2019 (1) TMI 2039 - AT - Income Tax

Validity of revision u/s 263 - Period of limitation - as per CIT provisions of sec. 115JB do not provide for reduction of Debenture Redemption Reserve from the Net Profit - Debenture Redemption Reserve was merely an appropriation from such net profit and was a transaction on Capital Account and hence the same is not allowable as deduction under the provisions of the Income tax Act - Whether revision order as barred by limitation? - HELD THAT - There is merit in the contentions of Ld A.R, i.e., since the issue of DRR sought to be revised by CIT is covered by the original assessment order dated 30-12-2011, the time limit available to revise the original order is 31.3.2014, whereas the CIT has passed the impugned order on 26-03-2018. Hence we find merit in the contention of the assessee that the impugned revision order is barred by limitation. Debenture Redemption Reserve deductibility in computation of book profit u/s 115JA - In the case of Raymond Ltd 2012 (4) TMI 127 - BOMBAY HIGH COURT has held that the Debenture Redemption Reserve is an ascertained liability and is deductible from Net profit for the purpose of computing Book Profit u/s 115JA of the Act. The claim made by the assessee as well as allowed by the AO gets support from the decision rendered by the jurisdictional High Court. CIT has taken the view that the Hon ble Bombay High Court has not considered the decision rendered by Hon ble Supreme Court in the case of National Rayon corporation 1997 (7) TMI 113 - SUPREME COURT in proper perspective and further observed that the Hon ble Bombay High Court did not consider the fact that the Debenture Redemption Reserve operates in Capital field and hence appropriation of profit is not deductible for tax purposes. Accordingly, the Ld Pr. CIT has taken the view that the decision rendered by Hon ble Bombay High Court is per incurium. Whatever may be the reasoning given by Ld Pr. CIT, it cannot be denied that the Ld Pr. CIT has taken different view in the matter, without noticing that the decision rendered by jurisdictional High Court is binding on him also. On the contrary, the claim made by the assessee as well as allowed by the AO gets support from the decision rendered by the jurisdictional High Court, meaning thereby, the AO has followed binding decision of the jurisdictional High Court, which cannot be found fault with. It is well settled proposition of law that merely because the Ld Pr. CIT is holding a different view in the matter, the assessment order cannot be termed as erroneous and prejudicial to the interests of revenue, unless it is shown by him that the view taken by the AO is not in accordance with the law or against the binding precedents . In this regard, we may refer to the decision rendered in the case of Grasim Industries Ltd. 2010 (2) TMI 4 - BOMBAY HIGH COURT by taking into account the law laid down by the Hon'ble Supreme Court in the case of Malabar Industrial Co Ltd. 2000 (2) TMI 10 - SUPREME COURT Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the revision orders under Section 263 of the Income Tax Act.
2. Time limit for passing revision orders.
3. Deductibility of Debenture Redemption Reserve (DRR) while computing book profit under Section 115JB of the Income Tax Act.
4. Jurisdiction of the Principal Commissioner of Income Tax (Pr. CIT) to revise the reassessment order.

Issue-wise Detailed Analysis:

1. Validity of the Revision Orders under Section 263 of the Income Tax Act:
The assessee challenged the revision orders passed by the Pr. CIT under Section 263 of the Income Tax Act for the assessment years (AY) 2009-10 and 2010-11. The Pr. CIT initiated revision proceedings to enhance the book profit by disallowing the deduction of Rs. 225 crores appropriated to the Debenture Redemption Reserve (DRR). The assessee contended that the original assessment order had already allowed this deduction, and the revisionary powers could not be exercised merely for verification or investigation.

2. Time Limit for Passing Revision Orders:
The assessee argued that the revision order was barred by limitation. According to Section 263(2) of the Act, the time limit for passing a revision order is two years from the end of the financial year in which the original assessment order was passed. The original assessment order for AY 2009-10 was passed on 30-12-2011, making the last date for revision 31-03-2014. However, the Pr. CIT passed the revision order on 26-03-2018. The Tribunal referred to the decisions of the Bombay High Court in Ashoka Buildcon Ltd. and ICICI Bank Ltd., which held that the time limit for revision should be computed from the date of the original assessment order if the issue was not part of the reassessment proceedings.

3. Deductibility of Debenture Redemption Reserve (DRR) while Computing Book Profit under Section 115JB of the Income Tax Act:
The Pr. CIT contended that the DRR was an appropriation of profit and not an ascertained liability, hence not deductible under Section 115JB. The assessee relied on the Bombay High Court's decision in Raymond Ltd., which held that DRR is an ascertained liability and deductible while computing book profit. The Tribunal noted that the assessment order was based on the binding decision of the jurisdictional High Court, and thus, the Pr. CIT's differing view could not render the assessment order erroneous and prejudicial to the revenue.

4. Jurisdiction of the Principal Commissioner of Income Tax (Pr. CIT) to Revise the Reassessment Order:
The Pr. CIT argued that under Explanation 3 to Section 147, the Assessing Officer (AO) could assess any issue that comes to notice during reassessment, even if not specified in the reasons for reopening. The Tribunal, however, held that the issues concluded in the original assessment proceedings are governed by the original assessment order, and the principle of merger does not apply to those issues. Thus, the Pr. CIT's revision of the reassessment order on the DRR issue was barred by limitation and not justified on merits.

Conclusion:
The Tribunal quashed the revision orders for both AY 2009-10 and 2010-11 on the grounds of limitation and merits. It held that the Pr. CIT's differing view on the DRR issue, contrary to the jurisdictional High Court's decision, could not render the original assessment orders erroneous and prejudicial to the interests of the revenue. The appeals of the assessee were allowed.