TMI Blog2010 (5) TMI 668X X X X Extracts X X X X X X X X Extracts X X X X ..... .) Ltd. s case [ 2003 (1) TMI 231 - ITAT BOMBAY-E] , Tushako Pumps Ltd. v. Asstt. CIT [ 2005 (1) TMI 586 - ITAT MUMBAI] and in the case of Syncome Formulations (I) Ltd [ 2007 (3) TMI 288 - ITAT BOMBAY-H] , wherein it was held that the deduction u/s 80HHC deserves to be computed by taking into consideration book profit and cannot be restricted to the profits of the business as comupted under the normal provisions of the IT Act. Therefore, we are of the opinion, that the AO s decisions are based on various judicial pronouncements though decision of the AO is prejudicial to the revenue, it cannot be treated as erroneous. In view of this, in our opinion, the CIT cannot invoke the provisions of section 263 to set right the errors committed by the AO. In the result, the appeal of the assessee is allowed. Addition to the book profit - provision for gratuity - an ascertained liability - we are of the opinion that this issue is required to be re-examined by the AO. Hence, we set aside this issue to the file of AO to see the crystallization of the liabilities in the assessment year under consideration. If the liabilities towards gratuity is crystallized in the assessment year under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he issue but he failed to adjudicate the same. In our opinion, the CIT(A) must have considered these issues while deciding the appeal. His jurisdiction is co-terminus with AO. Accordingly, we set aside this issue to the file of AO for fresh consideration. In the result, the appeal of the assessee is partly allowed. Deduction of loss - HELD THAT:- On perusal of the profit and loss account, the CIT(A) came to the conclusion that no such loss of the earlier year company has been brought forward in the profit and loss account of the relevant year and also he was of the opinion that the judgment of Hon ble Supreme Court in the case of Apollo Tyres Ltd. v. CIT [ 2002 (5) TMI 5 - SUPREME COURT] as per which profit arrived at the profit and loss account which is prepared in accordance with the Companies Act has to be adopted for the purpose of book profit. As no such loss of earlier company reflected in the profit and loss account of the relevant year, the CIT(A) held that there is no justification for deduction of such loss in arriving at the book profit of this year. However, before us the authorised representative submitted that the loss of the Deccan are merged in the final ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 263. 3. Brief facts of the case are that the assessee herein is a Public Limited Company in which the public are not substantially interested, carrying on business of manufacture and sale of Chemicals. For the assessment year 2002-03, the assessee company filed return of income on 31-10-2002 admitting total income of Rs. nil . The book profit for the purpose of section 115JB was admitted at Rs. nil . The assessment was completed under section 143(3) on 29-3-2004 and the total income was determined at Rs. nil after adjustments of the brought forward loss. The book profit was also determined at Rs. Nil. For the purpose of arriving at the book profit, the assessee deducted unabsorbed depreciation as per the books at Rs. 1,86,11,743. After the assessment was completed, the CIT, Hyderabad-II issued a notice under section 263 of the Act requiring the assessee to explain as to why the assessment should not be revised by withdrawing deduction towards unabsorbed depreciation. The assessee filed a detailed reply before the CIT-II, Hyderabad. It was explained that there was loss as per the books of account and such loss is allowable as a deduction for the purpose of arri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee, there is brought forward loss at Rs. 4,85,46,632 and unabsorbed depreciation at Rs. 1,86,11,543 on 31-3-2001 which were brought forward from earlier year. The adjustment of such loss as against the reserve would not change the fact that the loss or unabsorbed depreciation is brought forward, in view of the Explanation to sub-section (2) of section 115JB. The reserves contain the figures of the profit or the loss of various years taken to the Balance Sheet. The reserve gives the aggregate of the amount but contain in itself the profit and loss of various years. The amount of reserve that appearing in the Balance Sheet contains the profit of earlier years carried to the general reserve and the losses of the immediately preceding years also. According to the assessee, it cannot be said that the reserves absorb the losses. The profits carried to the reserve in the earlier years were subject to Income-tax. Under the Companies Act even if there were reserves from out of the income of earlier years, the losses arising are carried forward to the later year. The words brought forward or unabsorbed mentioned in clause ( iii ) are the words used under the IT Act for the losses br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same extent of such brought forward loss, unabsorbed depreciation etc. as they would have been adjusted or set off had the assessee been assessed to tax in the regular way in accordance with the provisions of sections 28 to 43 of the Act, and only the resultant amounts of loss, unabsorbed depreciation, etc. can be carried forward to the next year. Had section 115J not been introduced, the assessee would have been entitled under the provisions of sections 32(2), 32A(3), 72(1)( ii ), 73, 74, 74A(3) and 80J(3) to carry forward only the unabsorbed depreciation allowance under section 32, investment allowance under section 32A, losses under sections 72, 72A, 73 and 74 and permissible deductions under section 80J to the following assessment year to be set off against the profits and gains of that assessment year. All that section 115J(2) does is to preserve this right viz., to carry forward the balance of the unabsorbed deductions in the relevant previous year to the next year. Section 115J allows only the unabsorbed losses, depreciation, investment allowance etc. which could otherwise have been carried forward to be carried forward. The allowances need not have been quantified under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .1 A bare reading of section 263 of the Income-tax Act, 1961, makes it clear that the prerequisite for the exercise of jurisdiction by the Commis- sioner suo motu under it, is that the order of the ITO is erroneous insofar as it is prejudicial to the interests of the revenue. The Commissioner has to be satisfied of twin conditions, namely ( i ) the order of the Assessing Officer sought to be revised is erroneous and ( ii ) it is prejudicial to the interests of the revenue. If one of them is absent if the order of the ITO is erroneous but is not prejudicial to the revenue of if it is not erroneous but is prejudicial to the revenue recourse cannot be had to section 263(1) of the Act. The provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase "prejudicial to the interests of the revenue" is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dicial to the revenue, it cannot be treated as erroneous. In view of this, in our opinion, the CIT cannot invoke the provisions of section 263 to set right the errors committed by the Assessing Officer. 13. In the result, the appeal of the assessee in ITA No. 328/Hyd./2006 is allowed. 13.1 Ground No. 2 in ITA No. 1037/Hyd./2007 is that the CIT(A) erred in holding that the assessee cannot agitate upon the grounds with regard to determination of deduction under section 80HHC for the purpose of arriving at the book profit under section 115JB of the IT Act. 14. This ground taken by the assessee in this appeal is allowed in view of our findings in ITA No. 328/Hyd./2006 wherein we have held that revision under section 263 is not possible on this issue. Consequently, Assessing Officer cannot pass giving effect order on the impugned issue. 15. The next ground in ITA No. 1037/Hyd./2007 is as follows : "3. The CIT(A) ought to have seen that a reassessment was made under section 143(3) and they represent separate and distinct proceedings which can be challenged in appeal as such order is passed under section 143(3) of the IT Act. 4. The CIT(A) ought to have adjudicated the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly allowed. 21. Now coming to ITA No. 329/Hyd./2006, the grounds raised by the assessee are similar to the grounds raised in ITA No. 328/Hyd./2006 and the only change is in amount. 21.1 Since the facts in these appeals are similar to facts in ITA No. 328/Hyd./2006, applying the same ratio, this appeal of the assessee in ITA No. 329/Hyd./2006 is allowed. 22. Now coming to ITA No. 1038/Hyd./2007, this appeal by assessee emanated from the order of CIT(A) passed under section 250 read with section 143(3) dated 13-8-2007. The first grounds for our consideration are as follows : "2. The CIT(A) erred in holding that the losses of earlier years is to be deducted for the purpose of computation of deduction under section 80HHC while calculating the book profit within the meaning of section 115JA of the IT Act. 3. The CIT(A) ought to have considered the fact that the decision of the Supreme Court in IPCA Laboratories Ltd. v. Dy. CIT [2004] 266 ITR 521 has no application for computation of book profit under section 115JA of the Act." 23. The Assessing Officer set off the losses of earlier year while computing the deduction under section 80HHC on book profit determined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red in not considering the additional ground of appeal raised by the assessee with regard to the determination of total turnover for working out the deduction under section 80HHC of the Act. 27.1 The assessee raised additional grounds relating to the computation of total turnover which includes sales tax and also contended before the CIT(A) that these issues are borne out of assessment order and prayed to adjudicate the issue but he failed to adjudicate the same. In our opinion, the CIT(A) must have considered these issues while deciding the appeal. His jurisdiction is co-terminus with Assessing Officer. Accordingly, we set aside this issue to the file of Assessing Officer for fresh consideration. 28. In the result, the appeal of the assessee in ITA No. 1038/Hyd./2007 is partly allowed. 29. Now we will take up the case in ITA No. 538/Hyd./2006. 29.1 The assessee s plea in ground No. 2 is that "The CIT(A) is not considering the set-off of the losses of Deccan Drugs Ltd. which was merged with the assessee company. The CIT(A) is not correct in mentioning that no loss of Deccan Drugs Ltd. has been brought forward in the Profit Loss account. The losses of Deccan Dru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... akhs has to be reduced from the cost of the fixed assets for the purpose of arriving at the depreciation. 34. Brief facts of the case are that the assessee is regarding the disallowance of depreciation on account of state subsidy received by the assessee at Rs. 20 lakhs. The Assessing Officer has made the disallowance referring to Explanation 10 to section 43(1) of the IT Act, as per which where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Government or State Government or any authority established under any law or by any other person in the form of a subsidy or grant or reimbursement by whatever name called, then so much of the cost as is relatable to such grant or reimbursement, shall not be included in the actual cost of the asset to the assessee. 35. We have heard both the parties on this issue. According to the departmental representative, the expression words actual cost which forms the basis for allowance of depreciation under section 32 has to be considered w.r.t. section 43(1) of the Act. According to this section the expression actual cost means the actual cost of the asset to the assessee redu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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