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TMI Blog2022 (3) TMI 471X X X X Extracts X X X X X X X X Extracts X X X X ..... but are not part of reopened proceedings, cannot be subject to revision u/s 263 of the income tax act by this order. As we have already stated that the time limit for revising the issues involved in the original assessment order has already expired on 31/3/2017, therefore the revision on the above issues namely (1) the consideration of loss on repossessed vehicle is bad debts and not in the business loss, (2) disallowance of unpaid leave encashment u/s 43B (f) of the act is beyond the powers of the ld PCIT u/s 263 of the act. Therefore without looking into the merits of the case, we hold that the order of the learned PCIT is not sustainable on the above 2 issues. Revisional powers u/s 263 with respect to the deduction claimed u/s 36 (1) (viii) - whether the correct lease rental income has been reduced by the assessee and ld AO in computing the income from long-term finance or not - Gross lease rental income and Arrears of lease Income should have been reduced for working out the long-term finance income. The expenditure of interest should not have been reduced from gross lease income. AO has not at all verified the above adjustment made while arriving at lease income. Therefore it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the act for excluding the correct amount of lease rental income and interest income on income tax refund for working out long-term finance income of the assessee. With respect to the issue of repossessed vehicles to be treated as bad debts and non-disallowance of unpaid leave encashment, as already held above the order of the learned principal Commissioner of income tax is not sustainable in law. Therefore on these two issues the order of the learned principal Commissioner of income tax is quashed. - Decided in favour of assessee in part. X X X X Extracts X X X X X X X X Extracts X X X X ..... ame would not come within the purview of revision as per provisions of Explanation 1 to section 263(1) of the Act. 2. Claim of loss on re-possessed vehicles to be considered as part of bad debts and not as business loss 2.1 On the facts and circumstances of the case and in law, the Pr. CIT erred in holding that the loss on repossessed vehicles claimed as a business loss by the Appellant is nothing but a part of bad debts and since this loss along with other bad debts claimed under section 36(1)(vii) of the Act does not exceed the credit balance under section 36(1)(viia) allowed in the preceding assessment year 2010-11, the same is not allowable and is required to be added to the total income. 2.2 The Pr. CIT erred in setting aside the assessment order with a direction to examine the issue as per law and frame a fresh assessment on the same despite the same having been examined during the original assessment proceedings and without appreciating that the loss on repossessed vehicles has been claimed and allowed as a business loss in the preceding assessment years 2009-10 and 2010-11. 2.3 The Pr. CIT erred in not appreciating the fact that even if the loss on sale of reposse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... November, 2011 declaring income of ₹ 6,269,23,75,570/-. It revised its return on 29 March 2013 at ₹ 5450,09,08,140/-. The case of the assessee was taken up for scrutiny. Draft assessment order was passed. As assessee did not want to approach Dispute Resolution Panel, final assessment order under section 143(3) read with section 144C(3) of the Act was passed on 25th March, 2015 determining the total income at ₹ 6738,06,99,060/-. 04. Subsequently, case of assessee was reopened by issuing notice under section 147 of the Act on 28th September 2017. In response to the same assessee filed its return on 1st November, 2017 at ₹ 5336,88,47,547/-. Consequent to that the assessment order under section 143(3) read with section 147 of the Act was passed on 31st December, 2018 determining the total income of the assessee at ₹ 5,6,99,01,35,320/-. 05. Subsequently, on perusal of the record, The Ld PCIT, Mumbai issued show cause notice under section 263 of the Act stating that the order passed on 31st December, 2018 is erroneous and prejudicial to the interest of the Revenue on four different grounds as under:- "(i) On verification of records it is observed that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order dated 31.12.2018 as erroneous in so far as it is prejudicial to the interests of the revenue. (iv) Further it was also observed that during the previous year the assessee had interest income of ₹ 164,63,00,000/- on account of interest on income tax relief included in 'others' under the head schedule 13 Interest Earned' to the P & L account. This income being income from non finance income, it should also have been reduced from the total business income of the assessee to arrive at the business income from long term finance business activity eligible for deduction u/s. 36(1)(viii) of the Act. However, this was not done , leading to excess allowance of deduction by ₹ 14,58,62,181/-. A.O. has failed to examine these facts. Failure of the assessing officer to examine the same has rendered the assessment order dated 31.12.2018 as erroneous in so far as it is prejudicial to the interests of the revenue." 06. The assessee submitted its reply on 26th March 2021 stating as under:- "3. In response, the assessee has filed written submission in ITBA portal, vide letter dated 26th March, 2021. The relevant part of submissions is reproduced as under: " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.5 Further, the loss on sale of repossessed assets has been treated as a business loss by the Assessing Officer in the preceding assessment years 2009-10 and 2010-11 and allowed by the CIT(A) in the respective assessment years. Thus your Honour's contention that the same should be treated as a bad debt following the treatment accorded in the preceding assessment year 2010-11 and the Assessing Officer has failed to examine the facts regarding the loss on sale of re-possessed assets is not correct. Since the Assessing Officer after examining has taken a particular view on identical facts and supported by past assessments, there is no justification to revise the assessment on a presumption that the same is erroneous and prejudicial to the interests of the revenue. Without prejudice to the aforesaid, even if the loss on sale of repossessed assets is to be treated as a bad debt, the order would not be erroneous nor prejudicial to the interests of the revenue as the bad debts including this loss far exceeds the credit balance under section 36(1)(viia) of the Act allowed in the previous assessment year 2010-11. This is evident from the order dated December 31, 2018 passed under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt. As the same was not examined by the Assessing Officer it has rendered the assessment order dated December 31, 2018 erroneous in so far as prejudicial to the interests of the Revenue. 2.3 We respectfully submit that the Bank as per note 4 of Annexure J to clause 21(1)(B) of the TAR has explained that the closing unpaid liability of the leave encashment includes liability of ₹ 78,93,33,682 which has been transferred from Bank of Rajasthan Ltd. and an additional liability of ₹ 1,26,70,082 on account of revaluation has been created through the amalgamation reserve aggregating to ₹ 80,20,03,764. Since the said amount of ₹ 80,20,03,764 has not been routed through P&L account, the Bank in the computation of income has disallowed only the sum of ₹ 27,82,79,269 which was debited to the P&L account on account of unpaid leave encashment. viz. ₹ 108,02,83,033/- ₹ 80,20,03,764. 2.4 In view of the aforesaid the unpaid leave encashment of ₹ 27,82,79,269 has been correctly disallowed by the Bank and there has been no omission resulting in underassessment of income on the said issue. 2.5 Without prejudice to the aforesaid, we respectfully ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nadvertently not being reduced in the order dated December 31, 2018 passed under section 143(3) r.w.s 147 for the aforesaid assessment year which your Honour proposes to revise. We may add that the same was reduced in the earlier order giving effect to the CIT(A)'s order passed on March 31, 2017 of the said assessment year. We submit that the same may be rectified vide an order under section 154 of the Act and is not a subject matter of review under section 263 of the Act. 3.4 Without prejudice to the aforesaid, we respectfully submit that as per Explanation I to section 263(1) of the Act, the powers of the Principal Commissioner/Commissioner to revise an order under section 263 of the Act can be only restricted to matters as had not been considered or decided in appeal. We submit that the above-mentioned issue regarding deduction claimed under section 36(1)(vii) is the subject matter of appeal before the CIT(A)-6, Mumbai filed by the Bank against the order under section 143(3) r.w.s 147 for the aforesaid assessment year which your Honour proposes to revise and hence will not come within the purview of revision under section 263. 4. We further submit that in order to invok ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7,82,79,269/- on account unpaid leave encashment which was accepted. As the deduction on account of leave encashment is available only on actual payment, the entire unpaid amount was required to be disallowed. The AG in concluding the assessment, has not considered the above aspects and legal position. Therefore the order passed is erroneous in so far as prejudicial to the interest of revenue within the meaning of provisions of section 263 of the Act. 4.3 Depreciation on lease Assets: The submission made by the assessee is perused but found not tenable as on perusal of Submission it is found that there is a rental income of ₹ 98,43,12,859/- in the P & L Account. Thus for computing long term finance business income the lease income to the extent of ₹ 98,43,12,859/- was required to be reduced from total business income of the assessee instead of ₹ 89,85,60,025 as reduced by the assessee and accepted by the Assessing Officer. The mistake resulted in excess allowance of deduction of ₹ 75,97,701/-. The AO in concluding the assessment, has not considered the above aspects and legal position. Therefore the order passed is erroneous in so far as prejudicial to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot;erroneous", Hon'ble Bombay High Court in C.I.T. vs Gabriel India Ltd. (1993) 203 ITR 108 (Bombay), while referring to Black's Law Dictionary observed that an "erroneous judgment" means "one rendered according to course and practice of Court, but contrary to law, upon mistaken view of law: or upon erroneous application of legal principles". In the instant case the assessing officer ought to have made enquiries relating to correctness and genuineness of the valuation reports relied upon by the assessee company. (ii) The Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. V CIT 243 ITR 83 has held that, "The Commissioner noted that the Income-tax Officer passed the order of nil assessment without application of mind. Indeed, the High Court recorded the finding that the Income-tax Officer failed to apply his mind to the case in all perspective and the order passed by him was erroneous. It appears that the resolution passed by the board of the appellant company was not placed before the Assessing Officer. Thus, there was no material to support the claim of the appellant that the said amount represented compensation for loss of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent matter for fresh assessment if he is satisfied that further enquiry is necessary and that the order of the ITO is prejudicial to the interest of revenue. (vi) In the case of Mahalakshmi Liquor Promoters (P) Ltd vs. Commissioner of Income Tax [2013] 29 taxmann.com 70, the ld. Tribunal, found that there was no enquiry by the Assessing Officer on the issues raised by the CIT. It was held that the lack of enquiry or inadequate enquiry by the Assessing Officer was a valid reason for revision of the assessment order. The ld Tribunal, therefore, concluded that an order becomes erroneous because inquiries, which ought to have been made on the facts of the case, were not made and not because there is anything wrong with the order if all the facts stated or the claims made in the return are assumed to be correct. Thus, it is mere failure on the part of the Assessing Officer to make the necessary inquiries or to examine the claim made by the assessee in accordance with law, which renders the resultant order erroneous and prejudicial to the interest of the revenue. Nothing more is required to be established in such a case. If the Assessing Officer passes an order mechanically without m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion which should have been made by the Assessing Officer. The aforesaid is squarely applicable to the facts obtaining in this case. The aforesaid was inserted with effect from 1/4/2015. The ld. ITAT, Mumbai in Anuj Jayaendra Shah vs. PCIT-35, Mumbai [2016] reported in 67 taxmann.com 38, held as under: "10. Now, as can be seen above, the amendment to section 263 of the Act by insertion of Explanation 2 to Section 263 is declaratory in nature and is inserted to provide clarity on the issue as to which orders passed by the AG shall constitute erroneous and prejudicial to the interest of Revenue whereby it is provided, inter-alia, that if the order is passed without making inquiries or verification by the AG which, should have been made or the order is passed allowing any relief without inquiring into the claim; the order shall be deemed to be erroneous and prejudicial to the interest of Revenue." 7. In view of the detailed analysis of the assessment order, with reference to the submissions of the assessee, the assessment order dated 31.12.2018 in assessee's case for A.Y. 2011-12 is held to be erroneous in so far as it is prejudicial to the interests of the revenue d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1)(vii) which is subject matter of appeal before the learned Commissioner of income-tax (Appeals). She referred to the form No. 35 and grounds of appeal filed before the learned CIT(A) against the impugned order which is subject to revision. Here, contention was that issues which are before the learned CIT(A) cannot be the matter of revision under section 263 of the Act. 011. On the merits of claim of loss on reprocessed vehicles, she submitted that even otherwise, if it is bad debt and further the credit balance under section 36(1)(viia) of the Act does not exceed the claim, there cannot be any addition. She extensively referred the letter dated 12th February, 2015 submitted before ld PCIT and assessment order for Assessment Year 2010-11. 012. On the issue of unpaid leave encashment, she submitted that out of ₹ 108,02 crores unpaid leave encashment only ₹ 27.83 crores has been routed through profit and loss account and the balance of ₹ 80.20 crores has not been routed through profit and loss account and therefore, not disallowed. She referred to the tax audit report for the above proposition. 013. With respect to the deduction of special reserve under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er can be passed before the expiry of two years from the end of the financial year in which the order sought to be revised was passed. In the present case, the fact shows that first order u/s 143 (3) of the act was passed by the learned assessing officer on 25th of March 2015. Subsequently the case was reopened and reassessment order u/s 143 (3) read with Section 147 of the act was passed on 31 December 2018. Therefore, apparently if the learned PCIT would like to revise the order passed u/s 143 (3) of the act which was passed on 25th of March 2015, the time limit set under the provisions of Section 263 (2) of the act would expire on 31st of March 2017. If the principal Commissioner of income tax points that order passed u/s 143 (3) read with Section 147 of the act passed on 31 December 2018 is erroneous, then the order u/s 263 could have been passed up to 31st of March 2021. In the present case the order u/s 263 of the act was passed on 31st of March 2021. Therefore, apparently the issues that have been covered in order passed u/s 143 (3) of the act but are not part of reopened proceedings, cannot be subject to revision u/s 263 of the income tax act by this order. This issue has a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a business loss b. disallowance of unpaid leave encashment u/s 43B (f) of the act c. disallowance of deduction claimed u/s 36 (1) (viii of the act. 022. On careful examination, issue number (a) and (b) above, are not part of the reassessment order but were part of the original assessment order. As we have already stated that the time limit for revising the issues involved in the original assessment order has already expired on 31/3/2017, therefore the revision on the above issues namely (1) the consideration of loss on repossessed vehicle is bad debts and not in the business loss, (2) disallowance of unpaid leave encashment u/s 43B (f) of the act is beyond the powers of the ld PCIT u/s 263 of the act. Therefore without looking into the merits of the case, we hold that the order of the learned PCIT is not sustainable on the above 2 issues. 023. Now the issue remains to be examined that whether the learned PCIT is correct in assuming jurisdiction of revisional powers u/s 263 of The Income Tax Act with respect to the deduction claimed u/s 36 (1) (viii) of the act. The learned assessing officer while passing an assessment order u/s 143(3) read with Section 147 of the income tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reduced from the total business income of the assessee to arrive at the business income from long-term finance business activity which is eligible for deduction u/s 36 (1) (viii) of the act. The learned assessing officer without examination considered the net income of ₹ 89.85 crs instead of ₹ 98.43 Crs for reduction from long term finance income and also accepted the working of the assessee considering income tax refund interest as eligible for deduction as long-term finance. 028. In response, assessee submitted that Interest on Income tax Refund has inadvertently not been reduced in the order dated 31 December 2018 passed u/s 143 (3) read with Section 147 for the aforesaid assessment year. The assessee agreed that the above sum may be adjusted by reducing the claim. It was further stated that the same was reduced in the earlier order giving effect to the order of the learned CIT - A passed on 31st of March 2017 for the assessment year. The assessee submitted that the same may be rectified by an order u/s 154 of the act and cannot be a subject matter of revision u/s 263 of the act. 029. With respect to the above two adjustment both are relating to deduction u/s 36 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en the above sum at ₹ 984,312,859/-. On careful consideration of explanation of the assessee, which is placed at para number 3.2 of the order u/s 263 of the Act, clearly shows that assessee has stated that a sum of ₹ 898,560,025 represents the net amount credited to the profit and loss account. Now it is required to be seen from the explanation that how that net amount has been arrived at. Gross lease income is ₹ 984,312,859/-. From that assessee has reduced the expenditure of interest amounting to ₹ 154,684,234/-. The assessee has increased the above sum by ₹ 68,931,400/- on account of arrears of lease rental income. This resulted into the net amount of income credited in the above account of ₹ 898,560,025/-. Now the issue arises is what amount should be reduced from the business income to arrive at long-term finance income. The natural answer to that is that gross lease rental income of ₹ 984,312,859 and Arrears of lease Income should have been reduced For working out the long-term finance income. The expenditure of interest of ₹ 15.46 lakhs should not have been reduced from gross lease income. The learned assessing officer has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the deduction of special reserve claimed u/s 36 (1) (viii) by not allowing the interest cost of ₹ 1,339,096,784 apportioned by the appellant to its non-fund-based income relating to trading and rental thereby resulting in decreasing profit derived from eligible businesses. 3.2 the assessing officer ought to have appreciated that his predecessor in para 15 of the order passed u/s 13 (3) read with Section 14C (3) on March 25, 2015 has considered the working of special reserve and has allowed deduction of special reserve at 514,43,59,610 - hence the reassessment on the said issue is on mere change of opinion on the same set of facts which is not permissible in law." 035. On careful consideration of the ground raised before the learned CIT - A, we do not find that there is any dispute with respect to the computation of the long-term finance income of the assessee for working out deduction u/s 36 (1) (viii) of the act. The learned principal Commissioner of income tax has revised the order of the learned assessing officer holding it to be erroneous as the learned assessing officer has failed to apply his mind with respect to the computation of the long-term finance income qua ..... X X X X Extracts X X X X X X X X Extracts X X X X
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