International Seaports (Haldia) Pvt. Ltd. Vs PCIT (ITAT Kolkata)
The assessee filed an appeal against the order of the Principal Commissioner of Income Tax (PCIT) passed under Section 263 of the Income-tax Act for Assessment Year 2016-17. The Tribunal first condoned a delay of 334 days in filing the appeal after finding that the delay occurred for bona fide and genuine reasons.
The dispute concerned the exercise of revisionary jurisdiction under Section 263 by the PCIT. The assessee had filed its return of income declaring total income of ₹1,73,50,108. The return was selected for scrutiny, and an assessment under Section 143(3) was completed assessing total income at ₹1,82,36,328. Subsequently, the PCIT examined the assessment records and observed that while the Assessing Officer had accepted the tax deducted at source (TDS) reflected in Form 26AS, the assessee had disclosed gross income of ₹73,65,07,503 as against gross receipts of ₹77,47,16,524 appearing in Form 26AS. According to the PCIT, this resulted in under-assessment of income amounting to ₹3,82,09,021, including excess carry forward of MAT credit of ₹1,60,01,393. On this basis, the PCIT concluded that the assessment order was erroneous and prejudicial to the interests of the Revenue, issued a show-cause notice under Section 263, considered the assessee’s reply, and directed the Assessing Officer to frame a fresh assessment after providing the assessee with an opportunity of hearing.
Before the Tribunal, the assessee submitted that it was engaged in the business of building, maintaining, and operating Berth No. 4A at Haldia Dock on a Build-Operate-Transfer (BOT) basis under a licence arrangement. It was contended that the return had claimed deduction under Section 80IA and that during the original scrutiny proceedings, the Assessing Officer had specifically examined the issue of revenue receipts. The assessee referred to notices issued under Sections 142(1) and 143(2), wherein the Assessing Officer sought reconciliation of total revenue receipts, party-wise details, ledger accounts, TDS particulars, and explanations regarding mismatch between receipts reflected in the Profit and Loss Account and other records. According to the assessee, all requisite details and explanations had been furnished during assessment proceedings. The assessee argued that once the Assessing Officer had examined the issue after calling for details, the revisionary jurisdiction under Section 263 could not be invoked. The assessee relied upon Malabar Industrial Co. Ltd. and Principal Commissioner of Income-tax-1 vs. V-Con Integrated Solutions (P.) Ltd. in support of its submissions.
The Departmental Representative supported the order of the PCIT and submitted that the mismatch between gross receipts recorded in the books and those appearing in Form 26AS, coupled with the claim of full TDS credit, justified invocation of Section 263. It was argued that no prejudice would be caused to the assessee by directing a fresh assessment.
The Tribunal observed that it was undisputed that the assessee operated Berth No. 4A at Haldia Port on a BOT basis and that the income therefrom qualified for deduction under Section 80IA. It noted that even if any disallowance were made, the corresponding deduction under Section 80IA would increase, resulting in no impact on the taxable income. The Tribunal held that exercise of jurisdiction under Section 263 requires satisfaction of the twin conditions that the assessment order must be both erroneous and prejudicial to the interests of the Revenue. According to the Tribunal, satisfaction of both conditions is mandatory and the absence of either condition precludes invocation of Section 263.
The Tribunal found that the assessment order was neither erroneous nor prejudicial to the interests of the Revenue. It observed that the Assessing Officer had examined the reconciliation of gross receipts during the assessment proceedings. The Tribunal further noted that any difference in receipts would be revenue neutral because it would correspondingly increase the deduction available under Section 80IA, thereby causing no detriment to the Revenue.
The Tribunal also recorded that the scrutiny selection itself specifically included verification of whether sales turnover and receipts had been correctly offered to tax. During the assessment proceedings, the Assessing Officer had issued a notice under Section 142(1) seeking detailed information regarding receipts, and the assessee had furnished the requested details and supporting evidence. The Tribunal held that once such enquiries had been conducted, it should be presumed that the Assessing Officer had examined the issue before passing the assessment order. It observed that while the assessee could furnish information sought by the Assessing Officer, it could not control the manner in which the assessment order was drafted. Referring to the Supreme Court decision in Principal Commissioner of Income-tax-1 vs. V-Con Integrated Solutions (P.) Ltd., the Tribunal noted that where the Assessing Officer conducts investigation but does not make any addition, it may be taken that the Assessing Officer accepted the assessee’s explanation. The Tribunal further noted the distinction drawn by the Supreme Court between failure to investigate and an allegedly wrong conclusion, while also observing that the Commissioner must establish both error and prejudice to the Revenue.
Considering the facts and the judicial precedents cited, the Tribunal held that the assessment order was neither erroneous nor prejudicial to the interests of the Revenue. Accordingly, it held that the revisionary jurisdiction under Section 263 had been wrongly invoked, declared the revision order invalid, quashed it, and allowed the assessee’s appeal.
Cases Discussed
- Principal Commissioner of Income-tax-1 vs. V-Con Integrated Solutions (P.) Ltd. (SC), [2025] 173 taxmann.com 774 (SC)/[2025] 304 Taxman 598 (SC)/[2025] 476 ITR 526 (SC)[04-04-2025]
- Malabar Industrial Co. Ltd. vs. Commissioner of Income-tax (SC), [2000] 109 Taxman 66 (SC)/[2000] 243 ITR 83 (SC)/[2000] 159 CTR 1 (SC)[10-02-2000]
FULL TEXT OF THE ORDER OF ITAT KOLKATA
This is an appeal preferred by the assessee against the order of the Pr. Commissioner of Income Tax, Kolkata-2(hereinafter referred to as the “Ld. CIT(A)”] dated 31.03.2021 for the AY 2016-17.
2. At the outset, we note that the appeal of the assessee is barred by limitation by 334 days. At the time of hearing the counsel of the assessee explained the reasons for delay in filing the appeal. On the other hand , the Ld. D.R strongly objected the condoning of the delay. After hearing the rival contentions and perusing the materials available on record, we find that the delay is for bonafide and genuine reasons and hence, we condone the delay and adjudicate the appeal in the following paras.
3. The only issue raised in the various grounds of appeal is against the order of Id. Pr. Commissioner of Income Tax (in short PCIT), invoking the revisionary jurisdiction u/s 263 of the Act, thereby cancelling the assessment framed by the Id. AO u/s 143(3) of the Act, on the ground of being erroneous and prejudicial to the interest of the Revenue.
4. The facts in brief are that the assessee filed the return of income filed for the impugned assessment year on 06.10.2010, declaring total income of 173,50,108/-. The case of the assessee was selected for scrutiny and accordingly, the assessment u/s 143(3) of the Act was passed on 12.11.2018, assessing the total income at 182,36,328/-.
5. Thereafter, the Id. PCIT upon perusal of the assessment record noted that the TDS claimed by the assessee as appearing in form 26As was accepted by the Id. AO while framing the assessment u/s 143(3) of the Act dated 12.11.2018 however the assessee has shown the gross income of t 73,65,07,503/- as against the actual gross receipts as appearing in form 26AS at t 77,47,16,524/-. According to the Id. PCIT the same has resulted in the under assessment of income to the tune of t3,82,09,021/- including excess carry forward of MAT credit of 160,1,393/-. The Id. PCIT held that the order passed by the Id. AO u/s 143(3) of the Act dated 12.11.2018, is erroneous and prejudicial to the interest of the Revenue. The Id. PCIT accordingly issued notice u/s 263 of the Act giving show cause notice to the assessee. The assessee replied to the show cause notice dated 18.03.2021. The Id. PCIT finally revised the assessment framed by the Id. AO by directing the Id. AO to frame the assessment in terms of the issues raised in the order passed u/s 263 of the Act after affording reasonable opportunity of hearing to the assessee.
6. The Id. AR vehemently submitted before us that the assessee has been carrying on the business of building, maintaining and operating(BOT) Berth No.4A at Haldia Dock, Kolkata Port Trust. The Haldia Dock Complex Kolkata(Port Trust) invited a tender with condition of BOT basis for a period of 30 years which was awarded to the assessee. Accordingly, a deed of license dated 14.05.2022, was executed according to which the assessee was provided with the job of building the facilities at Berth No.4A of Haldia Dock Complex, which is utilized to handle the imported coal for Steel Authority of India. The assessee filed the return of income on 06.10.2016, declaring total income of 173,50,108/- for the instant year after claiming deduction u/s 80IA of the Act of 110,71,13,091/-. The case of the assessee was selected for scrutiny and assessment was framed accordingly. The Id. AR submitted that the Id. AO issued notice u/s 142(1) of the Act calling upon the assessee to reconcile the total revenue receipt, copy of which is available at page no.18 to 19, in which vide Para no.10 and 11, the Id. AO asked for the party wise details along with copy of ledger of remittances made by the assessee during the year 2016-17 and also the details of transactions along with TDs. The Id. AO called for the details and explanation of mismatch between the income / receipt credited in the Profit and Loss account . The assessee replied the said notice submitting all the details. The Id. AR also submitted that the case of the assessee was selected for scrutiny for which one of the reasons was whether sales turnover/ receipts have been correctly offered tax and copy of the said notice u/s 143(2) of the Act is available at page no.140. The Id. AR also submitted that it is undisputed that assessee is entitled to deduction u/s 80IA of the Act in respect of its income. The Id. AR therefore submitted that invoking revisionary jurisdiction by the Id. AO an order passed u/s 263 of the Act is invalid and nullity in the eyes of law as same has been invoked/ passed without there being a valid jurisdiction. In defense of his argument the Id. AR relied on the decision of Malabar Industrial Co. Ltd. [2000] 109 Taxman 66 (SC)/[2000] 243 ITR 83 (SC)/[2000] 159 CTR 1 (SC)[10-02-2000].
7. The Id. AR further submitted that once the assessee has replied/ filed evidences in response to notice issued u/s 142(1) of the Act, then it is presumed that the Id. AO has examined the issue and done proper enquiry. In defense of his argument the Id. AR relied on the decision of Hon’ble Apex Court in the case of Principal Commissioner of Income-tax-1 vs. V-Con Integrated Solutions (P.) Ltd. [2025] 173 taxmann.com 774 (SC)/[2025] 304 Taxman 598 (SC)/[2025] 476 ITR 526 (SC)[04-04-2025]dated 04.04.2025. The Id. AR therefore, prayed that the order passed u/s 263 of the Act may kindly be quashed by allowing the appeal of the assessee.
8. The Id. DR on the other hand relied heavily on the orders of the Id. PCIT by submitting that no prejudice is going to be caused to the assessee with the invoking of jurisdiction u/s 263 of the Act. The Id. DR submitted that Id. PCIT has rightly invoked the jurisdiction u/s 263 of the Act when the Id. PCIT found that there is a mismatch of gross receipts as per books of account vis-à-vis the form 26AS whereas full TDS has been claimed as appearing in form 26AS by the assessee. Consequently the PCIT held that this has rendered the assessment as erroneous and prejudicial to the interest of the Revenue.
9. After hearing the rival contentions and perusing the materials available on record, we find that the undisputedly the facts are that the assessee is carrying on the business of operating the Haldia Port ,Berth 4A on BOT basis income wherefrom is exempt u/s 80IA of the Act. This is also undisputed that if any disallowance is made then a deduction u/s 80IA of the Act would increase correspondingly. Therefore, there is no impact on the taxable income of the assessee. In our view for the exercise of jurisdiction u/s 263 of the Act, twin condition have to be satisfied; that the assessment framed by the Id. AO has to be erroneous in so far as prejudicial to the interest of the Revenue. The satisfaction of twin condition is mandatory for invoking the jurisdiction u/s 263 of the Act. Even if one of the two conditions is satisfied, even then the jurisdiction u/s 263 of the Act is not available to the Id. Pr. Commissioner of Income Tax. In our opinion, the order passed by the Id. AO is neither erroneous nor prejudicial to the interest of the Revenue. We note that there is no discrepancy in the gross receipt as the Id. AO has examined the re-conciliation of gross receipt during the course of assessment proceedings. Moreover, if any difference is there that is neutal and has no effect on the income of the assessee as the same would be neutralized by the increase in amouns of deduction u/s 80IA of the Act. Therefore, there is no detriment caused to the Revenue. Hence, the order passed by the Id. AO u/s 143(3) of the Act is neither erroneous nor prejudicial to the interest of the Revenue. The case of the assessee is also covered by the decision of Malabar Industrial Co. Ltd. vs. Commissioner of Income-tax [2000] 109 Taxman 66 (SC)/[2000] 243 ITR 83 (SC)/[2000] 159 CTR 1 (SC)[10-02-2000], wherein it has been held that the twin conditions are to be satisfied before invoking the jurisdiction u/s 263 of the Act by Id. Pr. Commissioner of Income Tax. Similarly, further we note that the case of the assessee was specifically selected for scrutiny in which one of the reasons was whether sales turnover/ receipts has correctly been offered to tax. Copy of notice u/s 143(2) of the Act is available in the paper book at page no.20. We further note that the Id. AO issued notice u/s 142(1) of the Act dated 12.04.2018, in which vide Para no.10 and 11 the Id. AO specifically asked the assessee to file the details in respect of its receipts which were duly placed before the Id. AO by the assessee along with the evidences. Therefore, it has to be presumed that the Id. AO has examined the issue before passing the order. The assessee can only comply the direction of the AO to furnish the details and evidences and it is not in the hand of the assessee to ask the AO to pass the order mentioning all the details in the assessment order. The case of the assessee is supported by the decision of the Hon’ble Apex court in the case of Principal Commissioner of Income-tax-1 vs. V-Con Integrated Solutions (P.) Ltd. [2025] 173 taxmann.com 774 (SC)/[2025] 304 Taxman 598 (SC)/[2025] 476 ITR 526 (SC)[04-04-2025], wherein the Hon’ble Supreme Court has even held that assessee does not have a control! over the pen of the Id. AO and once the Id. AO carries out the investigation but does not impact any addition it can be taken that he accepts the pleas and stands of the assessee. The Hon’ble Supreme Court held that it would be wrong to say that Revenue is remedyless. Power u/s 263 of the Act can be exercised by the Commissioner of Income Tax, but by going into the merits and making addition and not by way of reording that there is a failure to investigate. The Hon’ble Supreme Court held that there is distinction between failure to investigate and a wrong decision/ conclusion. A wrong decision/ conclusion can be corrected by the Commissioner of Income Tax with a decision on merit and by making of addition of disallowance. The Hon’ble Court held that there may be cases where the Assessing Officer undertakes a superficial and random investigation that may justify a remit, albeit the Commissioner of Income Tax must record the abject failure and lapse on the part of the Assessing Officer to establish both the error and the prejudice caused to the Revenue. In our considered opinion the assessment framed by the AO is neither erroneous nor prejudicial and therefore the jurisdiction u/s 263 is wrongly invoked by the Pr. Commissioner of Income Tax. Considering the facts of the case in the light of the aforesaid decisions, we are inclined to held that the revisionary order passed u/s 263 of the Act is invalid and is accordingly, quashed.
10. In the result, the appeal of the assessee is allowed.
Order pronounced on 16.06.2026.
