2009 (10) TMI 63 - HC - Income Tax

Court affirms ITAT decision on Section 263, AO's rectification stands.

Commissioner of Income Tax, Delhi-IV Versus DLF Power Ltd.

Commissioner of Income Tax, Delhi-IV Versus DLF Power Ltd. - [2010] 329 ITR 289 (Del) Issues Involved:1. Validity of ITAT's decision to cancel/set aside the CIT's order under Section 263 of the Income Tax Act, 1961.2. Legality of CIT's jurisdiction to cancel the assessment order under Section 143(3) after the AO passed an order under Section 154.3. Determination of whether the assessment order was erroneous and prejudicial to the interest of Revenue.Issue-Wise Detailed Analysis:1. Validity of ITAT's Decision to Cancel/Set Aside the CIT's Order under Section 263:The ITAT set aside the CIT's order under Section 263, reasoning that once the AO had rectified the mistake regarding the deduction under Section 80-IA through an order under Section 154, the original assessment order was no longer in existence. The Tribunal relied on the Madhya Pradesh High Court's judgment in CIT v. Ralson Industries Ltd., which established that a rectified order replaces the original assessment order, thus nullifying the CIT's jurisdiction under Section 263. The Tribunal concluded that the CIT could not exercise revisional powers on a non-existent order. This approach was deemed correct by the court, as the rectification by the AO had already addressed the issue cited by the CIT.2. Legality of CIT's Jurisdiction to Cancel the Assessment Order under Section 143(3) after the AO Passed an Order under Section 154:The court observed that the CIT's revisional order under Section 263, which aimed to correct the deduction under Section 80-IA, was redundant as the AO had already rectified this mistake. The Tribunal's reliance on the doctrine of merger, which implies that the original order merges with the rectified order, was upheld. Consequently, the court determined that the question of law regarding the CIT's jurisdiction did not arise for consideration since the rectified order had already addressed the issue.3. Determination of Whether the Assessment Order was Erroneous and Prejudicial to the Interest of Revenue:The CIT's second ground for revision involved the provision for doubtful debts not being added back for calculating book profits under Section 115JB, resulting in underassessment of income. The CIT based this on the Madras High Court's judgment in Deputy Commissioner of Income Tax v. Beardsell Ltd., which required provisions for unascertained liabilities to be added back. However, the Tribunal, referencing various case laws including the Supreme Court's decision in Apollo Tyres Ltd. v. Commissioner of Income Tax, held that the provision for doubtful debts was not an unascertained liability but a diminution in the value of assets. The Tribunal concluded that the AO's decision was plausible and supported by judicial precedents, thus not erroneous or prejudicial to the Revenue.The court affirmed the Tribunal's view, noting that the Supreme Court in Commissioner of Income Tax v. HCL Comnet Systems and Services Ltd. clarified that provisions for doubtful debts, being receivables, do not constitute liabilities and hence should not be added back under Section 115JB. The court emphasized that when two views are possible, the AO's view, if plausible, cannot be deemed erroneous, thereby invalidating the CIT's order under Section 263.Conclusion:The court dismissed the Revenue's appeal, upholding the ITAT's decision to set aside the CIT's order under Section 263. It concluded that the AO's rectification under Section 154 addressed the deduction issue, and the provision for doubtful debts was correctly treated by the AO, aligning with judicial precedents. The court reiterated that the CIT cannot invoke Section 263 merely due to a difference in opinion, especially when the AO's decision is legally sustainable. The appeal was dismissed with costs quantified at Rs. 25,000/-.