TMI Blog2011 (3) TMI 1041X X X X Extracts X X X X X X X X Extracts X X X X ..... d. Versus Commissioner of Income-Tax [2000 (2) TMI 10 - SUPREME Court] we set aside the order passed by the Commissioner u/s.263 and restore the order of the Assessing Officer. Deferred sales tax liability credited by the assessee under the capital reserve account in its books of account is a capital receipt and cannot be termed as remission/cessation of liability and consequently no benefit has arisen to the assessee in terms of section 41(1)(a) of the Income-tax Act, 1961 - Decided in the favour of the assessee - ITA No. 3104/Mum/2008 - - - Dated:- 11-3-2011 - Pramod Kumar, V. Durga Rao, JJ. J.D. Mistry and Nitesh Joshi for the Appellant Pavan Ved for the Respondent ORDER V. Durga Rao: This appeal has been filed by the assessee against the order passed u/s. 263 of the Income Tax Act, 1961 (the Act) of the learned Commissioner of Income Tax-VI, Mumbai Dt. 28.3.2008 relating to the Asst. Year 2005-06. 2. The facts in brief are that the assessee is a company had availed benefit of Sales Tax Deferment Scheme, 1989 of the Government of Rajasthan. The scheme provides for deferred payment of 50% of sales tax liability under the Rajasthan Sales Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt sales tax liability. A copy of the said submission has also been attached along with this reply dated 27/3/2008. An order u/s. 143(3) was passed by the Assessing Officer by specifically reducing 'surplus on prepayment of sales tax loan being capital receipt in nature' amounting to Rs.34.35 Crores from profits as per books of accounts for taxable business income. Mentioning of the words by the Assessing Officer "being capital receipt in nature" clearly shows that the Assessing Officer, after considering submissions of the assessee company, reached to the conclusion that the action of the prepayment of sales tax loan was a capital receipt not liable to tax. Thus it has been submitted that there is no error in the assessment order. Further action u/s. 263 can be taken only if two conditions are specified simultaneously. Firstly, the order passed by the Assessing Officer should be erroneous and secondly it should also be prejudicial to the interest of revenue. If either of the two conditions is not satisfied, then, the CIT has no jurisdiction to revise the order u/s.263 in support of this proposition, several case laws have been relied upon. Without prejudice to the abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e benefit in respect of such trading liability by way of remission or cessation. Therefore, the value of benefit accruing to him shall be deemed to be profit or gains of business or profession chargeable to income tax as the income of previous year in which such benefit is received. In the present case, extinguishment of loan liability of Rs.34.35 Crores has taken place in Asst. Year 2005-06. This loan liability is in the nature of sales tax liability and therefore trading liability in nature and rightly taxable under the provisions of section 41(1) of the Act. This is so because in respect of sales tax liability of Rs.34.35 Crores. The assessee has been granted deduction as per the provisions of section 43B of the Act as admitted by the assessee. The liability of the assessee is same that of sales tax and only nomenclature has been changed from sales tax liability to loan liability. This conversion only gives the assessee a facility to pay the sales tax liability in instalments over a period of years, therefore, remission of loan liability amounts to remission of sales tax liability only. Accordingly, the learned Commissioner has held that remission of trading liability of Rs.34.3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case that section 263 can be invoked. He relied on the decisions of the Malabar Industrial Co. Ltd. vs. CIT (243 ITR 83) (SC) and CIT vs. Max India Limited (295 ITR 282) (SC) by relying on the above two case laws, he has submitted where two view are possible and the Assessing Officer has taken one view with which the Commissioner does not agree, the view taken by the A.O. it cannot be treated as erroneous order prejudicial to the interest of the revenue. In so far as merits of the case are concerned, the ld. counsel for the assessee has submitted that the issue is squarely covered by the decision of the M/s. Sulzer India Limited (Supra). 5. On the other hand, learned D.R. has submitted that the circular considered by the Special Bench in the case of M/s. Sulzer India Limited (supra), for only limited purpose i.e. section 43B not for the purpose of the Income Tax Act. The learned D.R. further submitted that the Special Bench of the Bombay Tribunal in the case of M/s. Suzler India Ltd, not decided the issue in proper prospective and supported the order passed by the Commissioner u/s. 263. 6. We have heard both the sides, perused the records and gone through the orders of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. 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 full 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 an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the Income Tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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