Tribunal invalidates revision order under Income Tax Act, rules against adding interest to book profits

The Tribunal held that the revision order under Section 263 of the Income Tax Act was invalid as the issue was already examined and disallowed by the Assessing Officer and was pending appeal before the Commissioner of Income Tax (Appeals). The Tribunal also ruled that the provision for interest under Section 234D should not be added to the book profits under Section 115JB, as it had already been disallowed by the Assessing Officer. The appeal of the assessee was allowed, and the order was pronounced on 08-07-2020.

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Issues Involved:
1. Validity of the revision order under Section 263 of the Income Tax Act, 1961.
2. Allowability of provision for interest under Section 234D under the provisions of Minimum Alternate Tax (MAT).

Issue-wise Detailed Analysis:

1. Validity of the Revision Order Under Section 263 of the Income Tax Act, 1961:
The primary issue in this case was whether the revision order passed by the Commissioner of Income Tax (CIT) under Section 263 was justified. The assessee argued that the CIT was not justified in invoking revision proceedings as the original assessment order passed by the Assessing Officer (AO) was neither erroneous nor prejudicial to the interest of the revenue.

The Tribunal noted that the AO had already examined the issue of provision for interest on income tax and disallowed the amount of Rs. 30.14 crore while passing the assessment order. This included the provision for interest under Section 234D amounting to Rs. 14.44 crore. The Tribunal observed that the AO had issued a show-cause notice, examined the facts, and made the disallowance in a detailed assessment order.

The Tribunal referred to the judgment of the Hon’ble Jurisdictional High Court in CIT vs. Gabriel India Ltd. [203 ITR 108 (Bom)], which held that for the CIT to exercise power under Section 263, two conditions must be satisfied: (i) the order should be erroneous, and (ii) it should be prejudicial to the interest of the revenue. An order cannot be termed erroneous unless it is not in accordance with law. If the AO has taken a possible view, the order cannot be said to be erroneous.

The Tribunal also noted that the issue of provision for interest on income tax was already a subject matter of appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. Citing the decision in Everest Industries Ltd. vs. CIT, the Tribunal held that the CIT cannot exercise jurisdiction under Section 263 on an issue pending before the CIT(A).

The Tribunal concluded that the CIT was not justified in revising the assessment order as the issue was already examined and disallowed by the AO and was pending appeal before the CIT(A). Thus, the revision order under Section 263 was invalid.

2. Allowability of Provision for Interest Under Section 234D Under Provisions of MAT:
The secondary issue was whether the provision for interest under Section 234D amounting to Rs. 14.44 crore should be added to the book profits under Section 115JB of the Act.

The CIT had concluded that the provision for interest on income tax under Section 234D should be added to the book profits as it was considered income tax charged under the provisions of the Act. The assessee contended that this provision was not income tax charged but an estimate of likely interest to be levied, and hence should not be added to the book profits.

The Tribunal noted that the AO had already disallowed the provision for interest on income tax while computing the book profits under Section 115JB. The Tribunal emphasized that revising the assessment order to add the same amount would result in double disallowance, which is not permissible.

The Tribunal also highlighted that the CIT did not verify the facts or consider the contents of the assessee’s reply before directing the AO to add the interest under Section 234D to the book profits. The Tribunal concluded that the CIT’s direction to add the interest under Section 234D to the book profits was not justified, as the issue was already disallowed by the AO and was pending appeal before the CIT(A).

Conclusion:
The Tribunal allowed the appeal of the assessee, holding that the revision order under Section 263 was invalid as the issue was already examined and disallowed by the AO and was pending appeal before the CIT(A). The Tribunal did not find it necessary to discuss the alternative submissions as the primary contention of the assessee was accepted. The order was pronounced in the open court on 08-07-2020.

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