If two views are possible and one of the views is taken by the AO then the CIT cannot exercise revisionary power under Section 263
Bombay High Court in the case of KEC International Limited (ITA No 324 of 2003) has reiterated the already settled principle of exercising revisionary power of CIT under section 263. It has held that if two views are possible and one of the views is taken by the AO, then the CIT cannot exercise jurisdiction under Section 263 of the Act.
Issues:
The jurisdiction of the CIT to invoke revisional power.
The deduction of de-capitalized interest pertaining to earlier years while computing book profits.
Court ruling:
The court reviewed the assessment order passed by the assessing officer on 28 February 1991, which accepted the computation of income under Section 115J. The court examined the notice issued by the CIT under Section 263, which stated that the assessment framed by the ITO was erroneous and prejudicial to the interest of revenue. The CIT highlighted that the deduction allowable under Section 32AB was not computed correctly. The CIT argued that this adjustment was not in accordance with the provisions of Section 32AB(3), which defines the profits of business for the purpose of this section.
The court analyzed the submissions made by the appellant and the respondent, including the reliance on various decisions. The appellant argued that the view taken by the AO was in consonance with the decision of the Cochin Bench in the case of Apollo Tyres Ltd. vs. DCIT. The appellant contended that if two views are possible and one of the views is taken by the AO, then the CIT cannot exercise jurisdiction under Section 263 of the Act. The appellant also relied upon the decision of the Supreme Court in the case of CIT vs. Max India Ltd.
It was pointed out that the decision of the Supreme court in Max India holds that the jurisdiction under Section 263 of the Act has to be tested on the basis of law prevailing on the date when the CIT exercised the jurisdiction. Therefore, the subsequent decision of Apollo Tyres Limited on Section 115J cannot be considered for testing the validity of exercise of jurisdiction under Section 263 since on the day when the CIT exercised his jurisdiction, the Supreme Court had not decided the issue.
The CIT’s notice under Section 263 highlighted that the deduction allowable under Section 32AB was not computed correctly. The CIT argued that this adjustment was not in accordance with the provisions of Section 32AB(3), which defines the profits of business for the purpose of this section. The court noted that the assessing officer had not examined these issues during the original assessment proceedings, leading to the CIT’s conclusion that the assessment order was erroneous and prejudicial to the interest of revenue.
The court upheld the jurisdiction of the CIT to invoke revisional power under Section 263, stating that the issues raised in the revisional proceedings were not examined during the original assessment proceedings. The court emphasized that the CIT’s observations on the computation of book profit under Section 115J were necessary for satisfying the twin conditions for assuming jurisdiction under Section 263. The court dismissed the appeal filed by the appellant.
The copy of the order is as under: