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TMI Blog2012 (12) TMI 733X X X X Extracts X X X X X X X X Extracts X X X X ..... de by the learned assessing officer is erroneous and prejudicial to the interests of revenue in relation to set off of unabsorbed depreciation allowance brought forward from Assessment Year 1996-97 and therefore required revision u/s. 263 of the Act. 3. That on the facts and in the circumstances of the appellant's case and in law, learned Commissioner of Income-tax has erred in observing that the assessment order made by the learned assessing officer is erroneous and prejudicial to the interests of revenue in relation to the compromised settlement of dues with Stressed Assets Stabilization Fund IDBI. 4. That on the facts and in the circumstances of the appellant's case and in law, learned Commissioner of Income-tax has erred in not following the principle that CBDT circular favourable to the assessee is binding on the learned assessing officer. 5. That on the facts and in the circumstances of the appellant's case and in law, learned Commissioner of Income-tax has erred in not appreciating that even if ITAT takes, more so subsequently, a different view; the view taken by the learned assessing officer does not cease to be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cular is binding in nature. The CIT relied on the order of the Special Bench in the case of DCIT vs. Times Guarantee Ltd. (2010) 4 ITR 210 (Trib) (SB) wherein held that unabsorbed depreciation relating to A.Ys. 1997-98 to 1999-2000 is to be dealt with in accordance with the provisions of section 32(2) of the Act as applicable for A.Ys. 1997-98 to 1999-2000 and, therefore, assessee cannot claim set off of unabsorbed depreciation relating to A.Ys. 1997-98 to 1999-2000 against income under any head other than 'profits and gains of business or profession' in A.Y. 2003-04. Further, the CIT has also dealt with the issue relating to compromise settlement of dues with Stressed Assets Stabilisation Fund IDBI. It was the contention of the assessee that no income arose out of the settlement even under the provisions of section 41 of the Act. However, the details of interest waived as against what was earlier allowed as deduction and such other information giving the particulars of the gross sum of Rs. 10.70 crores are not available. Being so, the CIT remitted the issue back to the file of the Assessing Officer for fresh consideration. Against this issue and with regard to assumption of jurisd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is prejudicial to the interests of the Revenue'. It is not an arbitrary or unchartered power; it can be exercised only on fulfilment of the requirements laid down by sub-section (1). The consideration of the Commissioner, as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the wellaccepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in ether spheres of human activity. (See Parashuram Pottery Works Co. Ltd. v. ITO [1977) 106 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order he did not make an elaborate discussion in that regard." 7. The learned AR submitted that in the instant case, the learned Assessing Officer called for explanation on the very same issue on various occasions from the Assessee and the Assessee had furnished its explanation which clearly shows that the Assessing Officer has undertaken the exercise of examining the issues in dispute and on being satisfied with the explanation furnished by the Assessee, the AO accepted the same. 8. The AR submitted that thus, even the learned Commissioner of Income Tax conceded the fact that Assessing Officer made enquiries. The only grievance of the learned Commissioner of Income Tax was that the Assessing Officer should have made further enquiries rather than accepting the claim. Therefore, it cannot be said that it is a case of "lack of enquiry." 9. The AR further submitted that the impugned order is also liable to be set aside for the simple reason that the learned Commissioner of Income Tax had not furnished the material in the show cause notice based on which he jumped over to the conclusion impetuously, without proper application of mind, that the assessment order is erroneous and prej ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pvt. Ltd. (230 ITR 108). Further, he also submitted that the order of the Tribunal Special Bench Mumbai in the case of DCIT vs. Times Guarantee Ltd. (supra) was delivered on 30.6.2010 wherein it was held that unabsorbed depreciation relating to A.Ys. 1997-98 to 1999-2000 is to be dealt with in accordance with the provisions of section 32(2) of the Act as applicable for A.Ys. 1997- 98 to 1999-2000 and, therefore, the assessee cannot claim set off of unabsorbed depreciation relating to A.Ys. 1997-98 to 1999- 2000 against the income under any head other than 'profit and gains of business or profession' for the A.Ys. 2003-04 and 2004- 05. As the assessment order was passed on 29.12.2009, this Special Bench order dated 30.6.2010 was not available to the Assessing Officer. 14. Further, he drew our attention to the provisions of section 32(2) as they stood as on 1.4.2007 which reads as under: "(2) Where, in the assessment of the assessee, full effect cannot be given to any allowance under subsection (1) in any previous year, owing to there being no profit or gains chargeable for that previous year or owing to the profits or gains chargeable being less than the allowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of CIT vs. Gabriel India Ltd. 203 ITR 108 (Bom) and Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT. 18. Further, it was pointed out that during assessment year 2001-02, when the amended provision of sec. 32(2) became effective, the unabsorbed depreciation of the assessee for assessment year 1998-99 was live and capable of being carried forward. 19. Further he relied on the judgement of Gujarat High Court in Special Civil Application No. 1773 of 2012 in the case of General Motors India Pvt. Ltd. vs. DCIT dated 23.8.2012 wherein held as under: "37. The AR drew our attention to the law of Income-tax by Sampath Iyengar with regard to scope and effect of the amendment as explained by the Board in Circular No.14 of 2001 The CBDT Circular clarifies the intent of the amendment that it is for enabling the industry to conserve sufficient funds to replace plant and machinery and accordingly the amendment dispenses with the restriction of 8 years for carry forward and set off of unabsorbed depreciation. The amendment is applicable from assessment year 2002-03 and subsequent years. This means that any unabsorbed depreciation available to an as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eciation and it is taken to the next succeeding year. Where there is current depreciation for such succeeding year the unabsorbed depreciation is added to the current depreciation for such succeeding year and is deemed as part thereof. If, however, there is no current depreciation for such succeeding year, the unabsorbed depreciation becomes the depreciation allowance for such succeeding year. We are of the considered opinion that any unabsorbed depreciation available to an assessee on 1st day of April 2002 (A. Y. 2002-03) will be dealt with in accordance with the provisions of section 32(2) as amended by Finance Act, 2001. And once the Circular No.14 of 2001 clarified that the restriction of 8 years for carry forward and set off of unabsorbed depreciation had been dispensed with, the unabsorbed depreciation from A.Y. 1997-98 up to the A.Y. 2001-02 got carried forward to the assessment year 2002-03 and became part thereof, it came to be governed by the provisions of section 32(2) as amended by Finance Act, 2001 and were available for carry forward and set off against the profits and gains of subsequent years, without any limit whatsoever." 20. The AR further relied on the order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofits and gains of subsequent years, without any limit whatsoever. 24. The learned DR submitted that there is no enquiry on the part of the Assessing Officer while completing assessment. He simply accepted the claim of the assessee with regard to set off of unabsorbed depreciation while completing assessment. Being so, nothing prohibits the CIT in assuming jurisdiction u/s. 263 of the Act. Even on merit, there is no case to assessee as the issue was already decided by the Special Bench (Mumbai) (cited supra) in favour of the Department. 25. We have heard both the parties and perused the material on record. We have carefully considered the rival submissions in the light of material placed before us and also gone through all the judgements cited by the parties before us. First we take up the legal issue with reference to the jurisdiction of invoking the provisions of section 263 of the Act by the learned CIT. The scheme of the IT Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to erroneous order of the assessing officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... speaking, Hallucination is an illusion of the perception, a phantasm of the imagination. The one comes of disordered vision, the other of discarded imagination. It is extended in medical science to matters of sensation, whether there is no corresponding cause to produce it. In its ordinary use it denotes an unaccountable error in judgement or fact, especially in one remarkable otherwise for accurate information and right decision. It is exceptional error or mistake in those otherwise not likely to be deceived." 27. In order to ascertain whether an order sought to be revised under Section 263 is erroneous, it should be seen whether it suffers from any of the aforesaid forms of error. In our view, an order sought to be revised under Section 263 would be erroneous and fall in the aforesaid category of "errors" if it is, inter alia, based on an incorrect assumption of facts or an incorrect application of law or non-application of mind to something which was obvious and required application of mind or based on no or insufficient materials so as to affect the merits of the case and thereby cause prejudice to the interest of the revenue. 28. Section 263 of the Income-tax Act seeks to re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax. The Assessing Officer is not expected to put blinkers on his eyes and mechanically accept what the assessee claims before him. It is his duty to ascertain the truth of the facts stated and the genuineness of the claims made in the return when the circumstances of the case are such as to provoke inquiry. Arbitrariness in either accepting or rejecting the claim has no place. The order passed by the Assessing Officer becomes erroneous because an enquiry has not been made or genuineness of the claim has not been examined where the inquiries ought to have been made and the genuineness of the claim ought to have been examined and not because there is anything wrong with his order if all the facts stated or claim made therein are assumed to be correct. The Commissioner may consider an order of the Assessing Officer to be erroneous not only when it contains some apparent error of reasoning or of law or of fact on the face of it but also when it is a stereo-typed order which simply accepts what the assessee has stated in his return and fails to make enquiries or examine the genuineness of the claim which are called for in the circumstances of the case. In taking the aforesaid view, we a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver briefly, his reasons therefor. In S.N. Mukherjee v. Union of India AIR 1990 SC 1984, it has been observed by the Hon'ble Supreme Court as follows: "Reasons, when recorded by an administrative authority in an order passed by it while exercising quasi-judicial functions, would no doubt facilitate the exercise of its jurisdiction by the appellate or supervisory authority. But the other considerations, referred to above, which have also weighed with this Court in holding that an administrative authority must record reasons for its decision are of no less significance. These considerations show that the recording of reasons by an administrative authority serves a salutary purpose, namely, it excludes chances or arbitrariness and ensures a degree of fairness in the process of decision-making. The said purpose would apply equally to all decisions and its application cannot be confined to decisions which are subject to appeal, revision or judicial review. In our opinion, therefore, the requirement that reasons be recorded should govern the decisions of an administrative authority exercising quasi-judicial functions irrespective of the fact may, however, be added tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue under Section 263 in the following cases: (i) The order sought to be revised contains error of reasoning or of law or of fact on the face of it. (ii) The order sought to be revised proceeds on incorrect assumption of facts or incorrect application of law. In the same category fall orders passed without applying the principles of natural justice or without application of mind. (iii) The order passed by the Assessing Officer is a stereotype order which simply accepts what the assessee has stated in his return or where he fails to make the requisite enquiries or examine the genuineness of the claim which is called for in the circumstances of the case. 32. We shall now turn to the facts of the case to see whether the case before us is covered by the aforesaid principles. Perusal of the assessment order passed by the Assessing Officer does not show any application of mind on his part. He simply accepted the claim of the assessee. This is a case where the Assessing Officer mechanically accepted what the assessee wanted him to accept without any application of mind or enquiry. The evidence available on record is not eno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. Thus, the formation of any view by the Assessing Officer would necessarily depend upon the results of his inquiry and conscious, and not passive, examination into the claim of the assessee. If the Assessing Officer passes an order mechanically without making the requisite inquiries or examining the claim of the assessee in accordance with law, such an order will clearly be erroneous in law as it would not be based on objective consideration of the relevant materials. It is therefore, the mere failure on the part of the Assessing Officer in not making the inquiries or not examining the claim of the assessee in accordance with law that per se renders the resultant order erroneous and prejudicial to the interest of the revenue. Nothing else is required to be established in such a case to show that the order sought to be revised is erroneous and prejudicial to the interests of the revenue. 34. We are unable to accept the submission of the learned Counsel for two other reasons also. First reason is that the view so taken by the Assessing Officer without making the requisite inquiries or examining the claim of the assessee will per se be an erroneous view and hence will b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... requires the Assessing Officer to consciously analyse and evaluate the facts in the light of relevant law and bring them on record. It is only then that he can be said to have "adopted" or chosen one of the courses permissible in law. The Assessing Officer cannot be presumed or attributed to have "adopted" or chosen a course permissible in law when his order does not speak in that behalf. Similarly, "taking" one view where two or more views are possible also necessarily imports the requirement of analysing the facts in the light of applicable law. Therefore, proper examination of facts in the light of relevant law is a necessary concomitant in order to say that the Assessing Officer has adopted a permissible course of law or taken a view where two or more views are possible. It is only after such proper examination and evaluation has been done by the Assessing Officer that he can come to a conclusion as to what are the permissible courses available in law or what are the possible views on the issue before him. In case he comes to the conclusion that more than one view is possible then he has necessarily to choose a view, which is most appropriate on the facts of the case. In order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce between conclusions in two cases...." Therefore, the observations of the Hon'ble Supreme Court in Malabar Industrial Co. Ltd's case (supra) on which reliance has been placed by the learned Counsel cannot be read in isolation. The judgment deserves to be read in its entirety to cull out the law laid down by the Hon'ble Supreme Court. If so read, it is quite evident that the orders passed on an incorrect assumption of facts or incorrect application of law or without applying the principles of natural justice or without application of mind will satisfy the requirement of the order being erroneous and prejudicial to the interest of the revenue. If the order sought to be revised under Section 263 suffers from any of the aforesaid vices, it cannot be said that the Assessing Officer has "adopted", in such an order, a course permissible in law or "taken" a view where two or more views are possible." 38. It was next contended by the learned Authorised Representative that the Assessing Officer had considered all the relevant aspects of the case carefully while passing the order. According to him, the mere fact that the assessment order passed by the Assessing Officer was short would neit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officers and thus destroy the very fabric of sound tax discipline. If erroneous orders, which are prejudicial to the interest of the revenue, are allowed to stand, the consequences would be disastrous in that the honest tax payers would be required to pay more than others to compensate for the loss caused by such erroneous orders. For this reason also, we are of the view that the orders passed on an incorrect assumption of facts or incorrect application of law or without applying the principles of natural justice or without application of mind or without making requisite inquiries will satisfy the requirement of the order being erroneous and prejudicial to the interest of the revenue within the meaning of Section 263. 40. Adverting to the facts of the present case, there is no enquiry by the Assessing Officer whatsoever on the issue in dispute. He just accepted the claim of set off of earlier year unabsorbed depreciation in the assessment year under consideration. Being so, the CIT assumed jurisdiction u/s. 263 of the Act. The argument of the assessee's counsel is that there are decisions in favour of the assessee. Therefore, the view adopted by the Assessing Officer is one of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee cannot claim set off of unabsorbed depreciation relating to assessment year 1997-98 to 1999-2000 under any head of income other than "income from business or profession" in assessment years 2003-04 and 2004-05. In view of the above decision, we are inclined to hold that the assessee case is squarely covered by the above decision and as such assessee cannot claim set off of unabsorbed carried forward depreciation relating to assessment years 1996-97 and 1998-99 against the income relating to assessment year 2007-08. On merit also, this issue is decided against the assessee. 42. The learned AR relied on the judgement of Gujarat High Court in Special Civil Application No. 1773 of 2012 dated 23.8.2012 in the case of General Motors India Pvt. Ltd. (cited supra) for the proposition of set off of unabsorbed depreciation allowance disputed before us against the profit and gains of subsequent year without any limit of period whatsoever. In our opinion this judgement cannot be considered as binding precedent as this is not a jurisdictional High Court judgement. Further, on the same subject Hon'ble Madras High Court in the case of CIT vs. Pioneer Asia Packing Pvt. Ltd., (310 ITR 198) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the nature of a receipt for income-tax purposes is fitted once and for all when it is received, and subsequent operations cannot turn a receipt which is not a trading receipt into one.
44. The DR relied on the order of the CIT on this issue and submitted that there was no enquiry by the Assessing Officer as the details of interest waived as against what was earlier allowed as deduction and such other information giving particulars of the component of this settlement dues is not brought on record by the Assessing Officer.
45. We have heard both the parties and perused the material on record. We have gone through the impugned assessment order. In this case also there is no discussion in the assessment order on the impugned issue. There is no enquiry on this issue. The order is erroneous and prejudicial to the interest of revenue as discussed in earlier paras of this order. Accordingly, we confirm the order of the CIT. This issue was also not examined by the Assessing Officer and it requires examination by the Assessing Officer. Being so, the CIT is justified in directing the Assessing Officer to conduct necessary enquiry.
46. In the result, appeal of the assessee is dismissed. X X X X Extracts X X X X X X X X Extracts X X X X
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