Appeal on excess depreciation fails as reassessment under Sections 143(3) r.w.s. 263, 263 already quashed

ITAT Pune dismissed the Revenue's appeal challenging deletion of addition arising from alleged excess depreciation claimed on a prorata basis. The assessment had been completed u/s 143(3) r.w.s. 263. CIT(A)/NFAC deleted the addition on the ground that the reassessment/revision u/s 263 had already been quashed by the ITAT in an earlier order involving the same assessee. ITAT held that, in the absence of any contrary material, the CIT(A)/NFAC order required no interference. It further observed that silence in the assessment order does not imply non-application of mind by the AO, and no further enquiry was necessary on the facts.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether, upon the earlier quashing by the Tribunal of the revisionary order under section 263, the assessment order passed under section 143(3) read with section 263 and the consequential disallowance of depreciation could survive.

1.2 Whether the deletion by the first appellate authority of the addition made towards alleged excess depreciation on plant and machinery, by not reducing the Maharashtra Government incentive from the actual cost under section 43(1) Explanation 10, was justified in law in view of the earlier Tribunal order.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Effect of quashing of section 263 order on assessment u/s 143(3) r.w.s. 263 and disallowance of depreciation linked to Government incentive

(a) Legal framework (as discussed)

2.1 The Tribunal recorded that its earlier order in the assessee's own case for the same assessment year had examined the validity of the Principal Commissioner's assumption of jurisdiction under section 263. It referred there to the statutory requirement that, for valid exercise of section 263 powers, the assessment order must be both "erroneous" and "prejudicial to the interests of the Revenue", relying on the decisions of the Supreme Court in Malabar Industrial Co. Ltd. v. CIT and CIT v. Max India Ltd.

2.2 The earlier Tribunal order, as noted by the first appellate authority, had also recorded the position that the cost subsidy received under the Government of Maharashtra Package Scheme of Incentives, 2007 was not to be deducted from depreciation, following the legal position emerging from the above Supreme Court authorities, in the context of the section 263 proceedings.

(b) Interpretation and reasoning

2.3 The Tribunal noted that, in the earlier appeal, it had found that the issue sought to be revised under section 263-relating to taxability and treatment of the subsidy and its impact on depreciation-had been examined by the Assessing Officer during the original assessment and that a plausible view had been taken.

2.4 It was observed, with reference to the earlier order, that mere silence of the assessment order on a particular point does not imply non-application of mind where all material facts were on record; issues accepted by the Assessing Officer ordinarily do not get recorded in detail. In such circumstances, the assessment could not be treated as "erroneous for want of enquiry".

2.5 On that reasoning, the Tribunal had earlier concluded that the jurisdiction under section 263 was wrongly assumed and set aside the revision order. That finding implied that the original assessment order stood restored and retained its legal force.

2.6 In the present appeal, the Tribunal held that the subsequent assessment order passed under section 143(3) read with section 263, and the disallowance of Rs. 72,02,700/- towards alleged excess depreciation on plant and machinery-based on non-reduction of the incentive of Rs. 4,80,18,000/- from the cost of assets under section 43(1) Explanation 10-were entirely consequential to, and dependent upon, the now-quashed section 263 revision order.

2.7 The first appellate authority had reasoned that, since the revision order had already been declared invalid by the Tribunal, "no changes must be made to the original Assessment Order". The Tribunal, in the present appeal, found no infirmity in this approach and noted that no contrary material had been brought on record by the Departmental Representative to dislodge that conclusion.

(c) Conclusions

2.8 Once the revision order under section 263 has been quashed by the Tribunal, any assessment framed under section 143(3) read with section 263, and all additions or disallowances resting on that jurisdictional foundation, cannot survive.

2.9 The disallowance of depreciation of Rs. 72,02,700/- on plant and machinery, based on treating the Maharashtra Government incentive under the Package Scheme of Incentives, 2007 as requiring reduction from the actual cost under section 43(1) Explanation 10, being a product of the invalid revision, was unsustainable.

2.10 The order of the first appellate authority deleting the said disallowance and restoring the position under the original assessment was upheld, and the Revenue's grounds were dismissed.

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