2024 (12) TMI 43 - HC - Income Tax

Revision u/s 263 - provision made for depreciation on investment and the assessee had added back only relating to investments in India and excluded investments outside India - HELD THAT - The 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, the Commissioner of Income Tax 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 under Section 263 of the Act has to be exercised on the basis of the material, which was available at the time when the Commissioner of Income Tax passed an order, the order passed by the tribunal was operative and therefore, the Assessing Officer's order could not have been termed as erroneous. Merely because the order of the Assessing Officer 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 in favour of the assessee.

Summary

Issues:
1. Interpretation of Section 263 of the Income Tax Act, 1961.
2. Correct application of the law in assessing depreciation on investments.
3. Binding effect of tribunal decisions on both parties.
4. Effect of subsequent reversal of tribunal decisions on Commissioner's order under Section 263.

Analysis:
1. The appeal under Section 260A of the Income Tax Act, 1961 was filed by the revenue challenging the Tribunal's decision. The substantial question of law was whether the Tribunal was correct in setting aside the order under Section 263 without appreciating the treatment of depreciation on investments by the assessee. The Commissioner directed the Assessing Officer to add back a specific amount related to investments outside India.

2. The assessee, a banking company, filed its return for the Assessment Year 2009-10, declaring a total income. The Assessing Officer made certain additions/disallowances, leading to the Commissioner invoking powers under Section 263. The Commissioner found the Assessing Officer's treatment of depreciation on investments to be incorrect, directing the addition of a specific amount. The Tribunal, relying on its previous decisions, held in favor of the assessee, leading to the revenue's appeal.

3. The Tribunal, based on its previous decisions, found that both the revenue and assessee were bound by its rulings. The Tribunal's decision in favor of the assessee for a previous assessment year was considered binding on both parties, leading to the setting aside of the Commissioner's order under Section 263.

4. The revenue argued that since a decision relied upon by the Tribunal was subsequently set aside by the court in a different case, the Tribunal's decision should also be set aside. However, the Supreme Court precedent highlighted that the power under Section 263 must be exercised based on the material available at the time of the order. The Tribunal's decision was found to be valid as the Assessing Officer's order was not erroneous based on the material available at that time.

5. The Court, after considering the submissions, upheld the Tribunal's decision, stating that the Commissioner erred in finding the Assessing Officer's order as erroneous. The Court emphasized that the order under Section 263 must be based on the material available at the time of passing the order. The appeal by the revenue was dismissed, ruling in favor of the assessee.