RELIANCE RETAIL LTD,MUMBAI vs. ACIT CIR 8(1) (1) , MUMBAI

आदेश / O R D E R PER M. BALAGANESH (A.M):

3.1. We have heard rival submissions and perused the materials available on record. We find that assessee company is engaged in the business of traders and retailers. The original return of income was filed by the assessee company on 30/11/2013 for the A.Y.2013-14 and revised return was filed on 27/06/2014 declaring total income of Rs.’Nil and claiming current year losses of Rs.265,55,98,128/-. The assessee filed one more revised return on 26/03/2015 declaring total income at Rs.’Nil’ and claiming current year losses at Rs.265,55,79,379/-. In the return, the assessee had claimed loss on sale of investments of Rs.19.41 Crores as ‘business loss’. The assessment was completed u/s.143(3) of the Act on 28/12/2016 accepting the returned loss of the assessee as per the revised return filed on 26.3.2015.

3.2. This assessment was sought to be revised by the ld. PCIT by invoking revision jurisdiction u/s.263 of the Act on the ground that tax auditor in the tax audit report in form No.3CD vide Sr. No.17(a) had reported expenditure of capital nature of Rs.37,17,21,367/- which was debited in the profit and loss account. Out of the said amount, the assessee had voluntarily disallowed loss on sale of assets of Rs.17.76 Crores. The remaining loss of Rs.19.41 Crores arising on account of loss on sale of investments was reflected as business loss by the assessee. The ld. PCIT observed that the said loss on sale of investment is expenditure of capital nature and hence, the same would be liable for disallowance u/s.37(1) of the Act. Accordingly, a show-cause notice was issued by the then ld. PCIT u/s.263 of the Act to disallow the said business loss of Rs.19.41 Crores.

3.3. In response to the said notice, the assessee company vide letter dated 05/12/2017 accepted to the stand of the ld. PCIT by requesting the ld. PCIT to treat the said loss on sale of investments as short term capital loss and allowing it to be carried forward to subsequent years. For the sake of convenience, the letter dated 05/12/2017 filed by the assessee before first revision proceedings before the then ld. PCIT is reproduced hereunder:-

3.4. The ld. PCIT accordingly set aside the order of the ld. AO dated 28/12/2016 to make fresh assessment considering the above admission by the assessee company and making appropriate disallowance after giving due opportunity to the assessee company and re-calculating the income tax and interest if any were applicable.

3.5. The ld. AO accordingly framed an assessment u/s.143(3) r.w.s. 263 of the Act wherein the loss on sale of investments of Rs.19.41 Crores was disallowed under the head ‘business’ and the same being capital in nature was treated as capital loss by the ld. AO. On this giving effect order, the ld. PCIT sought to invoke revisionary jurisdiction u/s. 263 of the Act on the ground that the ld. AO had not complied with the directions given in the earlier revision order u/s.263 of the Act. The main grievance of the ld. PCIT in the impugned revision order u/s.263 of the Act is that the ld. AO ought not to have treated the loss on sale of investments as short term capital loss and should have merely restricted himself by disallowing the said loss as business loss. This action of the ld. AO, in the opinion of the ld. PCIT, had made the assessment order erroneous in as much as it is prejudicial to the interest of the Revenue warranting revision jurisdiction u/s.263 of the Act.

3.6. We have already reproduced the original directions of the ld. PCIT u/s.263 of the Act dated 09/01/2018 in italics font supra. The said directions categorically stated that the Assessing Officer is directed to make a fresh assessment in the light of submissions made by the assessee. The submissions made by the assessee before the then ld. PCIT in the original 263 proceedings are also reproduced hereinabove. In the said submissions, the assessee had categorically admitted to the fact that it had inadvertently claimed Rs.19.41 Crores representing loss on sale of investments as business loss instead of short term capital loss and also requested the said short term capital loss to be carried forward to subsequent years. The ld. AO in the impugned proceedings had considered the said submissions and treated the loss on sale of investments as short term capital loss after disallowing the same under the head ‘income from business’. This clearly goes to prove that the ld. AO had duly complied with the earlier directions given by the ld. PCIT in its revision order u/s.263 of the Act dated 09/01/2018. Hence, there cannot be any error that could be attributed in the order of the ld. AO.

3.7. In any case, once the loss on sale of investment is treated as short term capital loss, it is automatically eligible to be carried forward to subsequent years as per law. All these facts and submissions were duly stated by the assessee before the ld. PCIT in response to show-cause notice u/s.263 of the Act. We find that the assessee had also duly furnished the workings of arriving at short term capital loss of Rs.19.41 Crores before the ld. PCIT which is reproduced as under:- Sr Particulars Date of Purchase Purchase units Purchase cost Date of Sale Sale Units Sale (Loss) / Gain No. Consideration Investment in subsidiary companies - unquoted Reliance- Loyalty & 31/01/2012 50, 000 5, 00, 000 29/12/2012 50, 000 50, 000 (4 ,50, 000) 1 Analytics Limited 2 Reliance Trade Services 31/13/2012 50, 000 5, 00, 000 29/12/2012 50, 000 50, 000 ( 4, 50, 000) Centre Ltd. Short Term Capital Loss (9,00,000)

Investment in joint venture companies - unquoted 1 Reliance Vornado 12/03/2008 21, 06, 000 21, 06, 00, 000 01/06/2012 2 ,10,60,000 22,42, 55,313 1, 36, 55 ,313 Development Private Limited 2 Reliance Vornado 12/03/2008 1, 05, 30, 000 10 ,53, 00 ,000 01/06/2012 1 ,05 ,30 ,000 10, 54, 09,490 1 ,09, 490 Management Private Limited Lonq Term Capital Gain 31, 59 ,00, 000 32 ,96, 64, 803 1 ,37, 64 ,803 Investment in Equity shares of companies - quoted 1 Axis Bank Limited 30/03/2012 2, 28 ,232 25, 46, 15, 619 08/01/20 13 2,28,232 30, 92, 73, 030 5,46,57,411 2 Canara Bank 30/03/2012 2,67 ,751 12 ,21, 48 ,006 06/02/2013 2,67,751 12, 04, 13 ,353 { 17,34,653) 3 Punjab National Bank 30/03,2012 1 ,80 ,258 16, 44, 49, 373 06/02/2013 1, 80, 258 15 ,65, 50 ,403 ( 79, 18,970) Short Term Capital Gain 54, 12 ,12 ,998 58 ,62, 16 ,787 4 ,50 ,03 ,739 Investment in Debentures 1 Reliance Trade Services 05/11/2012 1, 70 ,00, 000 17, 00, 00, 000 29/12/2012 1 ,70, 00 ,000 1, 70 ,00 ,000 (15, 30, 00 ,000) Centre Ltd 2 Reliance Loyalty A 01/10/2012 1, 10, 00, 000 11,00, 00, 000 29/12/2012 1 ,10, 00 ,000 1 ,10 ,00 ,000 (9 90 00 000) Analytics Ltd Short Term Capital Loss 2,8 00, 00, 000 2 ,80, 00, 000 (25, 20, 00 ,000)

Net Short Term Capital Loss (19,41, 31 ,408)

3.8. When all the facts are available on record before the ld. PCIT, it becomes bounden duty of the ld. PCIT to consider those facts, examine the submissions made by the assessee and verify the workings for short term capital loss filed before him and also bring on record what is the error in the said submissions and eventually point out how the order of the ld. AO is erroneous. Infact no efforts were taken by the ld. PCIT to bring on record either of the acts in the instant case, as is evident from the perusal of his revision order. Without doing any exercise and without bringing on record as to how the order of the ld. AO is erroneous and prejudicial to the interest of the Revenue, the ld. PCIT directly proceeds to invoke revision jurisdiction u/s.263 of the Act in the instant case. Actually we find that the ld. AO had properly complied with the directions of the ld. PCIT in the original 263 order by duly disallowing the loss on sale of investment of Rs.19.41 Crores under the head ‘business’ and treating the same as short term capital loss. Hence, in our considered opinion, there cannot be error that could be attributed in the order of the ld. AO. The law is very well settled that for the purpose of invoking revision jurisdiction u/s.263 of the Act, the cumulative conditions should be satisfied i.e. (i) the order of the ld. AO must be erroneous and (ii) it must be prejudicial to the interest of the Revenue. Even if either one of the conditions is absent, the ld. PCIT cannot invoke revision jurisdiction u/s.263 of the Act. Reliance in this regard is placed on the decision of the Hon’ble Supreme Court in the case of Malabar Industrial Company Ltd., reported in 243 ITR 83.

3.9. In view of the aforesaid observations and respectfully following the judicial precedents relied upon hereinabove, we have no hesitation in quashing the revision order passed by the ld. PCIT u/s.263 of the Act in the facts and circumstances of the instant case. Accordingly, the grounds raised by the assessee are allowed.

Order pronounced on 17/08/2022 by way of proper mentioning in the notice board.