Income Tax Appellate Tribunal - Kolkata
Anand And Company vs Acit on 27 February, 2003
Equivalent citations: [2004]89ITD125(KOL)
ORDER
Brought forward depreciation allowed set off by assessing officer on incorrect assumption of facts as well as on incorrect application of law Catch Note:
The assessing officer has allowed the claim of assessee to set off the unabsorbed depreciation in question on incorrect assumption of facts as well as on incorrect application of law, therefore, as the view taken by the assessing officer is found neither permissible in law nor sustainable in law, the assessing officer's order can be very well treated as an erroneous order and prejudicial to the interests of the revenue.
Ratio:
The assessing officer has allowed the claim of assessee to set off the unabsorbed depreciation in question on incorrect assumption of facts as well as on incorrect application of law, therefore, as the view taken by the assessing officer is found neither permissible in law nor sustainable in law, the assessing officer's order can be very well treated as an erroneous order and prejudicial to the interests of the revenue.
Held:
The view adopted by the assessing officer is also not one possible view which could be held as permissible and sustainable in law. As the view taken by the assessing officer is found neither permissible in law nor sustainable in law, the assessing officer's order can be very well treated as an erroneous order and prejudicial to the interests of the revenue. The assessing officer has allowed the claim of assessee to set off the unabsorbed depreciation in question on incorrect assumption of facts as well as on incorrect application of law.
The assessee has not been able to point out any basis or justification to hold that the order of the assessing officer was in any way permissible or sustainable in law. On perusal of assessing officer's order, one finds that the assessing officer has even failed to state the reason of allowing the adjustment of unabsorbed depreciation relating to assessment years 1985-86, 1986-87 and 1988-89 determined in the hands of erstwhile partnership, namely, M/s. MDC and thus making the order of the assessing officer as erroneous and prejudicial to the interests of revenue.
In this view of the matter and considering the totality of the facts and circumstances of the case and in the light of our discussion made above the order of Commissioner passed under section 263 is proper and justified. [Para 20] Application:
Also to current assessment year.
Decision:
In favour of revenue.
Income Tax Act 1961 s.263 Depreciation--UNABSORBED DEPRECIATIONTwo firms having same partners and same profit sharing ratio treated by two separate and distinct assessable entity, merged into a new firm, i.e., the assessee-firm--Treatment of unabsorbed depreciation of earlier years of one of the non-existence fi Catch Note:
Brought forward unabsorbed depreciation, belonging to one of the non-existing firms which were merged in assessee-firm, pertaining to earlier year was not allowable for deduction.
Ratio:
Brought forward unabsorbed depreciation, belonging to one of the non-existing firms which were merged in assessee-firm, pertaining to earlier year was not allowable for deduction.
Held:
It is settled law that a partnership is the relationship between those persons who constitute the partnership. The relation is founded in the agreement between them. The foundation of partnership is a partnership agreement. A partnership agreement is the source of a partnership; it also gives expression to the other ingredients defining the partnership. It is permissible to say that a partnership agreement creates and defines the relation of partnership and, therefore, identifies the firm. Each partnership agreement may constitute a distinct and separate partnership and, therefore, distinct and separate firms. In this way it can be held that there is no prohibition in the eyes of law for the creation or existence of two or more separate firms or partnerships by the same partners.
The depreciation allowance is a statutory privilege personal to the assessee and it is not a right which passes to the successor nor is it a right which the assessee can transfer by agreement. In this view of the matter, therefore, the unabsorbed depreciation determined in the hands of M/s. MDC for assessment years 1985-86,1986-87 and 1988-89 cannot be brought and set off in the hands of the present assessee inasmuch as this unabsorbed depreciation was never determined in the hands of, and/or related to, the present assessee, which has been held to be a separate and distinct assessable entity and partnership firm. Furthermore there is no enabling legal provision to support the contention that the unabsorbed depreciation determined in the hands of one predecessor firm can be brought forward and set off in subsequent years in the hands of another separate successor firm.
Case Law Analysis:
In re Indian Iron & Steel Co. Ltd. (1941) 9 ITR 539 (Cal), Indian Iron & Steel Co. Ltd. v. CIT (1943) 11 ITR 328 (PC), In re Bangal Flour Mills Co. Ltd. (1941) 9 ITR 568 (Cal), Kamlapat Motilal v. CIT (1950) 18 ITR 812 (All) and United Steel Co. Ltd v. Cullington (1941) 9 ITR (Suppl) 20 (HL) applied.
Application:
Also to current assessment year.
Decision:
In favour of revenue.3 Assessment Year:
1993-94 Cases Referred:
Mathurdas Govardhandas v. CIT (1980) 125 ITR 470 (Cal), CIT v. A. W Figgies & Co. (1953) 24 ITR 405 (SC), CIT v. Nagpur Gas & Domestic Appliances (1984) 147 ITR 440 (Bom), Malabar Industries Co. Ltd. v. CIT (200o) 14 DTC 146 (SC) : (2000) 243 ITR 83 (SC), Deputy CS T v. K. Kelukutty (1985) 155 ITR 158 (SC) Income Tax Act 1961 s.32 ORDER C.L. Sethi, Judicial Member
1. The assessee is in appeal against the order passed Under Section 263 of the I.T. Act, 1961, by the CIT for A.Y. 1993-94.
2. Briefly stated facts are that a return of income was filed by the assessee, a partnership firm under the name and style of M/s. Anand & Co., on 28-10-93, showing nil income In the assessment the total income before adjustment of alleged depreciation allowance brought forward from earlier years was determined at Rs. 20,01,202/- which was fully set off against unabsorbed depreciation amounting to Rs. 9,61,439/-, Rs. 8,69,630/- and Rs. 2,63,133/- brought forward from assessment years 1985-86, 1986-87 and 1988-89 respectively pertaining to the partnership firm under the made and style M/s. Mineral Development Corporation (for short, M/s. MCD). It was claimed by the assessee that M/s. MCD, a partnership firm and M/S. Anand & Co., another partnership firm have merged on and from 1-4-92. Both the merged firms, namely, M/s. Anand & Co. and M/s. MCD had same partners on and from 1-10-91 having same profit sharing ratio. The brought forward unabsorbed depreciation pertaining to the erstwhile firm M/s. MCD was thus allowed to be set off in the hands of the present partnership firm which came into existence on merger of two firms as stated above. On examination of the record, the CIT had arrived at a conclusion that the acceptance of the claim for set off or brought forward unabsorbed depreciation pertaining to the firm M/s. MCD in the assessment of the present partnership (SIC) by the A.O. was erroneous and prejudicial to the interest revenue. He, therefore, issued a show cause notice Under Section 263 of the Act to the assessee as to why the assessment made by the A.O. should not be rectified by disallowing set off of brought forward unabsorbed depreciation fixing the hearing on 23-3-98. Having received the show cause notice Under Section 263 of the act the assessee submitted a reply in writing vide its letter dated 23-3-98 saying that the adjustment of unabsorbed depreciation has been rightly done by the A.O. inasmuch as the continuity of the firm's business has not been suspended or stopped by the merger of two erstwhile firms, namely, M/s. Anand & Co. and M/s. MCD in to a new firm under the name and style M/s. Anand & Co., and as the constitution of the merged firm is the same and similar to that of earlier two firms having similar partners with the same share in profit and loss. Having considered the explanation given by the assessee the CIT passed the impugned order Under Section 263 by direction the A.O. to re-compute the total income and tax without allowing any set off of unabsorbed brought forward depreciation pertaining to the firm M/s. MCD. Being aggrieved, the assessee is in appeal before us.
3. The Ld. counsel for the assessee has raised the following contentions -
(i) No sufficient opportunity of being heard was given by the CIT before passing the order Under Section 263 of the Act
(ii) It is not correct to say that the firm M/s. Anand & Co. had come into existence w.e.f. 1-4-92 inasmuch as the partnership firm under the name and style of M/s. Anand & Co being in existence since long back was only merged with its own unit M/s. MCD w.e.f. 1-4-92 with all its assets and liabilities.
(iii) The machineries used in the firm M/s. MCD were transferred to the merged firm M/s. Anand & Co. by virtue of a partnership deed dated 1-4-92.
(iv) The question whether the unabsorbed depreciation is eligible to be set off in the instant case in a question of difference of opinion and as such the action Under Section 263 of the Act is not permissible under the law.
(v) The CIT has erred in applying the principle laid down by the Hon'ble Calcutta High Court in the case of Mathurdas Gobardhan Das v. CIT, 125 ITR 470 as the facts of the present case are distinguishable.
(vi) The CIT was, therefore, wrong in cancelling the assessment completed Under Section 143(3) and in directing the A.O. not to allow set off of the unabsorbed depreciation.
4. In support of the contention raised by the assessee the Ld. counsel for the assessee has relied upon the following decision :
(i) 24 ITR 405
(ii) 147 ITR 440 (Bom.)
(iii) 243 ITR 83 (SC)
5. The Ld. D.R. Mr. L.D. Mahalik, supported the order of the CIT and contended that the order of the CIT passed Under Section 263 was fully justified being in accordance with the provisions of law contained in Section 263 of the Act as the order passed by the A.O. to allow set off of brought-forward unabsorbed depreciation pertaining to M/s. MCD was erroneous and prejudicial to the interest of revenue. As further contended that M/s. Anand & Co. and M/s. MCD were two separate and distinct partnership upto 31-3-92, which has merged together on and from 1-4-92 creating a separate and new partnership firm w.e.f. 1-4-92. It was further argued that since the present firm M/s. Anand & Co. came into existence w.e.f. 1-4-92 is a separate and independent assessable entity it is not entitled to claim the set off of unabsorbed depreciation brought-forward from the earlier years in the hands of M/s. MCD which is no more in existence having been merged into a new firm.
6. We have carefully considered the rival contentions of both the parties and have gone through the order of the CIT passed Under Section 263 of the Act. We have also gone through the papers filed by the assessee before us.
7. In order to appreciate the controversy ra(SIC) the instant case it is necessary to discuss the reasons given by the CIT while passing the order Under Section 263 of the Act which may be summarised as follows :-
(i) depreciation allowance is a deduction for a non-cash expenditure permitted to the assessee to compensate him for wear and tear of the asset he used to generate taxable income. It is purely a statutory privilege personal to the owner user of the asset. Benefit of the deduction spread over a number of assessment years is available so long as the owner carries on the business.
(ii) The Income-tax Act, 1961, does not stipulate continuance of the same business for grant of set off of unabsorbed depreciation brought forward from the earlier assessment years. There is no gainsaying the fact that the statute does not stipulate a precondition that the same asset must be used by the owner in his business in the subsequent assessment years. It is however to be carefully noted that the question of set off arises only when the same owner continues. This right cannot be pursed by an owner to his successor.
(iii) In the eye of law, income tax to be specific a firm is an entity distinct & different from its partners. Use of the same name for the new firm as so far used by the old one dissolved would have no implication whatsoever. The day old firm was dissolved it ceased to be the owner of the assets with reference to which the admissible amounts of depreciation and investment allowance have been computed in the assessment of itself.
(iv) Incapable inference which can be drawn is that the unabsorbed depreciation and investment allowance determined in the assessments of the firm M/s. MCD which ceased to exist after 31-3-92 are not available for any adjustment whatsoever in the computation of the total income for the assessment year 1993-94 in the case of the firm M/s. Anand & Co. which had come into existence w.e.f. 1-4-92.
8. We shall now first deal with the question as to whether XXXX the two erstwhile firm M/s. MCD and M/s. Anand & Co. (SIC) continued and existed upto 31-3-92 were distinct and separate partnership firms or whether the newly constituted firm under the name and style M/s. Anand & Co. w.e.f. 1-4-92 is a distinct and separate firm taking over the businesses of erstwhile two firms M/s. Anand & Co. and M/s. MCD.
9. The word 'firm' has been defined in Section 2(23) of the Act which reads as under :-
"(23) "firm", "partner" and partnership" have the meanings respectively assigned to them in the Indian Partnership Act, 1932 (9 of 1932); but the expression "partner" shall also include any person who, being a minor, has been admitted to the benefits of partnership;"
The firm has also been included in the definition of 'person' in Section 2(31) of the Act. It is also well settled that income-tax is chargeable Under Section 4 in accordance with and subject to the provisions of the Act, in respect of total income of a previous year of the firm. For the purpose of income-tax, a firm is a distinct and separate entity from the persons who compose it. In law, there is no prohibition for the creation or existence of two or more separate firms or partnerships by the same partners. The very question as to whether there was really one partnership to two different assessable entities being two separate distinct partnerships unconnected with each other, has to be determined by the I.T. Authorities for the purpose of completing the assessment under I.T. Act but not under the general law governed by the provisions or the Partnership Act. It is settled law that a partnership is the relationship between those persons who constitute the partnership. The relation is founded in the agreement between them. The foundation of partnership and, therefore, of a firm is a partnership agreement. A partnership agreement is the source of a partnership; it also gives expression to the other ingredients defining the partnership, specifying the business agreed to be carried on, the persons who will actually (SIC) business, the shares in which the profits will be (SIC) and several other considerations which constitution (SIC) organic relationship. It is permissible to (SIC) that (SIC) partnership agreement creates and defines the relation of partnership and, therefore, identifies the firm. Each partnership agreement may constitute a distinct and separate partnership and, therefore, distinct and separate firms. The firm's name is only a collective name for the individual partners. But each partnership is a distinct relationship. Partners may be different and yet the nature of the business may be the same, the business may be different and yet the partnership may be the same. The partners may have intention to constitute two separate partnerships and therefore two distinct firms. The above view has been expressed by the Hon'ble Supreme Court in the context of provisions of Kerala General Sales-tax Act, 1963, in the case of Deputy G.S.T. v. K. Kelu Kutty (1985) 1555 ITR 158 (S.C.). In this way, it can be held that there is no prohibition in the eyes of law for the creation or existence of two or more separate firms or partnerships by the same partners.
10. In the light of our above observation and on the facts and circumstances of the case the inescapable conclusion is that the two erstwhile firms M/s. MDC and M/s. Anand & Co. were two separate and distinct partnership firm and more-so two distinct and separate assessable entities under the provisions of I.T. Act. It is an admitted fact that M/s. MDC and M/s. Anand & Co. were separately assessed to tax up to A.Y. 1992-93. The respective Assessing Officer has also all along treated these two firms as separate and distinct firms or partnership or assessable entities. The assessment has also been made separately in the names of these two erstwhile firms notwithstanding the fact that these two firms were constituted by the same partners having same ratio of share of profit or loss w.e.f. 1-10-91 as evident from the two and separate deed of partnership executed on 1st day of October, 1991. In other words, there were two different and separate agreements or relationship between the partners to constitute two distinct and separate partnerships. On perusal of the deed of partnership executed on 1-4-92 executed by the partners it is clear that the erstwhile two partnership firms M/s. Anand & Co. and M/s. MDC have been amalgamated to carry on the business previously being carried on by two distinct and separate firms, namely M/s. Anand & Co. and M/s. MDC. In this connection the relevant portion of the deed of partnership dated 1st day of April, 1992 may be reproduced below:-
"And whereas it has been mutually decided by the common partners of both the firms viz. M/s. Anand & Company and M/s. Mineral Development Corporation that for the sake of convenience and commercial expediency the business of both the firms shall be clubbed together in order to amalgamate the two Partnership business in one and identical firm to be functioning under the name & style of M/s. Anand & Company at its place of business at 34-A, Brabourne Road, Calcutta-1 on and from the 1st day of April, 1992 together with its existing knitting Unit at 5/1, Puddapukur Lane, Calcutta - 700 020;
And whereas in order to give effect to all the purposes stated hereinbefore it has been eventually decided by the parties hereto that the terms and conditions of the newly constituted (Amalgamated) Partnership business shall be setforth and recorded in writing."
11. On reading the above recital made by the partners in the partnership deed dated 1-4-92 it is clear that the common partners had a constituted a new partnership firm by amalgamating two separate partnership business or firms in to one new partnership firm to be functioned under the name and style M/s. Anand & Co., the present assessee before us.
12. Having regard to the intention of the partnership contents of the deed of partnership and undisputed (SIC) that the two erstwhile firms M/s. Anand & Co. and M/s. MDC were two separate and distinct partnership firms and moreso separate assessable entities we are of the considered opinion that this is a case of succession of two firms by one firm, i.e. succession of erstwhile two separate firms, namely M/s. MDC and M/s. Anand & Co. by a new firm under the name and style M/s. Anand & Co. Section 188 of the I.T. Act provides for the situation where a firm carrying on the business is succeeded by another firm. On reading Section 188 it is clear that one firm can be succeeded by another firm. Section 188 reads as under:-
"188. Where a firm carrying on a business or profession is succeeded by another firm, and the case is not one covered by Section 187, separate assessments shall be made on the predecessor firm and the successor firm in accordance with the provisions of Section 170."
It is also an admitted fact that the case of the assessee is not covered by Section 187 which is applicable only in the case of change of constitution of a firm. We further find that the assessee's case is not of a change in the constitution of the firm as defined under Section 187 of the Act.
13. Now let us examine, on the facts and circumstances of the case and in the light of our observation made above, as to whether the present assessee in any way is entitled to claim the set off of brought forward unabsorbed depreciation determined in the hands of M/s. MDC during A.Ys. 1985-86, 1986-87 and 1988-89.
14. The law on the point of unabsorbed depreciation was contained in Section 10(2)(vi), proviso (b) and Section 24(2), proviso (b) of the 1922 Act, which correspond to Sections 32(2), 72(2) and 73(2) of the 1961 Act. Section 32(2) makes provision for carry forward and set off of the absorbed depreciation of a particular year. According to that section, where in the assessment of the assessee, (up to 31-3-93) or if the assessee is a registered firm or an unregistered firm as registered firm in the assessment of its partners, full effect cannot be given to the depreciation allowance in any previous year owing to there being no profits or gains chargeable for that previous year, or the profit or gains chargeable being loss than the allowance, then, subject to the provisions of Sections 72(2) and 73(3), the allowance or part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year, and so on for the succeeding previous year. The effect of this provision contained in Section 32(2) is that the unabsorbed depreciation for a particular year becomes, by legal fiction, part of the depreciation allowance for the succeeding year. In the light of the provisions contained in Section 323(2) of the Act it is well-settled that for claiming set off of unabsorbed depreciation in a succeeding year, the continuance of the business in relation to which such depreciation was determined is not an essential pre-requisite as held by the Hon'ble Supreme Court in the case of CIT v. Virmani Industries P. Ltd. (1999) 216 ITR 607, 617 (SC). In other words, for availing of the benefit of Section 32(2), it is not necessary that the business carried on in the following year is the same business as was carried on in the previous year. Further, Section 32(2) also does not impose any further condition that the concerned asset must have been used by the assessee for the purposes of his business in the subsequent year wherein the set off is claimed. Hence the contention of the Ld. counsel for the assessee that the present assessee has been carrying (SIC) same business by using concerned asset as was carried (SIC) by M/s. MDC in the concerned previous years in which (SIC) depreciation was determined is of no assistance to the assessee inasmuch as mere carrying on the same business by a different and separate assessable entity and by using the same asset cannot be a basis to allow the set off of unabsorbed depreciation determined in the hands of predecessor. Once the concerned asset has passed on to the successor, he is the assessee and the depreciation is to be calculated on the cost to him and not on the cost to his predecessor. The successor is entitled to depreciation in respect of the purchased asset on the actual cost of the asset to him. The depreciation allowance is a deduction permitted to the assessee in respect of wear and tear of his asset on its cost to him against the profits he may make in carrying on his business. It is thus a statutory privilege personal to him. It is not a right which passes to his successor nor is it a right which can be transferred by agreement. In the instant case the unabsorbed depreciation was determined in the hands of M/s. MDC, which was assessed as a registered firm, for A.Ys. 1985-86, 1986-87 and 1988-89. The unabsorbed depreciation determined in the hands of M/s. MDC for A.Ys. 1985-86, 1986-87 and 1988-89 was thus first required to be set off in the assessment of the partners in those assessment years and then was to be treated as a depreciation allowance for the succeeding previous years, in the hands of same assessee firm. On plain reading of Section 32(2) of the Act it is, therefore, clear that the unabsorbed depreciation determined in the hands of M/s. MDC which was separately assessed as a registered firm can only be set off either in the hands of its partners or in this firm's hands and not to any other person. In this connection we may refer to the following decisions:
1. Indian Iron and Steel Co. Ltd., In re, (1941) 9, 539 (Cal), on appeal 1943 11 ITR 328 (P.C.)
2. Bangalore Flour Mills Co. Ltd., In re, (1941) 9 ITR 568 (Cal).
3. Kamlapat Motilal v. CIT (1950) 18 ITR 812 (Alld.)
4. United Steel Co. Ltd. v. Cullington (1941) 9 ITR (Suppl.) 20 (H.L.) In all these cases it was held that the depreciation allowance is a statutory privilege personal to the assessee and it is not a right which passes to the successor nor is it a right which the assessee can transfer by agreement. In this view of the matter we are, therefore, of the considered opinion that the unabsorbed depreciation determined in the hands of M/s. MDC for A.Ys. 1985-86, 1986-87 and 1988-89 cannot be brought and set off in the hands of present assessee inasmuch as this unabsorbed depreciation was never determined in the hands of, and/or related to, the present assessee, which has been held by us to be a separate and distinct assessable entity and partnership firm. Furthermore we are unable to find any enabling legal provision to support the contention that the unabsorbed depreciation determined in the hands of one predecessor firm can be brought forward and set off in subsequent years in the hands of another separate successor firm.
15. The decisions, cited by the Ld. counsel for the assessee, in the case of CIT v. Nagpur Gas and Domestic Appliances (1984) 147 ITR 440 (Bombay High Court-Nagpur Bench) and in the case of CIT v. A.W. Figgies & Co. and Ors. (1953) 24 ITR 404 (SC) are also not applicable to the case on hand inasmuch as the aforesaid decisions cited by the Ld. Counsel for the assessee are rendered in the background of the fact that there was a change in the constitution of the same firm. The case on hand as discussed and observed by us hereinabove is not of change in the constitution of the same firm within the meaning of Section 187 of the Act but the case is of succession of two separate firms by another. In the case of CIT v. Nagpur Gas & Domestic Appliances (supra) it was held that unabsorbed depreciation of the firm apportioned to a deceased partner, which could not be wholly set off in the hands of the deceased partner, could be carried forward and set off in the assessment of the firm for subsequent years as it was found that the firm shall not be dissolved but shall continue on the death of one of its partners. It was a case of change in the constitution of the firm after the death of one of its partners. In the case of CIT v. A.W. Fiffies & Co. (supra) it was observed that a mere change in the constitution of a partnership does not necessarily bring into existence a new assessable unit or a distinct assessable entity and in such a case there is no devolution of the business as a whole.
16. Now we shall deal with the contention putforward by the Ld. counsel for the assessee that the order of the A.O. in allowing the set off of brought forward unabsorbed depreciation in the hands of the present assessee was not erroneous and prejudicial to the interest of revenue and as such the CIT had no power to invoke Section 263 of the Act. In this connection the Ld. counsel for the assessee has placed reliance on a decision of Hon'ble Supreme Court in the case of Malabar Industries Co. Ltd. v. CIT (2000) 243 ITR 83.
17. In the case of Malabar Industries Co. Ltd. v. CIT (supra) it was held as follows:-
"A bare reading of Section 263 of the Income-tax Act, 1961, makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent - if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue - recourse cannot be had to Section 263(1) of the Act. The provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase "prejudicial to the interests of the Revenue" is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the Income-tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. The phrase "prejudicial to the interests of the Revenue" has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial to the interests of the Revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law."
18. In the case on hand it has already been held and observed by us that the action of the A.O. in allowing the set off of brought forward depreciation, which was determined in the case of M/s. MCD in A.Ys. 1985-86, 1986-87 and 1988-89, in the hands of the present assessee is not permissible nor sustainable in law. The view adopted by the A.O. is also not one possible view which could be held as permissible (SIC) sustainable in law. As the view taken by the A.O. is (SIC) neither permissible in law nor sustainable in law, the A.O.'s order can be very well treated as an erroneous order and prejudicial to the interests of the Revenue in the light of the principles laid down by the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT (supra). We may further observe that the A.O. has allowed the claim of assessee to set off the unabsorbed depreciation in question on incorrect assumption of fats as well as on incorrect application of law. The Ld. counsel for the assessee has not been able to point out any basis or justification to hold that the order of the A.O. was in any way permissible or sustainable in law. On perusal of A.O.'s order, we find that the A.O. has even failed to state the reason of allowing the adjustment of unabsorbed depreciation relating to A.Ys. 1985-86, 1986-87 and 1988-89 determined in the hands of erstwhile partnership, namely, M/s. MCD and thus making the order of the A.O. as erroneous and prejudicial to the interests of Revenue.
19. The contention of the Ld. counsel for the assessee that no sufficient opportunity of being heard was given by the CIT before passing the order under Section 263 is also not sustainable inasmuch as we find that the explanation putforward by the assessee before the CIT had been duly considered in the order passed under 263.
20. In this view of the matter and considering the totality of the facts and circumstances of the case and in the light of our discussion made above we are of the considered opinion that the order of CIT passed under Section 263 is proper and justified.
21. In the result, the appeal filed by the assessee stands dismissed.