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TMI Blog2021 (11) TMI 872X X X X Extracts X X X X X X X X Extracts X X X X ..... nabsorbed depreciation, while computing book profit u/s. 115JB for the impugned assessment year, as alleged by the ld. PCIT. Therefore, we are of the considered view that assessment order passed by the Assessing Officer on this issue is neither erroneous nor prejudicial to the interests of revenue. Expenditure incurred for premium on redemption of debentures - The assessee has paid 59.01 crores on redemption of OCDs and same was debited into profit loss account, but in the profit loss account the assessee has also credited equal amount of 59.01 crores by withdrawing from share premium account. This amount of 59.01 crores from share premium account is actually reduced from OCDs redemption expenditure of 59.01 crores debited into profit loss account and thus, there is no expenses debited into profit loss account . From the above, it is clear that the assessee has not claimed any deduction for expenditure incurred on redemption of FCCB/Debentures. Therefore, once no deduction was claimed for any expenditure by debiting into profit loss account, the question whether it is capital or revenue in nature does not arise. Whether total amount incurred for premium paid on redemption of debent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9.02.2015, which is clearly beyond the period of two years provided under the Act. Therefore, we are of the considered view that assumption of jurisdiction by the Principal CIT on this issue for revision of assessment order u/s.263 of the Act is bad in law and liable to be quashed. Assessment order passed by the Assessing Officer u/s.143(3) r.w.s 263 is neither erroneous nor prejudicial to the interests of revenue - Decided in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... her proceedings and hence the period of limitation shall run from the original assessment u/s.143(3). Hence the action of CIT to invoke his jurisdiction in this respect is clearly barred by limitation and has to be set aside. [CIT vs. Alagendran Finance 293 ITR 1 (SC) ; CIT vs ICICI Bank 343 ITR 74 (Bom); CIT vs. Shriram Investments (Mad)] 3.5 The Commissioner of Income-tax ought to have appreciated that the amount of brought forward Losses as per books to be set off against the Book Profits for this year, as claimed by Assessee in the return is ₹ 275.75 Crores. The AC has set off the Loss to the extent of the Book profits assessed in each of the orders and hence there is no error in his order. 3.6 Without prejudice, the order giving effect to the earlier order of the CIT was subject matter of appeal before the CIT(A). If the order of the CIT(A) is given effect the Book Profits and hence the brought forward losses to be set off against the Book profits shall be at the original figure of ₹ 153.16 Crores and hence there is no error in the order of AO giving effect to the order of CIT. 4. PREMIUM ON REDEMPTION OF DEBENTURES: 4.1 The Commissioner of Income-tax erred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hriram Investments (Mad)] 5.5 The reliance placed by the CIT in the case of Shree Manjunatheswara Packing Products and Camphor works 231 ITR 53 is misplaced and not applicable to the facts of the case. In that decision it was held that commissioner can take into consideration the valuation report called for by the AO before making theassessment but submitted by the valuer after the assessment. 6. The Commissioner of Income-tax erred in not considering the submissions made by the appellant in proper perspective." 3. Brief facts of the case are that the assesse company is engaged in the business of cement manufacturing filed its return of income for assessment year 2007-08 on 31.10.2017 admitting Nil total income. The assessment for impugned assessment year has been completed u/s.143(3) of the Act, on 22.12.2019 and assessed total income of ₹ 229,64,16,622/- u/s. 115JB of the Income TaxAct, 1961. The assessee has filed an appeal before learned CIT(A) and challenged various additions made by the Assessing Officer including reversal of income arising on cancellation of sales tax assignments. The learned CIT(A) vide his order dated 28.05.2010 partly allowed appeal filed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer towards release of reserves on account of premium payable on OCDs/Warrants, addition towards release of reserves of employees benefits and disallowance of brought forward loss of amalgamating company. The learned CIT(A) vide order dated 22.10.2014 has deleted additions made by the Assessing Officer towards disallowance of release of reserves of premium on OCDs etc, of ₹ 59.01 crores and also deleted additions made towards release of reserves of employees benefit of ₹ 50.66 crores. The learned CIT(A) has also directed the Assessing Officer to allow set off of unabsorbed loss of amalgamating company M/s.Visaka Cement Industries Ltd., while computing profits u/s. 115JB of the Act for ₹ 40.55 crores. 4. The case has been, once again taken up for revision proceedings by the Principal CIT, Chennai-2, and issued showcause notice u/s. 263 of the Income Tax Act, 1961 and called upon the assessee to explain as to why assessment order passed by the Assessing Officer u/s.143(3) r.w.s 263 dated 30.03.2013 shall not be revised for the reasons stated in his show-cause notice. The learned Principal CIT in the said showcause notice has alleged that the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een examined by the Assessing Officer in assessment proceedings and after being satisfied with the explanation furnished by the assessee, the Assessing Officer has made additions towards expenditure incurred for premium paid on FCCB/debentures and the same has been challenged by the assessee before first appellate authority. The assessee further submitted that carry forward and set off of brought forward losses in terms of section 115JB of the Act was already examined by the Assessing Officer in the original assessment proceedings u/s.143(3) of the Act and had indeed considered the assessee's entitlement of carry forward of unabsorbed depreciation or business loss and allowed the same to be set off. It was further submitted that other than in original assessment proceedings u/s.143(3) of the Act, the issue was not a subject matter of any proceedings, including revision proceedings u/s.263 and hence, issue of examination of carry forward and set off of loss u/s.115JB of the Act is clearly barred by limitation and on this account proposed proceedings u/s. 263 shall fail. In this regard, assessee relied upon the decision of the Hon'ble Supreme Court in the case of CIT Vs.Alagendra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... depreciation, over and above brought forward unabsorbed depreciation as per books. He further observed that as per records, as on 31.03.2007 the cumulative loss or cumulative unabsorbed depreciation is only at Rs,1,20,46,86,776/-. As against this, the Assessing Officer has allowed set off of unabsorbed depreciation at ₹ 198.43 crores. 7. As regards expenditure incurred towards premium on redemption of debentures during the year ended 31.03.2007, a sum of ₹ 59.01 crores was claimed towards FCCB/premium on debentures. Out of this, ₹ 33.53 crores represents premium on debentures. In the order u/s.263 dated 30.03.2012 in para 7.2 specific direction was given to Assessing Officer to examine claim as to whether expenditure incurred is capital or revenue in nature before allowing the claim. Although, there is a direction from CIT, in the assessment order u/s.143(3) r.w.s.263 dated 30.03.2013, the Assessing Officer has omitted to verify these aspects and to this extent, the assessment order passed by the Assessing Officer is erroneous and prejudicial to the interests of revenue. Similarly, as regards issue of investments in M/s. Janani Infrastructure Ltd. amounting to & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tures, which is evident from the fact that the Assessing Officer has considered both issues as directed by the PCIT in first 263 proceedings and has made additions on both the issues. The AR further submitted that as regards set off of loss u/s.115JB in earlier round of 263 proceedings, the issue was whether unabsorbed losses of amalgamated company is available for set off, while computing book profit u/s.115JB or not. The CIT has directed the Assessing Officer to examine the issue and accordingly, the Assessing Officer has made additions towards brought forward loss of amalgamated company, while computing book profit u/s.115JB of the Act. Except this, issue of set off of brought forward business loss or unabsorbed depreciation was not a subject matter of appeal in any other proceedings after original assessment proceedings u/s.143(3) and hence, period of limitation shall run from original assessment order passed u/s.143(3) and if that date is considered, time limit provided for invoking jurisdiction u/s.263 has expired. The AR for the assessee, without prejudice to the above arguments, submitted that the issue of disallowance of brought forward loss of amalgamated company was subj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is liable to be set aside. In this regard, he relied upon the decision of Hon'ble Supreme Court in the case of CIT vs. Alagendran Finance Ltd. 293 ITR 1(SC) and the decision of Hon'ble Jurisdictional High Court of Madras in the case of CIT Vs. Sriram Investments. 10. The learned DR, on the other hand, strongly supporting order of the Principal CIT submitted that assessment order passed by the Assessing Officer is erroneous, insofar as it is prejudicial to the interests of revenue in respect of three issues considered by the Principal CIT in his show cause notice, which is evident from the fact, even though there is clear direction from the Principal CIT in the original 263 proceedings on the issue of deductability of expenditure incurred for premium paid on FCCI/Debentures, the Assessing Officer has failed to examine the issue in light of relevant facts and provisions of the Act, which rendered assessment order erroneous. Similarly, the Assessing Officer has failed to examine issue of allowability of brought forward business loss or unabsorbed depreciation, as per books in terms of clause (iii) of Explanation 1 to section 115JB(1) of the Act, and without appreciating fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder passed by the Assessing Officer u/s.143(3) read with section 263 dated 30.03.2013 is erroneous, insofar as it is prejudicial to the interests of revenue or not. In order to consider any assessment order to be erroneous and prejudicial to the interests of revenue, such order passed by the Assessing Officer should be passed without appreciating facts in light of applicable provisions of the Act and further, the Assessing Officer has passed order without examining the issue in light of relevant provisions of the Act, on the basis of facts brought on record by the assessee. Admittedly, in this case, first round of 263 proceedings was completed, where the learned CIT has taken up certain issues and directed the Assessing Officer to redo assessment in accordance with law, in terms of his observations given on various issues questioned in show cause notice. The Assessing Officer has taken up proceedings in pursuant to direction of learned CIT and has made certain additions, as per directions of the CIT in 263 proceedings. It is also an admitted fact that the assessee has challenged consequential order passed by the Assessing Officer u/s.143(3) r.w.s 263 before the first appellate aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Assessing Officer has passed order giving effect to CIT(A) order on 13.07.2010 and determined revised book profit of ₹ 88.75 crores and against this, has allowed set off of brought forward business loss or unabsorbed depreciation of ₹ 88.75 crores. Further, the case was subjected to 263 proceedings and the CIT, Chennai vide his order dated 30.03.2012 has set aside assessment order passed by Assessing Officer and direct him to pass a fresh order in light of various issues discussed in his 263 order. The Assessing Officer vide his order dated 30.03.2013 u/s.143(3) r.w.s 263 of the Act, has discussed the issue of claim of unabsorbed loss as per books, while computing book profit including book loss of amalgamated company M/s. Visaka Cement Industries Ltd., and has disallowed claim of assessee on the ground that except as provided under Explanation (1) to section 115JB(1) of the Act, no adjustments can be made to book profit . The assessee has challenged order of the Assessing Officer passed u/s.143(3) r.w.s. 263 before the CIT(A) and learned CIT(A) vide his order dated 27.10.2014 has allowed claim of the assessee towards brought forward loss of amalgamated company of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come Tax Act, 1961 for the impugned assessment year, as alleged by the ld. PCIT. Therefore, we are of the considered view that assessment order passed by the Assessing Officer on this issue is neither erroneous nor prejudicial to the interests of revenue. 14. Coming back to second issue taken up by the learned Principal CIT in 263 proceedings towards expenditure incurred for premium on redemption of debentures. According to the Principal CIT, out of a sum of ₹ 59.01 crores, expenditure incurred towards FCCB/ premium on Debentures, a sum of ₹ 33.53 crores represents premium on Debentures. The Assessing Officer has failed to examine whether premium on debentures is capital or revenue in nature before allowing deduction, even though there is specific direction from the CIT in his order u/s.263 dated 30.03.2012. We have carefully considered reasons given by the Principal CIT and we do not ourselves subscribe to the reasons given by the Principal CIT for simple reason that details of expenditure incurred towards premium on FCCB and discount on redemption of debentures has been furnished to the Assessing Officer at the time of original assessment proceedings along with suppo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of CIT Vs. Jawahar Bhattacharjee, reported in 67 DTR 217, after extensively considering legal decisions and precedents on the subject, explained the expression 'erroneous assessment' in the context of section 263 and held that assessment made on wrong assumption of facts or incorrect application of law or without due application of mind or without following principles of natural justice is considered to be an erroneous order. The Hon'ble Bombay High Court in the case of CIT Vs. Development Credit Bank Ltd. (323 ITR 206) (Bom) has held that merely because the Assessing Officer should have gone deeper into the matter or should have made elaborate discussion could not be a ground for exercising power u/s.263 of the Act. Moreover, the issue whether expenditure incurred towards premium on redemption of debentures is capital or revenue in nature and further is it deductible or not arises only when the assessee claims deduction for expenditure by debiting into profit & loss account . In this case, the assessee has paid ₹ 59.01 crores on redemption of OCDs and same was debited into profit & loss account, but in the profit & loss account the assessee has also credited equal a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CB is a subject matter of appeal before learned CIT(A) and the CIT(A) vide his order dated 27.10.2014 has held that assessee is eligible for reducing the amount of 59.01 crores from the net profit shown in profit & loss account. Therefore, we are of the considered view that once the issue which was subject matter of proceedings u/s.263 was subject matter of appeal before learned CIT(A), then there is no power to the Pr.CIT to take up said issue in revision proceedings, as per clause (c) to Explanation (1) to section 263 of the Income Tax Act, 1961. In this view of the matter and considering facts and circumstances of the case, we are of the considered view that assessment order passed by the Assessing Officer on this issue is neither erroneous nor prejudicial to the interests of revenue and hence, assumption of jurisdiction by the Principal CIT u/s.263 of the Act fails. 17. Coming back to third issue taken up by the Principal CIT towards investments in shares of M/s. Janani Infrastructure Ltd. Admittedly, for the first time this issue has been taken up by the Principal CIT in the proceedings u/s.263 of the Act, on the basis of information received by the Assessing Officer from ano ..... 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