Grasim Industries Ltd. Vs PCIT (ITAT Mumbai)
Conclusion: Since the revision proceedings u/s 263 had been apparently triggered only based on borrowed satisfaction i.e Audit Objection and not based on independent application of mind by PCIT therefore, the revision order passed by PCIT u/s 263 was hereby directed to be quashed.
Held: Assessee had filed its original return of income which was later revised declaring total income of Rs. 283,15,81,630/- under normal provisions of the Act and Rs. 411,70,32,063/- u/s 115JB. AO completed the assessment u/s 143(3) determining total income at Rs 366,01,24,600/-under normal provisions of the Act and Rs 440,88,34,676/- u/s 115JB. In the said computation of income in the assessment order, AO had specifically mentioned that a sum of Rs 267,17,80,899/- for the Asst Year 2013-14 would be eligible to be carried forward for set off in subsequent years in bold letters. Assessee challenged the assessment by preferring an appeal before CIT(A) on the aggrieved issues. Later the assessment framed by AO was sought to be revised by PCIT on the ground that AO had allowed the claim of Long Term Capital Loss (LTCL) of Rs 267,17,80,899/- which ought not to have been allowed. PCIT setting aside the order of AO as erroneous and prejudicial to the interest of the revenue with regard to the issue of allowability of LTCL to be carried forward to subsequent years on the ground that AO had taken an incorrect view based on improper and incomplete appreciation and verification of facts and therefore unsustainable in law. It was held that adequate enquiries were indeed carried out by AO in the original assessment proceedings and hence PCIT was not justified in invoking revisionary jurisdiction u/s 263. A possible view had been taken by AO on the issue of LTCL on the facts of the case and hence PCIT was not justified in invoking revisionary jurisdiction u/s 263 merely because he was of a completely different view and opinion on the issue of allowability of LTCL to be carried forward to subsequent years. Hence it could be safely concluded that the revision proceedings u/s 263 had been apparently triggered only based on borrowed satisfaction i.e Audit Objection and not based on independent application of mind by PCIT. Therefore, the revision order passed by PCIT u/s 263 was hereby directed to be quashed.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal in ITA No.1964/Mum/2019 for A.Y.2013-14 preferred by the order against the revision order of Pr. Commissioner of Income Tax, Central-1, Mumbai u/s.263 of the Act dated 27/03/2019 for the A.Y.2013-14.
2. Though the assessee had raised various grounds of appeal before us, we find that the effective issue to be decided in this appeal is as to whether the ld PCIT was justified in invoking revision jurisdiction u/s 263 of the Act in the facts and circumstances of the case.
3. We have heard the rival submissions and perused the materials available on record. We find that assessee is engaged in the business of manufacturing iversified products such as viscose filament yarn, carbon black, insulators, branded apparels and readymade garments. The assessee had filed its original return of income for the Asst Year 2013-14 on 28.11.2013 which was later revised on 30.3.2015 declaring total income of Rs 283,15,81,630/- under normal provisions of the Act and Rs 411,70,32,063/- u/s 115JB of the Act. The reasons for revising the return was duly explained by the assessee company vide its letter dated 15.11.2016 which has already been considered by the ld AO while framing the assessment. The ld AO completed the assessment u/s 143(3) of the Act on 9.2.2017 determining total income at Rs 366,01,24,600/-under normal provisions of the Act and Rs 440,88,34,676/- u/s 115JB of the Act. In the said computation of income in the assessment order, the ld AO had specifically mentioned that a sum of Rs 267,17,80,899/- for the Asst Year 2013-14 would be eligible to be carried forward for set off in subsequent years in bold letters. The assessee challenged the assessment by preferring an appeal before the learned Commissioner of Income Tax (Appeals) [ ld CITA] on the aggrieved issues.
4. We find that with effect from 1.7.2017, M/s Aditya Birla Nuvo Ltd (ABNL) amalgamated with Grasim Industries Ltd as per the scheme of arrangement which is approved by the Hon’ble National Company Law Tribunal (NCLT). Later the assessment framed by the ld AO on 9.2.2017 was sought to be revised by the ld PCIT on 6.3.2019 on the ground that the ld AO had allowed the claim of Long Term Capital Loss (LTCL) of Rs 267,17,80,899/- which ought not to have been allowed. We find that the assessee filed detailed submissions in the course of proceedings before the ld PCIT challenging the jurisdiction u/s 263 of the Act and also on merits of the issue in dispute. The ld PCIT rejected the contentions of the assessee and proceeded to pass an order u/s 263 of the Act setting aside the order of the ld AO as erroneous and prejudicial to the interest of the revenue with regard to the issue of allowability of LTCL to be carried forward to subsequent years on the ground that the ld AO had taken an incorrect view based on improper and incomplete appreciation and verification of facts and therefore unsustainable in law. We find that the ld PCIT also relied on Explanation 2(a) to section 263 of the Act which came into effect from 1.6.2015 to support his conclusion. Ultimately, the ld PCIT set aside the order of the ld AO as erroneous and prejudicial to the interest of the revenue with a direction to the ld AO to carry out complete verification of the legal tenability of the SPV created on 21.2.2013, the source of finances of SPV to acquire the shares of Aditya Birla Minacs Worldwide Limited (ABMWL), the valuation of shares of ABNL IT & ITES Ltd and sale of shares, if any, on 14.3.2013.
5. We find that the assessee in its return of income had claimed Long Term Capital loss (LTCL) arising on account of sale of shares of Aditya Birla Minacs Worldwide Ltd (ABMWL) to ABNL IT & ITES Ltd. These details were duly disclosed by the assessee in the return of income filed as well as in the computation of income filed together with its detailed workings. For the sake of convenience, the said workings are enclosed below:-
(A) COMPUTATION OF LONG TERM / SHORT CAPITAL GAIN/LOSS ON SALE OF SHARES
6. We find that in the course of assessment proceedings, the ld AO issued the following notices to the assessee :-
a) Notice u/s 142(1) of the Act dated 8.12.2015 asking for basic details such as computation of income, audit report, annual report, 3CEB report etc.
b) Notice u/s 142(1) of the Act dated 27.6.2016 again asking for copy of tax audit report, 3CEB report, computation of income, detailed note on nature and modus operandi of the business activities carried out by the assessee during the year under consideration and also to mention any change in activities when compared to previous years, among other general details such as bank statements, details of movable and immovable assets etc.
c) Notice u/s 142(1) dated 8.11.2016 together with a questionnaire thereon, containing specific queries on various issues. In this questionnaire, a specific query was raised by the ld AO asking for details of Long Term Capital Loss / Gain in Question No. 40 thereon.
7. We find that the assessee had furnished replies before the ld AO in writing from time to time by collating all the queries that were raised in writing by way of questionnaire as well as the queries raised by the ld AO at the time of personal hearing. With regard to the queries raised by the ld AO at the time of personal hearing, we find that the ld AR had enclosed the order sheet copies in pages 177 to 179 of the factual paper book filed before us. We find that the assessee had vide its letter dated 21.10.2016 (enclosed in page 125 of the factual paper book) furnished a detailed reply regarding details of long term capital loss on sale of shares of Aditya Birla Minacs Worldwide Limited (ABMWL) as under:-
“Details of long term capital loss on sale of shares of Aditya Birla Minacs Worldwide Limited
4.1. The Assessee company was holding investment (99.60%) in the shares of Aditya Birla Minacs Worldwide Limited (‘Minacs India’), which was engaged into the business of Information Technology & Enabled Services (ITeS).
4.2.The IT & ITes business of Minacs India was not performing as expected and therefore, due to commercial expediency, the Assessee Company wanted to exit from the ITeS business and it was in talks with the various investors.
4.3.In order to achieve the object of exiting from IT & ITes business by divestment of shares of Minacs India, the Assessee Company incorporated another subsidiary company ABNL IT & ITES Ltd. (‘ABNL IT & ITES’) (Special Purpose Vehicle (SPV) on 21st February 2013 with the capital of Rs.5,00,000 held by the Assessee Company (95%) and ABNL Investment Ltd (5%), ABNL Investments Ltd is another 100% subsidiary of the Assessee Company.
4.4. On 14th March 2013, 2,56,62,266 shares of Minacs India were sold to ABNL IT & ITES Limited at cost of Rs.172.87 (Cost of Rs.443,63,44,411 divided by 2,56,62,266 shares) which was substantially higher than the networth of Minacs India. The book value of Minacs India as on 31 March 2013 (proximate to date of sale) is computed as under:-
