The Karnataka High Court held that mere inadequacy of an enquiry or insufficiency of material on record can not be a ground to invoke revisional powers under Section 263 of the Income Tax Act, 1961.
The assessee, M/s Cyber Park Development is engaged in the business of developing, operating and maintaining infrastructure facilities for software and related sectors. The assessee filed return of income for the Assessment Year 2006-07 declaring a loss of Rs.10,23,09,300. A notice was issued to the assessee under Section 143(2) of the Act.
The issues raised by the revenue was that whether the Tribunal was correct in holding that the assessee having furnished the details that the lease hold rights were intangible assets before the Assessing Officer it should be deemed that the details was deemed to have been examined and relief granted in favour of the assessee by the Assessing Officer and the finding recorded by the Commissioner to the contrary was not correct.
The Assessing Officer allowed depreciation at 25% on the right to lease hold land, which was classified as an intangible asset by the assessee. The Commissioner of Income Tax (Appeals) initiated proceedings under Section 263 of the Act and directed the Assessing Officer to redo the assessment in the light of observations made in the order.
Being aggrieved, the assessee filed an appeal before Income Tax Appellate Tribunal, which allowed the appeal preferred by the assessee.
The division judge bench of Justice Alok Aradhe and H.T. Narendra Prasad said that from close scrutiny of Section 263 it is evident that twin conditions are required to be satisfied for exercise of revisional jurisdiction under Section 263 of the Act firstly, the order of the Assessing Officer is erroneous and secondly, that it is prejudicial to the interest of the revenue on account of error in the order of assessment.
The court upheld the order of the tribunal wherein it was found that the Assessing Officer on meticulous appreciation of evidence on record has allowed depreciation on intangible assets and the Commissioner of Income Tax (Appeals) while passing the order under Section 263 of the Act has held that the enquiry and verification made by the Assessing Officer is inadequate and the land cannot be treated as intangible asset.
The Tribunal has held that mere inadequacy of an enquiry or insufficiency of material on record cannot be a ground to invoke powers under Section 263 of the Act.
The court held that the view taken by the Tribunal is in consonance with well-settled legal principles.
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