2019 (11) TMI 755 - AT - Income Tax

Revision u/s 263 - applicability of provisions of section 115JB - appellant which is established under Banking (Companies Transfer Of Undertakings) Act, 1970 - the said issue was not in the show cause notice sent to appellant u/s 263 - whether CIT erred in invoking jurisdiction u/s 263 and directing AO to add back amounts in respect of bad and doubtful debts and investments which were written off and staff welfare expenses which were examined by AO and allowed in assessment? - HELD THAT - If the assessment order was found to be erroneous as well as prejudicial to the interest of the revenue, the same would certainly become subject matter of revision u/s 263 as held by Hon ble Supreme Court in Malabar Industrial Co. Ltd. 2000 (2) TMI 10 - SUPREME COURT . The omissions on the part of AO, to carry out certain adjustments, as pointed out by Ld. Pr.CIT would certainly make the order erroneous as well as prejudicial to the interest of the revenue since Book Profits u/s 115JB has to be computed in accordance with the provisions of that Section. The failure to do so would render the order under consideration amenable to revisional jurisdiction u/s 263 read with Explanation-2 thereof. CIT, in our considered opinion, was clothed with ample supervisory powers to direct for redoing the assessment provided twin conditions as envisaged by Section 263 were fulfilled. Upon perusal of factual matrix as enumerated in preceding paragraphs, we find that the said conditions were duly fulfilled and the only recourse available to the revenue was revision u/s 263. Nothing on record would suggest that the stated issues were ever examined or verified by Ld. AO during assessment proceedings and a view was taken in the matter. Therefore, we decline to interfere in the directions given by Ld. Pr.CIT. Our adjudication as above, shall have no bearing on the issue of applicability of Section 115JB to the assessee, which is kept open since the same do not form subject matter of present appeal. Jurisdiction u/s 263 - assessee claimed deduction u/s 36(1)(viii) - HELD THAT - Upon due consideration, we find that it was obligatory on the part of assessee to fulfil the conditions as envisaged by Sec. 36(1)(viii) before claiming deduction therein. Non-fulfillment of these conditions would certainly disentitle the assessee to claim the said deduction. The Ld. Pr.CIT has brought on record sufficient factual matrix to demonstrate that the assessee did not fulfil these conditions. Therefore, we are not impressed with the arguments of Ld.AR and find no infirmity in the directions issued by Ld. Pr. CIT. Accordingly, the appeal stands dismissed.

Summary

Issues:
Validity of revisional jurisdiction under section 263 for AY 2015-16:
1. Applicability of section 115JB to the appellant.
2. Addition of amounts for bad debts, investments, and staff welfare expenses.
3. Interpretation of Explanation 3 in relation to the appellant's establishment.
4. Computation of book profits and disallowances.

Validity of revisional jurisdiction under section 263 for AY 2016-17:
1. Claimed deduction under section 36(1)(viii) without fulfilling conditions.
2. Requirement of creating a special reserve as per section 36(1)(viii).

AY 2015-16 Analysis:
The Appellate Tribunal considered the revisional jurisdiction exercised by the Principal Commissioner of Income Tax (Pr. CIT) under section 263 for AY 2015-16. The appellant contested the applicability of section 115JB, additions made by the CIT, and the interpretation of Explanation 3. The Tribunal upheld the revisional jurisdiction, emphasizing that if the assessment order is erroneous and prejudicial to revenue, it can be revised under section 263. The failure to compute book profits as per section 115JB rendered the order subject to revision. The Tribunal declined to interfere with the directions given by the Pr. CIT, concluding that the conditions for revision were met.

AY 2016-17 Analysis:
For AY 2016-17, the Tribunal analyzed the invocation of section 263 due to the appellant's claimed deduction under section 36(1)(viii) without fulfilling conditions. The Pr. CIT found the order erroneous and prejudicial to revenue as the special reserve requirement was not met. The Tribunal upheld the Pr. CIT's decision, stating that non-fulfillment of conditions disentitles the appellant to the deduction. The Tribunal dismissed the appeal, affirming the Pr. CIT's directions.

In conclusion, both appeals challenging the revisional jurisdiction under section 263 for AY 2015-16 and AY 2016-17 were dismissed by the Appellate Tribunal after thorough analysis and consideration of the issues raised in each assessment year.