Section 263 revision fails where higher depreciation caused no prejudice and taxable income remained absent

Revision under Section 263 was held unsustainable because, although depreciation on windmills had been allowed at 80% instead of 15%, the assessee had no positive taxable income in the relevant year and no prejudice to the Revenue was shown. The Tribunal found that restricting depreciation would not have changed the tax position, as business loss remained and no taxable income arose in later years before sale of the windmill; the capital gain on sale was separately offered to tax. The High Court accepted these factual findings, held the twin conditions of error and prejudice were not satisfied, and found no substantial question of law.

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Issues: Whether revision under Section 263 of the Income-tax Act, 1961 was justified where the assessee had claimed depreciation at a higher rate on windmills, but the assessment year involved no taxable income and no prejudice to the Revenue was shown.

Analysis: The assessment was found to contain an error in allowing depreciation at 80% instead of the permissible 15%. However, the Tribunal recorded that even if depreciation were restricted to 15%, the assessee still had no positive taxable income for the year because of business loss. It further found that no taxable income arose in the subsequent years up to the sale of the windmill, and the short-term capital gain on sale was separately offered to tax. On these findings, the requisite twin conditions for revision under Section 263, namely that the order be erroneous and prejudicial to the interests of the Revenue, were not satisfied. The High Court found these findings of fact unassailable and held that no substantial question of law arose.

Conclusion: Revision under Section 263 was not sustainable, and the Revenue's appeal failed.

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