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of <h1>Appeal allowed: Revision u/s 263 held improper; depreciation on opening WDV without prior additional depreciation set-off is valid</h1> <h3>Maxxis Rubber India Pvt. Ltd. Versus Principal Commissioner of Income Tax, Ahmedabad-1</h3> ITAT (Ahmedabad) allowed the appeal, holding the PCIT's revision u/s 263 incorrect. The tribunal found no legal requirement to set off brought-forward ... Revision u/s 263 - error found by the PCIT is with regards to claim of depreciation during the year, which he found was excess claimed by the assessee - HELD THAT:- Since the assessee had claimed depreciation on the opening WDV of assets without reducing the same with the additional depreciation of preceding year carried forward for claiming in the impugned year. ITAT has dealt with an identical issue in the case of Suzuki Motor Gujarat (P) Ltd [2025 (3) TMI 217 - ITAT AHMEDABAD] categorically holding this contention of the Ld. PCIT to be against law. We have gone through the order of the ITAT and we have noted that it has categorically held that there is no provision in law requiring brought forward additional depreciation from preceding year to be set off against opening WDV of the assets and depreciation thereafter for the year being calculated by applying prescribed rate to the balance WDV of the assets. Therefore, we have no hesitation in holding that the Ld. PCIT was wrong in holding the assessment order passed in the case of the assessee to be erroneous for having allowed depreciation on the opening WDV without setting off brought forward additional depreciation of preceding year. The finding of error in the order of the AO by the Ld. PCIT, is therefore, we hold, incorrect. Appeal of the assessee is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the Principal Commissioner of Income Tax rightly invoked revisional jurisdiction under Section 263 of the Income Tax Act, 1961 on the ground that the assessment under Section 143(3) was erroneous and prejudicial to the revenue for allegedly allowing excess depreciation? 2. Whether, for computing normal depreciation under Section 32(1) and written down value under Section 43(6), carried-forward additional depreciation (relating to assets put to use for less than 180 days in the preceding year and claimed in the current year under the proviso to Section 32(1)(ii)) must be first set off against the opening WDV before computing normal depreciation for the year? 3. Whether the view adopted by the Assessing Officer in computing depreciation as per the return utility and schedule DPM constitutes a permissible (possible) view such that exercise of jurisdiction under Section 263 is improper? ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of exercise of Section 263 jurisdiction where assessment allegedly allowed excess depreciation Legal framework: Section 263 permits the Principal Commissioner to call for and examine records of an assessment order and, if satisfied that the order is erroneous in so far as it is prejudicial to the interests of the revenue, to modify or annul the order. Two conditions must be satisfied: (i) the assessment order must be erroneous; and (ii) the error must be prejudicial to revenue. Precedent Treatment: The Court relied on a coordinate appellate tribunal decision addressing an identical computation issue and concluded that the revisional authority's view was contrary to law. Interpretation and reasoning: The revisional authority held that the AO erred by allowing normal depreciation on the opening WDV without first reducing it by the additional depreciation carried forward from the preceding year. The Tribunal examined statutory scheme (Sections 32 and 43(6)), the computation format in the return utility (Schedule DPM), and the sequence of computation embedded therein. It found no statutory provision or mechanism requiring the brought-forward additional depreciation to be first set off against opening WDV before computing normal depreciation. The return utility specifically computes depreciation by taking prescribed opening WDV, additions, disposals and then applying full/half rates and separately includes additional depreciation (including carry forward amounts) in the total depreciation figure. Requiring the suggested set-off would in fact distort closing WDV and lead to higher depreciation in subsequent years, an outcome inconsistent with the statutory computation. Ratio vs. Obiter: Ratio - the Tribunal's conclusion that Section 263 could not be validly invoked because there was no error in the assessment order, as the AO's method of computation conformed to Sections 32 and 43(6) and the prescribed return utility; Obiter - observations on consequential effects in later years (though connected, they operate as supporting reasoning rather than independent ratio). Conclusions: The invocation of Section 263 was unsustainable because the assessment was not shown to be erroneous or prejudicial to revenue; the revisional authority's direction to recompute assessment lacked legal basis. Issue 2: Whether carried-forward additional depreciation must be set off against opening WDV before computing normal depreciation Legal framework: Section 32(1) prescribes that depreciation be charged on the written down value of a block of assets at the rates prescribed. Section 43(6)(c) defines WDV on opening date as the WDV as on opening date increased by actual cost of assets acquired during the year and reduced by amounts on transfer/sale; it does not contemplate other adjustments to WDV. The third proviso to Section 32(1)(ii) permits carry forward of additional depreciation relating to immediately preceding year for claim in succeeding year where assets were used for less than 180 days. Precedent Treatment: A coordinate bench of the appellate tribunal dealing with identical facts held that there is no statutory requirement to first reduce opening WDV by carried-forward additional depreciation before applying the normal depreciation rate; the prescribed return utility computation aligns with this position. Interpretation and reasoning: The Tribunal analysed the statutory text and the prescribed computational sequence in Schedule DPM. It observed that Section 43(6)(c) prescribes what constitutes opening WDV and does not permit arbitrary reductions other than disposals. Section 32 requires depreciation to be charged on the WDV so computed. The return utility takes opening WDV, adds qualifying additions, segregates additions by period of use, computes depreciation at full/half rates, separately computes additional depreciation (including carry-forward), and aggregates total depreciation. There is no field or step that directs deduction of carried-forward additional depreciation from opening WDV prior to computation of normal depreciation. Implementing the revisional authority's approach would alter closing WDV and inflate depreciation in subsequent years, producing an unintended advantage inconsistent with the statutory scheme. Ratio vs. Obiter: Ratio - carried-forward additional depreciation need not be set off against opening WDV before calculating normal depreciation; the statutory scheme and return utility do not require such set-off. Obiter - practical observations on computational consequences in subsequent years reinforce the ratio. Conclusions: The AO's computation was consistent with Sections 32 and 43(6) and the prescribed return format; no adjustment of opening WDV by carried-forward additional depreciation was warranted. Issue 3: Permissibility of AO's view and effect on revisional jurisdiction (possible view doctrine) Legal framework: Reassessment under Section 263 is not maintainable where the AO has taken a possible view based on available legal provisions and facts. Revisional jurisdiction is restricted when the impugned order reflects a bona fide, legally sustainable view. Precedent Treatment: The Tribunal relied on the coordinate bench's holding that the method of computation adopted in the return utility and by the AO represents the correct legal position; hence the AO's approach is a permissible view. Interpretation and reasoning: The AO followed the computation sequence envisaged by the statute and the CBDT-prescribed utility. Given the statutory definitions and the structured computation in the utility, the AO's method cannot be characterised as erroneous. The revisional authority's alternate method lacked statutory basis. Where the AO has acted in accordance with the statutory provisions and prescribed computation mechanism, the view taken is a possible view and not amenable to revision under Section 263. Ratio vs. Obiter: Ratio - the AO's approach constituted a permissible view; therefore, revisional action under Section 263 was impermissible. Obiter - none beyond supportive reasoning. Conclusions: The AO's view was a possible, legally sustainable view; the exercise of Section 263 was improper. Cross-reference The conclusions on Issues 1-3 are interlinked: because the statutory scheme and prescribed return utility support the AO's computation (Issue 2), the AO's approach amounts to a permissible view (Issue 3), and consequently there is no error prejudicial to revenue to justify Section 263 (Issue 1).
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