2019 (3) TMI 812 - HC - Income Tax

Revision u/s 263 - SCN relates to two issues one interest on NPA accounts and other exclusion of securitization income - Exclusion of securitization income allowed by AO without revised return based on fact that it was spared over on succeeding years - Revision of order prejudicial to revenue - HELD THAT - so far as interest of NPA s is concerned it has to be considered and included only after realising the income from NPAs. This observation was made following CIT Vs Elgi Finance Limited. 2007 (6) TMI 180 - MADRAS HIGH COURT wherein it had been held that the interest computed as taxable income has to be deducted. It was therefore found that no error had crept in the assessment order. The Income from the relevant transactions when they were treated as non securitized were spread over the assessment years from 2005-2006 to 2011-2012 whereas the income from the very same transactions had been offered in full for the assessment year 2005-2006. It was clear that there was no reduction of income in view of the fact that though the income reduces in the return year it goes to increase the income of the Assessee in the subsequent years. As there was neither any new income nor any fresh expenditure and it was only computation of income from the same set of transactions in two ways namely one treating them as securitized and other treating them as non securitized no prejudice was caused to the Revenue. Consequently it is seen that both the pre-requisite requirements for invoking revisional powers under Section 263 were not satisfied namely an error and a prejudice caused to the Revenue. The Judgement of Goetze (India) Limited 2006 (3) TMI 75 - SUPREME COURT would not apply to the facts of this case. - decided in favour of Assessee

Summary

Issues:
1. Revision of order under Section 263 of the Income Tax Act
2. Claim for deduction on securitization income

Revision of Order under Section 263 of the Income Tax Act:
The High Court considered the appeal challenging the Tribunal's decision that quashed the revisional order passed by the Commissioner of Income Tax under Section 263 of the Income Tax Act. The Court examined whether the order of the Assessing Officer was erroneous and prejudicial to the interests of the revenue, as required by Section 263. Referring to precedents, the Court highlighted that the power under Section 263 can be exercised if the order is both erroneous and prejudicial to revenue. The Court analyzed that the interest on non-performing assets should be accounted for based on actual receipt, not accrual, as per previous decisions. It was concluded that the revisional order was not justified as there was no error in the assessment order that caused prejudice to the revenue.

Claim for Deduction on Securitization Income:
The Court also addressed the issue of a claim for deduction on securitization income. The Tribunal allowed the Assessee's appeal, stating that the claim for deduction was valid even though a revised return was not filed. The Court differentiated this case from a previous Supreme Court judgment, emphasizing that the income from the transactions was spread over multiple years and there was no new income or expenditure. As there was no prejudice to the revenue and no error in the computation of income, the Tribunal's decision to allow the deduction was upheld. The Court held that the Supreme Court judgment cited by the Revenue did not apply to this case. Consequently, the Appeal filed by the Revenue was dismissed, and the Tribunal's decision on the deduction of securitization income was upheld.

This detailed analysis of the judgment provides insights into the Court's reasoning behind dismissing the Appeal and upholding the Tribunal's decision on both issues raised in the case.