2015 (1) TMI 1268 - AT - Income Tax

Revision u/s 263 - AO has allowed excess set off of unabsorbed depreciation - Held that - We find the order u/s.143(3) has been passed for A.Y. 2006-07 determining the unabsorbed depreciation and business loss that has to be carried forward the details of which are already given at para 4 of the impugned order. Therefore, the mistake, if any, has crept in the order for A.Y. 2006-07 and certainly not in the order for A.Y. 2007- 08. The AO has simply followed the order of his predecessor giving effect to the quantum of brought forward loss to be set off from the income of the current year. Therefore, the order for the impugned assessment year cannot be said to be erroneous although it may be prejudicial to the interest of the revenue. It has been held in various judicial decisions that for assuming jurisdiction u/s.263 by the Ld.CIT, the twin conditions, i.e. (a) order is erroneous and (b) order is prejudicial to the interest of the Revenue must be satisfied. In the instant case, since the unabsorbed business loss and unabsorbed depreciation loss which has to be carried forward for subsequent years has been quantified in the order passed u/s.143(3) dated 31-12-2008 for A.Y. 2006-07 and since the AO has simply followed that order while giving set off of unabsorbed depreciation loss for the A.Y. 2007-08, therefore, the order in our opinion cannot be said to be erroneous. Thus it is not a fit case for assuming jurisdiction u/s.263 of the I.T. Act. - Decided in favour of assessee

Summary

Issues:
- Jurisdiction under section 263 of the Income Tax Act regarding excess set off of unabsorbed depreciation.
- Application of mind by the Assessing Officer.
- Revision of assessment order by the Commissioner of Income Tax.

Analysis:

Jurisdiction under Section 263:
The appeal was against an order passed under section 263 by the Commissioner of Income Tax (CIT) Pune, related to the assessment year 2007-08. The CIT found that the Assessing Officer (AO) had allowed excess set off of unabsorbed depreciation amounting to a specific sum, which, according to the CIT, was not allowable beyond a certain period. The CIT held that the AO's order was both erroneous and prejudicial to the revenue's interest. The CIT set aside the issue to the AO for fresh assessment after giving the assessee an opportunity to be heard.

Application of Mind by the Assessing Officer:
The CIT based the decision on the principle that where there is no application of mind by the Assessing Officer, the CIT can assume jurisdiction under section 263 if the order is found to be erroneous and prejudicial to the revenue's interest. The CIT cited legal precedents to support this position, emphasizing the importance of the AO's inquiry and examination of issues to avoid errors prejudicial to revenue.

Revision of Assessment Order:
The assessee challenged the CIT's order, arguing that the AO had correctly followed the previous year's order regarding the set off of brought forward losses. The Tribunal found that the mistake, if any, was in the earlier assessment year's order and not in the current year's assessment. The Tribunal held that the AO had not erred in following the previous order, and therefore, the twin conditions required for jurisdiction under section 263 were not satisfied. Consequently, the Tribunal canceled the order passed under section 263, allowing the assessee's appeal.

In conclusion, the Tribunal set aside the CIT's order under section 263, emphasizing that the AO had correctly followed the previous year's order, and the current year's assessment was not erroneous. The Tribunal ruled in favor of the assessee, canceling the CIT's order and allowing the appeal.