CIT’s Order to Recompute Tamil Nadu Cements’ Set-Off Valid as Method Used Was Faulty: Madras HC [Read Order]

In a recent ruling, the Madras High Court upheld the CIT’s direction to the Assessing Officer to recompute Tamil Nadu Cements Corporation’s set-off of past losses and depreciation, holding that the method used by the company was faulty.

Tamil Nadu Cements Corporation filed an appeal challenging the Income Tax Appellate Tribunal’s order that confirmed the CIT’s power under Section 263 of the Income Tax Act, 1961 to direct a reassessment.

The dispute arose when the CIT directed the Assessing Officer to recompute the company’s income for the relevant assessment year by determining the correct amounts of brought forward business losses, unabsorbed depreciation, and investment allowance in line with the law.

The company’s counsel argued that the CIT’s revisional order was time-barred as it sought to revise assessments relating to earlier years and claimed that the method it used for setting off past losses and depreciation was correct. The company further argued that the CIT should not have interfered in the matter, stating that the Assessing Officer had accepted its method during the original assessment.

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The department’s counsel argued that the CIT had the authority to step in under Section 263 to ensure the correct computation of income if the method followed by the assessee was not as per law. The department argued that the method used by Tamil Nadu Cements was faulty and led to incorrect tax computation, justifying the need for recomputation.

A division bench led by Chief Justice K.R. Shriram and Justice Sundermohan observed that the CIT had correctly used its powers under Section 263 to direct the Assessing Officer to recompute the income and ensure correct application of the law on set-offs of past losses and depreciation.

The court also noted that the company had accepted the recomputation and had not challenged the subsequent ITAT orders, indicating there was no reason to entertain the appeal further.

The court dismissed the appeal, confirming the validity of the CIT’s direction and holding that the recomputation was lawful as the method used by Tamil Nadu Cements for set-offs was faulty.

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