2010 (5) TMI 673 - AT - Income Tax

Tribunal denies assessee's additional claim under section 115JA post section 263 order, emphasizing revenue's benefit.

Assistant Commissioner of Income-tax, Circle 2(1), Hyderabad Versus ITW India (P.) Ltd.

The tribunal allowed the revenue's appeal, concluding that the CIT(A) erred in permitting the additional claim by the assessee related to the computation ... Revision - Of orders prejudicial to interest of revenue Issues:1. Entertaining additional ground of appeal for computing book profit under section 115JA.2. Consideration of latest legal position regarding provision for bad and doubtful debts.3. Reopening assessment under section 263 and allowing new benefits to the assessee.Issue 1: Entertaining Additional Ground of Appeal for Computing Book Profit under Section 115JA:The appeal by the revenue challenged the CIT(A)'s decision to entertain an additional ground of appeal related to the computation of book profit under section 115JA. The assessee claimed that the net profit should be reduced by certain amounts credited to the Profit & Loss A/c on account of withdrawals from provisions made, which had not been allowed in earlier years. The Assessing Officer supported this claim in a remand report, stating it was allowable under section 115JA. However, the tribunal held that the claim could not be entertained at the assessment stage following a section 263 order. The tribunal emphasized that the power under section 263 is limited to errors prejudicial to the revenue's interest, not for the benefit of the assessee. Citing the Madras High Court decision, the tribunal ruled that assessments made under section 263 are solely for the revenue's benefit, and the assessee cannot seek new benefits in such proceedings. Therefore, the tribunal allowed the revenue's appeal, concluding that the CIT(A) was not justified in permitting the additional claim by the assessee.Issue 2: Consideration of Latest Legal Position Regarding Provision for Bad and Doubtful Debts:The revenue contended that the CIT(A) failed to consider the latest legal position established by the Supreme Court and the Delhi High Court regarding the treatment of provision for bad and doubtful debts in calculating book profits under section 115JA. The courts held that such provisions cannot be added to book profits as they represent a diminution in asset value, not an unascertained liability. The revenue argued that since this issue was already adjudicated in a previous order under section 143(3), it should not have been reconsidered. The tribunal acknowledged the legal position but did not delve deeper into this issue as it primarily focused on the first issue related to the additional ground of appeal.Issue 3: Reopening Assessment under Section 263 and Allowing New Benefits to the Assessee:The tribunal highlighted the sequence of events where the original assessment under section 143(3) was set aside by the CIT under section 263 for reassessment due to specific issues prejudicial to the revenue. Subsequently, the reassessment was done under section 263, resulting in an addition to the income. The assessee then raised the additional ground during appellate proceedings, which was allowed by the CIT(A) based on the Assessing Officer's remand report. The tribunal emphasized that assessments under section 263 are meant to correct errors prejudicial to the revenue, not to provide new benefits to the assessee. Therefore, the tribunal concluded that the CIT(A) erred in permitting the additional claim by the assessee during the reassessment process under section 263.This detailed analysis of the judgment from the Appellate Tribunal ITAT Hyderabad highlights the key issues raised, the arguments presented by both parties, and the tribunal's rationale for allowing the revenue's appeal.