INSIGHT PRINT COMMUNICATIONS PRIVATE LIMITED,MUMBAI V. THE PCIT, MUMBAI-4, MUMBAI

ITA 3384/MUM/2025

AI Insights

The case involves Insight Print Communications Private Limited, which appealed against a revisionary order by the PCIT, Mumbai-4, concerning the disallowance of Higher Education Cess claimed as a business expense. The PCIT's revisionary order was based on a retrospective amendment to Section 40(a)(ii) of the Income Tax Act, 1961, which disallows such claims. The Tribunal examined whether the PCIT was correct in invoking section 263 and whether the amendment applied retrospectively, both of which were affirmed in the Tribunal's decision.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 824598 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2020-2021
• Appeal Filed On: 13-05-2025
• Other Referred Cases: JCIT vs Chambal Fertilisers & Chemicals Limited [2023] 450 ITR 164 (SC)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Set aside; Business income; Transfer pricing; Retrospective amendment; Business expenditure; Right to appeal
• Section: 143(3); 142(1); 263; 37; 37(1)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH MUMBAI BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA No. 3384/MUM/2025 Assessment Year: 2020-21 Insight Print Communications Private Limited A-14, Synthofine Industrial Estate, Behind Virvani Industrial Estate, Dindoshi, Off Aarey Road, Goregaon (East), Mumbai – 400063 (PAN: AABCI6530P) Vs. PCIT, MUMBAI-4 (Appellant) (Respondent) Present for: Assessee : Shri Lalchand Choudhary, CA Revenue : Shri R.A. Dhyani, CIT DR Date of Hearing : 08.10.2025 Date of Pronouncement : 31.12.2025 O R D E R PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: This appeal filed by the assessee is against the revisionary order by ld. PCIT, Mumbai-4, vide order no. ITBA/REV/F/REV5/2024- 25/1074740466(1), dated 20.03.2025 passed u/s. 263 of the Income- tax Act, 1961 (hereinafter referred to as the “Act”) against the assessment order by Assessment Unit, u/s. 143(3) r.w.s.144B of the Act, dated 22.09.2022, for AY 2020-21. 2. Grounds taken by assessee are reproduced as under: 1. The appellant prefers the following Appeal against the order dated 20/03/2025 of the Principal Commissioner of Income Tax, Mumbai-4 (hereinafter referred to as \"The PCIT \") passed under section 263 of the Income Tax Act, 1961 (\"The Act\"). Each of the grounds is in alternative and without prejudice to other. Printed from counselvise.com 2 ITA No. 3384/Mum/2025 Insight Print Communications Pvt. Ltd. AY 2020-21 2. On facts and in law, the PCIT failed to appreciate that he was not empowered to pass an order under S. 263 in respect of an Assessment order passed under S. 143(3) rws 144B by the 'Assessment Unit'. He failed to appreciate that the jurisdiction under S. 263 could be invoked only in respect of an order passed by an Assessing Officer or a Transfer Pricing Officer and not in respect of any order passed by the Assessment Unit. The order so passed under S. 263 is thus bad in law, illegal and void ab initio. 3. On facts and in law, the order passed by the PCIT is bad in law. Hon'ble PCIT failed to appreciate that the appellant has challenged the validity of the original assessment before the CIT (A) and has raised a ground to the effect that the assessment order is time barred. Pending that appeal, the PCIT was not justified in invoking the provisions of S. 263 of the Act. 4. Hon'ble PCIT failed to appreciate and erred in invoking the provisions of S. 263 of the Act on a legal issue where the Assessment Unit has taken one of the possible views prevalent on the date the assessment order is passed in respect of the allowability of Higher Education Cess. 2.1. All the grounds raised by the assessee relate to challenging the revisionary proceedings invoked u/s. 263 and passing of revisionary order thereafter. 3. Brief facts of the case are that assessee is engaged in the business of providing pre-press and print publishing solutions. Assessee filed its return of income on 13.02.2021 reporting total income at NIL. Case of the assessee was selected under CASS for limited scrutiny on the following issues: a. Unsecured loans b. High creditors/ liabilities c. Business expenses 3.1. Ld. AO issued various notices u/s. 142(1) in the course of assessment proceedings, which were duly responded by the assessee. Ultimately, based on submissions and replies given by the assessee, ld. AO concluded that assessee could not reconcile difference between Printed from counselvise.com 3 ITA No. 3384/Mum/2025 Insight Print Communications Pvt. Ltd. AY 2020-21 confirmations as provided by Kodak and the amount as found in the ledger in the books of the assessee for Rs.4,61,213/-. 3.2. Subsequently, ld. PCIT observed from perusal of records that assessee had claimed education cess of Rs. 4,14,040/- as expense while computing its total income. He noted that said expense cannot be claimed as an expenditure u/s. 37 r.w.s. 40(a)(ii) of the Act, in view of retrospective amendment made by Finance Act, 2022 to Section 40(a)(ii), effective from 01.04.2005. Thus, the expenditure towards Education Cess claimed by the assessee is to be disallowed in view of Explanation 3 to Section 40(a)(ii). According to him, the impugned assessment order was passed without making enquiry or verification of the said issue which rendered the assessment order erroneous in so far as it is prejudicial to the interest of revenue. In this regard, a notice u/s. 263 was issued on 14.02.2025, invoking the revisionary proceedings. 3.3. Assessee made its submissions, relevant portion of which are reproduced in the impugned revisionary order. Contention of the assessee is that ld. AO had made enquiry on the three issues for which the case was selected for limited scrutiny. In para 3 of its submissions as reproduced in the revisionary order, assessee has mentioned “We most humbly submit that merely because, the Assessment Unit (AU) has not made any specific enquiry on record in respect of the deductibility of “Higher Education Cess” u/s. 40(a)(ii) would not mean that the AU has not applied its mind over the deductibility of its expenditure which was deductible, till the day the Finance Act, 2022 received assent from the Hon’ble President of India”. It was also submitted that under the common perception, the said amendment was declaratory and not clarificatory hence had to be applied prospectively and not retrospectively, as there was lack of clarity till the pronouncement of Printed from counselvise.com 4 ITA No. 3384/Mum/2025 Insight Print Communications Pvt. Ltd. AY 2020-21 law by the Hon’ble Supreme Court in the case of JCIT vs Chambal Fertilisers & Chemicals Limited [2023] 450 ITR 164 (SC) vide order dated 14.12.2022. Accordingly, two views were possible and the AU had taken one of the possible views by allowing the claim made by the assessee. Hence the issue raised by the ld. PCIT cannot be the subject of review u/s. 263 of the Act. Assessee also contended on the jurisdictional aspect of the assessment order by submitting that it has been passed by AU who is not an authority covered by the definition of Assessing Officer u/s. 2(7A) and, therefore, is bad in law. Assessee also submitted that it had filed its return for the year under consideration on 13.02. 2021, that is much prior to the date when the assent of Hon’ble President of India was received in respect of Finance Act, 2022 whereby retrospective amendment was brought in the section 40(a)(ii). 4. Ld. PCIT after considering the submissions made by the assessee came to conclusion that assessee is not eligible to claim deduction expenditure of Rs. 4,14,040/- under the head “Education Cess”. Accordingly, to this extent the impugned assessment order is erroneous in so far as prejudicial to the interest of revenue. He thus, directed the ld. AO to modify the assessment order in terms of his observations. While coming to this conclusion, he has observed that assessee claimed the said deduction as expense while computing the total income which cannot be claimed as an expenditure in view of provisions of Section 40(a)(ii) r.w.s. 37 and Explanation 3 to section 40(a)(ii) introduced with retrospective effect from 01.04.2005. Along with referring to the decision of Hon’ble Supreme Court in the case of Chambal Fertilisers & Chemicals Ltd. (supra), he took note of Explanation 3 to section 40(a)(ii) according to which wordings of the said explanation introduced with retrospective effect from 01.04.2005 clearly brings out that it is in the nature of clarification and not declaratory. Accordingly, the said Printed from counselvise.com 5 ITA No. 3384/Mum/2025 Insight Print Communications Pvt. Ltd. AY 2020-21 amendment was retrospective in nature which got affirmed by the pronouncement of the decision in the case of Chambal Fertilisers & Chemicals Ltd. (supra). The interpretation of law was always meant non-eligibility for deduction for higher education cess u/s. 40(a)(ii). 4.1. Further, on the jurisdictional aspect also, he observed that definition of ld. Assessing Officer u/s. 2(7A) always included authorities as defined in section 144B(4) and, therefore, the impugned assessment order so passed cannot be held to be bad in law. Assessee being aggrieved by the revisionary order is in appeal before the Tribunal. 5. We have heard both the parties and perused the material on record. The sole issue which led to the invocation of revisionary proceedings is on account of claim of Higher Education Cess as a business expense by the assessee while computing its business income. In this regard, we perused the computation of total income placed in the paper book at page 20. It is noted that while computing income from business, there is a deduction claimed under the head Higher Education Cess to arrive at net business income of (Rs. 2,38,93,879/-) which is a negative figure. Thus, the case of the assessee is that of claiming Higher Education Cess as a deductible expense u/s. 37(1) while computing its business income. 5.1. One of the reasons for selection of case of assessee for limited scrutiny includes “Business Expenses”. Thus, contention of the assessee that jurisdiction of AO shall be restricted to the issues identified for limited scrutiny goes against it as business expenditure is one of the issues which was identified for limited scrutiny and the business expense includes claim of deduction u/s.37(1) of Higher Education Cess while computing business income. Accordingly, ld. AO Printed from counselvise.com 6 ITA No. 3384/Mum/2025 Insight Print Communications Pvt. Ltd. AY 2020-21 did not exceed the jurisdiction to examine the issues identified for limited scrutiny. Issue raised by ld. PCIT for invoking the revisionary proceedings u/s. 263 is on an issue which was within the jurisdiction of the Assessing Officer, being part of scope under limited scrutiny assessment. Reliance placed by the assessee on the decision of Co- ordinate Bench in the case of Fineotex Chemical Ltd. vs PCIT in ITA No. 3458/Mum/2025 dated 04.09.2025 does not hold good as the issue raised by the ld. PCIT is the one which was within the scope of ld. AO while undertaking limited scrutiny assessment. 5.2. On the jurisdictional issue raised by the assessee that Assessment Unit (AU) is not covered within the definition of Assessing Officer u/s. 2(7A), ld. PCIT has relied on the conjoint reading of definition of Assessing Officer u/s. 2(7A) and provisions of Section 144B(4) which defines the terms AU. The conjoint reading of the two sections makes it abundantly clear that Assessing Officer was always included in the authorities as defined in Section 144B(4). In this context it is important to note that appellate and revisionary powers are creature of statute. Once the assessment order is passed, if the assessee is aggrieved by that order, it has the right to appeal before CIT(A). Similarly, if the department finds that the order passed is erroneous and prejudicial to the interest of the revenue, statute provides mechanism to the department (PCIT) to invoke revisionary powers and set aside the order of assessment subject to conditions prescribed therefor. Hence, statute provides remedies, both to the assessee as well as to the department against the assessment completed. Now, if the argument of the assessee is accepted, it will lead to a scenario where assessee on being aggrieved by the order of AU can file appeal before the first appellate forum, but department against the same order will be deprived from invoking revisionary proceedings u/s. 263 because assessment was completed Printed from counselvise.com 7 ITA No. 3384/Mum/2025 Insight Print Communications Pvt. Ltd. AY 2020-21 by AU and not the Assessing officer as argued by the assessee. This artificial distinction would take away/curtail the statutory right inferred by the legislation upon the PCIT. Accordingly, we do not ascribe to the argument made by the assessee and agree with the finding of the ld. PCIT on this aspect. 5.3. On the merits of the case, the issue raised by the ld. PCIT while invoking the revisionary proceedings is fully covered by the judgement of Chambal Fertilisers & Chemicals Ltd (supra) wherein it has been held that Education Cess is not an allowable expense for computation of taxable business income. The amendment brought in to section 40(a)(ii) r.w.s. 37(1) is applicable retrospectively and applies to the case of the assessee. Ld. PCIT has examined the issue on the claim of deduction as an expenditure of Higher Education Cess and directed the ld. AO to modify the assessment as it tantamount to assessment being erroneous in so far as prejudicial to the interest of revenue. The said direction given by the ld. PCIT is within his powers as contained in section 263. 5.4. Assessee has also contended that an appeal is pending before the ld. CIT(A) against the assessment order on the ground of it being time barred. In this regard, we note that the issue which forms the basis for the present revisionary proceedings for which assessee is in appeal before the Tribunal is different form the issue which is pending before the ld. CIT(A) and, therefore, ld. PCIT has exercised his jurisdiction well within the power of section 263. 6. Considering the overall factual matrix discussed above and the position of law by taking into account the statutory frame work and the judicial precedents, the revisionary jurisdiction exercised by ld. PCIT is Printed from counselvise.com 8 ITA No. 3384/Mum/2025 Insight Print Communications Pvt. Ltd. AY 2020-21 held to be valid in law. Accordingly, grounds raised by the assessee in this respect are dismissed. 7. In the result, appeal of the assessee is dismissed. Order is pronounced in the open court on 31st December, 2025 Sd/- Sd/- (Pawan Singh) (Girish Agrawal) Judicial Member Accountant Member Dated: 31st December, 2025 Divya Ramesh Nandgaonkar Stenographer Copy to : 1 The Appellant 2 The Respondent 3 DR, ITAT, Mumbai 4 5 Guard File CIT BY ORDER, (Dy./Asstt. Registrar) ITAT, Mumbai Printed from counselvise.com "