TMI Blog2011 (3) TMI 230X X X X Extracts X X X X X X X X Extracts X X X X ..... referred to as 'the Act' for short). 2. The facts leading to this appeal are that the ld. CIT, Chennai-III, invoked the provisions of section 263 of the Act in respect of assessment order dated 31-12-2007 passed for the assessment year 2005-06. A show-cause notice was issued under section 263 of the Act dated 2-3-2010 to the assessee. The text of the show-cause notice is being extracted hereinbelow from the order of the ld. CIT: "On a perusal of the assessment order dated 31-12-2007 passed under section 143(3) of the Income-tax Act for the assessment year 2005-06 and the records connected thereto, it is seen that the said order is erroneous insofar as it is prejudicial to the interests of revenue for the following reasons : The regular assessment for the assessment year 2005-06 was completed under section 143(3) on 31-12-2007 determining a total income of Rs. 60,55,98,506. It is observed that the assessee follows mercantile system of accounting and also the prudential norms for income recognition prescribed by the Reserve Bank of India for non-banking financial companies. As per the RBI Circular No. BFC(CVC)/93-94 dated 13-6-1994, income from Non-Performing Assets may not b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the ld. CIT(A) in favour of the assessee. Regarding the second issue, the case of the assessee is that the income from securitization had been wrongly offered to tax in the year under consideration. On the advice of the Statutory Auditors, the said income was spread over to various assessment years which has been allowed by the Assessing Officer. It was stated that this is not an issue relating to revision of return by the assessee. It was stated that the ratio of the decision of Hon'ble Supreme Court rendered in the case of Goetze (India) Ltd. v. CIT [2006] 284 ITR 323/157 Taxman 1, will not apply to the facts of this case because this is a case in which letters have been submitted along with details of correct taxable income from securitization transactions which has been accepted by the Assessing Officer. With these submissions, it was requested that proceedings initiated under section 263 in assessee's case should be dropped being not legally valid. The ld. CIT heard the arguments as advanced from both sides and has set aside the assessment on the following issues : (i) Verification to be made regarding the extent of income arising to the assessee in respect of NPAs; a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judice' that it contemplated under section 263 is the prejudice to the Income-tax administration as a whole. The revision has to be done for the purpose of setting right distortions and prejudices caused to the Revenue in the above context. The fundamental principles which emerge from the several cases regarding the powers of the CIT under section 263 may be summarized below : (i) The CIT must record satisfaction that the order of the Assessing Officer is erroneous and prejudicial to the interests of the revenue. Both the conditions must be fulfilled. (ii) Section 263 cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer and it is only when an order is erroneous, that the section will be attracted. (iii) An incorrect assumption of facts or an incorrect application of law will suffice for the requirement or order being erroneous. (iv) If the order is passed without application of mind, such order will fall under the category of erroneous order. (v) Every loss of revenue cannot be treated as prejudicial to the interest of the revenue and if the Assessing Officer has adopted one of the courses permissible under law or w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Court in the case of Goetze India Ltd. (supra). 7. After hearing both sides, we are convinced that the case of revision has not been made out in this case because the Assessing Officer has verily examined both these two issues. In respect of the issue regarding accrual of income of Non-Banking Finance Company, insofar as interest on NPAs is concerned, it has to be considered only after recognizing income from such assets. Interest computed as taxable income has to be deleted as held by the Hon'ble Madras High Court in the case of CIT v. Elgi Finance Ltd. [2007] 293 ITR 357. A copy of this decision has been placed for our perusal. In this case it has been held as under : "The assessee-company was engaged in the business of leasing, finance and hire purchase. On the ground that in the profit and loss account of the previous year and in the memo of the total income prepared for income-tax purposes for the year in question the assessee had not admitted the interest accrued on transactions in respect of hire purchase, leasing, bill discounting, short-term loan etc., the Assessing Officer proposed to bring the accrued interest on those items to tax as income of the assessee relati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I and AS 9 issued by the ICAI. Therefore, the assessee was justified in not recognising the income as such. Once that was the case, there was no occasion to consider whether the principle of accrual would arise or not. In view of the matter, the Tribunal was of the view that the lower authorities had erred in treating the interest on non-performing assets as income of the assessee and directed the Assessing Officer to delete the said interest from the computation of taxable income. The interest from such non-performing assets would be taxed in the appropriate assessment years on the basis of actual receipt. On appeal by the revenue: Held, dismissing the appeal, that the Tribunal had given a factual finding and its order was in conformity with law not warranting interference." 8. This decision was challenged by the Revenue before the Hon'ble Apex Court through SLP which now stands dismissed. We are in agreement with the ld.AR that this judgment of Hon'ble Madras High Court dated 4-6-2007 was available before the Assessing Officer when he passed his order on 31-12-2007. The Assessing Officer has decided this issue after detailed examination. On the other hand, the ld.DR has suppo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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