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2010 (2) TMI 756 - AT - Income TaxOrder passed by the learned Commissioner of Income-tax under section 263 - Held that - We find from the records that the CIT has only required the AO to verify the expenses we doubt whether the CIT has such power of verification u/s 263 of the Act or not. We feel that the revision order in such circumstances is unwarranted. Decided in favour of Assessee.
Issues Involved:
1. Jurisdiction of the Commissioner of Income-tax under section 263. 2. Erroneous and prejudicial nature of the Assessing Officer's order. 3. Entitlement to depreciation on toll road. 4. Merger of the Assessing Officer's order with the Commissioner of Income-tax (Appeals) order. 5. Allowance of unabsorbed depreciation and business loss under section 72A. 6. Examination of road overlay and renewal expenses. Detailed Analysis: 1. Jurisdiction of the Commissioner of Income-tax under section 263: The assessee challenged the jurisdiction of the Commissioner of Income-tax (CIT) to pass the revision order under section 263 of the Income-tax Act, 1961. The assessee argued that the order passed by the CIT under section 263 is bad in law and should be cancelled. 2. Erroneous and prejudicial nature of the Assessing Officer's order: The CIT initiated revision proceedings under section 263, claiming that the Assessing Officer's (AO) order was erroneous and prejudicial to the interests of the Revenue. The CIT argued that the AO had allowed depreciation on the toll road at 10%, which was not in accordance with the law, and had failed to scrutinize the significant accounting policy in respect of road overlay and renewal expenses. 3. Entitlement to depreciation on toll road: The assessee contended that the toll road is a business asset and that it is entitled to claim depreciation on it. The assessee argued that the toll road is a capital asset, owned by the assessee for a minimum period of 30 years, and used for the purpose of business. The CIT, however, held that the AO had erred in allowing depreciation on the toll road, citing the Supreme Court decision in Indore Municipal Corporation v. CIT, which held that roads by themselves cannot constitute buildings and are not entitled to depreciation. 4. Merger of the Assessing Officer's order with the Commissioner of Income-tax (Appeals) order: The assessee argued that the order of the AO had merged with the order of the Commissioner of Income-tax (Appeals) (CIT(A)), and therefore, the CIT had no jurisdiction to invoke the provisions of section 263. The CIT, however, held that the doctrine of merger did not apply in this case as the issue of depreciation on the toll road was not agitated before the CIT(A) and no finding was given in this respect. 5. Allowance of unabsorbed depreciation and business loss under section 72A: The CIT noted that the AO had allowed the benefit of carry forward of accumulated business loss and unabsorbed depreciation under section 72A of the Act, which was erroneous and prejudicial to the interests of the Revenue. The assessee argued that the revised return filed after the amalgamation was valid and that the issue of set off and carry forward of loss would be decided at the time of allowance of losses. 6. Examination of road overlay and renewal expenses: The CIT directed the AO to thoroughly examine the expenditure on road overlay and renewal expenses. The assessee contended that no such expenditure was incurred or claimed in the assessment year 2004-05 and that the revision order for verification of expenses was unwarranted. Judgment: The Tribunal held in favor of the assessee on all issues. It quashed the revision order passed by the CIT under section 263 of the Act, concluding that: - The AO's order was neither erroneous nor prejudicial to the interests of the Revenue. - The toll road is a capital asset used for business purposes, and the assessee is entitled to claim depreciation on it. - The doctrine of merger applied, and the CIT had no jurisdiction to invoke section 263. - The revised return filed after the amalgamation was valid. - The CIT's direction for verification of road overlay and renewal expenses was unwarranted. The assessee's appeals were allowed, and the order pronounced on 12th February 2010.
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