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TMI Blog2015 (6) TMI 634X X X X Extracts X X X X X X X X Extracts X X X X ..... 57,97,350/-. The return was processed u/s. 143(1) on 23rd March, 2006. The ld. Assessing Officer has re-opened the assessment by recording reasons on the ground that assessee had adjusted depreciation/investment loss of Rs. 1,82,62,722/- against short term capital gain at Rs. 1,14,80,000/- According to Assessing Officer, the income of shorter term capital gain could not be adjusted against the depreciation/investment losses brought forward by the assessee. He therefore issued a notice u/s. 148 of the income tax act on 3rd Feb, 2008 which was duly served upon the assessee on 26th February, 2008. The assessee has submitted written submission which has been reproduced by the Assessing Officer on page 2 to 4 of the assessment order dated 24-10- 2008 passed u/s. 143(3) r.w.s. 147 of the income tax act. The Assessing Officer has disallowed the setting off of capital gain against brought forward depreciation losses. The discussion made by the Assessing Officer reads as under:- "4. The assessee's plea that the carried forward deprecation should be treated as current years depreciation and the same should be adjusted against the current year capital gain is rejected on the ground t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p; ______________ 5. Assessed u/s. 143(3) read with section 147 of the IT Act. The tax on short term capital gain in this case works out to Rs. 1,14,80,000/-. Please work out the tax accordingly. Issued penalty notice under section 271(1)(c) the Act for furnishing inaccurate particulars of its income. Give credit for taxes paid in advance if any. Charge interest under section 234A/234B/234C as the case may be." 5. On perusal of the record, ld. Commissioner found that assessee had purchased a wind mill for a sum of Rs. 2,29,60,000/- in Assessment Year 1997-98. The assessee had sold this wind mill for a sum of Rs. 2,29,60,000/ in the accounting year relevant to Assessment Year 2005-06. It has claimed depreciation of Rs. 1,14,80,000/- in Assessment Year 2002- 03. The remaining depreciation ought to have been considered as claimed by the assessee after 01-04-2002, because after 01-04-2002, it is mandatory to claim the depreciation. Therefore, in any case, deprecation has to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3-04. Thus, the opening WDV of block of windmills was NIL. The entire receipt was chargeable to tax as short capital gain in A.Y. 2005-06 instead of amount as worked out by the your company. (II). x x x x x x x x x x & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; Sd/- &n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp; Ahmedabad-IV, Ahmedabad" 6. In response to the show cause notice, it was contended by the assessee that it has transferred the fixed asset i.e. wind mill for a consideration of. 2,29,60,000/-. Due to huge business losses, the depreciation u/s. 32( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal gain, therefore, ld. Commissioner is not justified in taking cognizance u/s. 263 of the Act. (b) That the issue regarding computation of short term capital gain vis-a-vis its adjustability/set off against brought forward depreciation losses was subject matter of the assessment proceeding which was taken in appeal before Commissioner of Income Tax (Appeals). Ld. First Appellate Authority while examining the issue of adjustability of the short term capital gain against brought forward deprecation losses could have enhanced the computation of short term capital gain, because both these issues are inextricably linked to each other, therefore, the interdiction provided in explanation "C" to Section 263, puts an embargo on the powers of Ld. Commissioner of Income Tax to take action on any issue which was subject matter of appeal before Commissioner of Income Tax (Appeals). (c) On the strength of copy of income tax returns filed from Assessment Year 1997-98 up-to 2005-06, learned counsel for the assessee submitted that assessee had losses in earlier years. In Assessment Year 2005-06, it has offered net loss of Rs. 95,19,465/-, in Assessment Year 2003-04, it has offered net losses of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. [Explanation.- For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,- (a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include- (i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income-tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A; (ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief Commissioner or Director General or Commissioner authorized by the Board in this behalf under section 120; (b) "record shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Commissioner; (c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpartment of this section. The learned Commissioner may annul the order of the Assessing Officer. He may enhance the assessed income by modifying the order. He may set aside the order and direct the Assessing Officer to pass a fresh order. Explanation-1 has been substituted by the Finance Act 1998 (26 of 1988). It threw a light to some extent the scheme of the Act. Under clause (a) of the Explanation, it has been provided that an order of the assessment made by the Income Tax Officer on the basis of a direction issued by the Jt. Commissioner u/s 144A would be an order of the Income Tax Officer. In other words, if directions of binding nature were issued by a higher authority translated into the order of the Income Tax Officer, then that order would be considered of the Assessing Officer and not of the higher authorities. For the purpose of controversy in hand, meaning of explanation "C" is relevant. This explanation provides that if an order passed by the Assessing Officer is subject matter of an appeal then the issue/matter which did not travel in appellate proceedings, Ld. Commissioner of Income Tax would have a jurisdiction on these issues u/s. 263 of IT Act. Therefore, before c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ows the claim on being satisfied with the explanation of the assessee, the decision of the AO cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in that regard. 13. Apart from the above principles, we deem it appropriate to make reference to the decision of the Hon'ble Delhi High Court in the case of CIT vs. Sun Beam Auto reported in 227 CTR 113 and Gee Vee Enterprises Ltd vs. Addl. Commissioner of Income Tax (99 ITR 375). In the case of Sun Beam Auto, the Hon'ble High Court has pointed out a distinction between lack of inquiry and inadequate inquiry. If there is a lack of enquiry, then the assessment order can be branded as erroneous. The following observations of the Hon'ble Delhi High Court are worth to note: "12. We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the Commissioner of Income-tax under section 263 of the Income-tax Act. As noted above, the submission of learned counsel for the revenue was that while passing the assessment order, the Assessing Officer did not cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry... It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would made such an inquiry prudent that the word 'erroneous' in section 263 includes the failure to make such an enquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct." 15. In the light of above, let us examine the facts of the present case. According to the first proposition of learned counsel for the assessee, the Assessing Officer has re-opened the assessment proceeding in order to find out, whether short term capital gain computed by the assesse can be adjusted against the deprecation losses brought forward from earlier? No doubt, assessment has been re-opened on a little different reason but before considering any issue, whether set off to be allowed or not?, it is but natural that ld. Assessing Officer would first verify the amounts which can be set of with each other. The com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against was passed, notwithstanding that such matter was not raised before the Commissioner by the appellant. The computation of capital gain is linked with the ultimate set off, it is same source of income to be determined in the hands of assessee, therefore, he could have considered the ultimate amount required to be computed as a short term capital gain. The source and the issue related to that source were subject matter of an appeal and therefore to our mind the interdiction available in explanation "C" appended with section 263 sub-section 1 would come in the way of Ld. Commissioner for taking action u/s. 263 against the assessee. The impugned order is not sustainable in view of the second proposition also. 18. As far as the third proposition is concerned, learned counsel of the assessee pointed out that assessee had filed a return declaring loss for Rs. 1,26,42,731/- in Assessment Year 2003-04 and Rs. 95,19,465/- in Assessment Year 2004-05. The total losses of both these years comes to Rs. 2,21,62,196/-. This amount would be further amplified by the deemed thrust upon of the depreciation amounting to Rs. 1,14,80,000/-. Thus, total brought forward losses would be more than 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erits and pass final order or in his views, requires some adjudication or enquiry, the matter can be remanded to the assessing authority. But such remand should be only after setting out the facts which show erroneous nature of the order and the consequential prejudice to the Revenue which confer jurisdiction on the revisional authority. 8. Seen from that angle, in the impugned order though we could make out what is the error committed by the revisional authority, certainty there is no iota of evidence to show how it is prejudicial to the interest of the Revenue. On the contrary, in the reply to the notice, the assessee had filed a statement. Even if the assessment is to be made separately for the land on long-term basis and to the building on short-term basis. The assessee is not liable to pay any tax for the building. The assesse has demonstrated that in no event the order passed by the assessing Officer is prejudicial to the interests of the Revenue. That aspect has not been considered and there is no reference to that aspect in the entire order passed by the revisional authority and by a cryptic order, the matter is remanded to the assessing authority. Though the Tribunal was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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