2022 (12) TMI 840 - AT - Income Tax

Revision u/s 263 by CIT - Unabsorbed Depreciation or unabsorbed Business Loss - The limitation for carrying forward of business loss do not apply to carrying forward the unabsorbed Depreciation - HELD THAT - Once the AO has considered the issue and has accepted the explanation of the assessee, then there is no scope for the PCIT to take up said issue for revision proceedings on the guise of inadequate enquiry. We further noted that the PCIT may assume jurisdiction to revise assessment order, in a case, where there is no enquiry at all. However, he does not have power to revise the assessment order, in a case, where enquiry has been made and according to the PCIT, enquiry is inadequate and this principle is supported by the decision of CIT v. Gabriel India Ltd. 1993 (4) TMI 55 - BOMBAY HIGH COURT As regards unabsorbed depreciation to be carry forward to subsequent years, the PCIT was of the opinion that although, the assessee has furnished return of income for the AYs 2012-13 to 2014-15 beyond due date specified u/s.139(1) of the Act, but the AO has allowed to carry forward unabsorbed depreciation. We find that once again the reasons given by the PCIT to revise the assessment order on this issue is devoid of merits for simple reason that the issue before the AO is AY 2015-16 and for this assessment year, the assessee has returned nil total income. Even, assuming for a moment, the PCIT is right on his observation, but fact remains that brought forward unabsorbed depreciation can very well be examined by the AO when the assessee has claimed set off of unabsorbed depreciation against current year income in subsequent assessment years. Since, there is no positive income for the impugned assessment year and the assessee has not claimed set off of unabsorbed depreciation there is no prejudice is caused to the Revenue for the impugned assessment year and thus, the question of revision of assessment order on this issue does not arise. PCIT is erred in revising the assessment order passed by the AO u/s.143(3) - order passed by the PCIT u/s.263 quashed - Decided in favour of assessee.

Summary

Issues involved:
1. Jurisdiction of Principal Commissioner to revise assessment order under Sec.263 of the Act.
2. Treatment of unabsorbed depreciation and its carry forward in assessment year 2015-16.

Issue 1: Jurisdiction of Principal Commissioner to revise assessment order under Sec.263 of the Act:

The appeal was against the order of the Principal Commissioner of Income Tax, Madurai-1, pertaining to the assessment year 2015-16. The PCIT initiated revision proceedings under Sec.263 of the Act based on the grounds that the assessment order passed by the AO was erroneous and prejudicial to the interest of the Revenue. The PCIT observed that the AO failed to investigate the increase in cash balance and unabsorbed depreciation properly. The PCIT set aside the assessment order and directed the AO to re-do the assessment. The assessee contended that the AO's assessment was not erroneous or prejudicial to the Revenue's interest as the issues were examined during the limited scrutiny. The DR supported the PCIT's order, emphasizing the lack of necessary enquiries by the AO. The ITAT held that the PCIT's reasons for revision lacked merit. The ITAT emphasized that once the AO had considered and accepted the explanations provided by the assessee, there was no basis for the PCIT to revise the assessment order. The ITAT referenced the principle that inadequate enquiry does not warrant revision if some enquiry has been conducted, as supported by judicial precedents. Therefore, the ITAT concluded that the PCIT erred in revising the assessment order under Sec.263.

Issue 2: Treatment of unabsorbed depreciation and its carry forward in assessment year 2015-16:

The PCIT raised concerns about the allowance of carrying forward unabsorbed depreciation by the AO for earlier assessment years where the returns were filed beyond the due dates. The PCIT considered this as a reason to revise the assessment order for the year in question. The ITAT disagreed with the PCIT's stance, highlighting that for the assessment year 2015-16, the assessee declared a nil total income. Therefore, there was no necessity for the AO to delve into the unabsorbed depreciation from previous years. The ITAT noted that the unabsorbed depreciation could be examined in subsequent years when the assessee claimed set off against current year income. Since no such set off was claimed due to nil income, the ITAT concluded that there was no prejudice to the Revenue for the year under consideration. Consequently, the ITAT quashed the PCIT's order under Sec.263. The appeal was allowed in favor of the assessee.

In conclusion, the ITAT ruled in favor of the assessee, holding that the PCIT's revision of the assessment order under Sec.263 was unwarranted. The ITAT emphasized the importance of proper enquiry by the AO and clarified the treatment of unabsorbed depreciation in cases where no current year income exists.