2014 (1) TMI 800 - AT - Income Tax

Validity of order passed u/s 263 - Held that - Sec. 263 makes it clear that the pre-requisite to the exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the AO is erroneous in so far as it is prejudicial to the interests of the Revenue - Once the business income has been accepted, it proves beyond all reasonable doubts that the business has been set up - The assessee is lawfully entitled to claim all business expenditure and allowances - The AO has allowed depreciation after examining the depreciation chart filed by the assessee - The AO must have been satisfied with the claim of depreciation vis- -vis set up of business vis- -vis business income - The order of the AO may be brief and cryptic but that by itself is not sufficient reason to brand the assessment order as erroneous and prejudicial to the interest of the Revenue - Writing an order in detail may be a legal requirement but the order not fulfilling this requirement cannot be said to be erroneous and prejudicial to the interest of the Revenue. The AO has adopted a course permissible in law backed by facts and judicial decisions and the AO has taken one view with which the Commissioner does not agree - The order of the assessment cannot be treated as erroneous order and prejudicial to the interest of the Revenue unless the view taken by the AO is unsustainable in law or on facts Following CIT VS Max India Ltd 2007 (11) TMI 12 - Supreme Court of India - The order of CIT is set aside and that of the AO. Is restored - Decided in favour of assessee.

Issues:
1. Assessment order passed by AO u/s. 143(3) considered erroneous by CIT under Sec. 263 for A.Y. 2009-10.
2. Dispute over grant of depreciation for pipeline without proper enquiry by AO.
3. Interpretation of conditions for claiming depreciation under Sec. 32 of the Act.
4. Disagreement between CIT and AO on necessity of further enquiries for grant of depreciation.
5. Applicability of legal precedents on allowing depreciation when business is set up.
6. Examination of CIT's powers under Sec. 263 and the standard for labeling an order as erroneous and prejudicial to Revenue's interests.

Analysis:
1. The appeal addressed an order by the CIT-2, Mumbai under Sec. 263 for A.Y. 2009-10, where the assessee disputed the CIT's finding that the AO failed to conduct proper enquiry before granting depreciation for pipelines.
2. The CIT contended that the AO did not verify ownership and usage of assets for depreciation claim under Sec. 32, leading to an erroneous assessment order prejudicial to Revenue's interest.
3. The CIT emphasized the necessity for the assessee to prove asset ownership and usage for depreciation claims, highlighting AO's failure in scrutinizing these aspects.
4. The assessee relied on legal precedents to argue that the CIT cannot impose his view if two plausible views exist, emphasizing that depreciation is allowable when the business is set up and assets are utilized.
5. The disagreement between the parties centered on whether further enquiries were warranted for the grant of depreciation, with the assessee asserting that the AO adequately examined the necessary details during assessment.
6. The ITAT, considering the legal position under Sec. 263, emphasized that an order can be revised only if it is both erroneous and prejudicial to Revenue's interests, requiring actual errors of fact or law, not mere differences in opinion between CIT and AO.

Conclusion:
The ITAT found that the AO's assessment, allowing depreciation based on business set up and asset usage, was legally sound and backed by factual evidence. It emphasized that the CIT's disagreement with the AO's view did not render the assessment order erroneous or prejudicial to Revenue's interests. The ITAT set aside the CIT's order and upheld the AO's assessment, allowing the appeal filed by the assessee. The ITAT's decision was based on the legal principles governing the revision of orders under Sec. 263, ensuring that orders are revised only in cases of actual errors affecting Revenue's interests.

← Previous Next →