2019 (8) TMI 1509 - AT - Income Tax

Commissioner's Jurisdiction Overstepped: Tribunal Reverses Orders, Assessee Appeal Allowed

M/s. Everest Industries Ltd. Versus Commissioner of Income Tax-1, Thane

The Tribunal held that the Commissioner exceeded jurisdiction in invoking Section 263 of the Income Tax Act, 1961, as the conditions for revision were not ... Revision u/s 263 - assessee while computing the book profit under Section 115JB reduced the sales tax incentives and excise duty incentives from the profit declared in its Profit & Loss Account for the purposes of computing ‘Book profit’ - HELD THAT:- In the instant case, on the basis of assessment order and other records, it is evident that the assessment has been completed under normal provisions of the Act. In fact, as per the Commissioner, it is the computation of book profit under Section 115JB which is erroneous, but that has no relevance to the tax liability finally determined. In fact, as per the Commissioner, it is only after the order of CIT(A) that the relevance of computation of book profit under Section 115JB will arise, which is an aspect in the realm of future uncertainty - Commissioner was not justified in exceeding his jurisdiction under Section 263 in this case. Moreover, even if we go along with the Commissioner and accept that the computation of ‘book profit’ under Section 115JB of the Act accepted by the Assessing Officer is erroneous, yet the assessment order cannot be termed as prejudicial to the interests of the revenue, in so far as it was assessed under normal provisions of the Act. Even if addition is made in the book profit computed under Section 115JB of the Act, the same will result into equivalent MAT credit being available to the assessee, which can be utilized in subsequent assessment year. As such, at most this may lead to deferment of tax but it does not result in any loss to the revenue. Thus since there is NIL tax impact on the error noticed by the Commissioner at the time of his examination, the twin conditions of order being erroneous and prejudicial to the interests of the revenue are not satisfied on this issue and thus, the order of the Commissioner on this issue is set-aside. Excessive allowance of depreciation on the foreign exchange fluctuation loss - Quite clearly, the Assessing Officer, in the instant year, allowed the claim as a consequence of the assessment for the preceding assessment year of 2009-10. It is also not the case of the Commissioner that at the time of invoking of Section 263 by him, the assessment order for assessment year 2009-10 had been altered by any higher authority. In this view of the matter, in our view, the order of the AO qua the aforesaid aspect, cannot be said to be erroneous and prejudicial to the interests of the revenue within the meaning of Section 263 . So far as the merit of the claim of depreciation is concerned, we are not inclined to give any opinion in as much as the limited issue before us is about the jurisdiction of the Commissioner under Section 263 - only point which is required to be examined in this context is whether the Assessing Officer was required to revisit or relook at his own order for earlier assessment year while passing the order of assessment in the instant year, wherein the findings of the earlier order have merely been given effect to, as we have discussed in the earlier part of this order. Thus, on this aspect also, assessee succeeds. Amounts received on account of sales tax and excise duty incentives - assessee claimed both the incentives as capital receipts and excluded the same from its income while computing the total income as per the normal provisions of the Act - HELD THAT:- Issues raised by the Commissioner with regard to the treatment of excise duty and sales tax incentives was indeed dealt with in the course of assessment proceedings by the Assessing Officer. It is also clearly emerging that the stand of the assessee was not accepted by the Assessing Officer and the matter has travelled to the CIT(A) for consideration. AO has already treated the excise duty exemption and sales tax incentives as revenue receipts and assessed the same as income, an aspect which is in favour of the revenue. The Commissioner by invoking his revisionary jurisdiction under Section 263 of the Act also wants to treat the excise duty exemption and sales tax incentives as revenue receipts. As such there is no difference in the treatment of excise duty exemption and sales tax incentives given by the Assessing Officer and as required by the Commissioner. The only difference is that the reasoning given by the Assessing Officer and the reasoning of the Commissioner is on different footing. However, this difference does not lead to any tax impact in as much as the tax computed by the Assessing Officer and as suggested by the Commissioner will be the same. Thus, it can safely be inferred that the action of the Commissioner is tax neutral and as such, the order of the Assessing Officer cannot be said to be prejudicial to the interests of the revenue. Since in the present case the Assessing Officer has already analysed one aspect of the matter which was pending before the CIT(A), the matter cannot be again relooked by the Commissioner on any other aspect as the order of the Assessing Officer gets merged with the order of CIT(A) in view of the decision of K. SERA SERA PRODUCTIONS LTD. [2015 (5) TMI 937 - BOMBAY HIGH COURT] - Decided in favour of assessee. Issues Involved:1. Justification of proceedings under Section 263 of the Income Tax Act, 1961.2. Exclusion of Sales Tax Incentive and Excise Duty Exemption in computing Book Profit under Section 115JB.3. Depreciation on foreign exchange fluctuation loss.4. Treatment of Excise Duty Exemption as capital receipt.5. Treatment of Sales Tax Incentive as capital receipt.Detailed Analysis:1. Justification of proceedings under Section 263:The Commissioner invoked Section 263 of the Income Tax Act, 1961, to revise the assessment order dated 28.03.2013, alleging it was erroneous and prejudicial to the interests of the Revenue. The Tribunal emphasized that invoking Section 263 is justified only if the order is both erroneous and prejudicial to the Revenue's interests. The Tribunal found that the assessment was completed under normal provisions, and the computation of book profit under Section 115JB had no relevance to the final tax liability. The Commissioner’s apprehension about future uncertainties was deemed insufficient to invoke Section 263. The Tribunal concluded that the conditions for invoking Section 263 were not satisfied, and thus, the Commissioner exceeded his jurisdiction.2. Exclusion of Sales Tax Incentive and Excise Duty Exemption in computing Book Profit under Section 115JB:The Commissioner argued that the assessee erroneously reduced the sales tax and excise duty incentives while computing book profit under Section 115JB, which was prejudicial to the Revenue. However, the Tribunal noted that the assessment was completed under normal provisions, and any error in the computation of book profit under Section 115JB would not impact the final tax liability. The Tribunal also highlighted that any addition to book profit under Section 115JB would result in equivalent MAT credit, making the issue tax-neutral. Therefore, the Tribunal set aside the Commissioner’s order on this issue.3. Depreciation on foreign exchange fluctuation loss:The Commissioner contended that the foreign exchange fluctuation loss was not related to the acquisition of capital assets and thus, depreciation on this amount was wrongly allowed. The Tribunal, however, noted that the depreciation claim for the year under consideration was based on the assessment for the previous year (AY 2009-10), where the Assessing Officer had already treated the foreign exchange fluctuation loss as a capital loss. The Tribunal asserted that the Commissioner could not revise the assessment for AY 2010-11 to correct an alleged error in AY 2009-10. The Tribunal cited precedents emphasizing that the Assessing Officer cannot dispute the opening WDV of assets in subsequent years. Consequently, the Tribunal held that the Commissioner exceeded his jurisdiction and set aside the order on this issue.4. Treatment of Excise Duty Exemption as capital receipt:The Commissioner argued that the Assessing Officer dealt with the treatment of excise duty exemption in a routine manner without proper inquiry. The Tribunal noted that the issue was already considered by the Assessing Officer and was pending appeal before the CIT(A). Citing clause (c) of Explanation 1 to Section 263, the Tribunal held that the Commissioner could not exercise jurisdiction on issues already subject to appeal. The Tribunal found no error or prejudice to the Revenue in the Assessing Officer’s treatment and concluded that the Commissioner’s action was tax-neutral. Thus, the Tribunal vacated the Commissioner’s order on this issue.5. Treatment of Sales Tax Incentive as capital receipt:Similar to the excise duty exemption issue, the Commissioner contended that the treatment of sales tax incentive was handled without proper inquiry. The Tribunal reiterated that the issue was considered by the Assessing Officer and was under appeal before the CIT(A). The Tribunal emphasized that the Commissioner could not invoke Section 263 for matters pending appeal, as per clause (c) of Explanation 1 to Section 263. The Tribunal found no error or prejudice to the Revenue in the Assessing Officer’s treatment and declared the Commissioner’s action as tax-neutral. Consequently, the Tribunal set aside the Commissioner’s order on this issue.Conclusion:The Tribunal concluded that the Commissioner wrongly assumed jurisdiction under Section 263 of the Income Tax Act, 1961, as the conditions for invoking Section 263 were not satisfied. The Tribunal vacated the Commissioner’s order and restored the assessment order dated 28.03.2013. The appeal of the assessee was allowed.