2024 (8) TMI 818 - AT - Income Tax

Revision u/s 263 - adjustment made in the profit on account of tangible fixed assets - as per CIT AO had failed to add back the impugned amount in spite of the auditors clearly pointing it out for such treatment - CIT proceeded to provisionally compute the grant of excess depreciation at 15% - HELD THAT - In the return of income itself the audited financial statements indicated that as per ICDS-V (tangible fixed assets) there would be an increase in profit . However, the ld. A/R explained that this figure is part of the working on account of depreciation on both tangible and intangible assets which would need to be worked out in a dual manner Accounts working of depreciation actually chargeable under the profit and loss account has been correctly worked out and more importantly disclosed in the audit report filed along with the return of income. On this fact alone, the impugned order deserves to be quashed since the issue has been considered by the AO and dropped for any adverse treatment on account of the response filed by the assessee. The two items pertaining to the ICDS were issues on which the case was picked up for scrutiny and whereas on the ground that we have discussed above, the matter was dropped for considering any addition by the AO, the second ground pertaining to the ICDS-V (change in foreign exchange rates) has been taken adverse note of and an addition has been made to that extent. This amply demonstrates the application of mind by the AO on the issues before him and reveals that he has duly considered the explanation offered by the assessee regarding the issue around ICDS-V. Considering all it is clear that the impugned order started off on an erroneous premise and did not duly take into consideration the details contained in the audit report filed along with the return of income and thereby ended up with an erroneous conclusion. Decided in favour of assessee.

Summary

Issues:
1. Revision of assessment order under Section 263 of the Income Tax Act.
2. Justification of revision based on ICDS-V regarding tangible fixed assets.
3. Consideration of documents and responses by the Assessing Officer and Principal Commissioner of Income Tax.

Analysis:

Issue 1: Revision of assessment order under Section 263
The Appellate Tribunal reviewed a case where the appellant's assessment order was revised under Section 263 of the Income Tax Act. The revision was based on discrepancies noted by the Principal Commissioner of Income Tax (Pr. CIT), leading to an under-assessment of tax. The Pr. CIT identified a substantial tax effect due to the failure of the Assessing Officer (AO) to add back a specific amount related to tangible fixed assets, resulting in excess depreciation and under-assessment of tax.

Issue 2: Justification of revision based on ICDS-V
The core issue revolved around the interpretation and application of Income Computation and Disclosure Standards (ICDS), specifically ICDS-V concerning tangible fixed assets. The appellant contended that the amount in question had already been factored into the taxable income calculation as per the correct procedure, involving depreciation on tangible and intangible assets. The Tribunal scrutinized the details of the computation, emphasizing that the AO had adequately addressed the ICDS-related queries during the original assessment process. It was concluded that the revision order was based on an erroneous premise and failed to consider the details provided in the audit report, leading to an incorrect conclusion.

Issue 3: Consideration of documents and responses
The Tribunal examined the documents submitted by the appellant, including audited financial statements, tax audit reports, and responses to notices under Section 263. Despite the submission of relevant documents, the Pr. CIT did not consider them adequately, leading to a communication gap between the appellant and the tax authorities. The Tribunal highlighted that the AO had already addressed and resolved the ICDS-related issues during the initial assessment, indicating a thorough consideration of the appellant's explanations. Ultimately, the Tribunal ruled in favor of the appellant, deeming the revision order unsustainable and allowing the appeal.

In conclusion, the Appellate Tribunal's judgment centered on the proper application of ICDS-V, the adequacy of the AO's assessment process, and the necessity for tax authorities to consider all relevant documents and responses before revising an assessment order under Section 263 of the Income Tax Act.