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TMI Blog2014 (5) TMI 1063X X X X Extracts X X X X X X X X Extracts X X X X ..... m the exposition of law, it can be safely concluded that the power of the Commissioner Income Tax to exercise suo motu revisional power in terms of Section 263(1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein viz “(i) the order is erroneous”; (ii) “by virtue of the erroneous order prejudice has been caused to the interest of the Revenue, however, every loss of revenue as a consequence of an order of Assessing Officer cannot be treated to be prejudicial to the interest of revenue. Both the conditions precedent for exercising the jurisdiction under section 263 of the Act are conjunctive and not disjunctive. The order of assessment passed by an Income Tax Officer, therefore, should not be interfered with only because another view is possible. The ITAT has correctly interpreted the provisions of section 115JB of the Act and thereafter applied the same to the facts of each case(s). - Decided in favour of assessee. - ITA No. 25 of 2009 a/w ITA Nos 29, 47 of 2009 and 12 of 2010 - - - Dated:- 24-5-2014 - Mr. Mansoor Ahmad Mir, Acting Chief Justice And Mr. Tarlok Singh Chauhan, Judge For the Appellant : Mr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,013/-. On a subsequent perusal of the record it was seen that the net profit as per the audited P L Account for the relevant year was ₹ 1,84,87,917/-. Since the assessee is a company, the provisions of section 115 JB relating to minimum alternate tax were prima facie attracted. It was noted that the Assessing Officer(A.O) had examined the issue of taxability u/s 115 JB in the course of assessment proceedings. The assessee had submitted before the AO that a debit of ₹ 37,63,858/- in the P L A/c on account of bad and doubtful debts written off, actually represented the net amount arrived at after writing back a sum of ₹ 2,37,76,034/- being provisions for nonperforming assets created in earlier years. 7. It was contended before the A.O. that this effective credit of ₹ 2.38 crores was deductible from the book profits under clause (i) of Explanation 1 below section 115JB(2). Af ter such deduction, there would be no book profits assessable u/s 115 JB. The amount written back was withdrawn from provisions created only by way of debit to the P L Appropriation account and not to the P L A/c and further that no deduction had ever been claimed in the relevant years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the credited amount of ₹ 2.38 crores could have been withdrawn. 11. The ITAT has further held that there was no positive material before the Commissioner which could lead to an objective inference that the order of the A.O. was erroneous and prejudicial to the interest of revenue. The assessment order had been made by the A.O. with proper application of mind and therefore, the same cannot hold to be erroneous and prejudicial to the revenue. 12. The assessee filed an appeal before the ITAT. The ITAT vide its order dated 8.10.2008 passed in ITA No.982 /Chandi/2007 has allowed the appeal of the assessee. 13. This Court on 18.5.2009 admitted the appeal on following substantial question of law: - Whether action under Section 263 is justified when there is an incorrect assumption of law and facts by the Assessing Officer resulting in an order which is erroneous and prejudicial to the interest of revenue? ITA No. 47 of 2009 14. The assessee s regular assessment u/s 143(3) for A.Y. 2005-06 was completed on 14.11.2007 assessing total income at ₹ 2,60,314/- under the normal provisions of the Act. Further, the A.O. noted that the net profit as per the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 115 JB. As per the appellant, the decision of the ITAT on the issue of computation of book profits is, with respect, not correct, for the reasons that the assessee has stated that the following provisions for non-performing loans had been made in the accounts during F.Y. 1997-98 to 2002-03 by debit to the P L Appropriation account ( and not by debit to the P L account):- F.Y. Amount of provision (Rs.crores) 1997-98 18.08 1998-99 1.98 1999-2000 1.76 2000-01 4.48 2001-02 0.91 2002-03 0.03 According to the assessee, out of this accumulated provision of ₹ 27.24 crores, amounts of ₹ 2.37 crores and ₹ 2.38 crores were withdrawn in A.Ys. 2003-04 and 2004-05 respecti vely and credited to the P L accounts in those years. 17. It is the contention of the appellant that since the provisions created in the earlier years had not been debited to the P L account in those years, the amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the commissioner for A.Y 2003-04, that such amounts written back could not be deducted from the book profits under the said Explanation and that even on facts, it was not ascertainable as to which of provisions created in earlier years had actually been written back. 22. The assessee filed an appeal against the assessment order before the CIT(A). The CIT(A) vide her order passed in appeal No.IT/222/08-09/SMI dated 9.6.2009 held in favour of the assessee, following ITATs orders for A.Y. 2003-04 and 2004-05 in the assessee s own case. The department filed further appeal before the ITAT. The ITAT vide impugned order dated 15.10.2009 has dismissed the department s appeal following its orders in the assessee s case for the year 2005-06 in ITA No.897/Chandi/2008 dated 29.1.2009 and for years 2003-04 and 2004-05 in ITA No.982/Chandi/2007 dated 8.10.2008. The Department has preferred ITA 47/09 against these orders before this Court. 23 This Court on 17.5.2010 admitted the appeal on following substantial question of law: - 1. Whether doubtful loans written off as bad debts and subsequently credited to the profit and loss account by way of contra-entry, could be deducted from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5JB. The new provision provides that all companies having book profit under the Companies Act, shall be liable to pay MAT at a specified rate of the book profit. It further provides that every MAT company shall follow same accounting policies and standards as are followed for preparing its statutory account. 10. For the purposes of the afore-stated provision, book profit means the net profit as shown in the P L Account in the relevant previous year in accordance with the provisions of Part II and Part III of the Schedule VI to the Companies Act, subject to certain adjustments which increases or decreases the book profit. Thus, even under Section 115J, certain adjustments were to be made to the net profits as shown in the P L Account. One such adjustment stipulates that the net profit shall be decreased by the amount withdrawn from any reserves, if any such amount is credited to the P L Account. 11. Some companies have taken advantage of Section 115J by decreasing their net profit by the amount withdrawn from the reserve created in the same year itself, though the reserve when created had not gone to increase the book profit. Such adjustments led to lowering of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt previous year prepared under Section 115JB(2) and as increased by any amount, as stated above, has to be reduced by the amount(s) in clauses (i) to (vii). 26. In order to appreciate the submissions of the learned counsel for the appellant(s), it is apt to reproduce Section 115-JB, which reads as follows:- Special provision for payment of tax by certain companies. 115JB. (1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee, being a company, the income-tax, payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 2001, is less than seven and one-half per cent of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of seven and one-half per cent. (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 C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be in consonance with the intention of the legislature. In these cases the provisions have been created in earlier years in respect of doubtful loans. During the relevant year some of the loans were written off as bad and a contra entry was made in the P L Account crediting the amount of the provision made in respect of such loans. Therefore, the credit made in these cases was not an effective credit and could not be reduced from the book profits. 28. It is further contended that the proviso to clause (i) of the Explanation to section 115JB makes it clear that for a credit to be deductible from book profit, the provisions of section 115JB or section 115JA should have been applicable in the year in which the relevant provisions were made and that the book profits of those years should actually have been increased by the amounts of such provisions. Since Section 115 JB is a self contained code, a credit on account of provisions written back is deductible from the book profit only if the provision originally made had been added to the book profits u/s 115JA or 115JB in that earlier year. 29. The learned counsel for the appellant has then placed reliance upon the following parag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith law and therefore, no interference is warranted in the order passed by the ITAT. 32. We have given our deep and thoughtful consideration to the rival contention of the parties and have also gone through the records. It was not disputed by either of the parties before the ITAT that ₹ 2,37,76,034/- represents provisions for non-performing assets created in earlier years by debiting to the Profit Loss Appropriation Account (not by debit to Profit Loss Account) and credited to the Profit Loss Account for the instant assessment year. The Explanation (i) to Section 115JB reads as follows:- Explanation. 1--For the purposes of this section, book profit means the net profit as shown in the profit and loss account for the relevant previous year prepared under subsection (2) . and as reduced by- ***** (i) the amount withdrawn from any reserve or provision (excluding a reserve created before the 1st day of April, 1997 otherwise than by way of a debit to the profit and loss account), 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, the amount wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted before 1.4.1997. Therefore, the same had to be reduced for computation of book profit in accordance with section 115JB. The ITAT has come to categorical findings of fact that following provisions were available for credit to the profit and loss account, which had been made after 1.4.1997 and not prior to it:- F.Y. Amount of provision (Rs. Crores) 1998-99 1.98 1999-00 1.76 2000-01 4.48 2001-02 0.91 2002-03 0.03 Therefore, in the given facts and circumstances, we have left with no option but to uphold the order passed by the ITAT. 36. This takes us to the next question which arises with regard to the jurisdiction of the CIT entertaining the revision petition under Section 263 of the Income Tax Act. Be it stated that the provisions of section 263 of the Act have been invoked by CIT to pass orders not only against the appellant(s), but also in its favour in the aforesaid cases, therefore, strictly speaking, this question may only now ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pattern for similar assessments, which on a broad reckoning, the Commissioner might think to be prejudicial to the interests of Revenue administration. In our view, this interpretation is too narrow to merit acceptance. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the revenue. If due to an erroneous order of the Income Tax Officer, the revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the revenue. The phrase prejudicial to the interests of the revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Commissioner of Income-tax to issue notice in terms of Section 263 of the Act. It provides for a revisional power. It has its own limitations. An order can be interfered suo motu by the said authority not only when an order passed by the Assessing Officer is erroneous but also when it is prejudicial to the interests of the Revenue. Both the conditions precedent for exercising the jurisdiction under Section 263 of the Act are conjunctive and not disjunctive. An order of assessment passed by an Income-tax Officer, therefore, should not be interfered with only because another view is possible. 39. Thus, from the exposition of law, it can be safely concluded that the power of the Commissioner Income Tax to exercise suo motu revisional power in terms of Section 263(1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein viz (i) the order is erroneous ; (ii) by virtue of the erroneous order prejudice has been caused to the interest of the Revenue, however, every loss of revenue as a consequence of an order of Assessing Officer cannot be treated to be prejudicial to the interest of revenue. Both the conditions pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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