Income Tax Appellate Tribunal - Chennai
M/S. The India Cements Ltd.,, Chennai vs Dcit, Corporate Circle - 2 (1),, Chennai on 18 August, 2021
आयकर अपील य अ धकरण,'डी' याय पीठ, चे नई
IN THE INCOME TAX APPELLATE TRIBUNAL , 'D' BENCH, CHENNAI
ी वी.दग
ु ा राव, या यक सद य एवं ी जी.मंजुनाथ, लेखा सद य के सम%
BEFORE SHRI V.DURGA RAO, JUDICIAL MEMBER
AND SHRI G.MANJUNATHA, ACCOUNTANT MEMBER
आयकरअपीलसं./I.T. A.No.833/Chny/2020
( नधारणवष / Ass essm ent Year: 2007-0 8)
M/s. India Cements Limited Vs The Deputy Commissioner of
93, Coromandel Towers Income Tax,
Santhome High Road, Corporate Circle-2(1)
R.A.Puram,Chennai-600 028. Chennai
PAN: AAACT 1728P
(अपीलाथ /Appellant) ( यथ /Respondent)
अपीलाथ क ओरसे/ Appellant by : Mr.R.Vijayaraghavan, Advocate
यथ क ओर से/Respondent by : Mr. S.Bharath,CIT
सुनवाईक तार ख/Da t e of h ear in g : 13.07.2021
घोषणाक तार ख /D at e of Pr on o unc e m en t : 18.08.2021
आदे श / O R D E R
PER G.MANJUNATHA, AM:
This appeal filed by the assessee is directed against order of the learned Principal CIT, Chennai-2 dated 26.03.2015 u/s.263 of the Income Tax Act, 1961 and pertains to assessment year 2007-08.
2. The assessee has raised following grounds of appeal:-
"1. The order passed by the Learned Principal Commissioner of Income Tax u/s.263 of the Act dated 26.03.2015 is contrary to law facts and circumstances of the case.
JURISDICTION
2. The Commissioner of Income-tax erred in assuming jurisdiction u/s.263 in respect of the giving effect order u/s.143(3) r.w.s.263 dt 30.03.2013 which was passed 2 ITA No.833/Chny/2020 pursuant to the directions of the CIT vide order u/s. 263 dt. dt.30.03.2012.
2.1 The Commissioner of Income-tax erred in holding that assessment order u/s.143(3) r.w.s.263 dt 30.03.2013 was made without proper enquiry/verification without appreciating that the order was made after detailed enquiries and hence cannot be revised merely to superimpose the decision of the CIT over that of the AO.
2.2 The Commissioner of Income-tax failed to appreciate that twin conditionsfor invoking jurisdiction u/s.263 is absent in the present case as held by the Hon'ble Supreme Court in the case of Malabar Industrial Co Ltd v CIT 243 ITR 83(SC).
2.3 The Commissioner of Income Tax ought to have appreciated that where two views are possible and the assessing officer had taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the Revenue, unless the view taken by the AO is unsustainable in Law. [CIT v Max India 295 ITR 282].
2.4 The Commissioner of Income Tax ought to have appreciated that in the present case the order u/s.143(3) r.w.s.263 dt 30.03.2013 was passed pursuant to the directions of the CIT vide his order u/s. 263 dt.dt.30.03.2012 and hence cannot be treated as erroneous order prejudicial to the interest of the Revenue.
MERITS
3. SETOFF OF UNABSORBED LOSS U/S.II5JB:
3.1 The Commissioner of Income-tax erred in holding that Assessing Officer in the order u/s. 143(3) r.w. s. 263 dated
30. 03.2013 had allowed set off of unabsorbed loss of Rs.198.43 crores as against Rs.120.46 crores without proper verification.
3ITA No.833/Chny/2020 3.2 The Commissioner of Income-tax erred in holding that the issue pertaining to set off of carried forward unabsorbed loss was subject matter of earlier revision order dated 30.03.2012 and hence the same is not barred by Limitation.
3.3 The Commissioner of Income-tax failed to appreciate that in the earlier revision order dated 30.03.2012 there was a specific direction to disallow loss of amalgamated company of Rs.40 crores from the unabsorbed loss of Rs.153.16 crores while computing book profit u/s.115JB.
3.4 The Commissioner of Income-tax ought to have appreciated that other than the proceedings u/s.143(3), this particular aspect of set off of brought forward Losses u/s.II5JB is not subject matter of any other proceedings and hence the period of limitation shall run from the original assessment u/s.143(3). Hence the action of CIT to invoke his jurisdiction in this respect is clearly barred by limitation and has to be set aside. [CIT vs. Alagendran Finance 293 ITR 1 (SC) ; CIT vs ICICI Bank 343 ITR 74 (Bom); CIT vs. Shriram Investments (Mad)] 3.5 The Commissioner of Income-tax ought to have appreciated that the amount of brought forward Losses as per books to be set off against the Book Profits for this year, as claimed by Assessee in the return is Rs.275.75 Crores. The AC has set off the Loss to the extent of the Book profits assessed in each of the orders and hence there is no error in his order.
3.6 Without prejudice, the order giving effect to the earlier order of the CIT was subject matter of appeal before the CIT(A). If the order of the CIT(A) is given effect the Book Profits and hence the brought forward losses to be set off against the Book profits shall be at the original figure of Rs. 153.16 Crores and hence there is no error in the order of AO giving effect to the order of CIT.
4ITA No.833/Chny/2020
4. PREMIUM ON REDEMPTION OF DEBENTURES:
4.1 The Commissioner of Income-tax erred in holding that in the assessment order u/s.143(3) r.w.s.263 dt 30.03.2012 the AO has omitted to examine and verify the issue of allowability of expenditure incurred towards premium on redemption of debentures.
4.2 The Commissioner of Income-tax failed to appreciate that the AO in the order u/s.143(3) r.w.s. 263 has disallowed the claim of Rs.59.01 crores as deduction from book profits and added back the same to book profits.
4.3 The Commissioner of Income-tax ought to have appreciated that the above disallowance was subject matter of appeal before CIT(Appeals) and the CIT(Appeals) vide his order in ITA No.726/2013-14 dt 27.10.2014 held that assessee is eligible for reducing the amount of Rs.59.01 crores from the net profit shown in the P&L account for the purpose of computing book profit u/s.115JB.
4.4 The Commissioner of Income-tax ought to have appreciated that he has no jurisdiction in respect of this issue which was subject matter of appeal before CIT(Appeals) under clause (c ) to Explanation 1 to sec 263 and hence the revision order dt 26.03.2015 is invalid.
5. INVESTMENTS
5.1 The Commissioner of Income-tax after erred in directing the assessing officer to verify the investments made in M/s Janani Infrastructure Pvt Ltd without considering the explanation given by assessee that no such investments were made by assessee.
5.2 The Commissioner of Income-tax failed to appreciate that this issue was not subject of revision in the first revision order dt 30.03.2012 hence, there is no error in the assessment order u/s.143(3) r.w.s 263 dt 30.03.2013 so as to invoke jurisdiction u/s.263 of the Act.
5ITA No.833/Chny/2020
5.3 The Commissioner of Income Tax erred in assuming jurisdiction u/s.263 based on the information which was received by the assessing officer which is subsequent to the giving effect order passed u/s.143(3) r.w.s 263 of the Act. 5.4 The Commissioner of Income-tax ought to have appreciated that other than the proceedings u/s.143(3), this particular aspect of investment in Janani Infrastructure Pvt Ltd is not subject matter of any other proceedings and hence the period of Limitation shalt run from the original assessment u/s.143(3). Hence the action of CIT to invoke his jurisdiction in this respect is clearly barred by limitation and has to be set aside. [ CIT vs. Alagendran Finance 293 ITR I (SC) CIT vs ICICI Bank 343 ITR 74 (Bom); CIT vs Shriram Investments (Mad)] 5.5 The reliance placed by the CIT in the case of Shree Manjunatheswara Packing Products and Camphor works 231 ITR 53 is misplaced and not applicable to the facts of the case. In that decision it was held that commissioner can take into consideration the valuation report called for by the AO before making theassessment but submitted by the valuer after the assessment.
6. The Commissioner of Income-tax erred in not considering the submissions made by the appellant in proper perspective."
3. Brief facts of the case are that the assesse company is engaged in the business of cement manufacturing filed its return of income for assessment year 2007-08 on 31.10.2017 admitting Nil total income. The assessment for impugned assessment year has been completed u/s.143(3) of the Act, on 22.12.2019 and assessed total income of 6 ITA No.833/Chny/2020 Rs.229,64,16,622/- u/s. 115JB of the Income TaxAct, 1961. The assessee has filed an appeal before learned CIT(A) and challenged various additions made by the Assessing Officer including reversal of income arising on cancellation of sales tax assignments. The learned CIT(A) vide his order dated 28.05.2010 partly allowed appeal filed by the assessee and deleted additions made towards reversal of income arising on cancellation of sales-tax assignments. The Assessing Officer has passed order giving effect to the learned CIT(A) order on 13.07.2010 and determined total income u/s.115JB of the Act at Rs. Nil, after allowing set off of brought forward business loss. The case has been subsequently taken up for revision proceedings u/s.263 of the Income Tax Act, 1961 by the Principal CIT, Chennai-1, on the ground that assessment order passed by the Assessing Officer is erroneous, insofar as it is prejudicial to the interests of revenue on certain issues. The learned CIT, Chennai vide order u/s. 263 of the Act dated 30.03.2012 set aside assessment order passed by the Assessing Officer dated 22.12.2009 and direct him to examine all the issues and pass a fresh order in accordance with law. In 7 ITA No.833/Chny/2020 the said 263 order, the learned CIT, Chennai has taken up three issues for examination, as per which, the Assessing Officer has not examined issue of deduction allowed towards premium paid on conversion of OCDs/Warrants, deduction of employees benefit from book profit u/s.115JB treating it as release of reserves, set off of unabsorbed loss as per books while computing book profit u/s.115JB of the Act, including book loss of M/s. Visaka Cement Industries Ltd., claim of depreciation on assets of amalgamated company and claim of expenditure on account of debentures and bonds issue and redemption of expenditure etc. The Assessing Officer has taken up the case for fresh examination in pursuant to directions of learned CIT under section 263 of the Act and completed assessment u/s. 143(3) read with section 263 of the Income Tax Act, 1961, on 30.03.2013 and examined all the issues taken up by the learned CIT in his 263 proceedings and determined total income at Rs. Nil under normal provisions of the Act as well as book profit u/s.115JB of the Act, after making additions towards release of reserves on account of premium payable on OCDs/Warrants into shares, release of reserves 8 ITA No.833/Chny/2020 on account of employees benefits and further disallowed claim of unabsorbed brought forward loss of amalgamated company M/s.Visaka Cement Industries Ltd. The assessee has challenged assessment order passed by the Assessing Officer u/s. 143(3) r.w.s 263 of the Act dated 30.03.2013 before the first appellate authority and challenged additions made by the Assessing Officer towards release of reserves on account of premium payable on OCDs/Warrants, addition towards release of reserves of employees benefits and disallowance of brought forward loss of amalgamating company. The learned CIT(A) vide order dated 22.10.2014 has deleted additions made by the Assessing Officer towards disallowance of release of reserves of premium on OCDs etc, of Rs.59.01 crores and also deleted additions made towards release of reserves of employees benefit of Rs.50.66 crores. The learned CIT(A) has also directed the Assessing Officer to allow set off of unabsorbed loss of amalgamating company M/s.Visaka Cement Industries Ltd., while computing profits u/s. 115JB of the Act for Rs.40.55 crores.
9ITA No.833/Chny/2020
4. The case has been, once again taken up for revision proceedings by the Principal CIT, Chennai-2, and issued show- cause notice u/s. 263 of the Income Tax Act, 1961 and called upon the assessee to explain as to why assessment order passed by the Assessing Officer u/s.143(3) r.w.s 263 dated 30.03.2013 shall not be revised for the reasons stated in his show-cause notice. The learned Principal CIT in the said show- cause notice has alleged that the assessment order passed by the Assessing Officer is erroneous insofar as it is prejudicial to the interests of revenue, because the Assessing Officer has not examined the issue of set off of brought forward losses against book profit computed u/s.115JB of the Act, without appreciating facts in right perspective of law, which rendered assessment order erroneous insofar as it is prejudicial to the interests of revenue. According to the Principal CIT, as per provisions of clause (iii) of Explanation 1 to section 115JB(1) of the Act, only least of brought forward losses or unabsorbed depreciation, as per books is to be set off against book profits. In this case, as per books brought forward businessloss was at Rs.206.72 crores and unabsorbed depreciation was Rs.118.71 10 ITA No.833/Chny/2020 crores. In the assessment order, the Assessing Officer has allowed set off of Rs.198.43 crores as against Rs.118.71 crores, which renders the assessment order as erroneous and prejudicial to the interests of revenue. The Principal CIT has also taken up issue of premium paid on redemption of FCCB /Debentures of Rs.59.01 crores and observed that during the year, the assessee has claimed Rs.59.01 crores towards premium of FCCB/Debentures. Out of this, Rs.33.53 crores represents premium on debentures, which ought to have been restricted to the actual amount of debentures redeemed during the year. The factual aspects relating to this issue was omitted to be examined by the Assessing Officer before allowing deduction. Similarly, the Principal CIT has questioned the issue of investments made towards purchase of 1,90,839 shares in M/s. Janani Infrastructure Ltd. and noticed that the Assessing Officer has not examined allowability of expenses relating to investments. Therefore, he opined that assessment order passed by the Assessing Officer is erroneous, insofaras it is prejudicial to the interests of revenue and hence, called upon the assessee explain as to why the assessment order 11 ITA No.833/Chny/2020 passed by the Assessing Officer shall not be revised u/s.263 of the Act.
5. In response to show-cause notice, the assessee vide its letter dated 03.03.2015, submitted that the assessment order passed by the Assessing Officer u/s.143(3) r.w.s 263 dated 30.03.2013 is neither erroneous nor prejudicial to the interests of revenue, because issues taken up by the Principal CIT in revision proceedings has been examined by the Assessing Officer in assessment proceedings and after being satisfied with the explanation furnished by the assessee, the Assessing Officer has made additions towards expenditure incurred for premium paid on FCCB/debentures and the same has been challenged by the assessee before first appellate authority. The assessee further submitted that carry forward and set off of brought forward losses in terms of section 115JB of the Act was already examined by the Assessing Officer in the original assessment proceedings u/s.143(3) of the Act and had indeed considered the assessee's entitlement of carry forward of unabsorbed depreciation or business loss and allowed the 12 ITA No.833/Chny/2020 same to be set off. It was further submitted that other than in original assessment proceedings u/s.143(3) of the Act, the issue was not a subject matter of any proceedings, including revision proceedings u/s.263 and hence, issue of examination of carry forward and set off of loss u/s.115JB of the Act is clearly barred by limitation and on this account proposed proceedings u/s. 263 shall fail. In this regard, assessee relied upon the decision of the Hon'ble Supreme Court in the case of CIT Vs.Alagendran Finance Ltd, reported in 62 Taxmann 465 and the decision of Hon'ble Bombay High Court in the case of CIT Vs. ICICI Bank reported in 343 ITR 74. As regards the third issue questioned by the Principal CIT regarding investments made in M/s. Janani Infrastructure Ltd., the assessee submitted that this issue was never a subject matter of appeal or revision proceedings or any other proceedings after original assessment proceedings and hence, this issue cannot be taken up for revision proceedings u/s.263 of the Act, because time limit for taking up 263 proceedings is lapsed. 13 ITA No.833/Chny/2020
6. The Principal CIT, after considering relevant submissions of the assessee and also relied upon certain judicial precedents, including the decision of the Hon'ble Supreme Court in the case of CIT Vs. Malabar Industrial Company Ltd. reported in 243 ITR 83 held that assessment order passed by the Assessing Officer is erroneous, insofar as it is prejudicial to the interests of revenue. Since the Assessing Officer has not examined the issues questioned in show cause notice issued u/s.263 of the Act in right perspective of law with necessary evidence on record, which rendered assessment order as erroneous, insofar as it is prejudicial to the interests of revenue. The learned Principal CIT has rejected case laws relied upon by the assessee, including the decision of Hon'ble Supreme Court in the case of CIT Vs. Alagendran Finance Ltd. (supra) and held that issue of set off of brought forward business loss or unabsorbed depreciation was subject matter of 263 proceedings u/s.263 dated 30.03.2012, where the CIT questioned the allowability of brought forward business loss against book profit computed u/s.115JB of the Act. Therefore, there is no merit in the arguments of the assessee that time limit 14 ITA No.833/Chny/2020 lapsed to take up the issue in revision proceedings in light of decision of the Hon'ble Supreme Court in the case of CITVs Alagendran Finance Ltd. (supra). As regards, allowability of brought forward business loss or unabsorbed depreciation, as per provisions of clause (iii) of Explanation 1 to section 115JB(1) of the Act, it is very clear from the provisions of the Act that only least of brought forward losses or unabsorbed depreciation, as per books, is eligible for set off against book profits. Even though law is very clear, the Assessing Officer has allowed excess brought forward unabsorbed depreciation, over and above brought forward unabsorbed depreciation as per books. He further observed that as per records, as on 31.03.2007 the cumulative loss or cumulative unabsorbed depreciation is only at Rs,1,20,46,86,776/-. As against this, the Assessing Officer has allowed set off of unabsorbed depreciation at Rs.198.43 crores.
7. As regards expenditure incurred towards premium on redemption of debentures during the year ended 31.03.2007, a sum of Rs.59.01 crores was claimed towards FCCB/premium 15 ITA No.833/Chny/2020 on debentures. Out of this, Rs.33.53 crores represents premium on debentures. In the order u/s.263 dated 30.03.2012 in para 7.2 specific direction was given to Assessing Officer to examine claim as to whether expenditure incurred is capital or revenue in nature before allowing the claim. Although, there is a direction from CIT, in the assessment order u/s.143(3) r.w.s.263 dated 30.03.2013, the Assessing Officer has omitted to verify these aspects and to this extent, the assessment order passed by the Assessing Officer is erroneous and prejudicial to the interests of revenue. Similarly, as regards issue of investments in M/s. Janani Infrastructure Ltd. amounting to Rs.499,99,818/-the Principal CIT observed that information was received by the Assessing Officer from DCIT, Circle-2(3), Hyderabad, which is subsequent to completion of order u/s.143(3) r.w.s 263 of the Act, as per which, the assessee has made investments in shares of M/s. Janani Infrastructure Pvt. Ltd. The information relating to investments made by the assessee in M/s. Janani Infrastructure Ltd. requires to be verified and examined by the Assessing Officer for appropriate necessary action and orders. The information 16 ITA No.833/Chny/2020 available on record should also be considered in the revision proceedings u/s.263. The term reference includes all records available at the time of examination by the CIT as held by Hon'ble Supreme Court in the case of CIT Vs. Manjunatheeaswara Packing Products & Camphor works, reported in 253 ITR 53. Therefore, he opined that assessment order passed by the Assessing Officer u/s.143(3) r.w.s 263 of the Act dated 30.03.2013 on these issues is erroneous, insofar as it is prejudicial to the interests of revenue. Hence, set aside assessment order passed by the Assessing Officer and directed him to modify the assessment order and pass necessary orders in accordance with law, in accordance with discussions and directions given by the Principal CIT. Aggrieved by Pr.CIT order, the assessee is in appeal before us.
8. The learned A.R for the assessee submitted that the Principal CIT has erred in assuming jurisdiction u/s.263 of the Act in respect of giving effect order u/s.143(3) r.w.s 263 dated 30.03.2013, without appreciating fact that assessment order passed by the Assessing Officer is neither erroneous nor 17 ITA No.833/Chny/2020 prejudicial to the interests of revenue. The AR further submitted that twin conditions for invoking jurisdiction under section 263 of the Act is not satisfied. Unless, PCIT demonstrates that assessment order passed by the Assessing Officer is either erroneous or prejudicial to the interests of revenue, he cannot invoke his revisional powers u/s.263 of the Act. The AR further submitted that Assessing Officer has examined two issues questioned by PCIT in his revision proceedings in respect of allowability of brought forward business loss or unabsorbed depreciation, as per books under provisions of clause (iii) of Explanation (1) to section 115JB(1) of the Act and also allowability of expenditure claimed under head premium paid on FCCB/debentures, which is evident from the fact that the Assessing Officer has considered both issues as directed by the PCIT in first 263 proceedings and has made additions on both the issues. The AR further submitted that as regards set off of loss u/s.115JB in earlier round of 263 proceedings, the issue was whether unabsorbed losses of amalgamated company is available for set off, while computing book profit u/s.115JB or not. The CIT has directed the Assessing Officer to 18 ITA No.833/Chny/2020 examine the issue and accordingly, the Assessing Officer has made additions towards brought forward loss of amalgamated company, while computing book profit u/s.115JB of the Act. Except this, issue of set off of brought forward business loss or unabsorbed depreciation was not a subject matter of appeal in any other proceedings after original assessment proceedings u/s.143(3) and hence, period of limitation shall run from original assessment order passed u/s.143(3) and if that date is considered, time limit provided for invoking jurisdiction u/s.263 has expired. The AR for the assessee, without prejudice to the above arguments, submitted that the issue of disallowance of brought forward loss of amalgamated company was subject matter of appeal before the learned CIT(A) and the CIT(A) has allowed claim of the assessee . If you consider order giving effect date of the CIT(A) order, then brought forward loss to be set off against book profit shall be at original figure of Rs.153.16 crores and hence, if you consider said amount of brought forward loss, which is in excess of amount considered by PCIT at Rs.118.71 crores and hence, there is no error in the order of the Assessing Officer giving effect to the order of the CIT. 19 ITA No.833/Chny/2020
9. The learned A.R further submitted that as regards premium on redemption of debentures, the learned PCIT failed to appreciate that the Assessing Officer in the order passed u/s.143(3) r.w.s 263 has disallowed claim of Rs.59.01 crores as deduction from book profit and the assessee has challenged the order before CIT(A). The learned CIT(A) vide his order dated 27.10.2014 has held that the assessee is eligible for reducing the amount of Rs.59.01 crores from net profit shown in profit & loss account for the purpose of computing book profit u/s.115JB of the Act. Since the issue was subject matter of appeal before the first appellate authority, as per provisions of clause (c) to Explanation 1 to section 263 of the Act, the administrative commissioner does not have any jurisdiction to examine the issues, which was subject matter of appeal before the learned CIT(A). The AR further referring to third issue, taken up by Pr.CIT in 263 proceedings in respect of investments made in M/s. Janani Infrastructure Ltd. submitted that the Principal CIT has failed to appreciate that this issue was not subject matter of revision in the first revision order dated 30.03.2012 and hence, there is no error in the assessment 20 ITA No.833/Chny/2020 order passed u/s.143(3) r.w.s 263 dated 30.03.2013 so as to invoke jurisdiction u/s.263 of the Act. He further submitted that the Principal CIT has erred in assuming jurisdiction u/s.263 based on the information which was received by the Assessing Officer subsequent to giving effect order passed u/s.143(3) r.w.s. 263 of the Act. The AR further submitted that without prejudice to the above arguments, the issue is outside scope of 263 proceedings, because time limit provided for invoking jurisdiction u/s.263 is run from original assessment order u/s.143 and if said date is considered, then order passed by Pr.CIT is beyond limitation and hence, same is liable to be set aside. In this regard, he relied upon the decision of Hon'ble Supreme Court in the case of CIT vs. Alagendran Finance Ltd. 293 ITR 1(SC) and the decision of Hon'ble Jurisdictional High Court of Madras in the case of CIT Vs. Sriram Investments.
10. The learned DR, on the other hand, strongly supporting order of the Principal CIT submitted that assessment order passed by the Assessing Officer is erroneous, insofar as it is prejudicial to the interests of revenue in respect of three issues 21 ITA No.833/Chny/2020 considered by the Principal CIT in his show cause notice, which is evident from the fact, even though there is clear direction from the Principal CIT in the original 263 proceedings on the issue of deductability of expenditure incurred for premium paid on FCCI/Debentures, the Assessing Officer has failed to examine the issue in light of relevant facts and provisions of the Act, which rendered assessment order erroneous. Similarly, the Assessing Officer has failed to examine issue of allowability of brought forward business loss or unabsorbed depreciation, as per books in terms of clause (iii) of Explanation 1 to section 115JB(1) of the Act, and without appreciating facts has allowed set off of excess unabsorbed depreciation, which caused prejudice to the interests of revenue. Likewise, the issue of investments made in M/s. Janani Infrastructure Ltd., the Assessing Officer has not examined issue in light of allowability of expenditure, even though the assessee has made investments in shares of M/s. Janani Infrastructure Ltd., which renders assessment order erroneous, insofar as it is prejudicial to the interests of revenue. It is well settled principle of law that when the 22 ITA No.833/Chny/2020 assessment order passed by the Assessing Officer is erroneous and prejudicial to the interests of revenue, the Principal CIT has power to assume his jurisdiction to revise assessment order and hence, there is no error in the order passed by the Principal CIT u/s.263 of the Act.
11. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. The provisions of section 263 of the Act, empowers the Principal CIT to revise assessment order passed by the Assessing Officer, if he satisified that assessment order passed by the Assessing Officer is erroneous, insofar as it is prejudicial to the interests of the revenue. From a plain reading of section 263 of the Act, it is very clear that before exercising his jurisdiction power u/s.263 of the Act, the Principal CIT should satisfy himself that the Assessing Officer has passed order which is erroneous and prejudicial to the interests of revenue. Unless the Principal CIT proves that order passed by the Assessing Officer is erroneous or which is not passed in accordance with law in right perspective of facts, he / she cannot revise assessment order passed by the Assessing 23 ITA No.833/Chny/2020 Officer. Further, to invoke jurisdiction u/s.263 of the Act, twin conditions embedded u/s.263 of the Act must co-exist. In other words, if the assessment order passed by the Assessing Officer is erroneous, but it is not prejudicial to the interests of revenue, or vice-versa, then the Principal CIT does not have any power to revise the assessment order passed by the Assessing Officer. This legal proposition is supported by plethora of judicial decisions including the decision of Hon'ble Supreme Court in the case of M/s.Malabar Industries Co.Ltd. Vs. CIT (2000) 243 ITR 83(SC).
12. In this legal back ground, if you examine facts of the present case, one has to understand whether assessment order passed by the Assessing Officer u/s.143(3) read with section 263 dated 30.03.2013 is erroneous, insofar as it is prejudicial to the interests of revenue or not. In order to consider any assessment order to be erroneous and prejudicial to the interests of revenue, such order passed by the Assessing Officer should be passed without appreciating facts in light of applicable provisions of the Act and further, the Assessing Officer has passed order without examining the issue in light of 24 ITA No.833/Chny/2020 relevant provisions of the Act, on the basis of facts brought on record by the assessee. Admittedly, in this case, first round of 263 proceedings was completed, where the learned CIT has taken up certain issues and directed the Assessing Officer to redo assessment in accordance with law, in terms of his observations given on various issues questioned in show cause notice. The Assessing Officer has taken up proceedings in pursuant to direction of learned CIT and has made certain additions, as per directions of the CIT in 263 proceedings. It is also an admitted fact that the assessee has challenged consequential order passed by the Assessing Officer u/s.143(3) r.w.s 263 before the first appellate authority and challenged additions made by the Assessing Officer towards disallowance of brought forward loss of amalgamated company and withdrawal amount from reserves account and set off of expenditure incurred towards premium paid on FCCB/Debentures. Therefore, in order to consider present assessment order passed by the Assessing Officer as erroneous and prejudicial to the interests of revenue, it is necessary to keep in mind the earlier assessment proceedings 25 ITA No.833/Chny/2020 of original assessment order passed by the Assessing Officer u/s.143(3), 263 order passed by the learned CIT and further consequential assessment order passed by the Assessing Officer u/s.143(3) r.w.s. 263 of the Income Tax Act, 1961.
13. In the present proceedings, first and foremost issue questioned by the Principal CIT is carry forward and set off of loss in terms of section 115JB(1) of the Act. According to the Principal CIT, the Assessing Officer has allowed set off of excess loss over and above loss allowable, as per books, in terms of provisions of clause (iii) of Explanation (1) to section 115JB(1) of the Act. We have given our thoughtful consideration to the reasons given by the Principal CIT in light of arguments advanced by the learned A.R for the assessee and we ourselves do not subscribe to the reasons given by the Principal CIT to hold assessment order to be erroneous and prejudicial to the interests of revenue for the simple reason that the Assessing Officer has considered issue of allowability of set off of carried forward losses or unabsorbed depreciation, while computing book profit u/s.115JB of the Act in the original proceedings u/s.143(3), as well as reassessment proceedings, 26 ITA No.833/Chny/2020 in consequence to revision proceedings u/s.263 of the Income Tax Act, 1961. We further noted that in original assessment proceedings, the Assessing Officer has made certain additions under normal provisions of the Act, as well as book profit computed u/s.115JB of the Income Tax Act, 1961 and determined book profit of Rs.229.64 crores, after allowing set off of brought forward book loss of Rs.153.16 crores. The said assessment order was challenged before the learned CIT(A). The CIT(A) has deleted additions made by the Assessing Officer to book profit towards reversal of income arising on cancellation of sales-tax assignments amounting to Rs.294.05 crores vide his appellate order dated 28.05.2010. The Assessing Officer has passed order giving effect to CIT(A) order on 13.07.2010 and determined revised book profit of Rs.88.75 crores and against this, has allowed set off of brought forward business loss or unabsorbed depreciation of Rs.88.75 crores. Further, the case was subjected to 263 proceedings and the CIT, Chennai vide his order dated 30.03.2012 has set aside assessment order passed by Assessing Officer and direct him to pass a fresh order in light of various issues discussed in his 27 ITA No.833/Chny/2020 263 order. The Assessing Officer vide his order dated 30.03.2013 u/s.143(3) r.w.s 263 of the Act, has discussed the issue of claim of unabsorbed loss as per books, while computing book profit including book loss of amalgamated company M/s. Visaka Cement Industries Ltd., and has disallowed claim of assessee on the ground that except as provided under Explanation (1) to section 115JB(1) of the Act, no adjustments can be made to book profit . The assessee has challenged order of the Assessing Officer passed u/s.143(3) r.w.s. 263 before the CIT(A) and learned CIT(A) vide his order dated 27.10.2014 has allowed claim of the assessee towards brought forward loss of amalgamated company of M/s. Visaka Cement Industries Ltd. From the above, it is clear that brought forward business loss or unabsorbed depreciation, as per books of account remained at the original figure at 153.16 crores. In the present proceedings, allegations of the Principal CIT is that the Assessing Officer has allowed set off of brought forward business loss or unabsorbed depreciation at Rs. 198.43 crores as against available brought forward unabsorbed depreciation of Rs.120.46 crores. The said 28 ITA No.833/Chny/2020 findings of the ld. Pr. CIT is not correct, because, final brought forward loss or unabsorbed depreciation set off against book profit, after giving effect order passed by the ld. AO dated 27- 10-2014, is only at Rs. 88.75 crores. This is because, as per Assessment order dated 30/03/2013 passed u/s 143(3) rws 263, the AO had determined book profit u/s 115JB of the Act, at Rs. 198.43 crores by making additions towards release of reserves on premium for FCCB/Debentures and release of reserves on account of employees benefits, as per the directions of the CIT u/s 263 of the Act. The assessee has challenged said order before ld. CIT(A). The CIT(A), vide his order dated 27-10-2014, has deleted additions made by the AO towards release of reserves on premium for FCCB/Debentures of Rs. 59.01 crores and further deleted addition made towards release of reserves on account of employees benefits of Rs. 50.66 crores. Because of this, book profit computed u/s 115JB, once gain becomes Rs. 88.75, which is equal to book profit computed as per Assessment order u/s 143(3) rws 263 dated 30/03/2013. Further, the ld. PCIT did not dispute fact that brought forward business loss or unabsorbed depreciation as 29 ITA No.833/Chny/2020 per books is at Rs. 120.46 crores. Further, brought forward book loss, has been increased to Rs. 153.16 crores, after giving effect order to CIT(A) order dated 27-10-2014, because of deletion of addition made by the AO towards brought forward loss of Amalgamated Company M/s Visakha Cement Industries Limited. Therefore, if recomputed book profit of Rs. 88.75 crores is taken in to account, then the assessee can completely set off its book profit of Rs.88.75 crores, out of unabsorbed depreciation of assessment year 2006-07 of Rs.153.16 crores and thus, there is no excess allowance of unabsorbed depreciation, while computing book profit u/s. 115JB of the Income Tax Act, 1961 for the impugned assessment year, as alleged by the ld. PCIT. Therefore, we are of the considered view that assessment order passed by the Assessing Officer on this issue is neither erroneous nor prejudicial to the interests of revenue.
14. Coming back to second issue taken up by the learned Principal CIT in 263 proceedings towards expenditure incurred for premium on redemption of debentures. According to the Principal CIT, out of a sum of Rs.59.01 crores, expenditure 30 ITA No.833/Chny/2020 incurred towards FCCB/ premium on Debentures, a sum of Rs.33.53 crores represents premium on Debentures. The Assessing Officer has failed to examine whether premium on debentures is capital or revenue in nature before allowing deduction, even though there is specific direction from the CIT in his order u/s.263 dated 30.03.2012. We have carefully considered reasons given by the Principal CIT and we do not ourselves subscribe to the reasons given by the Principal CIT for simple reason that details of expenditure incurred towards premium on FCCB and discount on redemption of debentures has been furnished to the Assessing Officer at the time of original assessment proceedings along with supporting documents. The Assessing Officer having perused the details, satisfied himself on the claim and deductibility of expenditure and thus, not made any addition in the assessment order passed u/s.143(3) of the Act. Further, the same issue has been taken up in 263 proceedings by the CIT in his order dated 30.03.2012 and directed the Assessing Officer to examine whether expenditure is capital or revenue in nature and correctness of deduction claimed for relevant assessment year. 31 ITA No.833/Chny/2020 The Assessing Officer in the consequential assessment order passed in pursuant to directions of the CIT u/s.263 of the Act, has once again examined the issue and has concluded that no disallowance is called for towards expenditure incurred for premium on redemption of debentures/FCCB. In other words, there has been application of mind not once, but twice by the Assessing Officer on the issue in right perspective of law and hence, taking up very same matter once again by the Principal CIT u/s.263 of the Income Tax Act, 1961, clearly indicates that this is an abuse of power, inasmuch as power u/s.263 is not meant to be a substitute for the power of Assessing Officer to make assessment . The power u/s.263 can only be exercised, when order of the Assessing Officer is erroneous and prejudicial to the interests of revenue. The Hon'ble Bombay High Court in the case of CIT Vs.Gabriel India Ltd. reported in 203 ITR 108, has categorically held that conditions precedent for invoking provisions of section 263 is to order of the Assessing Officer must be erroneous and further by virtue of the order being erroneous is prejudicial to the interests of revenue. If the Assessing Officer is acting in accordance with 32 ITA No.833/Chny/2020 law and makes an assessment, it cannot be termed as erroneous by the Pr.CIT, simply because the Pr.CIT does not agree with the order of the Assessing Officer. In other words, section 263 does not visualize a case of substitution of judgement by Pr.CIT for that of the Assessing Officer, who passed the order, unless it is demonstrated that order of the Assessing Officer is held to be erroneous. In this case, learned Pr.CIT has not brought out element of erroneous act committed by the Assessing Officer, but has mentioned there is a omission by the Assessing Officer in the assessment order, but omission cannot be a basis for invoking powers u/s.263 of the Act. The Hon'ble Gauhati High Court in the case of CIT Vs. Jawahar Bhattacharjee, reported in 67 DTR 217, after extensively considering legal decisions and precedents on the subject, explained the expression 'erroneous assessment' in the context of section 263 and held that assessment made on wrong assumption of facts or incorrect application of law or without due application of mind or without following principles of natural justice is considered to be an erroneous order. The Hon'ble Bombay High Court in the case of CIT Vs. 33 ITA No.833/Chny/2020 Development Credit Bank Ltd. (323 ITR 206) (Bom) has held that merely because the Assessing Officer should have gone deeper into the matter or should have made elaborate discussion could not be a ground for exercising power u/s.263 of the Act. Moreover, the issue whether expenditure incurred towards premium on redemption of debentures is capital or revenue in nature and further is it deductible or not arises only when the assessee claims deduction for expenditure by debiting into profit & loss account . In this case, the assessee has paid Rs.59.01 crores on redemption of OCDs and same was debited into profit & loss account, but in the profit & loss account the assessee has also credited equal amount of Rs.59.01 crores by withdrawing from share premium account. This amount of Rs.59.01 crores from share premium account is actually reduced from OCDs redemption expenditure of Rs.59.01 crores debited into profit & loss account and thus, there is no expenses debited into profit & loss account . From the above, it is clear that the assessee has not claimed any deduction for expenditure incurred on redemption of FCCB/Debentures. Therefore, once no deduction was claimed 34 ITA No.833/Chny/2020 for any expenditure by debiting into profit & loss account, the question whether it is capital or revenue in nature does not arise.
15. As regards arguments of the Principal CIT that whether total amount incurred for premium paid on redemption of debentures is deductible or not, the Hon'ble Supreme Court has considered an identical issue in the case of M/s. Taparia Tools Ltd. vs. JCIT reported in 372 ITR 605 (SC) , where it is clearly held that there is no estoppel against the statute. The Income Tax Act, enables and entitles the assessee to claim the entire expenditure in the manner it is claimed. In other words, the Hon'ble Supreme Court clearly held that whether expenditure has been claimed when it was paid at once or has been spread over period of debentures is not relevant and further, the assessee can claim deduction for any expenditure when it was actually paid, irrespective of the fact that same has been spread over period of debentures in the books of account of the assessee. A similar view has been taken by the Hon'ble Supreme Court in the case of Madras industrial Investment Corporation Ltd. Vs. CIT reported in 139 CTR 555, and held 35 ITA No.833/Chny/2020 that discount on debentures is revenue expenditure allowable proportionately over the life of debentures. The Hon'ble High Court of Rajasthan in the case of CIT Vs. Secure Meters reported in 321 ITR 611 (Raj) has considered an identical issue and held that expenditure incurred on issue of debentures whether convertible or non-convertible is allowable as revenue expenditure.
16. In this case, the issue of expenditure incurred on premium paid for redemption of debentures was thoroughly examined by the Assessing Officer not once, but twice, and after application of necessary facts to the relevant law has allowed claim of the assessee. Further, the issue of expenditure incurred for premium paid on redemption of debentures / FCCB is a subject matter of appeal before learned CIT(A) and the CIT(A) vide his order dated 27.10.2014 has held that assessee is eligible for reducing the amount of 59.01 crores from the net profit shown in profit & loss account. Therefore, we are of the considered view that once the issue which was subject matter of proceedings u/s.263 was subject matter of appeal before learned CIT(A), then there is no power to the Pr.CIT to take up 36 ITA No.833/Chny/2020 said issue in revision proceedings, as per clause (c) to Explanation (1) to section 263 of the Income Tax Act, 1961. In this view of the matter and considering facts and circumstances of the case, we are of the considered view that assessment order passed by the Assessing Officer on this issue is neither erroneous nor prejudicial to the interests of revenue and hence, assumption of jurisdiction by the Principal CIT u/s.263 of the Act fails.
17. Coming back to third issue taken up by the Principal CIT towards investments in shares of M/s. Janani Infrastructure Ltd. Admittedly, for the first time this issue has been taken up by the Principal CIT in the proceedings u/s.263 of the Act, on the basis of information received by the Assessing Officer from another Assessing Officer, after the Assessing Officer has passed assessment order u/s.143(3) r.w.s.263 of the Act dated 30.03.2013. This issue was not a subject matter of discussion either in the original assessment proceedings u/s.143(3) or revision proceedings u/s.263 of the Act, in first round of 263 proceedings. Therefore, when a issue which is not subject matter of any other proceedings, the period of 37 ITA No.833/Chny/2020 limitation shall run from original assessment order passed u/s.143(3) of the Act for the purpose of invoking jurisdiction u/s.263 of the Act. If you consider original assessment order u/s.143(3) dated 22.12.2009, the Principal CIT can revise the assessment order within two years from the end of financial year in which the order sought to be revised was passed. In this case, if you take original assessment order dated 22.12.2009, the Principal CIT can issue show-cause notice on or before 31.03.2012. Since the Principal CIT has issued show-cause notice on 09.02.2015, which is clearly beyond the period of two years provided under the Act. Therefore, we are of the considered view that assumption of jurisdiction by the Principal CIT on this issue for revision of assessment order u/s.263 of the Act is bad in law and liable to be quashed. This principle is supported by the decision of Hon'ble Supreme Court in the case of CIT Vs.Alagendran Finance Ltd.(supra). Therefore, considering the facts and circumstances of the case and also by following the decision of Hon'ble Supreme Court in the case of CIT Vs.Alagendran Finance Ltd.(supra), we are of the considered view that assumption of jurisdiction by the 38 ITA No.833/Chny/2020 Principal CIT in the present case is clearly barred by limitation, accordingly, we set aside the directions of the Principal CIT on this issue.
18. In this view of the matter and considering facts and circumstances of this case, we are of the considered view that assessment order passed by the Assessing Officer u/s.143(3) r.w.s 263 dated 30.03.2013 is neither erroneous nor prejudicial to the interests of revenue. Therefore, we quash order passed by the Pr.CIT u/s.263 of the Act dated 26.03.2015.
19. In the result, appeal filed by the assessee is allowed.
Order pronounced in the open court on 18th August, 2021 Sd/- Sd/-
( वी.दग
ु ा राव) (जी.मंजुनाथ)
(V.Durga Rao) (G.Manjunatha)
#या यक सद%य /Judicial Member लेखा सद%य / Accountant Member
चे#नई/Chennai,
(दनांक/Dated 18th August, 2021
DS
आदे श क त*ल+प अ,े+षत/Copy to:
1. Appellant 2. Respondent 3. आयकर आयु-त (अपील)/CIT(A)
4. आयकर आयु-त/CIT 5. +वभागीय त न1ध/DR 6. गाड फाईल/GF.