2016 (3) TMI 684 - HC - Income Tax

Revision u/s 263 - expenditure disallowed as assessee did not carry the business as per CIT(A) - Held that - In the case on hand, both the Assessing Officer as well as the Commissioner were ad idem on one thing namely that the business operations of the assessee came to a stand still during the accounting year ending 31.3.1999. In paragraph 6 of the order dated 12.4.2005 passed under Section 263, the Commissioner concurred with the finding of the Assessing Officer that the assessee did not carry on business during the year under consideration. Once, on facts, it is found by the Assessing Officer and by the Commissioner that the assessee did not carry on business during the year under consideration, then it follows as a corollary that the assessee could not have claimed expenses under the heading business expenditure . The error committed by the Assessing Officer in allowing business expenditure, was clearly an error of law, which satisfied the first condition. This error of law consequently became prejudicial to the interests of the Revenue, as seen from the computation made by the Deputy Commissioner in the proceedings for giving effect to the order of the Commissioner. In such circumstances, the first question of law on the scope of Section 263 has to be answered against the appellant/assessee.

Summary

Issues:
1. Interpretation of Section 263 of the Income Tax Act, 1961 regarding revision of assessment orders.
2. Allowability of business losses and unabsorbed depreciation to be set off against current year's income.

Analysis:
1. The appeal under Section 260A of the Income Tax Act, 1961 raised questions regarding the correctness of the Income Tax Appellate Tribunal's decision to uphold the Commissioner of Income Tax's revised assessment order. The key issue was whether the original assessment order was 'erroneous' and 'prejudicial' to the Revenue's interests. The Commissioner contended that the appellant's business had been discontinued, and thus, the claimed business losses could not be set off. The High Court referred to the Supreme Court's decision in Malabar Industrial Co. Ltd. Vs. C.I.T. [(2000) 243 ITR 83] to establish the conditions for invoking Section 263, emphasizing the necessity for the order to be both erroneous and prejudicial to the Revenue. The Court found that since the appellant did not carry on business during the relevant year, claiming business expenditure was an error of law, satisfying the conditions under Section 263. Consequently, the first question of law was answered against the appellant/assessee, leading to the dismissal of the appeal.

2. The second issue regarding the allowance of carried forward business losses and unabsorbed depreciation to be set off against the current year's income was not adjudicated upon by the High Court. This decision was based on the resolution of the first question of law against the appellant. The Court's decision was supported by the Delhi High Court's ruling in CIT Vs. Goetze (India) Limited [(2014) 361 ITR 05050]. As a result, the second question did not require separate consideration, and the tax case appeal was dismissed accordingly, with no costs imposed.