SC Upholds Section 263 Remand but Leaves Revision Jurisdiction Open for Fresh Pleas

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).