2012 (9) TMI 357 - AT - Income Tax

Validity of revisionary order u/s 263 banking company alleged incorrect computation of book profits on account of non-consideration of Provision for NPA, Provision for Standard Advances and Bad investments written off Held that - Order sought to be revised is the order dt.18.3.2010 giving effect to the order of the CIT(A) dt. 13.1.2010. Scope of such proceedings is restricted to the issue/matters that was considered and decided by the CIT(A). Issues with regard to adding Provision for NPA, Provision for Standard Advances and Bad investments written off while computing book profits u/s.115JB were neither the subject matter of AO s order u/s.143(3) nor the subject matter of the appeal before the CIT(A) or considered in the order of the CIT(A). In such a situation where the AO is precluded from considering the above issues, the CIT in exercise of his powers u/s.263 cannot compel the AO to consider the above aspects. He cannot term the order of the AO as erroneous and prejudicial to the interest of the revenue for failure to consider the above issues. The order of the AO dt.18.3.2010 cannot therefore, said to be erroneous for not considering the above issues. On this short ground the order u/s.263 in so far as it relates to the issues with regard to adding Provision for NPA, Provision for Standard Advances and Bad investments written off while computing book profits u/s.115JB, is liable to quashed and is hereby quashed - Decided in favor of assessee

Summary

Issues:
Computation of book profits under section 115JB of the Income Tax Act, 1961.

Analysis:
The appeal was filed by the Assessee against the order of the Commissioner of Income Tax (CIT) dated 17.3.2011 relating to the assessment year 2006-07. The Assessee, engaged in banking, declared nil income under regular provisions but was liable to tax under section 115JB on book profits. The Assessing Officer (AO) determined the total income and book profits in the assessment order dated 31.1.2008. The disputes mainly revolved around the computation of book profits. The first issue was the difference in profit as per the Profit and Loss Account prepared under the Companies Act, 1956 and the Banking Companies (Acquisition & Transfer of Undertaking) Act, 1970. The Assessee argued for the adoption of the latter figure, which was rejected by the AO and CIT(A). The second dispute was regarding the inclusion of certain expenditures in the book profits calculation, which was accepted by the CIT(A).

The CIT, under section 263 of the Act, found the AO's order giving effect to the CIT(A) order erroneous and prejudicial to revenue. The show cause notice highlighted mistakes in computing income under section 115JB, specifically mentioning items like Provision for NPA, Provision for Standard Advances, and Bad investments written off. However, these issues were not part of the original assessment or appeal before the CIT(A). The provisions of section 263 empower the Commissioner to revise orders prejudicial to revenue. The Tribunal held that the CIT cannot compel the AO to consider new issues not raised earlier, thus quashing the revision order related to the additional items in book profits calculation.

The Tribunal rejected arguments that the section 263 order was a revision of the original assessment order and that it was time-barred. The focus remained on the limited scope of the proceedings before the AO. Consequently, the Assessee's appeal was allowed, emphasizing the importance of sticking to issues raised in the initial assessment and appeal stages.