2024 (9) TMI 1558 - AT - Income Tax

Revision under Section 263 not justified when carry forward losses properly examined during original assessment without error

International Seaport Dredging Private Limited Versus The Assistant Commissioner of Income Tax, Corporate Circle 1 (1) Chennai.

ITAT Chennai held that revision u/s 263 was not justified where assessee's carry forward losses were revised due to Section 79 application. The tribunal ... Revision u/s 263 - assessee has arrived at business income after setting of losses - It is seen that the assessee's entitlement to carry forward losses was revised due to application of provision u/s 79 - case was reopened u/s 147 after obtaining prior approval u/s 148 from the Principal Commissioner of Income Tax, citing the reason that the assessee's entitlement to carry forward losses was revised due to the application of Section 79 HELD THAT:- Claims were duly examined during the original assessment proceedings itself and neither there was any error nor the same was prejudicial to the interests of the Revenue. Inadequacy of enquiry by the AO with respect to certain claims would not in itself be a reason to invoke the powers enshrined in Section 263 of the Act. The Revenue in the instant case has not been able to make out a sufficient case that the CIT has exercised the power in accordance with law. Rather, in our considered opinion, the facts of the case do not indicate that the twin conditions contained in Section 263 of the Act are fulfilled in its letter and spirit. Decided in favour of assessee. Issues Involved:1. Validity of reopening of assessment under Section 147 of the Income Tax Act, 1961.2. Application of Section 79 regarding carry forward and set off of losses.3. Invocation of Section 263 by the Principal Commissioner of Income Tax (PCIT) for revisional jurisdiction.4. Adequacy of inquiry and verification by the Assessing Officer (AO) during reassessment proceedings.5. Jurisdiction of the Commissioner of Income Tax under Section 263.Detailed Analysis:1. Validity of Reopening of Assessment under Section 147:The assessee filed its revised Income Tax Return (ITR) for the Assessment Year (AY) 2016-17 on 30.03.2017, declaring a total income of Rs 27,91,58,970/-. The initial assessment under Section 143(3) was completed on 29.12.2019, assessing the income at Rs 39,41,18,508/-. The case was reopened under Section 147 after obtaining prior approval under Section 148 from the Principal Commissioner of Income Tax, citing the reason that the assessee's entitlement to carry forward losses was revised due to the application of Section 79 of the Income Tax Act, 1961.2. Application of Section 79 Regarding Carry Forward and Set Off of Losses:The AO noted a major change in the shareholding of the company (76.96%) between 31st March 2014 and 31st March 2015, attracting the provisions of Section 79, which disallow any losses to be carried forward from the years where shareholding was different. Consequently, the AO held that the assessee company was not eligible to bring down any losses from past years and added back the amount of Rs 35,54,07,169/- to the assessee's income.3. Invocation of Section 263 by the Principal Commissioner of Income Tax (PCIT):Pending appeal before the CIT(A), the PCIT issued a notice under Section 263, observing discrepancies in the computation statement regarding the brought forward loss of Rs. 59,82,73,179/-. The PCIT directed the AO to reconcile the figures and verify if the judgment of the Hon'ble Supreme Court in the case of Shri Subhulaxmi Mills Ltd. was applicable. The PCIT considered the assessment order as erroneous and prejudicial to the interest of the revenue, invoking Section 263 to partly set aside the assessment order with directions for fresh verification.4. Adequacy of Inquiry and Verification by the Assessing Officer (AO) During Reassessment Proceedings:The Tribunal found that the AO had duly verified the issues during the reassessment proceedings, including the set-off of brought forward losses, as evident from the replies filed by the assessee in response to notices under Sections 143(2) and 142(1). The Tribunal noted that the AO had applied his mind to the facts of the case and had raised specific queries, which were judicially considered in the reassessment proceedings.5. Jurisdiction of the Commissioner of Income Tax under Section 263:The Tribunal held that the PCIT was not justified in invoking Section 263 as the AO had already conducted a thorough inquiry and verification. The Tribunal emphasized that for an order to be interfered with under Section 263, it must be both erroneous and prejudicial to the interests of the revenue. The Tribunal referred to the judgment of the Hon'ble Supreme Court in Malabar Industrial Co. Ltd. v. CIT, which held that the Commissioner cannot exercise revisional powers merely because he has a different opinion. The Tribunal also cited the judgment of the Hon'ble Delhi High Court in Pr. Commissioner of Income Tax -2, Delhi Vs M/s Clix Finance India Pvt. Ltd., reinforcing that inadequacy of inquiry does not confer revisional power under Section 263.Conclusion:The Tribunal concluded that the impugned order of the PCIT was not sustainable as the AO had conducted due verification, and the reassessment order was not erroneous or prejudicial to the interests of the revenue. The Tribunal set aside the order of the PCIT and allowed the appeal of the assessee. The order was pronounced on 29th August 2024 at Chennai.