2021 (12) TMI 398 - AT - Income Tax

Revision u/s 263 to set aside an order passed u/s. 154 - eligibility of the loss from specified business being eligible for being carried forward as such - whether the observations about the eligibility of loss being carried forward does indeed affect the interests of the assessee in any manner? - HELD THAT - Assessee deserves to succeed for these short reasons alone. In the first place, as learned counsel for the assessee vehemently submits, the issue regarding eligibility for set-off is wholly academic so far as the year of incurring loss in question is concerned. The very exercise of seeking a specific mention, by moving the rectification petition, about the eligibility for carrying forward of loss was thus, in a way, somewhat academic and more as a measure of abundant caution rather than the requirement of law. The rectification order was thus wholly infructuous in the eyes of the law. Once a loss has been disclosed in the income tax return, and such a loss has not been disturbed in the scrutiny assessment proceedings, such a loss is treated to have been accepted, and quantification thereof cannot be disturbed. What the learned PCIT has done is to disturb this quantum of loss, but then that could have been done within two years from the end of the financial year in which the related scrutiny assessment order was passed. Limited scope of mistake apparent on record under section 154 and in the light of Hon ble Supreme Court ;s judgment in the case of ITO Vs Volkart Brothers 1971 (8) TMI 3 - SUPREME COURT could not have been disturbed in the proceedings under section 154, and what cannot be done under section 154, cannot be done under section 263 r.w.s. 154 either. Whichever way one looks at it, the impugned revision order is vitiated in law. DR s plea that the quantification of loss in question was never examined at any stage in the scrutiny assessment proceedings, and, therefore, it cannot be allowed to be carried forward, all we can say is that the Assessing Officer could surely have done so in the scrutiny assessment proceedings under section 143(3), but just because he has missed the bus, we cannot bend the law to allow that examination now. The finality of time limits has to be respected and followed - we quash the impugned revision proceedings. The assessee gets the relief accordingly.

Summary

Issues:
1. Validity of order passed under section 263 r.w.s. 154 and 143(3) of the Income Tax Act, 1961 for the assessment year 2012-13.

Analysis:
1. The assessee challenged the order passed under section 263 by the Principal Commissioner of Income Tax (PCIT), arguing that it was bad in law as the AO rectified the order under section 154 without satisfying the conditions of section 263. The PCIT set aside the order based on insufficient inquiry without providing a show cause notice to the appellant, which the appellant contended was erroneous. The appellant claimed that all necessary information was submitted during assessment, and the AO had allowed the expenditure claim under section 143(3) of the Act.

2. The PCIT's decision to set aside the order under section 154 was contested by the appellant, who argued that the AO had correctly examined the claim, and the PCIT erred in holding that there was insufficient inquiry. The PCIT's assertion that the order was prejudicial to revenue despite no modification by the AO was also challenged by the appellant.

3. The core issue revolved around the eligibility of carrying forward a loss of a specified business. The AO accepted the claim in the rectification order, but the PCIT, in revision proceedings under section 263, disagreed due to insufficient examination by the AO. The Tribunal observed that the eligibility for set-off should be determined in the subsequent year as per legal precedents. The PCIT's action in disturbing the quantification of the loss beyond the permissible time limit under section 154 was deemed unlawful. The Tribunal emphasized the importance of respecting time limits and upheld the assessee's appeal, quashing the revision proceedings.

4. The Tribunal concluded that the rectification order seeking specific mention of loss eligibility for carry-forward was unnecessary as the loss disclosed and accepted in the income tax return could not be disturbed post-scrutiny assessment. The PCIT's revision order was found to be legally flawed, and the Tribunal ruled in favor of the assessee, emphasizing the importance of adhering to statutory time limits and respecting the finality of assessment proceedings.

By Pramod Kumar (Vice President) and Ravish Sood (Judicial Member), the Appellate Tribunal ITAT Mumbai delivered a detailed analysis, ultimately allowing the appeal and quashing the revision proceedings, providing relief to the assessee.