2018 (10) TMI 716 - AT - Income Tax

Revision u/s 263 - AO denied exemption under Section 10(20) - total income was determined at Nil by observing that the loss could not be carried forward for set off against the income of the later years on the premise that the loss return filed by the assessee was not within the time prescribed under Section 139(1) - Held that - In the original assessment, the AO determined total income at Nil and did not allow carry forward of loss computed at ₹ 382.09 crore. It is a matter of record that pursuant to the revisionary order, the Assessing Officer again took up the assessment under Section 143(3)/147 read with section 263 of the Act and passed a fresh assessment order on 27.12.2017 determining the total income at Rs. Nil and did not allow carry forward of loss of ₹ 455.99 crore. This shows that the income originally determined by the Assessing Officer at Nil remained the same even after giving effect to the order passed in revision. Thus, we are confronted with a situation in which the original assessment as well as the assessment giving effect to the impugned order, remain at Nil income, and in both the situations, there is no carry forward of loss. In other words, the shortcomings noticed by the ld. CIT in assessment order, which in his opinion made the order erroneous, are tax neutral. In the circumstances as are instantly obtaining, variation in the amount of loss, without allowing any carry forward to subsequent year(s) for set off, is in no way prejudicial to the interest of the Revenue. Since the original assessment order in the instant case satisfies, at the most, the first condition under Section 263 of the Act, being erroneous from the stand point of the ld. CIT, it fails to satisfy the second condition of being, prejudicial to the interest of the Revenue. The exercise of revisionary power gets vitiated because of cumulative non-fulfilment of the statutory conditions stipulated in the provision - decided in favour of assessee.

Summary

Issues:
Assessment order under Section 263 of the Income Tax Act, 1961 for the assessment year 2012-13.

Analysis:
The appeal by the assessee was against the order passed by the Principal CIT under Section 263 of the Income Tax Act, 1961. The assessee did not file the return of income within the prescribed time and claimed exemption under Section 10(20) of the Act. The Assessing Officer allowed a deduction based on actual expenditure incurred, resulting in a further deduction from the gross income declared. However, the total income was determined as Nil due to the loss not being allowed to be carried forward for set off against future income. The CIT found the assessment order erroneous and prejudicial to the Revenue's interest, leading to the matter being remitted to the Assessing Officer for fresh verification.

The Tribunal noted that for the CIT to exercise revisionary power under Section 263, the conditions of the assessment order being both erroneous and prejudicial to the Revenue's interest must co-exist. The claim for exemption under Section 10(20) was rejected, and it was established that the loss could not be carried forward due to the belated filing of the return. The Tribunal observed that the original assessment and the subsequent assessment post the revisionary order resulted in Nil income without allowing the carry forward of loss. As the variations in the amount of loss were tax-neutral and did not prejudice the Revenue's interest, the Tribunal concluded that the revisionary power was not justified. Therefore, the impugned order was set aside, and the appeal of the assessee was allowed.

In conclusion, the Tribunal found that the exercise of revisionary power was not warranted as the original assessment order, although erroneous, did not meet the second condition of being prejudicial to the Revenue's interest. Consequently, the impugned order was set aside, and the appeal of the assessee was allowed.