BSES Rajdhani Power Ltd. Vs PCIT (Supreme Court of India)
BSES Rajdhani Power Ltd. filed its return for AY 2010-11 declaring Nil income, later revised on 30.03.2012. The return was selected for scrutiny, and assessment proceedings under Section 143(2) were initiated. A special audit under Section 142(2A) was directed on 05.03.2013. The special auditor’s report dated 30.08.2013 addressed, among other matters, fixed assets and depreciation, arm’s length transactions with related parties, and compliance with Chapter XVII-B concerning tax deduction at source.
Read HC Judgment in this case: Delhi HC Upholds Section 263 Revision Over Unexamined Depreciation Claim of ₹298.93 Crores
The Assessing Officer (AO) completed the assessment under Section 143(3) on 29.10.2013, assessing total income at ₹838,38,00,790. Among other adjustments, the AO disallowed ₹66,27,782 towards depreciation on ₹6,44,81,091 capitalised for reinstallation of fixed assets, disallowed ₹94,20,842 concerning related-party transactions, added ₹38,58,60,000 concerning arm’s length pricing of related-party transactions, and disallowed ₹2,58,28,863 under Section 40(a)(ia). On appeal, the CIT (A) decided the depreciation and group-concern transaction issues in favour of the assessee and granted partial relief regarding the Section 40(a)(ia) disallowance.
On 16.03.2016, the Commissioner issued a show-cause notice under Section 263 concerning variation in the cost of fixed assets, alleging that the issue had not been examined by the AO. By order dated 31.03.2016, the Commissioner set aside the assessment as erroneous and prejudicial to the interests of the Revenue and directed reconsideration of: (i) depreciation claimed on fixed assets amounting to ₹298.93 crores; (ii) applicability of TDS provisions to certain expenditure; and (iii) benchmarking of group-company transactions under Section 40A(2).
The assessee appealed to the ITAT. The Tribunal upheld the Section 263 revision concerning variation in the cost of fixed assets, holding that the AO had not made adequate enquiries. However, concerning TDS and related-party transactions, it set aside the Commissioner’s order because no opportunity had been provided to the assessee and directed a fresh order after reasonable opportunity.
Before the High Court, the assessee contended that the matters had been examined during the original assessment, including through the special audit report, and that the assessment order had merged with the CIT (A)’s order. It relied on, among others, Malabar Industrial Co. Ltd. vs Commissioner of Income Tax 243 ITR 83 (SC), Commissioner of Income Tax vs Max India Ltd 295 ITR 282 (SC) and Commissioner of Income Tax v Sunbeam Auto Ltd 332 ITR 167 (Del). The Revenue relied on Explanation (c) to Section 263(1), Commissioner Of Income Tax vs Ratilal Bacharilal & Sons (2006) 282 ITR 457, Commissioner of Income Tax v Aruba Mills 1998 (231) ITR 50 (SC) and Commissioner of Income tax v Amitabh Bacchan 2016 SCC Online SC 484.
The High Court held that the Section 263 jurisdiction was available regarding the larger depreciation claim of ₹298.93 crores because the AO had considered only ₹6,44,81,091 and had not examined the larger claim. It regarded Aruba as decisive on this aspect. On the TDS and related-party issues, relying on Amitabh Bacchan, the High Court held that the absence of those specific issues from the show-cause notice did not make them incapable of consideration, but an opportunity of hearing had to be provided. It therefore directed the CIT to consider the assessee’s submissions on those two issues before making an order. The High Court answered all questions in the negative against the assessee and dismissed the appeal.
The matter then reached the Supreme Court. After hearing the parties, the Supreme Court stated that it was not inclined to interfere with the impugned judgment. It clarified that the assessee would be entitled to raise all pleas and contentions, including whether the preconditions for invoking Section 263 were satisfied, before the Commissioner of Income Tax. The Supreme Court further clarified that, while upholding the direction for remand for fresh hearing and decision, it had made no observations or comments on the merits of the case.
The Supreme Court accordingly dismissed the special leave petition, vacated the interim order and disposed of any pending applications. Thus, the High Court judgment remained undisturbed, while the Supreme Court expressly left the merits of the Section 263 jurisdiction open for consideration by the Commissioner.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
Having heard the learned counsel for the parties, we are not inclined to interfere with the impugned judgment. However, we would like to clarify that the petitioner will be entitled to raise all pleas and contentions, including the contention that the preconditions for invoking jurisdiction under Section 263 of the Income Tax Act, 1961 are not satisfied before the Commissioner of Income Tax. We also clarify that while we have upheld the direction for remand for fresh hearing and decision, we have not made any observations/comments on the merits of the case.
Recording the aforesaid, the special leave petition is dismissed.
Accordingly, the interim order is vacated.
Pending application(s), if any, shall stand disposed of.
