2025 (1) TMI 1390 - AT - Income Tax

PCIT cannot substitute views with AO when depreciation decision is plausible and legally sustainable under section 263

M/s. Madurai Power – Corporation Pvt. Ltd. Versus The PCIT, Corporate Circle-4 (1), Chennai.

ITAT Chennai quashed PCIT's revision order u/s 263 regarding depreciation rates on plant machinery. The assessee claimed 15% depreciation on plant ... Revision u/s 263 - reassessment order was erroneous and prejudicial to the interests of the Revenue - depreciation claimed by assessee @15% on Plant & Machinery when assessee could have claimed depreciation on boiler @80% HELD THAT:- Re-assessment order u/s.147 of the Act did apply his mind to the issue [less depreciation claimed by assessee @15% on Plant & Machinery when assessee could have claimed depreciation on boiler @80%] has accepted the claim of the assessee being satisfied with the explanation given by it during re-assessment proceedings as found by us. In such a scenario, the action of the AO can’t be held to be a view taken without enquiry or without application of mind. According to us, the Ld. PCIT couldn’t have interfered with the action of the AO without giving a finding that the view of the AO on the issue [accepting the claim made by assessee on less depreciation on boilers] as unsustainable in law. It is a well settled position of law, the Ld. PCIT can’t substitute his views with that of the AO, if the AO’s view on the issue is a plausible view. Since there is no finding of the Ld. PCIT that the action of the AO accepting the claim made by the assessee on the fault found by the Ld. PCIT, are unsustainable in law, we are of the considered opinion that the Ld. PCIT erred in exercising his jurisdiction u/s. 263 of the Act without fulfilling the conditions precedent for doing so. Therefore, we quash the impugned action of u/s. 263 of the Act. Appeal filed by the assessee is allowed. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment are as follows:1. Whether the Principal Commissioner of Income Tax (PCIT) was justified in invoking the revisional jurisdiction under Section 263 of the Income Tax Act, 1961, on the grounds that the Assessing Officer's (AO) reassessment order was erroneous and prejudicial to the interests of the Revenue.2. Whether the AO's acceptance of the assessee's claim of depreciation at 15% on high-efficiency boilers, instead of the eligible 80%, was a plausible view and whether the PCIT was correct in considering this as an erroneous order.ISSUE-WISE DETAILED ANALYSIS1. Revisional Jurisdiction under Section 263 of the Income Tax ActRelevant legal framework and precedents: The revisional jurisdiction under Section 263 allows the PCIT to revise an order passed by the AO if it is both erroneous and prejudicial to the interests of the Revenue. The Supreme Court in Malabar Industrial Co. Ltd. v. CIT established that two conditions must be satisfied: (i) the order must be erroneous, and (ii) it must be prejudicial to the Revenue. An order can be erroneous if it is based on incorrect facts or law, violates principles of natural justice, lacks application of mind, or if the AO has failed to investigate the issue.Court's interpretation and reasoning: The Tribunal emphasized that the PCIT must demonstrate that the AO's order is unsustainable in law to invoke Section 263. The Tribunal referred to the Supreme Court's decision in Malabar Industries and reiterated that a mere loss to the Revenue does not automatically render an order prejudicial unless it is shown to be erroneous.Key evidence and findings: The Tribunal found that the AO had conducted an inquiry into the depreciation claim during the reassessment proceedings. The AO accepted the assessee's explanation that the boilers in question were not energy-saving devices as defined under the relevant provisions, and therefore, a depreciation rate of 15% was appropriate.Application of law to facts: The Tribunal applied the principles from Malabar Industries and concluded that the AO's acceptance of the assessee's claim was a plausible view. There was no evidence that the AO's decision was unsustainable in law.Treatment of competing arguments: The Tribunal addressed the PCIT's argument that the AO's order was erroneous and prejudicial due to the lower depreciation claim. However, the Tribunal found that the PCIT failed to demonstrate how the AO's view was unsustainable in law.Conclusions: The Tribunal concluded that the PCIT erred in exercising jurisdiction under Section 263 without fulfilling the conditions precedent. The AO's order was not erroneous as it was based on a plausible interpretation of the law.SIGNIFICANT HOLDINGSPreserve verbatim quotes of crucial legal reasoning: 'The Ld. PCIT can't substitute his views with that of the AO, if the AO's view on the issue is a plausible view.'Core principles established: The Tribunal reinforced the principle that the revisional jurisdiction under Section 263 cannot be exercised merely because the PCIT has a different opinion. The AO's decision must be shown to be unsustainable in law for the PCIT to intervene.Final determinations on each issue: The Tribunal quashed the PCIT's order under Section 263, holding that the AO's acceptance of the depreciation claim was a plausible view and not erroneous or prejudicial to the interests of the Revenue.