HIGH COURT OF DELHI When CIT cannot exercise jurisdiction u/s 263 of IT Act, 1961

When CIT cannot exercise jurisdiction u/s 263 of IT Act, 1961

In a situation where only one view was possible on the point of issue, under no circumstances, order u/s 263 could be passed by the CIT to revise the order passed by the AO.


HIGH COURT OF DELHI

CIT

v.

DLF Power Ltd.

ITA No. 176 of 2009

October 9, 2009

RELEVANT EXTRACTS:

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7. The second ground for passing provisional order by the CIT under Section 263 of the Act relates to the provision for doubtful debts. As per the CIT, the provision for doubtful debts at Rs.818.03 lacs debited in the Profit and Loss account was not added back for calculating book profit under Section 115JB of the Act, which resulted into underassessment of income to that extent. In forming this opinion, the CIT has governed itself by the judgment of the Madras High Court in the case of Deputy Commissioner of Income Tax v. Beardsell Ltd., 244 ITR 256, wherein the Madras High Court held that where there is a statutory provision contained in explanation to sub-section (2) of Section 115JB of the Act, the provision made for uncertain liabilities are to be disallowed for calculating the book profits under Section 115JB of the Act.

16. It is clear that the explanations to Section 115JB is identically worded as explanation to Section 115JA. Both these explanations relate to calculation of book profits, i.e. they give power to the AO to increase net profit determined as per the Profit and Loss account to the extent permissible under the said explanation. For this purpose, even clause (c) under both these provisions is identically worded. In HCL Comnet (supra), the Supreme Court has explained that the said provision refers to bad and doubtful debts and provision for bad and doubtful debts can be added back to the net profits only if the amount is set aside for meeting a liability and not when the provision is made in respect of debts receivable by the assessee. For such a provision for bad and doubtful debts, which are to be received and not where provision is made for meeting a liability, the Supreme Court categorically opined that clause (c) was not attracted. This judgment amounts to affirmation of the view taken by the Special Bench of the Tribunal (Kolkata) in Usha Martin Industries Ltd. (supra). In these circumstances, the view taken by the AO could not be called erroneous.

17. In fact, having regard to the law on the point, as clarified by the Supreme Court in HCL Comnet (supra), it seems that only one view is possible. In a situation like this, under no circumstance, order under Section 263 could be passed to revise the order passed by the AO, as observed by this Court in Vimgi Investment (P) Ltd. (supra) in the following words :-

“We find that in so far as the present case is concerned, only one view is possible and that was taken by the Assessing Officer and that view was valid with reference to the assessment year 2001-02. thereforee, there was no occasion for the Commissioner to exercise his powers under Section 263 of the Act to revise the order passed by the Assessing Officer and tax the assessed on the ground that the transaction was an attempt to avoid tax. The purchase and sale of units by the assessed was undoubtedly bona fide and this was accepted by the Assessing Officer. Under these circumstances, the question of the Commissioner invoking his powers under Section 263 of the Act would not arise. Following the decision of this court in Vikram Aditya and Associates P. Ltd. [2006] 287 ITR268(Delhi), we find no substance on the merits of the case. In any event, in view of the decision of the Supreme Court in Malabar Industrial Co. Ltd. [2000] 243 ITR 83 the exercise of power by the Commissioner under Section 263 of the Act is not warranted, if it is assumed that two views are possible on the issue.”

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