9911796707
TMI Blog2022 (9) TMI 1185X X X X Extracts X X X X X X X X Extracts X X X X ..... . 2.1 The Pr. Commissioner of Income Tax failed to appreciate that the scrutiny assessment was completed u/s.143 (3) after examining the books of account and considering the various details filed before the assessing officer. 2.2 The Pr. Commissioner of Income Tax ought to have appreciated that if the assessing officer has taken one of the two possible views it cannot be termed as erroneous and prejudicial to the interest of revenue. [Malabar Industrial Co. (vs) CIT 243 ITR 83 (SC)] 3. The Pr. Commissioner of Income Tax ought to have held that the amount investment in subsidiary (M/s SPIC Fertilizers Chemicals Limited, Mauritius/Dubai) for the purpose of business and hence the write off the same constitutes business loss. 3.1 The Pr. Commissioner of Income Tax erred in concluding there is no direct nexus between business of the assesse ignoring the fact that ITAT in assesses own case for the Assessment Year 2000-01 (ITA.No.2252/Mds/2003) has held that the investment in SFCL was for the purpose of business of the appellant. 3.2 The Pr. Commissioner 'of Income Tax ought to have appreciated that the SFCL was created only for the purpose of setting up a manufacturing faci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business of manufacture and sale of Fertilizers. The Appellant filed return of income for the Assessment year 2017-18 on 29.11.2017 declaring Nil income. Later the company filed a revised return on 22.5.2018 declaring a total loss of Rs.72,15,74,225/-. The case was selected for scrutiny and the assessment has been completed under sec 143(3) of the Act, on 28.12.2019 determining the total loss at Rs.64,01,62,661/-. 4. The case has been, subsequently taken up for revision proceedings and accordingly. the PCIT issued a show cause notice under sec 263 of the Act, and called upon the assessee to explain as to why the assessment order passed by the Assessing Officer u/s 143(3) dated 28- 12-2019 shall not be revised on the following issues: i. The investment written off to the tune of Rs.184,53,62,000/ being investments in subsidiary SFCL, Dubai. ii Rs.20,547.39 Lakhs which is debited in the P&L A/c towards the winding up of the subsidiary company. iii. Deduction claimed while computing of book profit under section 115JB for the amount of Rs.138,40,21,000/- which is for diminution in the value of investments. iv. Claim of hedging Loss of Rs.453.74 Crores (Appellant's explanat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Government of India, was obtained for setting up a joint venture company for establishing a fertilizer complex in tr.3 Middle Ease, for the. manufacture of ammonia and urea. Accordingly, a joint venture company in the name and style of SPIC Fertilizers and Chemicals Company, LL.C. has been incorporated in Dubai, UAE. The proposed project will have a capacity to manufacture 700 TPD of ammonia and 1200 TPD of urea, it will utilize the plant bought from Sri Lanka and will be in a position to produce ammonia and urea at minimal cost." 6.1 It is not clear that how the establishment of a plant which produce ammonia and urea at Dubai by a subsidiary will be beneficial for the Indian Company which also produce similar products. The assessee is not claiming that ammonia and urea are scarce raw materials for their Indian plants. On verification of the annual report of the assessee company, the manufacture of Urea is the main activity of company which contributes to 99% of the turnover of the company. 6.2 It may also be noticed that the UAE plant is not a branch or unit of the Assessee company. It is separate legal entity and its income is not liable to be taxed in India. The corollary i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of Section 115JA which is not applicable from 01.04.2001 as the said section was replaced by Section 115JB. In view of this, it is clear that the Assessing Officer had not examined this issue in detail, which was erroneous as it was prejudicial to the interest of the revenue. 11. From the facts mentioned in above Paras it is clear that the assessment was clearly erroneous as it was prejudicial to the interest of the revenue in the first, third and fourth issues as mentioned in the show cause notice dated 02.03.2022. Therefore, I hereby set aside the assessment to the file of the Assessing Officer to examine all these issues in detail, after affording sufficient opportunities of being heard to the Assessee. 7. The ld.AR for the assessee submitted that the ld.PCIT erred in assuming jurisdiction u/s.263 of the Act and holding that the assessment order is erroneous and prejudicial to the interest of the revenue, merely, because the decision of the Assessing Officer is not inconsonance with the view of the PCIT. The ld.AR for the assessee submitted that during scrutiny assessment the assessee has filed all details and the Assessing Officer after being satisfied with the explanation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the exclusive use of the Appellant. The shareholders of the Company approved promotion of wholly owned subsidiary in Dubai in the AGM of the Company. There was an agreement dated 13.11.1998 (Page 10 of the paper Book) between the Dubai Company and the Appellant for the off take by the Appellant of the entire production of the Dubai unit at arm's length price. This agreement was also approved by the Government of India vide their letter dated 8.12.1998. (Page 11 of the Paper Book) Thus, the investment was in the course of and for the purpose of the Business of the Assessee. Necessary approval for promoting and investing in a wholly owned subsidiary company in Dubai, UAE was obtained from RBI vide their letter dated 5.3.1997 (page 13 of paper Book). Later on due to statutory requirement of UAE, the investment of the Appellant in the UAE subsidiary was routed through wholly owned subsidiary in Mauritius. This restructuring had the approval of RBI vide their letter dated 25.3.1998 (Page 20 of the paper Book). The Company in Mauritius had only investment in the Dubai Company as its asset. Subsequently, when the Dubai entity was not able to obtain Natural gas, required for the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... direct nexus between the said investment and the business of the assessee which was also confirmed in our own case by /TAT for the assessment year 2000-01 vide IT.A. NO.2252/Mds/2003 copy enclosed vide Annexure 8 allowed with respect to interest on advance given to SFCL allowable as business expenditure under section 37 of Income Tax Act. Further we are enclosing vide Annexure 9 herewith ITAT Delhi order on Sahara Global Vision Private Limited Vs ACIT, allowing loss due to write off of investments in joint venture is allowable business expenditure. The above said disallowance was properly claimed under MAT computation DUE not considered in regular computation hence filed revised return to consider the same. 11. Thus, the entire background of investment in the Subsidiary in Dubai through the pass through subsidiary in Mauritius as well as the reason for writing off was fully explained in the reply dated 27.11.2019. The assessee had also explained its case with help of decision of the Delhi tribunal where it was held that loss on account of divestment of investment made in subsidiary for the purpose of business is allowable as a business loss. The Assessing Officer after consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that the payment of interest on the amount borrowed for the purchase of the plantation when the whole transaction of purchase and the working of the plantation was viewed as an integrated whole, was so closely related to the plantation that the expenditure could be said to be laid out or expended wholly and exclusively for the purpose of the plantations. Therefore, the assessee, in any view of the matter, succeeds on the strength of its second contention. 13. The Department has accepted the same and has not filed any appeal on this aspect. The Assessing officer had in the order of Assessment u/s.143(3) of the Act, dated 28.12.2019 has observed that "Further Notices under sec.142(1) of the Act, were issued to the Assessee on dated 5.10.2019 and 28.11.2019 electronically". In response, the Assessee has submitted the details/ explanations called for digitally besides filing hard copy. The submissions of the Assessee-Company have been duly considered. Ongoing through the details and documents submitted by the Assessee -company, the assessment is completed by accepting the claim for write off of investments in subsidiaries. Further, when the entire gamut of investment in the subsid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rejudicial to the interest of the Revenue. For example, when the ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the Revenue, unless the view taken by the ITO is unsustainable in law. 16. Thus, all the details in connection with the write off was claimed as a deduction was before the AO who had accepted the claim of the Appellant on the basis of the submissions and documents filed by the Appellant. When the AO has taken a decision based on the facts submitted and it is one of the permissible views, the PCIT erred in assuming jurisdiction and imposing his views over that of the AO. When two views are possible and the view taken by the AO is not unsustainable under law, the PCIT does not have the jurisdiction to revise that issue as it is not erroneous and prejudicial to the interest of the Revenue. 17. Further on merits, the AR had relied on in addition to the case of Sahara Global Vision P Ltd. v. ACIT (supra) cited before the Assessing officer in the course of the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the instant case, the assessee made investment in the shares of WOS for the business purpose i.e., for the enhancement of business activity of the assessee in global market which primarily related to business operation of the assessee. The WOS suffered losses and therefore the assessee wrote off the investment of Rs.3,41,23,200/-as business loss. The investment was made for the purpose of extension of business activity and not with a view to creating capital asset in the form of holding shares. It is also pertinent to note that the assessee never acquired any capital asset or expenditure of enduring benefits to WOS and there is no relinquishment or transfer of capital asset to any third party". 21. The Jurisdictional High Court in the case of Indian Commerce and Industries Co P Ltd v CIT (213 ITR 533) has held that "In view of those findings, it is apparent that there is a nexus between the business of the company and the purchase of the shares. The business of the company would not have increased as it did actually but for these shares. There is no reason why the loss suffered by the assessee in this case should not be treated as a business loss". 22. In the case of decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he view taken by the Commissioner and the Tribunal concurrently cannot be termed as perverse. That view being imminently possible in the given facts and circumstances. It does not raise any substantial question of law." 23. All the above cases relied on the ratio of the Apex Court in the case of Patnaik and Co Ltd v CIT (161 ITR 355 SC) where it was held that purchase of Government Securities and the close proximity of the investment with the receipt of the Government orders, would lead to an inescapable view that the investment was made in order to furtherance the sales of the assessee and boost its business. Hence, the loss on sale of Government securities was a business loss. 24. The ratio of the above decisions would squarely cover the case on hand. The Appellant had proved that the investment in subsidiary was solely for the purpose of obtaining scarce raw material for being used in their business. The investment was written off when the subsidiary was wound up. Applying the ratio of the above decisions including those of jurisdictional High Court and the Apex Court, the claim of the Appellant that the write off of investment in the subsidiary made for the purpose of the bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he possible views and is not unsustainable in law. Further on merits also, the claim of investment written off to the tune of Rs.184,53,62,000/- is an allowable deduction on the facts of the case and applying the ratio of the decisions referred to supra. Therefore, on this issue assumption of jurisdiction by the PICT fails. 27. The next issue is regarding Rs.205.47 Crores which is debited in the P&L A/c towards the winding up of the subsidiary company. As mentioned in para 6 to 6.4 of Pr. CIT order, it was held that this is not an allowable expenditure as it was not incurred for the purpose of earning income in India. From this, it is clear that the Assessing Officer had not examined this issue in detail, which was erroneous as it was prejudicial to the interest of the revenue. We find that said amount of Rs.205.47 Crores consist of two parts, namely investment written off in SFCL of Rs.184.53 Crores and balance Rs.20.94 Crores represents write off of Rs.17.41 Crores towards Advance to SFCL & Rs.3.53 Crores receivable from SFCL towards cost of employees deputed by the Appellant. With respect to SFCL investment written off to the tune of Rs.184.53 Crores, already we held that it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iming that it was disallowed in the MAT computation for the financial year 2008-09. For this, they are quoting the provisions of Section 115JA which is not applicable from 01.04.2001 as the said section was replaced by Section 115JB. In view of this, it is clear that the Assessing Officer had not examined this issue in detail, which was erroneous as it was prejudicial to the interest of the revenue. 29. We do not find any merits in observations of the PCIT for simple reason that first up all this amount of Rs.138.40 Crores is also part of the Investment of Rs.184.53 Crores made in SFCL Dubai, discussed in the earlier points which was written off in the books. During the Financial Year 2008-09 (AY 2009-10) Appellant made provision towards diminution in the value of investment to the tune of Rs.138,40,21,000/- and was disallowed while computing the book profit. Appellant had filed copy of the Book Profit computation before the AO and PCIT, to substantiate that the said amount was disallowed during the Assessment Year 2009-10 under clause (i) of Section 115JB of the Income Tax Act, 1961. As explained earlier, during the current financial year 2016-17 (AY 2017-18), the said investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30. In this view of the matter and settled cases referred above it is clear beyond doubt that the deduction claimed is permissible deduction under regular computation as well as under MAT. The main reason for the PCIT to come to above conclusion is that there is difference between provisions of section 115JA and 115JB. But, fact remains that the Appellant was claiming deduction only under sec 115JB and sec 115JB has similar provision as sec 115JA in so far as provision of diminution in value of assets and withdrawal of provisions. For the reasons stated above, the Appellant had rightly claimed deduction under Book Profits on the write off of assets and exclusion of amounts withdrawn from Provision created earlier. Therefore, we are of the considered view that in the course of Assessment and also the legal provisions and decisions of the Appellate authorities, there is no error in the order of the Assessing Officer or in any event the AO has taken one possible view and hence, the PCIT is precluded from imposing his opinion by resorting to revision u/s 263. Thus, we are of the considered view that the power of revision of PCIT on this issue is also failed. 31. At this stage, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnected with the assessment would be erroneous and prejudicial to the interests of the Revenue When the ITO is expected to make an enquiry of a particular item of income and he does not make an enquiry as expected, that would be a ground for the CIT to interfere with the order passed by the ITO since such an order passed by the ITO is erroneous and prejudicial to the interests of Revenue. Where the ITO had made enquiries in regard to the nature of the expenditure incurred by the assessee who had given detailed explanation in that regard by a letter in writing and all these are part of the record of the case and the claim was allowed by the ITO on being satisfied with the explanation of the assessee such decision of the ITO cannot be held to be erroneous simply because in his order he did not make an elaborate discussion in that regard. 33. In this case, the issue questioned by the PCIT in 263 proceedings have been thoroughly examined by the AO during original assessment proceedings u/s.143(3) of the Act, where the assessee has filed a detailed Written Submissions in response to a specific question raised by the AO. The Ld.AO after considering relevant submissions of the assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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