TAMILNADU CEMENTS CORPORATION LTD.,CHENNAI vs. DCIT CORPORATE CIRCLE-3(1), CHENNAI

The assessee has raised the following grounds of appeal:

2. The CIT failed to note-that the order u/s.143(3) is under appeal before CIT(A) and hence CIT has no jurisdiction to interfere at this juncture.

The brief facts of the case are that the assessee company filed its return of income for the AY 2017-18 on 03.11.2017 admitting a loss of Rs.6,01,57,245/- and said return has been revised on 30.03.2018 admitting a loss of Rs.4,26,16,029/-. The case was picked up for scrutiny and the assessment has been completed u/s.143(3) of the Act, on 26.12.2019, by making addition of Rs.57,66,424/- for belated payment of employees’ contribution towards PF & ESI and loss was assessed at Rs.5,43,90,821/-. However, in the computation of tax sheet, loss of Rs.3,68,49,605/- had been considered.

The case has been, subsequently, taken up for revision proceedings and accordingly, show cause notice u/s.263 of the Act, dated 02.02.2022, has been issued to the assessee. In the said show cause notice, the PCIT observed that although, the assessee has filed revised return admitting loss of Rs.4,26,16,029/-, the AO has considered the loss originally admitted at M/s.Tamilnadu Cements Corpn. Ltd. :: 3 ::

In response to the show cause notice, the assessee submitted that the assessment order passed by the AO is neither erroneous nor prejudicial to the interest of the Revenue, because, the AO has considered two issues questioned in the revision proceedings while completing the assessment order u/s.143(3) of the Act. Therefore, assumption of jurisdiction u/s.263 of the Act, is incorrect. The PCIT after considering relevant submissions of the assessee opined that assessment order passed by the AO is erroneous in so far as it is prejudicial to the interest of the Revenue on the issue of erroneous consideration loss declared in original return of income filed by the assessee, even though, the assessee has filed revised return and declared loss, which is less than the amount of loss declared in original return. Further, the assessee has claimed ‘prior period expenses’, however, not added back said expenses in the statement of total income, even

The Ld.AR for the assessee submitted that the order of the ld.PCIT u/s.263 of the Act, is wrong, illegal and opposed to the facts of the order passed u/s.143(3) of the Act, because, the assessment order passed by the AO is neither erroneous nor prejudicial to the interest of the Revenue. The Ld.Counsel for the assessee referring to the decision of the Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT reported in [2001] 243 ITR 83 (SC) submitted that in order to assume jurisdiction u/s.263 of the Act, twin conditions must be satisfied i.e. the order of the AO must be erroneous and further, it should be prejudicial to the interest of the Revenue. In this case, the order of the AO is neither erroneous, because, although in assessment order, the AO has considered loss declared by the assessee in original return of income filed for the relevant AY, but in the tax computation sheet, the AO has considered loss as per revised return filed by the assessee and thus, it cannot be said that assessment order passed by the AO is erroneous. The assessment order passed by the AO is not prejudicial to the interest of the Revenue on both

We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. There is no dispute with regard to legal position in so far as the power of the Ld.CIT/ ld.PCIT u/s.263 of the Act. The Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT (supra), had very categorically held that in order to assume jurisdiction u/s.263 of the Act, twin conditions must be satisfied i.e. (i) the order must be erroneous and (ii) further, it should be prejudicial to the interest of the Revenue. The various High Courts/Tribunals have taken a consistent view on this legal position and held that unless twin conditions embedded u/s.263 of the Act, are satisfied, the ld.PCIT, cannot assume jurisdiction and set aside assessment order passed by the AO u/s.143(3) of the Act, in exercise of his powers conferred u/s.263 of the Act. In this legal back ground, if you examine the facts of the present case, we are of the considered view that the assessment order passed by the AO neither erroneous nor prejudicial to the interest of the Revenue in so far as the first issue of computation of total income by considering loss declared by the assessee. We further noted that although, the AO has taken loss admitted as per original return of income filed by the assessee on 03.11.2017 in the assessment order, but in the computation sheet, the AO has adopted loss declared by the assessee in revised return of income filed on 30.03.2018, which is evident from the fact that the AO has considered current year loss of Rs.3,68,49,605/- in Column-11 of M/s.Tamilnadu Cements Corpn. Ltd. :: 7 ::

In so far as the second issue questioned by the ld.PCIT on disallowance of ‘prior period expenses’, we find that although, the assessee has claimed deduction for ‘prior period expenses’ in the P & L A/c, but did not made any disallowance in statement of total income, even though, said expenses is inadmissible under the law. The AO has failed to consider the disallowance of ‘prior period expenses’ while completing the assessment order u/s.143(3) of the Act. Although, the Ld.Counsel for the assessee submitted that the AO has verified the issue by way of specific notice and the assessee has filed its reply, but on perusal of details filed by the assessee, we could not made out any evidence of the assessee having explained the issue of ‘prior period expenses’ before the AO. Therefore, we are of the considered view that the assessment order passed by the AO on the issue of ‘prior period expenses’ is definitely erroneous and prejudicial to the interest of the Revenue and thus, we are of the considered view that the ld.PCIT has rightly assumed jurisdiction u/s.263 of the Act, and set aside the assessment order passed by the AO on the second issue. To sum up, we are of the considered view that the assumption of jurisdictional by ld.PCIT on the issue of computation of loss is fails and further, assumption of jurisdiction on the issue of ‘prior period expenses’ is in accordance with law. Therefore, we modified the directions of the PCIT’s order dated 17.03.2022 passed u/s.263 of the Act, and direct the AO to re-frame the M/s.Tamilnadu Cements Corpn. Ltd. :: 8 ::

In the result, appeal filed by the assessee is partly allowed.