2020 (2) TMI 780 - AT - Income Tax

Revision u/s 263 - as per CIT errors in the adjustment of brought forward losses with the book profits while computing the income u/s.115 JB - HELD THAT - In the instant case, there is no dispute that the ld AO had specifically dealt with the issue of set off of least of brought forward business loss and depreciation loss as per books of accounts while computing book profits u/s 115JB of the Act in the assessment order by taking a possible view. Hence the same cannot be the subject matter of revision proceedings u/s 263 of the Act by the ld CIT merely because, he is of a different view with regard to the manner of set off of brought forward losses. Reliance in this regard is also placed on the decision of Hon ble Jurisdictional High Court in the case of Gabriel India Ltd 1993 (4) TMI 55 - BOMBAY HIGH COURT No hesitation in holding that there was no error in the order of the ld. AO in set off of brought forward business loss and depreciation loss as per books of accounts and hence, the invocation of revisionary jurisdiction u/s.263 of the Act by the ld. CIT deserves to be quashed and is hereby quashed. Accordingly, the grounds raised by the assessee are allowed.

Issues Involved:
1. Justification of the Administrative CIT in invoking revisionary jurisdiction under Section 263 of the Income Tax Act.
2. Correctness of the method adopted by the assessee for the set-off of brought forward business loss and unabsorbed depreciation while computing book profits under Section 115JB of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Justification of the Administrative CIT in invoking revisionary jurisdiction under Section 263 of the Income Tax Act:

The primary issue in this appeal is whether the Administrative CIT was justified in invoking revisionary jurisdiction under Section 263 of the Income Tax Act. The assessee filed a return declaring a loss under normal provisions and book profit under Section 115JB. The assessment was completed under Section 143(3) read with Section 144C(13), adjusting the brought forward loss as per the books of accounts. The Administrative CIT sought to revise this assessment, claiming errors in the adjustment of brought forward losses with book profits under Section 115JB. The assessee contended that the AO had consciously applied his mind and verified the facts regarding the availability of business loss and depreciation loss as per the books of accounts, and there was no error warranting revision under Section 263. The CIT, however, observed that the issue of set-off of loss as per books of accounts for computing book profits under Section 115JB was not before the DRP and thus could be the subject matter of revision under Section 263. The CIT concluded that the AO had not raised any query regarding the set-off of brought forward losses as per books of accounts while computing book profits under Section 115JB, and hence, no possible view was taken by the AO in this regard.

2. Correctness of the method adopted by the assessee for the set-off of brought forward business loss and unabsorbed depreciation while computing book profits under Section 115JB of the Income Tax Act:

The assessee explained that the net profit before tax as per the books of accounts was reduced by the lower of brought forward business loss and unabsorbed depreciation to arrive at the book profits under Section 115JB. The method adopted by the assessee had been accepted by the ITAT for earlier years and consistently followed in subsequent years, including the assessment year under consideration. The CIT, however, rejected the assessee's contention, stating that the method adopted had no basis in law and was factually incorrect. The CIT reworked the figures of brought forward business loss and depreciation loss as per books of accounts for various years and concluded that the aggregate amount of unabsorbed business loss brought forward to AY 2007-08 was NIL, and the aggregate amount of unabsorbed depreciation brought forward was ?50,99,72,000/-. Therefore, the provision of clause (iii) of Explanation (1) to Section 115JB was not applicable, and the assessee was not eligible for any reduction as per this clause. The CIT held that the AO allowed the reduction without verifying its allowability, causing prejudice to the revenue.

The ITAT, after hearing the rival submissions and perusing the materials on record, found that the law under Section 115JB merely stipulates that the least of the business loss and depreciation loss as per books of accounts would be reduced while computing book profits. The ITAT noted that the manner of set-off of brought forward losses as per books of accounts, either on a year-to-year basis, cumulative basis, or proportionate basis, was not specified in the provisions of Section 115JB. The ITAT observed that the proportionate theory adopted by the assessee was rational and logical, and the AO had taken a possible view. The ITAT referred to the decision of the Hon'ble Delhi High Court in the case of CIT vs Eli Lilly & Co. India Pvt. Ltd., which held that a possible view taken by the AO could not be rectified under Section 154 of the Act. The ITAT also referred to the decision of the Chennai Tribunal in the case of Aircel Cellular Ltd vs. ACIT, where the Tribunal held that the CIT could not invoke revision jurisdiction under Section 263 when the AO had taken one of the possible views.

In conclusion, the ITAT held that there was no error in the AO's order regarding the set-off of brought forward business loss and depreciation loss as per books of accounts, and the invocation of revisionary jurisdiction under Section 263 by the CIT was quashed. The appeal of the assessee was allowed.

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