AO's depreciation treatment under section 263 upheld as plausible view, not erroneous or prejudicial

ITAT Surat quashed PCIT's revision order under section 263, ruling that the assessment was not erroneous or prejudicial to revenue interests. The case involved limited scrutiny for refund verification and ICDS compliance. PCIT found fault with depreciation treatment differences between Income Tax Act and Companies Act schedules. ITAT held that AO cannot exceed limited scrutiny scope, and since the assessee provided complete financial statements and tax audit reports during assessment, the AO had examined depreciation issues and taken a plausible view. The tribunal applied Malabar Industries precedent, emphasizing that revenue loss alone doesn't constitute prejudicial error when AO adopts a legally permissible course.

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Issues Involved:
1. Invocation of Section 263 of the Income Tax Act by the Principal Commissioner of Income Tax (PCIT).
2. Determination of whether the assessment order under Section 143(3) was erroneous and prejudicial to the interests of the revenue.
3. Consideration of CBDT Instruction No.9/2007.
4. Setting aside the order of the Assessing Officer without justifiable reasons.

Summary of Judgment:

Issue 1: Invocation of Section 263 of the Income Tax Act by the PCIT
The assessee challenged the correctness of the order passed by the Learned Principal Commissioner of Income Tax (PCIT), Valsad, under Section 263 of the Income Tax Act, 1961, for the assessment year 2018-19. The PCIT invoked Section 263, noting discrepancies in the figures of tangible and intangible assets between the annual report and the income tax return, and claimed that the Assessing Officer (AO) did not verify the depreciation details as mandated by CBDT Instruction No.9/2007.

Issue 2: Determination of whether the assessment order under Section 143(3) was erroneous and prejudicial to the interests of the revenue
The PCIT argued that the AO failed to verify the depreciation details and other discrepancies, making the assessment order erroneous and prejudicial to the interests of the revenue. The assessee contended that their case was selected for limited scrutiny, focusing only on refund claims and ICDS compliance, and thus the AO was not required to examine depreciation details unless the scrutiny was converted to unlimited scrutiny, which did not happen.

Issue 3: Consideration of CBDT Instruction No.9/2007
The PCIT noted that the AO did not consider CBDT Instruction No.9/2007 regarding the verification of depreciation and brought forward losses. The assessee argued that the instruction was not applicable as there were no issues of brought forward losses or unabsorbed depreciation in their case.

Issue 4: Setting aside the order of the Assessing Officer without justifiable reasons
The ITAT found that the AO had conducted the assessment within the scope of limited scrutiny, and the issues raised by the PCIT were beyond this scope. The ITAT held that the order passed by the AO was neither erroneous nor prejudicial to the interests of the revenue, as the AO had verified all necessary details within the limited scrutiny framework.

Conclusion:
The ITAT quashed the order passed by the PCIT under Section 263, holding that the jurisdiction exercised by the PCIT was not reasonable and beyond the scope of limited scrutiny. The appeal of the assessee was allowed.

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