2018 (5) TMI 1538 - AT - Income Tax

Revision u/s 263 - Period of limitation - Period to be computed from the date of original assessment or from the date of order of re-assessment - Disallowance of depreciation on a building which is let out - Held that - it is clear from the facts on record that the issue of claim of depreciation on the building was never an issue in the re assessment proceedings.Rather, the issue of claim of depreciation, if at all, arises out of the original assessment order passed under section 143(3). The Hon ble Jurisdictional High Court in Lark Chemicals Ltd. (2013 (9) TMI 959 - BOMBAY HIGH COURT) while dealing with identical issue has held that if the issue on which the proceedings under section 263 of the Act is initiated is not a subject matter of the assessment order passed under section 143(3) r/w 147 of the Act, then the limitation period has to be reckoned from the original assessment order passed under section 143(3) of the Act or if the return of income was processed under section 143(1) of the Act, then from the date of intimation under section 143(1) of the Act. The impugned order passed under section 263 of the Act is barred by limitation prescribed under section 263 of the Act, since, it was passed more than two years after the end of the financial year in which the original assessment order - Decided against the revenue.

Summary

Issues Involved:
1. Limitation period for passing an order under section 263 of the Income Tax Act.
2. Validity of the exercise of jurisdiction under section 263 of the Income Tax Act.
3. Merits of the claim of depreciation on a building partly used for business and partly let out.

Detailed Analysis:

1. Limitation Period for Passing an Order under Section 263:

The assessee challenged the impugned order under section 263 of the Act, arguing it was barred by the limitation period prescribed under the statute. The original assessment order under section 143(3) was passed on 28th November 2011, while the reassessment order under section 143(3) r/w 147 was passed on 30th March 2015. The issue of depreciation was not part of the reassessment proceedings. According to section 263(2), the order under section 263 must be passed within two years from the end of the financial year in which the original assessment order was passed. The Principal Commissioner of Income Tax passed the impugned order on 30th March 2017, which was beyond the prescribed limitation period. The Tribunal referred to decisions in CIT v/s Lark Chemicals Ltd. and LG Electronics India Pvt. Ltd., which supported the assessee's contention. Thus, it was held that the impugned order under section 263 was barred by limitation and invalid.

2. Validity of the Exercise of Jurisdiction under Section 263:

The assessee argued that the depreciation issue was not a subject matter of the reassessment proceedings initiated under section 147. The reassessment was specifically for bringing to tax the bogus purchases from M/s. Vinay Trading Co. The Tribunal agreed that the depreciation issue arose from the original assessment order under section 143(3) and not from the reassessment order. Therefore, the Principal Commissioner of Income Tax could not exercise jurisdiction under section 263 based on the reassessment order. The Tribunal quashed the impugned order under section 263 on this ground as well.

3. Merits of the Claim of Depreciation:

The assessee claimed depreciation on a building partly used for business and partly let out, with rental income offered as house property income. The allocation of the building's value for business purposes was made in the assessment year 2008-09 and accepted by the Department. The depreciation claimed in the impugned assessment year was on the opening written down value of the building. The Tribunal noted that the Department had accepted the apportionment of the building's value for business and house property purposes in the previous assessment years. There was no acquisition or reduction in the value of the asset in the relevant previous year, as per section 43(6)(c). The Tribunal held that there was no reason to revisit the depreciation claim in the impugned assessment year. It was also noted that the Department had not disallowed the depreciation claim in any other assessment year, including subsequent years. Thus, the Tribunal allowed the assessee's claim on merit as well.

Conclusion:

The Tribunal quashed the impugned orders passed under section 263 of the Act for both assessment years 2009-10 and 2010-11, holding them to be barred by limitation and invalid. The assessee's appeals were allowed in full.