed as infructuous.

Conclusion:
The tribunal dismissed the AO's appeal on the deletion of disallowance under Section 14A, upheld the CIT(A)'s order, and dismissed the respondent-assessee's petition under Rule 27 as infructuous. The reassessment proceedings and the withdrawal of excessive foreign tax credit were not interfered with, maintaining the relief granted by the CIT(A). The judgment was pronounced on 4th October 2021.