TMI Blog2020 (4) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 1.40 crores. We find that although, the Ld. AO has examined the issue at the time of assessment proceedings and recomputed eligible deduction u/s. 36(1)(viii), but failed to exclude interest received on income tax refund from profits and gains of business before allowing deduction u/s. 36(1)(viii). We further noted that the assessee has accepted the fact that the said interest on income tax refund needs to be excluded from profits and gains of the business. Further contended that once, it has been excluded from profits and gains of the business, then the same needs to be excluded from revenue from operations in order to compute eligible deduction u/s.36(1)(viii) and accordingly, filed a revised computation of eligible deduction u/s.36(1)(viii), which is part of paper book page 107 filed by the assessee. We are of the considered view that insofar as, this issue is concerned the assessment order passed by the Ld. AO is erroneous, insofar as it is prejudicial to the interest of the revenue. However, as regards excess deduction computed by the ld. PCIT and excess deductions worked out by the assessee, there is a difference, which needs to be thoroughly examined by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Act, 1961 and the reasons assigned by him for doing so are wrong and contrary to the facts of the case, the provisions of Income Tax Act, 1961, and the Rules made there under. 1.(b) On the Facts and in the circumstances of the case and in law, the appellant prays that the order of the learned CIT passed u/s.263 of [he Income Tax Act, 1961 may be cancelled being void ab-initio and bad in law. 2.(a) On the (acts and in the circumstances of the case and in law, the learned Commissioner of Income Tax erred in holding that the learned AO without application of mind has incorrectly allowed. The appellants claim for reduction of ₹ 23,93,25,367/-(₹ 22,49,00,000o/- + R.S. 1,44,25,367/-) from total Income being write back on account of the Provision for restructuring of assets and Provision for bad and doubtful debts and the reasons assigned by him for doing so are wrong and contrary to the acts of the case, the provisions of Income Tax Act,1961, and the Rules made there under. 2.(b) Commissioner of Income Tax erred in invoking the provision of section 263(1) of the Income Tax Act, 1961,without appreciating the fact that the Id. Assessing officer had after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ever, provision for restructuring is made, it is added back to the computation of total income and therefore, is reduced from computation of total income al the lime writing back of the same. 3.(a) On the facts and in the circumstances of the case and in law. the leaned Commissioner of Income Tax erred in holding that Id. AO has erred in allowing excess deduction of ₹ 1,40,26,066/- u/s 36(l)(viii), which is wrong and contrary to the facts of the case, the provisions of Act and the Rules made there under; 3.(b) On the fact and in the circumstances of the case and in law. The learned Commissioner of Income Tax ought to have reduced interest on income tax refund of ₹ 22.95 crore from numerator as well as denominator while calculating deduction u/s 36(l)(viii) and not doing so is wrong and contrary to the facts of the case, the provisions of Act and the Rules made there under; 3. The assessee, M/s Small Industrial Development Bank Of India (SIDBI), is a state owned non banking finance company engaged in the business long term financing and banking business, filed its return of income for AY 2010-11 on 29/09/2010, declaring total income of ₹ 1,235,95,3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gible profit, but interest on income tax refund has not been reduced from the profits and gains from the business. The assessee, further submitted that no doubt interest on income tax refund should be excluded from profit, while computing deduction u/s 36(1)(viii), however once interest on income tax refund has been excluded from profits and gains, then the same needs to be excluded from income from operations to determine the quantum of deduction and accordingly, filed a revised computation and as per which, the assesee has determined excess deduction of ₹ 79,06,329/- as against of ₹ 1,40,26,066/- worked out by the Ld.PCIT. 4. The Ld.PCIT, after considering relevant submission of the assessee and also by relied upon plethora of judicial precedents, including the decision of Hon ble Supreme Court, in the case of Malabar Industrial Company Limited vs CIT 243 ITR 83, held that the assessment order passed by the Ld. AO is erroneous, insofar as, it is prejudicial to the interest of the revenue and accordingly, set aside assessment order passed by the Ld.AO and direct the AO to make a fresh assessment after conducting enquiries and a detailed verification of the facts, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus, the order passed u/ .143(3) of the Act, dated 31-12-2012, allowing the aforesaid claims i.e., 'provision for restructuring of assets written back' and 'provision for bad and doubtful debts written back' totaling to ₹ 23,93,25,367/- are erroneous and prejudicial to the interest of the revenue. vii] Further, on perusal of the records of the assesses company, it is seen that the assessee company had claimed deduction u/s 36(1)(viii) of ₹ 83,31,54,230/-, being 20% of profits and gains of business of ₹ 1363,07,75,789/-. During the course of scrutiny assessment, the assessing officer, after certain additions and deletions had arrived profits and gains of business income at ₹ 1353,29,35,769/- and allowed deduction of Rs,82,71,73,952/- as against the assessee s claim of ₹ 88,31,54,230/-. viii) In this regard, it is noted that for the year under consideration, the assessee had interest income of ₹ 22,94,72,711/- on account of income tax refund (vide note 20 to the balance sheet) and this was included in other income in P L A/c, This income being income from other sources, it should have been reduced while computing profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that the decision of the Apex Court in the case of Malabar Industrial Co. Ltd vs CIT (243 ITR 83) cited by the assessee in support of his case can also be relied upon in support of action u/s 263. The Hon'ble Apex Court in the case of Malabar Industrial Co. Ltd reported in 243 ITR 83 held that the exercise of jurisdiction by the CIT suo moto u/s 263 should satisfy the conditions like (i) the order of the AO sought to be revised is erroneous, (ii) it is prejudicial to the interest of the Revenue, (iii) if the AO passed an order without application of mind or failed to apply his mind to the case in all perspective, the order passed by him was erroneous (iv) mere acceptance of a statement filed by the assessee, in absence of any supporting material and without making any enquiry, would make the order of the AO erroneous. I have examined the issues with the case records and I am satisfied that these conditions are satisfied in the case of the assessee, for exercising jurisdiction u/s 263 of the Act. The powers u/s.263 came up for consideration before the Karnataka High Court in the case of CIT v, Infosys Technologies Ltd., (341 ITR 293). Reference was made by the Karnataka High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 381/Mura/2009 dated 30.9.2010), supports this situation. In that case, since the enquiries were not made by the AO, the order passed by the CIT exercising jurisdiction u/s 263 was held to be valid and the same was upheld. Similar views have been expressed by the said Handle Tribunal in the case of Arvee International reported in 101 ITD. In that case, it is held that when an assessment is made without application of mind, the order will be erroneous. Reliance is also placed on the following decisions where action u/s 263 was upheld. i. Where relief was granted to the assessee without proper verification. Indian Textiles v CIT, (1986) 157mlTR 1123(Mad): {1985) Tax 79(3) 327. ii. Assessment made without enquiry into the facts stated in the return. Gee Vee Enterprises v Addl, CIT(1975] 99 IT 375(Del) iii. Where the Assessing Officer has accepted the claim of the assessee as to non taxability of income erroneously without making proper enquiries, it is beyond dispute that the Commissioner has under section 263 power to set aside the assessment order and send the matter for fresh assessment if he is satisfied that further enquiry is necessary and that the order of the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owever, the Ld.PCIT has ignored the computation filed by the assessee. Therefore, he argued that there is no merit in the contention of the Ld.PCIT that the assessment orders passed by the Ld. AO is erroneous, insofar as, it is prejudicial to the interest of the revenue. 6. The Ld. DR, on the other hand, strongly supporting order of the Ld.PCIT submitted that it is incorrect on the part of Ld. AR for the assessee to argue that the issues questioned by the Ld.PCIT in revision proceedings is subject matter of appeal before the Ld.CIT(A), because the issue taken up by the Ld.PCIT and the issue before the Ld.CIT(A) are altogether different. Therefore, the Ld.PCIT was right in taken up the issue of allowances of deduction of ₹ 22.49 cores towards provision for restructuring of assets written back. He, further submitted that insofar as, re-computation of excess deduction allowed u/s 36(1)(viii), it is an admitted fact that the Ld.AO has not considered the facts in right perspective of the Act, to allow deduction, which resulted in excess deduction of ₹ 1.40 cores, which is evident from the fact that the assessee has admitted the fact that interest on income tax refund has to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he above, it is very clear that whenever, a provision was created in earlier years the assesee has not taken the benefit of deduction u/s.36 (1)(viia)(c) and consequently, when the amount is written back from provision and credited to profit and loss account, the same cannot be treated as income u/s. 41(1) of the I.T.Act, 1961. Therefore, we are of the considered view that the Ld.PCIT was erred in coming to the conclusion that Ld.AO has wrongly allowed deduction of ₹ 22.49 crores, towards provision for restructuring of assets written back and towards provision for bad and doubtful debts written back. 9. We, further noted that this issue has been subject matter of consideration from the ld. AO during the assessment proceedings and also, the Ld. AO has disallowed amount claimed towards deduction under the head bad and doubtful debts, which is evident from the fact that the assessee has challenged the disallowances made by the Ld.AO towards provision for bad and doubtful debts before the Ld.CIT(A). Once, an issue is subject matter of assessment proceedings and also, bone of contention between the assessee and the AO before the first appellate authority, then the assessment or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assed the assessment order. The Assessing Officer while passing the assessment order made disallowance of ₹ 15.87 crore on account of bad debts under section 36(1)(viii). Against the disallowance, the assessee filed appeal before the ld. CIT(A) on the disallowance made by assessee. The Assessing Officer passed the assessment order after full satisfaction of the case. As the assessee has filed appeal before the ld. CIT(A) on similar issue, therefore, the ld. PCIT was precluded from revising the assessment order. The ld. AR submits that the Assessing Officer while passing the assessment order has taken one of the possible views. Therefore, the assessment order was not erroneous. The twin condition as provided under section 263 of the Act when the order is erroneous in so far as prejudicial to the interest of revenue are not satisfied. In support of his submission, the ld. AR of the assessee relied upon the decision of Malabar Industrial Company Ltd. (supra), decision of Hon ble Mumbai High Court in CIT vs. Gabriel India Ltd. (supra). 8. On the principle of merger, the ld. AR of the assessee relied upon the decision of jurisdictional High Court in CIT vs. Paul Brothers (su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment. Explanation.[1]-For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,- ****** (c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject-matter of any appeal, the powers of the Commissioner under this sub-section shall extend to such matters as had not been considered and decided in such appeal. 12. A careful reading of the provisions of section 263 makes it clear that the Commissioner of Income-tax is entitled to revise an assessment order insofar as the order is erroneous and prejudicial to the interest of the revenue, however, Explanation (c) places an embargo on the Commissioner of Income-tax in case of subject-matter of any appeal which has been considered and decided in such appeal. In other words, before the Commissioner of Income-tax exercises the jurisdiction under section 263 of the Act, the Commissioner of Income-tax is required to ascertain whether the order referred to in sub-section (1) of section 263 of the Act had been the subject-matter of any appeal, and if yes, the revisional powers shall be available only if such subject-matter had not been co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Appeal. We do not find any merit in Mr. Mohanty's submission because detailed references have been made in the foregoing paragraphs to the case of the Assessee before the Assessing Officer, his initial order, the order of the first appellate authority, the direction issued by the first appellate authority and which was given effect to by the Assessing Officer. All these would denote that something which was very much part and parcel of the appellate authority's order and dealt with extensively therein is now sought to be revised and revisited. Firstly, if the income of the Assessee from the film is ₹ 11,25,00,000/-, then, whether the explanation of the Assessee that it is not so deserves to be considered or not by the Assessing Officer is grievance No. 1/ground No. 1 before the first appellate authority. Secondly, if that is taken to be the income of the Assessee and without admitting it to be so the cost of production of the film needs to be deducted by applying Rule 9A of the Income Tax Rules. Thus, that is ground No. 2 in the memo of Appeal before the first appellate authority and in his order dated 12th October, 2011. Both these matters are very much part of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmissioner (Appeals) and, therefore, exercise of power by the Commissioner under section 263 was even not available under Explanation (c) to section 263(1). 16. In view of the above legal and factual discussions, the order passed by ld. PCIT under section 263 was not a valid order in the eyes of law, which we quashed. Considering the fact that we have quashed the order of ld. PCIT on one of the legal submissions of the ld. AR for the assessee therefore, the discussions on other legal submissions and merit of the case has become academic. 10. In this view of the matter and considering the facts and circumstances of this case, we are of the considered view that insofar as, the issue of allowances of deduction of ₹ 22.49 crores towards provision for restructuring of assets written back and ₹ 1.44 crores towards provision for bad and doubtful debts written back, the assessment order passed by the Ld.AO cannot be termed as erroneous, insofar as it is prejudicial to the interest of the revenue and hence, we set aside the findings of the Ld.PCIT and restored the findings of the Ld.AO. 11. Coming back to the second issue questioned by the Ld.PCIT. The Ld.PCIT has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion for restructuring of assets written back and ₹ 1.44 crores towards provision for bad and doubtful debts written back. Insofar as, the second issue of excess allowances of deduction u/s.36 (1)(vii), the assessment order passed by the Ld.AO is erroneous, insofar as it is prejudicial to the interest of the revenue and hence, we modified the findings of the Ld.PCIT. However, while considering the second issue of excess deduction allowed u/s.36 (1)(viii), we direct the AO to exclude interest on income tax refund from profits and gains of business and also from total revenue from operations for the purpose of determination of allowable deduction u/s.36(1)(viii) of the I.T.Act, 1961. 13. In the result, appeal filed by the assesse ITA No.2996/Mum/2015 for AY 2010-11 is treated as partly allowed. ITA NO. 2997/Mum/2015 for AY 2011-12 14. The assessee has raised the following grounds of appeal: 1.(a) On the facts and in The circumstances of the case and in law, The learned Commissioner of Income Tax erred in initiating proceedings u/s.263 of the Income Tax Act, 1961 vide show-cause notice dated 02.03.2015 and passing the order u/s, 263 of the Income Tax Act, 1961 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of Income Tax Act,1961 and the Rules made there under. 2.(e) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax failed to appreciate that (i) provision for bad and doubtful debts made in the books of accounts as per RBI guidelines is not claimed as deduction for income tax purposes and is added back in the computation of total income in earlier years and (ii) the claim of provision for bad and doubtful debts u/s 36(l)(viia)(c) is adjusted/reduced/considered against the claim for bad debts written off u/s 36(1)(vii) in terms of proviso thereto and as such the said finding of learned CIT will amount to double addition. 3.(a) On the facts and in the circumstances of the case and in law. the leaned Commissioner of Income Tax erred in holding that Id. AO has erred in allowing excess deduction of ₹ 73,30,298/- u/s 36(1)(viii), which is wrong and contrary to the facts of the case, the provisions of Act and the Rules made there under; 3.(b) On the fact and in the circumstances of the case and in law. The learned Commissioner of Income Tax ought to have reduced interest on income tax refund of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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