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2020 (2) TMI 730 - HC - Income TaxRevision u/s 263 - Respondent sought for rectification of the assessment order by setting-off the brought forward business loss and unabsorbed depreciation against the assessed income - whether claim of the assessee made for rectification has been justifiably allowed by the assessing officer? - Tribunal setting aside the order of the CIT passed under Section 263 - HELD THAT - VIRMANI INDUSTRIES PVT. LIMITED 1995 (10) TMI 1 - SUPREME COURT held that the expression profits or gains chargeable could not be confined to profits and gains from the business whose income was being computed under Section 10 of the Act. Proceeding further, Supreme Court held that effect must be given to depreciation allowance first against the profits or gains of the particular business whose income was being computed under Section 10 and if the profits of that business are not sufficient to absorb the depreciation allowance, the allowance to the extent to which it was not absorbed would be set-off against the profits of any other business and if a part of the depreciation allowance still remained unabsorbed, it would be liable to be set-off against the profits or gains chargeable under any other head and it is only if some part of the depreciation allowance still remained unabsorbed then only it can be carried forward to the next assessment year. Supreme Court explained that carried forward depreciation allowance is deemed to be part of and stands on exactly the same footing as the current depreciation for the assessment year under consideration and thus allowable as a deduction. Following the decision of the Supreme Court in Virmani Industries Pvt. Ltd. (supra), Tribunal took the view that this issue was conclusively decided and therefore, not allowing setting off the carried forward depreciation with the income of the assessment year under consideration was a mistake made by the assessing officer which was apparent from the record. When this mistake was pointed out to the assessing officer, he had rightly rectified the same under Section 154. In so far contention of Mr. Pinto that carried forward depreciation cannot be set-off against deemed income is concerned, we are of the view that such a situation does not arise in the present case. On a thorough consideration of the matter, we are in agreement with the view expressed by the Tribunal and find no error or infirmity therein. No substantial question of law.
Issues Involved:
1. Whether the Tribunal was right in law in setting aside the order of the CIT under Section 263 of the Income Tax Act, 1961. 2. Whether the rectification of the assessment order under Section 154 was justified. 3. Whether the mistake rectified by the assessing officer was apparent from the record or was a debatable issue. 4. Whether carried forward depreciation can be set-off against deemed income. Issue-wise Detailed Analysis: 1. Tribunal’s Setting Aside of the CIT’s Order under Section 263: The Tribunal set aside the CIT's order which had invoked Section 263 of the Income Tax Act, 1961. The Tribunal held that the rectification made by the assessing officer was justified and not erroneous or prejudicial to the interest of the Revenue. The Tribunal relied on the Supreme Court’s decision in CIT Vs. Virmani Industries Pvt. Ltd., which established that unabsorbed depreciation could be set-off against the income of the respondent for the assessment year under consideration. Consequently, the Tribunal concluded that the CIT’s invocation of Section 263 was not warranted. 2. Justification of Rectification under Section 154: The respondent filed an application for rectification under Section 154 of the Act, seeking to set-off carried forward business loss and unabsorbed depreciation against the assessed income. The assessing officer accepted this request and rectified the assessment order, considering it a mistake apparent from the record. The Tribunal upheld this rectification, aligning with the Supreme Court’s interpretation that allowed such set-offs. 3. Apparent Mistake vs. Debatable Issue: The jurisdictional Commissioner contended that the issue was debatable and not a mistake apparent from the record, thus invoking Section 263. However, the Tribunal, referencing the Supreme Court’s decision, found that the set-off of unabsorbed depreciation was a straightforward application of the law and not a debatable issue. The Tribunal determined that the assessing officer’s rectification was correct and did not warrant the CIT’s intervention under Section 263. 4. Set-off of Carried Forward Depreciation Against Deemed Income: The appellant argued that carried forward depreciation could not be set-off against deemed income. However, the Tribunal and the High Court found that this situation did not arise in the present case. The Supreme Court’s decision in Virmani Industries Pvt. Ltd. clarified that unabsorbed depreciation could be set-off against any head of income, not limited to the same business's profits. Consequently, the High Court agreed with the Tribunal’s view that the issue was conclusively settled by the Supreme Court, and the assessing officer’s rectification was justified. Conclusion: The High Court dismissed the Revenue's appeal, agreeing with the Tribunal's decision that the rectification under Section 154 was justified and that the CIT’s order under Section 263 was unwarranted. The High Court found no error or infirmity in the Tribunal’s order and concluded that the proposed question of law did not arise from the Tribunal’s order. Consequently, the appeal was dismissed with no order as to costs.
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