GUJARAT STATE ELECTRICITY CORPORATION LTD,VADODARA vs. THE PR. CIT-1, VADODARA

2.3. The assessment was completed under section 143(3) of the Act vide order dated 05.12.2017, determining total income under normal provisions at Rs.79,88,44,830/- and book profit under section 115JB of the Act at Rs.3,55,56,13,645/-, after making various additions and disallowances including disallowance under section 14A of the Act, capital grants, prior period items, liquidated damages, and others.

Gujarat State Electricity Corporation Ltd. vs. Pr.CIT-1 Asst. Year : 2015-16 3 2.4. Subsequently, the Principal Commissioner of Income Tax–1, Vadodara, issued a notice under section 263 of the Act on 13.09.2019, proposing to revise the assessment on the ground that the AO failed to examine the allowability of: Provision for Loans to Joint Venture (MGCL) amounting to - Rs.21,69,24,000/- and Impairment Loss amounting to Rs.10,90,72,000/-. - 2.5. After considering the assessee’s reply and submissions dated 01.10.2019 and further hearings held on 24.09.2019, 24.01.2020, and 19.06.2020, the PCIT passed an order under section 263 on 22.06.2020, setting aside the original assessment and directing the AO to make a fresh assessment after due inquiry on the said issues.

4. Impairment Loss amounting to Rs.1090.72 Lacs. The learned Pr. Commissioner of Income Tax-1, therefore, has directed the Assessing Officer to make addition of Impairment Loss to the Total Income computed under normal provisions of the IT Act, 1961. The learned Pr. Commissioner of Income Tax ought to have appreciated that the appellant calculates and accounts depreciation on fixed assets after writing off (after deducting) such provision for the impairment loss. The amount of 71090.72 lacs is not merely provision for impairment loss, this amount is actually written off during the year under consideration which is direct expense and debited to Profit and Loss Account. 4.0 The learned Pr. Commissioner of Income Tax-1, Baroda erred in law and on facts has set aside the assessment order passed on 05-12-2017 under section 143(3) of the I T Act. 5.0 The above grounds of appeal are without prejudice to each other. 6.0 The appellant craves leave to add to, alter, delete or modify any of the grounds of appeal either before or at the time of hearing of this appeal.

3.1. The assessee also raised additional ground of appeal which are as follows:

1. Notice issued u/s.263 dated 13.09.2019 and order passed u/s.263 dated 22.06.2020 are bad in law as order passed u/s.143(3) dated 05.12.2017, on which present revision proceedings was initiated, is legally unsustainable for want of issuance of fresh notice u/s. 143(2) in pursuance of the revised return filed u/s.139(5) dated 11.01.2017. The appellant reserves its right to add, amend, alter or modify any of the grounds stated hereinabove either before or at the time of hearing. On the additional Ground raised by the assessee:-

4. We first proceed to adjudicate the additional ground of appeal raised by the assessee, wherein it is contended that the assessment order dated 05.12.2017 passed under section 143(3) of the Act, is legally unsustainable, inasmuch as the said order was passed without issuance of a fresh notice under section 143(2) of the Act subsequent to the filing of a revised return under section 139(5) of the Act on 11.01.2017. It is the case of the assessee Gujarat State Electricity Corporation Ltd. vs. Pr.CIT

1. Asst. Year : 2015-16 5 that the revised return substituted the original return filed on 30.09.2015, and as such, any assessment ought to have been preceded by a fresh statutory notice under section 143(2) of the Act with reference to such revised return. In the absence of such notice, it is argued, the assessment is void ab initio and hence, the order passed under section 263 of the Act founded upon such assessment is equally liable to be quashed.

4.1. The undisputed facts are that the assessee filed its original return of income on 30.09.2015 declaring NIL income after setting off brought forward depreciation, a notice under section 143(2) of the Actwas issued on 21.09.2016 within the statutory time limit. The assessee thereafter filed a revised return under section 139(5) of the Act on 11.01.2017, also declaring NIL income, with a higher figure of brought forward depreciation. The assessment order dated 05.12.2017 refers to and deals with the revised return and proceeds to make various additions under normal and MAT provisions.

4.2. At this stage, it is necessary to emphasize that the present appeal arises from an order passed under section 263 of the Act. We, in exercise of its appellate jurisdiction under section 253 of the Act, are called upon to examine whether the assessment order passed by the AO is erroneous in so far as it is prejudicial to the interests of the Revenue. The scope of our adjudication in such cases is confined to the issues forming part of the section 263 of the Act proceedings and does not extend to an independent or collateral challenge to the validity of the underlying assessment order, unless such validity is directly in issue or has been adjudicated by a competent authority.

4,3. It is a settled legal principle that section 263 presupposes the existence of a valid assessment order. If the assessee was of the view that the Gujarat State Electricity Corporation Ltd. vs. Pr.CIT-1 Asst. Year : 2015-16 6 assessment order passed on 05.12.2017 was vitiated by a jurisdictional defect—such as alleged non-issuance of notice under section 143(2) of the Act in relation to the revised return—the proper legal remedy available to the assessee was to challenge the same through an appeal under section 246A of the Act, or seek rectification under section 154 of the Act, or approach the Hon’ble High Court through writ jurisdiction, as may be appropriate in law. In the present case, the assessee did not raise any such challenge at the relevant time. No appeal was preferred against the assessment order, nor was any rectification sought. Upon enquiry, the AR submitted that the appeal might have been filed with the CIT(A) u/s 246A of the Act. The assessment order has attained finality and has not been declared invalid or void by any authority having competent jurisdiction. The assessee is now seeking to raise a jurisdictional ground collaterally, in the course of an appeal against the revisionary order under section 263 of the Act, which we are not empowered to entertain.

4.4. Permitting such a collateral challenge to the concluded assessment at this stage would amount to permitting the assessee to do indirectly what it could not do directly. It would defeat the finality of assessment proceedings and undermine the statutory framework. The Tribunal’s appellate jurisdiction under section 253 of the Act, when invoked against an order passed under section 263 of the Act, cannot be used as a forum for testing the validity of the original assessment order on grounds that were never raised before the lower authorities and do not pertain to the subject matter of revision.

5.1. In light of the above discussion and consistent with the established principles governing appellate jurisdiction under section 263 of the Act, we are of the considered view that the additional ground of appeal raised by the assessee is not maintainable. The challenge is collateral, not germane to the subject matter of the present proceedings and is being raised for the first time before us, without there being any prior adjudication or finding on this issue by any competent authority. Accordingly, the additional ground of appeal is dismissed.

5.2. Having dismissed the additional ground of appeal, we now proceed to adjudicate the grounds raised by the assessee on merits against the revisionary order passed under section 263 of the Act by the PCIT dated 22.06.2020, for the AY 2015–16.

5.3. The revision was initiated by issuance of a show cause notice dated 13.09.2019, whereby the learned PCIT proposed to revise the assessment order dated 05.12.2017 passed under section 143(3) of the Act, on the ground that the AO had failed to examine and disallow the following two items while computing income under the normal provisions of the Act namely - Provision for Loans to a Joint Venture Company (MGCL) amounting to Rs.21,69,24,000/- and Impairment Loss amounting to Rs.10,90,72,000/-.

Gujarat State Electricity Corporation Ltd. vs. Pr.CIT-1 Asst. Year : 2015-16 8 5.4. The assessee, in response to the show cause notice, submitted that both amounts were not merely provisions, but had been actually written off during the year in accordance with applicable Accounting Standards. It was contended that the amount of Rs.21.69 crore represented actual write-off of loans advanced to Maha Gujarat Collieries Ltd. (MGCL), a joint venture company and that the impairment loss of Rs.10.90 crore was based on impairment testing of fixed assets as per Accounting Standard-28, and therefore constituted a real and ascertained loss, allowable under section 37(1) of the Act. The assessee further submitted that both amounts were duly added back while computing book profit under section 115JB of the Act and, therefore, there was no prejudice caused to the Revenue. It was also submitted that these were subject matter of disclosure in the financial statements and notes to accounts and the assessment was completed after considering all relevant details.

5.5. In conclusion, the PCIT held that the assessment order passed by the AO under section 143(3) of the Act was erroneous and prejudicial to the interest of the Revenue, as the AO failed to examine and verify two material items—(i) the provision for loans to the joint venture company MGCL amounting to Rs.21.69 crore and (ii) the impairment loss of Rs.10.90 crore— both of which were debited to the profit and loss account but not disallowed under the normal provisions of the Act. The PCIT observed that these items were capital in nature or contingent in character and though added back while computing book profit under section 115JB of the Act, they escaped scrutiny under the regular computation. As the assessment order was passed without any inquiry or discussion on these issues, the PCIT concluded that it suffered from non-application of mind, resulting in potential understatement of income and tax liability. Accordingly, she set aside the assessment with a Gujarat State Electricity Corporation Ltd. vs. Pr.CIT-1 Asst. Year : 2015-16 9 direction to the AO to reframe the assessment, after making proper inquiry and affording the assessee an opportunity of being heard.

6.1. The AR also stated that since the provision is debited to profit and loss account and credited to asset account, by way of reduction is loan (asset), it amounts to write off. The AR placed reliance on the judgement of Hon’ble Apex court in case of Vijaya Bank Vs. CIT as reported in [2010] 323 ITR 166 (SC).

6.2. The AR further stated that the Impairment of losses amounting to Rs.1090.70 lacs relate to assets which are impaired during the year and the same has been done in accordance with the Accounting Standard 28 (now Ind AS 39) issued by ICAI. The AR also stated that this amount represents the excess of carrying value over the recoverable value of fixed assets and the same is debited to profit and loss account being direct expense. The AR further clarified that the depreciation on fixed assets is calculated after deducting such provision for impairment loss.

Gujarat State Electricity Corporation Ltd. vs. Pr.CIT-1 Asst. Year : 2015-16 10 8. We have given our thoughtful consideration to the submissions made by the learned AR and perused the material on record. There is no dispute that the assessee has debited the sum of Rs.2169.24 Lacs as "provision for loan to JV" and Rs.1090.71 Lacs as "impairment loss" to the profit and loss account. It is also not in dispute that these items have not been disallowed by the AO while computing income under the normal provisions of the Act. Further, the assessment order dated 05.12.2017 is completely silent on whether the AO examined the nature of these items, sought any explanation, or applied his mind to their allowability.

Gujarat State Electricity Corporation Ltd. vs. Pr.CIT-1 Asst. Year : 2015-16 11 11. It is relevant to note that the PCIT has not substituted her own view or directed any specific disallowance. The revisionary order simply directs the AO to re-examine the allowability of the aforesaid items under the normal provisions of the Act, after affording due opportunity to the assessee and considering its explanations. The PCIT’s action falls squarely within the jurisdiction conferred under section 263 of the Act.

13.1. Accordingly, all the regular grounds of appeal raised by the assessee challenging the revisionary order passed under section 263 of the Act are dismissed. The order passed by the PCIT is hereby affirmed.