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Issues involved: Appeal against order passed by CIT u/s 263 of the IT Act directing re-assessment.
Summary: Issue 1: Depreciation on lease hold land The assessee, a company in the software sector, claimed depreciation on lease hold land as an intangible asset. The CIT found the assessment erroneous as the AO allowed depreciation without proper application of mind. The CIT directed re-assessment, stating that lease hold rights on land were not eligible for depreciation. The assessee argued that the AO had considered the issue and applied his mind, thus the assessment was not erroneous. The Tribunal held that the AO had called for details, considered submissions, and allowed depreciation after due diligence. The CIT's order u/s 263 was quashed as there was no lack of application of mind by the AO. Issue 2: Application of mind by assessing authority The Tribunal observed that the assessing authority had called for details regarding depreciation on lease hold rights and had considered the submissions before allowing depreciation. The CIT's opinion that the AO's enquiries were inadequate was not supported by provisions of the Act. The Tribunal held that where two views are possible and the assessing authority adopts one, it cannot be deemed as lack of application of mind. The Tribunal concluded that the CIT had no power to revise the assessment order u/s 263 as the AO had applied his mind and the assessment was not erroneous. This judgment highlights the importance of the assessing authority's application of mind in allowing deductions and the limitations on the CIT's power to revise assessment orders under section 263 of the IT Act.
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