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TMI Blog2025 (2) TMI 57X X X X Extracts X X X X X X X X Extracts X X X X ..... duction of the decapitalised interest of Rs. 317.63 lacs (Rs. 396.94 lacs minus Rs. 79.21 lacs) pertaining to earlier years while computing book profits under Section 115J had not assumed finality." 3. By consent of both the parties, the substantial question of law is reframed to bring out the exact controversy : "Whether the Tribunal was justified in upholding exercise of revisional power by the CIT u/s 263 of the Act and further was justified in holding that observations made by the CIT in his order u/s 263 on the issue of Section 115J is not definite finding on the merits of the issue?" FACTS : 4. The Appellant-Assessee are successor to the erstwhile Asian Cables Limited. On 1 January 1987, Asian Cable and Corporation Ltd. amalgamated with Wiltech India Ltd. w.e.f. 1 January 1987 and the name of the amalgamated company was changed to Asian Cables Ltd. 5. In the hands of Wiltech India Ltd., interest on term loan from financial institutions were capitalised, including interest for the period subsequent to the date of commencement of commercial production (i.e. 1 May 1982). Total interest aggregating to Rs. 617,07,00,000/- was capitalised. Depreciation on such capitalised int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reply giving its submissions on why the computation under Section 32AB and 115J of the IT Act is correct. The Appellant-Assessee prayed for dropping the proceedings. In the said reply no grievance was raised on assumption of jurisdiction by the CIT. 10. On 30 March 1993, the Commissioner of Income Tax passed an order under Section 263 of the IT Act after hearing the representative of the Appellant-Assessee. The operative portion of the Commissioner's order reads as under:- "4. I have considered the facts of the case and also the arguments of the assessee's counsel. Taking the first point relating to deduction allowable u/s. 32AB it is seen that the same has to be allowed with reference to profits of the assessee for the assessment year under consideration. It is noted from the Profit & Loss account for the fifteen months ended 31.3.1988 that a net sum of Rs. 3,17,63,000/- has been debited by way of interest on Fixed Loans after adjusting an amount of Rs. 79,21,000/- being write back of depreciation. This represents interest on term loans which were capitalised in the earlier years in respect of (Wiltech India Ltd.) Wiltech division subsequent to the date of commencement of comme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and have gone through the facts. Admittedly, the AO has not examined the important issues as mentioned above and his order is completely silent on these issues. Thus, he accepted the claim made by the assessee without proper enquiry and without application of mind. Therefore, the AO's order is erroneous and prejudicial to the interests of the revenue as held by the ITAT in the cases cited. In the case of Arbit Exports Ltd., the ITAT relied upon Hon'ble Supreme Court decision in the case of Malabar Industrial Co. Ltd. Vs. CIT 243 ITR 83. The arguments of the ld. Counsel that on merits the issues are now covered by the Hon'ble Supreme Court decision in the case of Appollo Tyres (supra) is not acceptable. Firstly, the decision was not available at the point of time when the CIT passed his order U/s. 263 of the IT Act. Secondly, whether the Supreme Court decision is applicable or not would depend upon the facts of particular case. The 1d. CIT in his order U/s. 263 has not decided the merits and he has merely directed the AO to decide the issues in accordance with the relevant provisions of law. Thus, on merits, the issue is still open. Having regard to the facts and circumstanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of this Court in the case of Herdillia Chemicals Ltd. Vs. Commissioner of Income Tax (1997) 90 Taxman 314 in support of this submission. Secondly, he submits that the view taken by the assessing officer was in consonance with the decision of the Cochin Bench in the case of Apollo Tyres Ltd. Vs. Deputy Commissioner of Income Tax (1992) 43 ITD (Cochin) and, therefore, he contends that if two views are possible and one of the view is taken by the assessing officer, then the CIT cannot exercise jurisdiction under Section 263 of the Act. He relies upon the decision of the Supreme Court in the case of Commissioner of Income Tax (Central), Ludhiana Vs. Max India Ltd. (2008) 166 Taxman 188 (SC) for this proposition. He further submits that the issue is now covered on merits by the decision of the Supreme Court in the case of Apollo Tyres Ltd. Vs. Commissioner of Income Tax (2002) 255 ITR 273 (SC). He further submits that since in the original assessment order, the assessing officer has computed book profit under Section 115J of the Act, it should be deemed that he had examined the computation of book profit under Section 115J and, therefore, the jurisdiction exercised by the CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t case ought to have challenged the order under Section 263 of the IT Act and having not challenged the same, cannot pursue remedies by filing appeal against the order giving effect to the Section 263 order. 18. We have heard learned counsel for the Appellant-Assessee and the Respondent and with their assistance have perused the documents shown to us. We note that other than what is recorded above, no other submissions have been made by both the parties. Analysis and Conclusion: 19. The issue which requires consideration is whether the order passed under Section 143 (3) dated 28 February 1991 is erroneous and prejudicial to the interest of revenue and further whether the order under Section 263 gives a conclusive finding on issue relating to Section 115J of the IT Act so as to permit the Appellant-Assessee to agitate the issue on merits. 20. Section 263(1) of the IT Act, as it stood at the relevant time, reads as under : Revision of orders prejudicial to revenue- 263. (1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the [Assessing] Officer is erroneous insofar as it is prejudicial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of the Act, namely disallowance under Rule 6-B, travelling expenses, Rule 6-D, etc. were made which led to the assessing officer computing assessed income at Rs. 5,83,29,868/- and after setting off unabsorbed losses arrived at 'NIL' income under the normal provisions of the Act. Thus, the assessing officer had to compare normal income with the book profit under Section 115J which the Appellant-Assessee has declared at Rs.49,19,377/-. The additions made in the assessment order were not related to the computation of book profit under Section 115J of the IT Act. The assessing officer therefore accepted the Appellant-Assessee's computation made under Section 115J at Rs. 49,19,377/- since same was more than the income under normal provisions of the Act. 24. In our view, the assessing officer at the end of the assessment is always required to compute the assessed income under the normal provisions of the Act and compare it with the book profit under Section 115J. Merely because the assessing officer for this comparison at the end of the assessment order reproduces the computation of income under Section 115J made by the assessee, it cannot be said that the assessing officer has ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly on satisfaction of twin conditions that the order sought to be revised is not only erroneous, but also prejudicial to the interest of the revenue. The Commissioner, therefore, has to give his reasons on satisfaction of these two conditions in his order exercising jurisdiction under Section 263 of the Act since such an order is amenable to appeal before the Tribunal. In the instant case, admittedly the issues for which revisional proceedings were initiated were not examined by the assessing officer . Therefore, merely because the assessing officer has not examined this issue and therefore order is erroneous, could not have been the only ground for exercising the jurisdiction but in addition to the same the Commissioner would have to form some opinion for coming to the conclusion that the order sought to be revised is not only erroneous, but also prejudicial to the interest of revenue. For satisfaction of the condition of 'prejudicial to the interest of revenue', the Commissioner is required to say something on merits moreso when same was not examined during original assessment proceedings. It is in these contexts that the Commissioner has observed that computation of book profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vation, then the order under Section 263 would have fallen foul of the mandatory conditions required for exercising jurisdiction under Section 263. Therefore, on a holistic and complete reading of the operative paragraphs, we cannot accept the submission made by the Appellant-Assessee that the observation made by the CIT on computation of book profit is definite and therefore he is entitled to challenge the same on merits before the Tribunal and before this Court. In our view, the observation made by CIT cannot be to read dehors the other directions of the operative portion of paragraph 5 and 6 of the revisional order and therefore this contention of the Appellant-Assessee is rejected. 29. We also do not accept the submission made by the Appellant-Assessee that merely because they have not challenged the order giving effect to Section 263 order, this Court should permit the Appellant-Assessee to agitate the issue on merits. In our view, this would amount to achieving indirectly what could not be achieved directly. Admittedly, the order giving effect to Section 263 order has become final since same has not been challenged till today. Having not challenged the said order, we cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Learned counsel for the Appellant, thereafter, relied upon the decision of Max India Ltd. (supra) in support of his submission that where the Officer has adopted one of the courses permissible in law and has taken a view which was in accordance with the Cochin Tribunal's view in the case of Apollo Tyres (supra), the order passed under Section 263 cannot be said to be erroneous and prejudicial to the interest of the revenue. In our view, the said decision of Max India Ltd. (supra) is not applicable to the facts of the Appellant before us. In the instant case before us, the assessing officer had not raised any query on any of the issues of computation under Section 115J of the Act. Therefore, the question of the Officer applying his mind to the computation of book profit under Section 115J does not arise. If the assessing officer had raised the query on the computation of book profit under Section 115J and after seeking response from the assessee had accepted the submissions by not making any adjustment, then in that scenario, it could have been contended that the assessing officer has adopted one of the views which was in consonance with the Tribunal's decision. If the assessing of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion of Mr. Agarwal that on account of Cochin Tribunal's decision in the case of Apollo Tyres Limited (supra), the assessment order cannot be said to be erroneous and prejudicial is also to be rejected. In this case the original assessment order is dated 28 February 1991 whereas Cochin Tribunal's decision is of 29 July 1992 i.e. much after assessment order was passed and moreso when the assessing officer has not examined. Also Apollo Tyres Limited (supra) was a case where assessee had filed an appeal, which indicates that at the time of passing the assessment order in the present case, the view on merits (if at all applicable) was against the assessee and in favour of the revenue. Therefore, even on these facts, decision in the case of Max India Ltd. (supra) on this proposition does not come to the rescue of the Appellant-Assessee. 34. After the hearing was concluded, this Court came across a decision of the Co-ordinate Bench, (which was not cited by any of the parties). The Court brought to the notice of the learned counsel for the Appellant-Assessee and the respondent the said decision. This Court in the case of CIT, Nagpur Vs. Ballarpur Industries Ltd. (2017) 85 taxmann.com 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plexity of Section 80 HHC of the Act. In support he placed reliance upon the decision of the Apex Court in Max India Ltd. (supra) which also reiterates that where two views are possible, the exercise of the revisional power under Section 263 of the Act is not called for. The two views he submits by inviting our attention to the fact that statement of case refers to the decision of the Tribunal placing reliance upon its decision in Mysore Exports Ltd. (supra) taking the same view. Further in support that there were two views possible at the time when the Assessing Officer passed the order, reliance was placed upon the decision of the Andhra Pradesh High Court in CIT v. Gogineni Tobacco Ltd. [1999] 238 ITR 970 which relies upon the orders passed under the Act indicating the issue is debatable. Without prejudice to the above, it is also submitted that from a bare reading of the statement of case it is clear that the Assessing Officer had allowed deduction under Section 80 HHC of the Act only after due application of mind. In support of the aforesaid, he relied upon the fact of the statement of case refers to the words "allowed deduction under Section 80 HHC of the Act". Further observ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oes not indicate that the view taken to allow the claim under Section 80 HHC of the Act was after examination/inquiry. Mere taking of a view by the Assessing Officer without having subjected the claim to examination would not make it a view of the Assessing Officer. A view has necessarily to be preceded by examination of the claim and opting to choose one of the possible results. In the absence of view being taken, merely because the issue itself is debatable, would not absolve the Assessing Officer of applying his mind to the claim made by the assessee and allowing the claim only on satisfaction after verification/enquiry on his part. A view in the absence of examination is no view but only a chance result. Therefore, even the decision of the Andhra Pradesh High Court in Gogineni Tobacco Ltd. (supra) will also have no application. 15. It appears from the decision of the Apex Court in Max India Ltd. (supra) that the Assessing Officer had taken one of the two views of the word "profit" as occurring in Section 80 HHC of the Act. Therefore, it was in that context that the Apex Court held that Section 263 of the Act would not be attracted particularly when the view of the Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder Section 32AB as well as book profit under Section 115J of the Act on merits. The order under Section 263 of the Act records in paragraph 4 that deletion of prior period interest debited in the books of account is not in accordance with the provisions of Section 32AB and, therefore, since the Officer has not taken this aspect into consideration, the assessment order is erroneous and prejudicial to the interest of the revenue. Similar observation was made in paragraph 5 with respect to computation of book profit under Section 115J of the Act. 38. In the grounds of appeal before the Tribunal, the Appellant did not raise any ground with respect to calculation of deduction under Section 32AB but only raised the ground with respect to computation of book profit under Section 115J. Therefore, it is an admitted position that the assessee accepted the revisional proceedings being within jurisdiction so far as Section 32AB is concerned. If that be so, then, we fail to understand that on the same grounds, how can the Appellant-Assessee challenge the assumption of jurisdiction of computation of book profit. Placing reliance on the order giving effect to the Section 263 order to justify t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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