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TMI Blog2019 (1) TMI 2039X X X X Extracts X X X X X X X X Extracts X X X X ..... - In the case of Raymond Ltd [ 2012 (4) TMI 127 - BOMBAY HIGH COURT ] has held that the Debenture Redemption Reserve is an ascertained liability and is deductible from Net profit for the purpose of computing Book Profit u/s 115JA of the Act. The claim made by the assessee as well as allowed by the AO gets support from the decision rendered by the jurisdictional High Court. CIT has taken the view that the Hon ble Bombay High Court has not considered the decision rendered by Hon ble Supreme Court in the case of National Rayon corporation [ 1997 (7) TMI 113 - SUPREME COURT ] in proper perspective and further observed that the Hon ble Bombay High Court did not consider the fact that the Debenture Redemption Reserve operates in Capital field and hence appropriation of profit is not deductible for tax purposes. Accordingly, the Ld Pr. CIT has taken the view that the decision rendered by Hon ble Bombay High Court is per incurium. Whatever may be the reasoning given by Ld Pr. CIT, it cannot be denied that the Ld Pr. CIT has taken different view in the matter, without noticing that the decision rendered by jurisdictional High Court is binding on him also. On the contrary, the claim made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the total income at Rs.278.28 crores and the book profit at Rs.588.91 crores. The impugned revision order is claimed to have been passed against the assessment order dated 29-03-2016 passed in reassessment proceeding. 5. On examination of assessment record, the Ld Pr. CIT noticed that the assessee company has reduced Rs.225.00 crores relating to Debenture Redemption Reserve (DRR) from the Net Profit, while computing Book profit u/s 115JB of the Act. The assessee company did so treating the amount appropriated to Debenture Redemption Reserve as an ascertained liability . The Ld Pr. CIT took the view that the Debenture Redemption Reserve was merely an appropriation from such net profit and was a transaction on Capital Account and hence the same is not allowable as deduction under the provisions of the Income tax Act. Accordingly, the Ld Pr. CIT initiated revision proceedings in order to enhance the book profit by the amount of Debenture Redemption Reserve. 6. The assessee opposed the initiation of revision proceedings. The contentions of the assessee raised before Ld Pr.CIT, as discussed by Ld Pr. CIT, are extracted below:- 3. Against the above notice dated 28.02.2018, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not open to the AO to make changes in the accounts so prepared for the computation of book profit. Further reliance is placed on judgment of Bombay High Court in the case of CIT vs Akshay Textiles Trading Agencies Pvt Ltd [2008] 304 ITR 401/167 Taxman 324 and CIT vs Adbhut Trading Co Pvt Ltd [2011] 338 ITR 94/20 Taxmann.com 419 (Bom); and the judgment of ITAT in the case of Forever Diamons Pvt Ltd vs Dep CIT, Central's. 1, Mumbai [2013] 31 Taxmann.com 151 (Mum). e) DRR could not be added to calculate book profits u/s 115JB of the Act as it does not fall under any of the clauses specified, even does not fall under clause (c), (As DRR is ascertained liability) under the Explanation 1 to Section 115JB of the IT Act. f) The entire mechanism for the computation of the book profit is clearly set-out in sub section (1) of Section 115JB read with Explanation thereto, so the computation of the book profit is to be done strictly as per the Explanation to section 115JB of the Act and hence no assistance from any other section of the Act can be taken for that purpose. g) The decision of the Hon ble High Court and the Hon ble Supreme Court was duly relied upon by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an ascertained liability, but it operates on Capital field and hence it could not be deducted in computing book profit. The Ld Pr. CIT also placed reliance on the decision rendered by Hon ble Delhi High Court in the case of SREI Infrastructure Finance Ltd (ITA 371 372/2012 dated 13-02-2015), wherein the Hon ble Delhi High Court considered the decision rendered by Hon ble Supreme Court in the case of National Rayon corporation (1997)(227 ITR 764) and explained the difference between appropriation of profit and charge on profit. The Ld Pr. CIT also took support of the discussions made by the co-ordinate bench in the case of JSW Energy Ltd vs. ACIT (2013)(34 taxmann.com 152). 8. It is pertinent to note that the assessee had placed its reliance on the decision rendered by Hon ble Bombay High Court in the case of Raymond Ltd (supra), wherein it was held that the Debenture Redemption Reserve a liability and the same is deductible while computing book profit u/s 115JA of the Act. With regard to the same, the Ld Pr. CIT expressed the view that the Hon ble Bombay High Court has not examined the aspect that the debenture redemption reserve is an appropriation towards capital liability a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 13. The Ld A.R submitted that the impugned revision order passed by Ld CIT(A) is barred by limitation. He submitted that the provisions of sec. 263(2) provide a time limit of two years from the end of the financial year in which the order sought to be revised was passed, for passing revision order u/s 263 of the Act. He submitted that the original assessment u/s 143(3) r.w.s. 153A of the Act was passed for AY 2009-10 on 30.12.2011. The AO has allowed deduction of Debenture Redemption Reserve while computing book profit u/s 115JB of the Act in the original assessment order. If the Ld Pr. CIT considers it to be a mistake, then the outer time limit available for revising the original assessment order was 31.3.2014. However, the Ld Pr. CIT has passed the impugned revision order on 26-03-2018. 14. The Ld A.R submitted that the assessing officer has reopened the assessment u/s 147 of the Act on 29.03.2016 and passed the reassessment order on 28.12.2016. The Ld Pr. CIT has taken into consideration the reassessment order and accordingly passed the impugned revision order on 26.03.2018. He submitted that the AO has reopened the assessment only to examine the transactions entered bet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the time limit for passing revision order on an issue, which was not subject matter of reopening, shall commence from the date of original assessment order or from the date of reassessment order. 17. The Ld A.R placed his reliance on the decision rendered by Hon ble Bombay High Court in the case of Ashoka Buildcon Ltd (supra). In the above said case, the original assessment order was passed by the AO on 27.12.2006. The AO, thereafter, reopened the assessment on 06.03.2007 and passed the reassessment order on 27.12.2007. The AO had reopened the assessment in order to disallow the claim of set off of brought forward losses and unabsorbed depreciation. The Ld CIT initiated revision proceedings u/s 263 of the Act on 30-04-2009 in order to revise the reassessment order passed on 27.12.2008 on some other issues. The assessee contended that, if one looks at the issues sought to be revised by Ld CIT, what is sought to be revised is the original assessment order dated 27.12.2006. The assessee s contentions were accepted by Hon ble Bombay High Court. The relevant discussions made by Hon ble Bombay High Court and the order passed by it are extracted below:- 6. The impugned notice dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considers that any order passed by the Assessing Officer is erroneous insofar as it is prejudicial to the interest of the revenue. Sub-section (2) of section 263 stipulates that no order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed. That period of two years from the end of the financial year in which the original order of assessment dated 27-12-2006 was passed, has expired on 31-3-2009. Hence the exercise of the revisional jurisdiction in respect of the original order of reassessment is barred by limitation. This is sought to be obviated by the Commissioner of Income-tax by seeking to revise, under section 263, the order dated 27-12-2007. The order dated 27-12-2007 was passed after the assessment was reopened on the ground of an escapement of income under section 147 and an order of reassessment was passed by which the claim under section 72A came to be disallowed. The submission that has been urged on behalf of the assessee is that, since the assessment was opened and an order of reassessment was passed only one issue namely, the claim under section 72A, when the Commissione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other than the lease equalisation fund. In other words, this was not a case where the subject-matter of the assessment and the reassessment was the same. The Supreme Court then held as follows : We, therefore, are clearly of the opinion that keeping in view the facts and circumstances of this case and, in particular, having regard to the fact that the Commissioner of Income-tax exercising his revisional jurisdiction reopened the order of assessment only in relation to lease equalisation fund which being not the subject of reassessment proceedings, the period of limitation provided for under sub-section (2) of section 263 of the Act would begin to run from the date of the order of assessment and not from the order of reassessment. The revisional jurisdiction having, thus been invoked by the Commissioner of Income-tax beyond the period of limitation, it was wholly without jurisdiction rendering the entire proceeding a nullity. 8. Where an assessment has been reopened under section 147 in relation to a particular ground or in relation to certain specified grounds and, subsequent to the passing of the order of reassessment, the jurisdiction under section 263 is sought t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in exercise of the jurisdiction under section 263. The submission cannot be accepted either as a matter of first principle, based on a plain reading of the provisions of sections 147 and 263, nor is it sustainable in view of the law laid down by the Supreme Court . The Supreme Court has now clearly held in the decision in Alagendran Finance that the doctrine of merger does not apply where the subject-matter of reassessment and of the original order of assessment is not one and the same. In other words, where the assessment is sought to be reopened only one or more specific grounds and the reassessment is confined to one or more of those grounds, the original order of assessment would continue to hold the field, save and except for those grounds on which a reassessment has been made under section 143(3) read with section 147 . Consequently, an appeal by the assessee on those grounds on which the original order of assessment was passed and which do not form the subject of reassessment would continue to subsist and would not abate. The order of assessment cannot be regarded as being subsumed within the order of reassessment in respect of those items which do not form part of the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reassessment. The present case does not fall in that category. 18. In the instant case also, the Ld Pr. CIT has sought to revise an issue which was allowed in the original assessment proceedings and which was not subject matter of reassessment proceedings. It can be noticed that the Hon ble Bombay High Court has taken into consideration Explanation 3 to sec. 147 also, while holding that the issues concluded in the original assessment proceedings shall continue to be governed by the original assessment order and the principle of merger will not apply to those issues. It can be noticed that the Hon ble Bombay High Court has followed the decision rendered by Hon ble Supreme Court in the case of Alagendran Finance Ltd (2007)(293 ITR 1) in this regard. 19. The Hon ble Bombay High Court has delivered yet another decision on the very same issue in the case of CIT vs. ICICI Bank Ltd (supra), wherein the decision rendered by Hon ble Supreme Court in the case of Alagendran Finance Ltd (supra) and the decision rendered by it in the case of Ashoka Buildcon Ltd (supra) was followed. The Head notes relating to the case of ICICI Bank Ltd are extracted below:- Facts : An order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ables the Assessing Officer, once an assessment is reopened, to assess or reassess the income in respect of any issue, even an issue in respect of which no reasons were indicated in the notice under section 148(2). This, however, will not obviate the bar of limitation under section 263(2). Where the jurisdiction under section 263(1) is sought to be exercised with reference to an issue which is covered by the original order of assessment under section 143(3) and which does not form the subjectmatter of the reassessment, as in the instant case, limitation must necessarily begin to run from the order under section 143(3). Before concluding it must also be taken note of that the second order of reassessment dated 26-3-2002 has been set aside by the Tribunal. An appeal against the order of the Tribunal is pending before this Court for admission. However, this appeal is considered independently and it is concluded that the invocation of the jurisdiction under section 263 was barred by limitation. [Para 7] CASE REVIEW : CIT v. Alagendran Finance Ltd. [2007] 293 ITR 1 (SC) and Ashoka Buildcon Ltd. v. Asstt. CIT [2010] 325 ITR 574 (Bom.)followed relied upon. CASES REF ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not discussed about the Debenture Redemption Reserve in the original assessment order as well as in the reassessment order. By placing reliance on the decision rendered by Hon ble Karnataka high Court in the case of CIT vs. Infosys Technologies Ltd (2012)(17 taxmann.com 203), the Ld D.R submitted that non-discussion of the issue in the assessment order would make it erroneous and prejudicial to the interests of revenue. He further submitted that the Ld Pr. CIT has relied upon the decision rendered by Hon ble Delhi High Court in the case of SREI Infrastructure Finance Ltd (supra), wherein it was held that the appropriation of profit out of reserve is not deductible while computing book profit. 23. In the rejoinder, the Ld A.R placed his reliance on the decision rendered by Hon ble Bombay High Court in the case of Moil Ltd vs. CIT (2017)(396 ITR 244), where in it was held that if there is no discussion for allowability of the claim after making enquiry, order cannot be revised. The Ld A.R further submitted that the Hon ble Delhi High Court did not deal with the appropriation for Debenture Redemption Reserve in the case of SREI Infrastructure Finance Ltd (supra) and it was deali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elow: Section 263 of the Income-tax Act, 1961 empowers the Commissioner to call for and examine the record of any proceedings under the Act and, if he considers that any order passed therein, by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, to pass an order upon hearing the assessee and after an enquiry as is necessary, enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment. The key words that are used by section 263 are that the order must be considered by the Commissioner to be erroneous in so far as it is prejudicial to the interests of the Revenue . This provision has been interpreted by the Supreme Court in several judgments to which it is now necessary to turn. In Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83, the Supreme Court held that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer and it is only when an order is erroneous that the section will be attracted . The Supreme Court held that an incorrect assumption of fact or an incorrect application of law, will satisfy the requirement of the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X
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