UCAL LIMITED,CHENNAI vs. PCIT, CHENNAI-3,, CHENNAI

4. Impairment loss relating to the investment in equity shares cannot be held to be revenue in nature and hence not allowance as business loss. The assessee has also not substantiated during the assessment proceedings how the investment in the subsidiary was linked to augmenting the business of the assessee. The assessee has also not cited any specific judicial decision in support of its claim.

5. Employees contribution to EPF and ESI amounting to Rs.1,67,03,428/- has been remitted into the respective fund accounts beyond the due date as per the relevant statutes. Hence the same is required to be disallowed and treated as income of the assessee u/s.36(1)(va) r.w.s. 2(24)(x) of the Act.

6. However, the Assessing Officer has without making proper verification, which should have been made, has passed the assessment order without considering the above issue. In view of the above, the order passed u/s.143(3) r.w.s 144B of the Income Tax Act on 20.09.2022 by the Faceless Assessing Officer is erroneous and prejudicial to the interest of revenue in terms of clause (a) of Explanation 2 under sub-section(1) of section 263. Hence, this is fit case for initiating proceedings u/s 263 of the Income-tax Act, 1961.”

4. The assessee had objected to the said Show Cause Notice in contending that the issues on which revisionary proceedings in terms of Section 263 of the Act were being initiated was already scrutinised and accepted the Assessing Officer during the course of scrutiny assessment proceedings in terms of Section 143(3) of the Act and any attempt to assuming jurisdiction u/s.263 of the Act would amount to substitution of the view of the Assessing Officer, which is not permissible under the law.

:-4-: ITA. No.:1018/Chny/2025 “8. I have considered the submissions of the assessee. However, as mentioned in the Page 14 of 16 AAACU0541K- UCAL LIMITED A.Y. 2020- 21 ITBA/REV/F/REV5/2024-25/1074945844(1) show-cause notice, the perusal of record shows that on the above issues the Assessing Officer did not verify the issues properly. When the Assessing Officer did not verify the issues properly, the order shall be prejudicial to the interests of the Revenue. Also, an incorrect assumption of facts by the AO would make the order of assessment erroneous and prejudicial to the interests of the Revenue.

11. However, during the course of proceedings u/s 263, the assessee has stated that actually there was delay in remittance to the respective account,yet the quantification is incorrect; only the amount of Rs.1,12,00,250/- was remitted belatedly. Moreover, with regard to these amounts also, the assessee has stated that as per the Hon’ble Supreme Court's order dated 08.03.2021, all the due dates were extended for a further period of 90 days from 15.03.2021.Therefore, the Assessing Officer is hereby directed to verify the correctness of the claim and then add or disallow the amounts accordingly. The assessee is also directed to provide case laws if any, justifying the claim that belated payment of Employee’s contribution towards ESI and PF will also be covered by this order.

12. It is seen that the assessee has debited a sum of Rs.105.09 crore towards exceptional items in the Profit and Loss account for F.Y 2019-20 towards impairment of investment in its wholly owned subsidiary company and the impairment loss has been treated as business loss. It is observed that as investment in shares is capital in nature, any decrease / diminution in value of investments represents provision which is not an admissible deduction u/s.37 of the Act. However, in the assessment order u/s.143(3) r.w.s. 144B dated 20.09.2022, the same has not been disallowed resulting in underassessment of income by Rs.25.81 crore and excess carry forward of loss of Rs.79.27 crore.

:-5-: ITA. No.:1018/Chny/2025

14. Impairment loss relating to the investment in equity shares cannot be held to be revenue in nature and hence not allowable as business loss. The AO has also not caused necessary enquiries during the assessment proceedings how the investment in the subsidiary was linked to augmenting the business of the assessee.

6. Aggrieved by the said order, the assessee is before us in challenging the revision order dated 24.03.2025 passed in terms of Section 263 of the Act.

7. Before us, the Ld. AR took us through the voluminous paperbook filed before us, wherein the notices and replies filed during the course of scrutiny assessment proceedings as detailed below:

Sl. Date Particulars Page No. No. FINANCIALS FOR AY: 2020 – 21 1. 15.02.2021 Return of income 1 2. 14.01.2021 Form No. 3CA – 3CD 99 3. 31.07.2020 Audited Financials 161 SCRUTINY ASSESSMENT PROCEEDINGS IN TERMS OF SECTION 143(3) OF THE ACT

:-6-: ITA. No.:1018/Chny/2025

:-7-: ITA. No.:1018/Chny/2025

34. 03.06.2025 Commissioner of Income-tax v. Vellore Institute of 595 Technology - High Court of Madras - 175 taxmann.com 277 35. 11.02.2014 Aroni Commercials Ltd. v. Deputy Commissioner 602 of Income-tax -2(1) - High Court of Bombay - 362 ITR 403

9. The Ld.AR argued that the Assessing Officer had subsequently issued the notice u/s.142(1) of the Act dated 08.12.2021 in DIN & Notice No.ITBA/AST/F/142(1)/2021-22/1037612801(1) in calling for the following documents:

:-8-: ITA. No.:1018/Chny/2025

10. The assessee in response to the above notice had responded in explaining the reasons for claim of the disputed deduction for the A.Y. under consideration vide Acknowledgement No. 146443251090222 and the same reads as follows:

11. The Ld.AR argued that the Assessing Officer after taking on record the details filed during the course of assessment proceedings in accepting the claim of deduction as business loss, had proceeded to pass scrutiny assessment order dated 20.09.2022 by allowing the said claim of Rs.105.09 crore as exceptional items in the P & L a/c. as impairment loss of investment in its wholly owned subsidiary company / treatment of such impairment loss as business loss.

12. Hence, the Ld.AR argued that there was complete application of mind by the Assessing Officer on the facts and in the circumstances of the present case

:-9-: ITA. No.:1018/Chny/2025 inasmuch there exists no error in the order of the scrutiny assessment order passed on 20.09.2022 warranting interference in terms of Section 263 of the Act.

13. With respect to the second issue on the validity of claim of the employees’ contribution to EPF and ESI amounting to Rs.1,67,03,428/- on account of the same being remitted into the respective fund accounts beyond the due date as

per the relevant statutes, the Ld.AR argued that although the said sum was remitted beyond the stipulated time limit prescribed under the respective statute, the same was remitted well before the due date prescribed for filing return of income in terms 139(1) of the Act, thereby establishing the fact of the said sum being eligible for deduction in terms of Section 43B of the Act in the computation of taxable total income.

14. The Ld.AR argued that the said submission was supported by the decision of the jurisdictional High Court in the case of CIT v. Industrial Security & Intelligence India P. Ltd. [TCA Nos.585 & 586 of 2015 dated 24.07.2015], which ratio was binding upon the assessee as well as the Jurisdictional Assessing Officer both at the time of filing of the return of income for the assessment year under consideration as well as at the time of passing of the scrutiny assessment order dated 20.09.2022.

15. The Ld.AR argued that the Hon’ble Madras High Court in the aforesaid decision had held that if the assessee had remitted the employee’s contribution towards PF/ESI before the due date of filing of the return of income u/s.139(1)

:-10-: ITA. No.:1018/Chny/2025 of the Act, no disallowance was warranted in terms of Section 36(1)(va) r.w.s.

2(24)(x) of the Act.

:-11-: ITA. No.:1018/Chny/2025 order in terms of Section 143(3) of the Act in allowing the said claim / accepting the replies filed by the assessee would warrant interference by the ld.PCIT and accordingly pleaded for dismissing the appeal filed by the assessee in confirming the revision order passed u/s.263 of the Act.

We find that before adjudicating the issues arising from the impugned order, it is pertinent to first examine the scope of revisional jurisdiction u/s.263 of the Act. For that, we take guidance from the law laid down by the Hon'ble Apex Court in the case of Malabar Industries Ltd. vs. CIT, reported [2000] 243 ITR 83(SC) wherein their Lordship have held that twin conditions should be satisfied before jurisdiction u/s.263 of the Act is exercised by the Ld.CIT.

20. The twin conditions which need to be satisfied are that:

(i) the order of the Assessing Officer must be erroneous and (ii) as a consequence of passing an erroneous order, prejudice is caused to the interest of the Revenue. In the following circumstances, the order of the AO can be held to be erroneous i.e. (i) if the Assessing Officer's order was passed on assumption of incorrect facts; or assumption of incorrect law; (ii) Assessing Officer's order is in violation of the principles of natural justice; (iii) if the AO's order is passed without application of mind; or (iv) if the AO has not investigated the issue before him.

:-12-: ITA. No.:1018/Chny/2025 21. In the circumstances enumerated above, the order passed by the Assessing Officer can be termed as erroneous for the purpose of Section 263 of the Act. Coming next to the second limb, the AO's erroneous order can be revised the Ld.CIT only when it is shown that the said order is prejudicial to the interest of Revenue. When this aspect is examined one has to understand what is prejudicial to the interest of the revenue. The Hon'ble Supreme Court in the case of Malabar Industries (supra) held that this phrase i.e. "prejudicial to the interest of the revenue'' has to be read in conjunction with an "erroneous" order passed by the Assessing Officer. The Hon’ble Supreme Court, held that for invoking powers conferred by section 263; the ld.CIT should not only show that the AO's order is erroneous as a result of any of the situations enumerated above but ld.CIT must also further show that as a result of an erroneous order, some loss is caused to the interest of the revenue. Their Lordship in the said judgment held that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue.

It was further observed that when the Assessing Officer adopts one of the course permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the Ld. CIT does not agree, it cannot be treated as an order prejudicial to the interest of the revenue unless the view taken by the Assessing Officer is unsustainable in law.

“19. A bare reading of sub-Section (1) of Section 263 of the Act makes it abundantly clear that the said provision lays down a two- pronged test to exercise the revisional authority i.e., firstly, the 17:06:54 assessment order must be erroneous and secondly, it must be prejudicial to the interests of the Revenue. Further, Explanation 2 to Section 263 of the Act delineates certain conditions and circumstances when the order passed by the AO can be said to be erroneous and prejudicial to the Revenue.

Further, we find that the Hon’ble High Court of Bombay in the case of PCIT vs. Shivshahi Punarvasan Prakalp Ltd., in of 2018dated 05.08.2022 has considered the issue of no enquiry case or inadequate enquiry even after the insertion of Explanation 2, wherein at para 32, the Hon’ble Bombay High Court had held as under:-

“32. In this appeal, we are concerned with the assessment year 2006-07. Prior to the insertion of Explanation 2, it was the prerogative of the Assessing Officer to determine what enquiry he wants to make while completing the :-15-: ITA. No.:1018/Chny/2025 assessment. We have already observed that an enquiry was made by the Assessing Officer and the assessment order passed. Therefore, the CIT could not invoke jurisdiction under Section 263 as the view taken by the Assessing Officer was a possible/plausible view. It was only if the Assessing Officer had not made any enquiry then it could be said that the order passed was erroneous. This is not a case of lack of enquiry though it may be a case of inadequate enquiry. Inadequacy of enquiry as elucidated above does not give jurisdiction to the CIT to invoke provisions of Section 263 prior to the insertion of Explanation 2. In our view, the Explanation 2 does not help the revenue in as much as the same is prospective and applicable with effect from 1st June, 2015.”

:-16-: ITA. No.:1018/Chny/2025 considering another decision of the same High Court in the case of GKN Sinter Metals Ltd., vs. ACIT reported in 371 ITR 225 has categorically pointed out that an assessment order passed u/s.143(3) of the Act does not reflect any consideration of the issue, it must follow that no opinion was formed by the AO in the regular assessment proceedings. This submission was negated by the Hon’ble Bombay High Court and the relevant paras 10 & 11 reads as under:-

“10. It is undisputed position before us, that query was raised on the very issue of reopening during regular Assessment proceedings. The parties have responded to it and the Assessment Order dated 30 January 2018 makes no reference to the above issue at all. However, once a query has been raised by the Assessing Officer during the assessment proceedings and the assessee has responded to that query, it would necessarily follow, as held by our Court that the Assessing Officer has accepted the Petitioner’s/Assessee’s submissions, so as to not deal with that issue in the assessment order. In fact, our Court in GKN Sinter Metals Ltd. V/s. Ms. Ramapriya Raghavan, Assistant Commissioner of Income Tax, Circle 2(1) (371) ITR 225 had occasion to dealt with the similar/identical submissions on behalf of the Revenue viz. that an assessment order passed under Section 143(3) of the Act does not reflect any consideration of the issue, it must follow that no opinion was formed by the Assessing Officer in the regular assessment proceedings. This submission was negatived by this Court by observing as follows :-

:-17-: ITA. No.:1018/Chny/2025 dated 6 th August, 2007 addressed by the Assessing Officer to the Petitioner containing the reasons recorded for issuing the impugned notice also record the fact that during the regular assessment proceedings, the Petitioner has been asked to furnish details in support of the claim for exemption under Section 80IA/IB of the Act. The letter further records that the details sought for were furnished and it is now observed that there has been a disproportionate distribution of expenses between various units belonging to the Petitioner for claiming deduction under Section 80IA/IB of the Act. This is a further indication of the fact that the Assessing Officer had during the regular assessment proceedings for Assessment Year 200203 sought information in respect of the allocation of expenses and the explanation offered by the Petitioner was found to be satisfactory. This is evident from query dated 27 th December, 2004 and the Petitioner's response to the same on 25 th January, 2005 explaining the manner of distribution of common expenses for delaying the process of claiming deduction under Section 80IA/IB of the Act. All this would indicate that Assessing Officer had formed an opinion while passing the order dated 9 th March, 2005. This Court in Aroni Commercials Ltd. v/s. Assistant Commissioner of Income Tax 367 ITR 405 had occasion to consider somewhat similar submission made by the Revenue and negatived the same by holding that when a query has been raised with regard to a particular issue during the regular assessment proceedings, it must follow that the Assessing Officer had applied his mind and taken a view in the matter as is reflected in the Assessment Order. Besides, the manner in which an Assessing Officer would draft/frame his order is not within the control of an assessee. Moreover, if every contention raised by the assessee which even if accepted is to be reflected in the assessment order, then as observed by the Gujarat High Court in CIT v/s. Nirma Chemicals Ltd. 305 ITR 607, the order would result into an epic tome. Besides, it would be impossible for the Assessing Officer to complete all the assessments which have to under gone scrutiny at its hand. In the above view, it is clear that once a query has been raised during the assessment proceedings and the Petitioner has responded to the query to the satisfaction of the Assessing Officer as is evident from the fact that the Assessment Order dated 9 th March, 2005 accepts the Petitioner's claim for deduction under Section 80IA/IB of the Act. It must follow that there is due application of mind by the Assessing Officer to the issue raised.

The above observations apply on all fours to this Petition, so far as the Revenue’s submission of no change of opinion is concerned.

:-18-: ITA. No.:1018/Chny/2025

11. The further submission of Mr. Walve that in the absence of the Assessing Officer adjudicating upon the issue it cannot be said that the Assessing Officer had formed an opinion during the regular assessment proceedings leading to the order dated 30 January 2018. An adjudication would only be on such issue where the assessee’s submissions are not acceptable to the Revenue, then the occasion to decide a lis would arise i.e. adjudication. However, where the Revenue accepts the view propounded by the assessee in response to the Revenue’s query, the Assessing Officer has certainly to form an opinion whether or not the stand taken by the assessee is acceptable. Therefore, it must follow that where queries have been raised during the assessment proceedings and the assessee has responded to the same, then the non-discussion of the same or non-rejection of the response of the assessee, would necessarily mean that the Assessing Officer has formed an opinion accepting the view of the Assessee. Thus an opinion is formed during the regular Assessment proceedings, bars the Assessing Officer to reopen the same only on account of a different view.”

Furthermore, the Hon’ble Madras High Court in the case of Commissioner of Income-tax v. Vellore Institute of Technology, reported in 175 taxmann.com 277, while examining the validity of the assumption of jurisdiction under Section 263 of the Act, had held as follows:

“10. It is true that the assessment order dated 14.12.2011 does not discuss the queries raised or the answers given thereto. But the fact is, the Assessing Officer had issued a questionnaire dated 26.07.2011 under Section 142 (1) of the Act raising 34 questions on various issues and assessee had given an explanation and also submitted materials. In our view, once a notice is issued and assessee is called upon to show cause or give explanation or submit documents and assessee has complied, not giving a finding or discussing the same would mean that the Assessing Officer was satisfied with the explanation given by the assessee.

:-19-: ITA. No.:1018/Chny/2025 as there is no discussion or finding on the 34 questions raised under Section 142(1) of the Act, vide the communication dated 26.07.2011, the Assessing Officer should be taken as having accepted assessee's explanation. Paragraph 14 of Aroni Commercials Limited (supra) reads as under:

" 14) We find that during the assessment proceedings the petitioner had by a letter dated 9 July 2010 pointed out that they were engaged in the business of financing trading and investment in shares and securities. Further, by a letter dated 8 September 2010 during the course of assessment proceedings on a specific query made by the Assessing Officer, the petitioner has disclosed in detail as to why its profit on sale of investments should not be taxed as business profits but charged to tax under the head capital gain. In support of its contention the petitioner had also relied upon CBDT Circular No.4/2007 dated 15 June 2007. (The reasons for reopening furnished by the Assessing Officer also places reliance upon CBDT Circular dated 15 June 2007). It would therefore, be noticed that the very ground on which the notice dated 28 March 2013 seeks to reopen the assessment for assessment year 2008-09 was considered by the Assessing Officer while originally passing assessment order dated 12 October 2010. This by itself demonstrates the fact that notice dated 28 March 2013 under Section 148 of the Act seeking to reopen assessment for A.Y. 2008-09 is based on mere change of opinion. However, according to Mr. Chhotaray, learned Counsel for the revenue the aforesaid issue now raised has not been considered earlier as the same is not referred to in the assessment order dated 12 October 2010 passed for A.Y. 200809. We are of the view that once a query is raised during the assessment proceedings and the assessee has replied to it, it follows that the query raised was a subject of consideration of the Assessing Officer while completing the assessment. It is not necessary that an assessment order should contain reference and/or discussion to disclose its satisfaction in respect o f the query raised. If an Assessing Officer has to record the consideration bestowed by him on all issues raised by him during the assessment proceeding even where he is satisfied then it would be impossible for the Assessing Officer to complete all the assessments which are required to be scrutinized by him under Section 143(3) o f the Act. Moreover, one must not forget that the manner in which an assessment order is to be drafted is the sole domain of the Assessing Officer and it is not open to an assessee to insist that the assessment order must record all the questions raised and the satisfaction in respect thereof of the Assessing Officer. The only requirement is that the Assessing Officer ought to have considered the objection now

:-20-: ITA. No.:1018/Chny/2025 raised in the grounds for issuing notice under Section 148 of the Act, during the original assessment proceedings. There can be no doubt in the present facts as evidenced by a letter dated 8 September 2012 the very issue of taxability of sale of shares under the head capital gain or the head profits and gains from business was a subject matter of consideration by the Assessing Officer during the original assessment proceedings leading to an order dated 12 October 2010. It would therefore, follow that the reopening of the assessment by impugned notice dated 28 March 2013 is merely on the basis of change of opinion of the Assessing Officer from that held earlier during the course of assessment proceeding leading to the order dated 12 October 2010. This change of opinion does not constitute justification and/or reasons to believe that income chargeable to tax has escaped assessment.

Moreover, the claim made by the assessee in the Profit & Loss account was not proved to be erroneous by the ld.PCIT in the impugned order for validly assuming jurisdiction u/s.263 of the Act in view of the erosion in :-21-: ITA. No.:1018/Chny/2025 value of the investment made which on the facts of the case to be reckoned as revenue loss inasmuch as such investment should be considered as part of the extension of the business operation at the said point in time. Therefore, we are not inclined to uphold the impugned action of Ld.PCIT on the facts and circumstances of the case with regard to the first issue.

30.1. The Assessing Officer after examining the reply filed by the assessee had proceeded to pass the scrutiny assessment order in not making an addition / disallowance in this regard. We find that the decision of the Hon’ble Supreme Court in the case of Checkmate Services (P.) Ltd. v. Commissioner of Income-tax-1, reported in 448 ITR 518 was passed subsequent to passing of the scrutiny assessment order in terms of Section 143(3) of the Act on the facts of the present case. To put it

:-22-: ITA. No.:1018/Chny/2025 differently, the scrutiny assessment order was passed on 20.09.2022, wherein the decision of the Hon’ble Supreme Court was rendered on 12.10.2022.

“6. Likewise, in respect of the next issue i.e. AO’s action of allowing deduction regarding remittance of employee’s contribution towards PF/ESI. It is noted that the AO had called for details of employee’s remittances to PF/ESI which fact is discernable from the notice issued by the AO u/s.142(1) of the Act dated 10.02.2020 which is found placed at Page Nos.11-20 of the Paper Book. It is noted that the AO by asking query No.14 [found placed at Page No.19 of the Paper Book] had asked the assessee to give details about the employee’s contribution towards PF/ESI and also asked assessee as to whether the contribution has been remitted/paid within the due date prescribed in explanation to clause (va) of Sec.36(1) of the Act. Pursuant to such a query, the assessee replied to AO on 06.08.2020 [a copy of which is found placed at Page Nos.23-25 of the Paper Book at Page No.25], in tabular form giving the details of (i) sums separately regarding employee’s contribution towards PF/ESI received from employee’s (PF & ESI) (ii) due date of payment (iii) actual amount paid (iv) actual date of payment to the authorities (PF/ESI). It is noted that after such enquiry, the AO has allowed the claim of remittance of employee’s contribution towards PF/ESI to the tune of Rs.8,36,020/- on the strength of the binding decision of the Hon’ble Madras High Court order in the case of CIT v. Industrial Security & Intelligence India P. Ltd., [TCA Nos.585 & 586 of 2015 dated 24.07.2015]. According to the Ld.AR, the AO’s action was in line with the jurisdictional High Court’s decision, wherein, the Hon’ble High Court has held that if the assessee had remitted the employee’s contribution towards PF/ESI before the due date of filing of the return of income u/s.139(1) of the Act, no disallowance was warranted. According to the Ld.AR, the AO can’t be a clairvoyant (person who has power to know about the future) and predict about the decision of the Hon’ble Supreme Court decision in the case of Checkmate Services P. Ltd., which was only given afterwards i.e., in the year 2022 and was not available before the AO when he framed the assessment on 22.04.2021. And since the decision of AO after enquiry on the issue at hand was in line with that of the decision of Hon’ble Jurisdictional High

:-23-: ITA. No.:1018/Chny/2025

Court (supra), the action of AO cannot be held to be erroneous as well as prejudicial to revenue by relying on the decision of the Hon’ble Supreme Court in the case of CIT v. GM Mittal Stainless Steel (P) Ltd., reported in [2003] 263 ITR 255 (SC) Para Nos.5-8 wherein it was held as under:-

“5. In this particular case, the CIT has not recorded any reason whatsoever for coming to the conclusion that the AO was erroneous in deciding that the power subsidy was capital receipt. Given the fact that the decision of the jurisdictional High Court was operative at the material time, the AO could not be said to have erred in law. The fact that this Court had subsequently reversed the decision of the High Court would not justify the CIT in treating the AO's decision as erroneous. The power of the CIT under Section 263 of the IT Act must be exercised on the basis of the material that was available to him when he exercised the power. At that time, there was no dispute that the issue whether the power subsidy should be treated as capital receipt had been concluded against the Revenue. The satisfaction of the CIT, therefore, was based on no material either legal or factual which would have given him the jurisdiction to take action under Section 263 of the IT Act.

7. The Calcutta High Court decision, has in fact held contrary to what is being submitted on behalf of the appellant. In that case the AO had initiated reassessment proceedings on the basis of a decision of the Rajasthan High Court. The decision of the Rajasthan High Court was subsequently reversed by this Court. The Calcutta High Court held that despite such reversal, it could not be said that reassessment proceedings were without jurisdiction on the basis of the law as it stood when the proceedings were initiated.

:-24-: ITA. No.:1018/Chny/2025 8. Apart from the language of Section 263 of the IT Act, if we were to accept the submission of the appellant that the Revenue authorities within the State could refuse to follow the jurisdictional High Court's decision on the ground that the decision of some other High Court was pending disposal by this Court, it would lead to an anarchic situation within the State. If at the time when the power under Section 263 was exercised the decision of the jurisdictional High Court had not been set aside by this Court or at least had not been appealed from, it would not be open to the CIT to have proceeded on the basis that the High Court was erroneous and that the AO who had acted in terms of the High Court's decision had acted erroneously.”

:-25-: ITA. No.:1018/Chny/2025 PCIT passed u/s.263 of the Act by allowing the grounds of appeal raised by the assessee.

Order pronounced in the open court on 15th October, 2025 at Chennai.