2018 (4) TMI 860 - AT - Income Tax

Tribunal rules for assessee, rejects CIT's reliance on non-jurisdictional High Court decision.

The Tribunal ruled in favor of the assessee, holding that the CIT's reliance on a non-jurisdictional High Court decision was not valid. It emphasized the ... Revision under section 263 - Book profit for MAT under section 115JB - Deduction under section 80IB(10) - Two plausible views rule (Max India principle) - Jurisdictional High Court precedent requirement for exercise of section 263 - Non-obstante clause and statutory priorityBook profit for MAT under section 115JB - Deduction under section 80IB(10) - Two plausible views rule (Max India principle) - Non-obstante clause and statutory priority - Validity of the assessing officer's allowance of deduction u/s.80IB(10) while computing book profit u/s.115JB and whether such allowance rendered the assessment order erroneous and prejudicial to the interests of revenue so as to warrant revision under section 263. - HELD THAT: - The Tribunal held that two plausible views existed as to whether income exempted by section 80IB(10) should be excluded from book profit for computation under section 115JB. Sub-section (5) of section 115JB preserves applicability of other provisions of the Act save as otherwise provided, and the presence of a non-obstante clause in section 80IB(10) supports exclusion of such exempt income from book profit. Precedents, including the principle that where two views are possible the view adopted by the AO cannot be branded erroneous (Max India), and earlier Tribunal and Supreme Court rulings that non-taxable receipts cannot be taxed under another provision, were applied to conclude that the AO adopted one of the plausible views. Consequently the AO's order could not be treated as erroneous and prejudicial to revenue to justify revision under section 263. [Paras 14, 21, 23, 24, 25]The AO's allowance of deduction under section 80IB(10) in computing book profit u/s.115JB was a plausible view and not an erroneous order prejudicial to the revenue; section 263 could not be invoked on that basis.Revision under section 263 - Jurisdictional High Court precedent requirement for exercise of section 263 - Whether the Commissioner of Income-tax could validly invoke revisionary power under section 263 by placing reliance on a decision of a non jurisdictional High Court in the absence of a contrary decision of the jurisdictional High Court or the Supreme Court. - HELD THAT: - The Tribunal noted that Explanation 2(d) to section 263 limits revision on judicial decisions to those of the jurisdictional High Court or the Supreme Court. The CIT had relied on a non jurisdictional High Court decision to hold the assessment order erroneous. Given the statutory restriction and the availability of a favourable view to the assessee, the Tribunal held that the CIT should not have invoked section 263 based on a non jurisdictional High Court decision when the AO had adopted a permissible view. [Paras 11, 26, 27]CIT could not validly exercise powers under section 263 by relying on a non jurisdictional High Court decision in the absence of a binding decision of the jurisdictional High Court or the Supreme Court; the revision was not justified.Final Conclusion: The Tribunal allowed the appeal, holding that the AO had adopted one of two plausible views in excluding the section 80IB(10) deduction from book profit under section 115JB and that the CIT's exercise of revision under section 263-based on a non jurisdictional High Court decision-was not justified; the action under section 263 is set aside. Issues:Appeal against CIT's order under section 263 of the IT Act for A.Y. 2011-12.Analysis:1. Issue 1: CIT's Power under Section 263- The CIT invoked powers under section 263, directing the AO not to allow deduction u/s. 80IB(10) while computing book profit u/s. 115JB. The CIT found the assessment order erroneous and prejudicial to revenue, setting it aside based on a Karnataka High Court decision.2. Issue 2: Two Views Possible- The AR argued that the AO's view on deduction u/s. 80IB(10) was plausible, supported by judicial precedents. However, the DR supported the CIT's reliance on the Karnataka High Court decision regarding taxability under 115JB.3. Issue 3: Judicial Pronouncements- The Tribunal considered various judicial pronouncements, including the Supreme Court's stance on two possible views. It was noted that if the AO adopts one plausible view, the order cannot be deemed erroneous or prejudicial to revenue.4. Issue 4: Interpretation of Section 115JB- The Tribunal analyzed Section 115JB, emphasizing that if income is not taxable due to a specific provision like 80IB(10), it should not form part of book profit u/s. 115JB. The presence of a non-obstante clause in 80IB(10) was highlighted.5. Issue 5: Legislative Intent- Reference was made to legislative intent, citing cases where deductions were allowed even when no taxable income existed under normal provisions. The Gujarat High Court's stance on deductions u/s. 80HHC was highlighted.6. Issue 6: Application of Section 263- The Tribunal clarified that Section 263 applies when the AO's decision is both erroneous and prejudicial to revenue. In cases of two possible views, where the AO's view is reasonable, Section 263 cannot be invoked.7. Conclusion:- The Tribunal ruled in favor of the assessee, stating that the CIT's reliance on a non-jurisdictional High Court decision was not valid. It emphasized the importance of considering two possible views and upheld the AO's decision as not erroneous or prejudicial to revenue. The appeal was allowed, and the order was pronounced on 22/01/2018.