Assessment after search: whether returned income must follow prior rectification order, with set off of losses allowed on rectification

Whether the assessing officer completing assessment after search should adopt the returned income as rectified earlier by a rectification order was decided by ITAT Ahmedabad. The Tribunal found that unabsorbed depreciation and brought forward business losses had crystallized by the earlier rectification and appellate orders, no incriminating additions arose from the search-based proceedings, and the discrepancy in the return was a mistake apparent on the record. Accordingly the Tribunal ordered rectification of the return in the search assessment to reflect the earlier rectified income and allowed set-off of the unabsorbed depreciation and brought forward business losses.

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Issues: Whether the Assessing Officer in proceedings under Section 153C should have treated the returned income as per the earlier rectification order under Section 154 (thereby allowing set-off of unabsorbed depreciation and brought forward business losses of Rs. 150,21,12,383/-) on the ground of a mistake apparent on the record.

Analysis: The Tribunal examined whether the unabsorbed depreciation and brought forward business losses had crystallized by virtue of the order under Section 154 dated 30-08-2017 and formed part of the assessment record, whether proceedings under Section 153C (initiated on the basis of search/seizure) resulted in any incriminating material or additions, and whether the Assessing Officer completing assessment under Section 153C ought to have started from the last assessed income as per the Section 154 order. The Tribunal considered that no additions were made in the Section 153C assessment, that the losses/UAD were determined and allowed by appellate orders and by the AO's own earlier Section 154 rectification order, and that the error in the returned income during Section 153C proceedings was a mistake apparent on the face of the record which required rectification so that the return during Section 153C proceedings reflected the income as per the Section 154 order.

Conclusion: The Tribunal concluded that the mistake was apparent on the face of the record and that the returned income in the Section 153C proceedings must be rectified to reflect the Section 154 order dated 30-08-2017, thereby allowing the set-off of unabsorbed depreciation and brought forward business losses; the assessee's appeal is allowed.

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