An assessment order cannot be revised under Section 263 unless it is demonstrated to be erroneous and prejudicial to the revenue; the mere existence of differing opinions does not suffice.

आदेश/ORDER

PER MAKARAND V.MAHADEOKAR, AM:

This appeal by the assessee is directed against the revisionary order dated 26.03.2025 passed under section 263 of the Income Tax Act, 1961 [hereinafter referred to as “the Act”] by the Principal Commissioner of Income Tax-1, Ahmedabad [hereinafter referred to as "Ld. PCIT"], for the Assessment Year 2020–21, whereby the assessment order passed under section 143(3) r.w.s. 144B dated 27.09.2022 by the Assistant Commissioner of Income Tax, Circle-1(1)(1), Ahmedabad [hereinafter referred to as "AO"] was set aside on the ground that the said assessment order was erroneous in so far as it was prejudicial to the interests of the Revenue.

Facts of the case

2. The assessee is a company engaged in the business of real estate and property development. For the Assessment Year 2020–21, the assessee filed its return of income on 06.01.2021. Later the said return was revised on 30.03.2021 declaring a total income of ‘NIL’ after setting off unabsorbed depreciation loss under normal provisions against gross total income. The case was selected for scrutiny and assessment proceedings were conducted under section 143(3) r.w.s. 144B of the Act. During the course of assessment, the Assessing Officer issued multiple notices under section 142(1) seeking detailed explanations and documentary evidence regarding the computation of income, treatment of brought forward losses, claim of depreciation, and other aspects. In compliance, the assessee filed detailed written submissions including the one dated 14.09.2022 explaining the claim of unabsorbed depreciation pertaining to earlier years including A.Y. 2018–19 and 2019–20. The assessment was finally framed determining the gross total income under normal provisions at Rs.62,91,18,337 and net total income (after Chapter VI-A deductions under section 80IBA of Rs.35,98,30,738/-) at Rs.10,54,37,004. The major disallowance made by the AO in the assessment was Rs.14,87,59,399 towards depreciation claimed on goodwill, which was disallowed on the ground that the depreciation on goodwill arising out of amalgamation of Bakeri Engineering & Infrastructure Pvt. Ltd. with the assessee company had already been disallowed in earlier years, and accordingly, it could not be allowed in A.Y. 2020–21 as well. Simultaneously, the AO allowed unabsorbed depreciation to the extent of Rs.16,38,50,595 pertaining to A.Y. 2018–19 as a set off against business income under normal provisions. The computation of income as a part of the assessment order clearly reflects this allowance of brought forward unabsorbed depreciation loss.

3. Subsequently, the Ld. PCIT issued a show cause notice under section 263 dated 07.03.2025 proposing to revise the assessment order passed by the Assessing Officer. The PCIT observed that the assessee had filed its return of income on 06.01.2021 declaring total income at ‘NIL’ after claiming set off of brought forward depreciation losses aggregating to Rs.53,52,94,158 pertaining to A.Ys. 2016–17, 2017–18, and 2018–19. Upon examination of the assessment record and ITR schedules, the PCIT noticed that the depreciation loss pertaining to A.Ys. 2016–17 and 2017–18 had already been disallowed in the respective assessment years due to rejection of depreciation on goodwill, and hence, no depreciation loss was available for carry forward or set off for A.Y. 2020–21 from those years. The PCIT further noticed that only depreciation of Rs.16,22,84,220 was available from A.Y. 2018–19 for set off. However, while finalizing the assessment, the Assessing Officer allowed set off of brought forward depreciation to the extent of Rs.48,03,58,938 a