GUJARAT STATE ELECTRICITY CORPORATION LTD,VADODARA V. THE PR. CIT-1, VADODARA

ITA 572/AHD/2020

AI Insights

The case involves Gujarat State Electricity Corporation Ltd. appealing against the revisionary order under section 263 of the Income Tax Act, 1961, which was issued by the Principal Commissioner of Income Tax-1, Vadodara. The revision was based on the grounds that the original assessment order did not adequately address the allowability of a provision for loans to a joint venture and an impairment loss, both of which were significant in amount and affected the taxable income. The Tribunal's decision emphasized the need for a thorough examination of these items under the normal provisions of the Act, despite their treatment under the book profit calculations.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 47090 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-04-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2015-2016
• Other Referred Cases: Vijaya Bank Vs. CIT [2010] 323 ITR 166 (SC)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A. P. SINGH
• Assessee Lawyers: MANISH J. SHAH; JIMI PATEL; ARS
• Keywords: Set aside; Business income; Opportunity of being heard; Revised return; Depreciation; Competent authority; Unabsorbed depreciation; Validity of assessment
• Section: 143(3); 142(1); 143(2); 154; 263; 139(1); 13; 14A; 115JB; 37(1); 246A; 139(5)

Judgement Text

" आयकर अपीलीय अिधकरण, अहमदाबाद Ɋायपीठ “सी“, अहमदाबाद । IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, AHMEDABAD सुŵी सुिचũा काɾले, Ɋाियक सद˟ एवं ŵी मकरंद वसंत महादेवकर, लेखा सद˟ क े समƗ। ] ] BEFORE MS. SUCHITRA KAMBLE, JUDICIAL MEMBER AND SHRI MAKARAND V. MAHADEOKAR, ACCOUNTANT MEMBER आयकर अपील सं /ITA No.572/Ahd/2020 िनधाŊरण वषŊ /Assessment Year : 2015-16 Gujarat State Electricity Corporation Ltd. Sardar Patel Vidhyut Bhavan Race Course Circle Vadodara – 390 007 बनाम/ v/s. The Pr.CIT-1 Vadodara – 390 015 ̾थायी लेखा सं./PAN: AAACG 6864 F अपीलाथŎ/ (Appellant) Ů̝ यथŎ/ (Respondent) Assessee by : Shri Manish J. Shah & Shri Jimi Patel, ARs Revenue by : Shri A.P. Singh, CIT-DR सुनवाई की तारीख/Date of Hearing : 02/04/2025 घोषणा की तारीख /Date of Pronouncement: 08/04/2025 आदेश/O R D E R PER MAKARAND V. MAHADEOKAR, AM: This appeal by the assessee is directed against the order passed under section 263 of the Income Tax Act, 1961 [hereinafter referred to as “the Act”], dated 22.06.2020, by the Principal Commissioner of Income Tax-1, Vadodara [hereinafter referred to as “PCIT”], for the Assessment Year (AY) 2015–16, whereby the assessment order dated 05.12.2017 passed under section 143(3) of the Act by Assistant Commissioner of Income Tax Circle 1(1)(1), Vadodara [hereinafter referred to as “AO”] was held to be erroneous and prejudicial to ITA No.572/Ahd/2020 Gujarat State Electricity Corporation Ltd. vs. Pr.CIT-1 Asst. Year : 2015-16 2 the interests of revenue and was accordingly set aside with a direction to reframe the assessment. Facts of the Case: 2. The assessee is a company engaged in the business of power generation. For the AY 2015–16, the assessee originally filed its return of income under section 139(1) of the Act on 30.09.2015, declaring NIL income under normal provisions after claiming set-off of brought forward unabsorbed depreciation of Rs.1,17,69,30,776/-. The book profit under section 115JB of the Act was declared at Rs.2,51,70,02,648/-. 2.1. The case was selected for scrutiny and a notice under section 143(2) of the Act was issued on 21.09.2016. Subsequently, notices under section 142(1) of the Act along with questionnaires were issued on 21.09.2016 and 17.07.2017. 2.2. In the interim, the assessee filed a revised return of income under section 139(5) of the Act on 11.01.2017, declaring again NIL total income, but now claiming set-off of brought forward depreciation of Rs.1,37,76,80,893/-, instead of the earlier figure. There was no change in the quantum of book profit. 2.3. The assessment was completed under section 143(3) of the Act vide order dated 05.12.2017, determining total income under normal provisions at Rs.79,88,44,830/- and book profit under section 115JB of the Act at Rs.3,55,56,13,645/-, after making various additions and disallowances including disallowance under section 14A of the Act, capital grants, prior period items, liquidated damages, and others. ITA No.572/Ahd/2020 Gujarat State Electricity Corporation Ltd. vs. Pr.CIT-1 Asst. Year : 2015-16 3 2.4. Subsequently, the Principal Commissioner of Income Tax–1, Vadodara, issued a notice under section 263 of the Act on 13.09.2019, proposing to revise the assessment on the ground that the AO failed to examine the allowability of: - Provision for Loans to Joint Venture (MGCL) amounting to Rs.21,69,24,000/- and - Impairment Loss amounting to Rs.10,90,72,000/-. 2.5. After considering the assessee’s reply and submissions dated 01.10.2019 and further hearings held on 24.09.2019, 24.01.2020, and 19.06.2020, the PCIT passed an order under section 263 on 22.06.2020, setting aside the original assessment and directing the AO to make a fresh assessment after due inquiry on the said issues. 3. Aggrieved by the order of the PCIT, the assessee is in appeal before us raising following grounds of appeal: 1.0 The learned Pr. Commissioner of Income Tax-1, Baroda has erred in law and on facts in holding that the assessment order dated 05-12-2017 passed under section 143(3) of the Income Tax Act, 1961 is erroneous and prejudicial to the interest of revenue and thereby erred in invoking the provisions of section 263 of the I T Act. 2.0 The learned Pr. Commissioner of Income Tax-1, Baroda erred in law and on facts has held that the Provision for Loans to Joint Venture Company amounting to Rs.2169.24 Lacs is liable to be added back to the Net Profits for the purpose of computing Business Income under the head \"Profits and Gains from Business and/or Profession\". The learned Pr. Commissioner of Income Tax, therefore, has directed the Assessing Officer to make addition to the extent of such provision to the Total Income computed under normal provisions of the I T Act, 1961. The learned Pr. Commissioner of Income Tax ought to have appreciated that the appellant made a provision for writing off the Long Term Loan of Rs.2169.24 Lacs and also actually wrote it off. 3.0 The learned Pr. Commissioner of Income Tax-1, Baroda erred in law and on facts has held that the appellant has understated the Business Income under the head \"Profits and Gains from Business and/or Profession\" on account of ITA No.572/Ahd/2020 Gujarat State Electricity Corporation Ltd. vs. Pr.CIT-1 Asst. Year : 2015-16 4 Impairment Loss amounting to Rs.1090.72 Lacs. The learned Pr. Commissioner of Income Tax-1, therefore, has directed the Assessing Officer to make addition of Impairment Loss to the Total Income computed under normal provisions of the IT Act, 1961. The learned Pr. Commissioner of Income Tax ought to have appreciated that the appellant calculates and accounts depreciation on fixed assets after writing off (after deducting) such provision for the impairment loss. The amount of 71090.72 lacs is not merely provision for impairment loss, this amount is actually written off during the year under consideration which is direct expense and debited to Profit and Loss Account. 4.0 The learned Pr. Commissioner of Income Tax-1, Baroda erred in law and on facts has set aside the assessment order passed on 05-12-2017 under section 143(3) of the I T Act. 5.0 The above grounds of appeal are without prejudice to each other. 6.0 The appellant craves leave to add to, alter, delete or modify any of the grounds of appeal either before or at the time of hearing of this appeal. 3.1. The assessee also raised additional ground of appeal which are as follows: 1. Notice issued u/s.263 dated 13.09.2019 and order passed u/s.263 dated 22.06.2020 are bad in law as order passed u/s.143(3) dated 05.12.2017, on which present revision proceedings was initiated, is legally unsustainable for want of issuance of fresh notice u/s. 143(2) in pursuance of the revised return filed u/s.139(5) dated 11.01.2017. The appellant reserves its right to add, amend, alter or modify any of the grounds stated hereinabove either before or at the time of hearing. On the additional Ground raised by the assessee:- 4. We first proceed to adjudicate the additional ground of appeal raised by the assessee, wherein it is contended that the assessment order dated 05.12.2017 passed under section 143(3) of the Act, is legally unsustainable, inasmuch as the said order was passed without issuance of a fresh notice under section 143(2) of the Act subsequent to the filing of a revised return under section 139(5) of the Act on 11.01.2017. It is the case of the assessee ITA No.572/Ahd/2020 Gujarat State Electricity Corporation Ltd. vs. Pr.CIT-1 Asst. Year : 2015-16 5 that the revised return substituted the original return filed on 30.09.2015, and as such, any assessment ought to have been preceded by a fresh statutory notice under section 143(2) of the Act with reference to such revised return. In the absence of such notice, it is argued, the assessment is void ab initio and hence, the order passed under section 263 of the Act founded upon such assessment is equally liable to be quashed. 4.1. The undisputed facts are that the assessee filed its original return of income on 30.09.2015 declaring NIL income after setting off brought forward depreciation, a notice under section 143(2) of the Actwas issued on 21.09.2016 within the statutory time limit. The assessee thereafter filed a revised return under section 139(5) of the Act on 11.01.2017, also declaring NIL income, with a higher figure of brought forward depreciation. The assessment order dated 05.12.2017 refers to and deals with the revised return and proceeds to make various additions under normal and MAT provisions. 4.2. At this stage, it is necessary to emphasize that the present appeal arises from an order passed under section 263 of the Act. We, in exercise of its appellate jurisdiction under section 253 of the Act, are called upon to examine whether the assessment order passed by the AO is erroneous in so far as it is prejudicial to the interests of the Revenue. The scope of our adjudication in such cases is confined to the issues forming part of the section 263 of the Act proceedings and does not extend to an independent or collateral challenge to the validity of the underlying assessment order, unless such validity is directly in issue or has been adjudicated by a competent authority. 4,3. It is a settled legal principle that section 263 presupposes the existence of a valid assessment order. If the assessee was of the view that the ITA No.572/Ahd/2020 Gujarat State Electricity Corporation Ltd. vs. Pr.CIT-1 Asst. Year : 2015-16 6 assessment order passed on 05.12.2017 was vitiated by a jurisdictional defect—such as alleged non-issuance of notice under section 143(2) of the Act in relation to the revised return—the proper legal remedy available to the assessee was to challenge the same through an appeal under section 246A of the Act, or seek rectification under section 154 of the Act, or approach the Hon’ble High Court through writ jurisdiction, as may be appropriate in law. In the present case, the assessee did not raise any such challenge at the relevant time. No appeal was preferred against the assessment order, nor was any rectification sought. Upon enquiry, the AR submitted that the appeal might have been filed with the CIT(A) u/s 246A of the Act. The assessment order has attained finality and has not been declared invalid or void by any authority having competent jurisdiction. The assessee is now seeking to raise a jurisdictional ground collaterally, in the course of an appeal against the revisionary order under section 263 of the Act, which we are not empowered to entertain. 4.4. Permitting such a collateral challenge to the concluded assessment at this stage would amount to permitting the assessee to do indirectly what it could not do directly. It would defeat the finality of assessment proceedings and undermine the statutory framework. The Tribunal’s appellate jurisdiction under section 253 of the Act, when invoked against an order passed under section 263 of the Act, cannot be used as a forum for testing the validity of the original assessment order on grounds that were never raised before the lower authorities and do not pertain to the subject matter of revision. 5. The learned AR has relied on various judicial precedents in support of the proposition that failure to issue a notice under section 143(2) of the Act after a revised return renders the assessment void. However, we do not ITA No.572/Ahd/2020 Gujarat State Electricity Corporation Ltd. vs. Pr.CIT-1 Asst. Year : 2015-16 7 consider or discuss the said judicial precedents, for the reason that they pertain to the validity of assessment proceedings and are now being cited in the context of a collateral challenge in a section 263 of the Act proceeding, which is impermissible at this stage and in this forum. 5.1. In light of the above discussion and consistent with the established principles governing appellate jurisdiction under section 263 of the Act, we are of the considered view that the additional ground of appeal raised by the assessee is not maintainable. The challenge is collateral, not germane to the subject matter of the present proceedings and is being raised for the first time before us, without there being any prior adjudication or finding on this issue by any competent authority. Accordingly, the additional ground of appeal is dismissed. 5.2. Having dismissed the additional ground of appeal, we now proceed to adjudicate the grounds raised by the assessee on merits against the revisionary order passed under section 263 of the Act by the PCIT dated 22.06.2020, for the AY 2015–16. 5.3. The revision was initiated by issuance of a show cause notice dated 13.09.2019, whereby the learned PCIT proposed to revise the assessment order dated 05.12.2017 passed under section 143(3) of the Act, on the ground that the AO had failed to examine and disallow the following two items while computing income under the normal provisions of the Act namely - Provision for Loans to a Joint Venture Company (MGCL) amounting to Rs.21,69,24,000/- and Impairment Loss amounting to Rs.10,90,72,000/-. ITA No.572/Ahd/2020 Gujarat State Electricity Corporation Ltd. vs. Pr.CIT-1 Asst. Year : 2015-16 8 5.4. The assessee, in response to the show cause notice, submitted that both amounts were not merely provisions, but had been actually written off during the year in accordance with applicable Accounting Standards. It was contended that the amount of Rs.21.69 crore represented actual write-off of loans advanced to Maha Gujarat Collieries Ltd. (MGCL), a joint venture company and that the impairment loss of Rs.10.90 crore was based on impairment testing of fixed assets as per Accounting Standard-28, and therefore constituted a real and ascertained loss, allowable under section 37(1) of the Act. The assessee further submitted that both amounts were duly added back while computing book profit under section 115JB of the Act and, therefore, there was no prejudice caused to the Revenue. It was also submitted that these were subject matter of disclosure in the financial statements and notes to accounts and the assessment was completed after considering all relevant details. 5.5. In conclusion, the PCIT held that the assessment order passed by the AO under section 143(3) of the Act was erroneous and prejudicial to the interest of the Revenue, as the AO failed to examine and verify two material items—(i) the provision for loans to the joint venture company MGCL amounting to Rs.21.69 crore and (ii) the impairment loss of Rs.10.90 crore— both of which were debited to the profit and loss account but not disallowed under the normal provisions of the Act. The PCIT observed that these items were capital in nature or contingent in character and though added back while computing book profit under section 115JB of the Act, they escaped scrutiny under the regular computation. As the assessment order was passed without any inquiry or discussion on these issues, the PCIT concluded that it suffered from non-application of mind, resulting in potential understatement of income and tax liability. Accordingly, she set aside the assessment with a ITA No.572/Ahd/2020 Gujarat State Electricity Corporation Ltd. vs. Pr.CIT-1 Asst. Year : 2015-16 9 direction to the AO to reframe the assessment, after making proper inquiry and affording the assessee an opportunity of being heard. 6. The Authorized Representative (AR) of the assessee, during the course of hearing before us, reiterated the facts and submitted that the provision for loan was actually a write off amounting to Rs.2169.24 Lacs and the same is reflected in balance sheet of the assessee under Note No. 13 by way of reduction from Loan to Joint Venture Company and debit to Profit and Loss account under Note No. 25 giving details of Other Expenses. 6.1. The AR also stated that since the provision is debited to profit and loss account and credited to asset account, by way of reduction is loan (asset), it amounts to write off. The AR placed reliance on the judgement of Hon’ble Apex court in case of Vijaya Bank Vs. CIT as reported in [2010] 323 ITR 166 (SC). 6.2. The AR further stated that the Impairment of losses amounting to Rs.1090.70 lacs relate to assets which are impaired during the year and the same has been done in accordance with the Accounting Standard 28 (now Ind AS 39) issued by ICAI. The AR also stated that this amount represents the excess of carrying value over the recoverable value of fixed assets and the same is debited to profit and loss account being direct expense. The AR further clarified that the depreciation on fixed assets is calculated after deducting such provision for impairment loss. 7. The Departmental Representative (DR) relied on the order of PCIT. ITA No.572/Ahd/2020 Gujarat State Electricity Corporation Ltd. vs. Pr.CIT-1 Asst. Year : 2015-16 10 8. We have given our thoughtful consideration to the submissions made by the learned AR and perused the material on record. There is no dispute that the assessee has debited the sum of Rs.2169.24 Lacs as \"provision for loan to JV\" and Rs.1090.71 Lacs as \"impairment loss\" to the profit and loss account. It is also not in dispute that these items have not been disallowed by the AO while computing income under the normal provisions of the Act. Further, the assessment order dated 05.12.2017 is completely silent on whether the AO examined the nature of these items, sought any explanation, or applied his mind to their allowability. 9. While the learned AR has now placed supporting explanations and accounting treatment to demonstrate that both items were actual write-offs and not mere provisions, these facts and justifications were neither called for nor verified by the AO at the time of original assessment. No documentary evidence or reference to the assessment proceedings was produced to show that these items were ever examined, questioned, or accepted by the AO upon due application of mind. 10. From the assessment order, it is evident that there is no discussion, reference, or indication that the AO examined the allowability of the aforementioned claims under the normal provisions. In our considered view, this lack of inquiry on material issues having a bearing on the computation of taxable income under the normal provisions of the Act constitutes a clear case of non-application of mind. It is well settled that inadequate inquiry is distinct from no inquiry, and where the record shows a complete absence of inquiry on significant claims, the assessment order is liable to be held erroneous and prejudicial to the interests of the Revenue, as per Explanation 2 to section 263 of the Act. ITA No.572/Ahd/2020 Gujarat State Electricity Corporation Ltd. vs. Pr.CIT-1 Asst. Year : 2015-16 11 11. It is relevant to note that the PCIT has not substituted her own view or directed any specific disallowance. The revisionary order simply directs the AO to re-examine the allowability of the aforesaid items under the normal provisions of the Act, after affording due opportunity to the assessee and considering its explanations. The PCIT’s action falls squarely within the jurisdiction conferred under section 263 of the Act. 12. The learned AR has relied upon various judicial pronouncements to contend that the impugned amounts represent actual write-offs and are allowable business deductions. However, we wish to clarify that at this stage, we are not adjudicating the allowability of the said claims on merits. The revisionary order passed under section 263 of the Act merely directs the AO to examine these claims afresh and frame a reasoned assessment after proper verification. Therefore, no finding is being recorded by us on the applicability of the judicial precedents cited by the AR or the correctness of the assessee’s claim under section 37(1) of the Act or any other provision. The allowability or otherwise of these claims shall be determined by the AO in accordance with law, after considering the submissions and evidence placed before him during the remand proceedings. 13. In view of the foregoing discussion, we are of the considered view that the assessment order is vitiated due to complete absence of inquiry on two material items having a substantial bearing on the determination of taxable income under the normal provisions of the Act. The explanations and accounting entries now furnished by the assessee were not subjected to verification during the original assessment and hence do not cure the error at the stage of revision. The PCIT was justified in invoking section 263 of the Act and directing the AO to reframe the assessment after examining the nature ITA No.572/Ahd/2020 Gujarat State Electricity Corporation Ltd. vs. Pr.CIT-1 Asst. Year : 2015-16 12 and allowability of the impugned items. The revisionary order is valid in law and does not suffer from any jurisdictional or procedural infirmity. 13.1. Accordingly, all the regular grounds of appeal raised by the assessee challenging the revisionary order passed under section 263 of the Act are dismissed. The order passed by the PCIT is hereby affirmed. 14. In the result, the appeal of the assessee is dismissed. Order pronounced in the Open Court on 8th April, 2025 at Ahmedabad. Sd/- Sd/- (SUCHITRA KAMBLE) JUDICIAL MEMBER (MAKARAND V. MAHADEOKAR) ACCOUNTANT MEMBER अहमदाबाद/Ahmedabad, िदनांक/Dated 08/04/2025 टी.सी.नायर, व.िन.स./T.C. NAIR, Sr. PS True Copy आदेश की Ůितिलिप अŤेिषत/Copy of the Order forwarded to : 1. अपीलाथŎ / The Appellant 2. ŮȑथŎ / The Respondent. 3. संबंिधत आयकर आयुƅ / Concerned CIT 4. आयकर आयुƅ ) अपील ( / The CIT(A)/Pr.CIT-1, Vadodara 5. िवभागीय Ůितिनिध , आयकर अपीलीय अिधकरण , राजोकट/DR,ITAT, Ahmedabad, 6. गाडŊ फाईल / Guard file. आदेशानुसार/ BY ORDER, सȑािपत Ůित //True Copy// सहायक पंजीकार (Asstt. Registrar) आयकर अपीलीय अिधकरण, ITAT, Ahmedabad "