2017 (1) TMI 1591 - AT - Income Tax

Revision u/s 263 - under statement of book profit under section 115JB - Held that - The assessee has claimed the adjustment under the head provision which when understood on ordinary and natural sense will give rise to presumption of it being a provision. It was for the assessee to rebut the presumption by proper explanation which has not been done. No enquiry on it being different from mere provision has been conducted by the AO. The order passed by the AO in discharge of its quasi-judicial functions is clearly erroneous and prejudicial to the interest of the Revenue as noted. Certain explanation has been given by the assessee on merits to justify that it is actual diminution and not mere provision. However, that will become relevant only at the stage of making assessment therein after requisite enquiry in this regard. Thus at the threshold, for invoking the jurisdiction, the conclusion of the CIT of the order being erroneous and prejudicial to the interests of the Revenue cannot be faulted. Referring to the second limb of arguments on behalf of the assessee that the amendment to section 115JB as per clause(i) thereto has been made with retrospective effect after filing of the return of income and therefore the assessment passed based on the return of income as per the law as stood at the time of filing of the return could not have been disturbed by the AO we do not find any merit in this line of argument either. The record for the purpose of section 263 as per Explanation-1 thereof would mean all records relating to assessment proceedings available at the time of examination by the Commissioner. Therefore, any development in law which has taken place even after the assessment also can be taken cognizance of by the CIT in exercise of power under section 263 of the Act. - Decided against assessee.

Issues Involved:
1. Erroneous and prejudicial assessment under section 263 of the Income Tax Act.
2. Addition of provision for loss on assets held for disposal to book profit under section 115JB.
3. Impact of retrospective amendment by Finance (No.2) Act, 2009 on the original assessment.
4. Eligibility for depreciation on the provision for loss on assets held for disposal.

Detailed Analysis:

Issue 1: Erroneous and Prejudicial Assessment under Section 263 of the Income Tax Act
The Assessee contended that the Commissioner of Income Tax (CIT) erred in invoking section 263, arguing that the completed assessment was neither erroneous nor prejudicial to the interests of the Revenue. The CIT, however, found that the Assessing Officer (AO) failed to make proper inquiries regarding the provision for loss on assets held for disposal, which was not added to the book profit under section 115JB. The CIT cited several judicial pronouncements, including CIT v. Seshasayee Paper & Boards Ltd. and CIT v. South India Shipping Corporation Ltd., to support the position that an assessment order passed without proper inquiry is erroneous and prejudicial to the Revenue. The Tribunal upheld the CIT's decision, noting that the AO's lack of inquiry rendered the assessment erroneous and prejudicial to the Revenue.

Issue 2: Addition of Provision for Loss on Assets Held for Disposal to Book Profit under Section 115JB
The Assessee argued that the provision for loss on assets held for disposal was an actual diminution in asset value, not a mere provision, and thus should not be added to the book profit under section 115JB. The CIT disagreed, noting the absence of any explanation or evidence in the financial statements to support the Assessee's claim. The Tribunal found that the AO failed to investigate the nature of the provision, which justified the CIT's invocation of section 263. The Tribunal emphasized that the AO's acceptance of the provision without inquiry made the assessment erroneous and prejudicial to the Revenue.

Issue 3: Impact of Retrospective Amendment by Finance (No.2) Act, 2009 on the Original Assessment
The Assessee contended that the retrospective amendment to section 115JB, which required the addition of provisions for diminution in asset value to book profit, should not affect the original assessment. The Tribunal rejected this argument, stating that the CIT could consider all records, including developments in law after the assessment, when exercising power under section 263. The Tribunal concluded that an assessment order conflicting with a retrospective amendment is erroneous and prejudicial to the Revenue, thus justifying revision under section 263.

Issue 4: Eligibility for Depreciation on the Provision for Loss on Assets Held for Disposal
The Assessee argued that if the provision for loss on assets held for disposal were considered a provision, the corresponding depreciation should be allowed. The Tribunal did not address this argument in detail, as it focused on the lack of inquiry by the AO and the erroneous nature of the assessment. The Tribunal upheld the CIT's decision to set aside the assessment order and directed the AO to reframe the assessment after conducting the necessary inquiries.

Conclusion:
The Tribunal dismissed the Assessee's appeal, affirming the CIT's invocation of section 263 to revise the assessment. The Tribunal found that the AO's failure to investigate the provision for loss on assets held for disposal rendered the assessment erroneous and prejudicial to the Revenue. The Tribunal also held that retrospective amendments to section 115JB could be considered in revising the assessment.

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