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Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT
Before: Shri Waseem Ahmed & Shri Siddhartha Nautiyal
आदेश/ORDER
PER BENCH:- This appeal has been filed by the Assessee against the order passed by the Ld. Pr. CIT-1, Rajkot in Order No. ITBA/REV/F/REV5/2021- 22/1040621330(1) vide order dated 11.03.2022 passed for Assessment Year 2017-18.
The assessee has taken the following grounds of appeals:-
“1. The grounds of appeal mentioned hereunder are without prejudice to one another.
ITA No. 158/Rjt/2022 (Shri Meenawala Castings vs. PCIT) 2 A.Y. 2017-18
The order passed by Pr. Commissioner of Income-tax, Rajkot-1 [hereinafter referred as to the “PCIT”] is bad in law, invalid and requires to be quashed, the same may kindly be quashed.
The Ld. PCIT erred in law and on facts in arriving at a conclusion that the assessment order passed by the AO is erroneous as well as prejudicial to the interest of the revenue as the AO has allowed brought forward losses of the Asst. Year 2015-16 without inquiring into such claim. The order passed by Ld. PCIT requires to be quashed and may kindly be quashed.
The learned Pr. CIT erred on facts as also in law by ignoring fact that the appeal for Asst. Year 2015-16 against the addition is pending with the CIT(A) and the issue has not reached finality till date. Therefore, the order passed by Ld. PCIT is totally unjustified and the same may kindly be quashed.
The learned Pr. CIT erred on facts as also in law in setting aside the assessment order dated 02.12.2019 passed u/s. 143(3) of the Income Tax Act, 1961 directing the AO to ass a fresh assessment order. The order passed u/s 263 of the Act by the learned Pr. CIT is totally unjustified on facts as also in law therefore the same may kindly be quashed.
Your Honour’s appeallnt craves leave to add, to amend, alter , or withdraw any or more grounds of appeal on or before the hearing of appeal.”
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The brief facts of the case are that during the captioned year, assessee firm set off brought forward losses from its previous years against its income of Rs.58,86,823/-for Assessment Year 2017-18. The Principal CIT observed that the assessed income of the assessee firm for Assessment Year 2015-16 was Rs. 34,28, 740/- after making addition of Rs. 1,94,78,973/- by the AO, and accordingly carry forward loss was “Nil” for Assessment Year 2015-16 as per assessment order. The assessee firm had filed first appeal against the addition and decision of Ld. CIT(Appeals) is awaited. Since, carry forward of loss for Assessment Year 2015-16 was “Nil”, set off losses of Rs.58,86,823/- availed by the assessee firm in the current year i.e. Assessment Year 2017-18 was irregular and required to disallowed. However, the AO while completing the assessment had not disallowed the same while passing the assessment order under Section 143(3) of the Act. Accordingly, the PCIT held that order passed by the AO is erroneous, in as much as it is prejudicial to the interests of the Revenue. The Principal CIT set-aside the assessment order with the following observations:
“4. I have gone through the records and the submission made by the assessee during the proceedings. It is on record that in the assessment completed by the AO for A Y 2015-16, the income has been assessed at Nil then a consequential effect of the same was required to be given in the year under consideration when it has claimed the set off of the carried forward losses of A Y 2015-16. The assessee has submitted that the issue under consideration is not a subject matter of proceedings u/s. 263 of I T Act and AO has rightly applied the mind. Further submitted that assessed income for A Y 2015-16 has not reached the finality and hence, the AO did not
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disturb the carried forward of losses claimed by the assessee though the assessee submitted the copy of assessment order of A Y 2015-16 to the AO in the assessment proceedings. Thus, the AO has correctly interpreted the provisions of the Act in this regard. Further relied on number of judgments. ……
The assessee’s submission has been examined and found not acceptable for the reason that on the date of making the assessment for the year under consideration, the AO ought to have considered the assessed income of A Y 2015-16 available as per the records. Considering such assessed income of A Y 2015-16, the AO ought to have assessed the income of A Y 2017-18 but the same has not been done so. The assessee’s submission that the assessed income for A Y 2015-16 has not reached the finality, is of no relevance. The material fact was the assessed income of A Y 2015-16 which was to be considered while completing the assessment of A Y 2017-18.
From the above, it is evident that there was incorrect application of law. It may be mentioned that two essentials condition for invoking the provisions of section 263 of I.T. Act are that the order passed by the AO is erroneous and prejudicial to the interest of revenue.”
The assessee is in appeal before us against the aforesaid order passed by Principal CIT under Section 263 of the Act setting aside the original assessment order. The Ld. Counsel for the assessee submitted that this is not a subject matter of proceeding under Section 263 of the Act since incorrect
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view was not taken by the Ld. Assessing Officer during the course of assessment proceedings. The assessee is in appeal before Ld. CIT(Appeals) against the additions made for Assessment Year 2015-16. Notably, even for the immediately preceding Assessment Year 2016-17, the assessee was given set-off of losses amounting to Rs.29,26,118/-. Further, Ld. CIT(Appeals) did not appreciate a crucial aspect under Section 153 (5) of the Act, the Assessing Officer can make variations in the income post the outcome of the appeal before Ld. CIT(Appeals) for Assessment Year 2015- 16. Therefore, accordingly, in instant set of facts, there is no scope for invocation of provisions of Section 263 of the Act, since the order is neither erroneous nor prejudicial to the interests of the Revenue. In response, the Ld. DR relied upon the observations made by Principal CIT in the 263 order.
We have heard the rival contentions and perused the material on record. In our considered view, the only issue for consideration before us is whether in the course of original assessment, the AO should have taken into consideration the carry-forward and set-off of losses on basis of “returned income” of the assessee or on the basis of “assessed income” of the assessee (after taking into consideration additions made in the assessment for Assessment Year 2015-16). The assessee’s contention is that the appeal for Assessment Year 2015-16 has been challenged before Ld. CIT(Appeals) and the outcome of the same is awaited. If, therefore, the assessee succeeds before Ld. CIT(Appeals), then he would be eligible for carry-forward and said-off of losses on basis of returned income of the assessee. If on the other, Ld. CIT(Appeals) disallows assessee’s appeal, then in terms of Section 153(5) of the Act, AO can give appeal effect of the order and create demand/disallow the benefit of carry-forward losses within a period of 3
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months from the end of the month in which the order of CIT(A) is received. On the other hand, if the contention of Principal CIT is accepted that benefit of carry-forward of losses is disallowed on the basis of assessed income i.e. on the basis of additions made during the course of assessment, then this would lead to multiplicity of proceedings, which would have a bearing on the proceedings for various years under consideration, in which the benefit of carry-forward of losses and set off thereof has been availed. Therefore, in order to avoid multiplicity of proceedings, Section 153(5) of the Act gives a shorter time-frame of 3 months from the date of receipt of order passed by CIT in appeal effect proceedings, and at the same time, the interest of the Revenue is also adequately safeguarded. It would be useful to reproduce the contents of Section 153 (5) of the Act for reference:
“(5) Where effect to an order under section 250 or section 254 or section 260 or section 262 or section 263 or section 264 is to be given by the Assessing Officer [or the Transfer Pricing Officer, as the case may be,] wholly or partly, otherwise than by making a fresh assessment or reassessment 14[or fresh order under section 92CA, as the case may be], such effect shall be given within a period of three months from the end of the month in which order under section 250 or section 254 or section 260 or section 262 is received by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, as the case may be, the order under section 263 or section 264 is passed by the Principal Commissioner or Commissioner:”
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In our view, looking into the language of Section 153(5) of the Act, the AO is within its powers to re-compute the income in order to give appeal effect to the order passed by Ld. CIT(Appeals), in the event the appeal is decided against the assessee, within the time-frame provided under Section 153(5) of the Act. Therefore, we are of the view, that the AO has taken a view which is legally plausible, and at the same time, the order passed by the Ld. Assessing Officer is not prejudicial to the interests of the Revenue. The interest of the Revenue, in our view, is adequately safeguarded by the provisions of Section 153(5) of the Act in the appeal effect proceedings, in case the challenge of the assessee before Ld. CIT(Appeals) does not succeed wholly or in part. In the appeal effect proceedings under Section 153(5) of the Act, the AO can deny benefit of carry-forward and set-off of losses depending upon the outcome of the appeal before Ld. CIT(Appeals) for Assessment Year 2015-16. In the event the assessee succeeds before Ld. CIT(Appeals) for Assessment Year 2015-16, there would be no occasion to disturb the benefit of carry forward and set-off claimed by the assessee in the Return of Income. Therefore, we are of the considered view that the order passed by the AO is neither erroneous nor prejudicial to the interests of the Revenue. Accordingly, we set-aside the order passed by the Principal CIT under Section 263 of the Act.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 28-09-2022
Sd/- Sd/- (WASEEM AHMED) (SIDHHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad: Dated 28/09/2022 Tanmay, Sr. PS TRUE COPY
ITA No. 158/Rjt/2022 (Shri Meenawala Castings vs. PCIT) 8 A.Y. 2017-18
आदेशक���त�ल�पअ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order,
Assistant Registrar, Income Tax Appellate Tribunal, Rajkot
Strengthened preparation & delivery of orders in the ITAT 1) Date of dictation 26/09/2022(Dictate in Dragon) 2) Date on which the typed draft is placed before the 26/09/2022 Dictating Member & Other Member 3) Date on which the approved draft comes to the Sr. /09/2022 P.S./P.S. 4) Date on which the fair order is placed before the /09/2022 Dictating Member for pronouncement 5) Date on which the fair order comes back to the Sr. 28 /09/2022 P.S./P.S. 6) Date on which the file goes to the Bench Clerk 28 7) Date on which the file goes the Head Clerk 8) Date on which the file goes to the Assistant Registrar for signature on the order 9) Date of Dispatch of the order