J U D G M E N T

S.VAIDYANATHAN, J.

AND C.SARAVANAN, J.

The appellant, a leasing company is engaged in the business of hire, purchase, finance, leasing of motor vehicles and bill discounting etc. The appellant had filed its return of income under Section 139 of the Income Tax Act, 1961 on 31.10.2002 for the Assessment Year 2002- 2003. In the return, the appellant had declared a “taxable income” of Rs.52,51,21,000/-.

2. The said return was processed under Section 143(1) of the Income Tax Act, 1961. Thereafter, the return was scrutinized. A notice under Section 143(2) of the Income Tax Act, 1961 was issued to the appellant on 11.08.2003. The Assessment was thereafter completed under Section 143(3) of the Income Tax Act, 1961 on 31.05.2005. The income of the appellant was re-determined as Rs.57,36,86,630/-.

3. The Commissioner of Income Tax later invoked Section 263 of the Income Tax Act, 1961 and issued a Show Cause Notice dated 04.04.2006 to the appellant to revise the assessment on the ground that an amount of Rs.338.92 Lakhs was wrongly debited under the head “Provisions and Write Off” as a diminution in value of repossessed stock was not an allowable expenditure.

4. The appellant replied to the above Show Cause Notice dated

04.04.2006. The Commissioner of Income Tax rejected the contention of the appellant and passed an order dated 26.05.2006 under Section 263 of the Income Tax Act, 1961.

5. By the aforesaid order dated 26.05.2006, the Commissioner of Income Tax directed the Assessing Officer to revise the assessment by adding back the amount debited by the appellant towards diminution in the value of repossessed assets.

6. Aggrieved by the order of the Commissioner of Income Tax, the appellant has preferred I.T.A.No.1864(Mds)/2006 before the Income Tax Appellate Tribunal (‘Tribunal’ in short). I.T.A.No.1864(Mds)/2006 was dismissed by the Tribunal vide impugned order dated 20.03.2008. Aggrieved by the order of the Tribunal, appellant has preferred the present appeal before this Court under Section 260A of the Income Tax Act, 1961 ('Act' in short). The Tribunal relied on its order dated 11.04.2008 in I.T.A.No.78(Mds)/2007 in the appellant’s own case for Assessment Year 2003-2004.

7. Following Substantial Questions of Laws were framed for being answered:-

i. Whether on the facts and in the circumstance of the case, the Tribunal was right in upholding the jurisdiction of the Commissioner of Income Tax u/s.263 in revising the assessment order?

ii. Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the loss computed by the Appellant on account of diminution in value of repossessed vehicles is only a notional and unascertained loss and hence cannot be allowed as a deduction?

8. We have considered the arguments advanced by the learned counsel for the appellant and the respondent.

9. Wherever defaults were committed by lessees, the appellant re-

possessed the vehicles. The appellant treated the amount due from the defaulting lessees as “receivable” in its books of account.

10. A further sum was reduced from the aforesaid amount as diminution in the value based on the prevailing market value of the seized vehicle. The appellant appears to have compared the book value of the repossessed vehicle with the prevailing market value. If the estimated market value was less than the book value at the time of the repossession of the leased asset (vehicle), the appellant reduced the value and transferred it to its profit and loss account.

11. If the vehicles were sold before the closes of the financial year, entries made towards diminution in the value were reversed on the actual loss arrived from the sale and suitable adjustments were made in the book. This method adopted by the appellant allowed it to reduce the value of the asset and thereby the income tax payable.

12. The appellant thus claimed a deduction under Section 36 of the Act based on the estimated market value it determined at the time of reposse