2012 (10) TMI 354 - AT - Income Tax

Revision Order by CIT(A) u/s 263 Whether revision order u/s 263 sustainable in law, where two views are possible and AO has taken one view with which the CIT does not agree Held that - The order of AO cannot be treated as erroneous order prejudicial to the interest of the Revenue, unless the view taken by the AO is unsustainable in law. In this case treatment of depreciation may be erroneous but certainly not prejudicial to the interest of the Revenue, as the benefit of depreciation has not been claimed by both the companies at the same time. The depreciation statement placed on record by the assessee shows that both the companies have claimed benefit of depreciation on pro-rata basis. - Appeal decides in favour of assessee

Summary

Issues:
1. Validity of CIT's order under section 263 of the Income Tax Act, 1961 regarding depreciation calculation post amalgamation.

Analysis:
The judgment by Appellate Tribunal ITAT Chennai involved an appeal by the assessee against the order of the CIT passed under section 263 of the Income Tax Act, 1961. The case revolved around the amalgamation of the assessee company with another entity and the subsequent calculation of depreciation for the assessment year 2007-08. The CIT had issued a show cause notice to the assessee, questioning the depreciation calculation methodology applied by the Assessing Officer. The CIT's order directed the Assessing Officer to redo the assessment based on observations in the impugned order, specifically related to the apportionment of depreciation between the amalgamating and amalgamated companies post-amalgamation.

The assessee challenged the CIT's order before the Tribunal, arguing that the depreciation calculation was done correctly as per the provisions of section 32 of the Act. The authorized representative of the assessee contended that both companies were entitled to claim depreciation based on the prescribed rates and the number of days the assets were used by them. The argument emphasized that the benefit of depreciation had not been claimed by both companies simultaneously, and thus, the CIT's order under section 263 was unwarranted and erroneous.

In its analysis, the Tribunal noted that the depreciation had been claimed on a pro-rata basis by both the amalgamating and amalgamated companies, as per the proviso to section 32 of the Act. The Tribunal highlighted that both companies had earned profits and were subject to similar tax rates, ensuring no discrepancy in the tax liabilities. The Tribunal further emphasized that a mere difference in opinion could not justify invoking section 263 unless the Assessing Officer's order was both erroneous and prejudicial to the revenue's interest.

Ultimately, the Tribunal ruled in favor of the assessee, setting aside the CIT's order as it found that while the treatment of depreciation may have been erroneous, it was not prejudicial to the revenue's interest. The Tribunal concluded that the benefit of depreciation had not been claimed simultaneously by both companies, and therefore, the CIT's order was deemed legally flawed.

In conclusion, the Tribunal's judgment provided clarity on the correct application of depreciation rules post-amalgamation and emphasized the importance of assessing whether an order is both erroneous and prejudicial to the revenue's interest before invoking section 263 of the Income Tax Act.