Case Law Details
Only in the cases where the assessment order is erroneous and prejudicial to the interests of the revenue and not prejudicial to the interest of the assessee can be reopened under section 263 and the assessee is not eligible to claim any new benefit in the assessment proceedings pursuant to section 263.
RELEVANT PARAGRAPH
FACTS
The assessee, a public limited company, filed its return of income for the assessment year 2000-01 on 30-11-2000 admitting an income of Rs.1,04,25,160 and the same was processed u/s 143(1) on 15-3-2001. The assessee had also filed revised return of income on 28-3-2002 admitting an additional income of Rs.2,54,89,190. Subsequently, the case was selected for scrutiny and the assessment was completed u/s 143(3) on 2632003 determining the total income at Rs.1,28,99,070 as per normal provisions of the Act and book profits of Rs.1,74,03,970 u/s 115JA of the Act. After perusing the assessment order passed u/s 143(3) of the Act, the CIT, Central, Hyderabad has issued a show cause notice under section 263 to the assessee as he was of the opinion that the order passed under section 143(3) was erroneous and prejudicial to the interest of the revenue on several grounds. After verifying the submissions made by the assessee, the CIT set aside the assessment order passed under section 143(3) of the Act with a direction to the assessing officer to redo the assessment after re-examining the issues involved and taking into account all the facts on record. Consequent to the order of the CIT u/s 263 of the Act dated 2672004, the assessing officer passed the present assessment order u/s 143(3) read with section 263 of the Act on 20th March, 2006 making an addition of Rs.6,61,951 as long term capital gain. Aggrieved by this order, the assessee filed an appeal before the CIT (A). During the appellate proceedings, the assessee raised additional ground of appeal stating that while computing the book profit under section 115JA of the Act, the net profit should have been reduced by the amounts credited to the Profit & Loss A/c on account of withdrawal from the provisions made, which had not been allowed in the earlier years. The aforesaid additional ground of appeal was forwarded to the assessing officer for his examination and comments. The assessing officer vide his remand report dated 942007 submitted that additional ground raised by the assessee can be admitted and the claim is allowable in view of the provisions of section 115JA of the Act. On the basis of the remand report from the assessing officer, the additional ground was admitted by the CIT (A) and the claim of the assessee was also allowed with a direction to the assessing officer to recompute the book profits as per the revised claim of the assessee.
HELD
It is undisputed fact that the assessee filed additional ground of appeal before the CIT [A], stating that while calculating book profit under section 115JA, the net profit should be reduced by the amount of provision for doubtful debts and withdrawal from provision for doubtful advances, which had not been allowed in the earlier years. The assessee did not claim the said deduction while calculating the book profit under section 115JA of the Act in the return of income filed originally and also in the revised return of income filed. It is evident from the assessment records that the original assessment was set aside under section 263 of the Act by the CIT for verification of specific issues which were stated to have been prejudicial to the interest of revenue and the assessment were set aside for examination of those specific points. Hence, the claim of the assessee stating that while computing the book profit under section 115JA of the Act, the net profit ought to have been reduced by the amount which are credited to the P & L A/c on account of withdrawals from the provisions made, cannot be entertained at the stage of assessment proceedings pursuant to the order under section 263 of the Act. In the assessment proceedings pursuant to the order under section 263 of the Act, the assessee cannot seek to show that there was some other benefit in favour of the revenue which was prejudicial to the interest of the assessee. The words ‘erroneous in so far as they are prejudicial to the interests of the revenue’ have to be taken together and require to be widely construed. The power of the Commissioner under section 263 of the Act is restricted only to the errors so far as they are prejudicial to the interest of the revenue and if there was any other error, it is for the assessee to take up the issue in other appropriate proceedings. Our view is supported by the decision of the Madras High Court in the case of Hindu Bank Karur Limited vs. Addl CIT reported in 103 ITR 553. In view of the above, since the present order is made consequent to the order of the CIT passed u/s 263 of the Act directing the assessing officer to redo the assessment only for a specific issues involved therein, the assessment made in pursuant to section 263 of the Act are only for the benefit of the revenue and not for the assessee. Only in the cases where the assessment order is erroneous and prejudicial to the interests of the revenue and not prejudicial to the interest of the assessee can be reopened under section 263 of the Act and the assessee is not eligible to claim any new benefit in the assessment proceedings pursuant to section 263 of the Act. Hence the CIT (A) is not justified in allowing the aforesaid claim of the assessee while computing the book profit under section 115JA of the Act.
RELEVANT EXTRACTS:
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3. Brief facts of the case are that the assessee, a public limited. company, filed its return of income for the assessment year 2000-01 on 30-11-2000 admitting an income of Rs.1,04,25,160 and the same was processed u/s 143(1) on 15-3-2001. The assessee had also filed revised return of income on 2832002 admitting an additional income of Rs.2,54,89,190. Subsequently, the case was selected for scrutiny and the assessment was completed u/s 143(3) on 26-3-2003 determining the total income at Rs.1,28,99,070 as per normal provisions of the Act and book profits of Rs.1,74,03,970 u/s 115JA of the Act. After perusing the assessment order passed u/s 143(3) of the Act, the CIT, Central, Hyderabad has issued a show cause notice under section 263 to the assessee as he was of the opinion that the order passed under section 143(3) was erroneous and prejudicial to the interest of the revenue on several grounds. After verifying the submissions made by the assessee, the CIT set aside the assessment order passed under section 143(3) of the Act with a direction to the assessing officer to redo the assessment after re-examining the issues involved and taking into account all the facts on record. Consequent to the order of the CIT u/s 263 of the Act dated 26-7-2004, the assessing officer passed the present assessment order u/s 143(3) read with section 263 of the Act on 20th March, 2006 making an addition of Rs.6,61,951 as long term capital gain. Aggrieved by this order, the assessee filed an appeal before the CIT (A). During the appellate proceedings, the assessee raised additional ground of appeal stating that while computing the book profit under section 115JA of the Act, the net profit should have been reduced by the amounts credited to the Profit & Loss A/c on account of withdrawal from the provisions made, which had not been allowed in the earlier years. The aforesaid additional ground of appeal was forwarded to the assessing officer for his examination and comments. The assessing officer vide his remand report dated 942007 submitted that additional ground raised by the assessee can be admitted and the claim is allowable in view of the provisions of section 115JA of the Act. On the basis of the remand report from the assessing officer, the additional ground was admitted by the CIT (A) and the claim of the assessee was also allowed with a direction to the assessing officer to recompute the book profits as per the revised claim of the assessee.
7. We have considered the submissions of rival parties and perused the material available on record. It is undisputed fact that the assessee filed additional ground of appeal before the CIT [A], stating that while calculating book profit under section 115JA, the net profit should be reduced by the amount of provision for doubtful debts and withdrawal from provision for doubtful advances, which had not been allowed in the earlier years. The assessee did not claim the said deduction while calculating the book profit under section 115JA of the Act in the return of income filed originally and also in the revised return of income filed. It is evident from the assessment records that the original assessment was set aside under section 263 of the Act by the CIT for verification of specific issues which were stated to have been prejudicial to the interest of revenue and the assessment were set aside for examination of those specific points. Hence, the claim of the assessee stating that while computing the book profit under section 115JA of the Act, the net profit ought to have been reduced by the amount which are credited to the P & L A/c on account of withdrawals from the provisions made, cannot be entertained at the stage of assessment proceedings pursuant to the order under section 263 of the Act. In the assessment proceedings pursuant to the order under section 263 of the Act, the assessee cannot seek to show that there was some other benefit in favour of the revenue which was prejudicial to the interest of the assessee. The words ‘erroneous in so far as they are prejudicial to the interests of the revenue’ have to be taken together and require to be widely construed. The power of the Commissioner under section 263 of the Act is restricted only to the errors so far as they are prejudicial to the interest of the revenue and if there was any other error, it is for the assessee to take up the issue in other appropriate proceedings. Our view is supported by the decision of the Madras High Court in the case of Hindu Bank Karur Limited vs. Addl CIT reported in 103 ITR 553. In view of the above, since the present order is made consequent to the order of the CIT passed u/s 263 of the Act directing the assessing officer to redo the assessment only for a specific issues involved therein, the assessment made in pursuant to section 263 of the Act are only for the benefit of the revenue and not for the assessee. Only in the cases where the assessment order is erroneous and prejudicial to the interests of the revenue and not prejudicial to the interest of the assessee can be reopened under section 263 of the Act and the assessee is not eligible to claim any new benefit in the assessment proceedings pursuant to section 263 of the Act. Hence the CIT (A) is not justified in allowing the aforesaid claim of the assessee while computing the book profit under section 115JA of the Act.
8. In the result, the appeal filed by the Revenue is allowed.
