2010 (3) TMI 1136 - AT - Income Tax

Summary

Issues involved: Appeal against order passed by CIT under s. 263 of the IT Act for asst. yrs. 1999-2000 and 2000-01.

For asst. yr. 1999-2000:
The assessee, a public sector undertaking in ship building, received waiver benefits totaling &8377; 591.13 crores, including conversion of loans into equity and write off of Government loans and interest. AO added interest amount to book profit u/s 115JA. CIT(A) directed to include &8377; 158.25 crores written off by Government as income. CIT for 2000-01 also directed to recompute book profit due to impact on unabsorbed depreciation.

Legal Analysis:
The power of CIT to revise under s. 263 was explained citing Grasim Industries Ltd. vs. CIT case. The order must be considered 'erroneous insofar as it is prejudicial to the interests of the Revenue.' The Supreme Court held that an incorrect assumption of fact or law application satisfies the requirement. The expression 'prejudicial to the interests of the Revenue' is of wide import.

Decision:
Assessee contended that AO's view on waiver of principal loan portion was valid, hence not erroneous. Quashed CIT's order for both years as AO's view was one of the possible views. Citing Malabar Industrial Co. Ltd. vs. CIT, the order was not erroneous. Both appeals by the assessee were allowed.