M/S. THE INDIA CEMENTS LTD.,,CHENNAI vs. DCIT, CORPORATE CIRCLE - 2 (1),, CHENNAI

PER G.MANJUNATHA, AM: This appeal filed by the assessee is directed against

order of the learned Principal CIT, Chennai-2 dated 26.03.2015

u/s.263 of the Income Tax Act, 1961 and pertains to

assessment year 2007-08.

“1. The order passed by the Learned Principal Commissioner of Income Tax u/s.263 of the Act dated 26.03.2015 is contrary to law facts and circumstances of the case.

JURISDICTION 2. The Commissioner of Income-tax erred in assuming jurisdiction u/s.263 in respect of the giving effect order u/s.143(3) r.w.s.263 dt 30.03.2013 which was passed

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pursuant to the directions of the CIT vide order u/s. 263 dt. dt.30.03.2012.

2.1 The Commissioner of Income-tax erred in holding that assessment order u/s.143(3) r.w.s.263 dt 30.03.2013 was made without proper enquiry/verification without appreciating that the order was made after detailed enquiries and hence cannot be revised merely to superimpose the decision of the CIT over that of the AO.

2.2 The Commissioner of Income-tax failed to appreciate that twin conditionsfor invoking jurisdiction u/s.263 is absent in the present case as held by the Hon’ble Supreme Court in the case of Malabar Industrial Co Ltd v CIT 243 ITR 83(SC).

2.3 The Commissioner of Income Tax ought to have appreciated that where two views are possible and the assessing officer had taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the Revenue, unless the view taken by the AO is unsustainable in Law. [CIT v Max India 295 ITR 282].

2.4 The Commissioner of Income Tax ought to have appreciated that in the present case the order u/s.143(3) r.w.s.263 dt 30.03.2013 was passed pursuant to the directions of the CIT vide his order u/s. 263 dt.dt.30.03.2012 and hence cannot be treated as erroneous order prejudicial to the interest of the Revenue.

MERITS 3. SETOFF OF UNABSORBED LOSS U/S.II5JB:

3.1 The Commissioner of Income-tax erred in holding that Assessing Officer in the order u/s. 143(3) r.w. s. 263 dated 30. 03.2013 had allowed set off of unabsorbed loss of Rs.198.43 crores as against Rs.120.46 crores without proper verification.

ITA No.833/Chny/2020

3.2 The Commissioner of Income-tax erred in holding that the issue pertaining to set off of carried forward unabsorbed loss was subject matter of earlier revision order dated 30.03.2012 and hence the same is not barred by Limitation.

3.3 The Commissioner of Income-tax failed to appreciate that in the earlier revision order dated 30.03.2012 there was a specific direction to disallow loss of amalgamated company of Rs.40 crores from the unabsorbed loss of Rs.153.16 crores while computing book profit u/s.115JB.

3.4 The Commissioner of Income-tax ought to have appreciated that other than the proceedings u/s.143(3), this particular aspect of set off of brought forward Losses u/s.II5JB is not subject matter of any other proceedings and hence the period of limitation shall run from the original assessment u/s.143(3). Hence the action of CIT to invoke his jurisdiction in this respect is clearly barred by limitation and has to be set aside. [CIT vs. Alagendran Finance 293 ITR 1 (SC) ; CIT vs ICICI Bank 343 ITR 74 (Bom); CIT vs. Shriram Investments (Mad)]

3.5 The Commissioner of Income-tax ought to have appreciated that the amount of brought forward Losses as per books to be set off against the Book Profits for this year, as claimed by Assessee in the return is Rs.275.75 Crores. The AC has set off the Loss to the extent of the Book profits assessed in each of the orders and hence there is no error in his order.

3.6 Without prejudice, the order giving effect to the earlier order of the CIT was subject matter of appeal before the CIT(A). If the order of the CIT(A) is given effect the Book Profits and hence the brought forward losses to be set off against the Book profits shall be at the original figure of Rs. 153.16 Crores and hence there is no error in the order of AO giving effect to the order of CIT.

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4.2 The Commissioner of Income-tax failed to appreciate that the AO in the order u/s.143(3) r.w.s. 263 has disallowed the claim of Rs.59.01 crores as deduction from book profits and added back the same to book profits.

4.3 The Commissioner of Income-tax ought to have appreciated that the above disallowance was subject matter of appeal before CIT(Appeals) and the CIT(Appeals) vide his order in ITA No.726/2013-14 dt 27.10.2014 held that assessee is eligible for reducing the amount of Rs.59.01 crores from the net profit shown in the P&L account for the purpose of computing book profit u/s.115JB.

4.4 The Commissioner of Income-tax ought to have appreciated that he has no jurisdiction in respect of this issue which was subject matter of appeal before CIT(Appeals) under clause (c ) to Explanation 1 to sec 263 and hence the revision order dt 26.03.2015 is invalid.

5.2 The Commissioner of Income-tax failed to appreciate that this issue was not subject of revision in the first revision order dt 30.03.2012 hence, there is no error in the assessment order u/s.143(3) r.w.s 263 dt 30.03.2013 so as to invoke jurisdiction u/s.263 of the Act.

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5.3 The Commissioner of Income Tax erred in assuming jurisdiction u/s.263 based on the information which was received by the assessing officer which is subsequent to the giving effect order passed u/s.143(3) r.w.s 263 of the Act.

5.4 The Commissioner of Income-tax ought to have appreciated that other than the proceedings u/s.143(3), this particular aspect of investment in Janani Infrastructure Pvt Ltd is not subject matter of any other proceedings and hence the period of Limitation shalt run from the original assessment u/s.143(3). Hence the action of CIT to invoke his jurisdiction in this respect is clearly barred by limitation and has to be set aside. [ CIT vs. Alagendran Finance 293 ITR I (SC) CIT vs ICICI Bank 343 ITR 74 (Bom); CIT vs Shriram Investments (Mad)]

5.5 The reliance placed by the CIT in the case of Shree Manjunatheswara Packing Products and Camphor works 231 ITR 53 is misplaced and not applicable to the facts of the case. In that decision it was held that commissioner can take into consideration the valuation report called for by the AO before making theassessment but submitted by the valuer after the assessment.

engaged in the business of cement manufacturing filed its

return of income for assessment year 2007-08 on 31.10.2017

admitting Nil total income. The assessment for impugned

assessment year has been completed u/s.143(3) of the Act,

on 22.12.2019 and assessed total income of

6 ITA No.833/Chny/2020

Rs.229,64,16,622/- u/s. 115JB of the Income TaxAct, 1961.

The assessee has filed an appeal before learned CIT(A) and

challenged various additions made by the Assessing Officer

including reversal of income arising on cancellation of sales tax

assignments. The learned CIT(A) vide his order dated

28.05.2010 partly allowed appeal filed by the assessee and

deleted additions made towards reversal of income arising on

cancellation of sales-tax assignments. The Assessing Officer

has passed order giving effect to the learned CIT(A) order on

13.07.2010 and determined total income u/s.115JB of the Act

at Rs. Nil, after allowing set off of brought forward business

loss. The case has been subsequently taken up for revision

proceedings u/s.263 of the Income Tax Act, 1961 by the

Principal CIT, Chennai-1, on the ground that assessment order

passed by the Assessing Officer is erroneous, insofar as it is

prejudicial to the interests of revenue on certain issues. The

learned CIT, Chennai vide order u/s. 263 of the Act dated

30.03.2012 set aside assessment order passed by the

Assessing Officer dated 22.12.2009 and direct him to examine

all the issues and pass a fresh order in accordance with law. In

7 ITA No.833/Chny/2020

the said 263 order, the learned CIT, Chennai has taken up

three issues for examination, as per which, the Assessing

Officer has not examined issue of deduction allowed towards

premium paid on conversion of OCDs/Warrants, deduction of

employees benefit from book profit u/s.115JB treating it as

release of reserves, set off of unabsorbed loss as per books

while computing book profit u/s.115JB of the Act, including book

loss of M/s. Visaka Cement Industries Ltd., claim of

depreciation on assets of amalgamated company and claim of

expenditure on account of debentures and bonds issue and

redemption of expenditure etc. The Assessing Officer has

taken up the case for fresh examination in pursuant to

directions of learned CIT under section 263 of the Act and

completed assessment u/s. 143(3) read with section 263 of the

Income Tax Act, 1961, on 30.03.2013 and examined all the

issues taken up by the learned CIT in his 263 proceedings and

determined total income at Rs. Nil under normal provisions of

the Act as well as book profit u/s.115JB of the Act, after making

additions towards release of reserves on account of premium

payable on OCDs/Warrants into shares, release of reserves

8 ITA No.833/Chny/2020

on account of employees benefits and further disallowed claim

of unabsorbed brought forward loss of amalgamated company

M/s.Visaka Cement Industries Ltd. The assessee has

challenged assessment order passed by the Assessing Officer

u/s. 143(3) r.w.s 263 of the Act dated 30.03.2013 before the

first appellate authority and challenged additions made by the

Assessing Officer towards release of reserves on account of

premium payable on OCDs/Warrants, addition towards release

of reserves of employees benefits and disallowance of brought

forward loss of amalgamating company. The learned CIT(A)

vide order dated 22.10.2014 has deleted additions made by

the Assessing Officer towards disallowance of release of

reserves of premium on OCDs etc, of Rs.59.01 crores and also

deleted additions made towards release of reserves of

employees benefit of Rs.50.66 crores. The learned CIT(A) has

also directed the Assessing Officer to allow set off of

unabsorbed loss of amalgamating company M/s.Visaka Cement

Industries Ltd., while computing profits u/s. 115JB of the Act

for Rs.40.55 crores.

9 ITA No.833/Chny/2020

proceedings by the Principal CIT, Chennai-2, and issued show-

cause notice u/s. 263 of the Income Tax Act, 1961 and called

upon the assessee to explain as to why assessment order

passed by the Assessing Officer u/s.143(3) r.w.s 263 dated

30.03.2013 shall not be revised for the reasons stated in his

show-cause notice. The learned Principal CIT in the said show-

cause notice has alleged that the assessment order passed by

the Assessing Officer is erroneous insofar as it is prejudicial

to the interests of revenue, because the Assessing Officer has

not examined the issue of set off of brought forward losses

against book profit computed u/s.115JB of the Act, without

appreciating facts in right perspective of law, which rendered

assessment order erroneous insofar as it is prejudicial to the

interests of revenue. According to the Principal CIT, as per

provisions of clause (iii) of Explanation 1 to section 115JB(1) of

the Act, only least of brought forward losses or unabsorbed

depreciation, as per books is to be set off against book profits.

In this case, as per books brought forward businessloss was at

Rs.206.72 crores and unabsorbed depreciation was Rs.118.71

10 ITA No.833/Chny/2020

crores. In the assessment order, the Assessing Officer has

allowed set off of Rs.198.43 crores as against Rs.118.71

crores, which renders the assessment order as erroneous and

prejudicial to the interests of revenue. The Principal CIT has

also taken up issue of premium paid on redemption of FCCB

/Debentures of Rs.59.01 crores and observed that during the

year, the assessee has claimed Rs.59.01 crores towards

premium of FCCB/Debentures. Out of this, Rs.33.53 crores

represents premium on debentures, which ought to have been

restricted to the actual amount of debentures redeemed during

the year. The factual aspects relating to this issue was omitted

to be examined by the Assessing Officer before allowing

deduction. Similarly, the Principal CIT has questioned the

issue of investments made towards purchase of 1,90,839

shares in M/s. Janani Infrastructure Ltd. and noticed that the

Assessing Officer has not examined allowability of expenses

relating to investments. Therefore, he opined that assessment

order passed by the Assessing Officer is erroneous, insofaras

it is prejudicial to the interests of revenue and hence, called

upon the assessee explain as to why the assessment order

11 ITA No.833/Chny/2020

passed by the Assessing Officer shall not be revised u/s.263

of the Act.

letter dated 03.03.2015, submitted that the assessment order

passed by the Assessing Officer u/s.143(3) r.w.s 263 dated

30.03.2013 is neither erroneous nor prejudicial to the interests

of revenue, because issues taken up by the Principal CIT in

revision proceedings has been examined by the Assessing

Officer in assessment proceedings and after being satisfied

with the explanation furnished by the assessee, the Assessing

Officer has made additions towards expenditure incurred for

premium paid on FCCB/debentures and the same has been

challenged by the assessee before first appellate authority.

The assessee further submitted that carry forward and set off of

brought forward losses in terms of section 115JB of the Act

was already examined by the Assessing Officer in the original

assessment proceedings u/s.143(3) of the Act and had indeed

considered the assessee’s entitlement of carry forward of

unabsorbed depreciation or business loss and allowed the

12 ITA No.833/Chny/2020

same to be set off. It was further submitted that other than in

original assessment proceedings u/s.143(3) of the Act, the

issue was not a subject matter of any proceedings, including

revision proceedings u/s.263 and hence, issue of examination

of carry forward and set off of loss u/s.115JB of the Act is

clearly barred by limitation and on this account proposed

proceedings u/s. 263 shall fail. In this regard, assessee relied

upon the decision of the Hon'ble Supreme Court in the case of

CIT Vs.Alagendran Finance Ltd, reported in 62 Taxmann 465

and the decision of Hon’ble Bombay High Court in the case of

CIT Vs. ICICI Bank reported in 343 ITR 74. As regards the

third issue questioned by the Principal CIT regarding

investments made in M/s. Janani Infrastructure Ltd., the

assessee submitted that this issue was never a subject matter

of appeal or revision proceedings or any other proceedings

after original assessment proceedings and hence, this issue

cannot be taken up for revision proceedings u/s.263 of the Act,

because time limit for taking up 263 proceedings is lapsed.

13 ITA No.833/Chny/2020

of the assessee and also relied upon certain judicial

precedents, including the decision of the Hon'ble Supreme

Court in the case of CIT Vs. Malabar Industrial Company Ltd.

reported in 243 ITR 83 held that assessment order passed by

the Assessing Officer is erroneous, insofar as it is prejudicial to

the interests of revenue. Since the Assessing Officer has not

examined the issues questioned in show cause notice issued

u/s.263 of the Act in right perspective of law with necessary

evidence on record, which rendered assessment order as

erroneous, insofar as it is prejudicial to the interests of

revenue. The learned Principal CIT has rejected case laws

relied upon by the assessee, including the decision of Hon'ble

Supreme Court in the case of CIT Vs. Alagendran Finance Ltd.

(supra) and held that issue of set off of brought forward

business loss or unabsorbed depreciation was subject matter

of 263 proceedings u/s.263 dated 30.03.2012, where the CIT

questioned the allowability of brought forward business loss

against book profit computed u/s.115JB of the Act. Therefore,

there is no merit in the arguments of the assessee that time limit

14 ITA No.833/Chny/2020

lapsed to take up the issue in revision proceedings in light of

decision of the Hon'ble Supreme Court in the case of CITVs

Alagendran Finance Ltd. (supra). As regards, allowability of

brought forward business loss or unabsorbed depreciation, as

per provisions of clause (iii) of Explanation 1 to section

115JB(1) of the Act, it is very clear from the provisions of the

Act that only least of brought forward losses or unabsorbed

depreciation, as per books, is eligible for set off against book

profits. Even though law is very clear, the Assessing Officer

has allowed excess brought forward unabsorbed depreciation,

over and above brought forward unabsorbed depreciation as

per books. He further observed that as per records, as on

31.03.2007 the cumulative loss or cumulative unabsorbed

depreciation is only at Rs,1,20,46,86,776/-. As against this, the

Assessing Officer has allowed set off of unabsorbed

depreciation at Rs.198.43 crores.

redemption of debentures during the year ended 31.03.2007,

a sum of Rs.59.01 crores was claimed towards FCCB/premium

15 ITA No.833/Chny/2020

on debentures. Out of this, Rs.33.53 crores represents

premium on debentures. In the order u/s.263 dated 30.03.2012

in para 7.2 specific direction was given to Assessing Officer to

examine claim as to whether expenditure incurred is capital or

revenue in nature before allowing the claim. Although, there is

a direction from CIT, in the assessment order u/s.143(3)

r.w.s.263 dated 30.03.2013, the Assessing Officer has

omitted to verify these aspects and to this extent, the

assessment order passed by the Assessing Officer is erroneous

and prejudicial to the interests of revenue. Similarly, as regards

issue of investments in M/s. Janani Infrastructure Ltd.

amounting to Rs.499,99,818/-the Principal CIT observed that

information was received by the Assessing Officer from DCIT,

Circle-2(3), Hyderabad, which is subsequent to completion of

order u/s.143(3) r.w.s 263 of the Act, as per which, the

assessee has made investments in shares of M/s. Janani

Infrastructure Pvt. Ltd. The information relating to investments

made by the assessee in M/s. Janani Infrastructure Ltd.

requires to be verified and examined by the Assessing Officer

for appropriate necessary action and orders. The information

16 ITA No.833/Chny/2020

available on record should also be considered in the revision

proceedings u/s.263. The term reference includes all records

available at the time of examination by the CIT as held by

Hon'ble Supreme Court in the case of CIT Vs.

Manjunatheeaswara Packing Products & Camphor works,

reported in 253 ITR 53. Therefore, he opined that assessment

order passed by the Assessing Officer u/s.143(3) r.w.s 263 of

the Act dated 30.03.2013 on these issues is erroneous, insofar

as it is prejudicial to the interests of revenue. Hence, set aside

assessment order passed by the Assessing Officer and directed him to modify the assessment order and pass necessary orders

in accordance with law, in accordance with discussions and

directions given by the Principal CIT. Aggrieved by Pr.CIT

order, the assessee is in appeal before us.

Principal CIT has erred in assuming jurisdiction u/s.263 of the

Act in respect of giving effect order u/s.143(3) r.w.s 263 dated

30.03.2013, without appreciating fact that assessment order

passed by the Assessing Officer is neither erroneous nor

17 ITA No.833/Chny/2020

prejudicial to the interests of revenue. The AR further submitted

that twin conditions for invoking jurisdiction under section 263

of the Act is not satisfied. Unless, PCIT demonstrates that

assessment order passed by the Assessing Officer is either

erroneous or prejudicial to the interests of revenue, he cannot

invoke his revisional powers u/s.263 of the Act. The AR further

submitted that Assessing Officer has examined two issues

questioned by PCIT in his revision proceedings in respect of

allowability of brought forward business loss or unabsorbed

depreciation, as per books under provisions of clause (iii) of

Explanation (1) to section 115JB(1) of the Act and also

allowability of expenditure claimed under head premium paid on

FCCB/debentures, which is evident from the fact that the

Assessing Officer has considered both issues as directed by

the PCIT in first 263 proceedings and has made additions on

both the issues. The AR further submitted that as regards set

off of loss u/s.115JB in earlier round of 263 proceedings, the

issue was whether unabsorbed losses of amalgamated

company is available for set off, while computing book profit

u/s.115JB or not. The CIT has directed the Assessing Officer to

18 ITA No.833/Chny/2020

examine the issue and accordingly, the Assessing Officer has

made additions towards brought forward loss of amalgamated

company, while computing book profit u/s.115JB of the Act.

Except this, issue of set off of brought forward business loss or

unabsorbed depreciation was not a subject matter of appeal in

any other proceedings after original assessment proceedings

u/s.143(3) and hence, period of limitation shall run from original

assessment order passed u/s.143(3) and if that date is

considered, time limit provided for invoking jurisdiction u/s.263

has expired. The AR for the assessee, without prejudice to the

above arguments, submitted that the issue of disallowance of

brought forward loss of amalgamated company was subject

matter of appeal before the learned CIT(A) and the CIT(A) has

allowed claim of the assessee . If you consider order giving

effect date of the CIT(A) order, then brought forward loss to be

set off against book profit shall be at original figure of Rs.153.16

crores and hence, if you consider said amount of brought

forward loss, which is in excess of amount considered by PCIT

at Rs.118.71 crores and hence, there is no error in the order of

the Assessing Officer giving effect to the order of the CIT.

19 ITA No.833/Chny/2020

premium on redemption of debentures, the learned PCIT failed

to appreciate that the Assessing Officer in the order passed

u/s.143(3) r.w.s 263 has disallowed claim of Rs.59.01 crores as

deduction from book profit and the assessee has challenged

the order before CIT(A). The learned CIT(A) vide his order

dated 27.10.2014 has held that the assessee is eligible for

reducing the amount of Rs.59.01 crores from net profit shown

in profit & loss account for the purpose of computing book profit

u/s.115JB of the Act. Since the issue was subject matter of

appeal before the first appellate authority, as per provisions of

clause (c) to Explanation 1 to section 263 of the Act, the

administrative commissioner does not have any jurisdiction to

examine the issues, which was subject matter of appeal before

the learned CIT(A). The AR further referring to third issue, taken

up by Pr.CIT in 263 proceedings in respect of investments

made in M/s. Janani Infrastructure Ltd. submitted that the

Principal CIT has failed to appreciate that this issue was not

subject matter of revision in the first revision order dated

30.03.2012 and hence, there is no error in the assessment

20 ITA No.833/Chny/2020

order passed u/s.143(3) r.w.s 263 dated 30.03.2013 so as to

invoke jurisdiction u/s.263 of the Act. He further submitted that

the Principal CIT has erred in assuming jurisdiction u/s.263

based on the information which was received by the Assessing

Officer subsequent to giving effect order passed u/s.143(3)

r.w.s. 263 of the Act. The AR further submitted that without

prejudice to the above arguments, the issue is outside scope of

263 proceedings, because time limit provided for invoking

jurisdiction u/s.263 is run from original assessment order

u/s.143 and if said date is considered, then order passed by

Pr.CIT is beyond limitation and hence, same is liable to be set

aside. In this regard, he relied upon the decision of Hon'ble

Supreme Court in the case of CIT vs. Alagendran Finance Ltd.

293 ITR 1(SC) and the decision of Hon'ble Jurisdictional High

Court of Madras in the case of CIT Vs. Sriram Investments.

order of the Principal CIT submitted that assessment order

passed by the Assessing Officer is erroneous, insofar as it is

prejudicial to the interests of revenue in respect of three issues

21 ITA No.833/Chny/2020

considered by the Principal CIT in his show cause notice,

which is evident from the fact, even though there is clear

direction from the Principal CIT in the original 263 proceedings

on the issue of deductability of expenditure incurred for

premium paid on FCCI/Debentures, the Assessing Officer has

failed to examine the issue in light of relevant facts and

provisions of the Act, which rendered assessment order

erroneous. Similarly, the Assessing Officer has failed to

examine issue of allowability of brought forward business loss

or unabsorbed depreciation, as per books in terms of clause (iii)

of Explanation 1 to section 115JB(1) of the Act, and without

appreciating facts has allowed set off of excess unabsorbed

depreciation, which caused prejudice to the interests of

revenue. Likewise, the issue of investments made in M/s.

Janani Infrastructure Ltd., the Assessing Officer has not

examined issue in light of allowability of expenditure, even

though the assessee has made investments in shares of M/s.

Janani Infrastructure Ltd., which renders assessment order

erroneous, insofar as it is prejudicial to the interests of

revenue. It is well settled principle of law that when the

22 ITA No.833/Chny/2020

assessment order passed by the Assessing Officer is

erroneous and prejudicial to the interests of revenue, the

Principal CIT has power to assume his jurisdiction to revise

assessment order and hence, there is no error in the order

passed by the Principal CIT u/s.263 of the Act.

available on record and gone through orders of the authorities

below. The provisions of section 263 of the Act, empowers the

Principal CIT to revise assessment order passed by the

Assessing Officer, if he satisified that assessment order passed

by the Assessing Officer is erroneous, insofar as it is prejudicial

to the interests of the revenue. From a plain reading of section

263 of the Act, it is very clear that before exercising his

jurisdiction power u/s.263 of the Act, the Principal CIT should

satisfy himself that the Assessing Officer has passed order

which is erroneous and prejudicial to the interests of revenue.

Unless the Principal CIT proves that order passed by the

Assessing Officer is erroneous or which is not passed in

accordance with law in right perspective of facts, he / she

cannot revise assessment order passed by the Assessing

23 ITA No.833/Chny/2020

Officer. Further, to invoke jurisdiction u/s.263 of the Act, twin

conditions embedded u/s.263 of the Act must co-exist. In other

words, if the assessment order passed by the Assessing

Officer is erroneous, but it is not prejudicial to the interests of

revenue, or vice-versa, then the Principal CIT does not have

any power to revise the assessment order passed by the

Assessing Officer. This legal proposition is supported by

plethora of judicial decisions including the decision of Hon’ble

Supreme Court in the case of M/s.Malabar Industries Co.Ltd.

Vs. CIT (2000) 243 ITR 83(SC).

present case, one has to understand whether assessment order

passed by the Assessing Officer u/s.143(3) read with section

263 dated 30.03.2013 is erroneous, insofar as it is prejudicial

to the interests of revenue or not. In order to consider any

assessment order to be erroneous and prejudicial to the

interests of revenue, such order passed by the Assessing

Officer should be passed without appreciating facts in light of

applicable provisions of the Act and further, the Assessing

Officer has passed order without examining the issue in light of

24 ITA No.833/Chny/2020

relevant provisions of the Act, on the basis of facts brought on

record by the assessee. Admittedly, in this case, first round of

263 proceedings was completed, where the learned CIT has

taken up certain issues and directed the Assessing Officer to

redo assessment in accordance with law, in terms of his

observations given on various issues questioned in show cause

notice. The Assessing Officer has taken up proceedings in

pursuant to direction of learned CIT and has made certain

additions, as per directions of the CIT in 263 proceedings. It is

also an admitted fact that the assessee has challenged consequential order passed by the Assessing Officer

u/s.143(3) r.w.s 263 before the first appellate authority and

challenged additions made by the Assessing Officer towards

disallowance of brought forward loss of amalgamated company

and withdrawal amount from reserves account and set off of

expenditure incurred towards premium paid on

FCCB/Debentures. Therefore, in order to consider present

assessment order passed by the Assessing Officer as

erroneous and prejudicial to the interests of revenue, it is

necessary to keep in mind the earlier assessment proceedings

25 ITA No.833/Chny/2020

of original assessment order passed by the Assessing Officer

u/s.143(3), 263 order passed by the learned CIT and further

consequential assessment order passed by the Assessing

Officer u/s.143(3) r.w.s. 263 of the Income Tax Act, 1961.

questioned by the Principal CIT is carry forward and set off of

loss in terms of section 115JB(1) of the Act. According to the

Principal CIT, the Assessing Officer has allowed set off of

excess loss over and above loss allowable, as per books, in

terms of provisions of clause (iii) of Explanation (1) to section

115JB(1) of the Act. We have given our thoughtful

consideration to the reasons given by the Principal CIT in light

of arguments advanced by the learned A.R for the assessee

and we ourselves do not subscribe to the reasons given by the

Principal CIT to hold assessment order to be erroneous and

prejudicial to the interests of revenue for the simple reason that

the Assessing Officer has considered issue of allowability of set

off of carried forward losses or unabsorbed depreciation, while

computing book profit u/s.115JB of the Act in the original

proceedings u/s.143(3), as well as reassessment proceedings,

26 ITA No.833/Chny/2020

in consequence to revision proceedings u/s.263 of the Income

Tax Act, 1961. We further noted that in original assessment

proceedings, the Assessing Officer has made certain additions

under normal provisions of the Act, as well as book profit

computed u/s.115JB of the Income Tax Act, 1961 and

determined book profit of Rs.229.64 crores, after allowing set

off of brought forward book loss of Rs.153.16 crores. The said

assessment order was challenged before the learned CIT(A).

The CIT(A) has deleted additions made by the Assessing

Officer to book profit towards reversal of income arising on

cancellation of sales-tax assignments amounting to Rs.294.05

crores vide his appellate order dated 28.05.2010. The

Assessing Officer has passed order giving effect to CIT(A) order

on 13.07.2010 and determined revised book profit of Rs.88.75

crores and against this, has allowed set off of brought forward

business loss or unabsorbed depreciation of Rs.88.75 crores.

Further, the case was subjected to 263 proceedings and the

CIT, Chennai vide his order dated 30.03.2012 has set aside

assessment order passed by Assessing Officer and direct him

to pass a fresh order in light of various issues discussed in his

27 ITA No.833/Chny/2020

263 order. The Assessing Officer vide his order dated

30.03.2013 u/s.143(3) r.w.s 263 of the Act, has discussed the

issue of claim of unabsorbed loss as per books, while

computing book profit including book loss of amalgamated

company M/s. Visaka Cement Industries Ltd., and has

disallowed claim of assessee on the ground that except as

provided under Explanation (1) to section 115JB(1) of the Act,

no adjustments can be made to book profit . The assessee has

challenged order of the Assessing Officer passed u/s.143(3)

r.w.s. 263 before the CIT(A) and learned CIT(A) vide his order

dated 27.10.2014 has allowed claim of the assessee towards

brought forward loss of amalgamated company of M/s.

Visaka Cement Industries Ltd. From the above, it is clear that

brought forward business loss or unabsorbed depreciation, as

per books of account remained at the original figure at 153.16

crores. In the present proceedings, allegations of the Principal

CIT is that the Assessing Officer has allowed set off of

brought forward business loss or unabsorbed depreciation at

Rs. 198.43 crores as against available brought forward

unabsorbed depreciation of Rs.120.46 crores. The said

28 ITA No.833/Chny/2020

findings of the ld. Pr. CIT is not correct, because, final brought

forward loss or unabsorbed depreciation set off against book

profit, after giving effect order passed by the ld. AO dated 27-

10-2014, is only at Rs. 88.75 crores. This is because, as per

Assessment order dated 30/03/2013 passed u/s 143(3) rws

263, the AO had determined book profit u/s 115JB of the Act, at

Rs. 198.43 crores by making additions towards release of

reserves on premium for FCCB/Debentures and release of

reserves on account of employees benefits, as per the

directions of the CIT u/s 263 of the Act. The assessee has

challenged said order before ld. CIT(A). The CIT(A), vide his

order dated 27-10-2014, has deleted additions made by the AO

towards release of reserves on premium for FCCB/Debentures

of Rs. 59.01 crores and further deleted addition made towards

release of reserves on account of employees benefits of Rs.

50.66 crores. Because of this, book profit computed u/s 115JB,

once gain becomes Rs. 88.75, which is equal to book profit

computed as per Assessment order u/s 143(3) rws 263 dated

30/03/2013. Further, the ld. PCIT did not dispute fact that

brought forward business loss or unabsorbed depreciation as

29 ITA No.833/Chny/2020

per books is at Rs. 120.46 crores. Further, brought forward

book loss, has been increased to Rs. 153.16 crores, after giving

effect order to CIT(A) order dated 27-10-2014, because of

deletion of addition made by the AO towards brought forward

loss of Amalgamated Company M/s Visakha Cement Industries

Limited. Therefore, if recomputed book profit of Rs. 88.75

crores is taken in to account, then the assessee can completely

set off its book profit of Rs.88.75 crores, out of unabsorbed

depreciation of assessment year 2006-07 of Rs.153.16 crores

and thus, there is no excess allowance of unabsorbed

depreciation, while computing book profit u/s. 115JB of the

Income Tax Act, 1961 for the impugned assessment year, as

alleged by the ld. PCIT. Therefore, we are of the considered

view that assessment order passed by the Assessing Officer on

this issue is neither erroneous nor prejudicial to the interests of

revenue.

Principal CIT in 263 proceedings towards expenditure incurred

for premium on redemption of debentures. According to the

Principal CIT, out of a sum of Rs.59.01 crores, expenditure

30 ITA No.833/Chny/2020

incurred towards FCCB/ premium on Debentures, a sum of

Rs.33.53 crores represents premium on Debentures. The

Assessing Officer has failed to examine whether premium on

debentures is capital or revenue in nature before allowing

deduction, even though there is specific direction from the CIT

in his order u/s.263 dated 30.03.2012. We have carefully

considered reasons given by the Principal CIT and we do not

ourselves subscribe to the reasons given by the Principal CIT

for simple reason that details of expenditure incurred towards

premium on FCCB and discount on redemption of debentures

has been furnished to the Assessing Officer at the time of

original assessment proceedings along with supporting

documents. The Assessing Officer having perused the details,

satisfied himself on the claim and deductibility of expenditure

and thus, not made any addition in the assessment order

passed u/s.143(3) of the Act. Further, the same issue has been

taken up in 263 proceedings by the CIT in his order dated

30.03.2012 and directed the Assessing Officer to examine

whether expenditure is capital or revenue in nature and

correctness of deduction claimed for relevant assessment year.

31 ITA No.833/Chny/2020

The Assessing Officer in the consequential assessment order

passed in pursuant to directions of the CIT u/s.263 of the Act,

has once again examined the issue and has concluded that no

disallowance is called for towards expenditure incurred for

premium on redemption of debentures/FCCB. In other words,

there has been application of mind not once, but twice by the

Assessing Officer on the issue in right perspective of law and

hence, taking up very same matter once again by the Principal

CIT u/s.263 of the Income Tax Act, 1961, clearly indicates

that this is an abuse of power, inasmuch as power u/s.263 is

not meant to be a substitute for the power of Assessing Officer

to make assessment . The power u/s.263 can only be

exercised, when order of the Assessing Officer is erroneous

and prejudicial to the interests of revenue. The Hon’ble Bombay

High Court in the case of CIT Vs.Gabriel India Ltd. reported in

203 ITR 108, has categorically held that conditions precedent

for invoking provisions of section 263 is to order of the

Assessing Officer must be erroneous and further by virtue of

the order being erroneous is prejudicial to the interests of

revenue. If the Assessing Officer is acting in accordance with

32 ITA No.833/Chny/2020

law and makes an assessment, it cannot be termed as

erroneous by the Pr.CIT, simply because the Pr.CIT does not

agree with the order of the Assessing Officer. In other words,

section 263 does not visualize a case of substitution of

judgement by Pr.CIT for that of the Assessing Officer, who

passed the order, unless it is demonstrated that order of the

Assessing Officer is held to be erroneous. In this case, learned

Pr.CIT has not brought out element of erroneous act committed

by the Assessing Officer, but has mentioned there is a

omission by the Assessing Officer in the assessment order,

but omission cannot be a basis for invoking powers u/s.263 of

the Act. The Hon’ble Gauhati High Court in the case of CIT Vs.

Jawahar Bhattacharjee, reported in 67 DTR 217, after

extensively considering legal decisions and precedents on the

subject, explained the expression ‘erroneous assessment’ in

the context of section 263 and held that assessment made on

wrong assumption of facts or incorrect application of law or

without due application of mind or without following principles of

natural justice is considered to be an erroneous order. The

Hon’ble Bombay High Court in the case of CIT Vs.

33 ITA No.833/Chny/2020

Development Credit Bank Ltd. (323 ITR 206) (Bom) has held

that merely because the Assessing Officer should have gone

deeper into the matter or should have made elaborate

discussion could not be a ground for exercising power u/s.263

of the Act. Moreover, the issue whether expenditure incurred

towards premium on redemption of debentures is capital or

revenue in nature and further is it deductible or not arises only

when the assessee claims deduction for expenditure by

debiting into profit & loss account . In this case, the assessee

has paid Rs.59.01 crores on redemption of OCDs and same was debited into profit & loss account, but in the profit & loss

account the assessee has also credited equal amount of

Rs.59.01 crores by withdrawing from share premium account.

This amount of Rs.59.01 crores from share premium account is

actually reduced from OCDs redemption expenditure of

Rs.59.01 crores debited into profit & loss account and thus,

there is no expenses debited into profit & loss account . From

the above, it is clear that the assessee has not claimed any

deduction for expenditure incurred on redemption of

FCCB/Debentures. Therefore, once no deduction was claimed

34 ITA No.833/Chny/2020

for any expenditure by debiting into profit & loss account, the

question whether it is capital or revenue in nature does not

arise.

total amount incurred for premium paid on redemption of

debentures is deductible or not, the Hon'ble Supreme Court

has considered an identical issue in the case of M/s. Taparia

Tools Ltd. vs. JCIT reported in 372 ITR 605 (SC) , where it is

clearly held that there is no estoppel against the statute. The

Income Tax Act, enables and entitles the assessee to claim the

entire expenditure in the manner it is claimed. In other words,

the Hon'ble Supreme Court clearly held that whether

expenditure has been claimed when it was paid at once or has

been spread over period of debentures is not relevant and

further, the assessee can claim deduction for any expenditure

when it was actually paid, irrespective of the fact that same has

been spread over period of debentures in the books of account

of the assessee. A similar view has been taken by the Hon'ble

Supreme Court in the case of Madras industrial Investment

Corporation Ltd. Vs. CIT reported in 139 CTR 555, and held

35 ITA No.833/Chny/2020

that discount on debentures is revenue expenditure allowable

proportionately over the life of debentures. The Hon’ble High

Court of Rajasthan in the case of CIT Vs. Secure Meters

reported in 321 ITR 611 (Raj) has considered an identical issue

and held that expenditure incurred on issue of debentures

whether convertible or non-convertible is allowable as revenue

expenditure.

paid for redemption of debentures was thoroughly examined by

the Assessing Officer not once, but twice, and after application

of necessary facts to the relevant law has allowed claim of the

assessee. Further, the issue of expenditure incurred for

premium paid on redemption of debentures / FCCB is a subject

matter of appeal before learned CIT(A) and the CIT(A) vide his

order dated 27.10.2014 has held that assessee is eligible for

reducing the amount of 59.01 crores from the net profit shown

in profit & loss account. Therefore, we are of the considered

view that once the issue which was subject matter of

proceedings u/s.263 was subject matter of appeal before

learned CIT(A), then there is no power to the Pr.CIT to take up

36 ITA No.833/Chny/2020

said issue in revision proceedings, as per clause (c) to

Explanation (1) to section 263 of the Income Tax Act, 1961. In

this view of the matter and considering facts and

circumstances of the case, we are of the considered view that

assessment order passed by the Assessing Officer on this

issue is neither erroneous nor prejudicial to the interests of

revenue and hence, assumption of jurisdiction by the Principal

CIT u/s.263 of the Act fails.

towards investments in shares of M/s. Janani Infrastructure Ltd.

Admittedly, for the first time this issue has been taken up by the

Principal CIT in the proceedings u/s.263 of the Act, on the

basis of information received by the Assessing Officer from

another Assessing Officer, after the Assessing Officer has

passed assessment order u/s.143(3) r.w.s.263 of the Act

dated 30.03.2013. This issue was not a subject matter of

discussion either in the original assessment proceedings

u/s.143(3) or revision proceedings u/s.263 of the Act, in first

round of 263 proceedings. Therefore, when a issue which is

not subject matter of any other proceedings, the period of

37 ITA No.833/Chny/2020

limitation shall run from original assessment order passed

u/s.143(3) of the Act for the purpose of invoking jurisdiction

u/s.263 of the Act. If you consider original assessment order

u/s.143(3) dated 22.12.2009, the Principal CIT can revise the

assessment order within two years from the end of financial

year in which the order sought to be revised was passed. In

this case, if you take original assessment order dated

22.12.2009, the Principal CIT can issue show-cause notice on

or before 31.03.2012. Since the Principal CIT has issued

show-cause notice on 09.02.2015, which is clearly beyond the

period of two years provided under the Act. Therefore, we are

of the considered view that assumption of jurisdiction by the

Principal CIT on this issue for revision of assessment order

u/s.263 of the Act is bad in law and liable to be quashed. This

principle is supported by the decision of Hon'ble Supreme

Court in the case of CIT Vs.Alagendran Finance Ltd.(supra).

Therefore, considering the facts and circumstances of the case

and also by following the decision of Hon'ble Supreme Court in

the case of CIT Vs.Alagendran Finance Ltd.(supra), we are of

the considered view that assumption of jurisdiction by the

38 ITA No.833/Chny/2020

Principal CIT in the present case is clearly barred by limitation,

accordingly, we set aside the directions of the Principal CIT on

this issue.

circumstances of this case, we are of the considered view that

assessment order passed by the Assessing Officer u/s.143(3)

r.w.s 263 dated 30.03.2013 is neither erroneous nor prejudicial

to the interests of revenue. Therefore, we quash order passed

by the Pr.CIT u/s.263 of the Act dated 26.03.2015.

Order pronounced in the open court on 18th August, 2021

Sd/- Sd/- ( वी.दुगा� राव) (जी.मंजुनाथ) (V.Durga Rao) (G.Manjunatha) #या�यक सद%य /Judicial Member लेखा सद%य / Accountant Member चे#नई/Chennai, (दनांक/Dated 18th August, 2021 DS आदेश क� ��त*ल+प अ,े+षत/Copy to: 1. Appellant 2. Respondent 3. आयकर आयु-त (अपील)/CIT(A) 4. आयकर आयु-त/CIT 5. +वभागीय ��त�न1ध/DR 6. गाड� फाईल/GF.