By C. N. Vaze, Shailesh Kamdar, Jagdish T. Punjabi, Bhadresh Doshi, Chartered Accountants
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Section 26B – Revision – Erroneous and prejudicial order-Computation of book profit u/s. 115JB – When the AO passed the assessment order; clause (i) to Expln.1 to section 115JB was not on the statute book – Order u/s. 263 cannot be passed on an issue that is debatable and hence cannot hold that the order passed by the AO is erroneous.
Facts:
The Assessee was a private limited company that had filed a return for A.Y. 2005-06 on 31st Oct, 2005 declaring Total Income as ‘Nil’. The said return was selected for scrutiny and assessment was completed u/s. 143(3) of the Act. The AO determined the Total Income of the assessee under normal provisions as ‘Nil’ and book profit u/s. 115JB as (–) Rs.26,71,922. This Loss included a provision for bad & doubtful debts of Rs.35, 95,508 allowed by the AO. Subsequently, the learned CIT exercised his revisionary powers u/s. 263 of the Act, holding the order passed by the AO as erroneous and prejudicial to revenue. He set aside the order of the AO with a direction to recompute the book profits after adding back provision for doubtful debts.
Held:
The revisionary power u/s. 263 can be exercised only if the CIT considers any order to be erroneous in so far as it is prejudicial to the interest of the revenue. The order passed by the AO allowing the provision for bad and doubtful debts was not erroneous and was in agreement with past Supreme Court judgments that provisions for bad and doubtful debts did not constitute a liability. Further, the clause (i) to explanation 1 to section 115JB was not on statute when the AO passed the order u/s. 143(3) as well as when the learned CIT exercised his power u/s. 263. Hence, the learned CIT did not have any ground to invoke his power u/s. 263 to enhance, modify, cancel or direct a fresh assessment.
