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2015 (6) TMI 634 - ITAT AHMEDABAD

2015 (6) TMI 634 - ITAT AHMEDABAD - TMI - Revision u/s 263 - CIT(A) directed AO to recompute the short term capital gain after ascertaining the correct cost of acquisition of the wind mill and correct amount of depreciation - 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 even not in subsequent year up to 2001-02. and was claimed in Assessment Year 2002-03 when it was made obligatory for the ass .....

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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 t .....

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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 .....

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more than the sale proceed of wind mill computed at ₹ 2,29,60,000/-. The net result will be zero. The case in hand, even if for the sake of argument, we also assume that ld. Assessing Officer has committed an error by not computing the true capital gain with the application u/s. 50(1) then also ultimately no prejudice has been caused to the revenue. Therefore, the impugned order is not sustainable in law. - Decided in favour of assessee. - ITA No. 1430/Ahd/2011 - Dated:- 10-6-2015 - Shri R .....

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Rules, they are descriptive and argumentative in nature. 3. In brief, the grievance of the assessee is that Ld. Commissioner has erred in taking cognizance u/s. 263 of the Act and setting aside the well reasoned order of the Assessing Officer. 4. The brief facts of the case are that the assessee company was engaged in the manufacturing of MS Angle Channels Round Bars etc. It has filed its return of income on 29-10-2005, declaring a loss at ₹ 57,97,350/-. The return was processed u/s. 143(1 .....

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ich 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 depreca .....

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ous assessment year should be considered as current year deprecation of the year under consideration and the same should be adjusted against the short term capital gain of the year under consideration. I am therefore, satisfied that the assessee company has wrongly adjusted the carried forward depreciation losses of ₹ 1,82,62,722/- against the current year s short term capital gain, which comes to ₹ 1,14,80,000/- and as discussed, no such carried forward depreciation can be adjusted .....

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works out to ₹ 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 ₹ 2,29,60,000/- in Assessment Year 1997-98. The assessee had sold this wind mill for a sum of S .....

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and 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 .....

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lling within the block of assets acquired during the previous year. (iv) such excess shall be deemed to be the Capital Gain arising from transfer of Short Term Capital Assets. Scrutiny of records revealed that your company had sold a wind mill for ₹ 2296000 during the F.Y. 2004-05. The assessee company had worked out the short term capital gain on sale of this will mill at ₹ 11480000 i.e. after deducting ₹ 1140000 on account of depreciation claimed by the your company in A.Y. 2 .....

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our company. (II). x x x x x x x x x x Yours Faithfully, Sd/- (H.Patidar) 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 .....

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extent only in the return of income for earlier years. 7. Ld. Commissioner was not satisfied with the explanation of assessee. He recorded that explanation 5 to section 32(1) was inserted in Finance Act, 2001 w.e.f 01-04-2002 which provides that provision of this sub-section was to be applied, whether or not?, the assessee had claimed deduction in respect of depreciation in computing the total income, meaning thereby the deprecation has to be thrust upon the assessee after 01-04-2002. The Commis .....

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gning the order of Commissioner of Income Tax has raised three fold submissions; (a) That ld. Assessing Officer had reopened the assessment by issuance of a notice u/s. 148 in order to find out, whether assessee can adjust the short term capital gain against deprecation/investment losses of ₹ 1,82,62,722/-. He has examined this issue and thereafter concluded that short term capital gain of ₹ 1,14,80,000/- computed by the assessee cannot be allowed set off against brought forward depr .....

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on 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 po .....

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e 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 Office .....

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00/- is to be claimed in Assessment Years 2003-04, 2004-05 or ought to have been claimed starting from 1997-98. 10. In rebuttal, learned counsel for the assessee contended that retrospective amendment carried out in section 32(1) by insertion of the explanation will not be applicable on the assessee from Assessment Year 1997-98, otherwise it would have claimed the deprecation. The net benefit in the adjustment of the cost taken by the assessee is a sum of ₹ 1,14,80,000/- only which is a de .....

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s Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. [Explanation.- F .....

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tions 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 O .....

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tion (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 give effect to, any finding or direction contained in an order of the Appellate Tribunal, National Tax Tribunal, the High Court or the Supreme Court. Explanation.- In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any per .....

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s a part of his administrative control to call for the records and examine them. The second feature would come when he will judge an order passed by an Assessing Officer on culmination of any proceedings or during the pendency of those proceedings. On an analysis of the record and of the order passed by the Assessing Officer, he formed an opinion that such an order is erroneous in so far as it is prejudicial to the interests of the Revenue. By this stage the learned Commissioner was not required .....

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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 .....

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/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 au .....

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nly when an order is erroneous that the section will be attracted. (iii) An incorrect assumption of facts or an incorrect application of law will suffice the requirement of order being erroneous. (iv) If the order is passed without application of mind, such order will fall under the category of erroneous order. (v) Every loss of revenue cannot be treated as prejudicial to the interests of the Revenue and if the AO has adopted one of the courses permissible under law or where two views are possib .....

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exercises quasi-judicial power vested in his and if he exercises such power in accordance with law and arrive at a conclusion, such conclusion cannot be termed to be erroneous simply because the CIT does not fee stratified with the conclusion. (viii) The CIT, before exercising his jurisdiction under s. 263 must have material on record to arrive at a satisfaction. (ix) If the AO has made enquiries during the course of assessment proceedings on the relevant issues and the assessee has given detail .....

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ner 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 .....

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ure. 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 item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel fo .....

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ed in 99 ITR page 375, the Hon ble court has expounded the approach of ld. Assessing Officer while passing assessment order. The observation of the Hon ble court on pages 386 of journal read as under:- … it is not necessary for the Commissioner to make further inquiries before cancelling the assessment order of the Income-tax Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income-tax Officer should have made further inqui .....

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but also an investigator. He cannot remain passive in the face of the return which is apparently in order but called for further inquiry. It is 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 t .....

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esse 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 mi .....

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that possible view by his view. 16. As far as second proposition raised by the learned counsel for the assessee is concerned, interdiction available in explanation c of subsection 1 of section 263 puts an embargo upon the powers of the Assessing Officer to take up any issue/matter which was subject matter of appeal. In other words, if an issue travelled to the Commissioner of Income Tax (Appeals), then, Ld. Commissioner has been denuded from his powers to take action u/s. 263 on that issue. Ld. .....

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ration of this proposition, we are of the view that for setting off or telescoping of any amounts there would require first two components of amounts, section 251 of the income tax act provides that ld. Commissioner of Income Tax (Appeals) while disposing of an appeal shall have the following powers; namely, he may confirm, reduce, enhance or annul the assessment. Ld. Commissioner shall not enhance an assessment or a penalty unless he provides a reasonable opportunity of showing cause against su .....

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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 co .....

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n 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 ₹ 1,14,80,000/-. The net .....

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nt for exercising the revisional power under section 263 of the Act is that the order under revision should not only be erroneous, but such erroneous order should result in prejudice to the interests of the Revenue. Mere error would not confer the jurisdiction to exercise the revisional power under section 263 of the Act. 7. We have gone through the order passed by the revisional authority. It is a very cryptic order. It neither points out an error nor prejudice which has caused to the Revenue. .....

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d by the assessing authority and consequential prejudice caused to the revenue because of the erroneous order. Unless these two conditions exit, the revisional authority doe sot get jurisdiction to pass any order under section 263 of the Act. Once these two conditions are set out in the order, then it is open to the revisional authority to consider the case on the merits and pass final order or in his views, requires some adjudication or enquiry, the matter can be remanded to the assessing autho .....

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