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TMI Blog2018 (7) TMI 2060X X X X Extracts X X X X X X X X Extracts X X X X ..... has suo moto added back while computing the taxable profit at normal rate of tax. We find that this very basis is bad on facts of the case in hand. The assessee did add back loss while computing the profit at normal rate of tax but the same has been claimed as capital loss under the head income from capital gains and this very claim of loss has been disallowed by the AO while framing the assessment order u/s 143(3) of the Act. The second fallacy in the order of the PCIT is that he has presumed that the diminution in the value of shares has been claimed as a provision in the balance sheet and, therefore, the same has to be added back for the purpose of calculating book profit u/s 115JB of the Act. On the contrary, the fact is that the assessee never claimed this as provision in the balance sheet and has, in fact, written off by reducing its assets and, therefore, claiming that provision has to be added back is bad in law. AO, while computing the income u/s 115JB of the Act has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The AO, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. 4. Briefly stated, the facts of the case are that the assessee is engaged in the business of providing support and other services to international companies in oil and gas sector, aviation, trading in paper, chartering and leasing of aircrafts. Return of income was Efiled declaring income u/s 115JB of the Act at ₹ 66.45 crores and the taxes were paid accordingly. The return was selected for scrutiny assessment and accordingly, statutory notices were issued and served upon the assessee. 5. During the course of assessment proceedings, the assessee was asked to furnish certain details/information relating to capital loss claimed by it. The assessee filed a detailed reply on various dates. After considering the detailed reply of the assessee, the AO came to the conclusion that the capital loss of ₹ 133.77 crores which included loss of ₹ 92.91 crores with respect to extinguishment of shares in Enpro Oil Ltd approved under Capital Reduction Scheme was disallowed. The assessee preferred appeal before the CIT(A). However, in the meantime, the AO issued notice u/s 154 of the Act and pointed out that the following issue needs rectification: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Jubilant Agri Consumer Products Ltd. was approved by the Hon'ble High Court wherein the retail division of EOPL was demerged into JACPL and Equity Shares of JIL were issued to the shareholders of EOPL. Consequently, the assessee company received 35,96,837 Listed Equity Shares of JIL, valuing Rs,60.99 crore {on the basis of market price) during the year. The valuation was approved by the Hon'ble Court in such a manner that the shareholders of demerged entity I.e. EOPL may not suffer lass, it was noticed that when the assessee company has itself added back the expenditure of Hs 118.45 crores towards loss on transfer/write off of investments , in its computation of income under normal provision and same was also treated as reduction in value of investment of shares, the same should have been treated as diminution in value of investment of shares as held by Principal Bench of ITAT, Mumbai in the case of ITO Vs. TCFC Finance Ltd.-iTA No. 1299/Mum./2009 dated 09.03.2011 and added back to the book profit under Section J151B. The notice under Section .154 was issued by the Assessing Officer on 12,08.2015 and in compliance reply was filed on 15.09 2015 which was pursue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h prompted the AO to issue notice u/s 154 of the Act. Ironically, as stated by the ld. AR, no order u/s 154 of the Act has been framed till date by the AO. Be that as it may, coming to the assumption of jurisdiction by the PCIT, it is a settled position of law that powers u/s 263 of the Act can be exercised by the Commissioner on satisfaction of twin conditions, i.e., the assessment order should be erroneous and prejudicial to the interest of the Revenue. By 'erroneous' is meant contrary to law. Thus, this power cannot be exercised unless the Commissioner is able to establish that the order of the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. Thus, where there are two possible views and the Assessing Officer has taken one of the possible views, no action to exercise powers of revision can arise, nor can revisional power be exercised for directing a fuller enquiry to find out if the view taken is erroneous. This power of revision can be exercised only where no enquiry, as required under the law, is done. It is not open to enquire in case of inadequate inquiry. Our view is fortified by the decision of Hon'ble High Court of Bombay in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sioner suo motu under it, is that the order of the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent--if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue-- recourse cannot be had to section 263(1) of the Act. The provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous . 10. In the light of aforesaid judicial discussion, let us now consider the facts of the case in hand. 11. Exhibit 29 is the notes to the financial statements having details of non current investment and the same is as under: 12. Exhibit 34 contains other dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... joint Venture with some foreign parties for entering into a new business in Telecom Sector. Since the business could never take off, the Company has been legally advised that his claim is not tenable in / aw .The matter is pending before the Hon ble Delhi High court. ei The company held an investment of ₹ 18391.43 Lacs in Enpro Oil Pvt Ltd (EOPL) represented by 3.99.39,516 Nos of equity shares as at 1st April 2011. During the year EOPL had gone through a Court ;pproved Capital reduction Scheme, pursuant to which, the paid up Share Capital of EOPL was from ₹ 4258.79 Lacs (4,25,87,944 Equity Shares of ₹ 10 each) to ₹ 843.78 Lacs (84,37,765 Shares of ₹ 10 each) with a corresponding decrease in share premium from ₹ 14572.98 8308.69 Lacs leading to a net decrease of ₹ 9679.30 Lacs. Consequently, reduction of :o cancellation of specified shares held by the Company in EOPL has been charged to Profit and Loss by ₹ 9291.43 Lacs. 13. The details of other expenses are given in Exhibit 33 which are as under: For the Year ended 31st March, 2012 2011 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... romotion 86 39 76 03 13,621.41 4,435.05 14. Book profit is computed and report in Form No. 29B is placed at pages 48 to 50. It can be seen from the aforementioned details given in the audited financial statement of account that the assessee company had clearly disclosed the investments in EOPL and their diminution in value due to court approved Capital Reduction Scheme. It can be further seen that the assessee has written off loss on transfer/write off of investment under the head Other expenses and details of non-current investments mentioned elsewhere that the provisions for diminution in value of investments is only 4.69 lakhs. 15. A perusal of the order of the PCIT shows that he has proceeded on wrong proposition that the assessee has not only claimed loss in diminution in value of shares in Profit and Loss account, but has suo moto added back while computing the taxable profit at normal rate of tax. We find that this very basis is bad on facts of the case in hand. The assessee did add back loss while computing the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed zero-tax highly profitable companies deserves attention. In 1983, a new Section 80VVA was inserted in the Act so that all profitable companies pay some tax. This does not seem to have helped and is being withdrawn. I now propose to introduce a provision whereby every company will to have to pay a minimum corporate tax on the profits declared by it in its own accounts. Under this new provision, a company will pay tax on at least 30% of its book profit. In other words, a domestic widely held company will pay tax of at least 15% of its book profit. This measure will yield a revenue gain of approximately ₹ 75 crores. 8. The above Speech shows that the income tax authorities were unable to bring certain companies within the net of income-tax because these companies were adjusting their accounts in such a manner as to attract no tax or very little tax. It is with a view to bring such of these companies within the tax net that Section 115-J was introduced in the IT Act with a deeming provision which makes the company liable to pay tax on at least 30% of its book profits as shown in its own account. For the said purpose, Section 115-J makes the income reflected in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 115-J of the Act, then it should be that income which is acceptable to the authorities under the Companies Act. There can not be two incomes one for the purpose of Companies Act and another for the purpose of income tax both maintained under the same Act. If the legislature intended the assessing officer to reassess the company's income, then it would have stated in Section 115-J that income of the company as accepted by the assessing officer . In the absence of the same and on the language of Section 115-J, it will have to held that view taken by the tribunal is correct and the High Court has erred in reversing the said view of the tribunal. 9. Therefore, we are of the opinion, the assessing officer while computing the income under Section 115-J has only the power of examining whether the books of account are certifies by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The assessing officer thereafter has the limited power of making increases and reductions as provided for in the Explanation to the said section. To put it differently, the assessing officer does not have the jurisdiction to go behind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at 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 conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interests of the Revenue. But that by itself ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... detailed explanation in that regard by a letter in writing. All these are part of the record of the case. Evidently, the claim was allowed by the Income-tax Officer on being satisfied with the explanation of the assessee. Such decision of the Income-tax Officer cannot be held to be erroneous simply because in his order he did not make an elaborate discussion in that regard. Moreover, in the instant case, the Commissioner himself, even after initiating proceedings for revision and hearing the assessee, could not say that the allowance of the claim of the assessee was erroneous and that the expenditure was not revenue expenditure but an expenditure of capital nature. He simply asked the Income-tax Officer to re-examine the matter. That, in our opinion, is not permissible. Hence the provisions of section 263 of the Act were not applicable to the instant case and, therefore, the commissioner was not justified in setting aside the assessment order. 20. The AO while framing the assessment u/s 143(3) of the Act has taken a possible view by disallowing the claim of capital loss and at the same time, not considering the same for computation of book profit u/s 115JB of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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