2012 (3) TMI 490 - AT - Income Tax

Summary

Issues Involved:
The judgment involves a challenge to the correctness of an order u/s 263 of the Income Tax Act, 1961 for the assessment year 2006-07. The primary issues are whether a loss debited to the Profit & Loss Account should be added back for computation of Book Profit u/s 115JB, and whether the assessment order was erroneous and prejudicial to the interest of revenue.

Issue 1: Challenge to Correctness of Order u/s 263:
The appellant challenged the order u/s 263, arguing that the assessment order u/s 143(3) was not erroneous or prejudicial to the interest of revenue. The Commissioner required the assessee to show cause as to why the order should not be revised under section 263 due to the non-addition of a loss of Rs. 919.52 lakhs in the computation of Book Profit u/s 115JB.

Issue 2: Treatment of Loss in Profit & Loss Account:
The dispute centered around whether the loss of Rs. 919.52 lakhs debited to the Profit & Loss Account should be added back for computation of Book Profit u/s 115JB. The appellant contended that the loss arising from the transfer of investments was not required to be added back as it was not contemplated under Section 115JB.

Issue 3: Legal Interpretation and Precedents:
The appellant cited various judgments and legal provisions to support their position that the loss should not be added back for computing Book Profit u/s 115JB. However, the Commissioner rejected these contentions and held that the loss should have been added back as it was a fictitious loss on capital reduction, which was required for computation of Book Profit.

Judgment Summary:
The Appellate Tribunal found that the Assessing Officer had not considered the issue of adding back the loss in question for computation of Book Profit u/s 115JB. The Tribunal held that unless specific enabling provisions for adjustment in section 115JB were absent, the Book Profit, as per the profit and loss account, could not be altered. The Tribunal also noted that the loss in question was a loss on reduction of capital, which did not violate any provisions of the Companies Act. Therefore, the Tribunal vacated the revision order, ruling in favor of the appellant.

This judgment highlights the importance of proper consideration of legal provisions and precedents in tax assessments, emphasizing the need for adherence to statutory requirements in computing Book Profit under the Income Tax Act.