ACC MINERAL RESOURCES LIMITED ,MUMBAI vs. PRINCIPLE COMMISSIONER OF INCOME TAX, MUMBAI-1, MUMBAI

The brief facts are that the assessee company is wholly owned subsidiary of ACC Limited and had entered into 4 joint ventures (JVs) in the year 2009 with M. P. State Mining Corporation Ltd. (MPSMCL) for mining and development of 4 coal blocks allotted to MPSMCL by Ministry of Coal, where the assessee company was holding 49% and the remaining 51%was held by MPSMCL. The assessee company filed its return of income dated 31.10.2018, declaring total loss of Rs. 53,36,909/- and had claimed refund amounting to Rs. 39,41,720/-. The assessee's case was selected for complete scrutiny under e-assessment scheme, 2019 on the following issues: i. Claim of any other amount allowable as deduction in Schedule BP. ii. Refund Claim.

Notice u/s. 143(2) dated 22.09.2019 and notices u/s. 142(1) were issued and served upon the assessee. The ld. AO sought for details pertaining to high ratio of refund to TDS and large any other amount allowable as deduction claimed in Schedule BP of the return. The assessee furnished details pertaining to the claim of deduction of Rs. A.Y. 2018-19 ACC Mineral Resources Ltd. 23,24,000/- u/s. 35D in Schedule BP which is 1/5th of Rs. 1,16,20,000/-. The ld. AO on perusal of the assessee's submission made an addition/disallowance of Rs. 23,24,000/- on the claim of deduction made u/s. 35D of the Act on the ground that the business expenditure claimed by the assessee was related to the expansion of the capital base of the company and for profit making and therefore the same cannot be allowed u/s. 35D of the Act. The ld. AO passed the assessment order dated 20.04.2021, determining total loss at Rs. 30,12,912/-after making an addition of Rs. 23,24,000/-.

The ld. PCIT vide notice u/s. 263 of the Act invoked the revisionary jurisdiction holding that the assessment order was erroneous in so far as it was prejudicial to the interest of the revenue on the ground that the ld. AO has merely dealt with the allowability of expenditure u/s. 35D but has failed to verify the loans in the books of account of the assessee in earlier years, where the assessee has written off Rs. 4.54 crores out of the total provision of Rs. 48.83 crores made during A. Y. 2017-18, thereby setting aside the assessment order passed by the ld. AO for de novo assessment on the limited issue of write off of loan given by the assessee to JV company amounting to Rs. 4,54,26,124/- 6. Aggrieved by the order of ld. PCIT, the assessee is in appeal before us, challenging the impugned order.

Mr. Saurabh Soparkar, ld. Senior Counsel appearing for the assessee brought our attention to the notice issued by the ld. AO u/s. 142(1) of the Act, dated 06.01.2022, seeking for various details which included details of any other amount allowable as deduction claimed in Schedule BP, for which the assessee vide reply dated 30.01.2021 had furnished the breakup of the same which includes write off of loan to JV amounting A.Y. 2018-19 ACC Mineral Resources Ltd. to 4,54,26,124/-. The ld. Senior Counsel further contended that the same prompted the ld. AO to issue second notice dated 14.03.2021 were again the assessee had given breakup of the deduction claimed in Schedule BP aggregating to Rs. 4,77,74,124/- which included the write off of loan to JV and where the ld. AO had specifically at page no. 4 had sought for details of ‘party-wise debtors ledgers and to explain the following with documentary evidences', including the debtor-creditor relationship with the assessee's joint venture company and the debts which are claimed as bad debts whether incidental to the business carried on by the assessee. Mr. Saurabh Soparkar further brought our attention to the response of the assessee dated 19.03.2021, where the complete details of the deduction claimed was furnished to the ld. AO along with the joint venture agreement entered into by the assessee with MPSMCL. It was further contended that as the issue of allotment of coal block reached upto the Hon'ble Supreme Court, the allocations including MPSMCL was cancelled and hence, the amount was not recoverable. Further, the assessee has also furnished details of his ledger account which contains the details of the written off of loan to JVs. It is further argued that ld. AO during the assessment proceedings had enquired extensively into this issue and had taken a plausible view in allowing the said deduction. Further, it was contended that the ld. PCIT vide notice dated 20.02.2023, u/s. 263 of the Act had erroneously mentioned that during the assessment proceedings, the ld. AO had failed to conduct any inquiry in respect of the said transaction, therefore making the assessment order erroneous and prejudicial to the interest of revenue. The ld. Senior Counsel further stated that the ld. PCIT in the impugned order has also mentioned that there has been no verification with A.Y. 2018-19 ACC Mineral Resources Ltd. regard to the accounting of such loans in the books of accounts in the earlier years were made which according to the ld. Senior Counsel was factually wrong. Reliance was placed on the following decisions to support the contention of the ld. Senior Counsel. a. PCIT-1, Chandigarh vs. M/s. V-Con Integrated Solutions Pvt. Ltd., Special Leave Petition (Civil) Diary No. 13205/2025, order dated 04.04.2025 b. PCIT vs. Carties Leaflin (P.) Ltd. [2023] 146 taxmann.com 281 (SC) c. CIT, Mumbai vs. Chandan Magraj Parmar [2022] 135 taxmann.com 55 (Bombay) d. CIT, Central II vs. Nirav Modi, [2016] 71 taxmann.com 272 (Bombay) 8. The learned CIT DR, Mr. Shekhar L. Gajbhiye for the revenue controverted the said fact and contended that the ld. AO during the assessment proceedings has not enquired into the deduction claimed by the assessee on the write off of loan and has also not verified the nature of expenditure, whether the same would be the capital or revenue expenditure, for which various parameters such as the terms and conditions, duration, the purpose for lending which resulted in enduring benefit and whether or not the same would be investment, etc. were not looked into by the ld. AO. The ld. DR further contended that the ld. AO has merely looked into the allowability of expenditure u/s. 35D of the Act but had not gone into the issue of write off of loan making the assessment order erroneous in so far as it is prejudicial to the interest of the revenue. The ld. DR further relied on the amendment brought about to Explanation 2 Clause (a) of Section 263(1) of the Act, where any assessment made without conducting inquiry or verification, relief allowed without inquiry would hold the assessment order erroneous A.Y. 2018-19 ACC Mineral Resources Ltd. in so far as it is prejudicial to the interest of the revenue. The ld. DR extensively relied on the decision of the coordinate bench in the case of Apollo Tyres Limited. vs. PCIT, [2024] 163 taxmann.com 35 (Cochin – Trib.) along with the following decisions: - a. Deniel merchants Pvt. Ltd. vs. ITO, 2017-TIOL-455-SC-IT, Special Leave to Appeal (C) No(s). 23976/2017. b. PCIT vs. Shri Braham Dev Gupta, 2018-TIOL-1547-HC-DEL-IT c. Shoreline Hotel (P.) Ltd. Vs. CIT, [2018] 98 taxmann.com 259 Taxman 49 (Bombay) d. Jeevan Investment & Finance (P.) Ltd. Vs. CIT, City-1, Mumbai [2017] 88 taxmann.com 552 (Bombay) e. PCIT Panaji vs. Zuari Maroc Phosphates Ltd. [2021] 126 taxmann.com 170 (Bombay) f. Rampyari Devi Sarogi vs. CIT [1968] 67 ITR 84 (SC) g. Vedanta Ltd. vs. CIT [2021] 124 taxmann.com 435 (Bombay) 9. The ld. DR further reiterated that the ld. PCIT has rightly invoked the revisionary jurisdiction u/s. 263 of the Act and prayed that the same be upheld.

We have heard the rival submissions and perused the materials available on record. It is observed that the ld. PCIT has invoked the revisionary powers for the reason that the ld. AO has not made inquiries and verification on the issue of the loan written off by the assessee amounting to Rs. 4.54 crores and whether or not the same was out of the total provisions of Rs. 48.83 crores made during the A.Y. 2017-18. The contention of the ld. Senior Counsel for the assessee was that the ld. AO had issued various notices A.Y. 2018-19 ACC Mineral Resources Ltd. seeking for information pertaining to the said issue and had duly examined the assessee’s submission which are furnished in the paperbook submitted before us, where the ld. AO has extensively dealt with and had taken one of the plausible views that the same is an allowable expenditure. Further, the argument of the ld. Senior Counsel was that even otherwise, it could be a case of inadequate inquiry and not a case of no inquiry or verification. The reliance placed by Mr. Saurabh Soparkar in the case of PCIT-1, Chandigarh vs. M/s. V-Con Integrated Solutions Pvt. Ltd., Special Leave Petition (Civil) Diary No. 13205/2025, order dated 04.04.2025, has been considered, where the Hon'ble Apex Court dealt with the contention of the revenue that the ld. AO having made inquiries has erred by not making addition, for which the Hon'ble Apex Court held that it was beyond the control of the assessee to decide how the assessment order has to be penned and further it held that the ld. PCIT by invoking jurisdiction u/s. 263 of the Act could have gone into the merits and made addition and ought not to have merely remanded it to the ld. AO. Further, it had distinguished the failure or absence to investigate and a wrong decision or conclusion, where the latter could have been rectified by the ld. PCIT on the merits by making an addition or disallowance. The Hon'ble Apex Court further held that the ld. PCIT ought to have recorded the failure and lapse on the part of the ld. AO in order to hold the assessment order as erroneous and prejudicial to the interest of the revenue and then went about to decide this issue in favour of the assessee. Pertinently, this proposition has also been supported by the decision of the Hon'ble Apex Court in NYA International Solutions (P.) Ltd. [2025] 173 taxmann.com 103 (SC) wherein it was reiterated that in a case of wrong conclusion A.Y. 2018-19 ACC Mineral Resources Ltd. and the decision, the ld. PCIT ought to have examined the facts on the merits and only then could hold the assessment order to be erroneous and prejudicial to the interest of the revenue, where it was not a case of no inquiry and verification. We also draw support from the decision of the Hon'ble jurisdictional High Court relied upon by the ld. Senior Counsel in the case of Carties Leaflin (P.) Ltd. (supra), wherein it was held that were the ld. AO had examined the details and evidences and had then taken a possible view, the ld. PCIT issuing the show cause notice u/s. 263 of the Act without examining the assessment records, would tantamount to be perverse in holding the assessment order to be erroneous and prejudicial to the interest of the revenue. It further held that there was application of mind by the ld. AO in allowing the claim of the assessee. The said decision was also upheld by the Hon'ble Supreme Court where SLP of the revenue was dismissed. The ld. Senior Counsel also relied on the decision of the Hon'ble Jurisdictional High Court in the case of Nirav Modi (supra), where it was decided that the jurisdiction u/s. 263 could be invoked by ld. PCIT only when there is a lack of inquiry and not in a case where it was for inadequate inquiry.

Pertinently, the ld. PCIT in the impugned order has stated that the expenditure towards the write off of loan has to be determined where the same is in the nature of capital or revenue for which various parameters ought to have been examined by the ld. AO which according to the ld. PCIT has not been carried on during the assessment proceeding. This action substantiates the proposition that when there are two views possible and the ld. AO has taken one of the possible views, the ld. PCIT cannot invoke the revisional A.Y. 2018-19 ACC Mineral Resources Ltd. powers u/s. 263 of the Act on the said facts. It has been reiterated in a catena of decisions delivered by the Hon'ble High Courts and coordinate benches.

Considering the submission of the ld. DR and on perusal of the decisions relied upon by the ld. DR viz. in the case of Apollo Tyres Ltd. (supra) where it is a case of no inquiry on pertinent issues by the ld. AO and there has been no application of mind, thereby rendering the order erroneous and prejudicial to the interest of the revenue.

Similar are the cases relied upon by the ld. DR, where it is clearly a case of no inquiry or lack of proper inquiry which has been reiterated in these decisions, which in are considered opinion is distinguishable on the facts of the assessee’s case were evidently it is not a case of no inquiry or lack of proper inquiry which has been fairly substantiated by the notices issued by the ld. AO and the reply given by the assessee for the said notices. Though there are contrary views taken by the Hon'ble Supreme Courts and the High Courts we are bound to rely on the recent decision of the Hon'ble Apex Court in the case of M/s. V-Con Intergrated Solutions Pvt. Ltd. (supra) which has already been succinctly discussed herein above to decide this issue in favour of the assessee.

From the above observations, we deem it fit to hold that the order of the ld. AO has not satisfied the twin conditions of Section 263 of the Act, thereby holding that the assessment order is neither erroneous nor prejudicial to the interest of the revenue. For the above reasons, we hold that the order passed by the ld. PCIT u/s. 263 of the Act is not sustainable and is liable to be set aside.