2006 (4) TMI 179 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the assessment order under section 143(3) read with section 147 of the Income-tax Act, 1961.
2. Entitlement to carry forward of depreciation and loss when the return was filed beyond the prescribed time limit.
3. Validity of initiation of proceedings under section 263 by the Commissioner of Income-tax (CIT).

Detailed Analysis:

1. Validity of the Assessment Order under Section 143(3) Read with Section 147:
The primary issue was whether the assessment order issued under section 143(3) read with section 147 was valid. The assessee filed a return showing a total loss, which was regularized by issuing a notice under section 148. The CIT argued that the assessment order was erroneous and prejudicial to the revenue because the return was filed beyond the prescribed time limit under section 139 and was regularized by the notice under section 148. The CIT contended that section 148 is intended for reopening assessments where there is an escapement of income, not for cases where the return reflects a loss filed beyond the prescribed time limit. The Tribunal upheld the CIT's view, stating that the assessment framed under section 148 was erroneous and prejudicial to the revenue as it allowed the carry forward of loss, which was not permissible.

2. Entitlement to Carry Forward of Depreciation and Loss:
The assessee argued that the loss was due to depreciation and cited various case laws to support the claim that depreciation and loss should be treated differently. The Tribunal, however, referred to the Supreme Court's decision in CIT v. Sun Engg. Works (P.) Ltd., which held that proceedings under section 147 are for the benefit of the revenue and not the assessee. The Tribunal emphasized that the Assessing Officer could not confer the benefit to the assessee by reassessment, thereby allowing the carry forward of loss and unabsorbed depreciation, which would be detrimental to the revenue.

3. Validity of Initiation of Proceedings under Section 263:
The Tribunal examined whether the CIT validly invoked section 263, which allows for revision of orders that are erroneous and prejudicial to the revenue. The Tribunal noted that for section 263 to be invoked, the order must be both erroneous and prejudicial to the revenue. The Tribunal agreed with the CIT that the assessment order was erroneous as it allowed the carry forward of loss and unabsorbed depreciation, which was not permissible. The Tribunal also found that the Assessing Officer's action was prejudicial to the revenue as it resulted in a loss of tax lawfully payable by the assessee.

Conclusion:
The Tribunal dismissed the appeal filed by the assessee, upholding the CIT's order under section 263. The Tribunal concluded that the assessment order was invalid as the return was filed beyond the prescribed time limit and the proceedings under section 147/148 were not intended to benefit the assessee by allowing the carry forward of loss and unabsorbed depreciation. The Tribunal emphasized that the proceedings under section 147 are for the benefit of the revenue and not for the assessee, and the Assessing Officer should have dropped the proceedings instead of framing the assessment to the detriment of the revenue.