Tribunal overturns Commissioner's decision under Section 263, allows carry forward of unabsorbed depreciation.

The Tribunal held that the Commissioner of Income Tax erred in exercising jurisdiction under Section 263 of the Income Tax Act. The appeal was accepted, setting aside the impugned order. The Tribunal upheld the Assessing Officer's decision allowing the carry forward and set off of unabsorbed depreciation for the assessment years 1996-97 and 1997-98 against the profits of the assessment year 2006-07.

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Issues Involved:
1. Jurisdiction of the Commissioner of Income Tax to initiate revision proceedings under Section 263 of the Income Tax Act.
2. Legality of the carry forward and set off of unabsorbed depreciation for the assessment years 1996-97 and 1997-98.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Commissioner of Income Tax to Initiate Revision Proceedings Under Section 263 of the Income Tax Act:
The primary issue raised by the assessee is the jurisdiction assumed by the Commissioner of Income Tax (CIT) for initiating revision proceedings under Section 263 of the Income Tax Act. The CIT issued a show cause notice to the assessee on 08-03-2013, arguing that the brought forward depreciation loss for the assessment years 1996-97 and 1997-98 could not be allowed to be set off in the assessment year 2005-06. The CIT contended that the Assessing Officer (AO) had not examined whether the claim made by the assessee was factually correct and whether relevant conditions as per the provisions of Section 72 and Section 32 of the Act were fulfilled. The AO had accepted the assessee's version of brought forward losses due to time limitations, which the CIT found erroneous and prejudicial to the interest of revenue.

2. Legality of the Carry Forward and Set Off of Unabsorbed Depreciation for the Assessment Years 1996-97 and 1997-98:
The assessee argued that the case was covered by the decision of the Co-ordinate Bench of the Tribunal in the case of M/s. SAB Miller Breweries Pvt. Ltd. Vs. ACIT, where it was held that the CIT had erred in exercising revisionary powers under Section 263 of the Act. The Tribunal, in that case, had relied on the decision of the Hon'ble Gujarat High Court in General Motors India Pvt. Ltd. Vs. DCIT, which clarified that the restriction of 8 years for carry forward and set off of unabsorbed depreciation had been dispensed with by Circular No. 14 of 2001. This meant that unabsorbed depreciation from assessment year 1997-98 up to assessment year 2001-02 could be carried forward to the assessment year 2002-03 and set off against the profits and gains of subsequent years without any limit.

The Department, represented by Ms. M.S. Verma, supported the order of the CIT, arguing that the AO had not made any verifications before accepting the assessee's claim of carry forward of depreciation, and thus, the CIT rightly assumed jurisdiction under Section 263 of the Act.

Upon reviewing the submissions and orders, the Tribunal found that the CIT had assumed jurisdiction under Section 263 only on the ground that the AO had accepted the assessee's claim to carry forward and set off unabsorbed depreciation of assessment years 1996-97 and 1997-98. The Tribunal disagreed with the CIT's observations, citing the Hon'ble Gujarat High Court's decision in General Motors India Pvt. Ltd. Vs. DCIT, which held that the restriction of 8 years for carry forward and set off of unabsorbed depreciation had been dispensed with.

The Tribunal also referenced the Co-ordinate Bench's decision in the case of M/s. SAB Miller Breweries Pvt. Ltd. Vs. ACIT, where it was held that the CIT had wrongly assumed jurisdiction under Section 263 to deny the benefit of unabsorbed depreciation to the assessee. The Tribunal concluded that the issue in the present appeal was identical to the one adjudicated in the SAB Miller case, and thus, there was no infirmity in the AO's order allowing the assessee to carry forward unabsorbed depreciation for the assessment years 1996-97 and 1997-98 to be set off against the profit from business or profession for the assessment year 2006-07.

Conclusion:
The Tribunal held that the CIT had erred in exercising jurisdiction under Section 263 of the Income Tax Act. The appeal of the assessee was accepted, and the impugned order was set aside. The Tribunal upheld the AO's order allowing the carry forward and set off of unabsorbed depreciation for the assessment years 1996-97 and 1997-98 against the profits of the assessment year 2006-07. The decision was pronounced on 31st July 2015 at Pune.

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