RELIANCE RETAIL LIMITED ,MUMBAI vs. ASSISTANT COMMISSIONER OF INCOME TAX , CIRCLE 8(1)(1), MUMBAI

accountant and Form 3CEA was filed before the due countant and Form 3CEA was filed before the due countant and Form 3CEA was filed before the due date of filing return of income for AY 2021-22. date of filing return of income for AY 2021 date of filing return of income for AY 2021 Disallowance of deprecation claim on prior Disallowance of deprecation claim on prior Disallowance of deprecation claim on prior period purchase of Intangibles assets: Rs. period purchase of Intangibles assets: Rs. period purchase of Intangibles assets: Rs. 1,43,96,000 1,43,96,000 8. Erred in disallowing the depreciation claim on 8. Erred in disallowing the depreciation claim on 8. Erred in disallowing the depreciation claim on prior period prior period purchase of Intangibles assets without purchase of Intangibles assets without appreciating the fact that software has gone live for appreciating the fact that software has gone live for appreciating the fact that software has gone live for production in FY 2020 production in FY 2020-21 and therefore, capitalized 21 and therefore, capitalized in the current year. in the current year. Verification of additions made to fixed assets Verification of additions made to fixed assets Verification of additions made to fixed assets on 30th and 31 March of 2021 on 30th and 31 March of 2021 9. Erred in d 9. Erred in directing the verification of additions irecting the verification of additions made to fixed assets on 30 and 31 March of 2021 made to fixed assets on 30 and 31 March of 2021 made to fixed assets on 30 and 31 March of 2021 without appreciating the fact that the assets have without appreciating the fact that the assets have without appreciating the fact that the assets have been put to use in FY 2020 been put to use in FY 2020-21/capitalized after 21/capitalized after issuance of completion certificate from the site issuance of completion certificate from the site issuance of completion certificate from the site engineers and acquire engineers and acquired during the year/in earlier d during the year/in earlier years”

Reliance Retail Limited for the year under consideration on 12.03.2 for the year under consideration on 12.03.2022, declaring a 022, declaring a total income of ₹ ₹56,17,91,39,590. The return was selected for 56,17,91,39,590. The return was selected for scrutiny under the Computer Aided Scrutiny Selection (CASS) scrutiny under the Computer Aided Scrutiny Selection (CASS) scrutiny under the Computer Aided Scrutiny Selection (CASS) for verification of the large receipts for verification of the large receipts subject to deduction of tax subject to deduction of tax at source under section 194C of the Income under section 194C of the Income-tax Act, 1961 under section 194C of the Income (hereinafter referred to as “the Act”) vis (hereinafter referred to as “the Act”) vis-à-vis the low net profit vis the low net profit disclosed.

2.1 The statutory notices issued under the Act were duly The statutory notices issued under the Act were duly The statutory notices issued under the Act were duly complied with. The Assessing Officer thereafter completed the complied with. The Assessing Officer thereafter completed the complied with. The Assessing Officer thereafter completed the assessment under section 143(3) of the Act on 28.12 assessment under section 143(3) of the Act on 28.12 assessment under section 143(3) of the Act on 28.12.2022, making making making additions additions additions and and and disallowances disallowances disallowances aggregating aggregating aggregating to to to ₹3,80,95,99,806. 3,80,95,99,806.

2.2 Subsequently, the learned PCIT called for and examined Subsequently, the learned PCIT called for and examined Subsequently, the learned PCIT called for and examined the assessment records. Upon such examination, he formed a the assessment records. Upon such examination, he formed a the assessment records. Upon such examination, he formed a prima facie opinion that the assessment order passed by the prima facie opinion that the assessment order passed by the prima facie opinion that the assessment order passed by the Assessing Officer was ssing Officer was erroneous insofar as it was prejudicial to erroneous insofar as it was prejudicial to the interests of the Revenue the interests of the Revenue on the following grounds: on the following grounds:

(i) The Assessing Officer failed to examine and consider the (i) The Assessing Officer failed to examine and consider the (i) The Assessing Officer failed to examine and consider the admissibility of prior prior-period expenses claimed under the heads claimed under the heads operating lease expenses expenses, professional fees, and , and sales promotion and advertisement, aggregating to ₹1,20,68,07,764 1,20,68,07,764, which and advertisement were liable to disallowance. were liable to disallowance.

Reliance Retail Limited The slump sale transaction slump sale transaction undertaken by the assessee undertaken by the assessee amounting to ₹42,46,20,000 42,46,20,000 was not examined or verified by was not examined or verified by the Assessing Officer. Assessing Officer.

(iii) The claim of depreciation on intangible assets depreciation on intangible assets depreciation on intangible assets acquired in prior periods, amounting to ₹1,43,96,000, was allowed without prior periods, amounting to , was allowed without any verification by the Assessing Officer. any verification by the Assessing Officer.

(iv) The additions to fixed assets additions to fixed assets made during the period made during the period 30th to 31st March, 2021 31st March, 2021 were allowed without proper verification were allowed without proper verification by the Assessing Officer. by the Assessing Officer.

3.1 In response, the assessee filed written submissions dated In response, the assessee filed written submissions dated In response, the assessee filed written submissions dated 19.02.2025 and 27.02.2025, contending that the Assessing 19.02.2025 and 27.02.2025, contending that the Assessing 19.02.2025 and 27.02.2025, contending that the Assessing Officer had, in fact, raised specific queries, called for relevant Officer had, in fact, raised specific queries, called for relevant Officer had, in fact, raised specific queries, called for relevant information, and that the assessee had furnished detailed information, and that the assessee had furnished detailed information, and that the assessee had furnished detailed and supporting documents explaining its claims, replies and supporting documents explaining its claims, and supporting documents explaining its claims, including the allowability of the expenses. including the allowability of the expenses.

Reliance Retail Limited The learned PCIT, however, did not accept the assessee’s The learned PCIT, however, did not accept the assessee’s The learned PCIT, however, did not accept the assessee’s explanation and, by invoking the Explanation to section 263(1) explanation and, by invoking the Explanation to section 263(1) explanation and, by invoking the Explanation to section 263(1) of the Act, held that the assessment or of the Act, held that the assessment order was erroneous der was erroneous insofar as it was prejudicial to the interests of the Revenue, on insofar as it was prejudicial to the interests of the Revenue, on insofar as it was prejudicial to the interests of the Revenue, on the ground that the order had been passed without carrying out the ground that the order had been passed without carrying out the ground that the order had been passed without carrying out the requisite verifications and without conducting proper the requisite verifications and without conducting proper the requisite verifications and without conducting proper enquiries into the claims made by the assessee. enquiries into the claims made by the assessee. enquiries into the claims made by the assessee. The relevant finding of the Ld. PCIT finding of the Ld. PCIT is reproduced as under:

“8.5 The argument of the assessee that necessary “8.5 The argument of the assessee that necessary “8.5 The argument of the assessee that necessary details had been called for by the AO and details had been called for by the AO and details had been called for by the AO and information was in the knowledge of the AO on the information was in the knowledge of the AO on the information was in the knowledge of the AO on the claims made by the assessee in not a valid claims made by the assessee in not a valid claims made by the assessee in not a valid argument. argument. Although the AO may have called for Although the AO may have called for information what is incumbent upon him is to inquire information what is incumbent upon him is to inquire information what is incumbent upon him is to inquire and verify the claims in accordance with law. Merely and verify the claims in accordance with law. Merely and verify the claims in accordance with law. Merely because the AO had called for the information but because the AO had called for the information but because the AO had called for the information but had taken decision contrary to law will not absolve had taken decision contrary to law will not absolve had taken decision contrary to law will not absolve the assessee the assessee from ineligible claims. In this regard it from ineligible claims. In this regard it is important to take note of explanation 2 section is important to take note of explanation 2 section is important to take note of explanation 2 section 263 of the I 263 of the I-T act 1961that reads as under: T act 1961that reads as under: Explanation 2 to Sec. 263(1) defines the Explanation 2 to Sec. 263(1) defines the Explanation 2 to Sec. 263(1) defines the emphasized phrases. For the sake of ready emphasized phrases. For the sake of ready emphasized phrases. For the sake of ready reference, the said explanation is reference, the said explanation is reference, the said explanation is reproduced hereunder: hereunder:

"Explanation 2. "Explanation 2.-For the purposes of this section, For the purposes of this section, it is hereby declared that an order passed by it is hereby declared that an order passed by it is hereby declared that an order passed by the Assessing Officer or the Transfer Pricing the Assessing Officer or the Transfer Pricing the Assessing Officer or the Transfer Pricing Officer, as the case may be, shall be deemed to Officer, as the case may be, shall be deemed to Officer, as the case may be, shall be deemed to be erroneous in so far as it is prejudicial be erroneous in so far as it is prejudicial be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the interests of the revenue, if, in the opinion of the interests of the revenue, if, in the opinion of the Principal Principal Principal Chief Chief Chief Commissioner Commissioner Commissioner or or or Chief Chief Chief Commissioner or Principal Commissioner or Commissioner or Principal Commissioner or Commissioner or Principal Commissioner or Commissioner, Commissioner,- 1. the order is passed without making inquiries 1. the order is passed without making inquiries 1. the order is passed without making inquiries or verification which should have been made; or verification which should have been made; or verification which should have been made; 2. the or 2. the order is passed allowing any relief der is passed allowing any relief without inquiring into the claim; without inquiring into the claim; 3. the order has not been made in accordance 3. the order has not been made in accordance 3. the order has not been made in accordance with any order, direction or instruction issued with any order, direction or instruction issued with any order, direction or instruction issued by the Board under section 119; оr the Board under section 119; оr 4. the order has not been passed in accordance 4. the order has not been passed in accordance 4. the order has not been passed in accordance with any with any decision which is prejudicial to the decision which is prejudicial to the assessee, rendered by the jurisdictional High assessee, rendered by the jurisdictional High assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the Court or Supreme Court in the case of the Court or Supreme Court in the case of the assessee or any other person." essee or any other person." 8.6 In this regard reliance is placed on the judicial 8.6 In this regard reliance is placed on the judicial 8.6 In this regard reliance is placed on the judicial pronouncement of the Hon'ble Bombay High Court in pronouncement of the Hon'ble Bombay High Court pronouncement of the Hon'ble Bombay High Court

Reliance Retail Limited the case of K.E.C. International Ltd. versus Deputy the case of K.E.C. International Ltd. versus Deputy the case of K.E.C. International Ltd. versus Deputy Commissioner of Income Commissioner of Income-tax, Special Range 19, tax, Special Range 19, Mumbai in Income Tax Appeal No. 324 of 2003 Mumbai in Income Tax Appeal No. 324 of 2003 Mumbai in Income Tax Appeal No. 324 of 2003 pronounced on 30.01.2025. The Hon'ble Court pronounced on 30.01.2025. The Hon'ble Court pronounced on 30.01.2025. The Hon'ble Court observed that the Assessing Officer did not examine observed that the Assessing Officer did not examine observed that the Assessing Officer did not examine the deductions the deductions claimed u/s. 32AB of the Act and the claimed u/s. 32AB of the Act and the proposal of computation of book profit was also not proposal of computation of book profit was also not proposal of computation of book profit was also not examined in the original assessment proceedings examined in the original assessment proceedings examined in the original assessment proceedings made by the AO and hence failure to examine the made by the AO and hence failure to examine the made by the AO and hence failure to examine the above rendered the assessment erroneous and above rendered the assessment erroneous and above rendered the assessment erroneous and prejudicial to the interes prejudicial to the interest of the revenue. t of the revenue. 8.7 On the above provisions of law reliance is 8.7 On the above provisions of law reliance is 8.7 On the above provisions of law reliance is further placed in the case of M.R. Apparels Pvt. Ltd. further placed in the case of M.R. Apparels Pvt. Ltd. further placed in the case of M.R. Apparels Pvt. Ltd. v. Principal Commissioner of Income-tax [2025] v. Principal Commissioner of Income v. Principal Commissioner of Income reported in 170 taxmann.com 712 (SC) wherein it reported in 170 taxmann.com 712 (SC) wherein it reported in 170 taxmann.com 712 (SC) wherein it was observed as under: was observed as under: "The Assessee sold "The Assessee sold immovable property for a sum of immovable property for a sum of Rs. 6.5 crores Admittedly, a sum of Rs. 5.05 crores Rs. 6.5 crores Admittedly, a sum of Rs. 5.05 crores Rs. 6.5 crores Admittedly, a sum of Rs. 5.05 crores was received by assessee and balance amount of was received by assessee and balance amount of was received by assessee and balance amount of Rs. 1.45 crores was not received as cheques for said Rs. 1.45 crores was not received as cheques for said Rs. 1.45 crores was not received as cheques for said amount were dishonoured Assessee did not reflect amount were dishonoured Assessee did not reflect amount were dishonoured Assessee did not reflect sale of his immovable p sale of his immovable property during relevant roperty during relevant assessment year and did not offer capital gains to assessment year and did not offer capital gains to assessment year and did not offer capital gains to tax - Principal Commissioner found that Assessing Principal Commissioner found that Assessing Principal Commissioner found that Assessing

Reliance Retail Limited Officer did not examine details regarding dishonour Officer did not examine details regarding dishonour Officer did not examine details regarding dishonour of cheques He, thus, invoked revisionary jurisdiction of cheques He, thus, invoked revisionary jurisdiction of cheques He, thus, invoked revisionary jurisdiction under section 263 High Co under section 263 High Court by impugned order urt by impugned order held that since assessment order did not indicate held that since assessment order did not indicate held that since assessment order did not indicate any enquiries in this regard, Principal Commissioner any enquiries in this regard, Principal Commissioner any enquiries in this regard, Principal Commissioner rightly held that assessment order was passed rightly held that assessment order was passed rightly held that assessment order was passed without making necessary inquiries and verification without making necessary inquiries and verification without making necessary inquiries and verification and thus, in terms of clause (a) and thus, in terms of clause (a) of Explanation 2 to of Explanation 2 to section 263, assessment order was deemed to be section 263, assessment order was deemed to be section 263, assessment order was deemed to be erroneous in so far as it was prejudicial to interests erroneous in so far as it was prejudicial to interests erroneous in so far as it was prejudicial to interests of revenue." The Hon'ble Apex Court upheld the of revenue." The Hon'ble Apex Court upheld the of revenue." The Hon'ble Apex Court upheld the observations of the Hon'ble High Court in holding observations of the Hon'ble High Court in holding observations of the Hon'ble High Court in holding that the assessment was erroneous in so far as it that the assessment was erroneous in that the assessment was erroneous in was prejudicial to the interest of revenue. was prejudicial to the interest of revenue. was prejudicial to the interest of revenue.

Reliance Retail Limited keeping in view the purpose for which the case was selected keeping in view the purpose for which the case was selected keeping in view the purpose for which the case was selected under scrutiny. 4.2 Regarding operating lease Regarding operating lease expense, the Ld. PCIT noticed expense, the Ld. PCIT noticed that the Assessee claimed that the Assessee claimed expenses which were pertaining to which were pertaining to previous financial year i.e. FY 2019 previous financial year i.e. FY 2019-20 relevant to A 20 relevant to AY 2020-21 instead of current year. instead of current year. The Ld. PCIT referred to pages 569 and The Ld. PCIT referred to pages 569 and 570 of Annexure part 3 of Annexure part 3 of Assessee’s submission Assessee’s submission dated 31.10.2022, which is a copy of the invoice issued by which is a copy of the invoice issued by which is a copy of the invoice issued by ‘OPC Assets Solutions Pvt. Ltd.’ which indicates the invoice Assets Solutions Pvt. Ltd. which indicates the invoice for the period from 12.03.2022 to 11.06.2022. Therefore, the Ld. PCIT 12.03.2022 to 11.06.2022. Therefore, the Ld. PCIT 12.03.2022 to 11.06.2022. Therefore, the Ld. PCIT was of the view that out of Rs.5,10,84,55,600/ was of the view that out of Rs.5,10,84,55,600/ was of the view that out of Rs.5,10,84,55,600/- for the period from from 12.03.2022 12.03.2022 to to 11.06.2022( 11.06.2022 i.e. i.e. total total 93 93 days), days proportionate expense pertaining to the prior period for proportionate expense pertaining to the prior period for proportionate expense pertaining to the prior period for 12.03.2020 to 31 12.03.2020 to 31.03.2020( i.e. total 20 days) ) ,amounting to Rs.1,09,68,72,172/ Rs.1,09,68,72,172/- should not have been allowed as expense should not have been allowed as expense in the current AY 2021 in the current AY 2021-22. 4.3 The Assessee in its reply The Assessee in its reply filed before the ld PCIT filed before the ld PCIT explained that Assessee had paid lease rentals to that Assessee had paid lease rentals to ‘OPC Assets Solution OPC Assets Solutions Private Ltd.’ (OPC) in respect of (OPC) in respect of featured phones phones. It was agreed between the OPC and the Assessee that lease rentals was to be between the OPC and the Assessee that lease rentals was to be between the OPC and the Assessee that lease rentals was to be payable at the end of payable at the end of defined three months period and thus, the three months period and thus, the lease rental would be accordingly due and payable. Based on lease rental would be accordingly due and payable. Based on lease rental would be accordingly due and payable. Based on which, the OPC had raised rental invoices on the Assessee for the OPC had raised rental invoices on the Assessee for the OPC had raised rental invoices on the Assessee for the period from the period from 12.03.2020 to 11.06.2020 aggregating 12.03.2020 to 11.06.2020 aggregating to Reliance Retail Limited Rs.432,24,20,000/ 20,000/- exclusive of GST (Rs.5,10 of GST (Rs.5,10,04,55,600/- inclusive of GST inclusive of GST). It was submitted on behalf of the Assessee It was submitted on behalf of the Assessee that it had made that it had made provision of those expenses for 21 days (on a of those expenses for 21 days (on a proportionate basis) amount basis) amounting to Rs. 98,66,39,348/ 8,66,39,348/- in financial year 2019 financial year 2019-20 and the same had been reversed on had been reversed on 01.04.2020 in the books of accounts of the Assessee. The 01.04.2020 in the books of accounts of the Assessee. The 01.04.2020 in the books of accounts of the Assessee. The entries recorded in the books of accounts entries recorded in the books of accounts are as under: are as under:

(a) On 31 March, 2020- Debit – Lease rentals A/c - Rs. 98,66,39,348 Credit – Outstanding liability A/c - Credit Rs. 98,66,39,348. Rs. 98,66,39,348 (b) On 1 April 2020 - Debit – Outstanding liability A/c - Rs. 98,66,39,348 Credit-Lease rentals A/c - Rs. 98,66,39,348 The extract of above accounting entries in SAP is The extract of above accounting entries in SAP is enclosed at Annexure 5.

4.4 The Assessee explained that lease rental expenses for FY The Assessee explained that lease rental expenses for FY The Assessee explained that lease rental expenses for FY 2021 2021 was was accordingly accordingly reduced reduced to to the the extent extent of of Rs.98,66,39,348/ .98,66,39,348/-. Therefore, it was contended that no prior contended that no prior period expenses were claimed and net impact on the profit and on the profit and loss account for AY 2021 loss account for AY 2021-22 was of Rs. 3,30,57,80,652/ 22 was of Rs. 3,30,57,80,652/- [ Rs 432,24,20,000 – Rs. 98,66,39,248] which is the rental for the which is the rental for the period from 01.04.2020 to 11.06.2020. period from 01.04.2020 to 11.06.2020. Accordin Accordingly, it was submitted that allegation allegation of the prior period expense to the Reliance Retail Limited extent of the operative operative lease rent of Rs.98,66,39,248/ ,66,39,248/- was not justified. 4.5. Before us, the Ld. Counsel for the Assessee accordingly Before us, the Ld. Counsel for the Assessee accordingly Before us, the Ld. Counsel for the Assessee accordingly referred to the paper book page 18 referred to the paper book page 18 , which is part of notes to part of notes to financial statement dated 31 financial statement dated 31st March, 2021, which which has specified the policy of the Assessee in respect of the lease the policy of the Assessee in respect of the lease the policy of the Assessee in respect of the lease . This was duly examined by the ld AO during assessment proceedings. examined by the ld AO during assessment proceedings. examined by the ld AO during assessment proceedings. Accordingly, it was submitted that the AO had accepted Accordingly, it was submitted that the AO had accepted Accordingly, it was submitted that the AO had accepted the contention of the Assessee after due verification of the claim of contention of the Assessee after due verification of the claim of contention of the Assessee after due verification of the claim of the Assessee.

Reliance Retail Limited to the customer’s account within to the customer’s account within 90 days from the date of th days from the date of the transaction. Thereafter, the HDFC Bank also raised an invoice transaction. Thereafter, the HDFC Bank also raised an invoice transaction. Thereafter, the HDFC Bank also raised an invoice on the Assessee towards cash on the Assessee towards cash back credited through HDFC Bank credit/debit cards during the campaign credit/debit cards during the campaign credit/debit cards during the campaign period of 28.09.2019 to 01.01.2020. During the financial year 2019 28.09.2019 to 01.01.2020. During the financial year 2019 28.09.2019 to 01.01.2020. During the financial year 2019-20 the HDFC Bank Ltd. rai the HDFC Bank Ltd. raised invoices dated 06.03.2020 of Rs. sed invoices dated 06.03.2020 of Rs. 8,05,76,892/- (plus plus IGST of Rs.1,45,841/-) on the Assessee for on the Assessee for the cash back credit to the customers during the period cash back credit to the customers during the period cash back credit to the customers during the period 28.09.2019 to 31.10.2019. It is the invoice which has been 28.09.2019 to 31.10.2019. It is the invoice which has been 28.09.2019 to 31.10.2019. It is the invoice which has been disputed by the Ld. PCIT as pertaining to disputed by the Ld. PCIT as pertaining to the prior period and the prior period and claimed by the Assessee in current financial year. claimed by the Assessee in current financial year. claimed by the Assessee in current financial year. 5.1. In this regard, the Assessee submitted that the invoice o In this regard, the Assessee submitted that the invoice o In this regard, the Assessee submitted that the invoice of the HDFC Bank Ltd. towards marketing of Rs.8,05,76,892/ towards marketing of Rs.8,05,76,892/- + IGST of Rs. 1,45,841/ GST of Rs. 1,45,841/- raised on the Assessee for cash back raised on the Assessee for cash back credited during the ed during the period of 28.09.2019 to 31.10.2019 was period of 28.09.2019 to 31.10.2019 was duly recorded by the Assessee in FY 2019 duly recorded by the Assessee in FY 2019-20. However, during However, during the GST reconciliation process conciliation process, it had come to the notice that had come to the notice that IGST was charged charged inadvertently on the above marketing on the above marketing of Rs. 8,05,76,893/- instead of C promotion of Rs. GST and SGST being the local supplier supplier and place of the supply of goods in the and place of the supply of goods in the same state and hence, shall be treated same state and hence, shall be treated as intra intra-state supply and not the inter and not the inter-state supply. Accordingly, the H state supply. Accordingly, the HDFC Bank raised revised invoice dated raised revised invoice dated 13.04.2020 by levying levying CGST and SGST @ 9% each each instead of IGST of 18%. Accordingly, the instead of IGST of 18%. Accordingly, the Reliance Retail Limited Assessee made revised accounting entry in his books of Assessee made revised accounting entry in his books of Assessee made revised accounting entry in his books of accounts reversing the IGST with CGST and SGST. accounts reversing the IGST with CGST and SGST. accounts reversing the IGST with CGST and SGST. 5.2 Accordingly, it was contended by the Assessee that during Accordingly, it was contended by the Assessee that during Accordingly, it was contended by the Assessee that during the FY 2021, there is no 2021, there is no impact of the sales promotions the sales promotions expenses for reco cording of the invoice dated 13.04.2020 as the invoice dated 13.04.2020 as there was reversal entry of the same am was reversal entry of the same amount on 01.04.2020 and in ount on 01.04.2020 and in view of the above explanation it was submitted that there was view of the above explanation it was submitted that there was view of the above explanation it was submitted that there was no question of prior no question of prior period expenses claimed in the year under in the year under consideration.

Reliance Retail Limited within in the the meaning meaning of of Section Section 50B 50 and and shown shown sale sale consideration of consideration of Rs. 42,46,20,000/- and also the and also the of cost of acquisition at Rs.42,46,20,000/ at Rs.42,46,20,000/-. The Ld. PCIT noted that the . The Ld. PCIT noted that the Assessee had not filed the ee had not filed the Form no. 3CEA even though it even though it was required to file said form said form along with the return of income within along with the return of income within the time allowed under Section ed under Section 139 (1). The ld PCIT was of view The ld PCIT was of view that no enquires/verification in this regard had been carried no enquires/verification in this regard had been carried no enquires/verification in this regard had been carried out by the AO during the course of assessment proceedings. out by the AO during the course of assessment proceedings. out by the AO during the course of assessment proceedings. 8.1 In response the Ass In response the Assessee submitted that the Assesse essee submitted that the Assessee is engaged in the organized retail business and onlin organized retail business and onlin organized retail business and online stores on a pan India basis catering to India basis catering to consumption baskets in baskets in food and grocery, consumer electronics and grocery, consumer electronics and Fashion & life style life style. It was also involved in supply chain business. Since the in supply chain business. Since the in supply chain business. Since the aforesaid ‘supply chain business supply chain business’ required a different set set of specialized skills and resource skills and resources to develop growth potential in the potential in the relevant business market, the Assessee business market, the Assessee sold the said business to the said business to Reliance Retail Venture Reliance Retail Venture Limited, under the Slump Slump Agreement dated 21.07.2020. 21.07.2020. Accordingly, the Assessee transferred its he Assessee transferred its supply chain business business during assessment year 2021 during assessment year 2021-22 to Reliance Retail Venture Limited. The Assessee submitted that it Venture Limited. The Assessee submitted that it Venture Limited. The Assessee submitted that it has followed the mechanism provided under Section 50 Section 50B of the Act for computing cost of the acquisition. I computing cost of the acquisition. It was submitted that as submitted that the relevant Form no. 3 C orm no. 3 CEA was filed on 15.02.2022 as against was filed on 15.02.2022 as against the due date of the filing of the return which was extended up the due date of the filing of the return which was extended up the due date of the filing of the return which was extended up

Reliance Retail Limited to 15.03.2022. The . The net worth calculation was certified calculation was certified by the independent Cha hartered accountant in Form no. 3 Form no. 3CEA which was computed to Rs. 42,46,20,000/- It was accordingly t was accordingly submitted that th submitted that the AO after due verification of F e AO after due verification of Form no. 3 CEA accepted the claim of the Assessee of capital gain arising claim of the Assessee of capital gain arising claim of the Assessee of capital gain arising under Section 50B of Act. Act. The next issue is regarding disallowance of depreciation disallowance of depreciation 9. The next issue claims on prior period purchases of on prior period purchases of intangible assets of Rs. intangible assets of Rs. 1,43,96,000/-. The Ld. PCIT pointed out that list of . The Ld. PCIT pointed out that list of software . The Ld. PCIT pointed out that list of which were purchased purchased in FY 2019-20 were capitalized in the were capitalized in the year under consideration. According to the year under consideration. According to the Ld. PCIT, the assets PCIT, the assets should have been capitalized in should have been capitalized in the earlier assessment year and the earlier assessment year and depreciation should have be depreciation should have been accordingly allowed to reduce accordingly allowed to reduce value of opening WDV. of opening WDV. 9.1 In response the Assessee submitted that during the course response the Assessee submitted that during the course response the Assessee submitted that during the course of the assessment proceeding the AO called for the of the assessment proceeding the AO called for the of the assessment proceeding the AO called for the details in respect of such addition to intangible assets respect of such addition to intangible assets (PB (PB- 87-92) and the Assessee duly file the Assessee duly filed the entire details of projects of aforesaid e entire details of projects of aforesaid intangibles(104-105, 252, 253 105, 252, 253-254) ) and therefore, the entire and therefore, the entire information, documents relevant for making the decision documents relevant for making the decision documents relevant for making the decision under disallowance of depreciation was in possession of the AO and he depreciation was in possession of the AO and he depreciation was in possession of the AO and he after due verification allowed the claim of the depreciation. after due verification allowed the claim of the depreciation. after due verification allowed the claim of the depreciation. Therefore, the Ld. PCIT should not exercise jurisdiction under e Ld. PCIT should not exercise jurisdiction under e Ld. PCIT should not exercise jurisdiction under Section 263 in this regard Section 263 in this regard. Further, without prejudice it was without prejudice it was Reliance Retail Limited submitted by the Assessee that t submitted by the Assessee that the software purchase from he software purchase from ‘BORQ Software Soluti oftware Solutions Pvt. Ltd’. were under customization . were under customization process and the technical process and the technical team of the Assessee only confirm team of the Assessee only confirmed vide e-mail dated 17.04.2020 mail dated 17.04.2020 that the implementation based that the implementation based initial expectation expectation of the software was complete and the of the software was complete and the software could go go live on the production. Since the software was Since the software was finally accepted and put to use only in accepted and put to use only in the AY 2021 the AY 2021-22 and therefore, the AO has rightly accepted the claim of the Assessee therefore, the AO has rightly accepted the claim of the Assessee therefore, the AO has rightly accepted the claim of the Assessee of capitalization of such assessment in the year under of capitalization of such assessment in the year under of capitalization of such assessment in the year under consideration.

The next issue is regarding verification of the addition to the addition to 10. The next issue is regarding verification of assets. The Ld. PCIT pointed out that The Ld. PCIT pointed out that on perusal of the tax perusal of the tax audit report that Assessee made addition report that Assessee made addition in last two days of the last two days of the financial year and claimed huge depreciation. The Ld. PCIT has financial year and claimed huge depreciation. The Ld. PCIT has financial year and claimed huge depreciation. The Ld. PCIT has pointed out such pointed out such assets as per paragraph 2.12 of the impugned of the impugned order as under:

Nature of Asset Date of purchase Date of put to use Date of put to use Purchase value (Rs.) Buildings @10% 31.03.2021 31.03.2021 31.03.2021 6,65,45,226 (Sr. No. 20 in the list) Plant & Machinery @ 30.03.2021 30.03.2021 30.03.2021 1,02,815 (Sr. No. 133 in 15% the list) Plant & Machinery @ 31.03.2021 31.03.2021 31.03.2021 29,58,00,818 (Sr. No. 15% 134 in the list) Plant & Machinery @ 31.03.2021 31.03.2021 31.03.2021 33,79,008 (Sr. No. 63 in 40% the list) Plant & Machinery @ 31.03.2021 31.03.2021 31.03.2021 9,83,61,32,523 (Sr. No. 40% 64 in the list) Furniture & fitting @ 31.03.2021 31.03.2021 31.03.2021 9,02,20,751 (Sr. No. 32 10% in the list) TOTAL AMOUNT OF ADDITIONS TO ASSETS TOTAL AMOUNT OF ADDITIONS TO ASSETS 1029,21,81,141

Reliance Retail Limited According to the Ld. PCIT the installation of the plant and According to the Ld. PCIT the installation of the plant and According to the Ld. PCIT the installation of the plant and machinery involves multiple steps machinery involves multiple steps such as transportation, delivery, setup, testing setup, testing, calibration and sometimes training of and sometimes training of the labour and therefore the labour and therefore, it cannot be construed construed that all those assets were put to use in the assessment year under assets were put to use in the assessment year under assets were put to use in the assessment year under consideration. The Ld. PCIT was of the view that the AO has not consideration. The Ld. PCIT was of the view that the AO has not consideration. The Ld. PCIT was of the view that the AO has not carried out any enquiry or documentary verification which he ry or documentary verification which he ought to have carried out. ought to have carried out. According to the ld PCIT, According to the ld PCIT, non- verification of the clai verification of the claim the depreciation resulted in resulted in under assessment of the income to the tune of Rs. 1,99,79,33,375/ assessment of the income to the tune of Rs. 1,99,79,33,375/ assessment of the income to the tune of Rs. 1,99,79,33,375/- 10.2 In response In response, the assessee submitted that submitted that relevant details were available in Tax Audit Report(TAR) for the year under were available in Tax Audit Report(TAR) for the year under were available in Tax Audit Report(TAR) for the year under consideration which was already filed online. Further consideration which was already filed online. Further consideration which was already filed online. Further during the course of the assessment proceeding the course of the assessment proceeding, the AO asked the the AO asked the details of addition to assets including the details of addition to assets including the ad addition to fixed assets, lease holding holding, plant and machinery, furniture and , plant and machinery, furniture and fixture of retail store retail store (PB:87-92) and the assessee filed reply vide 92) and the assessee filed reply vide letter dated 17/11/2022( PB: 270 letter dated 17/11/2022( PB: 270-272). The AO further made 272). The AO further made query vide notice dated 7/12/2022 (PB: 126 query vide notice dated 7/12/2022 (PB: 126 query vide notice dated 7/12/2022 (PB: 126-130) and the assessee responded on 14/12/2022 (PB: 273 assessee responded on 14/12/2022 (PB: 273 assessee responded on 14/12/2022 (PB: 273-278, 279- 282,283-290). Further Further it was submitted that the Assessee had it was submitted that the Assessee had engaged M/s Reliance Projects and Property Management M/s Reliance Projects and Property Management M/s Reliance Projects and Property Management Services Services Limited Limited for business of designing, designing, developing, developing, fabrication, erecting, improving , erecting, improving of infrastructural facilities, of infrastructural facilities,

Reliance Retail Limited project works including engineering, procurement supply, project works including engineering, procurement supply, project works including engineering, procurement supply, construction, etc. construction, etc. and to undertake work of the of the build-in and ready to use fit-out retail stores. out retail stores. It was submitted that It was submitted that aforesaid activities were under taken activities were under taken in relation to building of fit n to building of fit-out retail stores and handed over to the Assessee with completion of retail stores and handed over to the Assessee with completion of retail stores and handed over to the Assessee with completion of all all all works works works in in in respect respect respect of of of new new new stores/sites stores/sites stores/sites during during during the the the month/quarter and raised the invoice on the Assessee after the month/quarter and raised the invoice on the Assessee after the month/quarter and raised the invoice on the Assessee after the issuance of completion certificate from the site en issuance of completion certificate from the site en issuance of completion certificate from the site engineer. The Assessee filed details of such Assessee filed details of such completion, which is reproduced which is reproduced as under: Store Name Store Name Date of Invoice Invoice date date Date of and Completion (copy enclosed capitalization copy enclosed Address Certificate (copy at Annexure Annexure in tax block at 8b) enclosed Annexure 8a) SMT TG TG Warangal 22 March 2021 30 30 March March 30 / 31 March Alankar 2021 2021 Chowrastha Trends- Brigade 22 March 2021 25/26 25/26 March March uptown, Old uptown, Old 2021 Madras Road, Bangalore COIT-BR

Ambedkar 23 March 2021 25 25 March March Road Road Civil Civil 2021 Hospital RRL Trends, RRL Trends, 24 March 2021 27 27 March March Kolhapur 2021 10.3 In view of the above it was submitted that the AO had In view of the above it was submitted that the AO had In view of the above it was submitted that the AO had made due enquiries which was required for verification of the made due enquiries which was required for verification of the made due enquiries which was required for verification of the claim of the depreciation in respect of the addition claim of the depreciation in respect of the addition claim of the depreciation in respect of the addition to the asset during the year under consideration. during the year under consideration. 10.4 Per Contra, the ld DR supported the order of ld PCIT. 10.4 Per Contra, the ld DR supported the order of ld PCIT. 10.4 Per Contra, the ld DR supported the order of ld PCIT.

Reliance Retail Limited disagrees with the disagrees with the "conclusion of the inquiry." "conclusion of the inquiry." It is a settled judicial principle, affirmed by the Hon’ble Su judicial principle, affirmed by the Hon’ble Supreme Court in preme Court in Malabar Industrial Co. Ltd. vs. CIT [2000] 243 ITR 83 (SC) Malabar Industrial Co. Ltd. vs. CIT [2000] 243 ITR 83 (SC) Malabar Industrial Co. Ltd. vs. CIT [2000] 243 ITR 83 (SC) and CIT vs. Max India Ltd. [2007] 295 ITR 282 (SC), that the CIT vs. Max India Ltd. [2007] 295 ITR 282 (SC) CIT vs. Max India Ltd. [2007] 295 ITR 282 (SC) Commissioner cannot invoke Section 263 to substitute his own Commissioner cannot invoke Section 263 to substitute his own Commissioner cannot invoke Section 263 to substitute his own subjective satisfaction for that of the AO. subjective satisfaction for that of the AO. 11.1 We have obs We have observed that the Assessing Officer has called for erved that the Assessing Officer has called for details and after verification of reply of assessee chosen not to details and after verification of reply of assessee chosen not to details and after verification of reply of assessee chosen not to make addition. Once it is established that the AO conducted Once it is established that the AO conducted Once it is established that the AO conducted inquiries and the assessee furnished requisite explanations, the inquiries and the assessee furnished requisite explanations, the inquiries and the assessee furnished requisite explanations, the assessment order assessment order cannot be branded as "erroneous" simply cannot be branded as "erroneous" simply because the PCIT harbors a different opinion. The ld. PCIT has because the PCIT harbors a different opinion. The ld. PCIT has because the PCIT harbors a different opinion. The ld. PCIT has failed to identify any specific finding that is failed to identify any specific finding that is failed to identify any specific finding that is demonstrably perverse or legally unsustainable legally unsustainable. In the absence of a precise . In the absence of a precise error of fact or law, the rev error of fact or law, the revisional power cannot be exercised to isional power cannot be exercised to conduct a "fishing and roving" inquiry into matters already conduct a "fishing and roving" inquiry into matters already conduct a "fishing and roving" inquiry into matters already considered during the assessment. What is sought to be considered during the assessment. What is sought to be considered during the assessment. What is sought to be substituted is only the subjective satisfaction of the substituted is only the subjective satisfaction of the substituted is only the subjective satisfaction of the ld PCIT for the plausible view taken by the Asses the plausible view taken by the Assessing Officer after due sing Officer after due consideration consideration consideration of of of the the the material material material placed placed placed on on on record. record. record. Such Such Such substitution of opinion is impermissible in law. substitution of opinion is impermissible in law.

11.2 It is also relevant to note that the case of the assessee was It is also relevant to note that the case of the assessee was It is also relevant to note that the case of the assessee was selected for scrutiny under the CASS mechanism on specific selected for scrutiny under the CASS mechanism on specific selected for scrutiny under the CASS mechanism on specific risk parameters, namely, parameters, namely, verification of large receipts subjected verification of large receipts subjected

Reliance Retail Limited to tax deduction under section 194C of the Act vis to tax deduction under section 194C of the Act vis to tax deduction under section 194C of the Act vis-à-vis the low net profit declared. In the course of such scrutiny, the Assessing . In the course of such scrutiny, the Assessing net profit declared Officer issued notices under section 142(1) of the Act (dated Officer issued notices under section 142(1) of the Act (dated Officer issued notices under section 142(1) of the Act (dated 17.10.2022) calling for detailed information relating to receipts, 17.10.2022) calling for detailed information relating to receipts, 17.10.2022) calling for detailed information relating to receipts, expenditure, and allied issues. In examining the veracity of expenditure, and allied issues. In examining the veracity of expenditure, and allied issues. In examining the veracity of receipts and profitability, the Assessing Officer necessarily receipts and profitability, the Assessing Officer necessarily receipts and profitability, the Assessing Officer necessarily examined the corresponding expenditure structure and related examined the corresponding expenditure structure and related examined the corresponding expenditure structure and related aspects, including those now highlighted by the learned ts, including those now highlighted by the learned PCIT. ts, including those now highlighted by the learned Relevant queries issued for examination of expenses by the ld Relevant queries issued for examination of expenses by the ld Relevant queries issued for examination of expenses by the ld AO vide notice u/s 142(1) dated 17/10/2022 (PB87 AO vide notice u/s 142(1) dated 17/10/2022 (PB87 AO vide notice u/s 142(1) dated 17/10/2022 (PB87-92) is reproduced as under: reproduced as under:

11. During the year, the Assessee incurred an expenditure of During the year, the Assessee incurred an expenditure of Rs. 94.64 crore During the year, the Assessee incurred an expenditure of towards Corporate Social Responsibility (CSR) activities. In this regard, towards Corporate Social Responsibility (CSR) activities. In this regard, towards Corporate Social Responsibility (CSR) activities. In this regard, please provide the details of activities undertaken under CSR along with please provide the details of activities undertaken under CSR along with please provide the details of activities undertaken under CSR along with documentary evidences. documentary evidences.

11.4 In the present case, the record clearly demonstrates that In the present case, the record clearly demonstrates that In the present case, the record clearly demonstrates that the Assessing Officer co the Assessing Officer conducted enquiries aligned with the nducted enquiries aligned with the CASS risk parameters, examined the material placed on record, CASS risk parameters, examined the material placed on record, CASS risk parameters, examined the material placed on record, and applied his mind to the issues germane to the scrutiny and applied his mind to the issues germane to the scrutiny and applied his mind to the issues germane to the scrutiny selection. Once such a plausible view is taken, the assessment selection. Once such a plausible view is taken, the assessment selection. Once such a plausible view is taken, the assessment order cannot be branded as erroneous order cannot be branded as erroneous merely because the merely because the ld PCIT believes that a more detailed or different enquiry ought to believes that a more detailed or different enquiry ought to believes that a more detailed or different enquiry ought to have been undertaken. have been undertaken.

11.5 Section 263 does not empower the revisional authority to Section 263 does not empower the revisional authority to Section 263 does not empower the revisional authority to permit substitution of the permit substitution of the PCIT’s subjective standard of scrutiny subjective standard of scrutiny for that of the Ass for that of the Assessing Officer. In the absence of a essing Officer. In the absence of a demonstrated error of law or fact and a corresponding prejudice demonstrated error of law or fact and a corresponding prejudice demonstrated error of law or fact and a corresponding prejudice to the interests of the Revenue, compliance with the CASS to the interests of the Revenue, compliance with the CASS to the interests of the Revenue, compliance with the CASS- guided scrutiny process cannot furnish a valid foundation for guided scrutiny process cannot furnish a valid foundation for guided scrutiny process cannot furnish a valid foundation for assumption of jurisdiction under sec assumption of jurisdiction under section 263 of the Act. tion 263 of the Act.

11.6 In the present case, the learned In the present case, the learned PCIT PCIT has neither demonstrated any specific error of law or fact nor established demonstrated any specific error of law or fact nor established demonstrated any specific error of law or fact nor established any real or tangible prejudice caused to the interests of the any real or tangible prejudice caused to the interests of the any real or tangible prejudice caused to the interests of the Revenue. For an order to be revisable, it must be or an order to be revisable, it must be or an order to be revisable, it must be erroneous and Reliance Retail Limited prejudicial to the interests of the Revenue. The ld. PCIT has to the interests of the Revenue. The ld. PCIT has to the interests of the Revenue. The ld. PCIT has failed to demonstrate any quantifiable loss to the Revenue. failed to demonstrate any quantifiable loss to the Revenue. failed to demonstrate any quantifiable loss to the Revenue. Notably, the issue of "prior period expenses" in a corporate Notably, the issue of "prior period expenses" in a corporate Notably, the issue of "prior period expenses" in a corporate assessment is generally assessment is generally revenue-neutral if no change in tax if no change in tax rates for the assessment year of booking expenses rates for the assessment year of booking expenses rates for the assessment year of booking expenses and prior assessment year, as it merely shifts the timing of the deduction , as it merely shifts the timing of the deduction , as it merely shifts the timing of the deduction without escaping the tax net. without escaping the tax net. In the absence of a clearly In the absence of a clearly identifiable error resulting in demonstrable prejudice to the identifiable error resulting in demonstrable prejudice to the identifiable error resulting in demonstrable prejudice to the Revenue, the assumption of jurisdiction under section 263 of he assumption of jurisdiction under section 263 of he assumption of jurisdiction under section 263 of the Act is wholly unsustainable. the Act is wholly unsustainable.

11.7 The grounds of the appeal of the Assessee are accordingly The grounds of the appeal of the Assessee are accordingly The grounds of the appeal of the Assessee are accordingly allowed.