2009 (12) TMI 98 - HC - Income Tax

Power to revise an order erroneous assessment - The assessee company dealing in hire purchase financing equipment leasing and general financing filed its return of income for the assessment year 2000-01 on 30.11.2000 admitting Nil income after set off of brought forward losses. The assessee admitted Nil income under section 115JA of the Income Tax Act 1961. The return was processed under section 143(1) of the Act on 23.03.2001. The case was taken up for scrutiny and the assessment under section 143(3) of the Act was completed on 17.03.2003 determining the total income at Rs.54, 24, 140/- raising a demand of Rs.26, 11, 025/-. On perusal of records the Commissioner of Income Tax noted that while computing the book profits under section 115JB of the Act errors have been occurred. Hence the assessment already made by the assessing officer found to be erroneous and prejudicial to the interest of the revenue and directed the assessing officer to modify the assessment order adding back the provision for non-performing assets and investments and also lease equalisation charges to the profits of the assessee company. The Commissioner of Income Tax directed the assessing officer to disallow the deduction under section 80HHC of the Act as the profit as per the normal computation resulted in loss held that - when an Income Tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue or where two views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the Income Tax Officer is unsustainable in law - Item (c) of the Explanation to section 115JA is not attracted to the provision for bad and doubtful debts. The provision for bad and doubtful debts is made to cover up probable diminution in the value of the assets i.e. a debt which is an amount receivable by the assessee. Such a provision cannot be said to be a provision for a liability because even if the debt is not recoverable no liability can be fastened on the assessee. Any provision made towards irrecoverability of a debt cannot be said to be a provision for liability.

Summary

Issues:
Appeal against the order of the Income Tax Appellate Tribunal regarding the assessment year 2000-2001 under Section 260A of the Income Tax Act.

Analysis:
The judgment pertains to an appeal by the revenue against the order of the Income Tax Appellate Tribunal, Madras 'C' Bench, for the assessment year 2000-2001. The main issue raised was whether the Tribunal was correct in quashing the order passed under section 263 of the Income Tax Act, which directed modifications to the assessment order due to errors in computing book profits. The Commissioner of Income Tax found the assessment to be erroneous and prejudicial to revenue's interest, instructing the assessing officer to make necessary adjustments. The Tribunal, however, relying on the Supreme Court's decision in a previous case, held that the assessing officer's decision, even if resulting in revenue loss, cannot be considered erroneous unless it is unsustainable in law. The Tribunal also referred to another Supreme Court judgment regarding the treatment of provisions for doubtful debts in computing book profits under section 115JA of the Income-tax Act, emphasizing the limitations on the assessing officer's jurisdiction in such matters.

The High Court, after hearing arguments and examining the materials, found that the Tribunal correctly applied the legal principles established by the Supreme Court in previous cases. The Court reiterated the Supreme Court's stance that the assessing officer's decision, as long as it is within the bounds of the law, cannot be deemed erroneous solely based on a differing view by the Commissioner. Furthermore, the Court emphasized the specific criteria outlined by the Supreme Court regarding the treatment of provisions for doubtful debts under section 115JA, highlighting that such provisions cannot be considered liabilities and therefore should not be added back to the net profit for computing book profits. Consequently, the High Court concluded that there was no merit in the revenue's appeal and dismissed it, ruling in favor of the assessee and against the revenue. The judgment was delivered by K.RAVIRAJA PANDIAN, J., and M.M.SUNDRESH, J. No costs were awarded in the case.