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2017 (8) TMI 538 - HC - Income TaxScope of revision orders u/s 263 - AO allowing the taking of unabsorbed depreciation to determine WDV of assets of amalgamating Company - Held that - Where two views are possible and the Assessing Officer has taken one of the two possible views, then it is not open to treat such a view as an order which is erroneous or prejudicial to the interest of the Revenue. Merely because the Commissioner of Income Tax takes a different view to that of the Assessing Officer will not certainly justify exercise of his powers under Section 263 of the Act. In this case, the view taken by the Assessing Officer was in effect following the decision of this Court in Hindustan Petroleum Corporation Ltd. (1990 (7) TMI 44 - BOMBAY High Court). The fact that it dealt with the unamended provisions of law would not in the present facts make the order of the Assessing Officer erroneous. Therefore, reliance upon the decision of this Court in Hindustan Petroleum Corporation Ltd. (supra) cannot be said to be perverse and/or erroneous. Therefore, the exercise of jurisdiction under Section 263 of the Act was not called for - Decided in favour of assessee.
Issues Involved:
1. Validity of the ITAT's decision on the order under Section 263 of the Income Tax Act. 2. Inclusion of unabsorbed depreciation in the Written Down Value (WDV) of assets under Section 43(6). 3. Applicability of Section 72A to the case. 4. Application of Section 32(2) read with Section 43(6) versus Section 72A. 5. Relevance of the Bombay High Court decision in 187 ITR 1 post-amendment by the Taxation Law (Amendment Act, 1986). Detailed Analysis: Issue 1: Validity of the ITAT's Decision on the Order under Section 263 The primary issue was whether the ITAT was justified in holding that the order under Section 263 of the Income Tax Act was bad in law and on facts. The Tribunal found that the Commissioner of Income Tax (CIT) was not justified in setting aside the assessment as erroneous and prejudicial to the interest of Revenue merely because he disagreed with the Assessing Officer (AO). The Tribunal observed that the AO’s decision was a possible view based on the Bombay High Court decision in Hindustan Petroleum Corporation Ltd. (187 ITR 1). The Tribunal, relying on the Supreme Court judgment in CIT vs. Max India (295 ITR 282), held that where two views are possible, the AO's view should not be considered erroneous or prejudicial to the interest of Revenue. The High Court upheld this view, stating that the CIT could not exercise his powers under Section 263 merely because he had a different view from the AO. Issue 2: Inclusion of Unabsorbed Depreciation in WDV The Tribunal held that the inclusion of unabsorbed depreciation in the WDV of the assets was justified under the provisions of Section 43(6) of the Act. The CIT had argued that the AO’s action was erroneous and prejudicial to the interest of Revenue. However, the Tribunal found that the AO’s decision was supported by the Bombay High Court decision in Hindustan Petroleum Corporation Ltd., which dealt with similar provisions. The Tribunal further clarified that the amendments to Section 43(6), including the insertion of sub-clause (c), did not affect the applicability of the principles laid down in the earlier decision. Issue 3: Applicability of Section 72A The Tribunal observed that Section 72A is applicable only in the case of amalgamation of sick companies with sound ones. In this case, both companies involved in the amalgamation were sound, and therefore, Section 72A was not applicable. The Tribunal held that the assessee’s case was governed by the provisions of Section 32(2) read with Section 43(6) of the Income Tax Act. Issue 4: Application of Section 32(2) Read with Section 43(6) versus Section 72A The Tribunal held that the provisions of Section 32(2) read with Section 43(6) were applicable to the assessee’s case, rather than Section 72A. The Tribunal noted that the assessee had initially applied under Section 72A but later pursued the case under the normal provisions of the Act. The Tribunal found that the CIT’s disagreement with the AO’s conclusion regarding the application of Section 72A did not render the AO’s order erroneous. Issue 5: Relevance of the Bombay High Court Decision in 187 ITR 1 Post-Amendment The Tribunal held that the decision of the Bombay High Court in Hindustan Petroleum Corporation Ltd. (187 ITR 1) remained applicable even after the insertion of clause (c) and substitution of explanations below Section 43(6) by the Taxation Law (Amendment Act, 1986). The Tribunal clarified that the amendments did not affect the principles laid down in the earlier decision, and the AO’s reliance on this decision was justified. Conclusion: The High Court upheld the Tribunal's decision, answering the primary question in favor of the assessee and against the Revenue. The other questions were deemed not to survive in light of the answer to the first question and were returned unanswered. The reference was disposed of accordingly, with no order as to costs.
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