2019 (1) TMI 1271 - HC - Income Tax

Revision u/s 263 - revision of return waiver of interest on loan availed from Government of India - period of limitation for filing revised return - The book profit as per the revised computation was negative at ₹ 81,97,27,138/-. Hence, there was no tax payable even under Section 115JB for the said year. - Held that - We find that the assessment for the year 2006- 07 was completed, after the assessment for the earlier year, 2005-06, had been completed accepting the revised return filed by the assessee. The revised return was filed by the assessee within the time provided for the same and there is no contention taken regarding the limitation having worked out against the assessee. In such circumstances on that basis alone the subsequent assessment passed in the year 2006-07 has to be found to be without any authority. The issue arise only if there exists a book profit for the year 2006-07; which would not be there if the revised assessment for the assessment year 2005-06 is permitted to stand. Only if the adjustments for the earlier year were not permitted, the book profit would turn positive by virtue of the credit made to the profit and loss account; of the provision for interest for the two years. We find that there is no question of accrual of interest, especially since the assessee had filed revised return within the time provided for the same; after the interest was waived by the GOI. We, hence, answer the question of law in favour of the assessee

Summary

Issues:
1. Revision of return based on subsequent waiver of interest.
2. Legality of the order passed under Section 263.

Issue 1: Revision of return based on subsequent waiver of interest:
The case involves an appeal by the Revenue for assessment years 2005-06 and 2006-07. The appellant, an assessee, had availed a loan from the Government of India (GOI) and applied for a waiver of interest on the loan. The GOI approved deferment of interest outstanding as on 31.03.2003 and later permitted waiver of interest up to 31.03.2005. The assessee filed a revised return in 2005-06, deleting the provision made for interest and adding it to the profit. The Commissioner interfered with the assessment order under Section 263 of the Income Tax Act, 1961, on the ground that allowing the adjustment would absolve the assessee from tax liability in the subsequent year 2006-07. The key question was whether the assessee was entitled to revise the return for 2005-06 based on the subsequent waiver of interest, considering the accrual of interest and the mercantile system of accounting followed by the assessee.

Issue 2: Legality of the order passed under Section 263:
The order under Section 263 was passed for the assessment year 2005-06, but the Assessing Officer proceeded to assess the book profits under Section 115JB in the subsequent year 2006-07 without giving effect to the order under Section 263. The legality of the order under Section 263 was questioned, with the assessee contending that it was passed to validate the earlier order for the assessment year 2006-07. The Revenue argued that the assessee could not escape interest liability based on subsequent waiver and cited relevant case law. The Tribunal was urged to set aside the order under Section 263 as legally unsustainable. The issue revolved around the timing and validity of the orders passed under Section 263 and the subsequent assessment for 2006-07.

In the judgment, the Court considered the sequence of events, the accrual of interest, the revised return filed by the assessee, and the implications of the waiver of interest by the GOI. The Court found that the subsequent assessment for 2006-07 was completed without authority, as it was done after accepting the revised return filed by the assessee for 2005-06. The Court noted that if the adjustments for the earlier year were not permitted, the book profit for 2006-07 would turn positive, but since the revised return was filed within the allowed time after the interest waiver, there was no question of accrual of interest. The Court upheld the Tribunal's order, ruling in favor of the assessee and against the Revenue, rejecting the appeals and leaving the parties to bear their respective costs.