2019 (1) TMI 98 - AT - Income Tax

Revision u/s 263 - set off of brought forward loss of assessment year 2009 10 against the total income computed for the impugned assessment year u/s 144 r/w rule 2 of the First Schedule - AO has initiated action u/s 147 for the purpose of revising the income / loss determined in the said assessment order - Held that - What the DRP has directed the AO to do is to consider the income of the assessee for the impugned assessment year at ₹ 212,34,56,000, before making any adjustment on account of dividend and section 14A. There is absolutely no direction by the DRP to re adjust or re work out the loss determined in the assessment order passed for the preceding assessment years. It is further evident from the final assessment order that the Assessing Officer has implemented the aforesaid direction of the DRP in letter and spirit and after computing the total income of the assessee as per the provisions of the Act the Assessing Officer has allowed set off of brought forward loss of assessment year 2009 10. That being the case, it cannot be said that the assessment order passed is erroneous. On a perusal of the assessment order dated 25th March 2013, passed under section 143(3) of the Act r/w section 144C of the Act for assessment year 2009 10, it is very much clear that while completing the assessment the Assessing Officer has determined the loss for that year at ₹ 405,93,06,230 and has allowed carry forward of the same. It is an accepted factual position that the aforesaid assessment order passed for the assessment year 2009 10 still holds good as it has neither been subjected to any proceeding under section 263 of the Act nor it has been varied/disturbed by any other mode or manner. Though, AO has initiated action u/s 147 for the purpose of revising the income / loss determined in the said assessment order, however, it is a fact on record that such re assessment proceeding has been stayed by the Hon ble Jurisdictional High Court. Thus, as on date, the assessment order passed under section 143(3) of the Act for Assessment Year 2009 10 remains valid and so also the loss determined therein. It is equally true that at this stage learned PCIT could not have exercised jurisdiction under section 263 of the Act, to revise the assessment order passed for the assessment year 2009 10 insofar as it relates to computation of income / loss. Therefore, learned PCIT having no authority in law to initiate any action to rectify an error, if at all there is any, in the assessment order passed for assessment year 2009 10, has attempted to do so by invoking his revisional jurisdiction for assessment year 2011 12. AO having passed the assessment order in compliance to the directions of the DRP, the assessment order so passed cannot be held to be erroneous and prejudicial to the interests of Revenue. Therefore, the primary conditions of section 263 of the Act are not fulfilled in the present case - Decided in favour of assessee

Summary

Issues Involved:
1. Assumption of jurisdiction under section 263 of the Income Tax Act by the Principal Commissioner of Income Tax (PCIT).
2. Validity of the order passed under section 263.
3. Set-off of brought forward loss of assessment year 2009-10.
4. Re-computation of loss for assessment year 2009-10.
5. Parallel proceedings under section 263 and section 147.

Detailed Analysis:

1. Assumption of Jurisdiction under Section 263:
The assessee challenged the assumption of jurisdiction under section 263 by the PCIT. The PCIT initiated proceedings under section 263 on the grounds that the assessment order for the assessment year 2011-12 was erroneous and prejudicial to the interests of Revenue due to the set-off of brought forward loss from the assessment year 2009-10. The PCIT observed discrepancies in the computation of income/loss as per the directions of the Dispute Resolution Panel (DRP) and issued a notice to the assessee.

2. Validity of the Order Passed under Section 263:
The assessee argued that the primary conditions for invoking section 263 were not satisfied. The order sought to be revised must be erroneous and prejudicial to the interests of Revenue. The assessee contended that the Assessing Officer (AO) had passed the assessment order by implementing the DRP's directions after due application of mind. The DRP's directions were specific to the impugned assessment year and did not pertain to re-computing the brought forward losses of earlier years.

3. Set-off of Brought Forward Loss of Assessment Year 2009-10:
The PCIT's main contention was that the AO allowed the set-off of brought forward loss from the assessment year 2009-10, which was computed incorrectly. The PCIT believed that the loss for the assessment year 2009-10 should be re-computed as per the DRP's directions. However, the assessee argued that the DRP did not direct the AO to re-compute the loss for the assessment year 2009-10 and that each assessment year is a separate and distinct unit for assessment purposes.

4. Re-computation of Loss for Assessment Year 2009-10:
The Tribunal observed that the assessment order for the assessment year 2009-10, which determined the loss at ?405,93,06,230, was still valid and had not been varied or disturbed by any proceedings. The PCIT could not revise the loss determined in the assessment order for the assessment year 2009-10 while exercising jurisdiction under section 263 for the assessment year 2011-12. The Tribunal held that the PCIT's attempt to revise the loss for the assessment year 2009-10 through section 263 for the assessment year 2011-12 was legally unsustainable.

5. Parallel Proceedings under Section 263 and Section 147:
The Tribunal noted that the AO had already initiated re-assessment proceedings under section 147 for the assessment years 2009-10 and 2010-11 on the same issue of loss determination. The re-assessment proceedings were stayed by the Hon'ble Jurisdictional High Court. The Tribunal held that two parallel proceedings on the same issue could not continue simultaneously. The PCIT should have refrained from initiating section 263 proceedings when the re-assessment proceedings were already sub-judice before the High Court.

Conclusion:
The Tribunal quashed the revision order passed under section 263, holding that the primary conditions for invoking section 263 were not fulfilled. The assessment order passed by the AO in compliance with the DRP's directions was not erroneous and prejudicial to the interests of Revenue. The Tribunal restored the assessment order passed by the AO and allowed the assessee's appeal.