M/S. JSW CEMENT LIMITED,MUMBAI vs. PRINCIPAL COMMISSIONER OF INCOME TAX OFFICER, MUMBAI 5, MUMBAI

ITA 4867/MUM/2026Status: DisposedITAT Mumbai23 September 2026AY 2021-2227 pages
AI SummaryAllowed

What were the facts?

The assessee, M/s. JSW Cement Limited, filed appeals against the revisional orders passed by the Principal Commissioner of Income-tax (PCIT) under section 263 of the Income-tax Act, 1961, for Assessment Years (AY) 2020-21 and 2021-22. The PCIT had revised assessment orders passed under section 143(3) read with sections 144C(3) and 144B, which had determined the assessee's total income. The PCIT proposed revisions concerning disallowance of staff-welfare expenditure (ESOPs), branding-fee expenditure, addition for deemed dividend under section 2(22)(e) on loans from South West Mining Limited and JSW Dharamtar Port Private Limited, disallowance of consequential interest expenditure, and addition of disallowance under section 14A while computing book profit under section 115JB. The assessee contended that the Assessing Officer (AO) had made adequate inquiries and applied due mind during the assessment.

What did the Tribunal hold?

The Tribunal allowed both appeals. Regarding the ESOP expenditure, the Tribunal held that it represents employee compensation cost and is deductible under section 37(1), citing the Special Bench decision in Biocon Ltd. and its affirmation by the Karnataka High Court, as well as decisions of the Delhi and Madras High Courts. The Tribunal found that the assessment order could not be revised merely to reconsider the allowability of ESOP expenditure. For the section 115JB issue, the Tribunal held, following Vireet Investment (P.) Ltd., that the computation under clause (f) of Explanation 1 to section 115JB must be made independently with reference to expenditures debited in the books and relatable to exempt income, and that the artificial computation under Rule 8D cannot be mechanically adopted. Therefore, the PCIT could not direct the addition of the entire amount computed under section 14A read with Rule 8D without identifying actual expenditures relatable to exempt income. The Tribunal also noted that the branding-fee issue was introduced without a show-cause notice, and the proposed additions under section 2(22)(e) and consequential interest disallowances were not sustainable and contrary to jurisdictional High Court decisions. Consequently, the PCIT failed to demonstrate that the assessment order was both erroneous and prejudicial to the interests of the Revenue, and the conditions precedent for exercising jurisdiction under section 263 were not satisfied. The impugned revisionary orders were quashed.

What were the issues?

1. Whether the PCIT erred in initiating proceedings under section 263 and revising the assessment order, holding it to be erroneous and prejudicial to the revenue, when the AO had completed the assessment after due inquiry and application of mind? (Section 263) 2. Whether the PCIT erred in directing the disallowance of staff-welfare expenditure (ESOPs) of ₹44,97,00,000 (AY 2021-22) and ₹2,42,00,000 (AY 2020-21) under section 37(1)? (Section 37(1)) 3. Whether the PCIT erred in directing the disallowance of branding-fee expenditure of ₹5,02,00,000 (AY 2021-22)? (Section 37(1)) 4. Whether the PCIT erred in directing the addition of ₹4,53,38,476 (AY 2021-22) and ₹4,42,17,615 (AY 2020-21), disallowed under section 14A, while computing book profit under section 115JB, without appreciating that a disallowance computed under Rule 8D cannot be mechanically imported? (Section 115JB, Rule 8D) 5. Whether the PCIT erred in directing additions of ₹80,00,00,000 and ₹15,00,00,000 as deemed dividend under section 2(22)(e) on account of loans received from South West Mining Limited and JSW Dharamtar Port Private Limited, respectively, and disallowing consequential interest expenditure? (Section 2(22)(e), Section 36(1)(iii)) Assessee's Contentions: The PCIT erred in initiating revision proceedings as the assessment order was not erroneous or prejudicial. ESOP expenditure is an employee compensation cost deductible under section 37(1), supported by decisions in Biocon Ltd. v. DCIT, CIT v. Biocon Ltd., PVR Ltd. v. CIT, and CIT v. Shriram City Union Finance. The disallowance under section 14A cannot be mechanically imported into section 115JB computation, as held in Vireet Investment (P.) Ltd. The additions under section 2(22)(e) and consequential interest disallowances were not sustainable. The branding-fee issue was introduced without a show-cause notice. Revenue's Contentions: Not recorded in the provided text.

Which sections of the Income-tax Act were involved?

Section 263,Section 37(1),Section 143(3),Section 144C(3),Section 144B,Section 14A,Section 115JB,Section 2(22)(e),Section 36(1)(iii)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘F’ BENCH

Before: SHRI AMIT SHUKLA & SHRI MAKARAND VASANT MAHADEOKAR

For Appellant: Shri Rakesh Joshi
For Respondent: Shri Nishant Samaiya
Hearing: 17/09/2026Pronounced: 23/09/2026

PER AMIT SHUKLA (J.M): The aforesaid appeals have been preferred by the assessee against the respective revisional orders passed by the learned Principal Commissioner of Income-tax under section 263 of the Income-tax Act, 1961 (“the Act”), for Assessment Years 2020–21 and 2021–22. Since certain issues involved in both the appeals are common and arise from substantially similar of by this consolidated order. We first take up the appeal for Assessment Year 2021–22 in ITA No. 4867/Mum/2026. 2. The grounds raised by the assessee for Assessment Year 2021–22 are reproduced hereunder: “I. On the facts and in the circumstances of the case and in

The order continues below.

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