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Income Tax Appellate Tribunal, HYDERABAD ‘B’ BENCH, HYDERABAD.
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD ‘B’ BENCH, HYDERABAD.
BEFORE SHRI RAMA KANTA PANDA, ACCOUNTANT MEMBER AND SHRI LALIET KUMAR, JUDICIAL MEMBER ITA No.403/Hyd/2020 (Assessment Year : 2015-16) M/s. Rocksalt Interactive Income Tax Officer, Vs. Games Pvt. Ltd., Ward 3(2), Hyderabad. Hyderabad. PAN AAFCR3033A (Appellant) (Respondent) Appellant By : Shri P. Murali Mohan Rao, C.A. Respondent By : Shri Vijay Bhaskar Reddy, CIT-DR Date of Hearing : 16.11.2022 Date of Pronouncement : 12.12.2022 O R D E R Per Shri Laliet Kumar, J.M. : This appeal filed by the assessee is directed against the order dt.30.03.2020 of the learned PR. Commissioner of Income Tax/CIT-3, Hyderabad relating to Assessment Year 2015-16 u/s. 263 of the Income Tax Act, 1961 (in short ‘the Act’).
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The brief facts of the case are that the assessee is a company filed its Return of Income for Assessment Year 2015-16 on 30.09.2015 declaring total income of Rs.32,85,340 after adjusting brought forward losses and unabsorbed depreciation of earlier years amounting to Rs.72,53,049. The Assessing Officer completed the assessment vide assessment order dt.15.11.2017 by accepting the income returned by the assessee. The PCIT/CIT-3, Hyderabad called for the records and found that the income was set off against the brought forward business losses and brought forward depreciation of earlier assessment years 2013-14 & 2015-15 which are not allowed since the returns of income were filed beyond the due dates as described u/s. 139(1) of the Income Tax Act, 1961 (in short ‘the Act’). Hence, show cause notice dt.28.02.2020 was issued to the assessee and the assessee filed its reply raising objections as under :
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i) Assessment for the year under consideration is completed and returned income assessed correctly. ii) No revisionary proceedings can be made on the issues examined by the Assessing Officer. iii) Two views are possible.
After considering the assessee’s reply, the PCIT/ CIT-3 held in paras 5 and 6 as under :
“5. The issues in the show-cause notice and the objections raised by the assessee are dealt with as under: It is seen from the Assessment Record, Return of Income filed for the AY 2015- 16 on 30.09.2015 declaring the total income at Rs.32,85,340/- after adjusting brought forward losses and unabsorbed depreciation of earlier years amounting to RS.72,53,049/-, which includes business loss pertaining to AY.2013-14 and AY.2014-15 for Rs.22,79,265/- and Rs.3,08,067/- respectively. However, the assessee is not entitled for adjustment of brought forward of losses pertaining to the Asst. year 2013-14 and AY.2014-15 since the assessee filed the returns of income for the Asst. Year 2013 -14 on 25.06.2015 and for the AY.2014-15 on which is not within the time allowed u/s 139(i) of the Income Tax Act 1961. As per section 80 of the Income Tax Act, which is reproduced as under: Sec.80. "Notwithstanding anything contained in this Chapter, on loss which has not been determined in pursuance of a return filed in accordance with the provisions of subsection (3) of section 139 shall be carried forward and set off under sub-section (1) of Section 72 or sub-section (2) of section 73 or sub- section (2) of section 73A or sub-section (1) or subsection (3) of section 74 or sub-section (3) of section 74A" and as per as per sub-section (3) of Section 139 of the I.T. Act, 1961 If any person who has sustained a loss in any previous year under the head "Profits and gains of business or profession" or under the head "Capital gains" and claims that the loss or any part thereof should be carried forward under subsection (1) of section 72, or sub-section (2) of section 73, or sub-section (2) of section 73A or sub-section (1) or sub-section (3) of section 74, or sub-section (3) of section 74A, he may furnish, within the time allowed under sub-section (1) under sub-section (1), a return of loss in the prescribed form and verified in the prescribed manner and containing such
4 ITA No.403/Hyd/2020 other particulars as may be prescribed, all the provisions of this Act shall apply as if it were a return under sub-section(1). The assessee, in its objections, never stated whether as per law, when the returns of income, especially for the A.Y. 2013-14 & 2014-15, which are under consideration, have been filed beyond due date were "permissible u/s 139(1), whether it is entitled for carry forward and set off of business losses of those years to subsequent assessment years or not. It is hereby stated that no 'two views 'are possible on this issue. A perusal of the statement of total income filed by the assessee shows that the total income of the assessee for A.Y. 2015-16 is Rs. 105.38 lakhs and it arrived at the taxable income after adjusting the brought forward losses and depreciation of Rs.72.53 lakhs. The bifurcation or the details of these brought forward losses and depreciation and. whether the assessee is entitled for set off of the same against current year's income have not been verified by the AO while completing the scrutiny assessment. Only when the AO applied his mind and takes a decision in consonance with the legal position arid as per the provisions of the Act, then the revisionary powers by-the Commissioner u/s 263 cannot be resorted to. But in the present case, the order passed by the AO allowing the set off of the brought forward business losses is in utter disregard of the provisions of I.T. Act. Reliance is also placed on the-following case laws: 1. Aruba Mills - 231 ITR 50 Supreme Court 2. Nine Star Enterprises Pvt. Ltd. 30 Taxmann.com 57 Hyderabad Tribunal. 3. Venus Woolen Mills 105 Taxmann.com 287 P&H 4. Dharti Dredging & Infra Ltd. 35 Taxmann.com 563 Hyderabad Tribunal 5. Mahalaxmi Liquor Promoters Pvt. Ltd. 29 Taxamann.com 70 Hyderabad Tribunal 6. In the light of the above discussions, the order dated 15.11.2017 passed by the AO, on the issues raised in the show-cause letters, as mentioned above, is treated as erroneous to the extent that it is prejudicial to the interest of revenue and is hereby set aside. The AO is directed to give necessary opportunity to assessee and redo the assessment in line with the legal position and provisions of Act as mentioned above.”
Aggrieved by the order u/s. 263 of PCIT/CIT-3, the assessee is in appeal before the Tribunal raising the following grounds of appeal :
5 ITA No.403/Hyd/2020 “1. The order of the Pr. CIT passed u/s. 263 of the Income Tax Act, 1956 is erroneous both on facts and in law. 2. (a) The Ld. Pr. CIT erred in issuing the show-cause notice dated 28.02.2020 by considering the assessment order dated 15.11.2017 NILL passed u/s. 143(3) of the Act for the purpose of revision u/s.263 of the Act. (b) The Ld. Pr. CIT ought to have appreciated that the very issue of incorrect carry forward and set off of losses raised by him in his show-cause notice dated 28.02.2020 has already become the subject matter of rectificatory proceedings u/s. 154 of the Act initiated by the Assessing Officer on 27.06.2018. (c) The Ld. Pr. CIT ought to have appreciated that by the time of issue of show- cause notice by the Pr. CIT, the Assessing Officer has already issued a notice u/s.154 of the Act dated 27.06.2018 proposing to rectify the same mistake of incorrect carry forward and set off of business loss of Rs.22,79,265/- relating to the assessment year 2013-14 against income for the assessment year under consideration. (d) The Ld. Pr. CIT ought to have appreciated that he cannot exercise revisionary jurisdiction u/s. 263 of the Act on the order dated 15.11.2017 passed u/s. 143(3) of the Act when the "proceedings" u/s. 154 of the Act have been initiated by the Assessing Officer on 27.06.2018 i.e., well before the date of issue of show-cause notice by the Ld. Pr. CIT, the subject matter of revision and the rectification being the same. (e) The Ld. Pr. CIT ought to have appreciated that when the Assessing Officer had completed the proceedings initiated u/s. 154 of the Act by stating, "the proceedings initiated u/s. 154 of the Act for assessment year 2015-16 are dropped" it was an order which could be revised u/s. 263 of the Act. 3. (a) Without prejudice to other grounds, the Ld. Pr. CIT ought to have appreciated that the order passed u/s. 263 of the Act dated 30.03.2020 is liable to be set-aside on the ground that no valid opportunity of being heard has been given to the assessee. (b) Without prejudice to other grounds, the Ld. Pr. CIT, before passing the revision order, ought to have given fresh opportunity of being heard to the assessee after the date of dropping of the proposed action u/s. 154 of the Act i.e., after 17.03.2020. (c) Without prejudice to other grounds, the Ld. Pr. CIT ought to have appreciated that the impugned order u/ s 263 of the Act is invalid on the ground that no show-cause notice was properly served and no reasonable opportunity was afforded to the assessee to have its say in tune with the ratio laid down by the Apex Court in the case of CIT v. Ramendra Ghosh (1971) 82 ITR 888 (S.C.) 4. Without prejudice to other grounds, the Ld. Pr. CIT has failed to apply his mind while issuing the show-cause notice dated 28.02.2020 in as much as the assessee is entitled to the carry forward and set off of business loss of Rs.3,08,067/ - pertaining to the assessment year 2014-15 in respect of which
6 ITA No.403/Hyd/2020 the original return of income has been filed on 30.11.2014 vide e-filing acknowledgment number 433704181301114 i.e., within the time s 139(1), of the Act. 5. The appellant may, add or alter or amend or modify or substitute or delete and / or rescind all or any of the grounds of appeal at any time before or at the time of hearing of the appeal.”
The learned Authorised Representative submitted that when the proceedings u/s. 154 of the Act have been initiated by the Assessing Officer on 27.06.2018 i.e. well before the date of issue of show cause notice by the Ld. PCIT, the subject matter of revision and the rectification remained the same. He further submitted that no show- cause notice was properly served on the assessee and no reasonable opportunity was afforded to the assessee in tune with the ratio laid down by the Hon'ble Supreme Court in the case of CIT Vs. Ramendra Ghosh 82 ITR 888 (SC). He further submitted that the order of Pr. CIT’s order u/s. 263 of the Act be set aside and allow the appeal of the assessee / restore the matter for verification of the filing of returns of income submitted for the Assessment Years 2013-14 and 2014-15.
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Learned Departmental Representative supported the orders of authorities below.
We have heard both the parties and perused the material available on record. In the present case, assessee company filled its return of income for AY 2015-16 claiming brought forward and set off of business loss pertaining to AY 2013-14 and AY 2014-15. The case was taken up for scrutiny assessment proceedings and the return of income was accepted. However, subsequently, ld.PCIT had issued a notice under 263 of the Income Tax Act 1961 for the reasons that AO had passed the Assessment order u/s 143(3) of the Act by allowing the brought forward and set off business loss, claimed by the assessee company without making sufficient inquiry. In the present case, once a set off of loss has been disclosed in the income tax return filed for the AY 2013-14, and such set off loss has not been disturbed and was accepted, then the question arises as to whether
8 ITA No.403/Hyd/2020 ld.PCIT can disturb the concluded returns for the previous years, for the Assessment Year AY 2015-16 or not. It was the contention of the learned counsel for the assessee that it has claimed the brought forward of losses pertaining to the AY 2013-14 firstly in the return of income filed for the AY 2014-15. The return of income filed for AY 2014-15 was duly processed U/s. 143(1) of the Act and was accepted by the department, hence the action on the part of ld. PCIT invoking power U/s. 263 of the Act was not appropriate as the correct and legal course for ld.PCIT was to exercise such power for A.Y 2014-15. In support of the above, assessee relied on the decision of the Hon'ble ITAT Hyderabad in the case of ACIT Vs. Asian Entertainments in ITA No. 768/HYD/2o14(Para 6), wherein it was held as under;
"6. We have considered the submissions of the parties and perused the materials on record as well as the orders of revenue authorities on this issue. As can be seen from the facts on record, in the return filed for the AY 2005-06, assessee quantified loss to be carried forward at Rs. 1,83,07041. The return filed by assessee for the AY 200s-06 on 01/11/2006 was processed u/s 143(1) and the loss quantified was allowed to be carried forward. In the return of income filed for AY 2006- 07 assessee set off brought forward loss of Rs. 92,85,891 and declared the income at nil. Intact, assessment was also completed u/s143(3) of the Act after allowing set off of brought forward loss. Subsequently, on finding that assessee having filed the return of income for AY 2005-06
9 ITA No.403/Hyd/2020 after due date as prescribed u/s 139(1) of the Act, hence, no loss can be carried forward, AO initiated proceeding u/s 154 of the Act and ultimately passed the order disallowing the set off of brought forward loss of Rs. 92,85,891. In our view exercise of power u/s 154 of the Act in the present case is totally invalid. As ;can be seen, the loss of Rs. 92,85,891 was quantified and allowed to be carried forward while processing return filed by assessee u/s 143(1) of the Act for AY 2005-06. However, the loss and depreciation involved was not verifiable. Therefore, if at all there is a mistake, then, it is in the quantification and carry forward of loss in AY 2005-06 because of the fact that loss could not have been carried forward due to delayed filing of return of income. However, once loss was quantified and allowed to be carried forward in AY 2005-06, we are not able to understand how it can be rectified in AY 2006-07 wherein the brought forward loss has only been set off. Therefore, there being no mistake apparent on record in the assessment order passed for the impugned AY, exercise of power u/s 154 of the Act is invalid. Accordingly, there being no infirmity in the order of ld. CIT(A), we uphold the same by dismissing ground raised.
Further, assessee placed reliance on the decision
of the Hon'ble ITAT Hyderabad in the case of RCC
Laboratories India Pvt Ltd Vs. DCIT in ITA NO.
459/Hyd/2o16(Para 7.2), wherein it was held as under;
"As already stated above, the change in shareholding has not occurred in previous year pertaining to AY. 2011-12 or 2012-13, but in AY. 2009- 10. No proceedings were initiated for that assessment year or for AY. 2010-11 in which such M/s. RCC Laboratories India Pvt. Ltd., quantification has taken, either to examine whether the provisions of Section 79 are applicable or to quantify the correct losses to be allowed to be determined and carried forward. It was the contention that the proviso to section 79 will apply as the ownership of the holding company has changed and not the shareholding of assessee-company. Be that as it may, since the change in shareholding has occurred in AY. 2009-10. exercising the powers u/s. 263 in AYs. 2011-12 and 2012-13, holding the orders as erroneous and prejudicial to revenue is not appropriate."
10 ITA No.403/Hyd/2020 9. Admittedly, the revenue has not initiated any proceeding for the assessment year 2014-15 under the Income Tax Act 1961, wherein the assessee had claimed brought forward and set off of business loss. The adjustment in the present assessment year was only a consequence of claim already made by the assessee during the earlier assessment year, which was allowed by the department. The right course available with the revenue was to initiate the proceedings under section 263 for the assessment year 2014-15, which had not been done for the reason best known to the respondent. In the light of the above, there was no justification for the ld.PCIT to initiate the action under section 263 of the Act. In our view, ld.PCIT, can initiate the proceedings under section 263 of the Act, for the year under consideration only, if, on examination of the record, it comes to the notice of the ld.PCIT that the order passed by the assessing officer was erroneous and prejudicial to the interest of the revenue. In the case in hand, we do not find any reason to hold that the order passed by the assessing officer was erroneous, as
11 ITA No.403/Hyd/2020 Assessing Officer had only given effect to the earlier assessment year only whereby the claim of the assessee for brought forward and set off of losses have been allowed. Hence, the order passed by the ld.PCIT was without any cause of action for the present assessment year and accordingly, we quash the order.
There is another reason for quashing the impugned order passed by ld.PCIT. In this case, a notice u/s 154 dated 27.06.2018 was issued to rectify the order u/s 143(3) for AY 2015-16. However, subsequently, an order u/s 154 of the Act was passed on 17.03.2020 dropping the proceedings-initiated u/s 154 of the Act 27.06.2018 considering the objections raised by the assessee company. Interestingly, ld.PCIT initiated revisionary proceedings u/s 263 of the Act by issuing a show cause notice on 28.02.2020, when Assessing Officer was already seized with the rectification proceedings U/s. 154 of the Act as mentioned herein above Assessing Officer was satisfied with the reply given by the assessee and thereafter Assessing
12 ITA No.403/Hyd/2020 Officer had dropped the rectification proceedings. At this juncture, it is very pertinent to note that when the rectification proceedings were dropped, the ld.PCIT could not have exercised the revisionary proceedings U/s. 263 of the Act on the assessment order without showing that dropping of the rectification proceedings was improper. It was contended before us that when the rectification proceedings U/s. 154 of the Act were initiated and dropped then the original assessment order got merged with the rectification order. In support of the above, reliance was placed on the decision of the Hon'ble High Court of Guwahati in the case of B & A Plantation & Industries Ltd. Vs CIT (290 ITR 395) wherein it was held as under:
"The power to reopen an assessment under section147, the power to rectify an order under section 154 and the power to suo motu revise an assessment under section 263; operate in different and distinct fields. The authorities prescribed for the exercise of such powers are also different as are the facts and situations which would justify recourse to the provisions. To permit the revisional authority to exercise powers under section 263 on the ground that excess deduction on account of bonus has been allowed, would amount to permitting the revisional authority to intrude upon the powers of the authorities under sections 147 and 154. A revisional authority cannot entrench upon the powers which are expressly reserved by the Act in favour of the other authorities. The Act nowhere authorizes the revisional authority to intrude into inquiries properly made by the assessing authority and to reopen an already completed assessment."
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For an order to be revised u/s 263 of the Act, the twin conditions are required to be satisfied i.e., the assessment order being erroneous as well as prejudicial to the interest of revenue. In the present case, the AO had made necessary enquiries regarding the brought forward loss during the assessment and as well as during rectification proceedings. Hence, it cannot be said that the order was passed without making proper enquiry by the Assessing Officer. In our view, the Assessing Officer had applied his mind to the subject matter of the proceedings u/s 263 and thereafter, had allowed the claim of the assessee. The Revenue had failed to prove as to how the order of the Assessing Officer for current assessment year was erroneous and prejudicial to the interest of revenue. In view of the above, the order passed by the ld.PCIT was without any basis and accordingly, we quash the same. Thus, the appeal of the assessee is allowed.
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In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 12th December, 2022.
Sd/- Sd/- (RAMA KANTA PANDA) (LALIET KUMAR) Accountant Member Judicial Member
Hyderabad, Dt. 12.12.2022. * Reddy gp Copy to : 1. M/s. Rocksalt Interactive Games Pvt. Ltd., C/o P Murali & Co. C.As, 6-3-655/2/3, Somajiguda, Hyderabad-500 082 2. Income Tax Officer, Ward 3(2), Hyderabad. 3. Pr. C I T/CIT-3, Hyderabad. 4. Addl. CIT, Range 3, Hyderabad. 5. DR, ITAT, Hyderabad. 6. Guard File.
By Order
Sr. Pvt. Secretary, ITAT, Hyderabad.