SOUTH BIHAR POWER DISTRIBUTION CO. LTD,PATNA vs. PR. CIT-1, PATNA

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ITA 181/PAT/2022Status: DisposedITAT Patna30 April 2026AY 2017-187 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the AO failed to properly examine issues related to subsidies and grants impacting depreciation claims, and prior period expenses. Therefore, the PCIT rightly exercised powers under Section 263 to direct a fresh assessment.

What were the facts?

The assessee's return of income was selected for scrutiny due to various reasons, including discrepancies in turnover and large cash deposits. The Assessing Officer (AO) completed the assessment, but the Principal Commissioner of Income Tax (PCIT) invoked Section 263, finding the assessment order erroneous and prejudicial to revenue.

What were the issues?

Whether the AO's assessment was erroneous and prejudicial to the interest of revenue due to lack of proper inquiry into subsidies, grants, and prior period expenses.

Which sections of the Income-tax Act were involved?

Section 263,Section 143(1),Section 143(2),Section 142(1),Section 37

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, PATNA BENCH, PATNA

Hearing: 20.04.2026Pronounced: 30.04.2026

IN THE INCOME TAX APPELLATE TRIBUNAL PATNA BENCH, PATNA (VIRTUAL HEARING AT KOLKATA) SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER SHRI SONJOY SARMA, JUDICIAL MEMBER

ITA No. 181/PAT/2022 Assessment Year : 2017-2018

South Bihar Power Vs. PCIT, Patna-1, Distribution Co. Ltd., Vidut Bhawan, Bailey Vidut Bhawan, Bailey Road, Road, Patna - 800001 Patna - 800001 [PAN: AASCS2207G]

APPELLANT RESPONDENT

Assessee by : Sh. Ankit Kumar, CA Revenue by : Sh. A.H. Chowdhury, CIT-DR

Date of hearing : 20.04.2026 Date of Pronouncement : 30.04.2026

O R D E R PER LAXMI PRASAD SAHU, ACCOUNTANT MEMBER

This is an appeal filed by the assessee against the order passed by the Ld. Principal Commissioner of Income Tax, (Appeals), Patna-1 [hereinafter referred to as “the Ld. Pr. CIT], dated 17.03.2022, Order No. 1022454560(1) against the order passed u/s 263 of the Income Tax Act,

2 ITA No.181/PAT/2022 South Bihar Power Distribution Company Limited 1961 (hereinafter “the Act”) challenging the order passed by the Ld. Pr. CIT.

2.

Briefly stated the facts of the case are that the assessee filed its return of income on 31.10.2017 showing loss of Rs. 1101,23,90,080/-. Return was processed u/s 143(1) of the Act and case was selected for scrutiny under CASS. Accordingly, notice u/s 143(2) of the Act was issued and duly served to the assessee on 10.08.2018. The case was selected for scrutiny for the following reasons:

i. Default in either deduction of tax or payment of tax so deducted. ii. Demand raised u/s 201 for no deduction or short deduction. iii. Higher turnover reported in Service tax Return as compared to ITR. iv. Large difference in the closing stock shown in Balance Sheet and P&L a/c of current years as per return of income. v. Large value claim of refund vi. Quantitative details of principal items of goods traded or raw material as well as finished goods not submitted. vii. Large share application money pending for more than 1 year as compared to preceding year. viii. Large value cash deposit during demonetization period reported.

3 ITA No.181/PAT/2022 South Bihar Power Distribution Company Limited

3.

Accordingly, the AO issued various other statutory notices to examine in the light of the notice issued u/s 142(1) of the Act and completed the assessment u/s 143(3) of the Act on 16.12.2019 assessing loss at Rs. 10,19,89,24,638/-. The Ld. Pr. CIT called the assessment record and observed that the AO has not examined the case of the assessee in the light of the reason for selection of scrutiny and completed the assessment. Accordingly, he issued show cause notice on 22.12.2021 which is as under:

“Sub: Notice u/s 263 of the Income-tax Act, 1961 for A.Y. 2017-18-Reg Please refer to the above. In your case assessment u/s 143(3) of the IT Act, 1961 was completed on 18.12.2019 determining total income (loss) at Rs. (-) 10,19,89,24,638/ 2 On examination of records, it was found that the assessment was completed without conducting enquiries into & verifications of the following issues: (i) As per note 21 (other income) of profit and loss account of the company for the F.Y 2016-17 relevant to AY 2017-18, company received an amount of Rs. 232033680000-as revenue subsidies and grants. Further, as per cash flow statement for the year ended 31.03.2017 capital Fund from Government of Bihar amounting to Rs. 30798923000/- was receipt of the company. Examination of the computation sheet, IT return and Form 3CD audit report of the company revealed that the assessee company claimed depreciation of Rs. 1808366582/- as per Company Act and Rs. 3767126362/- as per IT Act. However, grant received from Government was not debited from depreciation claimed. Separate depreciation chart as per IT Act was not available in assessment folder. It was observed that there was a huge difference of Rs.1958759780/- between depreciation as per Company Act and as per IT Act, which clearly indicated that amount of grants from government for purchase of capital asset was not deducted while calculating claim of depreciation. In the absence of details of purchase of asset through subsidies and grants exact amount of depreciation allowable as per IT Act could not be calculated. Depreciation was allowable after deducting subsidies and grants received from government for capital asset. The matter was not found verified during the assessment proceedings. (ii) Further, on examination of Note no. 26 of profit and loss account and IT return revealed that the assessee had debited an amount of Rs.26497360/- as Earlier Year Expenses (Net) under head Other Expenses. As per section 37

4 ITA No.181/PAT/2022 South Bihar Power Distribution Company Limited

of the IT Act Earlier Year Expenses Le Prior Period Expenses was not allowable expenditure as the method of accounting employed in the previous year was mercantile system. This matter was also not found verified during scrutiny assessment. 3. You are required to show cause in writing as to why an order u/s 263 of the LT. Act, 1961 should not be made in your case. 4. In this regard, a hearing on the matter is fixed on 29.12.2021 at 05:00 PM. You are requested to attend in person or through an authorized representative to submit your representation, if any alongwith supporting documents/Information in support of the issues involved (as mentioned above). If you wish that the Revision proceeding be conducted on the basis of your written submissions/representations filed in this office on or before the said due date, then your personal attendance is not required. You also have the option to file your submission from the e-filing portal using the link: incometaxindiaefiling.gov.in.” 4. Accordingly, on the basis of above show cause notice, the assessee filed reply which was considered and the Ld. Pr. CIT passed his order holding that the order passed by the AO is erroneous and prejudicial to the interest of revenue which is as under:

“ii. That the petitioner states that it had received it has received a sum of. 2320,33,68,000 as revenue subsidy and grant. The same has been credited to the profit loss account. The details thereof are mentioned in note 21 to the audited accounts. The petitioner has received a sum of t 1710,00,23,000 as share application money which is pending allotment. The same appears in note 4 of the audited accounts. The petitioner has also received a sum of- 1369,89,00,000 from the State Government of Bihar under UDAY Financial Reconstruction Scheme. Note 3 of the audited accounts specifically mention the receipt of this grant for the payment of debts outstanding that as on 30.09.2015. The same is directly credited to the capital reserve. That the petitioner states that the amount mentioned in the notices firstly, is relatable to share application money pending allotment and also UDAY Scheme for Financial Restructuring for payment of outstanding debt as on 30.09.2015. The same as is apparent is not for acquisition of capital asset. The submission made by the assessee as above was considered carefully. There is no denying the fact that the Assessing Officer failed to enquire into the above issues during the scrutiny proceedings as is manifest from the assessment records. 9. In view of the fact that the AO completed the assessment without applying his mind, and without making enquiries, verifications and investigations regarding the aforesaid issues, the assessment order passed u/s 143(3) of the IT Act, 1961 dated 16.12.2019 for A.Y. 2017-18 has been found to be

5 ITA No.181/PAT/2022 South Bihar Power Distribution Company Limited

erroneous in so far it is prejudicial to the interests of the revenue within the meaning of section 263 of the Income Tax Act, 1961. 10. For the above referred reasons and the facts on record, I deem it fit to direct the Assessing Officer to make a fresh assessment taking into account the findings on the issues discussed herein above alone. To the above extent only the AO's order u/s 143(3) of the IT Act, 1961 dated 16.12.2019 for A.Y. 2017- 18 is partly set aside with a direction to the AO to make enquiries, verifications and investigations regarding the aforesaid issues and finalize the assessment in accordance with the provisions of the law. 11. The AO shall afford proper and reasonable opportunities of being heard to the assessee before passing the appropriate order in order to meet the ends of justice. 12. The order u/s. 263 of the Income Tax, Act, 1961 is passed accordingly.” 5. Aggrieved from the above order, the assessee filed appeal before the ITAT.

6.

The Ld. Counsel reiterated the submission made during the course of assessment proceedings and submitted that the Ld. Pr. CIT has wrongly exercised his power as per section 263(1) of the Act. During the course of assessment proceedings, the AO had issued notices u/s 142(1) of the Act on the above points raised by the Ld. Pr. CIT which was duly replied and examined by the AO and he was satisfied on the issues raised, therefore, the order passed by the AO was not erroneous and prejudicial to the interest of the revenue. Once the AO is satisfied on the issue raised by him, therefore, it cannot be said that the AO has not seen or not examined the issue similarly not dealing the each and every point of his questionnaire in the assessment order is not erroneous and prejudicial to the interest of the revenue.

6 ITA No.181/PAT/2022 South Bihar Power Distribution Company Limited 7. On the other hand, the Ld. CIT-DR strongly supported the order of Ld. Pr.CIT and submitted that in the AO while completing the assessment the AO did not examine the issue as per the reasons for selection of scrutiny which was also observed that the assessee has received share application money which is pending for allotment for more than a year but still it is held by the company under the share application money and the subsidy received from the Govt. of Bihar has also not been deducted from the cost of fixed assets. Resultantly, the excess claim of depreciation by the assessee and further the prior period as return of income/expenses has wrongly been claimed by the assessee which is not permissible. Accordingly, the Ld. Pr. CIT rightly invoked his power u/s 263 of the Act holding order passed by the AO is erroneous and prejudicial to the interest of revenue and directly to AO to make afresh assessment order.

8.

Considering the rival submissions and perusing the entire material available on record. We noted that the case of the assessee was selected for scrutiny as per the above noted reasons. We also gone through the paper book filed by the assessee and assessment order passed by the AO dated 16.12.2019, the AO has not examined in the light of the above reasons as observed by the Ld. Pr. CIT that the assessee has received various kinds of grants but there is not adjustment made by the assessee towards fixed the assets for claiming of depreciation as well as

7 ITA No.181/PAT/2022 South Bihar Power Distribution Company Limited prior period expenses has been claimed by the assessee in the year does not eligible as per the provision of the Income Tax Act. Therefore, order passed by the AO is erroneous and prejudicial to the interest of the revenue. Accordingly, we hold that the Ld. Pr. CIT rightly exercise his power u/s 263 of the Act.

9.

In the result, appeal of the assessee is dismissed.

Order pronounced on 30.04.2026.

Sd/- Sd/- (Sonjoy Sarma) (Laxmi Prasad Sahu) Judicial Member Accountant Member Dated: 30.04.2026 AK, Sr. P.S. Copy of the order forwarded to: 1. Appellant 2. Respondent 3. Pr. CIT 4. CIT(A) 5. CIT(DR)

//True copy// By order

Assistant Registrar, Kolkata Benches

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