2019 (10) TMI 1171 - AT - Income Tax

Appeal partially allowed, limits reassessment under Section 263. Emphasis on erroneousness, prejudicial impact.

The tribunal partially allowed the appeal, limiting the reassessment to issues triggering revisional jurisdiction under Section 263 of the Income Tax Act, ... Revision u/s 263 - AO had made disallowance u/s 14A which should have been added back u/s 115JB, however, the same was not added back while computing Book Profits u/s 115JB - assessee claimed deduction of education-cess u/s 40 (a)(ii) which was nothing but additional surcharge and therefore, the same was erroneously allowed - assessee claimed deduction of provision for doubtful debt in the revised return of income which was erroneously allowed - assessee, in revised return of income, claimed excise duty exemption as capital receipts u/s 115JB which was erroneously allowed - assessee excluded amount representing retention money u/s 115JB which has erroneously been allowed by Ld. AO. HELD THAT:- A fresh notice u/s 142(1) was issued to the assessee during assessment proceedings on 27/01/2016 and the assessment was framed on 30/03/2016 i.e. within a short span of approx. 2 months. The assessee has placed on record its submissions dated 09/02/2016 to submit that requisite details as called for by AO were duly furnished by the assessee and the same were considered while framing the assessment and therefore, jurisdiction u/s 263 was bad in law. Upon perusal of submission dated 09/02/2016, we find that beside furnishing party-wise list of provision for doubtful debts along with ageing thereof, no other information / documents were supplied by the assessee with respect to any of the issues as pointed out by Ld. Pr.CIT. Upon perusal of impugned order, we find that Ld. Pr.CIT has invoked jurisdiction u/s 263 since, in his opinion, Ld. AO, inter-alia, failed to consider disallowance u/s 14A, Excise Duty Exemption, Retention money for the purpose of Section 115JB. Upon perusal of quantum assessment order, it is noted that Ld. AO has even failed to compute assessee’s Book Profits u/s 115JB and no discussion, whatsoever, on the stated issues, emanates either from quantum assessment order or from the submissions made by the assessee during assessment proceedings. The failure to compute assessee’s income u/s 115JB, in our considered opinion, would certainly make the order liable for exercise of revisional jurisdiction u/s 263. There was a certain omission on the part of Ld. AO in not considering the computation of Book Profits u/s 115JB and therefore, the jurisdiction u/s 263 was rightly invoked by Ld. Pr.CIT, which was the only remedy available with the revenue. Therefore, we are not inclined to interfere in the revisional jurisdiction us 263 as invoked by Ld. Pr.CIT on the stated issues. The twin conditions as envisaged by Sec. 263 were duly fulfilled, in the present case. For the same, we draw strength from legal principles laid down in judicial pronouncements as enumerated by us in the opening paragraphs as well as the provisions of Explanation-2 to Section 263. As noted that the quantum order has been set aside from framing of assessment afresh which, in our opinion, would not be correct approach in the present case since it would afford opportunity of review of issues which were already considered and adjudicated by Ld.AO during original assessment proceedings. Review of the order, unless permitted by law, is impermissible. Therefore, we modify the directions of Ld. Pr.CIT by directing Ld. AO to re-consider / re-adjudicate only those issues which triggered revisional jurisdiction u/s 263. These issues have already been framed by Ld. Pr.CIT in impugned order u/s 263. Issues Involved:1. Validity of revisional jurisdiction under Section 263 of the Income Tax Act, 1961.2. Disallowance under Section 14A read with Rule 8D for computing book profit under Section 115JB.3. Deduction of education cess under Section 40(a)(ii).4. Deduction of provision for doubtful debts.5. Treatment of excise duty exemption as capital receipts under Section 115JB.6. Exclusion of retention money from book profit under Section 115JB.Detailed Analysis:1. Validity of Revisional Jurisdiction under Section 263:As per Section 263 of the Income Tax Act, 1961, the Pr. Commissioner of Income Tax (Pr. CIT) has the authority to revise any order passed by the Assessing Officer (AO) if it is erroneous and prejudicial to the interest of the revenue. The judgment emphasized that both conditions must be met for the Pr. CIT to exercise this power. The Supreme Court in Malabar Industrial Co. Ltd. v/s CIT established that an order is considered prejudicial to the interests of the revenue if it is erroneous and results in a loss of revenue. The Pr. CIT's power is not arbitrary and must be exercised within the limitations set by law.2. Disallowance under Section 14A read with Rule 8D for Computing Book Profit under Section 115JB:The Pr. CIT noted that the AO failed to add back the disallowance under Section 14A while computing book profits under Section 115JB. The assessee argued that the disallowance under Rule 8D is an artificial formula and should not be imported into the computation under Section 115JB. However, the tribunal found that the AO's failure to consider this adjustment made the order erroneous and prejudicial to the revenue, justifying the Pr. CIT's invocation of Section 263.3. Deduction of Education Cess under Section 40(a)(ii):The Pr. CIT observed that the AO erroneously allowed the deduction of education cess, which is considered an additional surcharge and not deductible under Section 40(a)(ii). The assessee contended that cess does not fall within the ambit of Section 40(a)(ii), citing judicial pronouncements. Nevertheless, the tribunal upheld the Pr. CIT's view that the AO's omission in disallowing the education cess deduction warranted the exercise of revisional jurisdiction.4. Deduction of Provision for Doubtful Debts:The Pr. CIT found that the AO erroneously allowed the deduction for provision for doubtful debts amounting to Rs. 416.76 Lacs. The assessee argued that the deduction was permissible under Section 36(1)(vii). The tribunal noted that the AO failed to make adequate inquiries into the matter, making the order erroneous and prejudicial to the revenue.5. Treatment of Excise Duty Exemption as Capital Receipts under Section 115JB:The Pr. CIT noted that the AO erroneously allowed the excise duty exemption of Rs. 31.28 Crores as capital receipts under Section 115JB. The assessee contended that the subsidy aimed to promote industrialization in backward areas, making it a capital receipt. However, the tribunal found that the AO's failure to properly examine this claim justified the Pr. CIT's invocation of Section 263.6. Exclusion of Retention Money from Book Profit under Section 115JB:The Pr. CIT observed that the AO erroneously allowed the exclusion of Rs. 30.56 Crores representing retention money from book profits under Section 115JB. The assessee argued that the retention money was excluded because it had no right to receive it due to contractual terms. The tribunal upheld the Pr. CIT's view that the AO's omission in this regard made the order erroneous and prejudicial to the revenue.Conclusion:The tribunal concluded that the AO's failure to compute the assessee's book profits under Section 115JB and the lack of adequate inquiry into the issues raised by the Pr. CIT justified the exercise of revisional jurisdiction under Section 263. However, the tribunal modified the Pr. CIT's directions by limiting the reassessment to only those issues that triggered the revisional jurisdiction under Section 263. The appeal was partly allowed, with the tribunal refraining from addressing the merits of the issues at this stage. The order was pronounced in open court on 24th October 2019.