Tax Tribunal overturns PCIT's jurisdiction assumption under Section 263, upholds AO's assessment order. Loss on investments not added back.

The Tribunal held that the Principal Commissioner of Income Tax wrongly assumed jurisdiction under Section 263 as the assessment order was not erroneous and prejudicial to the Revenue. The Tribunal found that the loss on transfer/write-off of investments did not need to be added back to the book profit under Section 115JB. The Tribunal emphasized that the Assessing Officer had taken a possible view, and the PCIT could not impose a different view. Consequently, the PCIT's order was set aside, and the assessment order under Section 143(3) was restored, allowing the appeal of the assessee.

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Issues Involved:
1. Whether the Principal Commissioner of Income Tax (PCIT) wrongly assumed jurisdiction under Section 263 of the Income-tax Act, 1961.
2. Whether the assessment order dated 28.03.2015 framed under Section 143(3) was erroneous and prejudicial to the interest of the Revenue.
3. Whether the loss on transfer/write-off of investments should have been added back to the book profit under Section 115JB.

Detailed Analysis:

Issue 1: Assumption of Jurisdiction under Section 263
The primary grievance of the assessee was that the PCIT wrongly assumed jurisdiction under Section 263 of the Income-tax Act, 1961. The PCIT issued a show cause notice alleging that the assessment order framed under Section 143(3) was erroneous and prejudicial to the interest of the Revenue. The Tribunal noted that the powers under Section 263 can only be exercised if two conditions are satisfied: the assessment order should be erroneous and prejudicial to the interest of the Revenue. The Tribunal emphasized that where there are two possible views and the Assessing Officer (AO) has taken one, no action to exercise revision powers can arise. This view is supported by the decisions in CIT vs. Nirav Modi and Shri Prakash Bhagchand Khatri.

Issue 2: Erroneous and Prejudicial to Revenue
The Tribunal examined whether the assessment order dated 28.03.2015 was erroneous and prejudicial to the interest of the Revenue. The PCIT's order was based on the assumption that the assessee had claimed a loss on diminution in value of shares in the Profit and Loss account, which should have been added back while computing book profit under Section 115JB. The Tribunal found that this assumption was incorrect. The assessee had written off the loss by reducing its assets rather than showing it as a provision in the balance sheet. The Tribunal referred to the Supreme Court's judgment in Malabar Industrial Co. Ltd., which clarified that the Commissioner must be satisfied of both conditions for exercising jurisdiction under Section 263. The Tribunal concluded that the AO had taken a possible view by disallowing the claim of capital loss and not considering it for book profit computation under Section 115JB.

Issue 3: Addition to Book Profit under Section 115JB
The PCIT contended that the loss on transfer/write-off of investments should be added back to the book profit under Section 115JB. The Tribunal referred to the Supreme Court's decision in Apollo Tyres Ltd., which held that the AO has limited power to make increases and reductions as provided in Explanation 1 to Section 115JB. The Tribunal noted that the assessee had disclosed the investments and their diminution in value due to a court-approved Capital Reduction Scheme. The Tribunal found that the AO had examined this issue during the scrutiny assessment proceedings and had disallowed the claim of loss. Therefore, it could not be said that the AO never examined the issue.

Conclusion:
The Tribunal concluded that the PCIT's order under Section 263 was based on incorrect assumptions and was not sustainable. The AO had taken a possible view, and the PCIT could not impose his view on the AO. The Tribunal set aside the order of the PCIT and restored the assessment order framed under Section 143(3). The appeal of the assessee was allowed. The order was pronounced in the open court on 04.07.2018.

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