2019 (1) TMI 2039 - AT - Income Tax

CIT's revision order challenging Debenture Redemption Reserve deduction from book profit under section 115JB barred by limitation

M/s. Housing Development and Infrastructure Ltd. Versus Principal CIT Central-3, Mumbai

M/s. Housing Development and Infrastructure Ltd. Versus Principal CIT Central-3, Mumbai - TMI Issues Involved:1. Validity of the revision orders under Section 263 of the Income Tax Act.2. Time limit for passing revision orders.3. Deductibility of Debenture Redemption Reserve (DRR) while computing book profit under Section 115JB of the Income Tax Act.4. Jurisdiction of the Principal Commissioner of Income Tax (Pr. CIT) to revise the reassessment order.Issue-wise Detailed Analysis:1. Validity of the Revision Orders under Section 263 of the Income Tax Act:The assessee challenged the revision orders passed by the Pr. CIT under Section 263 of the Income Tax Act for the assessment years (AY) 2009-10 and 2010-11. The Pr. CIT initiated revision proceedings to enhance the book profit by disallowing the deduction of Rs. 225 crores appropriated to the Debenture Redemption Reserve (DRR). The assessee contended that the original assessment order had already allowed this deduction, and the revisionary powers could not be exercised merely for verification or investigation.2. Time Limit for Passing Revision Orders:The assessee argued that the revision order was barred by limitation. According to Section 263(2) of the Act, the time limit for passing a revision order is two years from the end of the financial year in which the original assessment order was passed. The original assessment order for AY 2009-10 was passed on 30-12-2011, making the last date for revision 31-03-2014. However, the Pr. CIT passed the revision order on 26-03-2018. The Tribunal referred to the decisions of the Bombay High Court in Ashoka Buildcon Ltd. and ICICI Bank Ltd., which held that the time limit for revision should be computed from the date of the original assessment order if the issue was not part of the reassessment proceedings.3. Deductibility of Debenture Redemption Reserve (DRR) while Computing Book Profit under Section 115JB of the Income Tax Act:The Pr. CIT contended that the DRR was an appropriation of profit and not an ascertained liability, hence not deductible under Section 115JB. The assessee relied on the Bombay High Court's decision in Raymond Ltd., which held that DRR is an ascertained liability and deductible while computing book profit. The Tribunal noted that the assessment order was based on the binding decision of the jurisdictional High Court, and thus, the Pr. CIT's differing view could not render the assessment order erroneous and prejudicial to the revenue.4. Jurisdiction of the Principal Commissioner of Income Tax (Pr. CIT) to Revise the Reassessment Order:The Pr. CIT argued that under Explanation 3 to Section 147, the Assessing Officer (AO) could assess any issue that comes to notice during reassessment, even if not specified in the reasons for reopening. The Tribunal, however, held that the issues concluded in the original assessment proceedings are governed by the original assessment order, and the principle of merger does not apply to those issues. Thus, the Pr. CIT's revision of the reassessment order on the DRR issue was barred by limitation and not justified on merits.Conclusion:The Tribunal quashed the revision orders for both AY 2009-10 and 2010-11 on the grounds of limitation and merits. It held that the Pr. CIT's differing view on the DRR issue, contrary to the jurisdictional High Court's decision, could not render the original assessment orders erroneous and prejudicial to the interests of the revenue. The appeals of the assessee were allowed.