2025 (2) TMI 57 - HC - Income Tax

Validity of Revision u/s 263 - computation of book profit u/s 115J - whether the order u/s 263 gives a conclusive finding on issue relating to Section 115J so as to permit the Appellant-Assessee to agitate the issue on merits? - HELD THAT - Admittedly and undisputedly there is no examination of computation of book profit by the assessing officer at the time of assessment thus there is no infirmity in the exercise of revisional jurisdiction by the CIT and upheld by the Tribunal. Appellant-Assessee cannot pick up one sentence of the operative order and contend that the Commissioner has given a definite finding on the merits of the case. There has to be a holistic reading of whole of the operative parts of the order and if one reads holistically the whole of the operative parts it can be safely concluded that for coming to the satisfaction of twin conditions mandated by Section 263 of the Act the CIT had to make some observations on the merits of the case moreso because the issue was not examined during the course of the assessment proceedings. The CIT having said so has directed the assessing officer to recompute the book profit afresh by applying the correct provision of law and after providing an opportunity to the assessee. In our view on a complete reading of the operative paragraphs of order under Section 263 it cannot be said that the observations made by the Commissioner on computation of book profit was definite and conclusive but he had to make these observations for satisfaction of the twin conditions mentioned in Section 263 for assumption of jurisdiction. If he had not made such observation then the order under Section 263 would have fallen foul of the mandatory conditions required for exercising jurisdiction under Section 263. Therefore on a holistic and complete reading of the operative paragraphs we cannot accept the submission made by the Appellant-Assessee that the observation made by the CIT on computation of book profit is definite and therefore he is entitled to challenge the same on merits before the Tribunal and before this Court. Decided in favour of the Respondent-revenue.

Summary

Issues Presented and Considered:

The core legal issue in this case was whether the Tribunal was justified in upholding the exercise of revisional power by the Commissioner of Income Tax (CIT) under Section 263 of the Income Tax Act, 1961, and whether the Tribunal was correct in holding that the CIT's observations on the issue of Section 115J did not constitute a definite finding on the merits.

Issue-wise Detailed Analysis:

Revisional Power under Section 263:

The legal framework for this issue revolves around Section 263 of the Income Tax Act, which allows the CIT to revise any order passed by the Assessing Officer if it is found to be erroneous and prejudicial to the interests of the revenue. The CIT must provide the assessee an opportunity to be heard and must record reasons for the revision.

The Court interpreted that the CIT's power under Section 263 is supervisory and can only be exercised if the order is both erroneous and prejudicial to the interests of the revenue. The CIT is required to form an opinion on these twin conditions.

The key evidence showed that the Assessing Officer had not examined the issues during the original assessment proceedings, specifically the computation of book profits under Section 115J and the deduction under Section 32AB.

The Court applied the law by examining whether the Assessing Officer had applied his mind to the issues during the original assessment. Since there was no evidence of such examination, the Court found the order to be erroneous.

Competing arguments included the appellant's claim that the CIT's order recorded a definite finding on merits, which should allow them to contest the merits. However, the Court found that the CIT's observations were necessary to satisfy the conditions for exercising jurisdiction under Section 263 and were not conclusive findings.

Significant Holdings:

The Court held that the CIT's exercise of revisional jurisdiction was valid. It emphasized that the CIT must record reasons for his conclusions and that the observations made were necessary to satisfy the jurisdictional conditions under Section 263.

A core principle established was that the mere reproduction of the assessee's computation by the Assessing Officer does not imply examination or acceptance of the computation under Section 115J.

The Court concluded that the CIT's order did not contain a definite finding on the merits, and thus, the Tribunal was correct in its judgment. The appeal was dismissed, and the question of law was answered against the appellant-assessee and in favor of the respondent-revenue.