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2023 (9) TMI 253 - AT - Income TaxRevision u/s 263 - claim of depreciation after the receipt on account of affording charges and electrification charges is declared as revenue receipt - CIT observed that the AO passed the assessment order without making any inquiry on the issues of claim of depreciation and consequential carry forward loss - HELD THAT - It is pertinent to note that for the preceding assessment years i.e. 2011-12 to 2013-14 the receipt on account of supply affordable and electrification charges capitalized by the assessee were treated as revenue by the department and therefore, the assessee being a consistent loss making company decided to suo moto declared these charges as revenue receipt from A.Y. 2014-15 onwards and thereby work out the depreciation on the enhanced written down value to the extent of the amount which was declared as revenue receipt. Once the assessee has explained the difference of increase in the claim of depreciation and the Pr. CIT did not find any fault or error in the said explanation then allowing the said claim by the AO as otherwise a correct and allowable claim cannot be held as prejudicial to the interest of the revenue. When the assessee has given correct calculation of the increase in the claim of depreciation as a consequence of declaration of supply affording charges and electrification charges as revenue receipt instead of capital receipt then allowing the said claim of the assessee by the AO without even conducting inquiry would not render the order of the AO as prejudicial to the interest of the revenue. Therefore, when the claim of the assessee is a correct and valid allowable claim then the not conducting an inquiry on the part of the AO is not epso facto permit the commissioner to invoke the provisions of section 263 of the Act. Accordingly we hold that twine conditions i.e. the order passed by the AO is erroneous so far as prejudicial to the interest of revenue are not satisfied and consequently the Pr. CIT is not permitted to invoke the provisions of section 263 of the Act. Hence the impugned order of the Pr. CIT is quashed. Decided in favour of assessee.
Issues Involved:
1. Initiation of revision proceedings under Section 263 of the Income Tax Act, 1961. 2. Alleged lack of inquiry or investigation by the Assessing Officer (AO). 3. Discrepancy in the claim of depreciation. 4. Validity of the assessee's claim of depreciation. 5. Applicability of Section 72 vs. Section 32 of the Income Tax Act. 6. Consideration of detailed submissions by the assessee. Summary: 1. Initiation of Revision Proceedings under Section 263: The Principal Commissioner of Income Tax (PCIT) initiated revision proceedings under Section 263 of the Income Tax Act, 1961, against the appellant company. The assessee contended that the Assessment Order under Section 143(3) passed by the AO was neither erroneous nor prejudicial to the revenue's interest, and thus, the Order under Section 263 should be quashed. 2. Alleged Lack of Inquiry or Investigation by the AO: The PCIT held that the AO passed the assessment order without making any inquiry or investigation. The assessee argued that the AO had conducted complete inquiries and investigations, and the assessment order was passed with proper application of mind. 3. Discrepancy in the Claim of Depreciation: The PCIT identified an issue with the claim of depreciation amounting to Rs. 4,39,07,969/-. The assessee claimed depreciation of Rs. 2,18,62,57,725/- in its return of income, whereas the Tax Audit Report reflected Rs. 2,14,23,49,756/-. The assessee justified the discrepancy by explaining that the charges received from consumers were treated as revenue receipts, leading to an enhanced written down value of fixed assets and a corresponding increase in depreciation. 4. Validity of the Assessee's Claim of Depreciation: The assessee argued that the correct amount of depreciation was claimed and accepted by the AO, resulting in no loss of revenue. The PCIT did not dispute the explanations but set aside the order on the ground that the AO did not examine the documents or conduct a basic inquiry regarding the depreciation claimed. 5. Applicability of Section 72 vs. Section 32 of the Income Tax Act: The PCIT held that the AO did not examine the allowability of the provision of Section 72, while the assessee argued that the claim of depreciation should be examined under Section 32. The proceedings under Section 263 were thus initiated on an incorrect premise. 6. Consideration of Detailed Submissions by the Assessee: The assessee contended that the PCIT passed the Order under Section 263 without considering the detailed submissions made during the revision proceedings, which was contrary to the provisions of the Act and principles of natural justice. Tribunal's Decision: The Tribunal found that the claim of depreciation was valid and correct as per the written down value of the fixed assets. The assessee had explained the discrepancy and the PCIT did not find any fault in the explanation. The Tribunal held that the twin conditions for invoking Section 263'erroneous order and prejudicial to the interest of revenue'were not satisfied. Consequently, the PCIT was not permitted to invoke the provisions of Section 263, and the impugned order was quashed. Conclusion: The appeal of the assessee was allowed, and the order pronounced in the open court on 30.08.2023.
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