Commissioner’s authority of revisional jurisdiction should be invoked only when the AO’s decision is erroneous & adverse to the revenue’s interest

ITAT Mumbai: The Commissioner's authority of revisional jurisdiction under Section 263 of the Finance Act should be invoked only when the assessing officer's decision sought to be reviewed is erroneous and adverse to the revenue's interest

Reetu | Sep 29, 2021 |

Commissioner’s authority of revisional jurisdiction should be invoked only when the AO’s decision is erroneous & adverse to the revenue’s interest

Commissioner’s authority of revisional jurisdiction should be invoked only when the AO’s decision is erroneous & adverse to the revenue’s interest

ITAT Mumbai: The Commissioner’s authority of revisional jurisdiction under Section 263 of the Finance Act should be invoked only when the assessing officer’s decision sought to be reviewed is erroneous and adverse to the revenue’s interest

M/s Reliance Industries ltd. vs Pr. CIT-Mumbai-3; ITA No. 578/Mum/2021; 01.09.2021;ITAT, Mumbai

Issue:

In the present appeal, the assessee has challenged the validity of revisional jurisdiction u/s 263 as exercised by Ld. Pr. Commissioner of Income Tax– Mumbai-3 (Pr. CIT) for assessment year 2011-12 vide order dated 30.03.2021 on the ground that there was no error in the order and the conditions of Sec 263 were not fulfilled.

Facts:

  • The assessee being resident corporate assessee is stated to be engaged in the business of manufacturing / trading of petrochemicals, polyester, fiber intermediates textiles, generation and distribution of power, operation of jetties, making investment etc
  • An assessment for the year under consideration was framed by Ld. AO u/s 143(3) r.w.s. 147 of the Act on 31/12/2018. The original return of income filed by the assessee was already scrutinized u/s 143(3) on 28/04/2015. . However, the case was reopened for various reasons.

Invocation of Revisional Jurisdiction u/s 263

  • Ld. Pr.CIT, after perusal of case records, sought revision of this order on the ground that though the lease rental was offered to tax under normal provisions, however, it was not offered to tax while computing book profits u/s115JB. Therefore, the Book Profits were short computed.

Observations by Ld. ITAT Bench:

I. Settled position of law:

A. As per the provisions of Section 263 of Income Tax Act, 1961, the revenue authorities are vested with the supervisory powers of suo-moto revision of any order passed by the Assessing Officer [AO]. For the said purpose, the appropriate authority may call for and examine the record of any proceedings under the Act and may proceed to revise the same provided two conditions are satisfied:

(i) the order of the assessing officer sought to be revised is erroneous; and
(ii) it is prejudicial to the interest of the revenue.

If one of the condition is absent recourse cannot be had to Section 263 of the Act as held by Hon’ble Supreme Court in Malabar Industrial Co. Ltd. (supra.) CIT V/s Vikas Polymers [194 Taxman 57 16/08/2010]; Delhi High Court.

B. The phrase ‘prejudicial to the interests of the revenue’ has to be read in conjunction with an erroneous order passed by the Assessing Officer.[ Malabar Industrial Co. Ltd. (supra)]. Where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue, unless the view taken by the Income-tax Officer is unsustainable in law.[ CIT V/s Max India Ltd. (295 ITR 282);Grasim Industries Ltd. V/s CIT (321 ITR 92)]

C. The words “prejudicial to the interest of the revenue”, can only mean that “the orders of assessment challenged are such as are not in accordance with law, in consequence whereof the lawful revenue due to the State has not been realized or cannot be realized.”[ Dawjee Dadabhoy and Co. vs. S.P. Jain, (1957) 311 ITR 872 (Calcutta)] Thus, the Commissioner’s exercise of revisional jurisdiction under the provisions of Section 263 cannot be based on whims or caprice. The exercise of the power is limited to cases where the Commissioner on examining the records comes to the conclusion that the earlier finding of the Income-tax Officer was erroneous and prejudicial to the interest of the revenue and that fresh determination of the case is warranted. There must be material to justify the Commissioner’s finding that the order of the assessment was erroneous insofar as it was prejudicial to the interest of the revenue.

D. It is only in cases of “lack of inquiry” and not in cases of “lack of adequate inquiry” that the Commissioner is empowered to exercise his revisional powers by calling for and examining the records of any proceedings under the Act and passing orders thereon.[ CIT vs. Gabriel India Ltd. [1993 203 ITR 108 (Bombay)]

E. Explanation-2 of Section 263, Finance Act 2015, order shall be deemed to be erroneous in so far as it is prejudicial to the interest of the revenue, if in the opinion of appropriate authority-(1) the order was passed without making inquiries or verifications which should have been made; (ii) the order is passed allowing any relief without inquiring into the claim; (iii) the order is not in accordance with any direction or instructions etc. issued by the Board u/s 119; or (iv) the order was not in accordance with binding judicial precedent.

II. Factual Observations:

A. Upon perusal of assessment order under consideration, it was quite evident that an order was passed by Ld. AO u/s 143(3) r.w.s. 147 of the Act.One of the reasons to reopen the case was the allegation of Ld. AO that income from assets given on lease, though offered to tax under normal provisions, was not routed through Profit & Loss Account which has led to short-computation of Book Profits under MAT provisions.

B. It was observed by the Ld. Bench that the assessee well explained the fact that the accounting treatment given by the assessee was in accordance with mandatory AS 19 which mandate the assessee to reflect investment in asset under finance lease as ‘Lease Receivable’ in Balance Sheet on asset side under the head ‘Loans & Advances’. Whenever, the installment was received, the principal component was to be reduced from that head and the same was not to be routed through profit & Loss Account. This practice was being followed consistently over various years.

C. Therefore, since the income was not to be routed through Profit & Loss Account, the same was not added back to the Book Profits under MAT provisions as per Hon’ble Supreme Court in Apollo Tyres Ltd (255 ITR 273) and Malayala Manorama Co. Ltd (300 ITR 251).

D. Pertinently, Ld.AO, in para-7, observed that on the remaining issues, the submissions made by the assessee are considered and accepted on the basis of merit of the issues and stand taken by the department in earlier years. Therefore, it could very well be said that Ld.AO duly applied his mind to the issue under consideration and took a possible view in the matter which is not contrary to law. Therefore, the observation of Ld. Pr. CIT that Ld. AO did not apply his mind to the issue, is without much substance.

E. It was found that the issue was duly considered by Ld. AO after considering Assessee’s detailed submissions. The view could not be said to be unsustainable view and it was one of the possible view.This being the case, the assessment order could not be subjected to revision u/s 263 and the action of Ld. Pr.CIT in invoking jurisdiction u/s 263 could not be sustained in the eyes of law.

Held:

The impugned order was thus quashed in view of the aforesaid observations and settled legal position.

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