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Facts
The assessee filed a return declaring Nil income and a substantial loss. The AO completed the assessment. The PCIT invoked Section 263, considering the assessment order erroneous and prejudicial to the revenue regarding a negative adjustment in book profit for transition amount.
Held
The Tribunal held that the AO did not conduct a proper inquiry into the assessee's claim for a negative adjustment in book profit concerning the transition amount. This omission made the assessment order erroneous and prejudicial to the revenue.
Key Issues
Whether the PCIT erred in assuming jurisdiction under Section 263 and holding the assessment order erroneous and prejudicial to revenue due to the AO's lack of inquiry on a book profit adjustment?
Sections Cited
263, 143(3), 144B, 115JB(2C)
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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI NARENDRA KUMAR BILLAIYA, HON’BLE & SHRI SANDEEP SINGH KARHAIL, HON’BLE
O R D E R
PER NARENDRA KUMAR BILLAIYA, AM :
This appeal by the assessee is preferred against the order of the PCIT, Mumbai -6, dated 08/03/2024 pertaining to AY 2018-19.
The sum and substance of the grievance of the assessee is that the PCIT erred in assuming jurisdiction u/s 263 of the Act and further erred in holding that the assessment order dated 19/04/2021 framed u/s 143(3) r.w.s. 144B of the Act, is not only erroneous but prejudicial to the interest of the revenue. 3. Representatives of both the sides were heard at length, case records carefully perused and the relevant documentary evidence brought to our notice duly considered in the light of Rule 18(6) of the ITAT Rules, 1963. 2
Briefly stated the facts of the case are that the assessee electronically filed its return of income on 30/11/2018 declaring total income at Nil and current year loss of Rs.236,38,89,154/-. The return was selected for scrutiny assessment and accordingly statutory notices were issued and served upon the assessee. Subsequently, the AO completed the assessment proceedings by observing as under:- “6. After due verification and examination of the issues, the income of the assessee for the above assessment year is being assessed as under:-
Income under normal provisions of the Act Sr. No. Particulars Amount (Rs.) 1 Assessed income u/s 143(1) (-) 1,97,49,90,681 Add: Disallowance u/s 14A 168,23,98,967 Carry forward loss 29,25,91,714 2. Assessed income u/s 143(3) NIL Tax @30% NIL Income under section 115JB Sr. No. Particulars Amount (Rs.) 1 Total income u/s 115JB as (58,85,01,159)/- shown Add: Addition of disallowance 168,23,98,967/- made u/s 14A 2. Total income u/s 115JB after 109,38,97,808/- assessment MAT @ 18.5% 20,23,71,094/-
Assuming powers conferred upon him by the provision of Section 263 of the Act, the PCIT issued a showcause notice u/s 263 of the Act which reads as under:- “2. On verification of the records, it is seen from the P & L A/c, Computation of Income and Tax Audit Report, that while computing book profit you have made negative adjustment of Rs. 69,44,09,313/- on account of Transition Amount (1/5th of Rs.347.20 crores) u/s. 115JB (2C) of the Act. Further perusal revealed that the Total transitional amount of Rs.347.20 crores considered for adjustment included Fair Value of financial assets (expected credit losses associated with its assets carried at amortized cost) of Rs. 131, 35,08, 642/-. As this adjustment, i.e. expected credit 3 loss associated with financial asset is contingent in nature, the negative adjustment on this account to book profit is to be made only at the time of realization/disposal/retirement or otherwise. Thus, adjustment of Rs.26,27,01,728/- (1/5th of Rs. 131,35,08,642) included in total negative adjustment of Rs. 69,44,09,313/- (debited in MAT working) made u/s. 115JB (2C) is not in order and was required to be disallowed. Omission to adhere to provisions of the Act resulted in short computation of book profit by Rs.26,27,01,728/-. 3. In view of the above, it is seen that the order passed u/s 143 r.w.s.144B dated 19.04.2021. is erroneous and prejudicial to the interests of revenue and is required to be set-aside on the above issue by invoking the provisions of section 263 of the Act. Hence, it is requested to show-cause as to why the same should not be quashed/set aside for fresh adjudication after considering the facts as discussed above.” 5.1. In response to the aforesaid notice, the assessee attended the proceedings and filed its reply. The reply of the assessee did not find any favour with the PCIT who concluded as under:- “7.1.2 It is seen from the records that the assessee has claimed 1/5th of 131,35,08,642/- being Rs. 26,27,01,728/- towards the negative transition amount in computation of its book profit, which relates to preference shares investment of Rs. 131,35,08,652/- in its subsidiary RNRL - Singapore. However, this would fall under sub clause (E) of clause (iii) to o the Explanation of sec. 115JB(2C) of the Act and hence would not be included in the transition amount for the purpose of deduction from Book Profit. Since the AO has allowed this claim of the assessee without proper enquiry, the order passed u/s.143 r.w.s.144B dated 19.04.2021 is clearly erroneous and also prejudicial to the interests of revenue.