2016 (10) TMI 1348 - AT - Income Tax

Revision u/s 263 - as per CIT AO has allowed (i) depreciation @ 60% on additions made to computers and its peripherals in the depreciation schedule and also (ii) depreciation on intangible asset, though the asset was not completed and still is in the state of progress i.e. pre-operative stage - HELD THAT - As during the assessment proceedings u/s 143(3) of the Act, the AO had issued a notice u/s 143(3) along with a questionnaire wherein item Nos.3 4, the assessee was directed to furnish the bills/invoices for additions made to computers and vehicles along with the bank a/c statement and fixed asset schedule and the composition of the capital work in progress and also as to when the capital was used for business purposes and the sources for the purchase of the capital work in progress. W Assessee has given the schedule of fixed assets wherein the capital work in progress was shown as ₹ 1.65 crores. These details are also available at page 28 of the paper book wherein break-up of the details of capital work in progress was given. Thus, it is seen that the AO had called for details and the assessee has furnished the same before the AO. Therefore, the presumption to be drawn is that the AO has applied his mind to the said details, but has not mentioned anything in the assessment order In the case before us the CIT, though has found the assessment order to be erroneous on the ground that the AO has not made further inquiries, has not given a finding as to how the assessment order has caused prejudice to the interest of the Revenue. For initiating the revision proceedings u/s 263 CIT should be satisfied that the assessment order is both erroneous as well as prejudicial to the interests of the Revenue. After going through the material on record, we find that the assessee has provided all the details and the AO has applied his mind to the said details and therefore, and the assessment order is not erroneous and there is no prejudice caused to the Revenue. As both the conditions for revision are not satisfied, the revision order is not sustainable and hence set aside. - Decided in favour of assessee.

Summary

Issues involved:
1. Validity of the order of the Commissioner of Income Tax (CIT) under section 263 of the Income Tax Act.
2. Allowance of depreciation on additions made to computers and intangible assets.
3. Requirement of further inquiry by the Assessing Officer (AO) for the assessment order to be considered erroneous and prejudicial to the interests of the Revenue.

Analysis:
1. The appeal pertained to the A.Y 2011-12 where the assessee challenged the CIT's order directing the AO to inquire into and verify specific issues and pass a fresh order. The CIT found the assessment order erroneous and prejudicial to the Revenue's interests.

2. The CIT observed that the AO allowed depreciation on additions to computers and intangible assets, which the CIT deemed incorrect. The assessee contended that all necessary details were provided during scrutiny, and the AO considered them before finalizing the assessment. The assessee also cited precedents supporting their claim for depreciation.

3. The dispute centered on whether the AO conducted sufficient inquiries regarding the depreciation claims. The CIT believed further inquiries were necessary, while the assessee argued that all details were submitted, and the AO applied his mind. The tribunal noted that the AO had sought relevant details, which the assessee provided, indicating the AO's consideration of the matter.

4. Relying on legal precedents, the tribunal held that the CIT must establish both error and prejudice to the Revenue to revise an assessment order under section 263. In this case, since the assessee furnished all required details, and the AO considered them, the tribunal found the assessment order not erroneous or prejudicial to the Revenue, thereby setting aside the CIT's revision order.

5. Consequently, the tribunal allowed the assessee's appeal, emphasizing that the assessment order was not erroneous or detrimental to the Revenue's interests. The decision was pronounced in open court on 26th October 2016.