9911796707
TMI Blog2013 (12) TMI 607X X X X Extracts X X X X X X X X Extracts X X X X ..... ondent-assessee for the assessment year 2000-01 had filed return of income on 31st November, 2000 declaring loss of Rs.3,05,26,654/- under normal provisions and positive book profit of Rs.2,86,09,379/- under Section 115JA of the Act. This return was subsequently revised on 28th March, 2002 and the positive book profit declared under Section 115JA was reduced to Rs.1,92,73,285/-. By assessment order dated 28th February, 2003, income declared under Section 115JA was accepted but some additions were made on income computed under the normal provisions and it was enhanced to Rs.2,45,57,950/-. 3. Commissioner of Income Tax, thereafter passed an order under Section 263 of the Act observing that income computed under Section 115JA by the Assessing Officer was erroneous and prejudicial to the interest of the Revenue on two accounts; (a) the Assessing officer had wrongly allowed deduction of Rs.1.53 crores made in the revised return and excluded this figure from the book profits; (b) expenditure of Rs.183.63 lacs was incurred for earning of exempt dividend income under Section 14A of the Act but this expenditure was not disallowed though the respondent-assessee had earned dividend income of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in law, it can be corrected by the Commissioner in exercise of revisionary power. As an investigator, it is incumbent upon the Assessing Officer to investigate the facts required to be examined and verified to compute the taxable income. If the Assessing Officer fails to conduct the said investigation, he commits an error and the word "erroneous" includes failure to make the enquiry. In such cases, the order becomes erroneous because enquiry or verification has not been made and not because a wrong order has been passed on merits. 12. Delhi High Court in Gee Vee Enterprises v. Additional Commission of Income-Tax, Delhi-I, (1975) 99 ITR 375, has observed as under:- "The reason is obvious. The position and function of the Income-tax Officer is very different from that of a civil court. The statements made in a pleading proved by the minimum amount of evidence may be accepted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income-tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en there is no proper or full verification and it was held as under (page 179) "We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the Commissioner of Income-tax under section 263 of the Income-tax Act. As noted above, the submission of learned counsel for the Revenue was that while passing the assessment order, the Assessing Officer did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order, which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the Assessing Officer had not applied his mind on the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order unless the decision is held to be erroneous. Cases may be visualised where the Income-tax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be formed to be erroneous simply because the Commissioner does not feel satisfie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e absence of the finding that the order is erroneous and prejudicial to the interest of Revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged "inadequate investigation", it will be difficult to hold that the order of the Assessing Officer, who had conducted enquiries and had acted as an investigator, is erroneous, without CIT conducting verification/inquiry. The order of the Assessing Officer may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the CIT to ask the Assessing Officer to decide whether the order was erroneous. This is not permissible. An order is not erroneous, unless the CIT hold and records reasons why it is erroneous. An order will not become erroneous because on remit, the Assessing Officer may decide that the order is erroneous. Therefore CIT must after recording reasons hold that the order is erroneous. The jurisdictional precondition stipulated is that the CIT must come to the conclusion that the order is erroneous and is unsustainable in law. We may notice that the material which the CIT can rely includes not only t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Assessing Officer was prejudicial to the interest of the Revenue, then the order of the Commissioner cannot be set aside on the ground that the two views were possible or probable. In such cases, the order under Section 263 of the Act can be set aside if the findings accorded by the Commissioner taking the particular view, whether on facts or in law, is wrong or incorrect or the order of the Assessing Officer was not prejudicial to the interest of the Revenue. The first aspect is essentially a question of merits and not a question relating to whether or not two views were possible. Commissioner can examine the issue on merits even when the same issue was examined by the assessing officer. Principles of change of opinion do not apply. If an order of the assessing officer is held to be erroneous and prejudicial to the interest of the revenue, it can be revised. The contention of the assessee and the reasoning of the tribunal in this regard is clearly fallacious as Revenue does not have any right to appeal against the order of the Assessing Officer. It is in these circumstances that power of revision has been conferred on the Commissioner under Section 263 of the Act to correct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted to the profit and loss account and this enhanced the profits by this figure. The book profits calculated and audited in accordance with the provisions of Companies Act included this amount of Rs.1.53 crores. (v) In the return filed on 30th November, 2000, Rs.1.53 crores was included in the computation sheet declaring the book profits as per Section 115JA of the Act. (vi) In the revised return filed on 28th March, 2002, book profits were recalculated for the purpose of the income tax return, and not for the purpose of the return or statements filed before Registrar of Companies, by reducing this amount of Rs.1.53 crores from the book profits on which tax under section 115JA was payable. 12. Before the Commissioner, the respondent-assessee had submitted that the reserve was created prior to 1st day of April, 1997 and, therefore, withdrawal from the reserve was required to be reduced from the profit and loss account in terms of clause (i) of proviso of Explanation to Section 115JA. The said Explanation was amended by Finance Act, 2000 with effect from 1st April, 2001 to exclude reserves created on or after 1st day of April, 1997 but ending before the 1st day of April, 2001, oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f such assessee chargeable to tax for the relevant previous year shall be deemed to be an amount equal to thirty per cent. of such book profit. (2) Every assessee, being a company, shall, for the purposes of this section prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 (1 of 1956); Provided that while preparing profit and loss account, the depreciation shall be calculated on the same method and rates which have been adopted for calculating the depreciation for the purpose of preparing the profit and loss account laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956 (1 of 1956): Provided further that where a company has adopted or adopts the financial year under the Companies Act, 1956 (1 of 1956), which is different from the previous year under the Act, the method and rates for calculation of depreciation shall correspond to the method and rates which have been adopted for calculating the depreciation for such financial year or part of such financial year falling within the relevant previous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii). Clause (i) states that the book profit shall be reduced by the amount withdrawn from the reserve or provision if any such amount was credited to the profit and loss account. The proviso to the said clause states that such reduction shall not be made if the amount was withdrawn from the reserves or provisions during the period 1st April, 1997 and 31st March, 2001, unless the book profit of such year was increased by the reserve or provision out of which the said amount was withdrawn. The core dispute and issue relates to clause (i) and the proviso appended to it. 17. The contention of the respondent-assessee is simple that the amount withdrawn from the reserve or provision must be reduced once the said amount was credited to the profit and loss account. It is stated that Rs.1.53 crores was withdrawn from the reserve and credited to the profit and loss account and, therefore, this reduction is mandated and required and we need not go into the question whether such reduction is justified and equitable or even the reason/purpose behind the provision. As the language of the statue is clear, the proviso is not applicable as the reserve was not created during the period 1st April, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period both prior to 01.04.1997 as well as that which commences on or after 01.04.1997. As indicated above, the bracketed portion, which appears in clause (i) to the explanation appearing in Section 115JB, does not find mention in Section 115J. 21.1 This is in so far as the distinction in the two Sections goes. The issue, therefore is, whether the assessee ought to be allowed to deduct the amount withdrawn from the revaluation reserves by invoking the provisions of clause (i) of the explanation given in Section 115J. It is not disputed that when the revaluation reserves were first created in 1983 and 1986, the increase in the value of the assets was reflected by debiting the asset account and crediting the revaluation reserve account. The profit and loss account by this methodology was kept undisturbed. In these circumstances, can it be said that when the amount is withdrawn from the reserves it reflects the difference in the depreciation calculated on the revalued or the enhanced value of the assets and that which is calculated on the historical cost. In other words can the assessee be permitted to reduce the amount withdrawn from the revaluation reserve if in the first instance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was 288,58,19,000 which was credited to the revaluation reserve. In other words, at the time of revaluation of assets, the said figure of Rs 288,58,19,000 was added to the historical cost of assets on the assets side of the balance sheet and in order to equalize both sides of the balance sheet the revaluation reserve to that extent was created on the liabilities side. Thus, the figure of profit remained untouched so far as the revaluation of assets to the tune of Rs 288,58,19,000 is concerned. The profits were not increased by the said amount when the asset was revalued. During the assessment year in question, i.e., the assessment year 2001-02, an amount of Rs 26,11,74,000, being the differential depreciation, was transferred out of the said revaluation reserve of Rs 288,58,19,000 and credited to the profit and loss account which the Assessing Officer disallowed by placing reliance on the proviso to clause (i) of the Explanation to Section 115JB(2). Consequently, the Assessing officer added back the said amount of Rs 26,11,74,000 to the net profits. We agree with the Assessing Officer. Under the provisions, as they then existed certain adjustments were required to be made to the n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al with a situation where some delinquent companies were taking advantage of clause (i) of the explanation appended to Section 115J by reducing their net profit by the amount withdrawn from the reserve created or provision made in the same year itself, though the reserve when created was not added to the book profit. It was to clarify this position that the memorandum stated that clause (i) to the explanation contained in Section 115J would apply to amounts withdrawn from the reserves or provision only if reserves had been created before 01.04.1988 or where reserves or provisions have been made after 01.04.1988 and have gone to increasethe book profits in any year when the provisions of Section 115J of the Income-Tax Act were applicable. 25. A close reading of the memorandum to the amendment would show that the initial object of allowing reduction under clause (i) to the explanation contained in Section 115J was not diluted. In other words the reduction of the amount withdrawn from the reserves created or provisions made was only available if such an amount in the first instance have been credited to the profit and loss account. This is clear if one adverts to the following extrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt of Rs.26,11,74,000/- being differential depreciation was transferred out of revaluation reserve and taken to the profit and loss account, was specifically rejected. The Supreme Court it was observed had held that under clause (i) to Explanation the said amount shall not be reduced from the profit and loss account. This could be only reduced when reserves were created by increasing book profits in any year when the MAT provisions were applicable. Rs.26,11,74,000/- had never reflected in increase of the book profits in the year ending 31st March, 2000 and, therefore, there was no question of reducing the said amount and the proviso to clause (i) of the Explanation was fully applicable. The said judgment as held in SRF Ltd. (supra) indicates, explains and elucidate the reason why the Legislature has carved out exception in respect of reserves or provisions in the proviso. The proviso is applicable not only when the reserve or provision was created during this period on 1st April, 1997 to 31st March, 2001, but whenever reserve/provision was created unless the book profits had been increased by those reserves or provisions at the time of creation and out of the said increase, the am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ease. The increase may relate to any period and even can be before 1st day of April, 1997. The words "but ending before the 1st day of April, 2001" are the cause of confusion but these words were inserted by Finance Act, 2000 with effect from 1st April, 2001 and would accordingly be applicable to the Assessment Year 2001-02 and not the assessment year in question. These words were introduced as the Legislature had inserted a new provision for minimum alternative tax by inserting Section 115JB with effect from 1st April, 2001. The original clause (i) to Explanation 1 to Section 115JB was as under:- "(i) the amount withdrawn from any reserves or provisions, if any such amount is credited to the profit and loss account: Provided that, where this section is applicable to an assessee in any previous year (including the relevant previous year), the amount withdrawn from reserves created or provisions made in a previous year relevant to the assessment year commencing on or after the 1st day of April, 2001 shall not be reduced from the book profit unless the book profit of such year has been increased by those reserves or provisions (out of which the said amount was withdrawn) under this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Explanation cannot be accepted as the basis or the foundation of the decision in SRF case. The Assessing Officer in the said case had recorded that transfer from revaluation reserve either should have been credited to the profit and loss account or reduced from the depreciation provided in the books. 27. In the facts of the present case, it is apparent that the respondent-assessee had credited the same amount to the depreciation account and also the profit and loss account in the year in question. On being asked why both the heads were duly credited, learned counsel for the respondent-assessee could not give any explanation or answer. It could not be also answered why the revaluation or reduction of Rs.1.53 crores was made to the revaluation reserve. Commissioner in her order has specifically recorded that enhanced depreciation on re-valued reserve was claimed in the earlier assessment years. 28. Commissioner in her order under Section 263 on the second aspect has recorded that the Assessing Officer had failed to disallow expenditure in respect of exempt income as per the mandate of Section 14A of the Act. Commissioner held that the said provision was applicable and the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iso does not stipulate and state that Section 14A of the Act cannot be relied upon during the course of the original assessment proceedings. The Assessing Officer was, therefore, required to disallow expenses incurred for earning exempt or tax free income. Failure on the part of the Assessing Officer to apply Section 14A when he passed the assessment order under Section 143(3) of the Act dated March 7, 2003 has prima facie resulted in escapement of income. The proviso is not intended to apply to the cases of the present nature. The object and purpose of the proviso is to ensure that the retrospective amendment is not made as a tool to reopen past cases, which have attained finality." 31. In view of the aforesaid legal position, we hold that the Commissioner was justified in invoking Section 263 of the Act as the order of the Assessing Officer was erroneous and prejudicial to the interest of the Revenue. The assessment order was made on 28th February, 2003, which is after Section 14A of the Act was enacted. The Assessing Officer should have been applied the said Section. Failure to invoke Section 14A had resulted in an order both erroneous and prejudicial to the interest of the Rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jurisdiction of the Commissioner under Section 263 of the Act. In other words, tribunal did not accept the plea of the respondent-assessee. 36. By order dated 16th May, 2012, the following substantial questions of law were framed in the present appeals:- "(i) Whether the Income Tax Appellate Tribunal was right in holding that while computing book profit under Section 115JA (sic. Section 115JB) of the Income Tax Act, 1961, no disallowance under Section 14A was required to be made? (ii) Whether the Income Tax Appellate Tribunal was right in deleting interest under Section 234D of the Income Tax Act, 1961?" 37. Learned counsel for the respondents-assessee, during the course of hearing, has fairly conceded that the first question has to be answered in favour of the Revenue and against the assessee in view of specific provisions in the Explanation 1 below Section 115JB(2) clause (f). The Assessing Officer it is stated had made an addition of Rs.88,292/- to the book profits towards expenditure incurred having nexus with dividend income, which were exempt under Section 10(33). Recording the said statement, the first question is answered in favour of the appellant-Revenue and against ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
