2021 (9) TMI 394 - AT - Income Tax

Revision u/s 263 - Reopening of assessment u/s 147 - income from assets given on lease, though offered to tax under normal provisions, was not routed through Profit Loss Account which has led to short-computation of Book Profits under MAT provisions - HELD THAT - Upon perusal of assessment order, it could be seen that the case was reopened for various specific reasons, one of which was the fact that income from lease assets was not added in Book Profits. However, no such adjustment has finally been made in the assessment order. AO, observed that on the remaining issues, the submissions made by the assessee are considered and accepted on the basis of merit of the issues and stand taken by the department in earlier years. Therefore, it could very well be said that Ld.AO duly applied his mind to the issue under consideration and took a possible view in the matter which is not contrary to law. Therefore, the observation of Ld. Pr. CIT that Ld. AO did not applied his mind to the issue, is without much substance. Merely because similar adjustment was made in subsequent years, the same would not lead to a conclusion that the orders passed in earlier years would require revision unless it was shown that the order was erroneous as well as prejudicial to the interest of the revenue. In the present case, we find that the issue was duly considered by Ld. AO after considering assessee s detailed submissions. The view could not be said to be unsustainable view and it was one of the possible view - we find that the subject matter of proposed revision was already deliberated upon by Ld. AO and a possible was taken in the matter - assessment order could not be subjected to revision u/s 263 and the action of Ld. Pr.CIT in invoking jurisdiction u/s 263 could not be sustained - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of revisional jurisdiction under Section 263 of the Income Tax Act.
2. Taxability of the principal component of lease rent under Section 115JB of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Validity of Revisional Jurisdiction under Section 263:

The judgment begins by outlining the provisions of Section 263 of the Income Tax Act, 1961, which grants the Principal Commissioner of Income Tax (Pr. CIT) or Commissioner of Income Tax (CIT) the supervisory powers to revise any order passed by the Assessing Officer (AO) if two conditions are satisfied: (i) the order is erroneous, and (ii) it is prejudicial to the interest of the revenue. The judgment cites precedents from the Hon’ble Supreme Court and High Courts, emphasizing that an order cannot be termed erroneous unless it is not in accordance with law. For example, if an AO adopts one of the permissible courses in law resulting in a revenue loss, it cannot be deemed erroneous unless unsustainable in law.

The judgment further elaborates that the Commissioner’s revisional jurisdiction under Section 263 cannot be based on whims and must be supported by material evidence showing that tax lawfully leviable has not been imposed. The distinction between "lack of inquiry" and "inadequate inquiry" is highlighted, with the Commissioner empowered to revise only in cases of "lack of inquiry."

In this case, the assessee challenged the revisional jurisdiction exercised by the Pr. CIT for the Assessment Year 2011-12. The original assessment was scrutinized, and the case was reopened for various reasons, including the taxability of the principal component of lease rent. The AO accepted the assessee’s explanation that the accounting treatment was in accordance with Accounting Standard-19 (AS-19) and did not make any adjustments to the book profits under Section 115JB.

2. Taxability of Principal Component of Lease Rent under Section 115JB:

The Pr. CIT sought to revise the order on the grounds that the principal component of lease rent was not offered to tax while computing book profits under Section 115JB, leading to a short computation of book profits. The assessee argued that the accounting treatment was in line with AS-19, which mandates reflecting the investment in leased assets as "Lease Receivable" in the Balance Sheet and not routing it through the Profit & Loss Account. The AO accepted this explanation during reassessment proceedings.

The Pr. CIT, however, did not concur with the AO’s acceptance and directed the AO to redo the assessment, stating that the AO did not properly apply his mind to the issue. The Pr. CIT argued that the principal component of lease rent should have been included in the book profits as it is part of the income under normal computation.

The Tribunal found that the AO had applied his mind and took a possible view, which was not contrary to law. The Tribunal emphasized that merely because a similar adjustment was made in subsequent years, it does not mean the orders in earlier years require revision unless shown to be erroneous and prejudicial to the revenue. The Tribunal concluded that the AO’s view was a possible view and could not be subjected to revision under Section 263.

Conclusion:

The Tribunal quashed the order passed by the Pr. CIT, stating that the AO had duly considered the issue and took a possible view, which is not unsustainable in law. The Tribunal held that the assessment order could not be revised under Section 263, as the conditions for such revision were not fulfilled. The appeal was allowed in favor of the assessee.