2015 (7) TMI 1351 - AT - Income Tax

Revision u/s 263 - whether the assessment has been made on an incorrect assumption of facts or an incorrect application of law? - HELD THAT - AO has taken a view which may be different from the view of the Ld. Commissioner and assuming that the view taken by the AO is a loss to the Revenue but the Hon ble Supreme Court in Malabar Industrial Co. Ltd. 2000 (2) TMI 10 - SUPREME COURT has held that every loss of revenue as a consequence of an order of the AO cannot be treated as prejudicial to the interest of the Revenue, for e.g. when an Income Tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue or where two views are possible and the ITO has taken one view with which the Ld. Commissioner does not agree, it cannot be treated as an order which is erroneous or prejudicial to the interest of Revenue unless the view taken by the Income Tax Officer is unsustainable in law. The assessment order is neither erroneous nor prejudicial to the interest of the revenue. We, therefore, set aside the impugned order passed by the Ld. Commissioner u/s. 263 and restore that of the Assessing Officer passed u/s. 143(3) of the Act. - Decided in favour of assessee.

Summary

Issues involved:
Appeals by two different assesses against orders of CIT-7, Mumbai for assessment year 2005-06. Identical issues in both appeals - pre-operative expenses, depreciation on fixed assets, set off of brought forward business loss.

Detailed Analysis:

1. Pre-operative expenses and depreciation on fixed assets:
The grievance of the assessee was that the CIT erred in holding the assessment order under section 143(3) as prejudicial to the Revenue's interest. The counsel for the assessee argued that the AO had examined the issues during assessment proceedings, and the CIT's reasons for invoking section 263 did not align with the findings. The counsel cited a Tribunal decision and emphasized that specific queries were raised and responded to during the assessment, indicating no lack of examination. The Departmental Representative contended that the AO merely followed previous findings, lacking independent assessment. The Tribunal noted that the AO had already verified the expenses, questioning the necessity for CIT's intervention under section 263.

2. Set off of brought forward business loss:
The CIT alleged that the AO allowed set off of losses twice, but the Tribunal observed that the set off was based on the CIT(A)'s order, indicating the AO's application of mind. Regarding professional fees, the CIT claimed inadmissibility under section 40a(ia), but the Tribunal found the amount capitalized by the assessee, not claimed as expenditure, making the CIT's objection irrelevant. The Tribunal referred to the Supreme Court's ruling in Malabar Industrial Co. Ltd., emphasizing the conditions for invoking section 263.

3. Assessment order under section 143(3):
The Tribunal analyzed whether the assessment was based on incorrect facts or law application, rejecting the DR's claim of lack of AO's application of mind. Citing the Supreme Court's precedent, the Tribunal highlighted that not every loss of revenue is prejudicial. Distinguishing the cited decisions, the Tribunal concluded that the assessment order was neither erroneous nor prejudicial to Revenue's interest, setting aside the CIT's order under section 263 and restoring the AO's order under section 143(3).

Conclusion:
The Tribunal allowed the appeal by the assessee, emphasizing the AO's application of mind and the absence of errors prejudicial to the Revenue's interest. Both appeals were allowed based on the identical issues discussed and resolved in favor of the assessee.