2017 (8) TMI 716 - AT - Income Tax

Scope of revision proceedings initiated under section 263 - disallow the claim made under the head Provision for redelivery of aircraft - Held that - It is the case of the revenue that the provision made by the assessee is required to be disallowed. If it is considered to be correct for a moment, then the reversal of the provision is not taxable. During the year under consideration, the total provision made is ₹ 7.08 crores and the amount reversed is ₹ 7.52 crores. Hence, disallowance of the provision amount of ₹ 7.08 crores and removal of the reversal amount of ₹ 7.52 crores offered by the assessee would result in removal of the net amount of ₹ 0.44 crore, in which case, there would be no prejudice caused to the revenue. Under this reasoning also, it cannot be held that the assessment order was prejudicial to the interest of the revenue. If the provision is allowed, then the actual expenditure equal to the amount of the provision, if it has not been debited to Profit and loss account should be allowable as deduction. Hence, on this count also it would result in tax neutral position. We notice that the learned Principal CIT has failed to properly appreciate the facts surrounding the issue from these angles, which demonstrates that no prejudice is caused to the revenue. We are unable to sustain the order passed by learned Principal CIT on this issue. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the assessment order passed by the Principal CIT under section 263 of the Act.
2. Disallowance of provision for redelivery of aircraft amounting to ?3.15 crores.
3. Non-initiation of penalty proceedings under section 271E of the Act.

Detailed Analysis:

1. Validity of the Assessment Order Passed by the Principal CIT Under Section 263 of the Act:
The assessee challenged the assessment order passed by the Principal CIT under section 263 for the assessment year 2010-11. The Principal CIT considered the assessment order erroneous and prejudicial to the interests of the Revenue due to the non-disallowance of ?3.15 crores provision for redelivery of aircraft and the non-initiation of penalty proceedings under section 271E for repaying loans otherwise than by account payee cheques. The Tribunal examined the scope of revision proceedings under section 263, referencing the Hon'ble Bombay High Court's interpretation in Grasim Industries Ltd. v. CIT and the Supreme Court's rulings in Malabar Industrial Co. Ltd. v. CIT and CIT v. Max India Ltd. It was established that an assessment order can only be revised if it is both erroneous and prejudicial to the interests of the Revenue.

2. Disallowance of Provision for Redelivery of Aircraft Amounting to ?3.15 Crores:
The assessee had taken aircraft on lease and made provisions for redelivery expenses, which were disallowed by the Assessing Officer in earlier years but allowed by the ITAT. The Principal CIT directed the Assessing Officer to reassess this provision. The Tribunal noted that the Assessing Officer had examined the actual expenses and applied his mind to the issue, as evidenced by the details provided by the assessee. The Tribunal emphasized that if the Assessing Officer's view is a possible one, backed by ITAT's previous decisions, it cannot be deemed erroneous or prejudicial to the Revenue. The Tribunal also highlighted that the provision reversal resulted in a credit balance, which was offered as income by the assessee, thus causing no revenue loss. The Tribunal concluded that the Principal CIT failed to appreciate these facts, leading to the conclusion that the assessment order was not prejudicial to the Revenue.

3. Non-Initiation of Penalty Proceedings Under Section 271E of the Act:
The Principal CIT noted the Assessing Officer's failure to initiate penalty proceedings under section 271E for repaying loans otherwise than by account payee cheques. The Tribunal found this issue academic since the Assessing Officer had considered the facts and decided not to levy the penalty. The Tribunal did not delve further into this issue, deeming it unnecessary.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, concluding that the assessment order was neither erroneous nor prejudicial to the interests of the Revenue, and the Principal CIT's revision order under section 263 was unsustainable. The appeal was treated as allowed, and the order was pronounced in the open court on 23rd June 2017.