2017 (2) TMI 784 - AT - Income Tax

Revision u/s 263 - reference to the re-assessment order in respect of the issues raised on the premise that the alleged error were not subject matter of reassessment proceedings at all - wrongful set off of unabsorbed depreciation while computing the business income - eligibility of incremental subsidy for the determination of deduction u/s 10B - Held that - We find that the set off was duly claimed in the original assessment order was admitted in full. Similar set off was granted in repetition while making the revised computation under section 147 of the Act. The reasons recorded also do not cast any aspersions on the correctness of the allowability of set off of unabsorbed depreciation claimed. There is no discussion on the point in the reassessment order either. Besides, as noted, the set off of unabsorbed depreciation has been duly accepted in the original proceedings. Thus, the set off of unabsorbed depreciation claimed rightly or wrongly was not subject matter of reassessment at all. Hence, it is manifest that cause of action under section 263 of the Act will arise, if any, with reference to original assessment proceedings only. The subsequent re-assessment proceedings will not obviate the bar of limitation prescribed under section 263(2) of the Act on an unconnected issue. Thus so far as alleged wrong set off of unabsorbed depreciation against the business income of the current year is concerned, the issue is clearly time barred due to lapse of statutory time limit with reference to the original assessment order Hence, we are of the firm of opinion that the jurisdiction of CIT to invoke the revisional power in respect of claim of set off is time barred and cannot be sustained.- Decided in favour of assessee Wrongly acceptance of eligibility of incremental subsidy for the determination of deduction under section 10B - Held that - AO has denied the incremental subsidy under section 10B of the Act in the re-assessment proceedings which was reversed in section 154 of the Act. Both these orders have been subjected to revision under section 263 of the Act. When the issue of eligibility of incremental subsidy for the purpose of deduction under section 10B is seen in the light of the CBDT Circular No.39/2016, wherein it has been noted that subsidy is part and parcel of profit and gains of business for the purpose of deduction we find it difficult to hold that the AO committed error per se in accepting the stand of the assessee. In the absence of error, the CIT could not have proceeded under section 263 of the Act. Thus, the action of the CIT under section 263 is without authority of law in so far as the second issue is concerned. - Decided in favour of assessee

Summary

Issues Involved:
1. Invocation of powers under section 263 of the Income Tax Act, 1961.
2. Period of limitation for initiating proceedings under section 263.
3. Computation of time limit for initiating proceedings under section 263.
4. Eligibility of incremental subsidy for deduction under section 10B of the Act.
5. Set off of brought forward unabsorbed depreciation.

Detailed Analysis:

1. Invocation of Powers under Section 263:
The Assessee challenged the invocation of powers under section 263 by the Commissioner of Income Tax (CIT), arguing that the conditions stipulated for invoking such extraordinary jurisdiction were not satisfied. The CIT found the orders passed under sections 147 and 154 to be erroneous and prejudicial to the interests of the Revenue. The Tribunal noted that the CIT's action under section 263 was without jurisdiction as the issues raised were not part of the reassessment proceedings.

2. Period of Limitation for Initiating Proceedings under Section 263:
The Assessee argued that the CIT initiated proceedings under section 263 beyond the period of limitation. The Tribunal agreed with the Assessee, stating that the limitation period should be computed from the date of the original assessment order under section 143(3), not from the reassessment order under section 147. The Tribunal cited the Hon’ble Supreme Court's decision in CIT vs. Alagendran Finance Ltd. and other relevant case laws to support its conclusion.

3. Computation of Time Limit for Initiating Proceedings under Section 263:
The Tribunal held that the CIT erred in computing the time limit for initiating proceedings under section 263 from the end of the financial year in which the reassessment order under section 147 was passed. The Tribunal emphasized that the issues of incremental subsidy and set off of brought forward unabsorbed depreciation were not part of the reassessment proceedings and thus, the limitation period should be counted from the original assessment order.

4. Eligibility of Incremental Subsidy for Deduction under Section 10B:
The Tribunal examined whether the incremental subsidy was eligible for deduction under section 10B. The CIT had directed the withdrawal of the deduction granted earlier, arguing that the subsidy was not integral to foreign remittance. The Tribunal, however, referred to the CBDT Circular No.39/2016 and the decision of the Karnataka High Court in CIT vs. Yokogawa India Ltd., concluding that the incremental subsidy was indeed part and parcel of profits and gains of business for the purpose of deduction under section 10B.

5. Set Off of Brought Forward Unabsorbed Depreciation:
The Tribunal found that the set off of unabsorbed depreciation was wrongly allowed in the reassessment order. The CIT had directed the withdrawal of the excess allowance of set off towards unabsorbed depreciation. The Tribunal noted that the issue of set off was not subject to the reassessment proceedings and thus, the limitation period should be computed from the original assessment order. Consequently, the Tribunal held that the CIT's action was time-barred and without jurisdiction.

Conclusion:
The Tribunal allowed both appeals of the Assessee, quashing the CIT's orders under section 263 for both assessment years. The Tribunal concluded that the CIT's actions were without jurisdiction due to the limitation period and the absence of any demonstrable error in the orders subject to revision. The Tribunal emphasized that the issues raised by the CIT were not part of the reassessment proceedings, and thus, the period of limitation should be computed from the original assessment order.