GORAKHPUR KASIA TOLLWAYS PRIVATE LIMITED ,INDORE vs. PRINCIPAL COMMISSIONER OF INCOME TAX -1, INDORE

ITA 447/IND/2025Status: DisposedITAT Indore23 September 2026AY 2020-2142 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the Pr. CIT erred in initiating revision proceedings under section 263. Regarding the 'Unwinding Interest on provision for Overlay' (Rs. 5,03,04,427/-), the Tribunal noted that the assessee is obligated under the NHAI Agreement to carry out periodic road renewal. This obligation was quantified by NHAI and discounted to its present value as per IND-AS 37. The unwinding interest represents the recognition of interest expenditure over time on this liability. The Tribunal found that this unwinding interest pertains to an ascertained liability, fulfilling the criteria laid down by the Apex Court in Rotork Controls India Ltd. vs. CIT. Therefore, it is not required to be adjusted under Explanation 1 to section 115JB(2). The Tribunal also noted that specific provisions for IND-AS compliant companies must be applied, and the unwinding interest on provision for overlay cannot be treated as per clause 3 of Explanation 1 to section 115JB. The Tribunal further held that the 'Profit/(loss) on initial Recognition of investments' was a notional loss on fair valuation and not an actual loss. Consequently, the Pr. CIT's order under section 263 was quashed, and the assessment order was restored. Grounds of appeal 2 and 3 were allowed.

What were the facts?

The assessee, Gorakhpur Kasia Tollways Pvt. Ltd., filed its return for Assessment Year 2020-21 declaring an income of Rs. 4,31,530/- and a book profit of Rs. 22,17,67,412/-. The case was selected for scrutiny, and the Assessing Officer (AO) completed the assessment on 23.09.2022, making certain additions. Subsequently, the Principal Commissioner of Income Tax (Pr. CIT) initiated revision proceedings under section 263 of the Income Tax Act, 1961, issuing a show cause notice on 21.01.2025. The Pr. CIT observed that the AO had not properly verified two specific issues: (i) the debit of Rs. 5,03,04,427/- as 'Unwinding Interest on provision for Overlay' and (ii) the credit of Rs. (-) 20,90,15,065/- as 'Profit/(loss) on initial Recognition of investments'. The Pr. CIT believed these amounts should have been added back for computing book profit under section 115JB.

What were the issues?

1. Whether the Pr. CIT erred in initiating revision proceedings under section 263 of the Act, given that the AO had made specific queries regarding the deduction of Rs. 50,57,27,576/-, which included notional profit/loss on initial investment and notional unwinding interest, and had accepted the assessee's contention after reviewing the reply and evidence, thereby invoking Explanation 2 to section 263. 2. Whether the Pr. CIT erred in treating the assessment order passed under section 143(3) r.w.s. 144B as erroneous and prejudicial to the interest of the revenue. 3. Whether the Pr. CIT erred in concluding that the AO had neither made any inquiry nor the assessee filed any reply/evidence regarding the notional profit/(loss) on initial recognition of investment and notional unwinding interest on provision for overlay. 4. Whether the Pr. CIT failed to appreciate that the assessee is obligated to prepare accounts as per IND-AS, and therefore, no addition/subtraction could be made from book profit. 5. Whether the Pr. CIT erred in not relying on precedents where revision under section 263 is not permissible if the AO has made proper inquiry and verification. Assessee's Contention: The AO made specific queries, received replies and evidence, and accepted the assessee's position, thus Explanation 2 to section 263 is not applicable. The assessee is obligated to follow IND-AS, and the impugned items are not subject to adjustment for book profit calculation. The Pr. CIT's order is erroneous and prejudicial to the revenue. Revenue's Contention: The Pr. CIT's show cause notice indicates that the AO did not verify the issues regarding unwinding interest and notional profit/loss on investment, making the assessment order erroneous and prejudicial to the revenue.

Which sections of the Income-tax Act were involved?

Section 115JB,Section 143(3),Section 142(1),Section 143(2),Section 263,Section 154

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, INDORE BENCH, INDORE

Before: SHRI Dr. MANISH BORAD & SHRI PARESH M. JOSHI

For Appellant: Ms. Shreya Jain, AR
For Respondent: Shri Anup Singh, Sr. DR
Hearing: 08.07.2026Pronounced: 23.09.2026

PER Dr. MANISH BORAD, A.M: This appeal of Assessee pertaining to A.Y. 2020-21 is directed against the order of First Appellate Authority dated 19.03.2025 passed u/s.263 of the Act emanating out of the Assessment order passed u/s.143(3) r.w.s.144B of the Income Tax Act 1961 (hereinafter called as the ‘Act’) framed by ACIT-1(1), Indore on 23.09.2022. 2. Assessee has raised following grounds of appeal:

“1. That on the facts and in the circumstances of the case and in law the Ld. Pr. CIT erred in initiating revision proceedings under section 263 of the Act by ignoring the fact that during the assessment proceedings the Ld. AO made the specific query regarding the deducti

The order continues below.

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