2020 (11) TMI 913 - HC - Income Tax

Revision u/s 263 - out of provision made for depreciation on investment by the assessee AO has added only investments in India and excluded a sum pertaining to investments outside India - Also audit report in Form 3D sated that expenditure of capital nature were charged to profit and loss account and Assessing Officer did not take into account the aforesaid aspect of the matter - HELD THAT - Tribunal by placing reliance on the order passed by it in the case of assessee for Assessment Year 1996-97 and 1997-98 inter alia held that the revenue as well as assessee are bound by the decision rendered by the tribunal and therefore, in the light of decision rendered by tribunal, CIT committed an error in holding that the order passed by the Assessing Officer was erroneous and prejudicial to the interest of the revenue. Accordingly, the order passed by the Commissioner of Income Tax was set aside. The Supreme Court in G.M.Mittal Stainless Steel (P.) Ltd. 2002 (12) TMI 13 - SUPREME COURT has held that power u/s 263 has to be exercised on the basis of the material, which was available at the time when CIT passed an order, the order passed by the tribunal was operative and therefore, the AO's order could not have been termed as erroneous. Merely because the order of the AO was passed relying which was subsequently reversed by this court cannot justify the order passed by the Commissioner of Income Tax under Section 263 of the Act. - Decided against revenue.

Summary

Issues:
1. Interpretation of Section 263 of the Income Tax Act, 1961 regarding the correctness of setting aside an order.
2. Application of the Tribunal's decision in a previous case to the current case.
3. Impact of a subsequent reversal of a decision on the validity of an order under Section 263.

Analysis:
1. The appeal under Section 260A of the Income Tax Act, 1961 was filed by the revenue concerning the Assessment Year 2009-10. The main issue revolved around the Tribunal's decision to set aside an order under Section 263, focusing on the treatment of depreciation on investments. The Commissioner of Income Tax directed the Assessing Officer to add back a specific amount related to investments outside India, which was contested by the assessee.

2. The assessee, a banking company, initially filed its return of income for the said assessment year, which was later scrutinized by the Assessing Officer. The Commissioner invoked Section 263, considering the Assessing Officer's decision as prejudicial to revenue due to discrepancies in the treatment of depreciation on investments. The Tribunal, relying on a previous decision related to Assessment Year 1996-97, held that the Commissioner erred in deeming the Assessing Officer's order as erroneous, as the Tribunal had already ruled in favor of the assessee on a similar issue.

3. The revenue argued that the Tribunal's decision was solely based on a previous case that was later set aside by the court. However, the assessee contended that the Commissioner must base decisions on the material available at the time of the order. Citing the Supreme Court case 'Commissioner of Income Tax vs. G.M. Mittal Stainless Steel (P) Ltd.', it was emphasized that the power under Section 263 should consider the existing material, regardless of subsequent developments.

4. The High Court analyzed the submissions and records, concluding that the Tribunal's reliance on its previous decision was valid. Referring to the Supreme Court's stance on the exercise of power under Section 263, the Court held that the Commissioner's order was not justified, even if the Assessing Officer's decision was later reversed by the court. Consequently, the substantial question of law was answered against the revenue, leading to the dismissal of the appeal in favor of the assessee.