2016 (3) TMI 532 - AT - Income Tax

Revision u/s 263 - CIT(A) held that limitation of 8 years for carry forward and set off would no longer apply to the unabsorbed depreciation that arose during A.Y. 1997-98 to 2001-02 - Held that - As decided in assessee s own case relating to assessment year 2007-08 the AO has simply followed the order of his predecessor giving effect to the quantum of brought forward loss to be set off from the income of the current year. Therefore, the order for the impugned assessment year cannot be said to be erroneous although it may be prejudicial to the interest of the revenue. It has been held in various judicial decisions that for assuming jurisdiction u/s.263 by the Ld.CIT, the twin conditions, i.e. (a) order is erroneous and (b) order is prejudicial to the interest of the Revenue must be satisfied. In the instant case, since the unabsorbed business loss and unabsorbed depreciation loss which has to be carried forward for subsequent years has been quantified in the order passed u/s.143(3) dated 31-12-2008 for A.Y. 2006-07 and since the AO has simply followed that order while giving set off of unabsorbed depreciation loss for the A.Y. 2007-08, therefore, the order in our opinion cannot be said to be erroneous. Therefore, the twin conditions are not satisfied. Under these circumstances, we are of the considered opinion that it is not a fit case for assuming jurisdiction u/s.263 of the I.T. Act. We accordingly cancel the order passed u/s.263. - Decided in favour of assessee

Summary

Issues:
1. Interpretation of provisions related to unabsorbed depreciation carry forward.
2. Jurisdiction of CIT(A) under section 263 of the Income-tax Act, 1961.

Analysis:
1. The appeal by the Revenue challenged the CIT(A) order concerning the limitation of 8 years for carry forward and set off of unabsorbed depreciation from assessment years 1997-98 to 2001-02. The issue revolved around whether Section 32(2) of the Act allowed adding unabsorbed depreciation to the allowance u/s 32(1) of the following year. The assessee, a pharmaceutical company, initially declared a loss for A.Y. 2007-08, which was scrutinized resulting in a higher loss. Subsequently, unabsorbed depreciation for A.Y. 1997-98 to 2001-02 was withdrawn under section 263 of the Act. The CIT(A) provided relief to the assessee, leading to the Revenue's appeal. However, the Pune Bench of the Tribunal canceled the CIT(A)'s action in a related case, rendering the appeal nonest.

2. The Tribunal's decision in the related case highlighted that the AO's order for A.Y. 2006-07, determining unabsorbed depreciation to be carried forward, was followed in the A.Y. 2007-08 order. The Tribunal found that the AO's actions were not erroneous, meeting the twin conditions required for CIT jurisdiction under section 263. As a result, the Tribunal canceled the section 263 order, concluding that the appeal by the Revenue in the present case was rendered infructuous. The grounds raised by the Revenue were dismissed, and the appeal was ultimately dismissed on 30.12.2015.

This detailed analysis of the legal judgment covers the interpretation of provisions related to unabsorbed depreciation carry forward and the jurisdiction of the CIT(A) under section 263 of the Income-tax Act, 1961, providing a comprehensive understanding of the issues involved and the Tribunal's decision in the case.