2009 (6) TMI 607 - HC - Income Tax

Revision AO allowed claim for depreciation without examining facts - assessment passed without reference to the claim and without considering the eligibility of the assessee for depreciation for items said to have been purchased and leased out in the previous year - Commissioner rightly exercised the jurisdiction under section 263 and set aside the assessment

Summary

Issues:
1. Validity of Tribunal's decision to set aside Commissioner's order under section 263 of the Income-tax Act.
2. Eligibility of the assessee for deduction of depreciation of Rs. 4 crores claimed for the year 1995-96.

Issue 1: Validity of Tribunal's decision to set aside Commissioner's order under section 263 of the Income-tax Act:
The appeal before the High Court concerned the Tribunal's decision to cancel a suo motu revisional order issued by the Commissioner of Income-tax under section 263 of the Income-tax Act, 1961. The Commissioner had set aside the respondent's assessment for the year 1995-96, directing the Assessing Officer to reconsider the eligibility for deduction of depreciation of Rs. 4 crores claimed by the assessee. The High Court identified the substantial question of law as to whether the Tribunal was justified in setting aside the Commissioner's order under section 263. The Tribunal had allowed the assessee's appeal, stating that the Commissioner had not established disentitlement on the merits, hence not entitled to set aside the assessment. However, the High Court disagreed with the Tribunal's decision and found that the Commissioner rightly exercised jurisdiction under section 263, as the assessment passed without considering the eligibility of the assessee for the claimed depreciation was prejudicial to the interest of the Revenue. Therefore, the High Court allowed the appeal by reversing the Tribunal's order and restoring the Commissioner's decision.

Issue 2: Eligibility of the assessee for deduction of depreciation of Rs. 4 crores claimed for the year 1995-96:
The assessee, engaged in mining of clay as its main business, filed a return for the assessment year 1995-96 claiming full depreciation of Rs. 5 crores, out of which Rs. 4 crores represented the value of bottles and crates leased to a soft drinks company. The Assessing Officer, during the regular assessment, only considered the depreciation claim related to a separate transaction with another company and did not mention or examine the Rs. 4 crores claim in the assessment order. The Commissioner of Income-tax, under section 263, found that the Assessing Officer allowed depreciation on the entire Rs. 4 crores amount without verifying the genuineness of the claim or the eligibility of the assessee. The Commissioner noted that the previous year had a similar bogus claim settled under the Kar Vivad Samadhan Scheme. The High Court concurred with the Commissioner's findings that the assessment was passed without reference to the claim and without considering the eligibility of the assessee for depreciation, thus justifying the exercise of jurisdiction under section 263. The High Court held that the Commissioner rightly set aside the assessment, allowing the assessee to produce evidence and establish their case in the fresh assessment proceedings.

In conclusion, the High Court upheld the Commissioner's decision under section 263, emphasizing the importance of assessing the eligibility of depreciation claims to protect the interest of the Revenue. The judgment reinforced the need for thorough scrutiny of claims and the consequences of passing assessments without due diligence, especially in cases involving repeated questionable transactions by the assessee.