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2014 (11) TMI 884 - HC - Income TaxPower to invoke section 263 Direction made by the Tribunal to CIT for adding back the provision for bad and doubtful debts Whether the Tribunal was right in holding that the jurisdiction exercised u/s 263 of the Act to treat the provision declared as diminution in the value of shares/assets to be added back under Clause (c) of the Explanation to Section 115 JB of the Act - Held that - In COMMISSIONER OF INCOME-TAX Versus MAX INDIA LTD. 2007 (11) TMI 12 - Supreme Court of India it has been held that while dealing with the retrospective operation of amendments and the exercise of powers under Section 263 of the Act, the phrase prejudicial to the interests of the revenue u/s 263 has to be read in conjunction with the expression erroneous order passed by the AO - Every loss of revenue as a consequence of an order of the AO cannot be treated as prejudicial to the interest of the revenue - the mechanics of the section have become so complicated over the years that two views were inherently possible - Therefore, subsequent amendment in 2005 even though retrospective will not attract the provision of Section 263 - though the amendment is retrospective, in this case, the Revenue cannot have the benefit of the same while proceeding u/s 263 Decided against revenue.
Issues:
1. Challenge to invoking Section 263 of the Income Tax Act by the Tribunal. 2. Interpretation of provisions for diminution in value of investment under Section 115JB(2). 3. Applicability of amendment to Section 115JB by Finance Act, 2009. 4. Examination of the jurisdiction exercised under Section 263 of the Act. 5. Retrospective operation of amendments and exercise of powers under Section 263. Analysis: 1. The appeal was filed by the Revenue against the Tribunal's order, which held that the Commissioner of Income Tax was not justified in invoking Section 263 of the Income Tax Act. The Commissioner had directed the Assessing Officer to add back the provision for bad and doubtful debts. The Tribunal, following legal precedents, stated that provisions for diminution in the value of assets cannot be added to the book profit under Section 115JA. The Tribunal found that the assessing authority's view was valid, and the Commissioner could not interfere based on the judgment in the case of Malabar Industrial Co. Ltd. 2. The Commissioner, under Section 263, held that the assessing authority's order was erroneous as it failed to add back the provisions representing the diminution in the value of investment. The Revenue argued that even if one clause was not attracted, another clause was applicable due to an amendment to Section 115JB by the Finance Act, 2009. They contended that the tribunal's order was erroneous as it did not consider this aspect, necessitating setting aside of the tribunal's decision. 3. The substantial question of law considered in the appeal was whether the tribunal was correct in holding that the provision declared as diminution in the value of shares/assets should be added back under the relevant clause of Section 115JB. The Apex Court's decision in CIT v. Max India Ltd highlighted the need to read the phrase "prejudicial to the interests of the revenue" in conjunction with the term "erroneous" order passed by the Assessing Officer. The Court emphasized that loss of revenue due to a permissible course of action or where two views are possible does not necessarily make an order erroneous unless the view taken is unsustainable in law. 4. The Apex Court's clarification on the retrospective operation of amendments and the exercise of powers under Section 263 was crucial in this case. The Court emphasized that even though an amendment may be retrospective, the Revenue cannot benefit from it in proceedings under Section 263. Consequently, the appeal was dismissed based on the Apex Court's judgment, without delving into the substantial question of law raised in the case. This detailed analysis provides an overview of the legal judgment, highlighting the key issues, arguments presented, and the final decision based on legal interpretations and precedents cited in the case.
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