Uniroyal Marine Exports Ltd,, Calicut vs Assessee

Uniroyal Marine Exports Ltd., Vs. The Commissioner of Income-tax, 11/19, Vengalam P.O., Kozhikode. Kozhikode. [PAN: AAACU 4631N]

(Assessee-Appellant) (Revenue-Respondent)

Assessee by Shri Philip Joseph, CA Revenue by Shri M. Anil Kumar, CIT(DR)

Date of hearing 11/05/2015 Date of pronouncement 14/05/2015

ORDER

Per B.R.BASKARAN, Accountant Member:

The assessee has filed this appeal challenging the revision order dated 31.12.2012 passed by Ld CIT, Kozhikode u/s 263 of the Act and it relates to the assessment year 2004-05. The assessee is challenging the validity of revision order passed by the Ld CIT.

2 We heard the parties and perused the record. The assessing officer passed the impugned assessment order u/s 143(3) r.w.s. 147 of the Act on 09-05-2011 determining the total income at NIL under normal provisions of the Act and the Book profit at NIL under sec. 115JB of the 2 I.T.A. No.118/Coch/2013

Act. While computing the "Book profit" u/s 115JB of the Act, the AO allowed deduction as per Clause (vii) of Explanation 1 to Sec. 115JB(2) of the Act. The said clause (vii) reads as under:-

"(vii) the amount of Profits of Sick Industrial Company for the assessment year commencing on and from the asst year relevant to the previous year in which the said Company has become a Sick Industrial Company and ending with the asst year during which the entire net worth of such company becomes equal to or exceeds the accumulated losses."

In assessment year 2003-04, the net worth of the company had exceeded the accumulated loss. In that year, the profit of the company was Rs.7,23,64,801/-. The assessee adjusted a sum of Rs.2,79,00,851/- under clause (vii) of the Explanation 1 to sec. 115JB in assessment year 2003-04. After such adjustment the "Profit of Sick Industrial Company"

that remained was Rs.4,44,64,950/-. The assessee adjusted a sum of Rs.1,54,51,645/- out of the above said balance amount of profit in AY 2004-05 and the same was also accepted by the AO. Accordingly he computed "Book Profit" u/s 115JB of the Act at NIL figure.

3. The Ld CIT initiated revision proceedings u/s 263 of the Act on the reasoning that the assessing officer has wrongly allowed deduction of Rs.1,54,51,645/- under clause (vii) of Explanation 1 to sec. 115JB of the Act. According to Ld CIT, the net worth of the company has exceeded the accumulated loss during the previous year relevant to the AY 2003-04 and further the BIFR has also removed the name of assessee company from the list of the Sick Companies and hence the assessee was not entitled for deduction under Clause (vii) to Explanation 1 to sec. 115JB of the Act in the year under consideration as the same falls beyond the period prescribed in clause (vii), referred above. Accordingly, after hearing the objections raised by the assessee, the Ld CIT set aside the assessment order and directed the AO to pass fresh assessment order.

3 I.T.A. No.118/Coch/2013 Aggrieved, the assessee has filed this appeal before us.

4. The main contention of the Ld A.R was that the assessing officer, during the course of assessment proceedings, called for working of Book Profit u/s 115JB of the Act and after satisfying himself, the AO has computed the book profit accordingly. The Ld A.R, accordingly, contended that there was application of mind by the AO and he has adopted one of the plausible views and hence the impugned revision order lacks jurisdiction. On the other hand, the Ld D.R placed strong reliance on the order of Ld CIT.

5. With regard to the principles governing the revision proceeding u/s 263 of the Act, a gainful reference may be made to the decision of Hon'ble Supreme Court in the case of Malabar Industrial Co. Vs. CIT (243 ITR 83). We feel it pertinent to refer to the decision rendered by the Hon'ble Bombay High Court in the case of Grasim Industries Ltd. V CIT (321 ITR 92), wherein the court has discussed about the scope of provisions of section 263 as under after considering the decision of Hon'ble Supreme Court referred above:

"Section 263 of the Income-tax Act, 1961 empowers the Commissioner to call for and examine the record of any proceedings under the Act and, if he considers that any order passed therein, by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, to pass an order upon hearing the assessee and after an enquiry as is necessary, enhancing or modifying the assessment or canceling the assessment and directing a fresh assessment. The key words that are used by section 263 are that the order must be considered by the Commissioner to be "erroneous in so far as it is prejudicial to the interests of the Revenue". This provision has been interpreted by the Supreme Court in several judgments to which it is now necessary to turn. In Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83, the Supreme Court held that the provision "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". The Supreme Court held that an incorrect assumption of fact or an incorrect application of law will satisfy the requirement of the order being erroneous. An order passed in violation of the principles of natural justice or without application of mind, would be an order falling in that category. The expression "prejudicial to the interests of the Revenue", the Supreme 4 I.T.A. No.118/Coch/2013 Court held, it is of wide import and is not confined to a loss of tax. What is prejudicial to the interest of the Revenue is explained in the judgment of the Supreme Court (head note) :

"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 treated as prejudicial to the interests of the Revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or 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 interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law."

The principle which has been laid down in Malabar Industrial Co. Ltd. [2000] 243 ITR 83 (SC) has been followed and explained in a subsequent judgment of the Supreme Court in CIT v. Max India Ltd. [2007] 295 ITR

282."

There may not be any dispute that the revision proceeding shall not lie on the issues on which the Assessing Officer has taken a plausible view after examining and applying his mind on it.

6. Now we shall analyse the facts prevailing in the instant case. The issue revolves around the interpretation of the provisions of clause

(vii) of Explanation 1 to sec. 115JB of the Act. For the sake of convenience, at the cost of repetition, we extract below the above said provision:-

"(vii) the amount of Profits of Sick Industrial Company for the assessment year commencing on and from the asst year relevant to the previous year in which the said Company has become a Sick Industrial Company and ending with the asst year during which the entire net worth of such company becomes equal to or exceeds the accumulated losses."

According to Ld CIT, the deduction prescribed in the above said provision shall be available only for the assessment years falling between the years mentioned in clause (vii), i.e., the assessment year in which the company has become a Sick Industrial Company and the year in which the net 5 I.T.A. No.118/Coch/2013 worth of such company becomes equal to or exceeds the accumulated losses.

7. However, according to Ld A.R, the provisions of sec. 115JB of the Company is intended to collect income tax from the so called Zero tax companies. Obviously, in order to exempt Sick industrial companies from the provisions of sec. 115JB of the Act, the above said clause (vii) was inserted. A company would become a "sick company" due to continuous losses incurred by it. When the sick company starts making profits, it would be liable to pay the tax u/s 115JB of the Act and hence the above said clause (vii) was inserted to provide deduction for the profits earned by such kind of reviving sick companies, so that the same would further advance the process of revival.

8. According to the Ld A.R, one should read the provisions of clause

(vii), referred above, in the back ground discussed above. According to the Ld A.R, clause (vii) provides for deduction of "amount of Profits of Sick Industrial Company". According to the Ld A.R, the subsequent lines in clause (vii) only quantify the amount that is required to be deducted, i.e., "the Profits for the assessment year commencing on and from the asst year relevant to the previous year in which the said Company has become a Sick Industrial Company and ending with the asst year during which the entire net worth of such company becomes equal to or exceeds the accumulated losses". Thus, according to the assessee, the amount of profits pertaining to the assessment years falling with the periods referred above shall be eligible for deduction under clause (vii) of the Explanation 1 to sec. 115JB of the Act. According to the Ld A.R, the profits earned during the period mentioned in clause (vii), referred above, was Rs.7.23 crores and the entire amount is eligible for deduction under clause (vii) over a period of time, since the said provision does not provide any cap for deduction. According to Ld A.R the deduction 6 I.T.A. No.118/Coch/2013 prescribed in clause (vii) and the deduction prescribed in clause (iii) was not with reference to the items debited/credited in the Profit and Loss account of the Company. Accordingly it was submitted that the legislature has intended to exclude the profits of sick industrial company earned during a particular period and since it is a beneficial provision intended to give relief to companies which are in the process of revival, the same should be construed in the back ground of intention of the legislature.

9. Whereas, according to Ld CIT, the provisions of clause (vii) provides for deduction of the profit earned in a specific year falling within the periods mentioned in clause (vii), referred above. Accordingly, the Ld CIT held that the assessment year under consideration, being a year falling after the expiry of the period mentioned in clause (vii), the assessee is not eligible for any deduction under clause (vii) of Explanation 1 to sec. 115JB of the Act. The Ld CIT has also relied upon the decision rendered by ITAT Hyderabad bench in the case of Singareni Collaries Co. Ltd (no reference given).

10. On a careful perusal of the contentions of the assessee as well as the Ld D.R, we are of the view that both the views are possible views, i.e., the issue under consideration is debatable issue, where two views are possible. Since the assessing officer has passed the assessment order by accepting the view of the assessee, it has to be held that the assessing officer has adopted one of the plausible views. In the case of Malabar Industrial Co. (supra), the Hon'ble Supreme Court has held that when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or 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 interests of the Revenue unless the view taken by the 7 I.T.A. No.118/Coch/2013 Income-tax Officer is unsustainable in law. In our opinion, the view taken by the assessing officer cannot be considered to be unsustainable in law. Hence, we are of the view that the impugned revision order could not be sustained and accordingly we set aside the same.

11. The Ld A.R, during the course of hearing, advanced following alternative contentions also viz.,

(a) the earlier assessment order passed u/s 143(3) r.w.s. 147 of the Act got merged with the order of Ld CIT(A), in which the issue relating to sec. 115JB of the Act was also dealt with by the first appellate authority and hence the present revision order on the very same issue is not valid.

(b) The impugned assessment order passed u/s 143(3) r.w.s 147 of the Act was passed by issuing notice dated 11.3.2011 u/s 148 of the Act. Earlier the assessing officer had completed the assessment u/s 143(3) r.w.s. 147 of the Act on 22.11.2006 and the same was challenged before Ld CIT(A) also. The assessment was reopened again after the expiry of four years from the end of the assessment year and there was no failure on the part of the assessee to disclose fully and truly all the material facts. Though the second reassessment order (impugned asst. order) was accepted by the assessee, yet it was an invalid order in the eyes of law and such invalid order could not be revised by Ld CIT u/s 263 of the Act. We do not find it necessary to adjudicate the alternative contentions, since we have set aside the revision order on the main contentions itself.

8 I.T.A. No.118/Coch/2013 12. In the result, the appeal filed by the assessee is allowed.

Pronounced in the open court on 14-05-2015

sd/- sd/- (V. DURGA RAO) (B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Place: Kochi Dated: 14th May, 2015 GJ Copy to:

1. Uniroyal Marine Exports Ltd., 11/19, Vengalam P.O., Kozhikode.

2. The Deputy Commissioner of Income-tax, Circle-2(1), Kozhikode.

3. The Commissioner of Income-tax, Kozhikode.

4. D.R., I.T.A.T., Cochin Bench, Cochin.

5. Guard File.

By Order

(ASSISTANT REGISTRAR) ITAT, COCHIN