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Facts
The PCIT initiated revisionary proceedings under Section 263 of the Income Tax Act for Assessment Years 2020-21 and 2021-22, asserting that the assessment orders were erroneous and prejudicial to the revenue. This was based on alleged excess depreciation claims by the assessee, not properly enquired into by the AO, and an incorrect allowance of deduction under Section 43B.
Held
The tribunal held that the PCIT's orders under Section 263 were unsustainable. It found that the PCIT failed to identify any specific error in the AO's orders and merely remanded the issues for verification, which is beyond the scope of revisionary powers as the twin conditions for exercising Section 263 (error causing prejudice) were not met.
Key Issues
Whether the PCIT validly exercised revisionary powers under Section 263 when merely remitting issues for verification without establishing a specific error causing prejudice to the revenue, concerning depreciation claims and Section 43B disallowances.
Sections Cited
263, 43B, 32(1)(i)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “D” BENCH, AHMEDABAD
Before: SHRI SANJAY GARG & SMT. ANNAPURNA GUPTA
(आदेश)/ORDER PER ANNAPURNA GUPTA, AM: Both appeals relate to the same assessee and are against separate orders passed by the Ld. Principal Commissioner of Income Tax, PCIT, Ahmedabad-1 (in short “PCIT”), dated 06.03.2025 & 08.03.2025 passed under Section 263 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) and relate to Assessment Years (A.Ys.) 2020-21 & 2021-22 respectively.
& 694/Ahd/2025 [Apraava Renewable Energy Private Limited vs. PCIT] A.Ys. 2020-21 & 2021-22 - 2 – 2. Perusal of both the orders of the Ld. PCIT reveal that he assumed jurisdiction u/s.263 of the Act in both the years finding the assessment order passed to be erroneous causing prejudice to the Revenue: (a) on account of excess claim of depreciation allowed by the AO without making proper enquiry / no enquiry in A.Y. 2020-21 & 2021-22 & (b) on account of claim of deduction u/s.43B of the Act, which as per the Ld. PCIT, the facts revealed had been wrongly allowed by the AO. Therefore, there is a common issue on account of which the assessment order passed in the case of the assessee in the impugned two years was found to be erroneous and for the said reason, both the appeals were taken up for hearing and are being disposed of by the consolidated order.
We have heard both the parties and have gone through the order of the Ld. PCIT for both the years and we have no hesitation in holding that there is no finding of error by the Ld. PCIT in his order passed on the issues noted above in both the years. The order, therefore, passed by the Ld. PCIT u/s.263 of the Act, we hold is not sustainable in both the years. Our detailed reason for arriving at this conclusion is as follows:
3.1 As stated above, the assessment orders for both the years were found to be erroneous on the common issue of excess claim of depreciation allowed to the assessee by the AO without making any enquiry on the matter. The reasons noted by the Ld. PCIT for & 694/Ahd/2025 [Apraava Renewable Energy Private Limited vs. PCIT] A.Ys. 2020-21 & 2021-22 - 3 – arriving at this finding are the same in both the years. The Ld. PCIT noted that the assessee’s claim of depreciation far exceeded that allowable by applying the rate prescribed by the Auditor, in the Tax Audit Report, on the opening WDV and addition made to the assets. In A.Y. 2020-21, he noted the assessee to have claimed total depreciation of Rs.362.53 Crores, however, as per Ld. PCIT, by applying the rate prescribed by the Auditor in the Audit Report, to the opening WDV and the addition made to assets, the assessee was noted to have claimed excess depreciation of Rs.176.39 Crores. In A.Y. 2021-22,the Ld. PCIT noted the assessee to have claimed total depreciation of Rs.362.59 Crores and on computing the depreciation at the rate prescribed by the Auditor in Audit Report on the opening WDV and addition to assets, he found the assessee to have claimed and been granted excess depreciation amounting to Rs.204.30 Crores.
3.2 On the basis of this fact noted from the records the Ld. PCIT assumed revisionary jurisdiction u/s.263 of the Act and issued show cause notice to the assessee. The order of the Ld.PCIT reveals the assessee to have submitted its reply to the said show cause notice stating that there was no error in the claim of depreciation made by the assessee, pointing out that the rate of depreciation pertained to the Straight Line Method (‘SLM’) rate of depreciation, which was applied on the original cost of asset purchased and not on the written down value of the asset done by the Ld. PCIT. This fact stands recorded at para 4 of the order of the Ld. PCIT in A.Y. 2020-21 and para 4.2 of the order of the Ld. PCIT in A.Y. 2021-22. During the course of hearing before & 694/Ahd/2025 [Apraava Renewable Energy Private Limited vs. PCIT] A.Ys. 2020-21 & 2021-22 - 4 – us, Ld. Counsel for the assessee drew our attention to the reply filed to the Ld.PCIT placed at Paper Book page nos. 35 to 49 in A.Y. 2020-21 and 51 to 54 & 66 to 80 in A.Y. 2021-22. Referring to the same, it was pointed out that the assessee had submitted to the Ld. PCIT that it was in the business of generation of electricity and had selected SLM for calculating depreciation on assets for income tax purposes as per Section 32(1)(i) of the Act and in the SLM of depreciation, depreciation of the asset was to be calculated by applying the percentage of depreciation on the cost of the depreciable asset. Relevant provision of Section 32 of the Act, prescribing undertakings such as assesses engaged in the generation and distribution of power, to claim depreciation as per prescribed rates on the actual cost of the asset, was pointed out. The calculation of depreciation claimed by the assessee by adopting the SLM rate was also submitted to the Ld. PCIT and categorically pointed out that the depreciation claimed by the assessee was correct. It was also pointed out that itemwise working of depreciation was also submitted to the Ld. PCIT.
3.3 The Ld. PCIT, however, we have noted, held the assessment order to be erroneous stating that the impugned details and explanations were not submitted to the AO and, therefore, he considered it appropriate that the matter to be re-considered at the level of AO and accordingly, remitted the issue of depreciation to the file of the AO for the limited purpose of verification. This finding of the Ld. PCIT is contained at para 5.2.1 of his order for A.Y. 2021-22 and 5.1.1 of his order for A.Y. 2020-21.
& 694/Ahd/2025 [Apraava Renewable Energy Private Limited vs. PCIT] A.Ys. 2020-21 & 2021-22 - 5 – 3.4 It is evidently clear from the above that the Ld.PCIT did not apply any mind at all to the explanation furnished by the assessee regarding the correctness of its claim of depreciation. He has not found any fault in the explanation furnished by the assessee. It is not the case of the Ld.PCIT that the assessee’s stand of having claimed depreciation, by adopting the SLM of rate of depreciation on the actual cost of the asset, was not as per law or there was any incorrectness in the same. Without pointing out any incorrectness or falsity in the explanation of the assessee, the Ld. PCIT has simply restored the matter for verification purposes to the AO. There is no doubt, therefore, we hold, that there is no finding of error by the Ld. PCIT in the order of the AO vis a vis claim of depreciation and it is settled law that for a valid exercise of revisionary jurisdiction, the twin conditions of there being an error in the order of the AO, causing prejudice to the Revenue is to be established. In the present case, the Ld. PCIT has not arrived at any finding of error in the order of the AO, but, in fact, has exercised this power of revision for verification of the explanation of the assessee, which is clearly beyond the scope of his powers. Therefore, as far as the issue of depreciation is concerned in both the years the power exercised by the Ld. PCIT u/s.263 of the Act fails miserably for non-fulfillment of the condition of finding any error in the order of the AO by the Ld. PCIT.
3.5 Taking up the next issue of allowance of claim u/s.43B of the Act wrongly allowed to the assessee. The said issue arises only in A.Y. 2021-22 and the order of the Ld. PCIT reveals that while the & 694/Ahd/2025 [Apraava Renewable Energy Private Limited vs. PCIT] A.Ys. 2020-21 & 2021-22 - 6 – records revealed the assessee to have unpaid liabilities outstanding at the end of the year totaling to Rs.1,34,92,879/- and while the assessee ought to have disallowed the entire amount u/s.43B of the Act, however, the assessee was noted to have disallowed only Rs.59,25,975/- in its return of income. To the extent balance amount of Rs.75,66,904/- was not disallowed by the AO, the assessment order was found to be erroneous and prejudicial to the interest of the Revenue.
3.6 The order of the Ld. PCIT reveals at para 5.1, the assessee to have explained that the amount not disallowed by the assessee in the impugned year pertained to liabilities of preceding years in which years the same had been disallowed by the assessee. The Ld. PCIT, however, in this case also noted the explanation of the assessee but restored it to the AO for verification, again without pointing out any infirmity/incorrectness in the explanation of the assessee.
3.7 For the reasons stated above on the issue of depreciation, we hold that the Ld. PCITs exercise of revisionary power u/s.263 of the Act on the issue of alleged excess claim of deduction u/s.43B of the Act for verification purposes, is beyond his powers in the absence of any finding of error in the order of the AO.
In the light of the above, it is patently clear that on all the issues, in both the years on which the Ld. PCIT exercised his revisionary jurisdiction there was no finding of error by the Ld. PCIT on the said issues. On all the issues, the Ld. PCIT has & 694/Ahd/2025 [Apraava Renewable Energy Private Limited vs. PCIT] A.Ys. 2020-21 & 2021-22 - 7 – without finding any error in the order of the AO after considering the explanation furnished by the assessee regarding the correctness of the claim has simply restored the matter back to the AO for verification purposes which, at the cost of repetition, we hold the Ld. PCIT cannot do in exercise of his revisionary powers.
In the light of the above, we hold that the orders passed by the Ld. PCIT in both the years u/s.263 of the Act is not sustainable in law.
In the result, both the appeals filed by the assessee are allowed.
This Order pronounced on 03/09/2025
Sd/- Sd/- (SANJAY GARG) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated 03/09/2025 S. K. SINHA True Copy आदेश क� �ितिल�प अ�े�षत/Copy of the Order forwarded to : अपीलाथ� / The Appellant 1. 2. ��यथ� / The Respondent. संबंिधत आयकर आयु� / Concerned CIT 3. 4. आयकर आयु�(अपील) / The CIT(A)- �वभागीय �ितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. गाड� फाईल / Guard file. 6. आदेशानुसार/ BY ORDER,