NEHA HOME BUILDERS PVT. LTD.,MUMBAI vs. DCIT 9(2), MUMBAI

Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा लेखा सद�य लेखा लेखा सद�य सद�य राजे�� सद�य राजे�� राजे�� केकेकेके अनुसार राजे�� अनुसार अनुसार PER RAJENDRA, AM- अनुसार Challenging the order dated 30/03/2016 of the PCIT-13,Mumbai the Assessee has filed the present appeal. Assessee -company, engaged in the business of real estate development, filed its return of income on 28/09/2012,declaring total income at Rs.13,66,74,143/-.The AO completed the assessment on 31/03/2014, u/s. 143 (3) of the Act, determining its income at Rs.13.66 crores.under the normal provisions and at Rs. 20.42crore under MAT provisions. 2.Effective ground of appeal is about revisionary order passed by the CIT.After going through the assessment records for the year under appeal, the CIT observed that during the competition of book profit the assessee had incorrectly reduced deduction u/s. 80IB(10)of Rs. 20.42 crore,that the AO had accepted the same during the scrutiny assessment, that after disallowing the claim of deduction u/s. 80IB(10) from the book profit the tax payable under MAT provisions would be more. Accordingly, he issued a show cause notice on 17/03/2016 to the assessee asking it as to why the original assessment order should not be treated as erroneous and prejudicial to the interest of revenue. The assessee filed its explanation vide letter is dated 22/03/2016 and 28/03/2016. Before him it was argued that there were two acceptable views possible with regard to the claim made by the assessee. It relied upon certain case laws in its support. After considering the submission of the assessee, the CIT observed that in the AY.s.2013-14 and 2014-15,the assessee has on its own offered the profits u/s. 80IB(10) for the purpose of calculating taxable u/s. 115JB. He referred to the judgment of Hon’ble High Court of Karnataka delivered in the case of Sankhla Polymers Private Ltd. 2963/M/16(12-13)- Neha Home Builders (31 Taxmann.com 166), that in the said case it has been held that provisions of section 115JB would apply in case of an assessee who was entitled to deduction u/s. 80IB(10) and while calculating taxability u/s. 115JB deduction u/s. 80IB(10) would not be available.She reproduced the relevant portion of the judgment of the court.She also referred to the order of ITAT, Ahmedabad in the case of Ganesh Housing Corporation Ltd., wherein it was held that deduction u/s. 80IB(10) could not be allowed while computing book profit u/s. 115 JB of the Act.The CIT further held that the issue required application of mind by the AO and it could not be treated as mistake apparent from the record,as claimed by the assessee.As a result,she set aside the order and directed the AO to consider the facts and issues and pass a fresh speaking order after hearing the assessee. 3.During the course of hearing before us, the Authorised Representative (AR) contended that where two views were possible and the AO had taken one view with which the CIT did not agree,it could not be treated as an erroneous order.There were certain cases that favoured the view taken by the assessee.He referred to the case of Coromandel Stamping and Stones Ltd.(49 taxmann.com 70), Saluja Fabrics Ltd. (181 Taxman132) and Indian Petrochemicals Corporation Ltd. (74 taxmann.com 163). He further argued that order of the AO was neither erroneous nor education to the interest of revenue, that as per subsection 5 all the provisions of the act would be applicable to the computation governed by section 115 JB, that if any income was not taxable because of a specific provision of the act, the same would not form part of book profit, that section 80IB(10) excluded the income for taxation purposes, that same would not be taxable u/s. MAT provisions also, that non-obstante clause of section 80IB(10) should prevail over the non-obstante clause of 115 JB of the Act. He made a reference to the case of Friglass (India) Ltd. (4SOT 376) and stated that exemption/direction allowed by one provision of the act could not be taken away by another provision.He also referred to the provisions of section 115 JC.He also argued that the CIT at place reliance on the decision of non-jurisdictional High Court.The Departmental Representative (DR) argued that the assessee itself had followed the method suggested by the CIT in subsequent two AY.s.,that that returns were filed much before the finalization of assessment for the year under appeal i.e. on 31.03.2014,that for the subsequent AY.s.and the year under consideration it computed the income u/s 115JB in totally different methods,that it was not a case where two views were possible,that the AO had not made inquiry about the returns filed for the subsequent years and treatment given to 80IB(10)deduction.

2963/M/16(12-13)- Neha Home Builders In his rejoinder,the AR stated that the assessee computed the income u/s115JB differently as the tax effect was not very high. 4.We have heard the rival submissions and perused the material before us. We find that the assessee had computed the book profit u/s. 115 JB as under: i. Profit as per profit and loss account - Rs. 34.09 crore ii.Less: deduction u/s. 80IB(10) -Rs. 20.42 crore iii. Book profit -Rs. 13.67 crore. The CIT held that during the computation of book profit the assessee had incorrectly reduced deduction u/s. 80IB(10), amounting to Rs.20,42,47, 985/-,that the claim of the assessee was accepted by the AO without applying the provisions of section 115JB correctly,that after disallowing the claim of deduction u/s. 80IB(10) from the book profit the tax payable under the MAT provisions was more and hence the same was leviable accordingly.In short the CIT held that the order passed by the AO was not only erroneous but also prejudicial to the interest of revenue. 4.1.It is said that the Revenue does not have any right to appeal against the order of the AO,so, power of revision has been conferred on the CIT u/s. 263 of the Act.The established principles with regard to revision of orders stipulate that for exercise of such jurisdiction is that the order of the AO should be erroneous and prejudicial to the interests of the Revenue. The twin conditions enshrined under the provisions are composite and cannot be segregated. Where the order of the AO appears to be erroneous,but is not prejudicial to the interests of the Revenue or the order is otherwise valid but prejudicial to the interests of the Revenue, that does not invite the invocation of such power by the CIT. Every loss of revenue in consequence of an order of the AO cannot be treated as prejudicial to the interests of the Revenue.For example, when an AO adopts one of the courses permissible in law or where two views are possible of which the AO as taken one view, the CIT cannot exercise jurisdic - tion u/s.263 merely because he does not agree with the view of the AO,unless the view which is taken by the AO is unsustainable in law.On the other hand, where an order has been passed by the AO without application of mind or where the AO has made an incorrect assessment of facts or an incorrect application of law,that would satisfy the requirement of the order being erroneous.The phrase “prejudicial to the interests of the Revenue”, mean that if due to an erroneous order of the AO the Revenue is losing tax lawfully payable by a person,it will certainly be prejudicial to the interests of the Revenue.There is difference between incomplete or inadequate verification and no verification whatsoever by the AO.The order cannot be treated as an erroneous order or prejudicial to the interests of the Revenue,unless 3 2963/M/16(12-13)- Neha Home Builders the view taken by the AO is unsustainable in law.The order of the CIT must be clear and must set out logical ground and reason as to why the assessment should be revised.There is a distinction between an order being erroneous and a mistake or error committed by the AO.Incorrect assumption of facts or improper application of law that would satisfy the requirement of the order being erroneous.An order cannot be branded as erroneous if the CIT is not satisfied with the conclusion arrived by the AO.The CIT should demonstrate that the view taken by the AO was not plausible, being legally unsustainable and incorrect and the finding must be recorded. 4.2.Once a claim about any deduction or exemption is made as per the provisions of the Act, the AO is necessarily required to apply his mind and conduct proper enquiry and verification at the time of assessment.Lack of this exercise on the part of the AO definitely leads to an erroneous order.We are of the opinion that it is a case where the view taken by the AO was not one of the possible views.The CIT has given a categorical finding that view taken by the AO was not as per the provisions of law.In our opinion, provisions of section 80IB(10) and 115JB operate in entirely different field.Both the section were introduced in the statute with different purposes.Section 115JB is a self sufficient code in itself.It is governed by the provisions contained in that section.The purpose to introduce the section was to tax the‘zero tax companies’.On the other hand,purpose behind including the provisions of section 80IB(10) in the Act was to give impetus to housing sector.Levy of tax and allowing deduction or rebate are two different fileds.Section 115JB,to a certain extent,can be termed a charging section.As per the established principles of taxation,sections governing levy of tax, have to be construed strictly.So,in our humble opinion,section 80IB(10) cannot control the provisions of section 115JB of the Act.Principles of primary estoppel will not have any role to play,when MAT provisions are to be applied.The assessee can claim its due deduction.But, in the name of liberal interpretation or legitimate expectation,deduction u/s.80IB(10) cannot be brought within the fold of the section 115JB.It is a non obstante clause and provisions of section 80IB(10) cannot dilute the rigor encompassing it.As the AO had not given full effect to the provisions of section 115JB,so,his order would fall in the category of erroneous order. Computation made by him was not as per clear mandate of the law.The assessee itself had,in the subsequent two years,followed the method as suggested by the CIT in her revisionary order.No reasonable cause was brought on record for not claiming any deduction u/s.80IB (10),while computing the income under the MAT provisions for the immediate succeeding two AY.s.We do not find that there was any change in the provisions of both the sections for the year under appeal and for the subsequent two AY.s.Thus,there existed the first pre- 4 2963/M/16(12-13)- Neha Home Builders