Case Law Details
Reliance Industries Ltd. Vs Pr.CIT (ITAT Mumbai)
Conclusion: Income from assets given on lease, though offered to tax under normal provisions, was not routed through Profit and Loss Account and the accounting treatment given by assessee was in accordance with mandatory AS-19 which mandated assessee to reflect investment in asset under finance lease as ‘lease receivable’ in balance-sheet on asset side under the head ‘loans and advances’. Therefore, AO duly applied his mind to the issue under consideration and took a possible view in the matter, not contrary to law, assessment order could not be subjected to revision under section 263.
Held: In the instant case, Pr. CIT sought revision of this order on the ground that though the lease rental was offered to tax under normal provisions, however, it was not offered to tax while computing book profits under section 115JB. Therefore, the book profits were short computed to the extent of Rs. 2497.13 lakhs. It was held that one of the reasons to reopen the case was the allegation of AO that income from assets given on lease, though offered to tax under normal provisions, was not routed through Profit & Loss Account which had led to short-computation of Book Profits under MAT provisions. However, assessee well explained the fact that the accounting treatment given by assessee was in accordance with mandatory AS- 19 which mandate the assessee to reflect investment in asset under finance lease as ‘Lease Receivable’ in Balance Sheet on asset side under the head ‘Loans & Advances’. Whenever, the installment was received, the principal component was to be reduced from that head and the same was not to be routed through profit & Loss Account. This practice was being followed consistently over various years. Therefore, since the income was not to be routed through Profit & Loss Account, the same was not added back to the Book Profits under MAT provisions as per the decision of Hon’ble Supreme Court in Apollo Tyres Ltd (255 ITR 273) as affirmed in the case of Malayala Manorama Co. Ltd (300 ITR 251). Upon perusal of assessment order, it could very well be said that AO duly applied his mind to the issue under consideration and took a possible view in the matter which was not contrary to law. Therefore, the observation of Pr. CIT that AO did not applied his mind to the issue, was without much substance.This being the case, the assessment order could not be subjected to revision u/s 263 and the action of Pr.CIT in invoking jurisdiction u/s 263 could not be sustained in the eyes of law.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
1.1 As per the provisions of Section 263 of Income Tax Act, 1961, the revenue authorities namely Pr. Commissioner of Income Tax / Commissioner of Income Tax is vested with the supervisory powers of suo-moto revision of any order passed by the Assessing Officer [AO]. For the said purpose, the appropriate authority may call for and examine the record of any proceedings under the Act and may proceed to revise the same provided two conditions are satisfied-(i) the order of the assessing officer sought to be revised is erroneous; and (ii) it is prejudicial to the interest of the revenue. If one of the condition is absent i.e. if the order of the Income-tax Officer is erroneous but is not prejudicial to the revenue or if it is not erroneous but it is prejudicial to the revenue – recourse cannot be had to Section 263 of the Act as held by Hon’ble Supreme Court in Malabar Industrial Co. Ltd. V/s CIT [243 ITR 83 10/02/2000] & noted by Hon’ble Delhi High Court in CIT V/s Vikas Polymers [194 Taxman 57 16/08/2010]. The Hon’ble Supreme Court in Malabar Industrial Co. Ltd. V/s CIT (supra) has held that the phrase ‘prejudicial to the interests of the revenue’ has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of the revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue, unless the view taken by the Income-tax Officer is unsustainable in law. The said principal has been reiterated by Hon’ble Court in its subsequent judgment titled as CIT V/s Max India Ltd. (295 ITR 282). Similar principal has been followed by jurisdictional High Court in Grasim Industries Ltd. V/s CIT (321 ITR 92).
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Author Bio
It is settled principle of law that if after examining the details, the Assessing Officer has taken a view which is a possible view then it cannot be treated that the order passed by the Assessing
Officer is erroneous and prejudicial to the interest of the Revenue