Loss not disturbed in Scrutiny Assessment to be treated as accepted and quantification thereof could not be disturbed

The Assessee has filed itsincome tax return and the case was taken up for scrutiny assessment proceedings. The assessment was completed under section 143(3) and returned income was accepted.
Upon receipt of assessment order, the Assessee moved a rectification petition seeking a specific mention of the loss being eligible for being carried forward. The Assessing Officer upheld this plea of the Assessee and observed that on perusal of the record the contention of the Assessee was found to be correct.
However, the Commissioner revised the rectification order under section 263 by holding that since the Assessing Officer did not examine Assessee’s claim for carry forward of loss in sufficient detail, the loss could not be carried forward. The rectification order was thus cancelled. Hence, the appeal was filed by the Assessee before the Tribunal.

Quantification of loss in question was never examined at any stage in the scrutiny assessment proceedings.
Hence, the department contented that, the department would not allow the carry forward of amount of loss claimed by the Assessee, and rectification order was cancelled.

The order passed by the Principal Commissioner of Income Tax u/s 263 of the Income Tax Act, 1961 is bad in law as the provisions contained in Section 263 of the Act were completely ignored to set aside an order passed u/s 154 of the Act by the assessing officer rectifying own order passed u/s 143(3) without satisfying conditions contained in Section 263 of the Act.
Principal Commissioner grossly erred in holding that AO has not made sufficient inquiry in respect of the claim of the Assessee while passing an order ignoring the fact that all necessary information or documents were submitted by the Assessee in the course of assessment and AO had allowed the claim of expenditure while passing order u/s 143(3) of the Act.

Once a loss has been disclosed in the income tax return, and such a loss has not been disturbed in the scrutiny assessment proceedings, such loss is treated to have been accepted and quantification thereof cannot be disturbed.
The quantification of loss, which is well beyond the limited scope of ‘mistake apparent on record’ under section 154 and in the light of Supreme Court’s judgment in the case of T.S Balaram ITO v. Volkart Brothers [1971], could not have been disturbed in the proceedings under section 154, and what cannot be done under section 154, cannot be done under section 263 r.w.s. 154 either and just because he has missed the bus, we cannot bend the law to allow that examination now. The finality of time limits has to be respected and followed.
In view of the above discussions as also bearing in mind the entirety of the matter, the impugned revision proceedings are quashed.

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