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TMI Blog2019 (2) TMI 115X X X X Extracts X X X X X X X X Extracts X X X X ..... owed the Accounting Standards as per the provisions of Companies Act. Whereas the assessee has prepared the financial statement by following accounting system, standards and methods as per the provisions of Companies Act and laid before the company in the AGM. Once the financial statements are ratified by the shareholders, the assessee cannot modify the book profit as per the first provision to section 115JB(2). Therefore, the wrong interpretation of law empowers ld. CIT to invoke provisions of section 263. - Decided against assessee. - ITA No. 653/Hyd/2018 - - - Dated:- 31-1-2019 - SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER For The Assessee : Shri Y. Ratnakar For The Revenue : Shri S. Moharana ORDER PER S. RIFAUR RAHMAN, AM: This appeal filed by the assessee is directed against the order of CIT 2, Hyderabad, dated, 15/03/2018, passed u/s 263 of the Income-tax Act, 1961 (in short the Act ) for AY 2013-14. 2. Brief facts of the case are, the assessee a Company filed its return of income for the A.Y. 2013-14 on 30/11/2013 admitting total income of ₹ 1,19,33,700/-. The case was selected for scruti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use (iii) to Explanation 1 to section 115 JB (2). further, when the profit and loss account was not prepared in accordance with part -II of schedule VI of the Companies Act, 1956, whether, the assessee had the liberty make adjustments to the books profits so as to bring it in conformity with the accounts prepared as per the provisions of Companies Act? In the case referred above, though the latter issue was settled in favour of the assessee, the fact remains that subject to the merits of the case, if there was a brought forward business or depreciation loss, whichever is less, as per the books of account, the same is deductible from the book profits. This is as per the provisions of clause (iii) to Explanation 1 of section 115JB(2). But in the present case, there is no provision for allowing the loss on sale of investments, as can be seen from the explanation reproduced above. Similarly the facts of the two other cases are also differing and hence cannot come to the rescue of the assessee. In the case of V V Infotech Ltd, Vs ITO, the ratio emerging is when the profit and loss account is prepared as per schedule VI of the Companies Act, neither the AO nor the assessee, has any pow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of revenue. The computation is in accordance with the applicable accounting standards and in accordance with law. 4. That the Learned Pr. Commissioner of Income-tax did not correctly appreciate the explanation (2) inserted to section 263 of the I.T. Act w.e.f.1.6.2015. The said explanation is not attracted to the facts of the case as the assessment order was passed after making enquiries and verification and after satisfying that the loss of ₹ 64 crores on sale of investment has to be deducted from book profits as per Companies Act and Accounting Standards. 5. That the Learned Pr. CIT erred in setting aside the order of the assessing officer with a direction to disallow the claim of deduction of loss on sale of investments of ₹ 64 crores in computing the book profit and to re-compute the Book Profit in line with the directions in the order passed u/s.263. 6. It is therefore prayed that the order of learned principal Commissioner of Income-tax passed u/s. 263 be set aside and the order of the assessing officer be restored. 7. The Appellant craves leave to add to. alter or amend all or any of the above grounds of appeal at or before the hearing. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not permitted. Finding that the P L account is not in accordance with provisions of Companies Act. 15. The finding given at para 11 of the impugned order by the learned Principal Commissioner of Income tax is in the present case admittedly the profit Joss account is not prepared as per the relevant provisions of the Companies Act . The learned Principal Commissioner of Income tax accepted the plea of the appellant that the profit' and loss account prepared is not as per the relevant provisions of the Companies Act for the reason that it should have deducted the sum of ₹ 64 crores as loss while drawing up its profit loss account, which it failed to do and in consequence the profit loss account is not prepared as per the relevant provisions of the Companies Act. Reasons in support that the impugned order passed in erroneous and untenable 16. On both the aspects viz. (1) whether on the facts the learned Principal Commissioner of Income tax has jurisdiction to proceed uls 263 of the I.T. Act, and 2) on merits whether the deduction of the loss of ₹ 64 crores from the profit is correct, the appellant submits as under: Whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction of the above amount from the profits shown in the profit loss account is appropriate and in order. The profit or loss should be in accordance with Part-II of Schedule - VI and section 211(1), (2), (3A) and (3C) of the Companies Act, 1956. 21. It is an admitted position that the loss was sustained amounting to ₹ 64 crores on the sale of investments, that such loss was not shown in the profit loss account, that the statutory auditors commented that the said accounts are not in accordance with the Accounting Standard (AS)-13, that as per the Accounting Standards and the provisions of the Companies Act, the said amount should be shown as an expenditure in the profit loss account which should be prepared in accordance with part II of Schedule VI of the Companies Act. Section 115JB of the IT Act which provides to tax book profits stipulates that the company should prepare a statement of profit loss account in accordance with the provisions of Part II of Schedule VI to the Companies, Act, 1956. To the profit or loss so arrived at as per the profit loss account, explanation-I provides such adjustments to be made in the form of increasing the profits or r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITAT, A. Kolkata (Pages 34 to 42 of paper book) d) DCIT Vs. Bombay Diamond Company Ltd. Reported in 33 DTR 59 Mumbai Tribunal, 2010 e) B B Infotech Ltd. Vs. ITO, Ward-12(1), Bangalore, order d1,7-10-2015, Bangalore Bench 155 lTD 1040(Pages 77 to 8I of paper book) f) CIT Vs. Karnataka Soaps Detergents Ltd. Dt. 13-10-2014 reported in 59 Taxman.com 43 (Karnataka High Court) (Pages 84 to 89 of paper book) g) Dismissal of SLP bearing No.19860 of 2015 dt.16-11-2015 by the Hon'ble Supreme Court upholding the judgment of the Karnataka High Court (Page 82 of paper book). 25. All the facts stated above, statutory provisions and the case law were referred to in the explanation dt. 15-3-2016 (filed on 16-3-2016) and 28-03-2016 filed by the appellant before the Assessing Officer. There was therefore full justification for reducing the profits as per the profit loss account with the loss or ₹ 64 crores sustained on the sale of investments. The learned Assessing officer applied his mind to the explanation offered and drew the inference that the loss could be deducted. It could definitely be said that the learned Assessing Officer accepted the view whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome tax wrongly understood the provisions of section 115JB of the I.T Act. The appellant contends that the learned Assessing Officer correctly interpreted section 115JB and permitted the deduction of loss of ₹ 64 crores from the Income shown in the profit loss account. Hence, no revision is warranted u/s 263 in relation to the deduction of loss of ₹ 64 crores from the profit shown in the P L. There was no error in the assessment order and much less any prejudice was caused to the interests of revenue. 28. The following authorities are relied upon, in support that the Pr. CIT wrongly invoked proceedings u/s 263 of the IT Act. a) Where the AO accepts a particular view merely because another view is possible, no power can be exercised to revise u/s 263 of the IT Act. Sl. No. Name of the case Reported in 1 CIT Vs. Kwality Steel Suppliers Complex 395 ITR 1 (SC) 2 CIT Vs. Amitabh Bachchanb 384 ITR 200 (SC) 3 CIT Vs. Greenworld Corporation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of proceedings uls 263 of the I.T Act is uncalled for on the facts of the case. The cases referred to in these submissions are more direct, relevant and cover the issue. 30. The learned Principal Commissioner of Income tax dismissed the decision of the Hon'ble A.P High Court in the case of Spectra Shares Scrips Pvt. Ltd. Vs. C.I.T (reported in 354 ITR 35) stating that it is no longer applicable in view of the amendment to section 263 of the I.T Act by way of insertion of Explanation-2. The learned Principal Commissioner of Income tax appears to have understood the amendment in the converse manner. The newly inserted explanation explains what order is deemed to be erroneous in so far as it is prejudicial to the interests of revenue. The explanation says that (1) if the order is without making any enquiry or verification or (2) if it is passed allowing the relief without enquiring into the claim or (3) if the order to be revised has not been made in accordance with any order, direction or instruction issued by the C.B.D.T or (4) the order has not been passed in accordance with any decision rendered by the jurisdictional High Court or Supreme Court, it is erroneous an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r submissions of assessee, he accepted the contention of the assessee without discussing in his order. The same was noticed by ld. Pr. CIT during verification of assessment records having jurisdiction u/s 263. By invoking power u/s 263, he termed the assessment as erroneous as well as prejudicial to the interests of the revenue. After considering the submissions, in our considered view, as held in the case of M/s Malabar Industrial Co. Ltd., [2000] 243 ITR 83, an incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the given case, AO has incorrectly interpreted the law and this is good enough reason to term the order erroneous. 9.1 Coming to the merits, we are in agreement with the submissions of the assessee that the profit or loss should be prepared in accordance with the Part II of Schedule VI and section 211(1), (2), (3A) and (3C) of the Companies Act, 1956. There are no two thoughts on this aspect. In this process, assessee has submitted various case laws in support of the above submission. We are also inclined to accept the same. However, we noticed from the decisions quoted by ld. AR that the book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adopted for preparing such accounts including profit and loss account for such financial year or part of such financial year falling within the relevant previous year. From the above, it is clear that for the purpose of section 115JB, the financial statements including profit or loss statement shall be prepared duly following the required accounting standards, policies, accepted methods and the same should also laid before the company at its AGM. Therefore, it requires two conditions to be fulfilled. One, the annual accounts should be prepared duly following accounting standards and the annual account should also be laid before the AGM. Thus, the intention of the legislature is clear that the profit or loss prepared by the company as per the Companies Act duly following the accounting policies, standards and method and the P L A/c laid before AGM are the same for the purpose of section 115JB. The next question is, whether the assessee prepares its annual account and the same was laid before the AGM which was duly ratified by the company, can alter the profit for the purpose of section 115JB or not. 9.3 The provisions of section 115JB is very clear that the profit or loss s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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