FIRSTSOURCE SOLUTIONS LTD,MUMBAI vs. PR CIT CIT 6, MUMBAI

The above titled appeal has been preferred by the assessee against the order of the learned Principal Commissioner of Income Tax-6, Mumbai [hereinafter referred to as “the CIT”] dated 02-03- 2015 for assessment year 2006-07 passed u/s 263 of the Income Tax Act, 1961 [hereinafter referred to as “the Act”]. The assessee has agitated the action of the CIT in setting aside the rectification order dated 05-03-2014 passed by the AO u/s 154 of the Act.

The brief facts of the case are that the original assessment u/s 143(3) read with section 144C (5) of the Act was completed determining the assessed loss of Rs.25,00,000/-. Thereafter, reassessment proceedings u/s 147 of the Act were carried out and addition of Rs.16.49 crores was made by observing that while computing the deduction u/s 10A/10B of the Act, brought forward 2 losses of Rs.16.38 crores were considered as against losses of Rs.18.29 crores shown in the tax audit report. Thus, the loss of Rs.1.91 crores remained to be adjusted from the profits, resulting into excess deduction. Further it was observed that loss of only Rs.1.80 crores against profits of respective unit was adjusted. The balance loss of Rs.16.49 crores remained unadjusted. It was further observed that the said losses were required to be adjusted from the profits of the eligible units and, therefore, there was excess allowance of deduction amounting to Rs.16.49 crores. Pursuant to the said rectification order, the assessee moved an application u/s 154 of the Act to the AO stating that the addition of Rs.16.49 crores was made on account of unadjusted brought forward losses. However, there was no brought forward loss assessed, in the assessment order for assessment year 2005-06. Even, the figures of Rs.1.80 crores and Rs.16.49 crores referred to in the reassessment order did not arise from any records of the assessee. The AO considering the above submissions of the assessee observed that from perusal of the records for assessment year 2005-06, it revealed that the assessee Company had declared loss of Rs.18.67 crores. However, the assessment u/s 143 (3) of the Act was completed vide order dated 26-12-2008 determining the total income of the assessee at Rs.2,97,49,755/-. Hence, there was no loss carried forward of assessment year 2005-06 which required to be adjusted in the assessment year 2006-07. Finding the contentions of the assessee to be correct, the AO passed the rectification order and revised the assessed income after deducting the addition made on account of brought forward losses.

Against the said rectification order passed by the AO u/s 154 of the Act, the learned CIT exercised his revision jurisdiction u/s 263 of the Act and observed that the AO has no jurisdiction under 3 section 154 to rectify the order passed under reassessment proceedings when the issue had already been considered in such proceedings. He further observed that the assessee had filed appeal before the learned CIT (A) against the assessment order for assessment year 2005-06 claiming set off of brought forward losses but the learned CIT (A) declined to consider the said claim. The learned CIT further observed that from the records of the assessee, it revealed that the assessee had claimed business losses in earlier assessment years and also unabsorbed depreciation. He, therefore, observed that the AO had wrongly exercised his jurisdiction u/s 154 of the Act especially when the matter has already been adjudicated upon by the learned CIT (A) in his appellate order for assessment year 2005-06. He, therefore, set aside the rectification order dated 05-03-2014 of the AO with the direction to re-examine the full facts in the light of the discussions made by him. Being aggrieved by the above revision order passed by the learned CIT, the assessee has come in appeal before us.

We have heard the rival contentions and have also gone through the records. The learned AR of the assessee submitted that though the assessee had claimed carry forward of the losses, however, during the assessment proceedings for assessment year 2005-06, all the losses were absorbed and total income of the assessee was assessed at Rs.2,97,49,755/-. Hence, he inviting our attention to the assessment order for assessment year 2005-06, has stated that there was no carry forward loss assessed of the said year.

The learned DR could not rebut the said contention of the assessee. 4 6. In the circumstances, when there was no carry forward losses assessed during the assessment year 2005-06, there was no question of adjustment of the same during the assessment year 2006-07. The AO, therefore, had rightly passed the rectification order. The action of the learned CIT in revising the said order observing that the AO has no jurisdiction to pass rectification order u/s 154 of the Act is misconceived. The learned CIT though discussed from the records that the assessee had claimed brought forward losses of the earlier years, however, has not rebutted the contention that ultimately no losses were allowed to be carried forward in the assessment order for assessment year 2005-06. In view of this, the revision order passed by the learned CIT u/s 263 of the Act is hereby set aside. Before parting with the order, we wish to clarify that if at any time in pursuance to any order passed by any competent authority in relation to assessment year 2005-06, any loss for assessment year 2005-06 is determined which require to be carry forward, the AO will be at liberty to rectify the order for assessment year 2006-07, if so, permitted under the provisions of the law. As on today, since, there is no carry forward losses available of the assessment year 2005-06 as per the assessment order dated 26-12-2008, hence, there is no question of adjustment of any brought forward losses in the assessment year 2006-07. With the above observations, the appeal of the assessee is hereby allowed.

In the result, appeal of the assessee is allowed. Order pronounced in the open court on 20 July, 2016