TMI Blog2022 (9) TMI 1185X X X X Extracts X X X X X X X X Extracts X X X X ..... ned the same in his Assessment order would not mean that he has not applied his mind on the specific submissions of the Appellant - we are of the considered view that the PCIT erred in assuming jurisdiction in an issue which has been considered by the AO and his decision is one of the 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. Amount debited in the P L A/c towards the winding up of the subsidiary company - Though in the years of making provision the same was disallowed in the memo of computation for the respective years, but in the year under appeal the amount was written off by adjusting the provision against the receivable, but the same was not claimed as deduction in the Memo of income. Therefore, the PCIT's observation in dealing with disallowance of Rs.205.47 Crores is infructuous as (i) claim for deduction of Rs.184.53 Crores has been dealt with by the PCIT separately (earlier point) and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PER G. MANJUNATHA, ACCOUNTANT MEMBER: This appeal filed by the assessee is directed against the order of the Principal Commissioner of Income Tax, Chennai-3, passed u/s.263 of the Income tax Act, 1961 dated 30.03.2022 and pertains to assessment year 2017-18. 2. The assessee has raised the following grounds of appeal: 1. The order of Pr. Commissioner of Income Tax is contrary to law, facts and in the circumstances of the case. 2. The Pr. Commissioner of Income Tax erred in assuming jurisdiction u/s.263 and holding that the assessment order is erroneous and prejudicial to the interest of revenue merely because the decision of the Assessing Officer is not inconsonance with the view of the Pr. CIT. 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. (v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of original assessment and the appellant have submitted full details. Hence Pr. Commissioner of Income Tax erred in assuming Jurisdiction in respect of issue which was queried and explained and accepted by the Assessing officer at the time of original assessment.' 6. The Pr. Commissioner of Income tax erred in not considering the decisions relied on by the appellant in proper perspective. 7. When there are two views possible and the Assessing Officer has taken on possible view, order of assessment cannot be considered as erroneous and Pr. CIT erred in assuming jurisdiction u/s.263. 8. The Appellant craves leave to adduce additional grounds at the time of hearing. 3. The brief facts of the case are that the Appellant is carrying on the 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. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered the assessment order passed by the Assessing Officer erroneous in so far it is prejudicial to the interest of the revenue. Therefore, set aside the assessment order passed by the Assessing Officer and direct the Assessing Officer to re-do the assessment after examining all the issues in details after affording sufficient opportunities of being heard to the assessee. The relevant findings of the PCIT are as under: 5. The submissions filed by the assessee company are carefully considered and verified with records. 6. The first issue is regarding company's investment written off amounting to Rs.184,53,62,000/- from subsidiary company (SFGL, Mauritius). It is also stated by the company that SPIC Fertilizers and Chemicals Company, LL.C: Approval from the Ministry of Commerce, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is issue in detail, which was erroneous as it was prejudicial to the interest of the revenue. 9. The next issue is regarding the 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. 10. However, the clause (i) of the Explanation to subsection 2 of the Section 115JB dearly states that the amount or amounts set aside as provision for the diminution in the value of assets are to added to the book profit. 10.1. This year the Assessee's book profit is Rs.2739.31 Lakhs and the amount and in the MAT computation statement the Assessee claimed a deduction of Rs.138,40,21,000/- claiming 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. 11. From the facts mentioned in above Paras it is clear that the assessment was c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer u/s.143(3) of the Act, dated 28.12.2019 on three issues. The first three issues pertain to the same point namely write off of the investment in subsidiary of Rs.184,53,62,000/- under the Normal provisions and Rs.138,40,21,000/- under the computation of Book Profits u/s 115JB of the Act. The facts of the case are that the Appellant had made investment in SFCL, Dubai, UAE for the purpose of manufacture and supply of Ammonia and Urea to the Appellant to be used by the Appellant in their business of manufacture of Fertilizer. The AR submitted that as there was shortage of Urea in India and the Company was permitted to import the same, the company concluded that it would be more beneficial if a manufacturing unit was set up in Dubai, where the raw material of natural gas was easily available, for manufacture of Ammonia and Urea 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 ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate the reason for filling revised return (if applicable) with proper evidence for substantiating the changes Please find enclosed herewith revised return vide Annexure 3. Company made provision for diminution in the value of investment during the Assessment year 2008-09 and 2009-10 to the tune of Rs.4613.40 lakhs and Rs.13840.21 Lakhs respectively and the same was disallowed by us in the respective year memo computation of income enclosed vide Annexure 4 and 5. We made the said investments to set up Urea and Ammonia Plant at Dubai which is supported by EGM minute's approval enclosed vide Annexure 6. During the current assessment year the investment was written off in Statement of Profit and Joss and claimed as deduction under memo computation of income (Copy of the relevant extract of Board Resolution enclosed vide Annexure 7). There is a 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hosphoric acid. Similarly, SPIC Fertilizers and Chemicals, FZE, (SFCL), at Dubai was engaged in the manufacture of ammonia and urea which were raw materials for the fertilizer business of the assessee. It is pointed out that both ammonia and phosphoric acid accounted for 44.27 per cent in value of the total raw material consumption. Thus, even if borrowed funds were utilized, still the assessee would be entitled for deduction under s. 36(1)(iii) of the Act, in view of the decision of the Hon'ble Madras High Court in the case of Sivakami Mills Ltd. (supra), affirmed by the Hon'ble Supreme Court in (1998) 144 CTR (sc) 172: (1997) 227 ITR 465 (SC) (supra), wherein it was held that interest on deferred payment for purchase of machinery was revenue expenditure. The decision in State of Madras vs. G.J. Coelho (supra) also supports this view. In this case it was held 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 exclusivel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icial to the interests of the Revenue, for example, when an 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 interests of the Revenue unless the view taken by the ITO is unsustainable in law. 15. The Apex High Court in the case of CIT v. Max India Ltd vs CIT reported in (295 ITR 282) has held as under: At this stage we may clarify that under para 10 of the judgment in the case of Malabar Industrial Co. Ltd. (supra) this Court has taken the view that the phrase prejudicial to the interest of the Revenue under s. 263 has to be read in conjunction with the expression erroneous order passed by the AO. Every loss of revenue as a consequence of an order of the AO cannot be treated as prejudicial 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olly Owned Subsidiary Company's balance sheet. However, WOS could not perform up to company's expectations and therefore, it was decided to wind up WOS operations in USA. While granting approval for closure of was, RBI permitted the company to write off the whole of investment made in WOS and unrealized export receivables. The assessee therefore, made a claim to write off the loss of Rs.3,41,23,200/-as revenue expenses allowable under the provisions of the Act. 20. Thus, from perusal of the aforesaid facts, it is evident that the issue involved in this appeal is covered by decision of the Hon ble Bombay High Court in the case of CT v. Colgate Palm Olive (India) Ltd. (supra), which has been upheld by the Supreme Court. The ratio of aforesaid decision is where the assessee makes investment in its 100% subsidiary for business purpose, loss on sale of investment has to be treated as business loss of the assessee. In 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see. At no point of time the investment in Camelot was made with an intention to realize any enhancement value thereof or to earn dividend income. The investment was made to separately house the integral part of the business activity. In such circumstances, the Commissioner relied upon the above judgments and allowed the Appeal. He concluded that the loss of Rs.5.50 crores is a business loss in the hands of the Assessee. He set aside the order of the Assessing Officer. 8. The Revenue carried the matter in Appeal and the Tribunal has dealt with this issue extensively. In para 7 of its order, the Tribunal has upheld the conclusion of the Commissioner and by giving additional reason. 9. Upon perusal of this material, we are unable to agree with Mr.Pinto that question 5.1 reproduced above is a substantial question of law. Given the peculiar facts and circumstances and the nature of the investment so also being for commercial expediency, the 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 abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not applied his mind to the facts of the case before coming to the conclusion. All the details about the investment and the reason why it is considered as for the purpose of business was explained to AO. The investments have been approved by Government of India/ RBI. The ITAT in Assessee's own case for the AY 2000-01 has held that the investment in the subsidiary in Dubai is for the purpose of business. Submissions before the AO were also submitted before the PCIT. It is apparent that the decision of the AO was based on application of his mind on the submissions of the Appellant. Merely because the AO, after calling for explanation and satisfying himself, has not mentioned the same in his Assessment order would not mean that he has not applied his mind on the specific submissions of the Appellant. Therefore, we are of the considered view that the PCIT erred in assuming jurisdiction in an issue which has been considered by the AO and his decision is one of the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous and prejudicial orders, it is not permissible to grant additional benefit while disposing an order of revision u/s 263. Hence, this issue does not arise separately as the claim for Rs.184.53 Crores has been dealt with above and the additional deduction of Rs.20.54 Crores was not claimed by the Appellant in their return. Hence, revision power of the PCIT on this issue is also fails. 28. The next issue is regarding the deduction claimed while computing book profit under section 115JB for the amount of Rs.138,40,21,000/- which is for diminution in the value of investments. The PCIT observed that clause (i) of the Explanation to subsection (2) of the Section 115JB clearly states that the amount or amounts set aside as provision for the diminution in the value of assets are to be added to the book profit. This year the Assessee's book profit is Rs.2739.31 Lakhs and in the MAT computation statement the Assessee claimed a deduction of Rs.138,40,21,000/- claiming 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 Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation or Explanation below the second proviso to section 115JA, as the case may be 27. The Appellant had filed the Memo of computation of Book Profits for the AY 2009-10 wherein the provision for diminution of Assets to the extent of Rs.138.42 Crores was added back in computing the Book Profits for that year. Therefore, the reversal of this amount to the credit of the P L was rightly excluded while computing Book Profit in view of Explanation (i) extracted above. Further when the diminution in value or provision is reduced from the Asset value, it will tantamount to writing off. Hence, it is not includible in computing Book Profits u/s 115JB of the Act. In this regard it is relevant consider the following case laws wherein identical issue has been dealt. Yokogawa India Ltd 204 Taxman 305 (Kar). Shriram Transport Finance Co Ltd 97 CCH 178 Chennai HC. CIT vs. Kirloskar Systems Ltd. 220 TAXMAN 0001 (Karnataka) and CIT vs. Vodafone Essar Gujarat Ltd (2017) 397 ITR 0055 (Guj) ((F) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt also must be fulfilled. There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed. 32. The phrase prejudicial to the interests of the Revenue has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue as a consequence of an order of AO cannot be treated as prejudicial to the interests of the Revenue, for example, when an 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 interests of the Revenue unless the view taken by the ITO is unsustainable in law. An order of assessment passed by the ITO without making necessary enquiries on certain important points connected 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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