CHAMBAL FERTILISERS AND CHEMICALS LIMITED,KOTA GADEPAN V. PRINCIPAL COMMISSIONER OF INCOME TAX, SAVINA-UDAIPUR

ITA 694/JPR/2024

AI Insights

The case revolves around an appeal by Chambal Fertilizers and Chemicals Ltd against the order of the Principal Commissioner of Income Tax, Udaipur, which challenged the assessment order passed by the National e-Assessment Centre, Delhi. The PCIT had invoked Section 263 of the Income Tax Act, claiming the assessment order was erroneous and prejudicial to the interests of the revenue concerning non-deduction of TDS on certain interest payments and incorrect treatment of dividend income from a foreign joint venture. The Tribunal examined the merits of the PCIT's claims and found that the original assessment order was neither erroneous nor prejudicial to the revenue, leading to the quashing of the PCIT's order.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 469970 (ITAT-JAIPUR)
• Duration Of Justice: 5 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 18-09-2024
• Assessment Year: 2018-2019
• Appeal Filed On: 15-05-2024
• Other Referred Cases: Bank of India v. Assistant Commissioner of Income Tax, Circle 2(1)(1), Mumbai, Commissioner of Income-tax (TDS)-1 v. State Bank of Patiala, Commissioner of Income-tax (TDS)-1, Chandigarh v. Canara Bank, Commissioner of Income Tax (TDS), Kanpur v. Canara Bank, Santhosh Maize & Industries Limited Vs. The State of Tamil Nadu & Anr, Commissioner of Income-tax (Central)-I, New Delhi Vs. Vatika Township (P.) Ltd.
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ARVIND KUMAR
• Assessee Lawyers: SANJAY JHANWAR; MUKESH SONI
• Keywords: Set aside; Business income; Opportunity of being heard; Revised return; Transfer pricing; Corroborative evidences; Principle of natural justice; TDS; Source of fund; Earning of tax free income; Assessment record; Double taxation relief; Revision of order; Residential status; Prejudicial to interest
• Section: 143(3); 142(1); 143(2); 195; 154; 263; 194A; 22; 90; 2

Judgement Text

"vk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, “A” JAIPUR Mk0 ,l- lhrky{eh] U;kf;d lnL; ,oa Jh jkBksM deys'k t;UrHkkbZ] ys[kk lnL; ds le{k BEFORE: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, vk;dj vihy la-@ITA No. 694/JPR/2024 fu/kZkj.k o\"kZ@Assessment Year : 2018-19 Chambal Fertilizers and Chemicals Ltd, CFCL Complex Gadepan, Kota 325208 cuke Vs. Principal Commissioner of Income Tax, Savina-Udaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAACC 9762 A vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri Sanjay Jhanwar, Adv. & Shri Mukesh Soni jktLo dh vksj ls@ Revenue by : Shri Arvind Kumar, CIT lquokbZ dh rkjh[k@ Date of Hearing : 18/09/2024 mn?kks\"k.kk dh rkjh[k@Date of Pronouncement: 25/10/2024 vkns'k@ ORDER PER: RATHOD KAMLESH JAYANTBHAI, A.M. The present appeal challenges the order dated 20.03.2024 passed by the Principal Commissioner of Income Tax, Udaipur [ for short PCIT] for captioned assessee. The disputes relates to the assessment year 2018-19. Ld. PCIT passed the order under challenges as per provisions of section 263 of the Income Tax Act (for short “Act’) while examining the assessment record of the above-named assessee which was passed by the National e- ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT 2 Assessment Centre, Delhi on 19.04.2021 as per provisions of section 143(3) r.w.s. 144B of the Income Tax Act. 2. Assessee contests the order of the PCIT on the following grounds; “1. That the learned Principal Commissioner of Income Tax erred in issuing the notice under Section 263 IT. Act under the facts and circumstances of the case. The notice issued under section 263 was without jurisdiction and without authority of law, hence the order passed deserves to be set side. 2. That the learned Principal Commissioner of Income Tax, Udaipur passed the order dated 20/03/2024 under Section 263 of the L.T. Act, erred in remanding the ground of revision to the Assessing Officer passed by the ld. Assessing Officer on the issue relating to Non- Deduction of TDS on Rs.23,09,26,264/- being bank interest paid outside India. The interest was paid on foreign currency loan taken from Foreign Branches of Indian Banks which were Domestic Companies. Hence TDS was neither required to be deducted under Section 194A nor under Section 195, hence the order passed under Section 263 deserves to be set aside on this issue. 3. That the learned Principal Commissioner of Income Tax, Udaipur vide order dated 20/03/2024 passed under Section 263 of the LT. Act, erred in remanding the ground of revision to the Assessing Officer passed by the ld. Assessing Officer on the issue relating to treatment of dividend received from Foreign Joint Venture as Dividend Income. The income was purely in the nature of dividend income, not the business income and was rightly shown as such in the return of income and offered to tax as per the provisions of Section 115BBD. Hence the order passed under Section 263 deserves to be set-aside on this issue. 4. That any other grounds and facts will be explained at the time of hearing of the appeal. That the appellant reserves the right to withdraw, modify, and add any of the grounds during appeal hearing.” 3. Brief facts related to the case on hand as culled out from the records are that the assessee is public limited company engaged in manufacture of Urea and Single Super Phosphate (SSP) and ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT 3 marketing of other Agri- inputs such as Di-Ammonium Phosphate (DAP), Muriate of Potash (MOP), NPK Fertilisers, agrochemicals, seeds, micronutrients, etc. The Company also supplies other agri- inputs like Di-ammonium Phosphate (DAP), Muriate of Potash (MOP), Single Super Phosphate (SSP), NPK Fertilisers, Agrochemicals, seeds, sulphur, micronutrients, complex fertilisers and city compost. The Company sources the products from reputed domestic and international suppliers. Single Super Phosphate (SSP) supplies comprised of own production and procurement from domestic suppliers. For the year under consideration assessee has filed its return of income on 29.03.2019 declaring taxable income of Rs. 593,12,42,630/-. The source of income of the assessee for the year under consideration is income from Business, Income from capital Gain and Income from other source. After filling the return of income by the assessee the case was selected for complete scrutiny assessment under the E- assessment Scheme, 2019 on the following issues:- S. No. Issues i. Stock Valuation ii. Claim of Any other Amount Allowable as Deduction in Schedule BP iii. Double Taxation Relief u/s 90/91 iv. Exports/Imports ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT 4 v. Reduction of Income in Revised Return & Claim of Refund vi. Refund Claim vii. ICDS Compliance and Adjustment viii. Expenses Incurred for Earning Exempt Income ix. Foreign Bank Account x. Deduction from Total Income under Chapter VI-A Notice u/s 143(2) of the I. T Act 1961 and Notice u/s 142(1) of the I.T. Act 1961 were issued and duly served to the assessee. Ld. AO in the assessment order noted that the assessee submitted replies which were examined and kept on record. After examination of the replies submitted by the assessee, ld. AO concluded that explanation offered by the assessee was satisfactory and no adverse inference was drawn. Ld. AO also noted that assessee on 24.02.2021 filed the revised computation of income and offered the GST provision of Rs. 16,30,91,496 for taxation purpose which was added back to the total income of the assessee. Accordingly, against the returned of income of Rs. 5,93,12,42,630/- assessed income was determined at Rs. 6,09,43,34,126/- vide order dated 19.04.2021. 4. On culmination of the assessment proceedings, the ld. PCIT called for the assessment records as per power vested upon her in ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT 5 terms of provision of section 263 of the Act. Upon examination of records ld. PCIT noted that; a) The assessee company claimed an expenditure of Rs.5,92,10,074/- related to Education-Cess for the A.Y. 2009-10 on the basis of order passed by High Court of Rajasthan on 31.07.2018. This expenditure was not allowable in view of explanation 3 to section 40(a)(ii) inserted by Finance Act 2022 w.e.f. 01.04.2005. Further, the Hon'ble Supreme Court, vide its order dated 14.012.2022 in SLP(c) No. 7329/2019, has decided this issue in favour of Revenue for the A.Y. 2009-10 in the case of the assessee. The FAO/AO, during the assessment proceedings didn't disallow the said provision and therefore, expenditure of Rs.5,92,10,074/- claimed by the assessee was required to be added to the declared total income, suitably. b) Examination of assessment records by the ld. PCIT further revealed that (i) the company shown dividend income received from IMACID of Rs.9,82,58,313/- and paid tax at special rate of ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT 6 15% as per provision of section 115BBD and claimed relief u/s 90 of the Act. (ii) As per Note-47 of the statement of Profit and Loss Account for the relevant F.Y. (i.e. 2017-18), the company established a Joint Venture in Morocco namely Indo Maroc Phosphore SA (IMACID) (33.33 % sharing). (iii) The Company CFCL established a JV IMACID through trade investment and has joint control over the JV. The JV is business entity carrying out business activities to pool their resources and all the assets, liabilities, income and expenses of entity are shared by each of the partners. Since, the CFCL had invested in this JV in form of Trade investment, income derived by CFCL from business activities of this JV was to be treated as Income from Business activates instead of Dividend income and income tax was to be charged accordingly. (iv) Though, IMACID paid an amount of Rs.9,82,58,313/- to CFCL as dividend but as stated above and as per provisions of Articles 9 of convention mentioned above, it should have been included in the profit of CFCL as business income and taxed accordingly. ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT 7 (v) The FAO/AO, during the assessment proceedings didn't treat this income as business income and hence, charged tax @ 15% (as per section 115BBD), instead of charging the same at 30%. c) She further noted that as per schedule-22 of Profit and loss Account, assessee has debited interest of Rs.8719.49 lakh and Sr. No. 43(i) of ITR-6 i.e.\" interest paid outside India or paid in India to a non-resident other than a company or a foreign company amounting to Rs.25,56,23,509/-. Whereas, as per 3CD report and 27Q of TDS quarterly report, the TDS deducted and deposited only on Rs. 13,92,83,709/-. Hence TDS not deducted on Rs. 11,33,39,800/- (Rs.255623509-Rs.139283709) under the provisions of Act, 1961. This amount of Interest payment was required to be disallowed and hence, added to the declared total income for the A.Y. under consideration. However, the AO/NaFAC didn't consider the same while passing the assessment order on 19.04.2021 further rectified u/s 154 on 21.05.2021. ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT 8 Thus, ld. PCIT noted that the FAO didn't examine the issue of expenditure of Rs.5,92,10,074/- related to Education-Cess of A.Y. 2009-10 (supra), on the basis of order passed by High Court of Rajasthan on 31.07.2018. The AO/NaFAC didn't disallow this expenditure in view of explanation 3 to section 40(a)(ii) inserted by Finance Act 2022 w.e.f. 01.04.2005, accordingly as such, the income has been under computed/assessed by this amount of Rs.5,92,10,074/- 4.1 Since the AO didn't apply/consider correct appreciation of fact as well as law w.r.t. chargeability of tax rate on the income derived by CFCL from business activities of the Joint Venture with JV IMACID of Kingdom of Morocco in view of the provisions of Article 9 (Associated enterprises) of the Convention between the Republic of India and the Kingdom of Morocco for the Avoidance of Double Taxation and the prevention of fiscal evasion with respect to taxes on income (Notification no. GSR 245E, dated 15.03.2000 where: ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT 9 (a) and enterprise of a Contracting State participates directly or indirectly in the management, control or capital of an enterprise of the other Contracting State, or (b) the same persons participate directly or indirectly in the management, control or capital of an enterprise of a Contracting State And an enterprise of the other Contracting State, and in either case conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, have not so accrued, may be included in the profits of that enterprises and taxed accordingly. The AO / NaFAC didn't charge correct rate of tax on dividend Income of Rs.9,82,58,313 (supra) and thus, under-computed / assessed the taxable income for the year under consideration. She further noted that the AO / NaFAC, while passing the Assessment Order on 19.04.2021 didn't disallow the Interest ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT 10 Expenses by amount of Rs.11,33,39,800/- [Rs.25,56,23,509 13,92,83,709] on account of Non-deduction of TDS, as per the provisions of Income Tax Act, 1961. As such, in the Assessment Order dated 19.04.2021, there is an under computation / assessment of Taxable Income by this amount of Rs. 11,33,39,800/-. Therefore, due to lack of enquiry and also due to incorrect and incomplete appreciation of facts and also the incorrect application of law, the assessment order duly passed u/s 143(3) r.w.s. 144B of the IT Act dated 19.04.2021 for the A.Y. 2018-19 was found erroneous insofar as it is prejudicial to the interest of revenue. Therefore, she was of the view that the impugned order proposed to be suitably modified / enhanced / cancelled by invoking the provisions of the section 263 of the I.T. Act, 1961. 4.2 Ld. PCIT before doing so issued a notice u/s 263 of the Act on 20.09.2023 to the assessee giving an opportunity of being heard as well as requiring the assessee to furnish its submission on the issues, as categorically mentioned in the show cause notice. The notice so issued was duly served through ITBA and through the Speed Post as well. As per the Notice, the assessee ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT 11 was required to file its reply by 05.10.2023. Assessee filed reply through e-proceedings as well as through the e-mail. After considering the detailed reply of the queries raised by ld. PCIT and the discussion recorded in the order of ld. PCIT, she hold that the assessment order passed by the FAO in the case of the assessee is set aside (partly) to AO on the two issue i.e. The issue of Non-Deduction of TDS on Interest paid outside India or paid in India to a non-resident other than a company or a foreign company (Rs.23,09,26,264/-) and The issue of Dividend (as per section 115BBD) vs. Business Income (Rs. 9,82,58,313/-) to complete the assessment u/s 263/143(3)/142(1) of the Act, considering the observations made in para 6[B] & 6[C] in her order. Thereafter, based on outcome of such enquiries and verification, necessary additions, wherever required, may be made to the total income of the assessee as per law by modifying the assessment order u/s 143(3) of the Act dated 19.04.2021. Therefore, she holds that assessment order passed is liable to revision under clause (a) & (b) of the explanation 2 of section 263 of the Act and thereby the assessment order was set aside as per provisions of section 263 of the Act. ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT 12 5. Feeling aggrieved from the above order of PCIT, the assessee has challenged the finding of ld. PCIT on three grounds, i.e. invoking the jurisdiction, Liability does not arise for TDS and tax rate to be applied on dividend income is in accordance with the law and thereby the order is neither erroneous nor prejudicial to the interest of the revenue. The ld. AR of the assessee while referring the finding submitted that ld. PCIT cannot partly accept the submission and partly not. She cannot set aside the assessment order for verification on facts and thereby she failed to establish the twin condition as required as per provision of section 263 of the Act. The ld. AR of the assessee stated that when the assessee has placed on record all the details relating to the issues raised before ld. PCIT, wherein the ld. PCIT did not find any error or cause of prejudice to the stake of the revenue. Ld. AR of the assessee in support of the grounds so raised filed a detailed written submission which is reproduced herein below; Brief facts of the case 1. The assessee is a public listed Company. The assessee company is engaged in manufacturing and supply of Urea and Single Super Phosphate (SSP) and marketing of other Agri-inputs such as Di- Ammonium Phosphate (DAP), Muriate of Potash (MOP), NPK Fertilisers, ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT 13 agrochemicals, seeds, micronutrients, etc. The Company has two Urea manufacturing plants at Gadepan, District Kota, Rajasthan. The Company sources the products from reputed domestic and international suppliers. 2. The sources of income of the assessee for the year under consideration is Income from Business, Income from capital gain and income from other source. 3. That the Return of Income for A.Y. 2018-19 was filed on 30.11.2018 declaring a Total Income of Rs.597,94,66,280/-. A Revised Return of Income was filed on 29.03.2019 declaring a Total Income of Rs.593,12,42,630/-. 4. That, the assessee’s case was thereafter selected for the scrutiny on various issues, and accordingly the assessee duly complied with scrutiny proceedings and in accordance to the same the AO completed the scrutiny assessment u/s 143(3) r.w.s 144B on 19.04.2021, by assessing the total income of the assessee at Rs. 609,43,34,126 after making addition for certain disallowances. 5. The order passed by Ld. AO was taken up by Ld. PCIT by impugned exercise of jurisdiction u/s 263 of the Act, thereafter, passing the Impugned Order dated 20.03.2024. Issues in the Order passed by the L.D. PCIT dated 20.03.24: • Issue I – Interest paid outside India was Rs. 25,56,23,509/- whereas TDS was deducted on a sum of Rs. 13,92,83,709/- only and hence the differential amount of Rs. 11,33,39,800/- is to be disallowed. • Issue II – Dividend income of Rs 9,82,58,313/- earned from the assessee company’s JV in Morocco was to be taxed as business profit subject to 30% tax instead of dividend income subject to 15% tax u/s 115BBD. Pointers For Arguments: A. The Notice dated 20.09.2023 issued by the L.D. PCIT under Section 263 and consequential Order is not valid: 1. For, a Notice issued under section 263 will be a valid notice only if both the conditions mentioned under the said section are duly complied, they are: i). The original order must be erroneous in law; and ii). The order should be prejudicial to the interest of the revenue. 2. The assessee through its submissions and replies dated: • 20.10.2023 (Page No. 7-9 of Order of PCIT dated 20-03-2024), • 04.01.2024(Page No. 22-23 and 24-25 of Order of PCIT dated 20-03- 2024) (Personal Hearing) and ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT 14 • 13.03.2024(Page No. 31-32 of Order of PCIT dated 20-03-2024) (Personal Hearing), has duly established that fact that the notice issued u/s 263 is without jurisdiction and authority of law. As the order passed by the AO is not erroneous because the same was passed by Ld. AO passed not only just on the basis of the documents and submissions filed by the assessee but only after thoroughly examining the documents and submissions in the light of the legal provisions and after doing a detailed inquiry from the assessee. Thus, the Ld. AO accordingly accepted the submissions of the assessee and after being fully satisfied with the documents passed the order in accordance with the law. which is neither erroneous nor prejudicial to interest of revenue. Therefore, the Notice issued by the L.D. PCIT u/s 263 of the Act, was without the jurisdiction and against the provisions of law. 3. The L.D. PCIT without giving any reasons and findings, just by stating and citing the judgments which are not applicable to the case of the assessee held merely by passing reference that the order passed by the AO to be erroneous and prejudicial to the interest of the revenue (Page No. 57-59 of Order of PCIT dated 20-03-2024). 4. That, when the Notice issued by the L.D. PCIT was itself without the jurisdiction and against the provisions of law, then the proceedings conducted and order passed by the L.D. PCIT against such notice will itself become void-ab-initio. 5. Alternatively, without prejudice to contentions raised herein, the Ld. AO had jurisdiction on limited issues and on those issues, there is no adverse finding in the order of the LD. PCIT. The issue on which the Ld. PCIT purported to exercise jurisdiction, were outside the scope of notice u/s 143(2) of the Act, as the assessment proceedings were selected for CASS on limited issues only. Accordingly, the Ld. AO was justified in taking plausible view on the issues raised by Ld. PCIT, after making detailed inquiries only. B. Issue I – Interest paid outside India was Rs. 25,56,23,509/- whereas TDS was deducted on a sum of Rs. 13,92,83,709/- only and hence the differential amount of Rs. 11,33,39,800/- is to be disallowed. 6. That, the Ld. PCIT failed to appreciate the fact that that the amount of Rs. 13,92,83,709/- on which TDS was deducted is not entirely the amount of payment of foreign interest. Because out of Rs. 13,92,83,709/-, an amount of Rs 11,70,05,416 was paid as a Fees for Technical Services and undisputedly TDS was deducted on it. Further, an amount of Rs. 38,41,373 was paid as a Royalty on which TDS was also deducted. Similarly, an amount of Rs. 2,39,757 was paid for other services and on this also TDS was deducted. It is to be noted that out of Rs. 13,92,83,709/- the amount of foreign interest on which TDS was ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT 15 deducted was only Rs. 1,81,97,163. Further for more clarification concerning the query of Interest Expenses kindly refer the Page No. 186 of the Supplementary Paper Book filed on 17.09.2024. 7. Further as far as the break up on the amount of Rs. 25,56,23,509/- reported as interest paid by Assessee Company, is concerned, the same is as follows: • Interest paid to Indian Banking Companies amounting Rs. 23,09,26,264: With respect to this payment of interest amounting 23,09,26,264 made to Indian Banks, no TDS was deducted on account of specific exclusion contained in Section 194A(3)(iii) which enumerates the exemptions from deduction of TDS from interest payments. The payment of Interest was made to the foreign branches of the following Indian Banks: \u0001 State Bank of India: Exemption to deduct TDS on the payment of interest made to this bank, under provisions of Section 194A(3)(iii)(a), and under the Notification No. S.O. 3489 dated 22-10-1970 issued under Section 194A(3)(iii)(f). \u0001 Export-Import Bank of India: Exemption to deduct TDS on the payment of interest made to this bank, under provisions of Section 194A(3)(iii)(a), Section 194A(3)(iii)(b) and under the Notification No. S.O. 3489 dated 22-10-1970. \u0001 Bank of India, Bank of Baroda, Union Bank of India, Allahabad Bank: Exemption to deduct TDS on the payment of interest made to this bank, under provisions of Section 194A(3)(iii)(a), Section 194A(3)(iii)(f) and under the Notification No. S.O. 710 dated 16-02-1970. • Interest paid to Foreign Banks amounting to Rs. 1,81,37,163: With respect to this it is humbly submitted that Rs. 1,81,37,163 was the amount of interest which was paid to the foreign banks and TDS was duly deducted on this. There is no dispute to this fact at all. This amount forms part of the total amount of Rs. 13,92,83,709, which was the total amount on which the TDS was deducted. • Interest paid to Foreign Banks amounting Rs. 52,11,831 on which TDS was not deducted based on the exemption provided under DTAA: Thes two foreign banks which are as follows: i). To KFW (Germany) amounting to Rs.28,73,166: Exemption to deduct TDS on the payment of interest made to this bank, under provisions Article 11 of the DTAA with Germany. ii). To HSBC Bank (Mauritius) Ltd. amounting to Rs. 23,38,665: Exemption to deduct TDS on the payment of interest made to this bank, under the Indo-Mauritius Press Release dated 10.05.2016. • Foreign Currency Exchange Rate Translation amounting to Rs. 12,88,250: It is not a payment made by the assessee, it is merely an accounting entry passed by the assessee for accounting of foreign exchange rate conversion on account of financial reporting in Indian Rupee. ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT 16 8. In support of the contentions raised in above, the Appellant places its reliance on following judicial precedent, by which the case of the Appellant is squarely covered: • “Bank of India v. Assistant Commissioner of Income Tax, Circle 2(1)(1), Mumbai [2020] 122 taxmann.com 247 (Mumbai - Trib.)” Income earned by assessee, an Indian bank, from its foreign branches which were subjected to tax abroad under respective tax treaties, would be included in assessee's taxable income in India and credit for taxes so paid abroad is to be given to assessee in computation of its Indian income tax liability in accordance with provisions of related tax treaty. • “Commissioner of Income-tax (TDS)-1 v. State Bank of Patiala [2017] 80 taxmann.com 254 (Punjab & Haryana)”: According to section 194A(3)(iii)(p), the provisions of tax deducted at source are not applicable to income credited or paid to any institution, association of body or class by institutions, associations or bodies where the Central Government after recording the reasons in writing notifies them in the Official Gazette. The Notification No. S.O. 3489 [No. 170 F. No. 12/164/68-ITCC/ITJ], dated 22-10-1970 issued by the Central Government under section 194A(3)(iii)(f) inter alia any undertaking or body, including a society registered under the Societies Registration Act, 1860 financed wholly by the Government. • “Commissioner of Income-tax (TDS)-1, Chandigarh v. Canara Bank [2017] 79 taxmann.com 342 (Punjab & Haryana)”: Section 194A of the Income-tax Act, 1961 - Deduction of tax at source - Interest other than interest on securities - Assessment year 2012-13 - If organisation to which assessee paid interest was exempted from payment of tax, there was no need for deduction of tax at source by assessee. • Commissioner of Income Tax (TDS), Kanpur v. Canara Bank [2018] 95 taxmann.com 81 (SC): This Court having already laid down in Dalco Engg. (P.) Ltd. case (supra) that establishment of various financial corporations under State Financial Corporation Act, 1951 is establishment of a Corporation by an Act or under an Act. We are of the view that the above ratio fully covers the present case and we have no doubt that the Authority have been established by the 1976 Act and it is clearly covered by the Notification dated 22.10.1970. It is further relevant to note that composition of the Authority is statutorily provided by Section 3 of 1976 Act itself, hence, there is no denying that Authority has been constituted by Act itself. C. Issue II – Dividend income of Rs 9,82,58,313/- earned from the assessee company’s JV in Morocco was alleged to be taxed as business profit subject to 30% tax instead of dividend income subject to 15% tax u/s 115BBD. 9. The Dividend income of Rs 9,82,58,313/- earned from the assessee company’s JV in Morocco, is squarely covered under the ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT 17 provisions of section 115BBD of the Act, and accordingly Appellant has duly paid the tax @ 15%. 10. The only condition of section 115BBD is that the dividend income should flow from a “specified company” (means a foreign company in which the Indian company hold 26% or more of the equity share capital). In our case the assessee holds 33.33% share in the JV (which fact is not disputed), hence the condition is duly satisfied. 11. Section 115BBD is a specifical provision for tax rate and beneficial provision brought in the law by FA 2011 with the intent to provide relaxation in taxability of dividend income. Rates of tax provided under this section will prevail over the general rate of taxes. (emphasis supplied by Finance Act, 2011). 12. The assessee through its submissions and replies dated: • 20.10.2023 (Page No. 11-17 of Order of PCIT dated 20-03-2024), • 04.01.2024(Page No. 23-25 of Order of PCIT dated 20-03-2024) (Personal Hearing), • 31.01.2024 (Page No. 27-28 of Order of PCIT dated 20-03-2024) • 06.03.2024 (Page No. 29 of Order of PCIT dated 20-03-2024) and • 13.03.2024(Page No. 29-32 of Order of PCIT dated 20-03-2024) (Personal Hearing), Has duly established that the investment made by the assessee was a strategic long-term investment, which is classified as a “Non-current Investment” and was accordingly shown in the annual accounts of the assessee, hence the income of the assessee will be in the form of “dividend” only. 13. Ld. PCIT contends that the dividend income earned by the assessee from its JV in Morocco was to be taxed as business profit subject to 30% tax instead of dividend income subject to 15% tax u/s 115BBD. The said contention is against the law and plain reading of provision of Section 115BD read with Section 90(2) of the Act. The Ld. PCIT has wrongly taken adverse view based on the Article 9 of the convention between India and Morocco dated 15.03.2000 (Page No. 4 of Order of PCIT dated 20-03-2024), which Article is not applicable at all. The said article no where states that the said understated profits would be taxable as ‘Business Profits’ only chargeable at the tax rate of 30% prescribed under the Income Tax Act, 1961. 14. In this context, the Appellant places its reliance on following judicial precedent, by which the case of the Appellant is squarely covered: • “Santhosh Maize & Industries Limited Vs. The State of Tamil Nadu & Anr CIVIL APPEAL NO. 5731 OF 2009” (SC): Law is well settled that if in any statutory rule or statutory notification two expressions are used - one in general words and the other in special terms - under the rules of interpretation, it has to be understood that the ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT 18 special terms were not meant to be included in the general expression; alternatively, it can be said that where a statute contains both a general provision as well as a specific provision, the latter must prevail. • “Commissioner of Income-tax (Central)-I, New Delhi Vs. Vatika Township (P.) Ltd. [2014] 49 taxmann.com 249 (SC) ”: It is now well accepted that this Chapter is a complete code in itself providing for self-contained machinery for assessment of undisclosed income for the block period of 10 years or 6 years, as the case may be. In case of regular assessments for which returns are filed on yearly basis, section 4 of the Act is the charging section. However, at what rate the income is to be taxed is specified every year by the Parliament in the Finance Act. In contradistinction, when it comes to payment of tax on the undisclosed income relating to the block period, rate is specified in section 113. In view of the above, the order of the Ld. PCIT deserves to be quashed.” 6. To drive home to the contentions so raised in the written submission the ld. AR of the assessee filed a compilation of case laws as summarized here in below : S.N. Case Title Gist of case law Page No. Twin Conditions 1. Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 (SC)[10.02.2000] The pre-requisite to the exercise of jurisdiction by the Commissioner under Section 263 is that the order of the Assessing Officer is erroneous insofar as prejudicial to the interests of the revenue. The commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of revenue. If one of them is absent – if the order of the Assessing Officer is erroneous but is not prejudicial to the interests of revenue – recourse cannot be had to section 263 (1). There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer; it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will 1-4 ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT 19 satisfy the requirement of the order being erroneous. In the same category falls orders passed without applying the principles of natural justice or without application of mind. [Para 6] The phrase ‘prejudicial to the interests of revenue’ has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of the order of the Assessing Officer cannot be treated as prejudicial to the interests of revenue. For example, if the Assessing Officer has adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Assessing officer has taken one view with which the Commissioner does not agree, it cannot be treated as prejudicial to the interests of the revenue, unless the view taken by the Assessing Officer is unsustainable in law. Where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer without application of mind as such will be erroneous and prejudicial to the interests of the revenue.” [Para 9] Enquiry conducted by Ld. AO, thus, No 263 2. Commissioner to Income-tax v. Gabriel India Ltd. [1993] 71 Taxman 585 (Bom.)[15.04.1 993] We may now examine the facts of the present case in the light of the powers of the Commissioner set out above. The ITO in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given detailed explanation in that regard by a letter in writing. All these are part of the record of the case. Evidently, 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. [Para 14] 5-10 PCIT should check submissions placed on record: 3. Commissioner of Income Tax v. Shri Manjunatheshwa r Packing It, therefore, cannot be said, as contended by the learned counsel for the respondent, that the correct and settled legal position, with respect to the meaning of the word \"record\" till 1st June, 1988, was that it meant the record 11-17 ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT 20 Products & Camphor Works [1998] 96 taxman 1 (SC) which was available to the income Tax Officer at the time of passing of the assessment order. Further, we do not think that such a narrow interpretation of the word \"record' was justified, in view of the object of the provision and the nature and scope of the power conferred upon the Commissioner. The revisional power conferred on the commissioner under Section 263 is of wide amplitude. It enables the Commissioner to call for and examine the record of any proceeding under the Act. It empowers the commissioner to make or cause to be made such enquiry as he deems necessary in order to find out if any order passed by the assessing officer is erroneous insofar as it is prejudicial to the interests of the revenue. After examining the record and after making or causing to be made an enquiry if he considers the order to be erroneous then he can pass the order thereon as the circumstances of the case justify. Obviously, as a result of the enquiry he may come in possession of new material and he would be entitled to take that new material into account. If the material, which was not available to the Income-Tax Officer when he made the assessment could thus be taken into consideration by the Commissioner after holding an enquiry, there is no reason why the material which had already come on record though subsequently to the making of the assessment cannot be taken into consideration by him. Moreover, in view of the clear words used in clause (b) of the explanation to Section 263(1), it has to he held that while calling for and examining the record of any proceeding under Section 263(1) it is and it was open to the Commissioner not only consider the record of that proceeding but also the record relating to that proceeding available to him at the time of examination. [Para 14] Finding is Compulsory for exercising jurisdiction u/s 263 of the Act 4. Income-tax Officer v. D.G. Housing Projects Ltd. [2012] 343 ITR 329 (Delhi) [01.03.2012] The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under section 263. In such matters, to remand the matter/issue to the Assessing Officer would imply and mean the Commissioner has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the 18-26 ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT 21 aspect/question. [Para16] 5. J.P. Srivastava & Sons (Kanpur) Ltd. Vs. Commissioner Of Income-Tax [1978] 111 ITR 326 (ALL.) [26.04.1972] Failure of the ITO to deal with the claim of the assessee in the assessment order might be an error, but an erroneous order by itself was not enough to give jurisdiction to the Commissioner to revise it under section 33B of the 1922 Act. It must further be shown that the order was prejudicial to the interests of the revenue. It is not each and every order passed by the ITO which can be revised under section 33B of the 1922 Act [Page no. 2] 27-29 Order must be prejudicial to the interest of revenue 6. P.C. Puri v. CIT [1984] 18 Taxman 158 (Delhi) [23.02.1984] Though not defined, the term 'prejudicial to the interests of the means that the lawful revenue due to the State has not been realised. [Para 6] 30-43 No Deduction of TDS on Payment of Interest To Banks 7. Commissioner of Income-tax (TDS)-1 v. State Bank of Patiala [2017] 80 taxmann.com 254 (Punjab & Haryana) According to section 194A(3)(iii)(p), the provisions of tax deducted at source are not applicable to income credited or paid to any institution, association of body or class by institutions, associations or bodies where the Central Government after recording the reasons in writing notifies them in the Official Gazette. The Notification No. S.O. 3489 [No. 170 F. No. 12/164/68-ITCC/ITJ], dated 22- 10-1970 issued by the Central Government under section 194A(3)(iii)(f) inter alia any undertaking or body, including a society registered under the Societies Registration Act, 1860 financed wholly by the Government. [Para 6] 44-47 8. Commissioner of Income-tax (TDS)-1, Chandigarh v. Canara Bank [2017] 79 taxmann.com 342 (Punjab & Haryana) Section 194A of the Income-tax Act, 1961 - Deduction of tax at source - Interest other than interest on securities - Assessment year 2012- 13 - If organisation to which assessee paid interest was exempted from payment of tax, there was no need for deduction of tax at source by assessee. 48-50 9. Commissioner of Income Tax (TDS), Kanpur v. Canara Bank [2018] 95 taxmann.com 81 This Court having already laid down in Dalco Engg. (P.) Ltd. case (supra) that establishment of various financial corporations under State Financial Corporation Act, 1951 is establishment of a Corporation by an Act or under an Act. We are of the view that the 51-63 ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT 22 (SC)] above ratio fully covers the present case and we have no doubt that the Authority have been established by the 1976 Act and it is clearly covered by the Notification dated 22.10.1970. It is further relevant to note that composition of the Authority is statutorily provided by Section 3 of 1976 Act itself, hence, there is no denying that Authority has been constituted by Act itself. [Para 31] Special rate of tax will prevail over general tax rate 10. Esthuri Aswathiah Vs. Commissioner of Income Tax, Mysore, Civil Appeal No. 402 of 1962 The rate of tax is fixed by the Finance Act every year. By s. 3, the tax is levied at that rate for an assessment year in respect of the income of the previous year. [Para 11] 64-67 11. Santhosh Maize & Industries Limited Vs. The State of Tamil Nadu & Anr CIVIL APPEAL NO. 5731 OF 2009 Law is well settled that if in any statutory rule or statutory notification two expressions are used - one in general words and the other in special terms - under the rules of interpretation, it has to be understood that the special terms were not meant to be included in the general expression; alternatively, it can be said that where a statute contains both a general provision as well as a specific provision, the latter must prevail. [Para 24] 68-86 12. Commissioner of Income-tax (Central)-I, New Delhi Vs. Vatika Township (P.) Ltd. [2014] 49 taxmann.com 249 (SC) It is now well accepted that this Chapter is a complete code in itself providing for self- contained machinery for assessment of undisclosed income for the block period of 10 years or 6 years, as the case may be. In case of regular assessments for which returns are filed on yearly basis, section 4 of the Act is the charging section. However, at what rate the income is to be taxed is specified every year by the Parliament in the Finance Act. In contradistinction, when it comes to payment of tax on the undisclosed income relating to the block period, rate is specified in section 113. [Para 27] 87-107 13. Notification No. SO 3489 dated 22.10.1970 Notification No. SO 3489 dated 22.10.1970 In pursuance of sub-clause (f) of clause (iii) of sub-section (3) of section 194A of the Income- tax Act, 1961 (43 of 1961), the Central Government hereby notify the following for the purposes of the said sub-clause:- (i) any corporation established by a Central, State or Provincial Act; (ii) any company in which all the shares are held (whether singly or taken together) by the 108 ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT 23 Government or the Reserve Bank of India or a Corporation owned by that Bank; and (iii) any undertaking or body, including a society registered under the Societies Registration Act, 1860 (21 of 1860), financed wholly by the Government. 14. Notification No. SO 710 dated 16.02.1970 S.O. 710.—In pursuance of sub-clause (f) of clause (iii) of sub-section (3) of section 194A of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notify with effect from the 19th July, 1969 the following banks for the purposes of the said sub-clause :— 1. **** 2. ***** 3. Allahabad Bank, 14, India Exchange Place, Calcutta-1. 4. ************ 5. ************** 6. Union Bank of India, 66/80, Apollo Street, Fort, Bombay-1. 7.*************. 8. Bank of Baroda, 3, Walchand, Hirachand Marg, Bombay-1. 9. ********. 10. Bank of India, ***** 109-110 15. DTAA Agreement For Avoidance of Double Taxation and Prevention of Fiscal Evasion with Germany. 111-123 16. DTAA Agreement For Avoidance of Double Taxation and Prevention of Fiscal Evasion with Morocco. 124-135 7. The ld. AR of the assessee also filed a chart explaining the issue raised by the PCIT with that of the facts of the case and whether the issue raised makes the order of the ld. AO erroneous and prejudicial to the interest of the revenue or not, that chart is reproduced here in below : Issue Ld. PCIT Summary of Grounds Judgments Paper Book Reference Ground No. 1 of Form 36 a. Facts are not verified by the AO during the assessment a. Twin conditions not satisfied by Ld. PCIT. Remanded back for mere verification without giving a. Landmark (Twin Cond. + Prejudicial + Two Views): Malabar Industrial • Enquiry 7-21 (PB No. 8,11, 12, 13, 20, 28, 30). ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT 24 (Section 263) proceeding. any reasoning with respect to the order of AO being erroneous and prejudicial, hence, no finding by Ld. PCIT. b. Sufficient enquiry by the Ld. AO + detailed submissions made. c. Assessment is under Faceless Assessment Scheme having multiple teams, thus, proper verification done at assessment level. Co. Ltd. v. CIT [2000] 243 ITR 83 (SC). b. Enquiry by Ld. AO, thus, No 263: Gabriel India Ltd. [1993] 71 Taxman 585 (Bom.) [15.04.1993]. c. PCIT should check submissions placed on record: Shri Manjunatheshwar Packing Products & Camphor Works [1998] 96 taxman 1 (SC). d. Finding Compulsory by PCIT: i). D.G. Housing Projects Ltd. [2012] 343 ITR 329 (Delhi) [01.03.2012]. ii). J.P. Srivastava & Sons (Kanpur) Ltd. Vs. Commissioner Of Income-Tax [1978] 111 ITR 326 (ALL.) [26.04.1972] e. Prejudicial: P.C. Puri v. CIT [1984] 18 Taxman 158 (Delhi). • Replies: 22-32 (Page No. 24- 25, 30 of PB, SPB 186) • Pg. No. 38, 40 of AO Order. • Final Findings of PCIT (Page No. 57-59 of PCIT Oder). • Interest: (iv) and (v) Para at 52-53 of PCIT Order • Dividend: (iii) to (ix) Para at Page No. 56-57 of PCIT Order Ground No. 2 of the form 36 (TDS on Interest Payment) a. AO didn’t consider the point of non- deduction of TDS on interest payment. Para No. 6 [B] Page No. 40 onwards, conclusion Para No. 52-53 a. Sufficient enquiry by the Ld. AO + detailed submissions made. b. Non deduction of TDS on payment of Interest is duly supported by the legal provisions and notifications: i). Foreign Branches of Indian Bank- Section 194A(3)(iii)(a) ,(f) and Notifications dated S.O. 3489 dated 22-10-1970* and S.O. 710 dated 16- 02-1970*. (ii) Payment to HSBC Mauritius (Rs. 23.86 Lakh) governed by Press Release dated 10.05.2016 (Pg. No. 70- No TDS required on notified Institutions a. Commissioner of Income-tax (TDS)-1 v. State Bank of Patiala [2017] 80 taxmann.com 254 (Punjab & Haryana). b. Commissioner of Income-tax (TDS)-1, Chandigarh v. Canara Bank [2017] 79 taxmann.com 342 (Punjab & Haryana). c. Commissioner of Income Tax (TDS), Kanpur v. Canara Bank [2018] 95 taxmann.com 81 (SC). a. Press release at page no. 70-71 b. TRC of SBI Tokyo PB No. 80 c. Break Up – PB No. 68-69 d. DTAA Germany* e. TRC Additional* ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT 25 71 of PCIT Order) (iii) Payment to KFW Germany Rs. 28.73 Lakh- By Article 11 of DTAA (ref. at page no. 66 of PB1) (iv) rest amount represent, accounting entries on account of foreign exchange fluctuation due to financial reporting and conversion. c. Clause (a)/(f) of Section 194A(3)(iii) is person specific d. Nothing prejudicial established. e. AO passed order in accordance with law as applicable Ground No. 3 of the form 36 (Dividen d) a. AO didn’t consider the point of taxation of dividend at rates of business income. b. Investment was trade investment yielding profits. c. Section 115BBD not applicable in view Article 9 of convention Para No. 6 [C] Page No. 53-57 onwards, conclusion Para No. 56-57 a. Factually incorrect finding b. Section 115BBD is applicable and all conditions being fulfilled. c. It requires, holding of minimum 26% in equity, whereas, the Apppellant is holding 33.33% in foreign company d. Dividend income is supported by documents evidence produced on record, which are not faulted. e. FA, 2011 came with specific provision to provide lower tax rate (special tax rate). f. Section 56 requires dividend income to be charged under IFOS Head. g. Even otherwise, Section 90(2) of the Act is applicable. h. Action of Ld. PCIT is not in accordance with intent on law. i. Nothing prejudicial Specifical Rate would prevail a. FA 2011 Memorandum* b. Esthuri Aswathiah Vs. Commissioner of Income Tax, Mysore Civil Appeal No. 402 of 1962. c. Santhosh Maize & Industries Limited Vs. The State of Tamil Nadu & Anr. CIVIL APPEAL NO. 5731 OF 2009 d. Commissioner of Income-tax (Central)-I, New Delhi Vs. Vatika Township (P.) Ltd [2014] 49 taxmann.com 249 (SC). a. Minutes of meeting of Shareholding meeting: 154- 157 b. Dividend Certificate PB No. 158, 176 c. Annual performance Report submitted to RBI, 159-164 d. Shareholders agreement: 83- 153 e. Balance Sheet Disclosure 81- 82 1 Separately attached ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT 26 established. j. AO passed order in accordance with law as applicable. 8. To support the contention so raised in the written submission reliance was also placed on the following evidence / records filed by way of paper book. The index of the papers filed and relied are as under: ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT 27 ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT 28 9. The ld. AR of the assessee in addition to the written submission, case laws and paper book so filed argued that the assessee as per schedule 22 of profit and loss account debited interest of Rs. 8719.49 lakhs. Whereas at Sr. No. 43(i) of ITR-6 filed by the assessee the figure of interest paid outside India or paid in India to a non-resident other than a company or a foreign company reported for an amount of Rs. 25,56,23,509/-. Ld. PCIT picked up that figure and compared the figure of Rs. 13,92,83,709/- as reported in Form No. 3CD as per provision of section 195 of the Act, taken a view that the assessee has not deducted TDS for an amount of Rs. 11,33,39,800/- (25,56,23,509/- -13,92,83,709/-) under the provisions of section 195 viz a viz 194A of the Act. During the proceedings u/s 263 of the Act, a detailed explanation as well as breakup of the amount paid was furnished by the assessee reconciling this figure with that of the figure reported in P & L account, in form No. 3CD and figure reported in ITR. As figure reported in ITR being the reason for invoking provisions of section 263 of the Act, the assessee in detailed given the breakup of the amount of Rs. 25,56,23,509/- the same reads as under:- ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT 29 9.1 The assessee has submitted in the proceedings before ld. PCIT that for an amount of Rs. 23,09,26,263/-, it was categorically submitted that the claim of the assessee does not require to deduct the tax in case of interest paid to any banking company u/s 194A(3)(iii). Thus, TDS was required to be made for an amount of Rs. 1,81,97,163/- and the same was deducted by the assessee. After considering the detailed explanation filed by the assessee, ld. PCIT has given vague reason that the explanation furnished by the assessee was not fully acceptable. Considering the explanation and evidence placed on record she has to either accept the explanation or reject the same with the reasons. Whereas she has ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT 30 directed the ld. AO to make further examination / verification, but as per the case laws relied upon for verification on the concluded assessment provision of section 263 of the Act cannot be invoked. Ld. AR further submitted that ld. PCIT failed to demonstrate as to whether the order of Assessing Officer is erroneous and prejudicial to the interest of the revenue. 9.2 As regards the 2nd issue, of charging of tax on the dividend income ld. AR of the assessee submitted when there is specific provision u/s 115BBD, the ld. PCIT cannot direct the ld. AO to charge the said income which is covered by the specific provisions under the head business Income. The assessee offers dividend income as per provision of section 115BBD of the Act regularly every year and that has been accepted in the past years too. Thus, there is no reason as to suggest that on the issue to hold another view. 9.3 As regards issue of tax deduction of education cess claimed by the same was claimed based on the provision of the Act prevailing at the time but the assessee on that amount of Rs. 5,92,10,074/- paid the required tax along with the interest and the ld. PCIT was satisfied on that aspect of the matter based on the explanation furnished by the assessee. ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT 31 9.4 Since, on two issues there is no pinpoint of any error which was prejudicial to the interest of revenue and the ld. PCIT failed to prove that order of the assessing officer sought to be revised is erroneous and is prejudicial to the interests of the revenue. If one of them is absent the order of the assessing officer cannot be subjected to the revision as per provision of section 263 of the Act. The ld. AR of the assessee in support of the merits of the case and judicial precedent relied on the submission filed. 10. Per contra, the ld. DR relied upon the finding recorded at para 6B and 6C from Page No. 40 to 46 her order. She further stated that the ld. PCIT has considered all the arguments placed on record and thereafter passed reasoned order. 11. We have considered the submissions advanced by learned counsel for the parties and have also perused the material on record. Ground no. 4, raised in this appeal being general and there is no grievance of the assessee so the same being general in nature does not required any adjudication by us. ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT 32 12. Ground no. 1 raised by the assessee challenges the order of the PCIT under dispute on the jurisdiction issue. Whereas ground no. 2 & 3 raised by the assessee on the merits of the dispute contesting that even based on the set of the facts placed on record the order passed by ld. AO, does not confer jurisdiction u/s. 263 of the Act. Since all these three grounds inter connected emanates from the order under dispute we considered it to dispose the same together. Brief facts of the case are that the assessee is a public limited company engaged in manufacture of Urea and Single Super Phosphate (SSP) and marketing of other Agri- inputs such as Di- Ammonium Phosphate (DAP), Muriate of Potash (MOP), NPK Fertilisers, agrochemicals, seeds, micronutrients, etc. For the year under consideration assessee has filed its return of income on 29.03.2019 declaring taxable income of Rs. 593,12,42,630/-. The source of income of the assessee for the year under consideration is income from Business, Income from capital Gain and Income from other source. After filling the return of income by the assessee the case was selected for complete scrutiny assessment under the E-assessment Scheme, 2019. Ld. AO in the assessment order noted that the assessee submitted replies which were examined ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT 33 and kept on record. After examination of the replies submitted by the assessee, ld. AO concluded that explanation offered by the assessee was satisfactory and no adverse inference was drawn. At last ld. AO noted assessee on 24.02.2021 filed the revised computation of income and offered the GST provision of Rs. 16,30,91,496/- for taxation purpose which was added back to the total income of the assessee. Accordingly, against the returned of income of Rs. 5,93,12,42,630/- assessed income was determined at Rs. 6,09,43,34,126/- vide order dated 19.04.2021. After completion of assessment proceedings, ld. PCIT called for the assessment records for examination. That examination of records was as per provision of section 263 of the Act. While doing so ld. PCIT raised three issues in the proceeding initiated against the assessee and to this effect she issued a notice dated 20.09.2023 giving opportunity of being heard as well as requiring the assessee to furnish its submission on the issue. The assessee filed a detailed submission. On the issue of claim of Education cess, the assessee submitted that they have deposited the requisite tax along with the tax. After considering the reply filed by the assessee, ld. PCIT ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT 34 noted that the assessee reasonable explained this issue and she was satisfied on that issue. Now we would deal with left out two issues for which the ld. PCIT invoked the provision of section 263 of the Act. The first one is on the contention that the assessee has reported at ITR column no. 43(i) under the head interest paid outside India or Paid in India to a non resident other than a company or a foreign company for an amount of Rs. 25,56,23,509/-. While the Tax deducted as reported in form no. 3CD assessee reported to have deducted tax for an amount of Rs. 13,92,83,709/-. Thus, ld. PCIT was of the view that the assessee has not deducted TDS on Rs. 11,33,39,800/- [ Rs, 25,56,23,509/- less Rs.13,92,83,709/- ] under the provision of section 195 vis a vis 194A of the Act. During the proceeding before ld. PCIT assessee filed a detailed reply with supporting evidence. The assessee submitted a detailed breakup for an amount of Rs. 13,92,83,709/- being the amount of TDS made as per provision of section 195 of the Act as reported at clause 34a of the Tax audit report filed by the assessee. The assessee demonstrated that the interest which was paid outside India and was liable to TDS as per provision of section 195 was for an amount of Rs.1,81,97,163/- only out of the total ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT 35 amount of Rs. 13,92,83,709/- reported in the Tax audit report. Assessee also explained as to why the TDS on a sum of Rs. 25,56,23,509/- as reported in ITR column no. 43(i) being the interest paid outside India or Paid in India to a non resident other than a company or a foreign company does not match with the figure reported at clause 34a of the tax audit report. As the dispute arise out of the figure of Rs. 25,56,23,509/- reported in the ITR, it would be better to analyses the details of the such payment made by the assessee. Breakup of the figure reported in ITR is as under: ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT 36 The assessee already filed a detailed summary chart showing the names of payee for an amount of Rs. 1,81,97,163/- for which there is not dispute as the TDS as per provision of the Act has already been deducted. Now so far as the balance amount is concerned as is evident from the above chart that Rs. 23,09,26,264 being the interest paid to Indian Banking companies for which provision of section 194A(3)(iii) would apply. So far as the foreign bank payment of Rs. 52,11,831/- paid by the assessee, the same has been paid to KFW (Germany) and HSBC Bank (Mauritius) Ltd., As regards the payment made to KFW (Germany) same is covered by the DTAA agreement between India and Germany interest paid to KFW Bank was not taxable in India and hence no TDS was required to be deducted. As regards the interest paid to HSBC Bank (Maurituius) Ltd., a press release dated 10.05.2016 states that interest income of Mauritian resident banks in respect of debts claims existing on or before 31st March 2017 shall be exempt from tax in India and the payment made for the debt taken before 31.03.2017. As regards 4th claim of foreign currency under the head exchange rate, is in accordance with the accounting standards giving effect of exchange rate difference. As that exchange rate difference did not entail any pay out question of ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT 37 deducting TDS does not arise. Not only that the ld. AR of the assessee demonstrated that the issue of deductibility of interest expenses has been verified by the ld. AO and the assessee filed the details at point no. 9 of the submission dated 02.03.2021 filed with the ld. AO. Thus, the issue raised by ld. PCIT has already been verified by the ld. AO and the PCIT cannot in the proceeding u/s. 263 direct the way the enquiry should have been done by the ld. AO. We note that based on the details placed on record the ld. AO taken a plausible view which even the after the details placed on record revenue failed to established that the view taken by the ld. AO is erroneous or prejudicial to the interest of the revenue. Thus, here we note that the issue first of all verified by the ld. AO, not only that based on the explanation before ld. PCIT neither she hold that the explanation or based on the details placed on record the order is erroneous nor prejudicial to the interest of revenue. Even the ld. PCIT did not controvert the detailed submission and evidences placed on record. She simply stated that; “ The reply of the assessee on the issue of non deduction of TDS on interest payment of Rs. 23,09,26,264/- supra is not fully acceptable and requires further examination/verification by the Assessing Officer, moreover, the third party verification, wherever required. Therefore, the AO shall have to take further steps to verify the issue, as per the direction given at para no. 9 below.” ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT 38 The above finding of the ld. PCIT did not spell out that on the issue as even after giving the detailed explanation by the assessee, whether the order passed by the ld. AO was erroneous or prejudicial to the interest of the revenue or not?. There is no specific finding by the ld. PCIT on the issue. Therefore, we do not see any reasons in the order as to why the provisions of section 263 of the Act are attracted. As we note that provisions of section 195 provides that any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest (not being interest referred to in section 194LB or section 194LC or section 194LD) or any other sum chargeable under the provisions of this Act (not being income chargeable under the head \"Salaries\") shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force. In this case the payment is made by the assessee to Foreign branch of Indian Bank. The nature of payment is interest but is not paid to foreign company. Further these banks are also not a company. Therefore, if there recipient ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT 39 interest non-resident, then only tax is required to be deducted. The term non-resident is defined in section 2(30) which says that non- resident means a person who is not the resident includes a person who is not ordinary resident within the meaning of clause 6 of section 6. The term resident is defined in section 6(4) of the Act which says that every other person is said to be resident in India in any previous year. In every case, except where during that year the control and management of his affairs is situated holly outside India whereas in the case of banking companies effective place and management is controlled in India and not outside India. In this case, as is evident that the case of ld. PCIT is not that control and management of this branches of bank are situated outside India. In fact, these foreign branches are not foreign entity but foreign branch of Indian Bank. Therefore, foreign Branch of this Indian Bank cannot be considered as non-resident. Accordingly provisions of section 195 do not apply to payment made by Indian company to foreign branch of Indian Bank. Hence there is no requirement on deduction of tax at source. Even otherwise these banks are Indian resident and incomes of their branches are taxable in the hands of this Indian Bank in their return of income to be filed in India. Because of these reason that global income of resident of Indian ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT 40 would be chargeable to tax in India, if any tax is deducted at source of income of foreign branch of this resident bank, once again be granted the credit of taxes in the hands of this Indian Bank. Even otherwise deduction of at source, u/s 194A(3) on payment made to an Indian Bank is out of purview of TDS. In view of the provisions of section 194(A)(3)(iii)(f) of the Act under this clause all banks covered under the bank nationalization given the exemption for withholding of tax under section 194A of the Act. In view of this aspect also we do not find that the tax is required to be deducted on the above payment of interest paid to foreign branch of Indian Bank. Thus, here also the order of ld. AO cannot be said to the erroneous so far as prejudicial to the interest of revenue. Therefore, the twin conditions as prescribed under the Act are missing. Now coming to the provisions of explanation 2 of section 263 of the Act, ld. PCIT should have at least satisfied herself before invoking the provisions, have found so, and hence without bringing the fact that the payment made to such foreign branch of an Indian bank is a separate entity or not and how upon such payment tax is required to be deducted and such satisfaction is required to be made by herself in her order itself. Explanation 2 cannot be used for such void manner that if relief is granted which is otherwise ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT 41 eligible by the assessee should again to subjected to verification u/s. 263 by the order of the PCIT. Law does not permit to invoke the provisions of section 263 of the Act without proving that order passed by the Assessing Officer is erroneous and prejudicial to the interest of the revenue. 13. As regards the issue of charging of dividend income as per section 115BBD Vs. Business income, the brief fact connected to the issue is that the assessee hold 33.33 % shares in the Joint Venture in Morocco namely Indo Maroc Phosphore SA (IMACID) along with two other partners (33.33 % of shareholding of each) i.e. Tata Chemicals Limited (TCL) and OCP, Morocco. For the year under consideration the assessee has accounted income of Rs. 9,82,58,313/- being the amount of dividend received from IMACID. In support the assessee filed a dividend certificate, annual report, minutes of meeting of share holders and balance sheet. None of the documents were discussed or considering while holding that as to why the dividend income should not be considered as such and be considered as business income. But she contended that the assessee has joint venture in Morocco as share @ 33.33 % it is a trade investment and joint control and business is carried to pool ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT 42 the resources by each partners. She also noted that the assessee had invested in this JV in form of trade investment, income derived from this investment is to be charged as business income instead of dividend income. Though IMACID paid the dividend to the assessee ld. PCIT is of the view that the said income is to be taxed as Business Income and not as dividend income on special rate. Ld. PCIT was aware about the fact that the issue was raised by the revenue in A. Y. 2012-13 which was challenged before our High Court of Rajasthan in DBCWP no. 5144/2022 wherein the high court has allowed the appeal of the assessee and was decided on the jurisdiction issue and not on the merits of the disputes. Thus, that aspect of the matter being not decided ld. PCIT hold that ld. AO has under incorrect assumption of facts and incorrect application of law as well as inadequate inquiry hold the order of the ld. AO erroneous and prejudicial to the interest of the revenue. As we note from the facts of the case available on record that assessee has received the dividend income after deducting the withholding of tax and is supported by the dividend certificate (APB-176). The income is supported by the various records placed on record stating that the income is on account of declaration of dividend declared by the joint venture company where the ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT 43 assessee hold 33.33 % shares which is more than 26 % prescribed under the provision of section 115BBD of the Act and thus the income received from the JV was to be treated as dividend income only. The assessee offer this income regularly and the revenue has not challenged that act of the assessee. The contention of the PCIT to treat the dividend income as business profit is against the provision of law and plain reading of section 115BBD read with section 90(2) of the Act the view is against the provision. Moreover while taking that plea the ground taken are also against the law and considering the evidences placed on record the view that the ld. AO has adopted while considering that income chargeable to tax as per section 115BBD cannot be considered as erroneous view and prejudicial to the interest of the revenue. 14. Considering that factual aspect now we refer to the provision of section 263 of the Income Tax Act, 1961, which acts as safeguard, acknowledging dynamic nature of tax assessments, providing a mechanism to ensure fairness, accuracy, and protection of the revenue’s legitimate claims. Essentially, it embodies the legislative commitment to a tax administration system that is both effective and just. In essence, Section 263 is a ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT 44 response to the complexities of the tax landscape, acknowledging the delicate balance needed between empowering tax authorities and preventing potential errors. Through its existence, the section reflects commitment to maintaining integrity of the tax assessment process, acknowledging the ever-evolving nature of tax laws and the need for a mechanism that can adapt to changes in interpretations and protect the revenue’s interests. Section 263 is not merely a provision for revision but very crucial component of Act ensuring that tax administration system remains robust, fair, and equipped to address the challenges arising in the course of tax assessments. Main objective of Section 263 is to rectify orders that are not only erroneous but also have the potential to adversely affect the revenue’s interests. It provides a mechanism for the Commissioner to ensure correctness of orders passed by subordinate officers. The Commissioner’s role extends beyond mere oversight; they serve as custodians of revenue. When an order is deemed “erroneous” and “prejudicial to the interests of the revenue,” the Commissioner’s revisionary power comes into play. “Erroneous” signifies a departure from the legal framework, while “prejudicial” pertains to circumstances that could diminish revenue rightfully owed to the government. Thus, the law provides that the ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT 45 Twin conditions needs to be satisfied before exercising revision jurisdiction under section 263 by the Commissioner. The twin conditions are that the order of the Assessing Officer must be erroneous and so far as prejudicial to the interest of the revenue. In the following circumstances, the order of the Assessing Officer can be held to be erroneous order, that is (i) if the Assessing Officer's order was passed on incorrect assumption of fact; or (ii) incorrect application of law; or (iii) Assessing Officer's order is in violation of the principle of natural justice; or (iv) if the order is passed by the Assessing Officer without application of mind; (v) if the Assessing Officer has not investigated the issue before him; then the order passed by the Assessing Officer can be termed as erroneous order. Coming next to the second limb, which is required to be examined as to whether the actions of the Assessing Officer can be termed as prejudicial to the interest of the revenue. This phrase, i.e., prejudicial to the interest of the revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer. It has to be remembered that every loss of the revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of the revenue. When the Assessing Officer adopted one of the courses permissible in law ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT 46 and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue unless the view taken by the Assessing Officer is unsustainable in law. 15. Based on the discussion so recorded on the issue of fact the bench noted that every inadequacy of the enquiry conducted by an AO as against the no enquiry cannot form a basis for setting aside an assessment order which has been passed by the NeFAC. In the instance case as discussed herein above interest expenses issue has been verified by ld. AO and taken a plausible view. Even the ld. AR of the assessee placed on record relevant material so as to establish that on both the issue the order is not erroneous and that of the matter has not been challenged by the ld. DR so far the as merits of the case. The bench also noted that on two issues even on the ld. PCIT noted that the issue requires the verification by the ld. AO. Thus, when based on the submission and discussion so recorded as is evident that on all of the aspect of the matter the assessment order is not erroneous and prejudicial to the interest of the revenue. In our considered view, the PCIT had to reach a ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT 47 conclusion that in the fact situation obtaining in the instant case, that the assessment order was erroneous by conducting an enquiry before passing an order under Section 263 of the Act. Therefore, the order passed by the ld. PCIT dated 20.03.2024 cannot be sustained in law merely because the original assessment order does not exactly advert to the issue which the ld. PCIT is seeing. Moreover, we note that both the issue that she has discussed ld. DR did not demonstrate as to the facts as argued by ld. AR that the view on the issue is erroneous or prejudicial to the interest of the revenue. Hence, the PCIT could not have exercised the powers conferred upon her u/s. 263 of the Act only on the reasons that she had a different view or perspective in the matter and the matter requires a fresh verification. The principle of law enunciated by the Supreme Court in Malabar Industrial Co. Ltd. has set up a standard concerning the width and amplitude of power vested for exercising revisionary jurisdiction under Section 263 of the Act. While exercising power under the said provision, the concerned officer must be satisfied that the twin conditions provided therein stand fulfilled, i.e., the order passed by the AO, which is sought to be revised, is erroneous and is also prejudicial to the interest of the revenue. In other words, if one of the two conditions is not satisfied, ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT 48 the revisionary power under the said provision cannot be invoked. One cannot quibble with the principle of law. 16. Based on the discussion so recorded we are of the considered view that the proceeding-initiated u/s. 263 fails on the twin condition and even the ld. PCIT on the issue noted that the issue need only verification / examination and there is no independent view of the ld. PCIT even on merits of the issue and therefore, the ground no. 1 to 3 raised by the assessee are allowed. 17. Ergo, we quash the order passed by the PCIT, Udaipur. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 25/10/2024. Sd/- Sd/- ¼ Mk0 ,l- lhrky{eh ½ ¼ jkBksM deys'k t;UrHkkbZ ½ (Dr. S. Seethalakshmi) (Rathod Kamlesh Jayantbhai) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 25/10/2024 *Ganesh Kumar, Sr. PS vkns'k dh izfrfyfi vxzsf’kr@Copy of the order forwarded to: 1. vihykFkhZ@The Appellant- Chambal Fertilizers and Chemicals Ltd, Kota ITA No. 694/JP/2024 Chambal Fertilizers and Chemicals Ltd vs. PCIT 49 2. izR;FkhZ@ The Respondent- PCIT, Savina-Udaipur 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur. 6. xkMZ QkbZy@ Guard File {ITA No. 694/JP/2024} vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar "