M/s Hindustan Shipyard Ltd., Visakhapatnam V. The DCIT, Circle-3(1), Visakhapatnam

ITA 295/VIZ/2005

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7038 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 4 year(s) 9 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-03-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 1999-2000
• Appeal Filed On: 30-05-2005
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUBRATA SARKAR
• Section: 263; 92

Judgement Text

PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NOS.295 & 296/VIZAG/2005 ASSESSMENT YEARS: 1999-2000 & 2000-01 HINDUSTAN SHIPYARD LTD., VISAKHAPATNAM VS. DCIT, CIRCLE-3(1), VISAKHAPATNAM (APPELLANT) (RESPONDENT) PAN NO. AAACH 4275 P APPELLANT BY: SHRI G.V.N. HARI, CA RESPONDENT BY: SHRI SUBRATA SARKAR, CIT(DR) ORDER PER SHRI B R BASKARAN, ACCOUNTANT MEMBER : BOTH THE APPEALS FILED AT THE INSTANCE OF THE ASSE SSEE ARE DIRECTED AGAINST THE ORDER PASSED BY LD CIT-I VISAKHAPATNAM U/S 263 O F THE INCOME-TAX ACT AND THEY RELATE TO THE ASSESSMENT YEARS 1999-2000 AND 2 000-01. SINCE BOTH THE APPEALS WERE HEARD TOGETHER AND ARE BASED ON SAME S ET OF FACTS, WE FIND IT CONVENIENT TO DISPOSE THEM BY THIS COMMON ORDER. 2. IN BOTH THE YEARS THE LD CIT, BY INVOKING POWER U /S 263 OF THE ACT, DIRECTED THE ASSESSING OFFICER TO REVISE THE INCOME COMPUTED U/S 115JA OF THE ACT BY MAKING CERTAIN ADDITIONS. AGGRIEVED AGAINST THE ORDER OF THE LD CIT, THE ASSESSEE IS IN APPEAL BEFORE US. 3. THE FACTS OF THE CASE ARE STATED IN BRIEF. THE A SSESSEE COMPANY, A PUBLIC SECTOR UNDERTAKING, IS ENGAGED IN THE BUSINESS OF S HIP BUILDING AND SHIP REPAIRS. THE COMPANY HAD BORROWED LOANS FROM GOVERNMENT OF IN DIA FOR THE PURPOSES OF ITS BUSINESS IN EARLIER YEARS. DURING THE YEAR RELE VANT TO THE ASSESSMENT YEAR PAGE 2 OF 5 1999-2000 THE ASSESSEE COMPANY RECEIVED WAIVER ORDE R VIDE MINISTRYS LETTER NO. SY 11018/34/90-IISL(VOL.III) DATED 21.3.1999 IN RESPEC T OF THOSE LOANS. AS PER THE SAID ORDER THE ASSESSEE COMPANY RECEIVED THE FO LLOWING BENEFITS: A) CONVERSION OF LOANS INTO EQUITY - RS. 120.20 C RORES B) WRITE OFF OF GOVERNMENT LOANS - RS. 158.25 CRO RES C) WRITE OFF OF INTEREST ON GOVERNMENT LOANS AND GUARANTEE FEE - RS. 312.68 CRORES ------------------------ TOTAL = RS. 591.13 CRORES =========== THE ASSESSEE COMPANY ALSO WROTE BACK RS.166.91 CROR ES IN THE SUBSEQUENT FINANCIAL YEAR 1999-2000, REPRESENTING THE INTEREST ON GOVERNMENT LOANS PERTAINING TO THE FINANCIAL YEAR 1995-96 AND 1996-9 7. THE ASSESSEE COMPANY DID NOT ACCOUNT FOR THE WAIVER BENEFITS CITED ABOVE IN ITS PROFIT & LOSS A/C. THE ASSESSING OFFICER ACCEPTED THE CONTENTION OF THE AS SESSEE THAT THE CONVERSION OF LOANS INTO EQUITY AND THE WRITE OFF OF GOVERNMENT L OANS DO NOT GIVE RISE TO ANY INCOME CHARGEABLE U/S 41 OF THE INCOME TAX ACT. THE AO DID NOT AGREE WITH THE CONTENTION OF THE ASSESSEE WITH REGARD TO THE INTER EST COMPONENT AND ADDED THE SAME WHILE COMPUTING THE BOOK PROFIT U/S 115JA OF T HE ACT. SIMILARLY THE INTEREST AMOUNT OF RS.166.91 CRORES, WHICH WAS WRITTEN OFF I N THE SUCCEEDING YEAR WAS ALSO CONSIDERED BY THE AO FOR THE PURPOSE OF COMPUT ING THE BOOK PROFIT. HOWEVER, THE LD CIT (A) WAS OF THE VIEW THAT THE LO AN AMOUNT OF RS.158.25 CRORES WRITTEN OFF BY THE GOVERNMENT CONSTITUTES IN COME IN THE HANDS OF THE ASSESSEE AND ACCORDINGLY DIRECTED THE AO TO RECOMPU TE THE BOOK PROFIT U/S 115JA OF THE ACT BY INCLUDING THE SUM OF RS.158.25 CRORES CITED ABOVE. 3.1 CONSEQUENT TO THE ORDER PASSED U/S 263 FOR THE ASSESSMENT YEAR 1999- 2000, LD CIT FELT THAT THE ADDITION OF ABOVE SAID S UM OF RS.158.25 CRORES WILL CONSIDERABLY REDUCE THE AMOUNT OF UNABSORBED DEPREC IATION TO BE CARRIED OVER IN PAGE 3 OF 5 THE NEXT SUCCEEDING YEAR, I.E. ASSESSMENT YEAR 2000 -01. CONSEQUENTLY, THE LD CIT-I ALSO DIRECTED THE AO, BY INVOKING REVISION PR OCEEDINGS U/S 263 OF THE ACT, TO RECOMPUTE THE BOOK PROFIT FOR THE ASSESSMENT YEA R 2000-01 ALSO. AGGRIEVED BY BOTH THE ORDERS OF LD CIT, THE ASSESSEE IS IN AP PEAL BEFORE US. 4. WE HAVE HEARD THE PARTIES AND CAREFULLY PERUSED THE RECORD. THE POWER OF LD CIT TO REVISE THE ORDER BY INVOKING THE SECTION 263 OF THE ACT HAS BEEN LUCIDLY EXPLAINED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GRASIM INDUSTRIES LTD., VS. CIT (2010) 321 ITR 92 AS UNDER: SECTION 263 OF THE INCOME TAX ACT, 1961 EMPOWERS TH E COMMISSIONER TO CALL FOR AND EXAMINE THE RECORD OF ANY PROCEEDINGS UNDER THE ACT AND, IF HE CONSIDERS THAT ANY ORDER P ASSED 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 HEA RING THE ASSESSEE AND AFTER AN ENQUIRY AS IS NECESSARY, ENHA NCING OR MODIFYING THE ASSESSMENT OR CANCELLING THE ASSESSME NT AND DIRECTING A FRESH ASSESSMENT. THE KEY WORDS THAT AR E USED BY SECTION 263 ARE THAT THE ORDER MUST BE CONSIDERED B Y THE COMMISSIONER TO BE ERRONEOUS IN SO FAR AS IT IS PR EJUDICIAL 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.C IT (2000) 243 ITR 83, THE SUPREME COURT HELD THAT THE PROVISION CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE O R 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 INC ORRECT APPLICATION OF LAW, WILL SATISFY THE REQUIREMENT OF THE ORDER B EING ERRONEOUS. AN ORDER PASSED IN VIOLATION OF THE PRINCIPLES OF NATU RAL JUSTICE OR WITHOUT APPLICATION OF MIND, WOULD BE AN ORDER FALL ING IN THAT CATEGORY. THE EXPRESSION PREJUDICIAL TO THE INTERE STS OF THE REVENUE, THE SUPREME COURT HELD, IT IS OF WIDE IMP ORT AND IS NOT CONFINED TO A LOSS OF TAX. WHAT IS PREJUDICIAL TO T HE INTEREST OF THE REVENUE IS EXPLAINED IN THE JUDGMENT OF THE SUPREME COURT (HEAD NOTE): THE PHRASE PREJUDICIAL TO THE INTERESTS OF THE RE VENUE HAS TO BE READ IN CONJUNCTION WITH AN ERRONEOUS ORDER PASSED BY THE ASSESSING OFFICER. EVERY LOSS OF REVENUE AS A CONSE QUENCE OF AN ORDER OF THE ASSESSING OFFICER CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, FOR EXAMPLE, WHEN AN INCOME-TAX PAGE 4 OF 5 OFFICER ADOPTED ONE OF THE COURSES PERMISSIBLE IN L AW AND IT HAS RESULTED IN LOSS OF REVENUE, OR WHERE TWO VIEWS ARE POSSIBLE AND THE INCOME-TAX OFFICER HAS TAKEN ONE V IEW WITH WHICH THE COMMISSIONER DOES NOT AGREE, IT CANN OT BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE IN TERESTS OF THE REVENUE UNLESS THE VIEW TAKEN BY THE INCOME-TAX OFFICER IS UNSUSTAINABLE IN LAW. 13. THE PRINCIPLE WHICH HAS BEEN LAID DOWN IN MALAB AR INDUSTRIAL CO.LTD. (2000) 243 ITR 83 (SC) HAS BEEN FOLLOWED AN D EXPLAINED IN A SUBSEQUENT JUDGMENT OF THE SUPREME COURT IN CIT V . MAX INDIA LTD., (2007) 295 ITR 282. 5. THE LD AR CONTENDED THAT THE AO HAS TAKEN ONE OF THE POSSIBLE VIEWS AND HENCE THE ORDER PASSED BY HIM CANNOT BE TERMED AS E RRONEOUS, LIABLE FOR REVISION U/S 263 OF THE ACT. IN THIS REGARD, LD AR PLACED HIS RELIANCE ON THE DECISION OF THIS BENCH IN THE CASE OF M/S COASTAL CORPORATION LIMITED, VISAKHAPATNAM IN ITA NO.407/VIZAG/2006, WHERE IN IT WAS HELD THAT THE WA IVER OF PRINCIPLE PORTION OF LOAN BY THE GOVT. WOULD NOT GIVE RISE TO ANY INCOME TAXABLE U/S 41(1) OF THE ACT. ON THE OTHER HAND, LD DR STOOD BY THE ORDERS OF THE LD CIT. 6. WE HAVE HEARD THE PARTIES. ON A CAREFUL PER USAL OF THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 1999-2000, IT TRANSPIRES THAT T HE ASSESSEE HAD CONTENDED ABOUT THE NON-APPLICABILITY OF THE PROVISIONS OF SE CTION 41 OF THE ACT TO THE WAIVER OF THE PRINCIPAL PORTION OF LOAN. THE AO HA S ALSO ACCEPTED THE CONTENTIONS OF THE ASSESSEE AND HENCE DID NOT ADD T HE SAID WAIVER OF PRINCIPAL PORTION WHILE COMPUTING THE BOOK PROFIT U/S 115JA O F THE ACT. HENCE THE VIEW TAKEN BY THE AO IS ONE OF THE POSSIBLE VIEWS ONLY. AS HELD BY HONBLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD., SU PRA, THE ORDER OF AO IN THAT KIND OF SITUATION CANNOT BE TERMED AS ERRONEOUS. H ENCE THE ORDER PASSED BY LD CIT U/S 263 OF THE ACT FOR THE ASSESSMENT YEAR 1999 -2000 IS LIABLE TO BE QUASHED AND WE ORDER ACCORDINGLY. SINCE THE REVISION ORDER PASSED FOR THE ASSESSMENT YEAR 2000-01 IS A FALL OUT OF THE REVISION ORDER PA SSED FOR ASSESSMENT YEAR 1999- 2000 AND THE SITUATION CONTEMPLATED BY LD CIT IN TH E ASSESSMENT YEAR 2000-01 PAGE 5 OF 5 HAVING BEEN NULLIFIED, THE SAID ORDER IS ALSO LIABL E TO BE QUASHED AND WE ORDER ACCORDINGLY. 7. IN THE RESULT BOTH THE APPEALS FILED BY THE ASSES SEE ARE ALLOWED. PRONOUNCED IN THE OPEN COURT ON 2 ND MARCH, 2010. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM, DATE:2 ND MARCH, 2010. COPY TO 1 M/S HINDUSTAN SHIPYARD LTD., PORT AREA, VISAKHAPA TNAM 530 035 2 THE DCIT, CIRCLE-3(1), VISAKHAPATNAM 3 THE CIT-1, VISAKHAPATNAM 4 THE CIT(A), VISAKHAPATNAM 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM