2021 (6) TMI 127 - AT - Income Tax

Revision u/s 263 - brought forward loss as deducted in computing the book profit u/s.115JB - HELD THAT - We find that computation of book profit has been dealt with in Explanation 1 to section 115JB. Clause (iii) of Explanation 1 specifically provides that the amount of loss brought forward or unabsorbed depreciation whichever is less as per the books of accounts shall be reduced from the amount of profit as per the profit and loss account in the computation of book profit . PCIT has noted in the impugned order that the amount of unabsorbed depreciation in this case is Nil and by applying the provisions of clause (iii) of Explanation 1, there will be Nil deduction on this count. Nothing has been said in the written submission to counter this position. Secondly, the amount of deduction u/s 80IA(4) computed in the normal computation of income would also not go to reduce the book profit u/s 115JB. Assessment order was subject matter of appeal before the ld. CIT(A) and hence power of revision was ousted - In this regard, we find that Explanation 1(c) to section 263 provides that where an order passed by the AO has been the subject matter of appeal, the powers of CIT under the section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal. Assimilating the facts of the instant case, we find that the issue of section 115JB was not at all touched upon by the AO nor has the ld. CIT(A) dealt with it. In that view of the matter, this part of the assessment order cannot be said to have merged with the order of the ld. CIT(A) so as to bar revision u/s.263 of the Act. AO did not apply section 115JB which ought to have been applied. This brings us to a situation where the AO failed to apply the provisions of the Act in terms of section 115JB of the Act. The assessee in its written submission has relied on the judgment of Hon ble Supreme Court in the case of Malabar Industrial Co. Ltd. 2000 (2) TMI 10 - SUPREME COURT . This judgment has approved the validity of the application of section 263, inter alia, in a case of incorrect application of law and the assessment order has been passed without application of mind. It is axiomatic that incorrect application of law also envelopes within its scope a case of non-application of the relevant provisions of law. We have been confronted with a situation in which the AO incorrectly applied the law because section 115JB was omitted to be applied, which ought to have been applied. In the hue of this factual scenario, it is clear that the assessment order passed by the AO can be clearly described as erroneous and also prejudicial to the interest of the revenue, warranting the invocation of section 263.

Summary

Issues:
1. Application of section 115JB in the assessment.
2. Consideration of brought forward losses in computing book profit under section 115JB.
3. Power of revision under section 263 in relation to the appeal before CIT(A).

Issue 1: Application of section 115JB
The appeal arose from an order passed by the Principal Commissioner of Income Tax, where it was found that the Assessing Officer (AO) did not apply section 115JB of the Income-tax Act, 1961 to the assessment of a private limited company for the year 2013-14. The AO failed to consider the applicability of section 115JB, which was crucial in computing the total income of the company. Consequently, the assessment order was deemed erroneous and prejudicial to the interest of Revenue.

Issue 2: Consideration of brought forward losses
The assessee contended that the brought forward loss should be deducted in computing the book profit under section 115JB, arguing that it would not affect the income computation significantly. However, the Tribunal noted that no computation demonstrating the impact of the brought forward loss on the income under both scenarios was provided. The relevant provision in Explanation 1 to section 115JB specifies the reduction of the amount of loss brought forward from the profit as per the profit and loss account in the computation of book profit. As the unabsorbed depreciation was Nil, the deduction on this account would also be Nil, which was not refuted by the assessee.

Issue 3: Power of revision under section 263
The assessee contended that since the assessment order was under appeal before the CIT(A), the power of revision under section 263 was ousted. However, Explanation 1(c) to section 263 clarifies that if certain matters were not considered and decided in the appeal, the Commissioner's revisionary powers extend to those aspects. In this case, the issue of section 115JB was not addressed by the AO or the CIT(A), indicating that this part of the assessment order did not merge with the appeal decision, allowing for revision under section 263.

In conclusion, the ITAT Pune dismissed the appeal as the AO's failure to apply section 115JB rendered the assessment order erroneous and prejudicial to Revenue's interest. The Tribunal emphasized the importance of correctly applying the law and provisions, highlighting the necessity of considering all relevant aspects in the assessment process to avoid such errors.