2024 (9) TMI 740 - HC - Income Tax

Revision u/s 263 - as per CIT order makes no reference to the issue of depreciation - HELD THAT - The very question considered to be an error by the respondent has been answered at paragraph 5 to state that the Appellant s claim of depreciation is correct, for more than one reason. Firstly, the Tribunal finds that the re-allocation of depreciation qua the land and retail divisions is merely on the opinion expressed by the Assessing Authority that a particular business of the assessee does not require 'that much business premises' . This is only an incidental finding which has not impressed the Tribunal, and quite rightly so. That apart, they have also opined that there is no practical purpose to be served in making a distinction between the claim of depreciation qua retail business and land division business. The findings and conclusions of the Tribunal on identical facts and circumstances as for the present AY have been accepted by the respondent and as such, no question of law much less a substantial question of law arises in these circumstances. It is true that the respondent did not have the benefit of the order of the Tribunal dated 21.07.2006 at the time when the suo moto action u/s 263 was proposed. However, the Tribunal did, in 2007, while passing the impugned order. A perusal of the order of the Tribunal reveals that the 2006 order was not brought to its notice and thus the Tribunal did not have the benefit of the reasoning under that order. While deciding the matter today, we cannot close our eyes to subsequent developments and the order of the Tribunal and the finality attached to it, thus assume great relevance. The substantial questions of law, are, in light of the discussion above, answered in favour of the assessee/Appellant and adverse to the respondents. Incidentally, we may also point out that the impugned order in this case is dated 25.07.2008. The provisions of Section 153(3) of the Act require a consequential order of assessment to be passed within a period of twelve (12) months from the end of the financial year when the order u/s 263 was received by the Chief Commissioner. Assessee appeal allowed.

Summary

Issues:
1. Correctness of sustaining the action of the CIT in passing the revision order under Section 263 of the Act without establishing the twin conditions of error and prejudice.
2. Tribunal's dismissal of the appeal despite prior favorable decisions in ITA.Nos.659 and 660 of 2003 for the assessment years 1993-94 and 1994-95.

Analysis:
1. The appeal pertains to AY 1995-96 and questions the ITAT's order dated 25.07.2008. The petitioner's re-assessment order reduced the initially reported loss without addressing depreciation claims. A show cause notice was issued by the CIT under Section 263, alleging errors prejudicial to revenue. The Tribunal rejected the appeal against this order.

2. The crux of the matter lies in the disallowance of depreciation for the Land Division by the Assessing Authority. The appellant contends that the twin conditions of error and prejudice under Section 263 were not met, citing precedents like the Max India Ltd. case and M/s. Agasthiya Granite P Ltd. case to support their argument.

3. The respondent argues that the Assessing Authority's failure to consider depreciation in the assessment order constituted an error necessitating the Section 263 revision. The Court, guided by the Malabar Industries case, emphasizes the need for both error and prejudice for Section 263 to apply.

4. The Tribunal's 2006 order on a similar issue favored the petitioner, highlighting the correctness of their depreciation claim. The Court references this order to support the appellant's position, emphasizing that the Tribunal's prior decision holds significance in determining the error in the current case.

5. Despite the absence of the 2006 Tribunal order during the Section 263 proposal, its subsequent acknowledgment in the 2007 Tribunal order is crucial. The Court gives weight to the finality of the 2006 order, ultimately ruling in favor of the appellant due to the lack of a consequential assessment order post-Section 263 revision.

6. The Court's decision to allow the appeal is reinforced by the absence of a consequential assessment within the statutory timeframe. This renders the Section 263 revision ineffective, making the appeal's resolution academic. The judgment underscores the importance of meeting the twin conditions under Section 263 for a valid revision.

7. The legal representatives involved in the case are duly acknowledged, and the Court concludes the judgment without imposing any costs on either party.