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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 ..... e 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 computation of short term capital gain is one of the components for verifying this factor, therefore, it suggests that ld. Assessing Officer has applied his mind on the figure of the short term capital gain computed by the assesee. He has examined this and only thereafter disallowed this set off against brought forward losses. The Assessing Officer has applied his mind and taken a possible view after going through returns of the assessee for earlier years. Therefore, ld. Commissioner is not justified in taking action against assessment order, where Ld. Assessing Officer had taken a possible view in law 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” app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m capital gain at ₹ 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 that there is no provisions under the act which says to absorb the carried forward deprecation from the current year capital gain and it is seen that the representation made by the assesse is quite contrary to the facts and law. There is no mentioning in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. Assessing Officer had committed an error by accepting this computation. He issued a show cause notice, though on a number of issues, but the ultimate action taken u/s. 263 was confined to this issue only. A relevant part of the show cause notice reads as under:- No.CIT-IV/ABD/SYSPL/U/s.263/A.Y.05-06/2010-11Date:28/02/2011 To, The Principal Officer Shree Yogi steels Pvt Ltd 155/C, Sunrise Park, OPP. Drive in Cinema Road, Ahmedabad. Sir, Sub: Notice u/s. 263 for A.Y. 2005-06-regx X x x x x (I) As per section 50(1) of the act, where the full value of the consideration received or accruing as a result of the transfer of any other capital asset falling within the block of the assets during the previous year exceeds the aggregate of the following amount, namely: (i) expenditure incurred wholly and exclusively in connection with such transfer or transfers (ii) the written down value of the block of assets at the beginning of the previous year; and (iii) the actual cost of any asset falling within the block of assets acquired during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner of Income Tax, 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(1) was not claimed in Assessment Year 1997-98 when this wind mill was acquired by the assessee. The assessee had not claimed depreciation on this asset even in subsequent year up to 2001-02. The deprecation at ₹ 1,14,80,000/- was claimed in Assessment Year 2002-03 when it was made obligatory for the assessee to claim deprecation. Thus, the depreciation claimed by the assesssee at ₹ 1,14,80,000/- was treated as a capital gain u/s. 50 of the Act (2,29,60,000- 1,14,80,000). It was specifically clarified that the short term capital gain of ₹ 1,14,80,000/- was shown for the reason that the assessee had claimed depreciation to that exte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 95,19,465/-, in Assessment Year 2003-04, it has offered net losses of ₹ 1,26,42,731/-. In case, the view of the ld. Commissioner, even, if accepted, then, the situation would be that depreciation thrust upon the assesse in Assessment Year 2003-04 and 2004-05, to the extent of ₹ 1,14,80,000/- alleged to have not been claimed by the assessee would only swell the losses in those two year and assessee would have a higher figure of losses to be carried forward to Assessment Year 2005- 06. The net result would be no addition, no tax liability. In that case, even if, order of Assessing Officer is erroneous, it is not prejudicial to the interest of revenue. Ld. Commissioner is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wers 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 after the 1st day of June, 1988, the powers of the Commissioner under this subsection shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal. (2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed. (3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 considering the various contentions raised by the learned representatives, we deem it pertinent to take note of the fundamental tests propounded in various judgments relevant for judging the action of the CIT taken u/s 263. The ITAT in the case of Mrs. Khatiza S. Oomerbhoy Vs. ITO, Mumbai, 101 TTJ 1095, analyzed in detail various authoritative pronouncements including the decision of Hon ble Supreme Court in the case of Malabar Industries 243 ITR 83 and has propounded the following broader principle to judge the action of CIT taken under section 263. (i) The CIT must ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nction 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 consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the Assessing Officer had not applied his mind on the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every ite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sumed 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 computation of short term capital gain is one of the components for verifying this factor, therefore, it suggests that ld. Assessing Officer has applied his mind on the figure of the short term capital gain computed by the assesee. He has examined this and only thereafter disallowed this set off against brought forward losses. The Assessing Officer has applied his mind and taken a possible view after going through returns of the assessee for earlier years. Therefore, ld. Commissioner is not justified in taking action against assessment order, whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 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 ₹ 1,26,42,731/- in Assessment Year 2003-04 and ₹ 95,19,465/- in Assessment Year 2004-05. The total losses of both these years comes to ₹ 2,21,62,196/-. This amount would be further amplified by the deemed thrust upon of the depreciation amounting to ₹ 1,14,80,000/-. Thus, total brought forward losses would be more than 2.29 crores that is the ultimate sale consideration computed by the Ld. Commissioner with the help of section 50(1). This amount of capital gain would be adjusted against the brought forward losses which is to be worked out after making addition of ₹ 1,14,80,000/-. The other angel to the computation is that asessee has worked out brought forward deprecation losses of ₹ 1,82,62,722/-. This amount will be increased by addition of Rs. of the depreciation which is to be thrust upon the assessee by a sum of ₹ 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a 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 not expected to go into the merits of the case, in order to demonstrate that the order passed by the assessing authority even if it is erroneous, is not prejudicial to the interests of the Revenue, they have set out computing of capital gains and demonstrated that the order was not prejudicial. Therefore, the order passed by the revisional authority is illegal and rightly it has been set aside. 9. In the light of what we have stated above, the substantial question of law is answered i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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