CIT revision order on the issue of Reduction in profit due to ICDS-V quashed by ITAT

CIT revision order on the issue of Reduction in profit due to ICDS-V quashed by ITAT

In a recent judgment, ITAT Kolkata quashed the revision order u/s 263 on the issue of reduction in profit due to ICDS-V tangible fixed assets as the allowable depreciation was rightly calculated.

ABCAUS Case Law Citation:
4201 (2024) (08) abcaus.in ITAT

In the instant case, the assessee had challenged the order passed by the PCIT in rvising the assessment by exercising his revisionary powers u/s 263 of the Income Tax Act, 1961 (the Act) holding the assessment order erroneous and prejudicial to the interest of the Revenue.

The appellant assessee was a Private Limited Company. The case was picked up for scrutiny on account of, among other issues, ‘reduction in profit due to ICDS’ on account of change in foreign exchange rates and secondly intangible assets.

The CBDT had notified the Income Computation and Disclosure Standards (ICDS) which need to be followed for computation of income chargeable under the head ‘profits and gains from business or profession’. ICDS-V deals with treatment of tangible fixed assets.

Thereafter, the Assessing Officer (AO) disallowed the claim on account of change in foreign exchange rates, out of two issues; however, the AO decided the second issue in favour of the assessee being the increase in profit pertaining to ICDS-V being tangible fixed assets.

Thereafter, the Pr. CIT initiated proceedings u/s 263 of Act on the ground that the auditors in Form-3CD had certified at Sl. No. 13(d) & 13(e) that an adjustment was required to be made in the profit on account of tangible fixed assets. The Pr. CIT worked out that the under assessment effect due to ICDS-V.

Before the Tribunal the assessee submitted that in the return of income itself the audited financial statements indicated that as per ICDS-V (tangible fixed assets) there would be an increase in profit. However, this figure stated was part of the working on account of depreciation which would need to be worked out in a dual manner: (i) adding back depreciation as per books of accounts and (ii) reducing the depreciation allowable as per income tax provisions and the net result of it would automatically increase the taxable income of the assessee.

The Tribunal observed that as per the computation of income clearly shows that depreciation as per books had been added back and depreciation as per the Income Tax Act had been reduced, which is the correct procedure to be followed in accounting as also being in consonance with the Act. Thus, on the face of it the amount considered by the Pr. CIT had been duly taken care of in working out the taxable income and even in the copy of a return of income the same has been dealt with in item 13(e).

The Tribunal opined that it was clear that the accounts working of depreciation actually chargeable under the profit and loss account has been correctly worked out and more importantly disclosed in the audit report filed along with the return of income. On this fact alone, the impugned order deserved to be quashed since the issue had been considered by the AO and dropped for any adverse treatment on account of the response filed by the assessee.

Further, the two items pertaining to the ICDS were issues on which the case was picked up for scrutiny and the matter of tangible assets was dropped for considering any addition by the AO, whereas the on the second ground pertaining to the ICDS-V (change in foreign exchange rates) an addition had been made. This amply demonstrated the application of mind by the AO on the issues before him and reveals that he has duly considered the explanation offered by the assessee regarding the issue around ICDS-V.

The Tribunal held that impugned order started off on an erroneous premise and did not duly take into consideration the details contained in the audit report filed along with the return of income and thereby ended up with an erroneous conclusion.

Accordingly, the order u/s 263 was quashed.

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