ASHAPURA MINECHEM LIMITED,MUMBAI V. ADIT, CPC, BENGALURU

ITA 4728/MUM/2023

AI Insights

The case involves Ashapura Minechem Limited, which appealed against the order of the Commissioner of Income Tax (Appeals) confirming adjustments made by the Centralized Processing Centre (CPC), Bengaluru, during the processing of the company's income tax return for the assessment year 2019-20. The primary contention was regarding the treatment of long-term capital gains initially declared and later excluded in a revised return due to a favorable arbitration outcome, which negated the supposed sale of securities. The CPC's adjustments were based on the capital gains credited to the profit and loss account, which the Tribunal found to be improperly assessed without a clear understanding of the facts.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 32140 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2019-2020
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K.R. SUBHASH
• Assessee Lawyers: GAURANG SANGHAVI
• Keywords: Set aside; Opportunity of being heard; Revised return; Depreciation; Capital Gains; Unabsorbed depreciation; FORM 26AS
• Section: 143(1); 10AA

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI “A” BENCH : MUMBAI BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI ANIKESH BANERJEE, JUDICIAL MEMBER ITA No. 4728/Mum/2023 Assessment Year : 2019-20 Ashapura Minechem Limited, 3rd Floor, Jeevan Udyog Building, 278, D.N. Road, Fort, Mumbai. PAN : AAACA0957F vs. ADIT, Centralized Processing Centre, Income Tax Department, Bengaluru (Appellant) (Respondent) For Assessee : Shri Gaurang Sanghavi For Revenue : Dr. K.R. Subhash, CIT-DR Date of Hearing : 19-12-2024 Date of Pronouncement : 06-01-2025 O R D E R PER B.R. BASKARAN, A.M : The assessee has filed this appeal challenging the order dt.21-11-2023 passed by the Ld. Commissioner of Income Tax (Appeals)-51, Mumbai [„Ld.CIT(A)‟] and it relates to AY.2019-20. The assessee is aggrieved by the decision of the Ld.CIT(A) in confirming the adjustments made by the CPC, Bengaluru (CPC) while processing the return of income filed for the year under consideration u/s.143(1) of the Income Tax Act, 1961 („the Act‟). 2 ITA No. 4728/Mum/2023 2. Brief facts of the case are that the assessee is a public limited company engaged in the business of mining and selling of minerals. It filed its original return of income for this year on 30-11-2019, declaring NIL total income. The assessee declared loss of Rs.191.80 crores under the head “Income from business”. It also declared Short Term Capital Gain of Rs.21.03 lakhs and Long Term Capital Gain of Rs. 253.83 lakhs. The business of loss of Rs.191.80 crores, un-absorbed depreciation of Rs.62.25 crores and the brought forward unabsorbed depreciation of Rs.110.41 crores were set off against the income declared under the head capital gains. Accordingly, the total income was returned as NIL. 3. Thereafter, the assessee filed a revised return of income on 30-03- 2020 excluding the Long Term Capital Gain of Rs.253.84 lakhs declared in the original return of income. Accordingly, the business loss was computed at Rs.191.59 crores after adjusting Short Term Capital Gain of Rs.21.03 lakhs. It is pertinent to note that the assessee had credited its profit and loss account with long term capital gains. However, for the purposes of computation of total income, the assessee took the stand in the revised return of income that the same is not taxable in this year on account of subsequent development. However, while processing the return of income, the CPC made adjustment to the extent of Rs. 259.20 crores, taking cognizance of the capital gains credited to the Profit and Loss account, which was mainly related to Long Term Capital Gain declared by the assessee in the profit and loss account. 4. The assessee filed an appeal before the Ld.CIT(A) challenging the adjustment made by the CPC. The assessee explained before the Ld.CIT(A) the reason for exclusion of long term capital gains in the revised return of income. It was stated that the assessee had pledged certain securities with 3 ITA No. 4728/Mum/2023 a company, named, M/s. ASQ Connect Ltd. The above said company invoked the pledge and accordingly, the assessee considered the same as sale of securities. Accordingly, it computed capital gains at Rs.262.59 crores for book purposes and credited the same to the Profit and Loss account. For Income tax purposes, the Long Term Capital Gainwas computed at Rs.253.84 crores and was declared in the original return of income. 5. Subsequently, the assessee took the matter to arbitrator and it got a favorable order, wherein it was held that the invocation of pledge by M/s. ASQ Connect Ltd., is not justified, meaning thereby, there was no sale of securities as originally presumed by the assessee. In that case, there was no necessity to compute long term capital gains and accordingly, the long term capital gains declared in the original return of income needs to be reversed. Accordingly, the assessee filed revised return of income excluding the Long Term Capital Gain offered in the original return of income. 6. The Ld.CIT(A), however, took the view that the above said claim of the assessee is in the nature of “incorrect claim” apparent from the information given in the return. Accordingly, he upheld the adjustment made by the CPC while processing the return of income u/s. 143(1) of the Act. 7. We heard the parties and perused the record. Under the provisions of sec.143(1)(a) of the Act certain adjustments could be made by the CPC to the income returned by the assessee. The relevant provisions are extracted below:- 4 ITA No. 4728/Mum/2023 “143(1)Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, such return shall be processed in the following manner, namely:— (a)the total income or loss shall be computed after making the following adjustments, namely:— (i) any arithmetical error in the return; (ii)an incorrect claim, if such incorrect claim is apparent from any information in the return; (iii)disallowance of loss claimed, if return of the previous year for which set off of loss is claimed was furnished beyond the due date specified under sub-section (1) of section 139; (iv)disallowance of expenditure [or increase in income] indicated in the audit report but not taken into account in computing the total income in the return; (v)disallowance of deduction claimed under [section 10AA or under any of the provisions of Chapter VI-A under the heading \"C.—Deductions in respect of certain incomes\", if] the return is furnished beyond the due date specified under sub-section (1) of section 139; or (vi)addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return: Provided that no such adjustments shall be made unless an intimation is given to the assessee of such adjustments either in writing or in electronic mode: 5 ITA No. 4728/Mum/2023 Provided further that the response received from the assessee, if any, shall be considered before making any adjustment, and in a case where no response is received within thirty days of the issue of such intimation, such adjustments shall be made: Provided also that no adjustment shall be made under sub-clause (vi) in relation to a return furnished for the assessment year commencing on or after the 1st day of April, 2018;” It can be noticed that the CPC is empowered to make only the adjustments which are listed out in sec.143(1)(a) of the Act. We noticed that the Ld. CIT(A) has taken the view that the addition of long term capital gains made by the CPC would fall under the category of “incorrect claim” mentioned in sec.143(1)(a) of the Act. 8. However, the assessee has explained before the Ld.CIT(A) the reasons for withdrawal of Long Term Capital Gain in the revised return of income. Apparently, the withdrawal of LTCG would not fall under the category of “incorrect claim”, as observed by Ld.CIT(A). From the reasons for making adjustments made by CPC, we notice that the CPC has referred to the Profit and Loss account for making adjustment of LTCG and also picked up the sale value of assets shown in the Schedule of Depreciation. Thus, there is no clarity on the adjustments made by CPC. Accordingly, we are of the view that the CPC has made the adjustments without properly appreciating the facts and the Ld CIT(A) has also confirmed the same in the similar manner. It is a well settled proposition of law that the entries made in the books of accounts are not relevant for determining total income under the Income tax Act. Hence, merely because the assessee has credited its profit and loss account with the amount of Capital gain on the basis of facts/state of affairs prevailing at that point of time, the same will 6 ITA No. 4728/Mum/2023 become taxable under the Income tax Act, when the subsequent development would show that there was no transfer of security. 9. Accordingly, we are of the view that all the adjustments made by CPC requires fresh examination at the end of the AO. Accordingly, we set aside the order passed by the Ld.CIT(A) and restore all the issues to the file of the AO for examining the adjustments made by CPC and direct him to make only those adjustments which are permitted u/s.143(1)(a) of the Act. The assessee shall be given proper opportunity of being heard. 10. In the result, the appeal filed by the assessee is treated as allowed. Order pronounced in the open court on 06-01-2025 Sd/- Sd/- [ANIKESH BANERJEE] [B.R. BASKARAN] JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dated: 06-01-2025 TNMM 7 ITA No. 4728/Mum/2023 Copy to : 1) The Appellant 2) The Respondent 3) The CIT concerned 4) The D.R, “A” Bench, Mumbai 5) Guard file By Order Dy./Asst. Registrar I.T.A.T, Mumbai Copy to : 1. The Appellant 2. The Respondent 3. The Pr. CIT, Mumbai concerned 4. D.R. ITAT, “A” Bench, Mumbai 5. Guard File. //By Order// //True Copy // Dy./Asst. Registrar, ITAT, Mumbai "