ANTONY LARA ENVIRO SOLUTIONS PRIVATE LIMITED ,MUMBAI vs. PCIT- 1 , THANE

3. In the facts of the case and in Law, the learned PCIT has 3. In the facts of the case and in Law, the learned PCIT has 3. In the facts of the case and in Law, the learned PCIT has erred in passing the order u/s 263 by disregarding exhaustive erred in passing the order u/s 263 by disregarding exhaustive erred in passing the order u/s 263 by disregarding exhaustive details cited in the reply to show cause notice and thereby details cited in the reply to show cause notice and thereby details cited in the reply to show cause notice and thereby passing the order not tenable in law. passing the order not tenable in law. [B] Relief Prayed: [B] Relief Prayed: The appellant therefore prays to quash the order u/s 263 The appellant therefore prays to quash the order u/s 263 The appellant therefore prays to quash the order u/s 263 because PCIT had no proper jurisdiction to invoke provisions of because PCIT had no proper jurisdiction to invoke provisions of because PCIT had no proper jurisdiction to invoke provisions of revision and merely a change revision and merely a change of opinion.

2. Briefly stated, the material facts are that Briefly stated, the material facts are that the assessment the assessment under section 143(3) of the Income 143(3) of the Income-tax Act, 1961 (“the Act”) was tax Act, 1961 (“the Act”) was completed on 09.09.2022, wherein the Assessing Officer accepted completed on 09.09.2022, wherein the Assessing Officer accepted completed on 09.09.2022, wherein the Assessing Officer accepted the returned income of the returned income of ₹1,42,62,650/- under the normal provisions under the normal provisions and ₹75,70,83,250/- - under the Minimum Alternate Tax (“MAT”) under the Minimum Alternate Tax (“MAT”) provisions as declared in the return filed on 01.02.2021. declared in the return filed on 01.02.2021. declared in the return filed on 01.02.2021.

3.1 According to the learned PCIT, the assessee had erroneously According to the learned PCIT, the assessee had erroneously According to the learned PCIT, the assessee had erroneously computed the transition amount by including adjustments relating computed the transition amount by including adjustments relating computed the transition amount by including adjustments relating to capital reserve and securities premium, whereas clause (iii) of the to capital reserve and securities premium, whereas clause (iii) of the to capital reserve and securities premium, whereas clause (iii) of the Explanation to section 115JB(2C) specifically mandates exclusion of section 115JB(2C) specifically mandates exclusion of section 115JB(2C) specifically mandates exclusion of capital reserve and securities premium from the computation of capital reserve and securities premium from the computation of capital reserve and securities premium from the computation of “other equity” adjustments. The learned PCIT further observed that “other equity” adjustments. The learned PCIT further observed that “other equity” adjustments. The learned PCIT further observed that no details or supporting material relating to MAT computation had no details or supporting material relating to MAT computation had no details or supporting material relating to MAT computation had been called for or examined during the original assessment alled for or examined during the original assessment alled for or examined during the original assessment proceedings. He, therefore, issued a show proceedings. He, therefore, issued a show-cause notice dated cause notice dated 25.02.2025 proposing revision under section 263. 25.02.2025 proposing revision under section 263.

3.2 In response, the assessee contended that the transition In response, the assessee contended that the transition In response, the assessee contended that the transition amount of ₹41,40,28,675/ 41,40,28,675/- stood duly disclosed in the audited stood duly disclosed in the audited financial statements for F.Y. 2017 financial statements for F.Y. 2017-18, as explained in Note 37B, 18, as explained in Note 37B, and that such amount had been computed after excluding capital and that such amount had been computed after excluding capital and that such amount had been computed after excluding capital reserve and securities premium. The assessee further submitted reserve and securities premium. The assessee further submitted reserve and securities premium. The assessee further submitted that, following the assessment order for A.Y. 2018 g the assessment order for A.Y. 2018- -19, one-fifth of the said amount had been consistently added to the book profit the said amount had been consistently added to the book profit the said amount had been consistently added to the book profit each year, including the impugned year. The essence of the each year, including the impugned year. The essence of the each year, including the impugned year. The essence of the assessee’s plea was that the transition amount had been assessee’s plea was that the transition amount had been assessee’s plea was that the transition amount had been scrutinised in the initi scrutinised in the initial year of Ind-AS adoption and, consequently, AS adoption and, consequently, no further enquiry was warranted in the subsequent years, as the no further enquiry was warranted in the subsequent years, as the no further enquiry was warranted in the subsequent years, as the annual one-fifth adjustments merely emanated from the original fifth adjustments merely emanated from the original fifth adjustments merely emanated from the original figure.

3.3 The learned PCIT, however, was not persuaded. He observed The learned PCIT, however, was not persuaded. He observed The learned PCIT, however, was not persuaded. He observed that no inquiry whatsoever had been conducted by the Assessing uiry whatsoever had been conducted by the Assessing uiry whatsoever had been conducted by the Assessing Officer on this aspect during the assessment proceedings for the Officer on this aspect during the assessment proceedings for the Officer on this aspect during the assessment proceedings for the year under consideration. Invoking Explanation 2 to section 263— year under consideration. Invoking Explanation 2 to section 263 year under consideration. Invoking Explanation 2 to section 263 particularly clause (b) particularly clause (b)—he held that the assessment order was he held that the assessment order was deemed to be erroneous insofar as it was prejudicial to the interests erroneous insofar as it was prejudicial to the interests erroneous insofar as it was prejudicial to the interests of the Revenue. He accordingly set aside the assessment order for of the Revenue. He accordingly set aside the assessment order for of the Revenue. He accordingly set aside the assessment order for the limited purpose of directing the Assessing Officer to examine the the limited purpose of directing the Assessing Officer to examine the the limited purpose of directing the Assessing Officer to examine the correctness of the transition amount and the resultant adjustment. correctness of the transition amount and the resultant adjustme correctness of the transition amount and the resultant adjustme The relevant finding of the Ld. CIT(A) is reproduced as under: The relevant finding of the Ld. CIT(A) is reproduced as under: The relevant finding of the Ld. CIT(A) is reproduced as under:

“6. The Assessment order is required to be passed by making 6. The Assessment order is required to be passed by making 6. The Assessment order is required to be passed by making relevant enquiries and verification by the Assessing Officer. relevant enquiries and verification by the Assessing Officer. relevant enquiries and verification by the Assessing Officer. Explanation 2(b) makes it clear that any order passed allowing Explanation 2(b) makes it clear that any order passed allowing Explanation 2(b) makes it clear that any order passed allowing any relief without inquiring into the claim which should have been relief without inquiring into the claim which should have been relief without inquiring into the claim which should have been made by the Assessing Officer shall be deemed to be erroneous in made by the Assessing Officer shall be deemed to be erroneous in made by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue. The claim so far as it is prejudicial to the interests of the revenue. The claim so far as it is prejudicial to the interests of the revenue. The claim of the assessee that once the issue of transition amount of the assessee that once the issue of transition amount of the assessee that once the issue of transition amount of Rs.41,40,28,675/ Rs.41,40,28,675/- is scrutinized during the initial assessment is scrutinized during the initial assessment year 2018-19 relevant to FY 2017 19 relevant to FY 2017-18, the scrutiny of the same 18, the scrutiny of the same issue in subsequent four years has no relevance as subsequent issue in subsequent four years has no relevance as subsequent issue in subsequent four years has no relevance as subsequent 1/5th additions in next 4 years originates from the transition 1/5th additions in next 4 years originates from the transition 1/5th additions in next 4 years originates from the transition amount of Rs.41,40,28,675/ unt of Rs.41,40,28,675/- in first financial year 2017 in first financial year 2017-18, is not tenable as the AO has allowed the claim of Rs. 8,28,05,735/ tenable as the AO has allowed the claim of Rs. 8,28,05,735/ tenable as the AO has allowed the claim of Rs. 8,28,05,735/- without examining it during the assessment proceedings for the without examining it during the assessment proceedings for the without examining it during the assessment proceedings for the assessment year 2020 assessment year 2020-21, presently under consideration. As 21, presently under consideration. As such, the case falls under Explanation 2(b) to Section 263 of the e case falls under Explanation 2(b) to Section 263 of the e case falls under Explanation 2(b) to Section 263 of the Act.

7. In view of above discussion, I have come to the conclusion that 7. In view of above discussion, I have come to the conclusion that 7. In view of above discussion, I have come to the conclusion that the assessment order dated 09/09/2022 passed u/s.143(3) the assessment order dated 09/09/2022 passed u/s.143(3) the assessment order dated 09/09/2022 passed u/s.143(3) r.ws.144B for the A.Y.2020 r.ws.144B for the A.Y.2020-21 is erroneous in so far as it is 21 is erroneous in so far as it is prejudicial to the interest of the Revenue. The assessment order ial to the interest of the Revenue. The assessment order ial to the interest of the Revenue. The assessment order dated 09/09/2022 for A.Y.2020 dated 09/09/2022 for A.Y.2020-21 is accordingly partly set aside 21 is accordingly partly set aside for the limited purpose to examine the following issue(s) : for the limited purpose to examine the following issue(s) : for the limited purpose to examine the following issue(s) :- 8. The AO shall examine the submission of the assessee made 8. The AO shall examine the submission of the assessee made 8. The AO shall examine the submission of the assessee made during the present proceedings and make necessary inquiries and esent proceedings and make necessary inquiries and esent proceedings and make necessary inquiries and verification in regard to the transition amount as referred to in verification in regard to the transition amount as referred to in verification in regard to the transition amount as referred to in section section section 115JB(2C) 115JB(2C) 115JB(2C) and and and allowability allowability allowability of of of the the the claim claim claim of of of Rs. Rs. Rs. 8,28,05,735/ 8,28,05,735/-in the relevant year.”

4.1 He also invited our attention to the assessment order for A.Y. He also invited our attention to the assessment order for A.Y. He also invited our attention to the assessment order for A.Y. 2018-19, wherein the Assessing Officer had ex 19, wherein the Assessing Officer had examined and accepted amined and accepted the computation of the transition amount arising on first-time the computation of the transition amount arising on first the computation of the transition amount arising on first adoption of Ind-AS. According to him, once the foundational AS. According to him, once the foundational AS. According to him, once the foundational transition amount had been scrutinised and accepted in the initial transition amount had been scrutinised and accepted in the initial transition amount had been scrutinised and accepted in the initial year, the consequential one year, the consequential one-fifth adjustments in the subsequent in the subsequent years—being arithmetical apportionments flowing directly from the being arithmetical apportionments flowing directly from the being arithmetical apportionments flowing directly from the original figure—did not call for fresh verification year after year. He did not call for fresh verification year after year. He did not call for fresh verification year after year. He submitted that the assessment records for A.Y. 2018-19 were submitted that the assessment records for A.Y. 2018 submitted that the assessment records for A.Y. 2018 available before the Assessing Officer, available before the Assessing Officer, and the assessee had also and the assessee had also furnished all relevant details. Thus, in the factual matrix of the furnished all relevant details. Thus, in the factual matrix of the furnished all relevant details. Thus, in the factual matrix of the present case, there was neither omission nor failure on the part of present case, there was neither omission nor failure on the part of present case, there was neither omission nor failure on the part of the Assessing Officer so as to attract Explanation 2 to section 263. the Assessing Officer so as to attract Explanation 2 to section 263. the Assessing Officer so as to attract Explanation 2 to section 263. The assumption of revision The assumption of revisional jurisdiction by the learned PCIT, he al jurisdiction by the learned PCIT, he argued, was therefore wholly unwarranted. argued, was therefore wholly unwarranted.

4.2 On the other hand, the Ld. Department Representative (DR) On the other hand, the Ld. Department Representative (DR) On the other hand, the Ld. Department Representative (DR) relied on the order of the Ld. PCIT. relied on the order of the Ld. PCIT.

4.3 We have carefully considered the rival submissions and We have carefully considered the rival submissions and We have carefully considered the rival submissions and perused the material placed on record. material placed on record. The controversy that arises The controversy that arises for our adjudication is a narrow one: whether, for the year under for our adjudication is a narrow one: whether, for the year under for our adjudication is a narrow one: whether, for the year under consideration, the Assessing Officer can be said to have failed to consideration, the Assessing Officer can be said to have failed to consideration, the Assessing Officer can be said to have failed to conduct the requisite inquiry regarding the inclusion of one-fifth of conduct the requisite inquiry regarding the inclusion of one conduct the requisite inquiry regarding the inclusion of one the transition amount—amounting to ₹8,28,05,735/ the transition amount 8,28,05,735/—in the computation of 4.4 The learned PCIT has proceeded on the premise that the The learned PCIT has proceeded on the premise that the The learned PCIT has proceeded on the premise that the Assessing Officer omitted to verify whether the transition amount Assessing Officer omitted to verify whether the transition amount Assessing Officer omitted to verify whether the transition amount utilised for MAT purposes was computed after excluding capital utilised for MAT purposes was computed after excluding ca utilised for MAT purposes was computed after excluding ca reserve and securities premium, as mandated by clause (iii) of the reserve and securities premium, as mandated by clause (iii) of the reserve and securities premium, as mandated by clause (iii) of the Explanation to section 115JB(2C). It is on this perceived absence of Explanation to section 115JB(2C). It is on this perceived absence of Explanation to section 115JB(2C). It is on this perceived absence of inquiry that the jurisdiction under section 263 has been invoked by inquiry that the jurisdiction under section 263 has been invoked by inquiry that the jurisdiction under section 263 has been invoked by placing reliance on Explanation 2(b). placing reliance on Explanation 2(b).

4.5 On the other hand, the assessee has consistently maintained he other hand, the assessee has consistently maintained he other hand, the assessee has consistently maintained that the transition amount was duly computed in accordance with that the transition amount was duly computed in accordance with that the transition amount was duly computed in accordance with Ind-AS requirements, after excluding capital reserve and securities AS requirements, after excluding capital reserve and securities AS requirements, after excluding capital reserve and securities premium, and that this very computation was subjected to detailed premium, and that this very computation was subjected to detailed premium, and that this very computation was subjected to detailed scrutiny in A.Y. 2018 rutiny in A.Y. 2018-19—the initial year of Ind-AS adoption. Once AS adoption. Once the transition amount was determined and accepted in that year, the transition amount was determined and accepted in that year, the transition amount was determined and accepted in that year, the consequential one the consequential one-fifth apportionments for the subsequent four fifth apportionments for the subsequent four years were purely mechanical in nature and did not warrant a years were purely mechanical in nature and did not warrant a years were purely mechanical in nature and did not warrant a repetitive examination. The assessee further demonstrated that the repetitive examination. The assessee further demonstrated that the repetitive examination. The assessee further demonstrated that the Form No. 29B audit report, the Ind Form No. 29B audit report, the Ind-AS transition workings, and the AS transition workings, and the assessment order for A.Y. 2018 assessment order for A.Y. 2018-19 were all available before the 19 were all available before the Assessing Officer at the time of completing the assessment for the Assessing Officer at the time of completing the assessmen Assessing Officer at the time of completing the assessmen present year.

4.6 We find considerable merit in the submission of the assessee. We find considerable merit in the submission of the assessee. We find considerable merit in the submission of the assessee. The transition amount under section 115JB(2C) is a one-time The transition amount under section 115JB(2C) is a one The transition amount under section 115JB(2C) is a one computation arising on the date of first computation arising on the date of first-time adoption of Ind time adoption of Ind-AS. Statutorily, only one- -fifth of such amount is to be added to the book nt is to be added to the book profit in each of the four succeeding previous years. Once the profit in each of the four succeeding previous years. Once the profit in each of the four succeeding previous years. Once the foundational figure has been computed and examined in the first foundational figure has been computed and examined in the first foundational figure has been computed and examined in the first year—and, significantly, accepted by the Assessing Officer and, significantly, accepted by the Assessing Officer and, significantly, accepted by the Assessing Officer—there is no statutory warrant for a fres no statutory warrant for a fresh determination of the very same h determination of the very same amount in subsequent years. What remains in later years is merely amount in subsequent years. What remains in later years is merely amount in subsequent years. What remains in later years is merely arithmetical apportionment, not a fresh adjudication. arithmetical apportionment, not a fresh adjudication. arithmetical apportionment, not a fresh adjudication.

4.7 In the present case, the assessment order for A.Y. 2018 In the present case, the assessment order for A.Y. 2018 In the present case, the assessment order for A.Y. 2018-19, placed before us, clearly indicates tha placed before us, clearly indicates that the transition amount of t the transition amount of ₹41,40,28,675/- was scrutinised and accepted. The learned PCIT was scrutinised and accepted. The learned PCIT was scrutinised and accepted. The learned PCIT does not dispute this fact; his grievance is only that the Assessing does not dispute this fact; his grievance is only that the Assessing does not dispute this fact; his grievance is only that the Assessing Officer did not again verify the composition of the same transition Officer did not again verify the composition of the same transition Officer did not again verify the composition of the same transition amount in the year under cons amount in the year under consideration. In our considered opinion, ideration. In our considered opinion, such a view overlooks the settled principle that where a matter such a view overlooks the settled principle that where a matter such a view overlooks the settled principle that where a matter stands examined and accepted in the foundational year, the stands examined and accepted in the foundational year, the stands examined and accepted in the foundational year, the Assessing Officer cannot be faulted for not reopening or Assessing Officer cannot be faulted for not reopening or Assessing Officer cannot be faulted for not reopening or redetermining it in every succeeding y redetermining it in every succeeding year, particularly when the ear, particularly when the assessee assessee assessee has has has consistently consistently consistently followed followed followed the the the same same same computation computation computation mechanism and furnished all requisite particulars. mechanism and furnished all requisite particulars.

4.8 The computation of book profit, forming part of the return of The computation of book profit, forming part of the return of The computation of book profit, forming part of the return of income and reproduced below for clarity, shows that the one-fifth income and reproduced below for clarity, shows that the income and reproduced below for clarity, shows that the addition of ₹8,28,05,735/ 8,28,05,735/- was embedded in the accounting was embedded in the accounting framework already subjected to audit under Form No. 29B: framework already subjected to audit under Form No. 29B: framework already subjected to audit under Form No. 29B: Schedule 9 Minimum alternative tax Minimum alternative tax

New profit before tax as per P& L A/c New profit before tax as per P& L A/c 29,78,03,548 Less: Provision for Tax in P&L A/c Less: Provision for Tax in P&L A/c 3,78,44,831 Net Profit after tax (A) 25,99,58,717 Additions Provision for Current Tax Provision for Current Tax 8,41,11,175 Transition Amount u/s 115JB(2C) Transition Amount u/s 115JB(2C) 8,28,05,735 Credits to other comprehensive income Credits to other comprehensive income 2,04,186 u/s 115JB(2A)(a) Total additions (B) 16,71,21,096 Deletions Deferred Tax credited to P&L a/c Deferred Tax credited to P&L a/c 4,62,66,344 Withdrawal from reserve or provisions Withdrawal from reserve or provisions 41,70,726 Total deletions (C) 5,04,37,070 Book Profit (A+B-C) 37,66,42,743 Mat on book profit 6,96,78,907 Mat with SC & Cess on book profit Cess on book profit 8,03,81,587 Whether earning solely in Foreign Whether earning solely in Foreign No Exchange in Intl. Financial Services Exchange in Intl. Financial Services Centre? Depreciation debited to P&L a/c (For Depreciation debited to P&L a/c (For 20,63,909 29B only) Policies, standards & methods used in Policies, standards & methods used in Yes accounts laid before AGM are followed accounts laid before AGM are in P&L a/c 4.9 The Assessing Officer had the complete MAT computation, the The Assessing Officer had the complete MAT computation, the The Assessing Officer had the complete MAT computation, the audited financials, and the earlier assessment on record. The mere audited financials, and the earlier assessment on record. The mere audited financials, and the earlier assessment on record. The mere absence of a further inquiry, when all material was already absence of a further inquiry, when all material was already absence of a further inquiry, when all material was already available and the issue itself was available and the issue itself was derivative of an earlier year’s derivative of an earlier year’s accepted accepted accepted finding, finding, finding, cannot cannot cannot by by by itself itself itself render render render the the the assessment assessment assessment “erroneous” in the sense contemplated under section 263. As “erroneous” in the sense contemplated under section 263. As “erroneous” in the sense contemplated under section 263. As repeatedly held by the Hon’ble Supreme Court, the phrase repeatedly held by the Hon’ble Supreme Court, the phrase repeatedly held by the Hon’ble Supreme Court, the phrase “erroneous and prejudicial to the interests of the “erroneous and prejudicial to the interests of the Revenue” must be Revenue” must be understood in a manner consistent with the twin requirements of understood in a manner consistent with the twin requirements of understood in a manner consistent with the twin requirements of error and prejudice; it does not authorise the revisional authority to error and prejudice; it does not authorise the revisional authority to error and prejudice; it does not authorise the revisional authority to substitute its subjective degree of inquiry for that of the Assessing substitute its subjective degree of inquiry for that of the Assessing substitute its subjective degree of inquiry for that of the Assessing Officer when the latter’s view is Officer when the latter’s view is a plausible and legally sustainable a plausible and legally sustainable one.

4.10 We therefore hold that the present case does not fall within the We therefore hold that the present case does not fall within the We therefore hold that the present case does not fall within the sweep of Explanation 2(b) to section 263. The foundational sweep of Explanation 2(b) to section 263. The foundational sweep of Explanation 2(b) to section 263. The foundational transition amount having been examined threadbare in A.Y. 2018- transition amount having been examined threadbare in A.Y. 2018 transition amount having been examined threadbare in A.Y. 2018 19, and the current ye 19, and the current year being merely a mechanical apportionment, ar being merely a mechanical apportionment, the Assessing Officer cannot be said to have committed any error the Assessing Officer cannot be said to have committed any error the Assessing Officer cannot be said to have committed any error warranting revision.