2015 (3) TMI 924 - AT - Income Tax

Revision u/s 263 - order passed by Assessing Officer is erroneous as he had not verified the credit of prior period expenditure which should have been considered under the provisions of Section 41(1) and also under the provisions of Section 115JB - Held that - Coming to the issue of addition of prior period expenditure as income, Ld.CIT directed the Assessing Officer to examine and consider the amounts u/s.41(1). It was the contention of assessee that this amount has never been claimed as a deduction. As seen from the consequential order passed by Assessing Officer on the directions of the CIT, Assessing Officer without examining the amounts, added the entire amount as income u/s.41(1) on the pretext of assessee's failure to prove as the amount was not claimed as a deduction u/s.43B. We are surprised about the action of the Assessing Officer. Assessee is in a position to furnish the details and reconcile the amounts of how much was claimed as expenditure, how much was disallowed and amounts waived by the bank. Since these details are not considered by Assessing Officer and not examined in its correct perspective, we are of the opinion that these require reconciliation year-wise. Prima facie, we are of the opinion that assessee has not claimed any amount as deduction, therefore, addition u/s.41(1) may not arise. Since this issue was not examined by Assessing Officer in correct perspective, we are of the opinion that the Assessing Officer has to examine the same before considering any amount of disallowance. Therefore, reiterating the direction of the CIT we direct the Assessing Officer to examine and consider the same for addition, if any u/s.41(1). Decided in favour of assessee for statistical purposes. Direction of the CIT on the inclusion of prior period income under the provisions of Sec.115JB - Held that - The computation has to start from the final figure of P&L A/c and necessary adjustments as provided in Explanation to Section 115JB has to be considered, while computing the book profit for the purpose of 115JB. The CIT also made a mistake in directing to take a different amount. There seems to be no inquiry under the provisions of Section 115JB while completing assessment u/s 143(3) therefore to that extent, order of the Assessing Officer is not only erroneous on the facts but also on the principles of law. We therefore uphold invoking the jurisdiction by CIT on the order of Assessing Officer. Since amounts adopted by CIT is not correct, while upholding the jurisdiction of the order of the CIT on 263, we set aside consequential order passed by Assessing Officer and restore the issue to the file of Assessing Officer to re-do the exercise of reconciliation of amounts of prior period income and computing the income u/s.115JB as per the provisions of the Act, after giving due opportunity to assessee to make submissions which should be examined and properly considered.- Decided partly in favour of assessee for statistical purposes. Direction of CIT on claiming of normal depreciation and additional depreciation - Held that - This issue has been examined by Assessing Officer in the original assessment proceedings, therefore, the CIT direction to re-examine the issue does not arise, as it is contrary to the provisions of the Act. CIT cannot substitute his opinion and direct the Assessing Officer to re-examine the issue which was already examined and accepted by Assessing Officer. As seen from the consequential order passed by Assessing Officer also, he did not make any disallowance on this issue which indicate that there is no error in the original order passed - Decided in favour of assessee.

Summary

Issues Involved:
1. Taxability of interest waived by IDBI under Section 41(1) of the Income Tax Act.
2. Inclusion of prior period income under Section 115JB of the Income Tax Act.
3. Claim of normal and additional depreciation on additions to Plant and Machinery.

Issue-wise Detailed Analysis:

1. Taxability of Interest Waived by IDBI under Section 41(1):
The assessee-company filed its return of income declaring a loss and credited an amount of Rs. 16,23,01,015/- to the P&L Account as a waiver of interest by IDBI under 'prior period adjustment'. The assessee did not offer this amount for taxation under the normal provisions, claiming no deduction was allowed in earlier years. The Commissioner of Income Tax (CIT) concluded that the Assessing Officer (AO) did not verify this credit properly under Section 41(1) and issued a notice for revision. The CIT directed the AO to examine and consider the amount after giving due opportunity to the assessee. The AO added the entire amount under Section 41(1) as the assessee failed to prove the amount was not allowed as a deduction in earlier years. The Tribunal noted that the AO did not examine the details correctly and directed the AO to reconsider the addition under Section 41(1) after a proper year-wise reconciliation.

2. Inclusion of Prior Period Income under Section 115JB:
The CIT directed the AO to adopt a higher figure of Rs. 26,06,94,469/- instead of Rs. 16,89,24,325/- for computing book profit under Section 115JB. The assessee argued that prior period income should not affect the computation under Section 115JB, as it was not specified in Sub-section 2 of Section 115JB. The Tribunal upheld the CIT's direction, stating that the computation should start from the final balance in the P&L Account carried to the balance sheet. The Tribunal referred to the case of CIT Vs. Khaitan Chemicals and Fertilizers Ltd., which held that prior period items should be included in the determination of net profit or loss. The Tribunal directed the AO to recompute the book profits by adopting the correct starting point and considering necessary adjustments as per the provisions of the Act.

3. Claim of Normal and Additional Depreciation:
The CIT directed the AO to re-examine the claim of normal and additional depreciation on additions to Plant and Machinery. The Tribunal noted that the AO had already examined this issue in the original assessment proceedings and did not make any disallowance in the consequential order. The Tribunal held that the CIT's direction to re-examine the issue was contrary to the provisions of the Act, as the AO had already accepted the assessee's claims. Therefore, the Tribunal set aside the CIT's order on this issue.

Conclusion:
The Tribunal partly upheld the CIT's directions on the issue of jurisdiction and directed the AO to re-examine the taxability of interest waived by IDBI under Section 41(1) and recompute the book profits under Section 115JB. The Tribunal set aside the CIT's direction on the claim of normal and additional depreciation, as the issue was already examined and accepted by the AO. The appeal was partly allowed for statistical purposes.