2010 (3) TMI 944 - AT - Income Tax

Tribunal upholds Commissioner's order on tax assessment errors, requires set-off of losses and depreciation

The Tribunal upheld the Commissioner's order under section 263 of the Income-tax Act, finding the original assessment erroneous for allowing deduction ... Revision u/s 263 - exemption u/s 10A before setting off the brought forward losses and unabsorbed depreciation - As per CIT deduction under section 10A was given by the assessing authority without proper application of mind and against the provisions of the Income tax Act, 1961 as that the deduction under section 10A ought to have been allowed after setting off the brought forward business loss and unabsorbed depreciation relating to the earlier assessment years. Whether the issue was sub judice before the CIT (A) at the time of passing the revision order and reject the contention of the assessee - HELD THAT:- At the time of passing the assessment order, it is possible to argue that the decisions were available before the AO both in favour of the assessee and in favour of the Revenue. Therefore, as rightly argued by the learned chartered accountant, the view adopted by the AO is one of the possible views. The general law on the question of revisional jurisdiction is that an order passed by the assessing authority cannot be held to be erroneous, if the officer has followed one of the possible views on the subject. But this principle by and large applies to questions of fact. When it comes to questions of law, the law laid down by the competent constitutional courts has to be invariably followed. It is a settled law that when the hon'ble Supreme Court or a High Court declares the law on a subject, the declaration goes back to the date of enactment of that particular law so as to state that the law, from the date of its enactment itself was in the manner decided by the court subsequently. When that universal rule of interpretation is accepted, we have to hold that unabsorbed depreciation and brought forward losses have to be set off against the profits while computing the deduction u/s 10A and this position of law has to be reckoned from the date of the enactment of the law itself. Therefore, the necessary finding is that even when the AO was passing the assessment order, the law on the subject of exemption available u/s 10A was always the law as explained by the hon'ble High Court in the case of CIT v. Himatasingike Seide Ltd.[2006 (8) TMI 125 - KARNATAKA HIGH COURT] . Once the law on the subject has been declared by the High Court, the pronounced judgment dates back to the date of enactment and, therefore, by superimposition made by the judicial pronouncement, the assessment order has become erroneous. It is not only erroneous, but also prejudicial to the interests of the Revenue inasmuch as the error has contributed in granting excessive relief to the assessee. Therefore, we hold that by virtue of the supervening intervention on the declaration of law, made by the hon'ble Karnataka High Court in the case of CIT v. Himatasingike Seide Ltd. [2006 (8) TMI 125 - KARNATAKA HIGH COURT] the assessing authority has erred in giving exemption u/s 10A before setting off the brought forward losses and unabsorbed depreciation of earlier assessment years. We hold that the revision order passed by the CIT u/s 263 is lawful and confirm the same. Issues Involved:1. Validity of the order passed under section 263 of the Income-tax Act, 1961.2. Whether the deduction under section 10A should be allowed without setting off brought forward losses and unabsorbed depreciation.3. Jurisdiction of the Commissioner of Income-tax to pass the order under section 263 when the matter was allegedly sub judice before the Commissioner of Income-tax (Appeals).Issue-wise Detailed Analysis:1. Validity of the order passed under section 263 of the Income-tax Act, 1961:The assessee contended that there was no error in the original assessment order passed under section 143(3) and thus, the condition for applicability of section 263 was absent. The Commissioner of Income-tax, however, found the assessment order erroneous and prejudicial to the interests of the Revenue because the deduction under section 10A was allowed without setting off the brought forward losses and unabsorbed depreciation. The Tribunal upheld the Commissioner's order, stating that once a High Court declares the law, it dates back to the enactment of the law, making the assessment order erroneous and prejudicial to the Revenue.2. Whether the deduction under section 10A should be allowed without setting off brought forward losses and unabsorbed depreciation:The assessee argued that the deduction under section 10A should be allowed on the undiluted profits of the eligible unit without setting off any brought forward losses or unabsorbed depreciation. The Tribunal noted conflicting decisions on this issue but emphasized the binding judgment of the Karnataka High Court in CIT v. Himatasingike Seide Ltd., which held that unabsorbed depreciation and brought forward losses must be set off against the profits for computing the deduction under section 10B, analogous to section 10A. The Tribunal concluded that the assessment order was erroneous for not adhering to this legal position.3. Jurisdiction of the Commissioner of Income-tax to pass the order under section 263 when the matter was allegedly sub judice before the Commissioner of Income-tax (Appeals):The assessee claimed that the issue of deduction under section 10A was already under appeal before the Commissioner of Income-tax (Appeals), thus barring the Commissioner from passing an order under section 263. The Tribunal rejected this argument, clarifying that the appeal before the Commissioner of Income-tax (Appeals) involved peripheral issues like the quantum of turnover, not the core issue of setting off brought forward losses and unabsorbed depreciation. Therefore, the Commissioner had jurisdiction to pass the order under section 263.Conclusion:The Tribunal confirmed the order of the Commissioner of Income-tax under section 263, holding that the assessment order was erroneous and prejudicial to the interests of the Revenue. The appeal filed by the assessee was dismissed.