2006 (5) TMI 133 - AT - Income Tax

Summary

Issues Involved:

1. Validity of the CIT's exercise of jurisdiction under Section 263 of the IT Act.
2. Taxability of interest on oil bonds for the assessment year 1999-2000.
3. Application of mind by the Assessing Officer (AO) during the original assessment proceedings.
4. Consistency with previous assessments and tribunal orders.

Issue-wise Detailed Analysis:

1. Validity of the CIT's exercise of jurisdiction under Section 263 of the IT Act:

The CIT issued a show-cause notice to the assessee on 20th March 2002, questioning why the assessment should not be revised under Section 263. The CIT argued that the AO failed to tax the accrued interest on oil bonds, making the assessment order erroneous and prejudicial to the interests of the Revenue. The CIT directed the AO to frame a fresh assessment after affording the assessee an opportunity of being heard.

In response, the assessee contended that the assessment was completed after due enquiry and was in conformity with the Tribunal's order for the assessment year 1998-99. The assessee argued that the CIT's action under Section 263 was without jurisdiction as the assessment order was neither erroneous nor prejudicial to the interests of the Revenue.

2. Taxability of interest on oil bonds for the assessment year 1999-2000:

The CIT held that the AO ought to have taxed the interest actually received by the assessee during the relevant accounting year. The CIT observed that the interest was payable every six months as per the bonds and could not be returned to the Government. Therefore, the interest received year after year and never returned to the Government should have been taxed by the AO.

The assessee argued that the interest on the oil bonds could be taxed only in the year in which the Government passed the necessary orders conferring upon the assessee the right to appropriate the interest. The assessee submitted that such orders had not been passed during the relevant accounting year. The assessee also pointed out that out of the balance of oil bonds worth Rs. 1301.87 crores, bonds worth Rs. 447.40 crores were accounted for as income in the financial year 1999-2000, and bonds worth Rs. 743.63 crores were refunded during the same year. The AO did not tax the interest on the residual bonds worth Rs. 3.84 crores, indicating that the interest could not be taxed until appropriate orders were passed by the Oil Co-ordination Committee.

3. Application of mind by the Assessing Officer (AO) during the original assessment proceedings:

The assessee contended that the AO had applied his mind to the issue of taxability of the interest on oil bonds, as evidenced by the detailed submissions made in writing before the AO. The assessee argued that the assessment could not be termed as "erroneous" since it was in conformity with the Tribunal's order for the assessment year 1998-99 and the CIT(A)'s order for the same year.

The CIT-Departmental Representative argued that the assessment was sought to be revised due to non-application of mind by the AO to the issue of taxability of the interest on oil bonds. The CIT-Departmental Representative cited the judgment of the Delhi High Court in Consolidated Photo & Finvest Ltd. vs. Asstt. CIT to support the argument that the AO did not express any opinion in the assessment order regarding the taxability of the interest, indicating a lack of application of mind.

4. Consistency with previous assessments and tribunal orders:

The assessee argued that the assessment order for the year under appeal was passed in conformity with the view taken by the Tribunal for the assessment year 1998-99 and the CIT(A) for the same year. The assessee contended that the Department had not filed an appeal on the point of assessability of the oil bonds against the decision of the CIT(A) for the assessment year 1998-99, indicating acceptance of the decision.

The Tribunal observed that the AO's decision not to tax the interest on oil bonds was in conformity with the Tribunal's order for the assessment year 1998-99. The Tribunal noted that the view taken by the AO was a plausible view and was in line with the orders of the CIT(A) and the Tribunal for the assessment year 1998-99. The Tribunal held that the CIT could not revise the assessment under Section 263 merely because he was unable to accept the view taken by the AO.

Conclusion:

The Tribunal set aside the order passed by the CIT under Section 263 and allowed the appeal of the assessee. The Tribunal held that the AO's decision was in conformity with the Tribunal's order for the assessment year 1998-99 and the CIT(A)'s order for the same year. The Tribunal also noted that the AO had applied his mind to the issue of taxability of the interest on oil bonds, and the assessment order was neither erroneous nor prejudicial to the interests of the Revenue.