ORDER

Per CHANDRA POOJARI, AM:

The appeal filed by the assessee in ITA No. 536/Coch/2018 is directed against the order passed by the Pr. CIT, Trivandrum u/s. 263 of the I.T. Act dated 25/09/2018 and pertain to the assessment year 2014-15. The other appeal filed by the assessee in ITA No. 537/Coch/2018 is directed against the order of the CIT(A), Kottayam dated 05/11/2018 and pertain to the assessment year 2015-16. The assessee has also filed Stay Petition in S.P. Nos. 40/Coch/2018.

2. First we shall take up the appeal of the assessee in ITA No. 536/Coch/2018 which is directed against the order of the CIT passed u/s. 263 of the Act. The facts of the case are that the assessee filed the Return of Income for the Assessment Year 2014-15 on 29.11.2014 declaring a total income of Rs. 1,82,70,79,970/. A revised return was filed on 31.03.2016 declaring total income of Rs. 6,01,81,50,270/- and the assessment u/s 143(3) was completed on 14.12.2016 by determining total income at Rs. 6,01,84,16,899/-.

2.1 However, on subsequent examination of the records, the CIT noticed that an amount of Rs. 96076.20 lakh was debited in the Profit & Loss a/c towards Surcharge on Sales Tax and Turn over Tax. The surcharge was paid as per section 3(1) of the Kerala Surcharge on Taxes Act, 1957 (Act 11 of 1957). But, according to the CIT, this was not disallowed by the Assessing Officer u/s 40(a)(iib) of the Income tax Act 1961. Therefore, the CIT held that the order passed u/s 143(3) dated 14.12.2016 was erroneous and prejudicial to the interest of the Revenue.

2.2 The CIT referred to section 40(a)(iib) of the Income tax Act which stipulates that " the following amounts shall not be deducted in computing the income chargeable under the head 'Profits and gains of business or profession’, any amount (A) paid by way of royalty, licence fee, service fee, privilege fee, service charge, or any other fee or charge, by whatever name called, which is levied exclusively on: or (B) which is appropriated, directly or indirectly from, a State Government undertaking includes (i) a corporation established by or under any Act of the State Government: (ii) a company in which more than fifty per cent of the paid-up equity share capital is held by the State Government; (iii) a company in which more than fifty percent of the paid-up equity share capital is held by the entity referred to in clause (i) or clause (ii) (whether singly or taken together); (iv) a company or corporation in which the State Government has the right to appoint the majority of the directors or to control the management or policy decisions, directly or indirectly, including by virtue of its shareholding agreements or voting agreements or in any other manner; (v) an authority, a board or an institution of a body established or constituted by or under any Act of the State Government or owned or controlled by the State Government". Further, according to the CIT, the surcharge on sales tax u/s 3(1) of the Kerala Surcharge on Taxes Act, 1957 (Act 11 of 1957) being an exclusive levy on the assessee which is a State Government undertaking by the State Government is to be disallowed u/s 40(a)(iib) of the Income tax Act 1961. Since the Assessing Officer had not made the disallowance u/s 40(a)(iib) of the Income tax Act 1961. Therefore, the CIT invoked the provisions of section 263 of the Act proposing revision of the assessment order u/s 143(3) dated 26.12.2016. their contentions against the proposed revision.

2.3 The Ld. AR contended that there is no error in assessment order since surcharge on Sales Tax and Turnover Tax are not levies charged exclusively on the assessee and is applicable to all general trading organisations. According to the Ld. AR turnover tax is applicable to Bars, Beer and Wine Parlours, Clubs having Bars, persons importing intoxicating drugs such as drug manufacturing units and distilleries in Kerala. The Ld. AR also contended that surcharge on sales tax and turnover tax is applicable to the abov