COMMISSIONER OF INCOME TAX SHIMLA V. MS H.P.S.I.D.C

ITA/12/2010

AI Insights

The case involves multiple appeals by the Commissioner of Income Tax, Shimla, against the Himachal Pradesh State Industrial Development Corporation Ltd., concerning the assessment of book profits under Section 115JB of the Income Tax Act. The primary legal issue was whether the amounts withdrawn from provisions for non-performing assets and credited to the profit and loss account could be deducted from the book profits for the purpose of calculating the Minimum Alternate Tax (MAT). The ITAT had previously allowed the deductions, which the Commissioner contested. The High Court's decision affirmed the ITAT's rulings, emphasizing the need for a proper application of the law as per the provisions of Section 115JB.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 683741 (HC-HIMACHAL_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 24-05-2014
• Assessment Year: misc
• Other Referred Cases: Indo Rama Synthetics India Limited vs. Commissioner of Income Tax, New Delhi, Malabar Industrial Co. Ltd. vs. Commissioner of Income Tax, Commissioner of Income Tax (Central) Ludhiana vs. Max India Limited, Commissioner of Income Tax, Shimla vs. Greenworld Corporation Parwanoo
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: VISHAL MOHAN; GOVERDHAN SHARMA
• Assessee Lawyers: VINAY KUTHIALA; VANDANA KUTHIALA
• Keywords: Bad debts; Book Profits; Minimum Alternate Tax; Revision petition; Provisions for non-performing assets
• Section: 143(3); 115JB; 115JA

Judgement Text

"IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA ITA No. 25 of 2009 a/w ITA Nos 29, 47 of 2009 and 12 of 2010 Judgment reserved on: 14.5.2014 Date of decision: May 24th, 2014. 1. ITA No. 25 of 2009 Commissioner of Income tax, Shimla …….Appellant. Vs. M/s. Himachal Pradesh State Industrial Development Corporation Ltd. …… Respondent 2. ITA No. 29 of 2009 Commissioner of Income tax, Shimla …….Appellant. Vs. M/s. Himachal Pradesh State Industrial Development Corporation Ltd. …..Respondent. 3. ITA No. 47 of 2009 Commissioner of Income tax, Shimla …….Appellant. Vs. M/s. Himachal Pradesh State Industrial Development Corporation Ltd. …….Respondent. 4. ITA No. 12 of 2010 Commissioner of Income tax, Shimla …….. Appellant. Vs. M/s. Himachal Pradesh State Industrial Development Corporation Ltd. ………Respondent. Coram The Hon’ble Mr. Justice Mansoor Ahmad Mir, Acting Chief Justice The Hon’ble Mr. Justice Tarlok Singh Chauhan, Judge Whether approved for reporting?1 Yes Whether the reporters of the local papers may be allowed to see the Judgment?Yes - 2 - For the Appellant(s) : Mr. Vinay Kuthiala, Senior Advocate, with Ms. Vandana Kuthiala, Advocate. For the respondent(s) : Mr. Vishal Mohan & Mr. Goverdhan Sharma, Advocates. Tarlok Singh Chauhan,Judge The assessee in all these cases is a State Corporation engaged in financing of industrial units in the State of Himachal Pradesh. ITA No. 25 of 2009 2. For A.Y, 2004-05, the Assessing Officer (A.O.) passed the assessment order u/s 143(3) on 20.11.2006 assessing total income at Nil, but charging tax u/s 115JB at `22,30,505/- on the book profits as shown at `2,65,68,495/- and as increased by certain unascertained liabilities debited to the P&L account. Before the A.O., the assessee had claimed that a debit of `1,64,47,026/- in the P&L account on account of bad debts written off actually represented a net debit arrived at after setting off a credit of `2,38,41,187/- being the amount withdrawn from provisions for bad debts created in F.Y.s 1997-98 to 2002-03, and this credit was deductible from the book profits under clause (i) of Explanation 1 below section 115JB(2). It was also submitted that the credit of `2.38 crores is in fact an appropriation of profits and does not form part of the book profits. However, the AO did not accept the assessee’s contention. - 3 - 3. The assessee filed an appeal against the assessment for A.Y. 2004-05 before the CIT(A). The CIT (A) vide its order dated 16.3.2007 passed in appeal No.IT/329/2006-07/SML had dismissed the appeal of the assessee. 4. The assessee then filed further appeal before the ITAT. The ITAT vide its order dated 8.10.2008 passed in ITA No.456/Chandi/2007 had allowed the appeal of the assessee, for the same reasons as stated in the same order for A.Y.2003-04. 5. This Court on 16.3.2009 admitted the appeal on following substantial question of law:- Whether doubtful loans written off as bad debts and subsequently credited to the profit and loss account by way of contra-entry, could be deducted from the book profits under clause (i) of Explanation 1 to section 115JB , especially when such doubtful loans had not been included in the book profits of the relevant years for the purposes of section 115JA or 115 JB? ITA No. 29 of 2009 6. The assessee’s regular assessment u/s 143(3) for A.Y. 2003-04 was completed on 30.11.2005 assessing total income at `10,29,013/-. On a subsequent perusal of the record it was seen that the net profit as per the audited P&L Account for the relevant year was `1,84,87,917/-. Since the assessee is a company, the provisions of section 115 JB relating to minimum alternate tax were prima facie attracted. It was noted that the Assessing Officer(A.O) had examined the issue of taxability u/s 115 JB in the course of assessment - 4 - proceedings. The assessee had submitted before the AO that a debit of `37,63,858/- in the P&L A/c on account of bad and doubtful debts written off, actually represented the net amount arrived at after writing back a sum of `2,37,76,034/- being provisions for non- performing assets created in earlier years. 7. It was contended before the A.O. that this effective credit of `2.38 crores was deductible from the book profits under clause (i) of Explanation 1 below section 115JB(2). After such deduction, there would be no book profits assessable u/s 115 JB. The amount written back was withdrawn from provisions created only by way of debit to the P&L Appropriation account and not to the P&L A/c and further that no deduction had ever b een claimed in the relevant years on account of such provisions. These contentions of the assessee were accepted by the A.O. and accordingly no computation of tax was made u/s 115 JB in the assessment order. 8. In subsequent proceedings u/s 263, it was found by the Commissioner (CIT) that the submissions of the assessee had been accepted by the A.O. without verifying and without correctly appreciating the facts and without correctly applying the provisions contained in section 115 JB. It was found that a substantial portion of the provisions stated to have been created in F.Y 1997-98 had actually been created prior to 1.4.1997, and any amount withdrawn from such provisions and credited to the P & L account would therefore not be deductible from the book profits under the said clause(i) of the Explanation. Further, some of the provisions stated to - 5 - have been created in subsequent years were actually not provisions for non-performing assets. The assessee had not filed any details to identify the provisions from which the amount of `2.38 crores was stated to have been withdrawn. The CIT therefore held that the A.O. had erroneously accepted the claim of the assessee without due verification. The CIT also held that the credit of `2.38 crores was only a contra-entry or book adjustment and not a substantive credit, and could in any case not be deducted from book profits. 9. Lastly, the CIT held that the proviso to the said clause (i) of the Explanation in section 115JB had not been considered by the A.O. and accordingly set aside the order u/s 263 dated 24.10.2007 with directions to the A.O. to examine in detail the provisions created in earlier years, the years to which the provisions written back pertained and whether any tax u/s 115-JA or 115 JB had actually been paid in earlier years on such provisions and then apply the relevant law. 10. The assessee filed an appeal against the said order of the CIT, before the ITAT. By the present impugned order, the ITAT has held that the CIT was not justified in invoking the provisions of section 263. The ITAT has held that no material had been brought on record by the CIT to establish that the credit of `2.38 crores represented amounts withdrawn from a reserve created before 1.4.1997. Even if part of the reserves were in fact created prior to 1.4.1997, the assessee had created further reserves in F.Y. 1998-99 - 6 - to 2002-2003 from which the credited amount of `2.38 crores could have been withdrawn. 11. The ITAT has further held that there was no positive material before the Commissioner which could lead to an objective inference that the order of the A .O. was erroneous and prejudicial to the interest of revenue. The assessment order had been made by the A.O. with proper application of mind and therefore, the same cannot hold to be erroneous and prejudicial to the revenue. 12. The assessee filed an appeal before the ITAT. The ITAT vide its order dated 8.10.2008 passed in ITA No.982 /Chandi/2007 has allowed the appeal of the assessee. 13. This Court on 18.5.2009 admitted the appeal on following substantial question of law:- Whether action under Section 263 is justified when there is an incorrect assumption of law and facts by the Assessing Officer resulting in an order which is erroneous and prejudicial to the interest of revenue? ITA No. 47 of 2009 14. The assessee’s regular assessment u/s 143(3) for A.Y. 2005-06 was completed on 14.11.2007 assessing total income at `2,60,314/- under the normal provisions of the Act. Further, the A.O. noted that the net profit as per the audited P&L A/c for the relevant year was `4,90,36,008/-. Since the assessee is a company, it was liable to minimum alternate tax on the book profits under the provisions of section 115JB. In the computation of book profits filed - 7 - with the return, the assessee increased the above profit of `42,21,484/- and reduced the resultant figure of `5,32,57,492/- by an amount of `3,53,08,859/- being provisions for doubtful debts written back, and an amount of `19,59,882/- being provisions for investments and others written back. The assessee submitted before the Assessing Officer ( A.O.) that a debit of `1,50,74,602/- in the P&L A/c on account of bad and doubtful debts written off, actually represented the net amount arrived at after writing back a sum of `3,53,08,859/- being provisions for non-performing assets created in earlier years. 15. It was contended before the A.O. that this effective credit of `3.53 crores was deductible from the book profits under clause (i) of the Explanation below section 115JB(2). The amount written back was withdrawn from provisions created in earlier years only by way of debit to the P&L Appropriation account and not to the P&L A/c and further that no deduction had ever been claimed in the relevant years on account of such provisions. These contentions of the assessee were not accepted by the A.O. who held that the tax under section 115JB had to be levied on the profit figure shown in the profit & loss account, as increased by certain unascertained liabilities. Accordingly, the A.O. assessed book profits u/s 115 JB at `5,32,57,492/- disallowing the deductions claimed. 16. The assessee filed an appeal against the assessment before the CIT(A). The CIT(A) vide her order dated 5.9.2008 passed in appeal No.IT/196/07-08/SML, has dismissed the appeal of the assessee. The assessee then filed further appeal before the ITAT. - 8 - The ITAT vide its order dated 29.1.2009 passed in ITA No.897/Chandi/2008 has allowed the appeal of the assessee on the issue of computation of book profits following its order dated 8.10.2008 in ITA No.982/Chandi/2007 for A.Y 2003-04 and 2004-05 in the assessee’s own case, holding that the amount of `3,53 crores being withdrawal from provisions for non-performing loans and written back to the P & L account, was deductible from the book profits under section 115 JB. As per the appellant, the decision of the ITAT on the issue of computation of book profits is, with respect, not correct, for the reasons that the assessee has stated that the following provisions for non-performing loans had been made in the accounts during F.Y. 1997-98 to 2002-03 by debit to the P & L Appropriation account ( and not by debit to the P&L account):- F.Y. Amount of provision ( Rs.crores) 1997-98 18.08 1998-99 1.98 1999-2000 1.76 2000-01 4.48 2001-02 0.91 2002-03 0.03 According to the assessee, out of this accumulated provision of `27.24 crores, amounts of `2.37 crores and `2.38 crores were withdrawn in A.Ys. 2003-04 and 2004-05 respectively and credited to the P&L accounts in those years. 17. It is the contention of the appellant that since the provisions created in the earlier years had not been debited to the - 9 - P&L account in those years, the amounts withdrawn from the said provisions and credited to the P&L accounts in the subsequent years, including the amount of `3.53 crores credited in the present A.Y. 2005-06, are to be deducted from the book profits for the purposes of section 115JB. 18. This Court on 24.7.2009 admitted the appeal on following substantial questions of law:- 1. Whether doubtful loans written off as bad debts and subsequently credited to the profit and loss account by way of contra-entry, could be deducted from the book profits under clause (i) of Explanation 1 to Section 115JB, especially when such doubtful loans had not been included in the book profits of the relevant years for the purposes of Section 115JA or 115JB? 2. Whether the issue could be decided in favour of the assessee merely on the basis of an order for an earlier year, even though the facts on record were not similar? ITA No. 12 of 2010 19. The assessee’s regular assessment u/s 143(3) for A.Y. 2006-07 was completed on 31.10.2008 at nil income after setting off brought forward losses under the normal provisions of the Act. Further, since the assessee is a company, the provisions of section 115 JB relating to minimum alternate tax were attracted. The assessee had shown net profit of `14,55,46,507/-. In the P&L account for the year after adjustment of income/expenditure pertaining to earlier years. While declaring such profit, the assessee had written off bad and doubtful debts of `7,83,61,154/- and credited an amount - 10 - of `8.50,96,686/- stated to be created on account of non-performing assets in earlier years and written back in the Profit & loss Account . 20. In the computation of book profits under section 115 JB filed with the return, the assessee reduced such alleged provision written back to the extent of `8,44,76,686/- and declared the book profit u/s 115 JB at `6,11,23,579/-. It was contended that this amount of `8.45 crores was deductible under clause (i) of the Explanation in section 115JB, as it represented the amount written back out of provision created in earlier years for non-performing assets. These provisions had been created in earlier years only by way of debit to the P& L Appropriation Account and not to the P& L Account. 21. In the assessment order dated 31.10.2008, the A.O. held, on the basis of the order passed u/s 263 by the commissioner for A.Y 2003-04, that such amounts written back could not be deducted from the book profits under the said Explanation and that even on facts, it was not ascertainable as to which of provisions created in earlier years had actually been written back. 22. The assessee filed an appeal against the assessment order before the CIT (A). The CIT(A) vide her order passed in appeal No.IT/222/08-09/SMI dated 9.6.2009 held in favour of the assessee, following ITATs orders for A.Y. 2003-04 and 2004-05 in the assessee’s own case. The department filed further appeal before the ITAT. The ITAT vide impugned order dated 15.10.2009 has dismissed the department’s appeal following its orders in the - 11 - assessee’s case for the year 2005-06 in ITA No.897/Chandi/2008 dated 29.1.2009 and for years 2003-04 and 2004-05 in ITA No.982/Chandi/2007 dated 8.10.2008. The Department has preferred ITA 47/09 against these orders before this Court. 23 This Court on 17.5.2010 admitted the appeal on following substantial question of law:- 1. Whether doubtful loans written off as bad debts and subsequently credited to the profit and loss account by way of contra-entry, could be deducted from the book profits under clause (i) of Explanation 1 to Section 115JB, especially when such doubtful loans had not been included in the book profits of the relevant years for the purposes of Section 115JA or 115JB? We have heard Mr. Vinay Kuthiala, Senior Advocate assisted by Ms. Vandana Kuthiala, Advocate for the appellant(s) and Mr. Vishal Mohan, Advocate, for the respondent(s) and have also gone through the record. 24. As would be noticed from above, primarily two common substantial questions arise for determination in all these cases:- 1. Whether doubtful loans written off as bad debts and subsequently credited to the profit and loss account by way of contra-entry, could be deducted from the book profits under clause (i) of Explanation 1 to Section 115JB, especially when such doubtful loans had not been included in the book profits of the relevant years for the purposes of Section 115JA or 115JB? 2. Whether action under Section 263 is justified when there is an incorrect assumption of law and facts by the Assessing Officer resulting in an order which is erroneous and prejudicial to the interest of revenue? - 12 - 25. The learned counsel for the appellant(s) has strenuously argued that the impugned order passed by the ITAT is not sustainable in the eyes of law and there is complete misreading and misinterpretation of section 115JB of the Income Tax Act, 1961 ( for short Act). The concept of Minimum Alternate Tax (for short MAT) is applicable only where the normal total income computed is less than 30% of the book profit. He for this submission has placed reliance upon the judgment of the Hon’ble Supreme Court in Indo Rama Synthetics India Limited vs. Commissioner of Income Tax, New Delhi (2011) 2 SCC 168:- “8. MAT is applicable only where the normal total income computed is less than 30% of the book profit. 9. MAT was introduced by the Finance Act of 1996 w.e.f. 1.4.1997. This was necessary due to a rise in the number of zero-tax companies paying marginal tax which situation arose in view of preferences granted in the form of exemptions, deductions and high rates of depreciation. The rate of minimum tax was kept at 30% of the book profit as deemed total income. MAT was levied under Section 115JA from assessment year 1997-98. Section 115JA is made inoperative w.e.f. 1.4.2001. In its place, the Finance Act, 2000 inserted Section 115JB. The new provision provides that all companies having book profit under the Companies Act, shall be liable to pay MAT at a specified rate of the book profit. It further provides that every MAT company shall follow same accounting policies and standards as are followed for preparing its statutory account. 10. For the purposes of the afore-stated provision, \"book profit\" means the net profit as shown in the P & L Account in the relevant previous year in accordance with the provisions of Part II and Part III of the Schedule VI to the Companies Act, subject to certain adjustments which increases or decreases the book profit. Thus, even under Section 115J, certain adjustments were to be made to the net profits as shown in the P & L Account. One such adjustment stipulates that the net profit shall be decreased by the amount withdrawn from any reserves, if any such amount is credited to the P & L Account. 11. Some companies have taken advantage of Section 115J by decreasing their net profit by the amount withdrawn from the reserve created in the same year itself, though the reserve when created had not gone to increase the book profit. Such adjustments led to lowering of profits and, consequently, the quantum of tax payable got reduced. Thus, by amending Section 115J, it was provided that \"book profit\" will be allowed to be decreased by the amount withdrawn from any reserves only in two cases: - 13 - (i) if such reserve has been created in the previous year relevant to the assessment year commencing w.e.f. 1.4.1998 OR (ii) if the reserve so created in the previous year has gone to increase the book profit in any year when Section 115J was applicable. 12. The Finance Act, 2002 now specifically provides vide Section 115JB that the amounts withdrawn from any reserves, if credited to the P & L Account, shall be reduced from the book profit. It also provides that any amount withdrawn from such reserves created on or after 1.4.1997 and which is credited to P & L Account shall not be reduced from the book profit, unless the book profit in the year of creation of such reserves stood increased by the amount transferred to such reserves at that time. Scope of Section 115JB 13. The expression \"book profit\" for the purposes of Section 115JB has been defined in the explanation to Section 115JB(2) to mean: - the net profit as shown in the P & L Account for the relevant previous year prepared under Section 115JB(2), as increased by the amount(s) mentioned in clauses (a) to (f) and as reduced by the amount(s) covered by clauses (i) to (vii) of the said explanation. 14. It is, thus, clear that what is \"book profit\" has been defined and explained in the above explanation. Section 115JB is a self-contained code. It applies notwithstanding other provisions of the Act. There is no scope for any allowances or deductions under any other section from what is deemed to be total income of the company (assessee). 15. The first step for arriving at the \"book profit\" is that the net profit as shown in the P & L Account for the relevant previous year prepared under Section 115JB(2) has to be increased by the amount(s) in clauses (a) to (f) if such amount(s) is debited to the P & L Account. Clause (b) refers to amount(s) carried to any reserves by whatever name called. As stated above, such increase needs to be made only if any amount referred to in clauses (a) to (f) is debited to P & L Account. 16. The second step for arriving at the \"book profit\" is that the net profit as shown in the P & L Account for the relevant previous year prepared under Section 115JB(2) and as increased by any amount, as stated above, has to be reduced by the amount(s) in clauses (i) to (vii).” 26. In order to appreciate the submissions of the learned counsel for the appellant(s), it is apt to reproduce Section 115-JB, which reads as follows:- - 14 - Special provision for payment of tax by certain companies. 115JB. (1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee, being a company, the income-tax, payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 2001, is less than seven and one-half per cent of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of seven and one-half per cent. (2) Every assessee, being a company, shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 (1 of 1956) : Provided that while preparing the annual accounts including profit and loss account,-- (i) the accounting policies; (ii) the accounting standards adopted for preparing such accounts including profit and loss account; (iii) the method and rates adopted for calculating the depreciation, shall be the same as have been adopted for the purpose of preparing such accounts including profit and loss account and laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956 (1 of 1956) : ***** Explanation.--For the purposes of this section, \"book profit\" means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2), as increased by- ***** (b) the amounts carried to any reserves, by whatever name called, other than a reserve specified under section 33AC; or if any amount referred to in clauses (a) to (f) is debited to the profit and loss account, and as reduced by- ***** (i) the amount withdrawn from any reserve or provision (excluding a reserve created before the 1st day of April, 1997 otherwise than by way of a debit to the profit and loss account), if any such amount is credited to the profit and loss account: Provided that where this section is applicable to an assessee in any previous year, the amount withdrawn from reserves - 15 - created or provisions made in a previous year relevant to the assessment year commencing on or after the 1st day of April, 1997 shall not be reduced from the book profit unless the book profit o f such year has been increased by those reserves or provisions (out of which the said amount was withdrawn) under this Explanation or Explanation below the second proviso to section 115JA, as the case may be;” 27. Taking cue from the aforesaid provision, it is then argued by learned counsel for the appellant(s) that an amount withdrawn from a reserve and apparently credited to the P&L account could not be reduced from the book profit for the purposes of section 115 JB, if such credit merely represented a contra entry of book adjustment and not an effective credit. In that case the ITAT had held that a credit by way of contra adjustment is not a credit in substance and deduction of the same from the book profit would not be in consonance with the intention of the legislature. In these cases the provisions have been created in earlier years in respect of doubtful loans. During the relevant year some of the loans were written off as bad and a contra entry was made in the P&L Account crediting the amount of the provision made in respect of such loans. Therefore, the credit made in these cases was not an effective credit and could not be reduced from the book profits. 28. It is further contended that the proviso to clause (i) of the Explanation to section 115JB makes it clear that for a credit to be deductible from book profit, the provisions of section 115JB or section 115JA should have been applicable in the year in which the relevant provisions were made and that the book profits of those years should actually have been increased by the amounts of such provisions. Since Section 115 JB is a self contained code, a credit on account of - 16 - provisions written back is deductible from the book profit only if the provision originally made had been added to the book profits u/s 115JA or 115JB in that earlier year. 29. The learned counsel for the appellant has then placed reliance upon the following paragraphs from judgment of the Hon’ble Supreme Court in Indo Rama Synthetics India Limited ( supra) :- “25…………..One such adjustment stipulated that the net profit shall be reduced by the amount(s) withdrawn from any reserves, if any such amount is credited to the P & L Account. Thus, if the reserves created had gone to increase the book profits in any year when the provisions of Section 115JB were applicable, the assessee became entitled to reduce the amount withdrawn from such reserves if such withdrawal is credited to P & L Account. 26. Now, from the above facts, it is clear that neither the said amount of Rs.288,58,19,000/- nor Rs.26,11,74,000/- had ever gone to increase the book profits in the said year ending 31.3.2000 (being the financial year). Thus, when such amount(s) has not gone to increase the book value at the time of creation of reserve(s), there is no question of reducing the amount transferred from such revaluation reserves to the P & L Account. Thus, the proviso to clause (i) of the explanation to Section 115JB(2) comes in the way of the claim for reduction made by the assessee. In our view, the reduction under clause (i) to the explanation could have been availed only if such revaluation reserve had gone to increase the book profits. As the amount of revaluation reserves had not gone to increase the book profits at the time it was created, the benefit of reduction cannot be allowed. “ 30. The main thrust of the learned counsel for the appellant is that the order passed by the ITAT below is not in consonance with law as the same is based on total misconstruction of the provision of section 115JB, particularly, the explanation has not been taken into consideration and therefore, this has resulted in total erroneous findings. 31. On the other hand, it is contended by learned counsel for the respondent that the appellant had not allowed deduction strictly - 17 - in accordance with Section 115 JB and what has been missed out and ignored by the CIT is the explanation to the section which was correctly noticed by the ITAT and it accordingly arrived at correct decision. The learned counsel for the respondent has further contended that no question of law much less the substantial question of law on which the appeal was admitted for consideration. Lastly, it is contended that the deduction claimed by the respondent is in accordance with law and therefore, no interference is warranted in the order passed by the ITAT. 32. We have given our deep and thoughtful consideration to the rival contention of the parties and have also gone through the records. It was not disputed by either of the parties before the ITAT that `2,37,76,034/- represents provisions for non-performing assets created in earlier years by debiting to the Profit & Loss Appropriation Account (not by debit to Profit & Loss Account) and credited to the Profit & Loss Account for the instant assessment year. The Explanation (i) to Section 115JB reads as follows:- “Explanation. 1--For the purposes of this section, \"book profit\" means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub- section (2)…………. and as reduced by- ***** (i) the amount withdrawn from any reserve or provision (excluding a reserve created before the 1st day of April, 1997 otherwise than by way of a debit to the profit and loss account), if any such amount is credited to the profit and loss account: Provided that where this section is applicable to an assessee in any previous year, the amount withdrawn from reserves created or provisions made in a previous year relevant to the assessment year commencing on or after the 1st day of April, 1997 shall not be reduced from the book profit unless the book profit of such year has been increased by those - 18 - reserves or provisions (out of which the said amount was withdrawn) under this Explanation or Explanation below the second proviso to section 115JA, as the case may be;………….” From the perusal of the abovesaid provision of law, it will be seen that book- profit means the net profit as shown in the profit and loss account for the relevant previous year prepared u nder sub- section (2) of section 115JB of the Act and, as reduced by the amount withdrawn from any reserve or provision, if such amount withdrawn from the reserve or provision has been credited to the profit and loss account. In other words, any amount withdrawn from any reserve or provision credited to the profit and loss account has to be reduced from the net profit as shown in the profit and loss account for the computation of book profit in accordance with section 115 JB of the Act. 33. This, however, does not mean that all reserves created otherwise than by way of debit to the profit and loss account can be reduced from the book profit under section 115JB of the Act. It is only the reserve created after 1st April 1997 that can be credited to the profit and loss account. It may be noticed that this exception to the general rule had only been inserted by the Finance Act, 2002 w.e.f. 1.4.2001 (supra). 34. Therefore, in view of the discussion above, it can be safely concluded that section 115JB of the Act, provides that any amount credited to the profit and loss account on account of amounts withdrawn from the reserve or provision had to be reduced from the book profit with an exception that if such reserve or provision is out of - 19 - reserve created prior to or before 1.4.1997 and, such reserve has been created not by way of debit to the profit and loss account, then the same will not be permitted to be reduced from the net profit as per profit and loss account. 35. Now, adverting to the f acts and applying the aforesaid provisions to the present case, it would be seen that it had not been disputed before the ITAT that the sum of `.2,37,76,034/- represents the provision for non-performing assets created earlier years, not out of reserve created before 1.4.1997. Therefore, the same had to be reduced for computation of book profit in accordance with section 115JB. The ITAT has come to categorical findings of fact that following provisions were available for credit to the profit and loss account, which had been made after 1.4.1997 and not prior to it:- F.Y. Amount of provision (Rs. Crores) 1998-99 1.98 1999-00 1.76 2000-01 4.48 2001-02 0.91 2002-03 0.03 Therefore, in the given facts and circumstances, we have left with no option but to uphold the order passed by the ITAT. 36. This takes us to the next question which arises with regard to the jurisdiction of the CIT entertaining the revision petition under Section 263 of the Income Tax Act. Be it stated that the provisions of section 263 of the Act have been invoked by CIT to pass orders not only against the appellant(s), but also in its favour in the aforesaid cases, therefore, strictly speaking, this question may - 20 - only now be academic, however, we may notice the law on the subject. In Malabar Industrial Co. Ltd. vs. Commissioner of Income Tax, (2000) 243 ITR 83, the Hon’ble Supreme Court held as follows- “A bare reading of section 263(1) makes it clear that the pre-requisite to exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the ITO is erroneous insofar as it is prejudicial to the interests of the revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the revenue. If one of them is absent - if the order of the ITO is erroneous but is not prejudicial to the revenue or if it is not erroneous but is prejudicial to the revenue - recourse cannot be had to section 263(1) of the Act. There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer; it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase ‘prejudicial to the interests of the revenue’ is not an expression of art and is not defined in the Act. Understood in its ordinary meaning, it is of wide import and is not confined to loss of tax. The High Court of Calcutta in Dawjee Dadabhoy and Co.v. S.P.Jain [1957] 31 ITR 872, the High Court of Karnatka in CIT v. T.Narayana Pai [1975]98 ITR 422, the High Court of Bombay in CIT v. Gabriel India Ltd [1993] 203 ITR 108 and the High Court of Gujarat in CIT v. Smt. Minalben S.Parikh [1995] 215 ITR 81 treated loss of tax as prejudicial to the interests of the Revenue. Mr.Abraham relied on the judgment of the Division Bench of the High Court of Madras in Venkatakrishna Rice Company v. CIT [1987] 163 ITR 129 interpreting “prejudicial to the interests of the Revenue.” The High Court held (page 138): “ In this context, it must be regarded as involving a conception of acts or orders which are subversive of the administration of revenue. There must be some grievous error in the order passed by the Income-tax Officer, which might set a bad trend or pattern for similar assessments, which on a broad reckoning, the Commissioner might think to be prejudicial to the interests of Revenue administration.” In our view, this interpretation is too narrow to merit acceptance. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the revenue. If due to an erroneous order of the Income Tax Officer, the revenue is losing tax lawfully - 21 - payable b y a person, it will certainly be prejudicial to the interests of the revenue. 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. It has been held by this court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the Revenue. Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 (SC) and in Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC).” 37. Thereafter the said provision came up for consideration before the Hon’ble Supreme Court in Commissioner of Income Tax (Central) Ludhiana v. Max India Limited (2007) 15 SCC 401 wherein the Hon’ble Supreme Court has clarified that the phrase “prejudicial to the interest of the Revenue” as contained in para-10 of the judgment (quoted above) in Malabar Industrial Co. Ltd. has to be read in conjunction with the expression “erroneous” order passed by the assessing officer. It was further clarified that every loss of revenue as a consequence of an order of the assessing officer cannot be treated as prejudicial to the interest of the Revenue, it has been held as under:- “2. At this stage we may clarify that under para 10 of the judgment in Malabar Industrial Co. Ltd. [(2002) 2 SCC 718: (2000) 243 ITR 83] this Court has taken the view that the phrase \"prejudicial to the interest of the Revenue\" under Section 263 has to be read in conjunction with the expression \"erroneous\" order passed by the assessing officer. - 22 - 3. Every loss of revenue as a consequence of an order of the assessing officer cannot be treated as prejudicial to the interest of the Revenue. For example, when the 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 interest of the Revenue, unless the view taken by the Income Tax Officer is unsustainable in law. ” 38. The scope of provision of section 263 of the Income Tax Act then came up for interpretation before the Hon’ble Supreme Court in Commissioner of Income Tax, Shimla vs. Greenworld Corporation Parwanoo (2009) 7 SCC 69, wherein it has been held as under:- “28. Before, however, adverting to the jurisdictional issue raised by the Assessee herein, we may consider the jurisdiction of the Commissioner of Income-tax to issue notice in terms of Section 263 of the Act. It provides for a revisional power. It has its own limitations. An order can be interfered suo motu by the said authority not only when an order passed by the Assessing Officer is erroneous but also when it is prejudicial to the interests of the Revenue. Both the conditions precedent for exercising the jurisdiction under Section 263 of the Act are conjunctive and not disjunctive. An order of assessment passed by an Income-tax Officer, therefore, should not be interfered with only because another view is possible.” 39. Thus, from the exposition of law, it can be safely concluded that the power of the Commissioner Income Tax to exercise suo motu revisional power in terms of Section 263(1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein viz “(i) the order is erroneous”; (ii) “by virtue of the erroneous order prejudice has been caused to the interest of the Revenue, however, every loss of revenue - 23 - as a consequence of an order of Assessing Officer cannot be treated to be prejudicial to the interest of revenue. Both the conditions precedent for exercising the jurisdiction under section 263 of the Act are conjunctive and not disjunctive. The order of assessment passed by an Income Tax Officer, therefore, should not be interfered with only because another view is possible. 40. The ITAT has correctly interpreted the provisions of section 115JB of the Act and thereafter applied the same to the facts of each case(s). The substantial questions of law raised in all the appeals are answered accordingly. 41. Therefore, the findings recorded by the ITAT below in all these cases are affirmed. Resultantly, all the appeals are dismissed, leaving the parties to bear their own costs. (Mansoor Ahmad Mir), Acting Chief Justice. (Tarlok Singh Chauhan) Judge. May 24th, 2014 (sks/hem) "