2020 (10) TMI 456 - AT - Income Tax

Revision proceedings u/s 263 - entitled to claim depreciation - HELD THAT - As per the decision in the case of Malabar Industrial Co. Ltd 2000 (2) TMI 10 - SUPREME COURT revision proceedings shall lie, if the assessment order is erroneous and prejudicial to the interests of revenue. Explanation 2 to sec. 263 (1) inserted by Finance Act, 2015 w.e.f. 1.6.2015 deems an assessment order to be erroneous and prejudicial to the interests of revenue if, in the opinion of the Principal Commissioner or Commissioner, the order is passed without making inquiries or verification which should have been made or the order is passed allowing any relief without inquiring into the claim etc. In the instant case, the assessee has furnished a reply with regard to the claim of principal component of lease payment and the treatment given in the books of account for leased assets. As pointed out by Ld Pr. CIT, the AO did not further probe the matter, which should have been made. Before us also, the Ld A.R could not immediately show that the assessee has not claimed depreciation on leased assets. He has submitted that he will furnish the details and accordingly forwarded a reconciliation statement. The very fact that the contention of the assessee could be understood only after examining the reconciliation statement would show that the AO should have also examined the submission of the assessee. Accordingly, we are of the view that the assessment order is rendered erroneous and prejudicial to the interests of revenue in terms of Explanation 2 to sec. 263 - Appeal of the assessee is dismissed.

Issues:
Challenge to revision order u/s 263 of the Act for assessment year 2012-13 due to alleged lack of authority and jurisdiction.
Discrepancy in treatment of leased assets for book purposes and income tax purposes.
Jurisdictional dispute over the assessing officer's location and authority.
Validity of revision proceedings initiated by Ld Pr. CIT, New Delhi.

Analysis:
1. The appeal challenges the revision order under section 263 of the Act for the assessment year 2012-13, arguing that the initiation of the revision proceeding lacks legal authority and jurisdiction. The contention arises from the discrepancy in the treatment of leased assets for book and income tax purposes. The assessing officer completed the assessment, but the Ld Pr. CIT deemed the order erroneous and prejudicial to revenue, initiating revision proceedings.

2. The Ld Pr. CIT observed that the assessee capitalized leased assets in the books but claimed deduction for the principal component of lease payments for income tax purposes. This discrepancy led to the view that the assessment order was erroneous. The jurisdictional dispute arose when the assessee contested the authority of Ld Pr. CIT, New Delhi, citing its registered office in Bangalore and questioning the jurisdictional claim.

3. The Ld Pr. CIT, upon examining the contradictory stand taken by the assessee regarding ownership of leased assets, found the assessing officer had not properly evaluated the issue. The discrepancy between book treatment and income tax claim led to the conclusion that the assessment order was flawed. The assessee's failure to respond effectively to jurisdictional queries further complicated the matter.

4. The Ld Pr. CIT's decision to disallow the principal amount claimed as deduction, after allowing depreciation, was based on the belief that the assessment order was prejudicial to revenue. The assessee's reliance on Accounting Standard -19 for book treatment conflicted with income tax provisions, leading to the revision proceedings. The jurisdictional issue was intertwined with the substantive discrepancy in asset treatment.

5. The Hon'ble Supreme Court's decision in ICDS Ltd vs. CIT, Mysore was cited by the assessee to support its position as a lessee not entitled to claim depreciation. However, the differing treatment for book and income tax purposes raised questions about the validity of the revision proceedings. The Ld Pr. CIT's decision was upheld, emphasizing the need for proper evaluation and consistency in asset treatment for tax purposes.

6. The assessment order was deemed erroneous and prejudicial to revenue due to the failure to reconcile the treatment of leased assets. The jurisdictional dispute, while raised by the assessee, did not impact the core issue of discrepancy in asset treatment. The revision order was upheld, dismissing the appeal and underscoring the importance of accurate and consistent accounting for tax purposes.

Judgment Summary:
The Appellate Tribunal upheld the revision order under section 263 of the Act, finding the assessment order erroneous and prejudicial to revenue due to the inconsistent treatment of leased assets for book and income tax purposes. The jurisdictional dispute raised by the assessee did not alter the core issue, leading to the dismissal of the appeal. The need for proper evaluation and alignment between book and tax treatment of assets was emphasized, highlighting the importance of accurate accounting practices for tax compliance.

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