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www.taxpublishers.in Income Tax Act, 1961, Section 263 Revision under section 263--*Validity--Assessment order neither being erroneous nor being prejudicial to the interest of Revenue* *Conclusion:* Where assessment order was neither erroneous nor prejudicial to the interest of Revenue, revision order passed by PCIT under section 263, would not be sustainable. Assessee's case was selected for scrutiny and assessment order was passed under section 143(3) by accepting returned income. Subsequently, Internal Audit Party observed that during assessment proceedings, no proper verification of purchase of new assets and depreciation claimed on assets was made by AO. PCIT therefore initiated proceedings under section 263 and set aside assessment order. Tribunal quashed the order passed by PCIT. *Held:* Tribunal after considering the issue of claiming depreciation by the assessee as per the Act, came to the conclusion that assessment order was neither erroneous nor prejudicial to the interest of Revenue. Further, Tribunal also observed that CBDT Instruction No. 9 of 2007, dated 11-9-2007 relied upon by PCIT would also not be applicable in the facts of the case as the same pertained to issue of allowability of depreciation and brought forward losses/unabsorbed losses, however, in instant case, there was no issue pertaining to brought forward losses or unabsorbed depreciation. Hence, Tribunal was justified in quashing the order passed by PCIT under section 263. *Decision:* In assessee's favour IN THE GUJARAT HIGH COURT BHARGAV D. KARIA & NIRAL R. MEHTA, JJ. Pr. CIT v. Maheshwari Logistics Ltd. R/Tax Appeal No. 190 of 2024 18 March, 2024 Appellant(s) No. 1 by: Nikunt K Raval (5558) Opponent(s) No. 1 by: None ORAL ORDER *Bhargav D. Karia, J.* 1. Heard learned senior standing counsel Mr. Karan Sanghani for learned advocate Mr. Nikunt K. Raval for the appellant. 2. By this Appeal under section 260-A of the Income Tax Act, 1961 (for short 'the IT Act'), the Revenue has proposed the following substantial questions of law arising out of the Order dated 25-9-2023 passed by the Income Tax Appellate Tribunal, Surat (for short 'the ITAT') in ITA No. 377/SRT/2023 for A.Y. 2018-19: (i) Whether the learned the Appellate Tribunal was right in allowing the appeal for the assessee ignoring the fact that the assessing officer had not considered Instruction No. 9/2007 dated 11-9-2007? (ii) Whether the learned Appellate Tribunal was right in allowing the appeal for the assessee ignoring the fact that the assessment was for complete scrutiny and not limited scrutiny? (iii) Whether the learned Appellate Tribunal was right in quashing the order under section 263 of the Act in spite of the fact that the order was erroneous as well as prejudicial to the interest of Revenue? 3.1. The brief facts of the case are that the assessee which is a limited company filed return of income for assessment year 2018-19 on 16-10-2018 declaring total income at Rs. 13,64,72,520. 3.2. The case of the assessee was selected for scrutiny and the assessment order was passed under section 143(3) of the Act on 11-2-2021 by accepting the returned income. 3.3. Subsequently, the Internal Audit Party observed that during the assessment proceedings, no proper verification of the purchase of the new assets of Rs. 30.84 crore and depreciation claimed on the assets has been made by the assessing officer. The Principal Commissioner, Valsad (for short 'the Pr. CIT') therefore initiated proceedings under section 263 of the Act on 25-9-2023 and set aside the assessment order with a direction to frame the de-novo assessment after making a proper inquiry by the assessing officer. 3.4. Being aggrieved, the assessee preferred appeal before the Tribunal. The Tribunal after considering the facts of the case, held that the assessing officer framed the assessment on limited scrutiny and not the complete scrutiny. However, on perusal of the certified copy of the assessment order, it appears that the case of the assessee was selected for complete scrutiny. The Tribunal in Paragraph No. 15 of the order also examined the issue on merits and held as under: 15. On merit, we note that assessing officer has issued notice under section 142(1) of the Act, which is placed at paper book page 121 wherein although the assessing officer has not raised the issue pertaining to depreciation, because he was instructed to conduct limited scrutiny, however, we note that tax audit report which contains depreciation schedule as per Income Tax Act, and audit report as per Companies Act, which contains depreciation as per Companies Act, were on the record of the assessing officer. Therefore, assessing officer having satisfied himself passed the assessment order and such order passed by the assessing officer should not be prejudicial to the interest of revenue. The assessee has not claimed the depreciation in tax audit report (for income tax purpose) as the new assets so purchased were not put to use. However, for Companies Act purpose, the assessee has shown depreciation in the audited books of accounts, this difference between the depreciation schedule prepared as per Income Tax Act and the depreciation schedule prepared by the assessee, as per companies Act, has been raised by learned Principal Commissioner. We note that there is no default on the part of the assessee to submit the depreciation schedule as per companies Act and as per Income Tax Act before the assessing officer. Therefore, on merit also the assessing officer has examined the issue which was raised by the learned Principal Commissioner. The learned Principal Commissioner also stated in his order that depreciation issue has not been examined by the assessing officer as per CBDT instruction, in this regard learned counsel stated that CBDT Instruction No. 9/2007 dated 11-9-2007 pertains to the issue of the allow ability of depreciation and brought forward losses/unabsorbed losses, however in assessee's case there is no any such issue pertaining to brought forward losses and unabsorbed depreciation exist. Hence there is no need to examine by assessing officer the issue such as brought forward losses and unabsorbed depreciation, as these issues are not existed in the balance sheet and financial statement of assessee-company. Therefore, on merits also order passed by the assessing officer is neither erroneous nor prejudicial to the interest of revenue, hence order passed by the learned Principal Commissioner should be quashed. 16. Therefore, order of the assessing officer passed under section 143(3) dated 11-2-2021 of the Act cannot be termed as erroneous since enquiry was, in fact, carried out by assessing officer on the issue on which the learned Principal Commissioner has found fault with and has taken a plausible view. Let us take the guidance of judicial precedents laid down by the Hon'ble Apex Court in Malabar Industries Ltd. v. CIT (2000) 243 ITR 83 (SC) : 2000 TaxPub(DT) 1227 (SC) wherein their Lordship have held that twin conditions needs to be satisfied before exercising revisional jurisdiction under section 263 of the Act by the CIT. The twin conditions are that the order of the assessing officer must be erroneous and so far as prejudicial to the interest of the Revenue. In the following circumstances, the order of the assessing officer can be held to be erroneous order, that is: (i) If the assessing officer's order was passed on incorrect assumption of fact; or (ii) Incorrect application of law; or (iii) Assessing officer's order is in violation of the principle of natural justice; or (iv) If the order is passed by the assessing officer without application of mind; (v) If the assessing officer has not investigated the issue before him; then the order passed by the assessing officer can be termed as erroneous order. Coming next to the second limb, which is required to be examined as to whether the actions of the assessing officer can be termed as prejudicial to the interest of Revenue. When this aspect is examined one has to understand what is prejudicial to the interest of the revenue. The Hon'ble Supreme Court in case of Malabar Industries (supra) held that this phrase i.e. prejudicial to the interest of the revenue has to be read in conjunction with an erroneous order passed by the assessing officer. Their Lordship held that it has to be remembered that every loss of revenue as a consequence of an order of assessing officer cannot be treated as prejudicial to the interest of the revenue. When the assessing officer adopted one of the courses permissible in law and it has resulted in loss to the revenue, or where two views are possible and the assessing officer has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue unless the view taken by the assessing officer is unsustainable in law . Based on the facts and circumstances of the case, we quash the order passed by learned Principal Commissioner, dated 31-2-2023. 4. On perusal of the finding of facts arrived at by the Tribunal it is clear that the Tribunal after considering the issue of claiming the depreciation by the respondent-assessee as per the Act has come to the conclusion that the assessment order is neither erroneous nor prejudicial to the interest of Revenue. The Tribunal has also observed that the CBDT Instruction No. 9 of 2007 dated 11-9-2007 relied upon by the Principal Commissioner would also not be applicable in the facts of the case as the same pertains to the issue of allow ability of depreciation and brought forward losses/unabsorbed losses. However, in the case of the respondent-assessee there was no issue pertaining to the brought forward losses or unabsorbed depreciation. 5. In view of the above finding of facts and the conclusion arrived at by the Tribunal, we are of the opinion that no question of law, much less any question of law would arise from the impugned order. The appeal is accordingly dismissed.

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Income Tax Act, 1961, Section 263

Revision under section 263--Validity--Assessment order neither being erroneous nor being prejudicial to the interest of Revenue

Conclusion: Where assessment order was neither erroneous nor prejudicial to the interest of Revenue, revision order passed by PCIT under section 263, would not be sustainable.

Assessee's case was selected for scrutiny and assessment order was passed under section 143(3) by accepting returned income. Subsequently, Internal Audit Party observed that during assessment proceedings, no proper verification of purchase of new assets and depreciation claimed on assets was made by AO. PCIT therefore initiated proceedings under section 263 and set aside assessment order. Tribunal quashed the order passed by PCIT. Held: Tribunal after considering the issue of claiming depreciation by the assessee as per the Act, came to the conclusion that assessment order was neither erroneous nor prejudicial to the interest of Revenue. Further, Tribunal also observed that CBDT Instruction No. 9 of 2007, dated 11-9-2007 relied upon by PCIT would also not be applicable in the facts of the case as the same pertained to issue of allowability of depreciation and brought forward losses/unabsorbed losses, however, in instant case, there was no issue pertaining to brought forward losses or unabsorbed depreciation. Hence, Tribunal was justified in quashing the order passed by PCIT under section 263.

Decision: In assessee's favour

IN THE GUJARAT HIGH COURT

BHARGAV D. KARIA & NIRAL R. MEHTA, JJ.

Pr. CIT v. Maheshwari Logistics Ltd.

R/Tax Appeal No. 190 of 2024

18 March, 2024

Appellant(s) No. 1 by: Nikunt K Raval (5558)

Opponent(s) No. 1 by: None

ORAL ORDER

Bhargav D. Karia, J.

1. Heard learned senior standing counsel Mr. Karan Sanghani for learned advocate Mr. Nikunt K. Raval for the appellant.

2. By this Appeal under section 260-A of the Income Tax Act, 1961 (for short 'the IT Act'), the Revenue has proposed the following substantial questions of law arising out of the Order dated 25-9-2023 passed by the Income Tax Appellate Tribunal, Surat (for short 'the ITAT') in ITA No. 377/SRT/2023 for A.Y. 2018-19:

(i) Whether the learned the Appellate Tribunal was right in allowing the appeal for the assessee ignoring the fact that the assessing officer had not considered Instruction No. 9/2007 dated 11-9-2007?

(ii) Whether the learned Appellate Tribunal was right in allowing the appeal for the assessee ignoring the fact that the assessment was for complete scrutiny and not limited scrutiny?

(iii) Whether the learned Appellate Tribunal was right in quashing the order under section 263 of the Act in spite of the fact that the order was erroneous as well as prejudicial to the interest of Revenue?

3.1. The brief facts of the case are that the assessee which is a limited company filed return of income for assessment year 2018-19 on 16-10-2018 declaring total income at Rs. 13,64,72,520.

3.2. The case of the assessee was selected for scrutiny and the assessment order was passed under section 143(3) of the Act on 11-2-2021 by accepting the returned income.

3.3. Subsequently, the Internal Audit Party observed that during the assessment proceedings, no proper verification of the purchase of the new assets of Rs. 30.84 crore and depreciation claimed on the assets has been made by the assessing officer. The Principal Commissioner, Valsad (for short 'the Pr. CIT') therefore initiated proceedings under section 263 of the Act on 25-9-2023 and set aside the assessment order with a direction to frame the de-novo assessment after making a proper inquiry by the assessing officer.

3.4. Being aggrieved, the assessee preferred appeal before the Tribunal. The Tribunal after considering the facts of the case, held that the assessing officer framed the assessment on limited scrutiny and not the complete scrutiny. However, on perusal of the certified copy of the assessment order, it appears that the case of the assessee was selected for complete scrutiny. The Tribunal in Paragraph No. 15 of the order also examined the issue on merits and held as under:

15. On merit, we note that assessing officer has issued notice under section 142(1) of the Act, which is placed at paper book page 121 wherein although the assessing officer has not raised the issue pertaining to depreciation, because he was instructed to conduct limited scrutiny, however, we note that tax audit report which contains depreciation schedule as per Income Tax Act, and audit report as per Companies Act, which contains depreciation as per Companies Act, were on the record of the assessing officer. Therefore, assessing officer having satisfied himself passed the assessment order and such order passed by the assessing officer should not be prejudicial to the interest of revenue. The assessee has not claimed the depreciation in tax audit report (for income tax purpose) as the new assets so purchased were not put to use. However, for Companies Act purpose, the assessee has shown depreciation in the audited books of accounts, this difference between the depreciation schedule prepared as per Income Tax Act and the depreciation schedule prepared by the assessee, as per companies Act, has been raised by learned Principal Commissioner. We note that there is no default on the part of the assessee to submit the depreciation schedule as per companies Act and as per Income Tax Act before the assessing officer. Therefore, on merit also the assessing officer has examined the issue which was raised by the learned Principal Commissioner. The learned Principal Commissioner also stated in his order that depreciation issue has not been examined by the assessing officer as per CBDT instruction, in this regard learned counsel stated that CBDT Instruction No. 9/2007 dated 11-9-2007 pertains to the issue of the allow ability of depreciation and brought forward losses/unabsorbed losses, however in assessee's case there is no any such issue pertaining to brought forward losses and unabsorbed depreciation exist. Hence there is no need to examine by assessing officer the issue such as brought forward losses and unabsorbed depreciation, as these issues are not existed in the balance sheet and financial statement of assessee-company. Therefore, on merits also order passed by the assessing officer is neither erroneous nor prejudicial to the interest of revenue, hence order passed by the learned Principal Commissioner should be quashed.

16. Therefore, order of the assessing officer passed under section 143(3) dated 11-2-2021 of the Act cannot be termed as erroneous since enquiry was, in fact, carried out by assessing officer on the issue on which the learned Principal Commissioner has found fault with and has taken a plausible view. Let us take the guidance of judicial precedents laid down by the Hon'ble Apex Court in Malabar Industries Ltd. v. CIT (2000) 243 ITR 83 (SC) : 2000 TaxPub(DT) 1227 (SC) wherein their Lordship have held that twin conditions needs to be satisfied before exercising revisional jurisdiction under section 263 of the Act by the CIT. The twin conditions are that the order of the assessing officer must be erroneous and so far as prejudicial to the interest of the Revenue. In the following circumstances, the order of the assessing officer can be held to be erroneous order, that is:

(i) If the assessing officer's order was passed on incorrect assumption of fact; or

(ii) Incorrect application of law; or

(iii) Assessing officer's order is in violation of the principle of natural justice; or

(iv) If the order is passed by the assessing officer without application of mind;

(v) If the assessing officer has not investigated the issue before him; then the order passed by the assessing officer can be termed as erroneous order.

Coming next to the second limb, which is required to be examined as to whether the actions of the assessing officer can be termed as prejudicial to the interest of Revenue. When this aspect is examined one has to understand what is prejudicial to the interest of the revenue. The Hon'ble Supreme Court in case of Malabar Industries (supra) held that this phrase i.e. prejudicial to the interest of the revenue has to be read in conjunction with an erroneous order passed by the assessing officer. Their Lordship held that it has to be remembered that every loss of revenue as a consequence of an order of assessing officer cannot be treated as prejudicial to the interest of the revenue. When the assessing officer adopted one of the courses permissible in law and it has resulted in loss to the revenue, or where two views are possible and the assessing officer has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue unless the view taken by the assessing officer is unsustainable in law . Based on the facts and circumstances of the case, we quash the order passed by learned Principal Commissioner, dated 31-2-2023.

4. On perusal of the finding of facts arrived at by the Tribunal it is clear that the Tribunal after considering the issue of claiming the depreciation by the respondent-assessee as per the Act has come to the conclusion that the assessment order is neither erroneous nor prejudicial to the interest of Revenue. The Tribunal has also observed that the CBDT Instruction No. 9 of 2007 dated 11-9-2007 relied upon by the Principal Commissioner would also not be applicable in the facts of the case as the same pertains to the issue of allow ability of depreciation and brought forward losses/unabsorbed losses. However, in the case of the respondent-assessee there was no issue pertaining to the brought forward losses or unabsorbed depreciation.

5. In view of the above finding of facts and the conclusion arrived at by the Tribunal, we are of the opinion that no question of law, much less any question of law would arise from the impugned order. The appeal is accordingly dismissed.