CHAMBAL FERTILISERS AND CHEMICALS LIMITED,KOTA GADEPAN vs. PRINCIPAL COMMISSIONER OF INCOME TAX, SAVINA-UDAIPUR

per the case laws relied upon for verification on the concluded

assessment provision of section 263 of the Act cannot be invoked.

Ld. AR further submitted that ld. PCIT failed to demonstrate as to

whether the order of Assessing Officer is erroneous and prejudicial

to the interest of the revenue. As regards the 2nd issue, of charging of tax on the dividend 9.2

income ld. AR of the assessee submitted when there is specific

provision u/s 115BBD, the ld. PCIT cannot direct the ld. AO to

charge the said income which is covered by the specific provisions

under the head business Income. The assessee offers dividend

income as per provision of section 115BBD of the Act regularly

every year and that has been accepted in the past years too. Thus,

there is no reason as to suggest that on the issue to hold another

view.

9.3 As regards issue of tax deduction of education cess claimed

by the same was claimed based on the provision of the Act

prevailing at the time but the assessee on that amount of Rs.

5,92,10,074/- paid the required tax along with the interest and the

ld. PCIT was satisfied on that aspect of the matter based on the

explanation furnished by the assessee.

31 ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT 9.4 Since, on two issues there is no pinpoint of any error which

was prejudicial to the interest of revenue and the ld. PCIT failed to

prove that order of the assessing officer sought to be revised is

erroneous and is prejudicial to the interests of the revenue. If one

of them is absent the order of the assessing officer cannot be

subjected to the revision as per provision of section 263 of the Act.

The ld. AR of the assessee in support of the merits of the case and

judicial precedent relied on the submission filed.

para 6B and 6C from Page No. 40 to 46 her order. She further

stated that the ld. PCIT has considered all the arguments placed on

record and thereafter passed reasoned order.

counsel for the parties and have also perused the material on

record. Ground no. 4, raised in this appeal being general and there

is no grievance of the assessee so the same being general in

nature does not required any adjudication by us.

32 ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT 12. Ground no. 1 raised by the assessee challenges the order of

the PCIT under dispute on the jurisdiction issue. Whereas ground

no. 2 & 3 raised by the assessee on the merits of the dispute

contesting that even based on the set of the facts placed on record

the order passed by ld. AO, does not confer jurisdiction u/s. 263 of

the Act. Since all these three grounds inter connected emanates

from the order under dispute we considered it to dispose the same

together.

Brief facts of the case are that the assessee is a public

limited company engaged in manufacture of Urea and Single Super

Phosphate (SSP) and marketing of other Agri- inputs such as Di-

Ammonium Phosphate (DAP), Muriate of Potash (MOP), NPK

Fertilisers, agrochemicals, seeds, micronutrients, etc. For the year

under consideration assessee has filed its return of income on

29.03.2019 declaring taxable income of Rs. 593,12,42,630/-. The

source of income of the assessee for the year under consideration

is income from Business, Income from capital Gain and Income

from other source. After filling the return of income by the assessee

the case was selected for complete scrutiny assessment under the

E-assessment Scheme, 2019. Ld. AO in the assessment order

noted that the assessee submitted replies which were examined

33 ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT and kept on record. After examination of the replies submitted by

the assessee, ld. AO concluded that explanation offered by the

assessee was satisfactory and no adverse inference was drawn. At

last ld. AO noted assessee on 24.02.2021 filed the revised

computation of income and offered the GST provision of Rs.

16,30,91,496/- for taxation purpose which was added back to the

total income of the assessee. Accordingly, against the returned of

income of Rs. 5,93,12,42,630/- assessed income was determined

at Rs. 6,09,43,34,126/- vide order dated 19.04.2021.

After completion of assessment proceedings, ld. PCIT called

for the assessment records for examination. That examination of

records was as per provision of section 263 of the Act. While doing

so ld. PCIT raised three issues in the proceeding initiated against

the assessee and to this effect she issued a notice dated

20.09.2023 giving opportunity of being heard as well as requiring

the assessee to furnish its submission on the issue. The assessee

filed a detailed submission.

On the issue of claim of Education cess, the assessee

submitted that they have deposited the requisite tax along with the

tax. After considering the reply filed by the assessee, ld. PCIT

34 ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT noted that the assessee reasonable explained this issue and she

was satisfied on that issue.

Now we would deal with left out two issues for which the ld.

PCIT invoked the provision of section 263 of the Act. The first one

is on the contention that the assessee has reported at ITR column

no. 43(i) under the head interest paid outside India or Paid in India

to a non resident other than a company or a foreign company for

an amount of Rs. 25,56,23,509/-. While the Tax deducted as

reported in form no. 3CD assessee reported to have deducted tax

for an amount of Rs. 13,92,83,709/-. Thus, ld. PCIT was of the view

that the assessee has not deducted TDS on Rs. 11,33,39,800/- [

Rs, 25,56,23,509/- less Rs.13,92,83,709/- ] under the provision of

section 195 vis a vis 194A of the Act.

During the proceeding before ld. PCIT assessee filed a

detailed reply with supporting evidence. The assessee submitted a

detailed breakup for an amount of Rs. 13,92,83,709/- being the

amount of TDS made as per provision of section 195 of the Act as

reported at clause 34a of the Tax audit report filed by the

assessee. The assessee demonstrated that the interest which was

paid outside India and was liable to TDS as per provision of section

195 was for an amount of Rs.1,81,97,163/- only out of the total

35 ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT amount of Rs. 13,92,83,709/- reported in the Tax audit report.

Assessee also explained as to why the TDS on a sum of Rs.

25,56,23,509/- as reported in ITR column no. 43(i) being the

interest paid outside India or Paid in India to a non resident other

than a company or a foreign company does not match with the

figure reported at clause 34a of the tax audit report. As the dispute

arise out of the figure of Rs. 25,56,23,509/- reported in the ITR, it

would be better to analyses the details of the such payment made

by the assessee. Breakup of the figure reported in ITR is as under:

36 ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT The assessee already filed a detailed summary chart

showing the names of payee for an amount of Rs. 1,81,97,163/- for

which there is not dispute as the TDS as per provision of the Act

has already been deducted. Now so far as the balance amount is

concerned as is evident from the above chart that Rs. 23,09,26,264

being the interest paid to Indian Banking companies for which

provision of section 194A(3)(iii) would apply. So far as the foreign

bank payment of Rs. 52,11,831/- paid by the assessee, the same

has been paid to KFW (Germany) and HSBC Bank (Mauritius) Ltd.,

As regards the payment made to KFW (Germany) same is covered

by the DTAA agreement between India and Germany interest paid

to KFW Bank was not taxable in India and hence no TDS was

required to be deducted. As regards the interest paid to HSBC

Bank (Maurituius) Ltd., a press release dated 10.05.2016 states

that interest income of Mauritian resident banks in respect of debts claims existing on or before 31st March 2017 shall be exempt from

tax in India and the payment made for the debt taken before 31.03.2017. As regards 4th claim of foreign currency under the

head exchange rate, is in accordance with the accounting

standards giving effect of exchange rate difference. As that

exchange rate difference did not entail any pay out question of

37 ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT deducting TDS does not arise. Not only that the ld. AR of the

assessee demonstrated that the issue of deductibility of interest

expenses has been verified by the ld. AO and the assessee filed

the details at point no. 9 of the submission dated 02.03.2021 filed

with the ld. AO. Thus, the issue raised by ld. PCIT has already

been verified by the ld. AO and the PCIT cannot in the proceeding

u/s. 263 direct the way the enquiry should have been done by the

ld. AO. We note that based on the details placed on record the ld.

AO taken a plausible view which even the after the details placed

on record revenue failed to established that the view taken by the

ld. AO is erroneous or prejudicial to the interest of the revenue.

Thus, here we note that the issue first of all verified by the ld. AO,

not only that based on the explanation before ld. PCIT neither she

hold that the explanation or based on the details placed on record

the order is erroneous nor prejudicial to the interest of revenue.

Even the ld. PCIT did not controvert the detailed submission and

evidences placed on record. She simply stated that;

“ The reply of the assessee on the issue of non deduction of TDS on interest payment of Rs. 23,09,26,264/- supra is not fully acceptable and requires further examination/verification by the Assessing Officer, moreover, the third party verification, wherever required. Therefore, the AO shall have to take further steps to verify the issue, as per the direction given at para no. 9 below.”

38 ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT

The above finding of the ld. PCIT did not spell out that on the issue

as even after giving the detailed explanation by the assessee,

whether the order passed by the ld. AO was erroneous or

prejudicial to the interest of the revenue or not?. There is no

specific finding by the ld. PCIT on the issue. Therefore, we do not

see any reasons in the order as to why the provisions of section

263 of the Act are attracted.

As we note that provisions of section 195 provides that any

person responsible for paying to a non-resident, not being a

company, or to a foreign company, any interest (not being interest

referred to in section 194LB or section 194LC or section 194LD) or

any other sum chargeable under the provisions of this Act (not

being income chargeable under the head "Salaries") shall, at the

time of credit of such income to the account of the payee or at the

time of payment thereof in cash or by the issue of a cheque or draft

or by any other mode, whichever is earlier, deduct income-tax

thereon at the rates in force. In this case the payment is made by

the assessee to Foreign branch of Indian Bank. The nature of

payment is interest but is not paid to foreign company. Further

these banks are also not a company. Therefore, if there recipient

39 ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT interest non-resident, then only tax is required to be deducted. The

term non-resident is defined in section 2(30) which says that non-

resident means a person who is not the resident includes a person

who is not ordinary resident within the meaning of clause 6 of

section 6. The term resident is defined in section 6(4) of the Act

which says that every other person is said to be resident in India in

any previous year. In every case, except where during that year the

control and management of his affairs is situated holly outside India

whereas in the case of banking companies effective place and

management is controlled in India and not outside India. In this

case, as is evident that the case of ld. PCIT is not that control and

management of this branches of bank are situated outside India. In

fact, these foreign branches are not foreign entity but foreign

branch of Indian Bank. Therefore, foreign Branch of this Indian

Bank cannot be considered as non-resident. Accordingly provisions

of section 195 do not apply to payment made by Indian company to

foreign branch of Indian Bank. Hence there is no requirement on

deduction of tax at source. Even otherwise these banks are Indian

resident and incomes of their branches are taxable in the hands of

this Indian Bank in their return of income to be filed in India.

Because of these reason that global income of resident of Indian

40 ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT would be chargeable to tax in India, if any tax is deducted at source

of income of foreign branch of this resident bank, once again be

granted the credit of taxes in the hands of this Indian Bank. Even

otherwise deduction of at source, u/s 194A(3) on payment made to

an Indian Bank is out of purview of TDS. In view of the provisions

of section 194(A)(3)(iii)(f) of the Act under this clause all banks

covered under the bank nationalization given the exemption for

withholding of tax under section 194A of the Act. In view of this

aspect also we do not find that the tax is required to be deducted

on the above payment of interest paid to foreign branch of Indian

Bank. Thus, here also the order of ld. AO cannot be said to the

erroneous so far as prejudicial to the interest of revenue.

Therefore, the twin conditions as prescribed under the Act are

missing. Now coming to the provisions of explanation 2 of section

263 of the Act, ld. PCIT should have at least satisfied herself before

invoking the provisions, have found so, and hence without bringing

the fact that the payment made to such foreign branch of an Indian

bank is a separate entity or not and how upon such payment tax is

required to be deducted and such satisfaction is required to be

made by herself in her order itself. Explanation 2 cannot be used

for such void manner that if relief is granted which is otherwise

41 ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT eligible by the assessee should again to subjected to verification

u/s. 263 by the order of the PCIT. Law does not permit to invoke

the provisions of section 263 of the Act without proving that order

passed by the Assessing Officer is erroneous and prejudicial to the

interest of the revenue.

section 115BBD Vs. Business income, the brief fact connected to

the issue is that the assessee hold 33.33 % shares in the Joint

Venture in Morocco namely Indo Maroc Phosphore SA (IMACID)

along with two other partners (33.33 % of shareholding of each) i.e.

Tata Chemicals Limited (TCL) and OCP, Morocco. For the year

under consideration the assessee has accounted income of Rs.

9,82,58,313/- being the amount of dividend received from IMACID.

In support the assessee filed a dividend certificate, annual report,

minutes of meeting of share holders and balance sheet. None of

the documents were discussed or considering while holding that as

to why the dividend income should not be considered as such and

be considered as business income. But she contended that the

assessee has joint venture in Morocco as share @ 33.33 % it is a

trade investment and joint control and business is carried to pool

42 ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT the resources by each partners. She also noted that the assessee

had invested in this JV in form of trade investment, income derived

from this investment is to be charged as business income instead

of dividend income. Though IMACID paid the dividend to the

assessee ld. PCIT is of the view that the said income is to be taxed

as Business Income and not as dividend income on special rate.

Ld. PCIT was aware about the fact that the issue was raised by the

revenue in A. Y. 2012-13 which was challenged before our High

Court of Rajasthan in DBCWP no. 5144/2022 wherein the high

court has allowed the appeal of the assessee and was decided on

the jurisdiction issue and not on the merits of the disputes. Thus,

that aspect of the matter being not decided ld. PCIT hold that ld.

AO has under incorrect assumption of facts and incorrect

application of law as well as inadequate inquiry hold the order of

the ld. AO erroneous and prejudicial to the interest of the revenue.

As we note from the facts of the case available on record that

assessee has received the dividend income after deducting the

withholding of tax and is supported by the dividend certificate

(APB-176). The income is supported by the various records placed

on record stating that the income is on account of declaration of

dividend declared by the joint venture company where the

43 ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT assessee hold 33.33 % shares which is more than 26 % prescribed

under the provision of section 115BBD of the Act and thus the

income received from the JV was to be treated as dividend income

only. The assessee offer this income regularly and the revenue has

not challenged that act of the assessee. The contention of the PCIT

to treat the dividend income as business profit is against the

provision of law and plain reading of section 115BBD read with

section 90(2) of the Act the view is against the provision. Moreover

while taking that plea the ground taken are also against the law and

considering the evidences placed on record the view that the ld.

AO has adopted while considering that income chargeable to tax

as per section 115BBD cannot be considered as erroneous view

and prejudicial to the interest of the revenue.

of section 263 of the Income Tax Act, 1961, which acts as

safeguard, acknowledging dynamic nature of tax assessments,

providing a mechanism to ensure fairness, accuracy, and

protection of the revenue’s legitimate claims. Essentially, it

embodies the legislative commitment to a tax administration

system that is both effective and just. In essence, Section 263 is a

44 ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT response to the complexities of the tax landscape, acknowledging

the delicate balance needed between empowering tax authorities

and preventing potential errors. Through its existence, the section

reflects commitment to maintaining integrity of the tax assessment

process, acknowledging the ever-evolving nature of tax laws and

the need for a mechanism that can adapt to changes in

interpretations and protect the revenue’s interests. Section 263 is

not merely a provision for revision but very crucial component of

Act ensuring that tax administration system remains robust, fair,

and equipped to address the challenges arising in the course of tax

assessments. Main objective of Section 263 is to rectify orders that

are not only erroneous but also have the potential to adversely

affect the revenue’s interests. It provides a mechanism for the

Commissioner to ensure correctness of orders passed by

subordinate officers. The Commissioner’s role extends beyond

mere oversight; they serve as custodians of revenue. When an

order is deemed “erroneous” and “prejudicial to the interests of the

revenue,” the Commissioner’s revisionary power comes into play.

“Erroneous” signifies a departure from the legal framework, while

“prejudicial” pertains to circumstances that could diminish revenue

rightfully owed to the government. Thus, the law provides that the

45 ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT Twin conditions needs to be satisfied before exercising revision

jurisdiction under section 263 by the Commissioner. The twin

conditions are that the order of the Assessing Officer must be

erroneous and so far as prejudicial to the interest of the revenue. In

the following circumstances, the order of the Assessing Officer can

be held to be erroneous order, that is (i) if the Assessing Officer's

order was passed on incorrect assumption of fact; or (ii) incorrect

application of law; or (iii) Assessing Officer's order is in violation of

the principle of natural justice; or (iv) if the order is passed by the

Assessing Officer without application of mind; (v) if the Assessing

Officer has not investigated the issue before him; then the order

passed by the Assessing Officer can be termed as erroneous

order. Coming next to the second limb, which is required to be

examined as to whether the actions of the Assessing Officer can be

termed as prejudicial to the interest of the revenue. This

phrase, i.e., prejudicial to the interest of the revenue has to be read

in conjunction with an erroneous order passed by the Assessing

Officer. It has to be remembered that every loss of the revenue as

a consequence of an order of the Assessing Officer cannot be

treated as prejudicial to the interest of the revenue. When the

Assessing Officer adopted one of the courses permissible in law

46 ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT and it has resulted in loss to the revenue, or where two views are

possible and the Assessing Officer has taken one view with which

the Commissioner does not agree, it cannot be treated as an

erroneous order prejudicial to the interest of the revenue unless the

view taken by the Assessing Officer is unsustainable in law.

bench noted that every inadequacy of the enquiry conducted by an

AO as against the no enquiry cannot form a basis for setting aside

an assessment order which has been passed by the NeFAC. In the

instance case as discussed herein above interest expenses issue

has been verified by ld. AO and taken a plausible view. Even the ld.

AR of the assessee placed on record relevant material so as to

establish that on both the issue the order is not erroneous and that

of the matter has not been challenged by the ld. DR so far the as

merits of the case. The bench also noted that on two issues even

on the ld. PCIT noted that the issue requires the verification by the

ld. AO. Thus, when based on the submission and discussion so

recorded as is evident that on all of the aspect of the matter the

assessment order is not erroneous and prejudicial to the interest of

the revenue. In our considered view, the PCIT had to reach a

47 ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT conclusion that in the fact situation obtaining in the instant case,

that the assessment order was erroneous by conducting an enquiry

before passing an order under Section 263 of the Act. Therefore,

the order passed by the ld. PCIT dated 20.03.2024 cannot be

sustained in law merely because the original assessment order

does not exactly advert to the issue which the ld. PCIT is seeing.

Moreover, we note that both the issue that she has discussed ld.

DR did not demonstrate as to the facts as argued by ld. AR that the

view on the issue is erroneous or prejudicial to the interest of the

revenue. Hence, the PCIT could not have exercised the powers

conferred upon her u/s. 263 of the Act only on the reasons that she

had a different view or perspective in the matter and the matter

requires a fresh verification. The principle of law enunciated by the

Supreme Court in Malabar Industrial Co. Ltd. has set up a

standard concerning the width and amplitude of power vested for

exercising revisionary jurisdiction under Section 263 of the Act.

While exercising power under the said provision, the concerned

officer must be satisfied that the twin conditions provided therein

stand fulfilled, i.e., the order passed by the AO, which is sought to

be revised, is erroneous and is also prejudicial to the interest of the

revenue. In other words, if one of the two conditions is not satisfied,

48 ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT the revisionary power under the said provision cannot be invoked.

One cannot quibble with the principle of law.

considered view that the proceeding-initiated u/s. 263 fails on the

twin condition and even the ld. PCIT on the issue noted that the

issue need only verification / examination and there is no

independent view of the ld. PCIT even on merits of the issue and

therefore, the ground no. 1 to 3 raised by the assessee are

allowed.

In the result, the appeal of the assessee is allowed.

Order pronounced in the open court on 25/10/2024.

Sd/- Sd/- ¼ Mk0 ,l- lhrky{eh ½ ¼ jkBksM deys'k t;UrHkkbZ ½ (Dr. S. Seethalakshmi) (Rathod Kamlesh Jayantbhai) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 25/10/2024 *Ganesh Kumar, Sr. PS आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू vihykFkhZ@The Appellant- Chambal Fertilizers and Chemicals Ltd, 1. Kota

49 ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT 2. izR;FkhZ@ The Respondent- PCIT, Savina-Udaipur 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत. xkMZ QkbZy@ Guard File {ITA No. 694/JP/2024} 6.

vkns'kkuqlkj@ By order,

सहायक पंजीकार@Aेेज. त्महपेजतंत