TaxTMI 
TaxTMI 
2025 (2) TMI 57
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....nces of the case and in law, the Tribunal erred in holding that the deduction of the decapitalised interest of Rs. 317.63 lacs (Rs. 396.94 lacs minus Rs. 79.21 lacs) pertaining to earlier years while computing book profits under Section 115J had not assumed finality." 3. By consent of both the parties, the substantial question of law is reframed to bring out the exact controversy : "Whether the Tribunal was justified in upholding exercise of revisional power by the CIT u/s 263 of the Act and further was justified in holding that observations made by the CIT in his order u/s 263 on the issue of Section 115J is not definite finding on the merits of the issue?" FACTS : 4. The Appellant-Assessee are successor to the erstwhile Asian Cables Limited. On 1 January 1987, Asian Cable and Corporation Ltd. amalgamated with Wiltech India Ltd. w.e.f. 1 January 1987 and the name of the amalgamated company was changed to Asian Cables Ltd. 5. In the hands of Wiltech India Ltd., interest on term loan from financial institutions were capitalised, including interest for the period subsequent to the date of commencement of commercial production (i.e. 1 May 1982). Total interest agg....
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....ed under Section 263 of the IT Act. 9. On 10 March 1993, the Appellant-Assessee filed its reply giving its submissions on why the computation under Section 32AB and 115J of the IT Act is correct. The Appellant-Assessee prayed for dropping the proceedings. In the said reply no grievance was raised on assumption of jurisdiction by the CIT. 10. On 30 March 1993, the Commissioner of Income Tax passed an order under Section 263 of the IT Act after hearing the representative of the Appellant-Assessee. The operative portion of the Commissioner's order reads as under:- "4. I have considered the facts of the case and also the arguments of the assessee's counsel. Taking the first point relating to deduction allowable u/s. 32AB it is seen that the same has to be allowed with reference to profits of the assessee for the assessment year under consideration. It is noted from the Profit & Loss account for the fifteen months ended 31.3.1988 that a net sum of Rs. 3,17,63,000/- has been debited by way of interest on Fixed Loans after adjusting an amount of Rs. 79,21,000/- being write back of depreciation. This represents interest on term loans which were capitalised in the earlier yea....
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....8 October 2002. The operative portion of the Tribunal order reads as under:- "11. We have considered the rival submissions and have gone through the facts. Admittedly, the AO has not examined the important issues as mentioned above and his order is completely silent on these issues. Thus, he accepted the claim made by the assessee without proper enquiry and without application of mind. Therefore, the AO's order is erroneous and prejudicial to the interests of the revenue as held by the ITAT in the cases cited. In the case of Arbit Exports Ltd., the ITAT relied upon Hon'ble Supreme Court decision in the case of Malabar Industrial Co. Ltd. Vs. CIT 243 ITR 83. The arguments of the ld. Counsel that on merits the issues are now covered by the Hon'ble Supreme Court decision in the case of Appollo Tyres (supra) is not acceptable. Firstly, the decision was not available at the point of time when the CIT passed his order U/s. 263 of the IT Act. Secondly, whether the Supreme Court decision is applicable or not would depend upon the facts of particular case. The 1d. CIT in his order U/s. 263 has not decided the merits and he has merely directed the AO to decide the issues in ....
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....s and, therefore, the Appellant-Assessee are justified in contesting the same on merits before the Tribunal and this Court. He relies upon the decision of this Court in the case of Herdillia Chemicals Ltd. Vs. Commissioner of Income Tax (1997) 90 Taxman 314 in support of this submission. Secondly, he submits that the view taken by the assessing officer was in consonance with the decision of the Cochin Bench in the case of Apollo Tyres Ltd. Vs. Deputy Commissioner of Income Tax (1992) 43 ITD (Cochin) and, therefore, he contends that if two views are possible and one of the view is taken by the assessing officer, then the CIT cannot exercise jurisdiction under Section 263 of the Act. He relies upon the decision of the Supreme Court in the case of Commissioner of Income Tax (Central), Ludhiana Vs. Max India Ltd. (2008) 166 Taxman 188 (SC) for this proposition. He further submits that the issue is now covered on merits by the decision of the Supreme Court in the case of Apollo Tyres Ltd. Vs. Commissioner of Income Tax (2002) 255 ITR 273 (SC). He further submits that since in the original assessment order, the assessing officer has computed book profit under Section 115J of the Act, it ....
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....and stated that in that case, the CIT has himself withdrawn the deduction under Section 80J and, therefore, this Court held that the assessee in that case ought to have challenged the order under Section 263 of the IT Act and having not challenged the same, cannot pursue remedies by filing appeal against the order giving effect to the Section 263 order. 18. We have heard learned counsel for the Appellant-Assessee and the Respondent and with their assistance have perused the documents shown to us. We note that other than what is recorded above, no other submissions have been made by both the parties. Analysis and Conclusion: 19. The issue which requires consideration is whether the order passed under Section 143 (3) dated 28 February 1991 is erroneous and prejudicial to the interest of revenue and further whether the order under Section 263 gives a conclusive finding on issue relating to Section 115J of the IT Act so as to permit the Appellant-Assessee to agitate the issue on merits. 20. Section 263(1) of the IT Act, as it stood at the relevant time, reads as under : Revision of orders prejudicial to revenue- 263. (1) The Commissioner may call for and e....
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....the officer has examined the issue of computation of book profit under Section 115J. We are afraid to accept this submission. In the assessment order, disallowance under regular provisions of the Act, namely disallowance under Rule 6-B, travelling expenses, Rule 6-D, etc. were made which led to the assessing officer computing assessed income at Rs. 5,83,29,868/- and after setting off unabsorbed losses arrived at 'NIL' income under the normal provisions of the Act. Thus, the assessing officer had to compare normal income with the book profit under Section 115J which the Appellant-Assessee has declared at Rs.49,19,377/-. The additions made in the assessment order were not related to the computation of book profit under Section 115J of the IT Act. The assessing officer therefore accepted the Appellant-Assessee's computation made under Section 115J at Rs. 49,19,377/- since same was more than the income under normal provisions of the Act. 24. In our view, the assessing officer at the end of the assessment is always required to compute the assessed income under the normal provisions of the Act and compare it with the book profit under Section 115J. Merely because the assessing officer....
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....e we are not adjudicating upon the merits of the case. 26. Section 263 confers powers on the Commissioner which are in the nature of supervisory jurisdiction and same can be exercised only on satisfaction of twin conditions that the order sought to be revised is not only erroneous, but also prejudicial to the interest of the revenue. The Commissioner, therefore, has to give his reasons on satisfaction of these two conditions in his order exercising jurisdiction under Section 263 of the Act since such an order is amenable to appeal before the Tribunal. In the instant case, admittedly the issues for which revisional proceedings were initiated were not examined by the assessing officer . Therefore, merely because the assessing officer has not examined this issue and therefore order is erroneous, could not have been the only ground for exercising the jurisdiction but in addition to the same the Commissioner would have to form some opinion for coming to the conclusion that the order sought to be revised is not only erroneous, but also prejudicial to the interest of revenue. For satisfaction of the condition of 'prejudicial to the interest of revenue', the Commissioner is required to ....
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....was definite and conclusive, but he had to make these observations for satisfaction of the twin conditions mentioned in Section 263 for assumption of jurisdiction. If he had not made such observation, then the order under Section 263 would have fallen foul of the mandatory conditions required for exercising jurisdiction under Section 263. Therefore, on a holistic and complete reading of the operative paragraphs, we cannot accept the submission made by the Appellant-Assessee that the observation made by the CIT on computation of book profit is definite and therefore he is entitled to challenge the same on merits before the Tribunal and before this Court. In our view, the observation made by CIT cannot be to read dehors the other directions of the operative portion of paragraph 5 and 6 of the revisional order and therefore this contention of the Appellant-Assessee is rejected. 29. We also do not accept the submission made by the Appellant-Assessee that merely because they have not challenged the order giving effect to Section 263 order, this Court should permit the Appellant-Assessee to agitate the issue on merits. In our view, this would amount to achieving indirectly what cou....
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....gs. Therefore, in our view, on a holistic reading of the operative part of Section 263 order, the decision of Herdillia Chemicals Ltd. (supra) is not applicable to the facts of the present case. 31. Learned counsel for the Appellant, thereafter, relied upon the decision of Max India Ltd. (supra) in support of his submission that where the Officer has adopted one of the courses permissible in law and has taken a view which was in accordance with the Cochin Tribunal's view in the case of Apollo Tyres (supra), the order passed under Section 263 cannot be said to be erroneous and prejudicial to the interest of the revenue. In our view, the said decision of Max India Ltd. (supra) is not applicable to the facts of the Appellant before us. In the instant case before us, the assessing officer had not raised any query on any of the issues of computation under Section 115J of the Act. Therefore, the question of the Officer applying his mind to the computation of book profit under Section 115J does not arise. If the assessing officer had raised the query on the computation of book profit under Section 115J and after seeking response from the assessee had accepted the submissions by not mak....
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....fficer at the time of assessment and therefore, the case of the Appellant-Assessee is covered by this decision of the Supreme Court in the case of Malabar Industrial Co. Ltd. (supra). 33. The next submission of Mr. Agarwal that on account of Cochin Tribunal's decision in the case of Apollo Tyres Limited (supra), the assessment order cannot be said to be erroneous and prejudicial is also to be rejected. In this case the original assessment order is dated 28 February 1991 whereas Cochin Tribunal's decision is of 29 July 1992 i.e. much after assessment order was passed and moreso when the assessing officer has not examined. Also Apollo Tyres Limited (supra) was a case where assessee had filed an appeal, which indicates that at the time of passing the assessment order in the present case, the view on merits (if at all applicable) was against the assessee and in favour of the revenue. Therefore, even on these facts, decision in the case of Max India Ltd. (supra) on this proposition does not come to the rescue of the Appellant-Assessee. 34. After the hearing was concluded, this Court came across a decision of the Co-ordinate Bench, (which was not cited by any of the parties). The C....
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....ondent-assessee while not disputing the above position in law with the requirement of satisfaction of twin requirements, submits that in this case the issue was debatable and two views were inherently possible in view of the complexity of Section 80 HHC of the Act. In support he placed reliance upon the decision of the Apex Court in Max India Ltd. (supra) which also reiterates that where two views are possible, the exercise of the revisional power under Section 263 of the Act is not called for. The two views he submits by inviting our attention to the fact that statement of case refers to the decision of the Tribunal placing reliance upon its decision in Mysore Exports Ltd. (supra) taking the same view. Further in support that there were two views possible at the time when the Assessing Officer passed the order, reliance was placed upon the decision of the Andhra Pradesh High Court in CIT v. Gogineni Tobacco Ltd. [1999] 238 ITR 970 which relies upon the orders passed under the Act indicating the issue is debatable. Without prejudice to the above, it is also submitted that from a bare reading of the statement of case it is clear that the Assessing Officer had allowed deduction under....
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....3 of the Act was valid. 14. The decision of the Apex Court in Max India Ltd. (supra) relied upon by the respondent-assessee to our mind would not come to its rescue for the reason that in the present facts the statement of the case does not indicate that the view taken to allow the claim under Section 80 HHC of the Act was after examination/inquiry. Mere taking of a view by the Assessing Officer without having subjected the claim to examination would not make it a view of the Assessing Officer. A view has necessarily to be preceded by examination of the claim and opting to choose one of the possible results. In the absence of view being taken, merely because the issue itself is debatable, would not absolve the Assessing Officer of applying his mind to the claim made by the assessee and allowing the claim only on satisfaction after verification/enquiry on his part. A view in the absence of examination is no view but only a chance result. Therefore, even the decision of the Andhra Pradesh High Court in Gogineni Tobacco Ltd. (supra) will also have no application. 15. It appears from the decision of the Apex Court in Max India Ltd. (supra) that the Assessing Officer h....
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.... of computation of book profit was also not examined in the original assessment proceedings. In response to the show cause notice, the Appellant made submissions with respect to the interest written off and depreciation written back in computation of deduction under Section 32AB as well as book profit under Section 115J of the Act on merits. The order under Section 263 of the Act records in paragraph 4 that deletion of prior period interest debited in the books of account is not in accordance with the provisions of Section 32AB and, therefore, since the Officer has not taken this aspect into consideration, the assessment order is erroneous and prejudicial to the interest of the revenue. Similar observation was made in paragraph 5 with respect to computation of book profit under Section 115J of the Act. 38. In the grounds of appeal before the Tribunal, the Appellant did not raise any ground with respect to calculation of deduction under Section 32AB but only raised the ground with respect to computation of book profit under Section 115J. Therefore, it is an admitted position that the assessee accepted the revisional proceedings being within jurisdiction so far as Section 32AB is ....