Delta Manufacturing Limited Vs PCIT (ITAT Mumbai)
Section 263 Order Quashed as PCIT Invoked Wrong Section to Deny Set-Off of Unabsorbed Depreciation: ITAT Mumbai
In a significant ruling, the Mumbai ITAT quashed a revision order passed under section 263, holding that the very foundation of the PCIT’s action was legally unsustainable. The assessee had received ₹15.56 crore from its wholly owned foreign subsidiary, Rhine Estates Limited (England), on reduction of share capital and treated the amount as deemed dividend under section 2(22)(d). The assessee set off the income against brought-forward unabsorbed depreciation, which was accepted by the Assessing Officer in scrutiny assessment.
The PCIT invoked section 263 on the ground that the assessee had wrongly set off unabsorbed depreciation against dividend income in violation of section 115BBDA, which prohibits deduction or set-off against specified dividend income. According to the PCIT, the Assessing Officer had failed to examine this issue and therefore the assessment order was erroneous and prejudicial to the interests of the Revenue.
The Tribunal, however, found that section 115BBDA had absolutely no application to the facts of the case. It noted that the provision applies only to dividend received by a specified assessee from a domestic company, whereas the assessee itself was a domestic company and the dividend was received from a foreign subsidiary incorporated in England. Further, the provision applied only to dividends declared, distributed or paid on or before 31 March 2020, whereas the receipt in question arose during FY 2021-22. Thus, none of the statutory conditions for invoking section 115BBDA were satisfied.
The Tribunal held that when the very legal premise adopted by the PCIT is non-existent, the assessment order cannot be termed erroneous. It further observed that the relevant facts regarding the foreign subsidiary, reduction of share capital and treatment of the receipt were already available in the financial statements and assessment records. Accordingly, the assumption of jurisdiction under section 263 was held to be invalid, the revisionary order was quashed, and the original assessment order was restored.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This is an appeal filed by the Assessee against the order of the Learned Principal Commissioner of Income Tax, Mumbai – 6 [‘Ld. PCIT’], passed u/s 263 dated 05.02.2026, pertaining to Assessment Year (AY) 2022-23.
