Facts of the case
The assessee company was engaged in the business of manufacturing of MS Angles, Channels, Round bars etc. It filed its ROI, declaring net loss of Rs.5797350/- computed after setting off the brought forward depreciation loss with short term capital gain on sale of wind mill in current year. Recording this reason on the ground, AO issued notice u/s 148. In response, assessee filed the return and submitted that carried forward depreciation loss should be treated as current year’s depreciation and the same should be allowable to adjust against current year capital gain which was rejected by AO on the ground that there is no such provision under Income tax Act which says to absorb carried forward depreciation from the current year capital gain and also there is no mentioning in section 71 and 72 of the act regarding the unabsorbed depreciation carried forward to be considered as current year depreciation. Assessment order disallowing the setting off of capital gain against brought forward depreciation loss was passed u/s 143(3) r.w.s. 147.
During review, on perusal of records, the ld. Commissioner found that the assessee has claimed depreciation on wind mill only upto A.Y. 2002-03. Since it is mandatory to claim depreciation, remaining depreciation ought to have been considered as claimed by the assessee after 01-04-2002. Treating the computation of capital gain on wind mill as erroneous and after recording that the Ld. A.O had committed an error by accepting such computation, he issued a show cause notice u/s 263 upon the assessee. In response, it was clarified by the assessee that short-term capital gain was computed adjusting depreciation only to the extent claimed in the return of income for earlier years. Ld. Commissioner not being satisfied with the explanation set aside the assessment order and directed the A.O. to re-compute the short term capital gain as per law.
The assessee filed the present appeal against the order of CIT passed u/s 263 of the Income tax. The grievance raised by the assessee was that Ld. CIT has erred in taking cognizance u/s 263 of the Act and setting aside the well reasoned order of the Assessing Officer.
Submission of Assessee
The Ld. Counsel of the assessee raised below submissions:-
