INTERNATIONAL SEAPORT DREDGING PRIVATE LIMITED,CHENNAI vs. PCIT - 1, CHENNAI

आयकर अपीलीय अिधकरण ‘ए’’ �ायपीठ चे�ई म�। IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH, CHENNAI माननीय �ी मनोज कुमार अ�वाल ,लेखा सद� एवं माननीय �ी मनु कुमार िग�र, �ाियक सद� के सम�। BEFORE HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM AND HON’BLE SHRI MANU KUMAR GIRI, JM आयकरअपील सं./ ITA No.1597/Chny/2024 (िनधा�रणवष� / Assessment Year: 2016-2017) International Seaport Dredging Private Vs. The Assistant Commissioner of Limited, Income Tax, P.No.2C, Ist floor, Corporate Circle 1(1) Ocean square south phase, Chennai. Thiru vi Ka Industrial Estate, Ekkattuthangal, Guindy Industrial Estate, Chennai 600 032. [PAN: AABCI 2286E] (अपीलाथ�/Appellant) (��यथ�/Respondent) अपीलाथ� क� ओर से/ Appellant by : Shri. Sriram Seshadri, C.A., ��यथ� क� ओर से /Respondent by : Shri. Nilay Baram Som, IRS, CIT. सुनवाई क� तार�ख/Date of Hearing : 28.08.2024 घोषणा क� तार�ख /Date of Pronouncement : 29.08.2024 आदेश / O R D E R PER MANU KUMAR GIRI (Judicial Member) This appeal by the assessee is arising out of the order of the Principal Commissioner of Income Tax-1, Chennai in DIN No.ITBA/REV/F/REV5/2023-24/ 1063734589(1) dated 30.03.2024. The assessment was framed by the Additional/Joint/Deputy/Assistant Commissioner of Income Tax/ Income-tax Officer, National faceless assessment centre, Delhi passed u/s.147 r.w.s144B of the

2 ITA No.1597/Chny/2024 Income Tax Act, 1961 (hereinafter the ‘Act’) for the assessment year 2016-17 vide order dated 28.03.2022.

Consequently, a notice u/s 148 of the Act was issued on 31.03.2021, calling the assessee to prepare a true and correct return of income relevant to assessment year 2016- 17. In response to the notice, the assessee filed its ITR for AY 2016-17 on 30.04.2021. Accordingly, notice u/s 143(2) was issued on 28.07.2022 with compliance date as on 12.08.2021. In response of this notice the assessee filed its reply on 07.09.2021 and 11.11.2021 with its objections however, the same was rejected by the ld.AO. Accordingly, ld.AO issued notice u/s 142(1) dated 31.12.2021 for compliance on 14.01.2022. In response to the said notice the assessee filed its

3 ITA No.1597/Chny/2024 reply on 12.01.2022 however, again not accepted by ld.AO. The ld.AO note that on perusal of annual report of the assessee company for the F.Y. 2014-15, it was seen that the company had undergone a major shareholding change compared to last assessment year i.e. between 31st March 2014 and 31st March 2015. The change was of 76.96% and hence it attracts provisions under section 79 which disallow any losses to be carried forward from the years where shareholding was different. It is reproduced as below: ...Carry forward and set off of losses in case of certain companies.

‘’79. (1) Notwithstanding anything contained in this Chapter, where a change in shareholding has taken place during the previous year in the case of a company, not being a company in which the public are substantially interested, no loss incurred in any year prior to the previous year shall be carried forward and set off against the income of the previous year, unless on the last day of the previous year, the shares of the company carrying not less than fifty-one per cent of the voting power were beneficially held by persons who beneficially held shares of the company carrying not less than fifty-one per cent of the voting power on the last day of the year or years in which the loss was incurred’’.

Therefore, the ld.AO held that the assessee company is not eligible to bring down any losses from past years. In the assessment year the only the assessee company incurred was short term capital loss of Rs.2,60,14,469/- which it can't set off against any other head as per provisions under section 71 (3), it is not allowed to do. It was seen that assessee's has set off its income against brought down losses of Rs. 35,54,07,169/- but assessee is not eligible for any such set off in the relevant assessment year i.e. 2016-17. Therefore the ld. Assessing Officer added back this amount to assessee's income. Aggrieved, assessee preferred an appeal before the ld.CIT(A).

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5 ITA No.1597/Chny/2024 provisions of Chapter IV-D. Further, the assessee placed reliance on the judgment of Hon’ble Supreme Court in the case of CIT v Shri Subhulaxmi Mills Ltd [1983] 249 ITR 795 (SC), wherein it was held as under:- "The High Court has answered the question saying that when section 79 speaks of loss, it does not include unabsorbed depreciation or unabsorbed development rebate. We agree with the High Court." In view of the above decision of Hon’ble Supreme Court in the case of Shri Subhulaxmi Mills Ltd, (supra) the assessee has claimed that the position is thus settled that the carry forward and set off of unabsorbed depreciation is not governed by section 79 of the Act. However, ld.CIT directed the ld.AO to verify if the judgment of Hon’ble Supreme Court in the case of Shri Subhulaxmi Mills Ltd (supra) is applicable or not in this case. Further, the ld. PCIT was of the view that this is a fit case to invoke the provisions of Sec. 263 of the Act since the Assessing Officer has not made complete verification and not appreciated the facts while passing the order u/s 147 read with section 144B of the Act without due verification. The assessment order so passed, therefore, is considered both erroneous and prejudicial to the interest of the revenue. Accordingly, the ld. PCIT partly set aside the assessment order u/s 263 of the Act, with a direction to the Assessing Officer to examine the aspects, during the Accounting Year in question and pass a fresh order after granting opportunity to the assessee, within the stipulated time. Further, the ld. PCIT stated that the assessee can furnish documents which were not available at the time of assessment in the records of the Assessing Officer for fresh examination.” Aggrieved, assessee preferred an appeal before the Tribunal.

6 ITA No.1597/Chny/2024 6. Before us, the ld.Counsel for the appellant submitted that the issue which is sought to be revised is already investigated and enquired by the ld.AO in earlier re- assessment proceedings. He furthermore, argued that on same material ld. CIT has taken a different view than AO. In fact, the ld.AO on same material available before him already duly inquired the issue and judicially had taken a cogent view in re- assessment proceedings. The ld. AR further referred pages 1-3 of the Assessment order dated 28.03.2022 passed u/s 147 read with section 144B of the Act. The ld.Counsel argued that since the AO had applied his mind to the facts of the case and had raised a specific query, the ld. CIT was not justified in invoking the provisions of section 263 of the Act.

7 ITA No.1597/Chny/2024 Schedule UD: “Unabsorbed Depreciation and allowance under section 35(4)” is finding mentioned therein as under: Assessment year Amount of brought Amount of forward unabsorbed depreciation set off Sl.No depreciation against the current year income (1) (2) (3) (4) i 2016-17 ii 2013-14 14491494 14491494 iii 2012-13 148847374 148847374 iv 2010-11 270130659 270130659 v 2009-10 164803652 164803652 vi Total 598273179 598273179

ii. Facts and figures and issues recorded in ‘Reasons for reopening u/s 147’ (para 3 supra) is similar as observed by the ld.CIT in his notice u/s 263 of the Act dated 22.02.2023 (para 4 supra);

iii. The ld. CIT cannot sit in appeal on the reassessment order 23.03.2023 reversing findings of the AO and impose his own view of decision making process on same material;

iv. There is legal presumption as per Section 114(f) of the Evidence Act that AO passed the reassessment order properly to the best of his ability. Section 114(f) of the evidence Act says: ‘The Court may presume the existence of any fact which it thinks likely to have happened, regard being had to the common course of natural events, human conduct and public

8 ITA No.1597/Chny/2024 and private business, in their relation to the facts of the particular case’.

v. The issue of set off of brought of losses admittedly was duly deliberated upon by the AO in Section 147 proceedings after the notice u/s 142(1) dated 31.12.2021 and reply dated 12.01.2022; The ld.CIT wrong in saying that AO has not done complete verification.

vi. The impugned order of the ld.CIT is in complete violation of the clause (d) of the Explanation 2 of Section 263 of the Act for the reason that ld.AO in re-assessment proceedings respectfully followed the ratio of the judgment of the Hon’ble Supreme Court in the case of Shri Subhulaxmi Mills Ltd (supra) Therefore, it cannot be said that re-assessment order 23.03.2023 is prejudicial to the revenue.

vii. Here the assessee had challenged jurisdiction of the Commissioner of Income-tax to exercise powers under section 263 of the Act. For an order of the Assessing Officer to be interfered with in exercise of revisional powers the Commissioner of Income-tax has to find in the first instance that the order is erroneous and, secondly, the order is prejudicial to the interests of the Revenue. The conditions are twin conditions as held by the apex court and both of them have to be fulfilled before the Commissioner of Income- tax can exercise jurisdiction under section 263 of the Act. In the case

9 ITA No.1597/Chny/2024 of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 (SC) the apex court has held: "The phrase 'prejudicial to the interests of the Revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income- tax Officer is unsustainable in law."

viii. We may refer recent judgment of the Hon’ble Delhi High Court dated 01.03.2024 passed in ITA No.1428/2018 in the case of Pr. Commissioner of Income Tax -2, Delhi Vs M/s Clix Finance India Pvt. Ltd. which after considering section 263 of the Act and various settled judgments of the Hon’ble Supreme Court and Hon’ble High Courts held as under: ‘’15. We have heard the learned counsel appearing on behalf of the parties and perused the record. 16. Vide order dated 06.11.2019, this Court framed the following question of law:- A. Whether, in the facts and circumstances of the case, the Hon'ble ITAT was justified in quashing the order under Section 263 of the Income Tax

10 ITA No.1597/Chny/2024 Act? 17. The brief controversy involved in the present appeal pertains to the invocation of revisional jurisdiction under Section 263 of the Act by the CIT to set aside the original assessment order dated 30.03.2005. 18. Before adverting to the merits of the case, it is apposite to refer to the power of the revisional authority of the CIT envisaged as per Section 263 of the Act. For the sake of clarity, the relevant extract of Section 263 of the Act is reproduced as under: ‘’263. Revision of orders prejudicial to revenue (1) The [Principal Chief Commissioner or Chief Commissioner or Principal Commissioner] or Commissioner] may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer [or the Transfer Pricing Officer, as the case may be,] is erroneous in so far as it is prejudicial to the interest of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify,’ [including,’ (i) an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment; or (ii) an order modifying the order under Section 92-CA; or (iii) an order cancelling the order under Section 92-CA and directing a fresh order under the said section.] *** [Explanation 2. ‘For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer [or the Transfer Pricing Officer, as the case may be,] shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal [Chief Commissioner or Chief Commissioner or Principal] Commissioner or Commissioner, ‘(a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under Section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.] ***’ 19. A bare reading of sub-Section (1) of Section 263 of the Act makes it abundantly clear that the said provision lays down a two-pronged test to exercise the revisional authority i.e., firstly, the assessment order must be erroneous and secondly, it must be prejudicial to the interests of the Revenue. Further, Explanation 2 to Section 263 of the Act delineates certain conditions and circumstances when the order passed by the AO can be said to be erroneous and prejudicial to the Revenue. 20. Clause (a) of Explanation 2 to Section 263 of the Act further stipulates that if an order is passed without making an enquiry or verification which should have been made, the same would bestow a revisional power upon the Commissioner. However, the said Clause or any other condition laid down in Explanation 2 does not warrant recording of the said enquiry or verification in its entirety in the assessment order.

11 ITA No.1597/Chny/2024 21. Admittedly, in the instant case, the questionnaire dated 02.11.2004, which has been annexed and brought on record in the present appeal, would manifest that the AO had asked for the allowability of the claims with respect to the issues in question. Consequently, the respondent-assessee duly furnished explanations thereof vide replies dated 09.12.2004, 20.12.2004 and 06.01.2005. Thus, it is not a case where no enquiry whatsoever has been conducted by the AO with respect to the claims under consideration. However, this leads us to an ancillary question? whether the mandate of law for invoking the powers under Section 263 of the Act includes the cases where either an adequate enquiry has not been made and the same has not been recorded in the order of assessment or the said authority is circumscribed to only consider the cases where no enquiry has been conducted at all. 22. Reliance can be placed on the decision of this Court in the case of CIT v. Sunbeam Auto Ltd. [2009 SCC OnLine Del 4237], wherein, it was held that if the AO has not provided detailed reasons with respect to each and every item of deduction etc. in the assessment order, that by itself would not reflect a non-application of mind by the AO. It was further held that merely inadequacy of enquiry would not confer the power of revision under Section 263 of the Act on the Commissioner. The relevant paragraph of the said decision reads as under:- We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the Commissioner of Income-tax under section 263 of the Income-tax Act. As noted above, the submission of learned counsel for the Revenue was that while passing the assessment order, the Assessing Officer did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order, which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the Assessing Officer had not applied his mind on the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between "lack of inquiry" and "inadequate inquiry". If there was any inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has a different opinion in the matter. It is only in cases of "lack of inquiry" that such a course of action would be open. In Gabriel India Ltd. (1993) 203 ITR 108 (Bom), law on this aspect was discussed in the following

12 ITA No.1597/Chny/2024 manner (page 113) ** 23. A similar view was taken by this Court in the case of CIT v. Anil Kumar Sharma [2010 SCC OnLine Del 838], wherein, it was held that once it is inferred from the record of assessment that AO has applied its mind, the proceedings under Section 263 of the Act would fall in the category of Commissioner having a different opinion. Paragraph 8 of the said decision reads as under:-

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‘’In this context, (it must) be regarded as involving a conception of acts or orders which are subversive of the administration of revenue. There must be some grievous error in the order passed by the Income Tax Officer, which might set a bad trend or pattern for similar assessments, which on a broad reckoning, the Commissioner might think to be prejudicial to the interests of Revenue Administration’’. In our view this interpretation is too narrow to merit acceptance. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the Income Tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. 10. The phrase ‘’prejudicial to the interests of the Revenue‘’ has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue, for example, when an Income Tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income Tax Officer is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the Revenue. (See ‘Rampyari Devi Saraogiv CIT[(1968) 67 ITR 84(SC)] and in ‘’Tara Devi Aggarwalv.CIT[(1973) 3 SCC 482:1973 SCC (Tax) 318:(1973) 88 ITR 323].) [Emphasis supplied] 26. Recently, the Hon’ble Supreme Court in the case of CIT v. Paville Projects (P) Ltd. [2023 SCC OnLine SC 371], while relying upon Malabar Industrial Co. Ltd., has discussed the sanctity of two-fold conditions for the purpose of invoking jurisdiction under Section 263 of the Act. The relevant paragraph of the said decision reads as under:- Learned counsel appearing on behalf of the assessee has heavily relied upon the decision of this Court in the case of Malabar Industrial Co. Ltd.(supra). It is true that in the said decision and on interpretation of Section 263of the Income Tax Act, it is observed and held that in order to exercise the jurisdiction under Section 263(1)of theIncome tax Act, the Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. It is further observed that if one of them is absent, recourse cannot be had to Section 263(1) of the Act. ***’.

14 ITA No.1597/Chny/2024 27. Considering the aforesaid judicial pronouncements, it can be safely concluded that inadequacy of enquiry by the AO with respect to certain claims would not in itself be a reason to invoke the powers enshrined in Section 263 of the Act. The Revenue in the instant case has not been able to make out a sufficient case that the CIT has exercised the power in accordance with law. Rather, in our considered opinion, the facts of the case do not indicate that the twin conditions contained in Section 263 of the Act are fulfilled in its letter and spirit. 28. Notably, the ITAT, while making a categorical finding that the CIT had failed to point out any definite or specific error in the assessment order, has satisfactorily explained both the claims in question in Paragraph 8.2 of its order, which reads as under:- ‘’8.2 In the Impugned Order, the Ld. Commissioner of Income Tax-IV, Delhi held that the AO had not examined the aforesaid two issues properly and, therefore, set aside the issues for further inquiries to be conducted by the AO. As regards the first issue is concerned, we note that out of total provision of Rs. 1114.68 lacs, a sum of Rs. 7,60,76,105/- was suo moto added back in the computation of income and a further sum of Rs. 73,46,160- was disallowed by the AO in the original assessment order dated 30.3.2005. Therefore, out of Rs. 1114.68 lacs, Rs. 834.22 lacs already stood disallowed in the original assessment order. The balance amount represented actual write off which was palpably clear from page 2 of the impugned order itself. No deduction on account of any such provision was, therefore, allowed to the assessee. Hence, there is no error or prejudice to the interest of revenue. As regards second issue it was noted that interest rate swap was an actual loss and only the net loss of Rs. 114.05 lacs after setting of gain of interest rate swap was claimed as deduction. However, we find that both these issues were duly examined by the AO vide Questionnaire dated 2.11.2004 (Page 1-2 of the Paper Book) to which replies dated 9.12.2004, 20.12.2004 and 6.1.2005 (Page No. 3-39 of Paper Book-1) were furnished and, therefore, the finding of the Ld. CIT that the issues were not examined properly was not correct. Even the Ld. CIT has not pointed out the definite and specific error in the original assessment order and observed that the inquiry made by the AO was inadequate or improper without first pointing out the error in the original assessment order passed by the AO, particularly because both the aforesaid issues were duly examined at the stage of the original assessment proceedings, hence, the impugned order is beyond jurisdiction, bad in law and void-ab- initio’’. 29. It is discernible from the aforenoted findings of the ITAT that both the claims were duly examined during the original assessment proceedings itself and neither there was any error nor the same was prejudicial to the

15 ITA No.1597/Chny/2024 interests of the Revenue. Thus, the findings of fact arrived at by the ITAT do not warrant any interference of this Court. 30. So far as the reliance placed by the CIT on Umashankar Rice Mill is concerned, the same is misplaced, particularly in light of the insertion of Explanation 2 to Section 263 of the Act, brought in place by the Finance Act, 2015. The said amendment markedly specifies various conditions to exercise the authority vested in the Commissioner under Section 263 of the Act, leaving no ambiguity in the interpretation of the said provision. 31. In view of the aforesaid, the appeal preferred by the Revenue is dismissed alongwith the pending application(s), if any’’.

In the light of entire conspectus of matter, we are inclined to interfere in the impugned order of ld. PCIT dated 30.03.2024. Hence, we accordingly set aside the impugned order. 9. In the result, the appeal of the assessee is allowed. Order pronounced in the court on 29th day of August, 2024 at Chennai.

Sd/- Sd/- (मनोज कुमार अ�वाल) (मनु कुमार िग�र) (MANOJ KUMAR AGGARWAL) (MANU KUMAR GIRI) लेखा सद� / ACCOUNTANT MEMBER �ाियक सद� / JUDICIAL MEMBER चे�ई Chennai: िदनांक Dated : 29-08-2024 KV आदेश क� ��त�ल�प अ�े�षत /Copy to : 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकरआयु�/CIT, Chennai/Coimbatore/Madurai/Salem. 4. िवभागीय�ितिनिध/DR 5. गाड�फाईल/GF