M/S SOUTHERN TPETROCHEMICAL INDUSTRIES CORPRATION LIMITED, CHENNAI V. ITO, CORPORATE WARD-3(1), CHENNAI

ITA 232/CHNY/2022

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 4013 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-09-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2017-2018
• Appeal Filed On: 17-04-2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Business expenditure; Question of law; Wholly owned subsidiary; Commercial expediency; Revised return; Revenue expenditure; Set aside
• Section: 37; 263; 143(3); 142(1); 115JB; 13; 22

Judgement Text

आयकरअपीलसं./ITA No.232/Chny/2022 िनधा रणवष /Assessment Year: 2017-18 M/s.Southern Petrochemical Industries Corporation Ltd., 88, SPIC House, Mount Road, Guindy, Chennai-600 032. v. The Income Tax Officer, Corporate Ward-3(1), Chennai. [PAN:AAACS 4668 K] (अपीलाथ /Appellant) ( यथ /Respondent) अपीलाथ क ओर से/ Appellant by : Mr.R.Vijayaraghavan, Adv. & Mr.Saroj Kumar Parida, Adv. यथ क ओर से /Respondent by : Mr.AR.V.Sreenivasan, Addl.CIT सुनवाईक तारीख/Date of Hearing : 25.08.2022 घोषणाक तारीख /Date of Pronouncement : 23.09.2022 आदेश / O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: This appeal filed by the assessee is directed against the order of the Principal Commissioner of Income Tax, Chennai-3, passed u/s.263 of the Income tax Act, 1961 dated 30.03.2022 and pertains to assessment year 2017-18. 2. The assessee has raised the following grounds of appeal: 1. The order of Pr. Commissioner of Income Tax is contrary to law, facts and in the circumstances of the case. 2. The Pr. Commissioner of Income Tax erred in assuming jurisdiction u/s.263 and holding that the assessment order is erroneous and prejudicial to the interest of revenue merely आयकर अपीलीय अिधकरण, ‘ए’ यायपीठ, चे ई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH: CHENNAI ीवी. दुगा राव,माननीय ाियकसद एवं ीजी. मंजूनाथा, माननीयलेखासद के सम BEFORE SHRI V. DURGA RAO, HON’BLEJUDICIAL MEMBER AND SHRI G. MANJUNATHA, HON’BLE ACCOUNTANT MEMBER ITA No.232/Chny/2022 M/s.SPIC Ltd. :: 2 :: because the decision of the Assessing Officer is not inconsonance with the view of the Pr. CIT. 2.1 The Pr. Commissioner of Income Tax failed to appreciate that the scrutiny assessment was completed u/s.143 (3) after examining the books of account and considering the various details filed before the assessing officer. 2.2 The Pr. Commissioner of Income Tax ought to have appreciated that if the assessing officer has taken one of the two possible views it cannot be termed as erroneous and prejudicial to the interest of revenue. [Malabar Industrial Co. (vs) CIT 243 ITR 83 (SC)] 3. The Pr. Commissioner of Income Tax ought to have held that the amount investment in subsidiary (M/s SPIC Fertilizers Chemicals Limited, Mauritius/Dubai) for the purpose of business and hence the write off the same constitutes business loss. 3.1 The Pr. Commissioner of Income Tax erred in concluding there is no direct nexus between business of the assesse ignoring the fact that ITAT in assesses own case for the Assessment Year 2000-01 (ITA.No.2252/Mds/2003) has held that the investment in SFCL was for the purpose of business of the appellant. 3.2 The Pr. Commissioner 'of Income Tax ought to have appreciated that the SFCL was created only for the purpose of setting up a manufacturing facility for producing Ammonia and Urea in Dubai only for the consumption of appellant. Hence the investment in SFCL is for the purpose of business of the Assessee. 4. The Pr. Commissioner of Income Tax ought to have accepted the contention of the appellant that the write off the Investment in SFCL should be deducted from the book profit. 4.1 The Pr. Commissioner of Income Tax ought to have appreciated the provision made for diminution in value in respect of this investment in Assessment year 2009-10was added back to book profit and hence the entire write off of investment during this year should be deducted from the book profit. 4.2 The Pr. Commissioner of Income Tax erred in holding that the Assessee have quoted the provision of Section 115JA, whereas the assessee had only referred to Explanation (i) to Section 115JB to prove that the provision for diminution made in earlier was not allowable/allowed. 4.3 The Pr. Commissioner of Income Tax erred in holding that sum of Rs.20547.39 lakhs was debited in Profit Et Loss Account towards investment in subsidiary which is not allowable. 4.4 The Pr. Commissioner of Income Tax ought to have appreciated the Debit of Rs.205 .47 crores included write off of equity investments Rs.183 cores (supra above) and an advance of Rs.22 crores provision for which has claimed as deduction and allowed in the Assessment year 2008-09. Hence only Rs.183 crores being the Investment now claimed as deduction. Hence, the amount written off is allowable as deduction from book profits. 5. The Pr. Commissioner of Income Tax ought to have appreciated the very same issue was raised at the time of original assessment and the appellant have submitted full details. Hence Pr. Commissioner of Income Tax erred in assuming Jurisdiction in respect of issue which was queried and explained and accepted by the Assessing officer at the time of original assessment.' 6. The Pr. Commissioner of Income tax erred in not considering the decisions relied on by the appellant in proper perspective. ITA No.232/Chny/2022 M/s.SPIC Ltd. :: 3 :: 7. When there are two views possible and the Assessing Officer has taken on possible view, order of assessment cannot be considered as erroneous and Pr. CIT erred in assuming jurisdiction u/s.263. 8. The Appellant craves leave to adduce additional grounds at the time of hearing. 3. The brief facts of the case are that the Appellant is carrying on the business of manufacture and sale of Fertilizers. The Appellant filed return of income for the Assessment year 2017-18 on 29.11.2017 declaring Nil income. Later the company filed a revised return on 22.5.2018 declaring a total loss of Rs.72,15,74,225/-. The case was selected for scrutiny and the assessment has been completed under sec 143(3) of the Act, on 28.12.2019 determining the total loss at Rs.64,01,62,661/-. 4. The case has been, subsequently taken up for revision proceedings and accordingly. the PCIT issued a show cause notice under sec 263 of the Act, and called upon the assessee to explain as to why the assessment order passed by the Assessing Officer u/s 143(3) dated 28- 12-2019 shall not be revised on the following issues: i. The investment written off to the tune of Rs.184,53,62,000/ being investments in subsidiary SFCL, Dubai. ii Rs.20,547.39 Lakhs which is debited in the P&L A/c towards the winding up of the subsidiary company. iii. Deduction claimed while computing of book profit under section 115JB for the amount of Rs.138,40,21,000/- which is for diminution in the value of investments. iv. Claim of hedging Loss of Rs.453.74 Crores (Appellant's explanation on this issue was accepted and this issue was dropped in the final order of the Commissioner of Income Tax dated 30.3.2022) ITA No.232/Chny/2022 M/s.SPIC Ltd. :: 4 :: 5. In response to show cause notice issued u/s.263 of the Act, the assessee submitted that the assessment order passed by the Assessing Officer is neither erroneous nor prejudicial to the interest of the revenue. During assessment proceedings, the AO has called for details by specific questionnaire on the issue of loss claimed on written off investment in subsidiary for which the assessee has filed relevant details including the purpose of setting up subsidiary in Dubai, relevant approvals from the government and also has filed a write up on how diminution in value of investment, is allowable as business loss. The Assessing Officer after considering relevant facts has accepted explanation furnished by the assessee and completed assessment by allowing deduction towards loss on investment in subsidiary. Therefore, it cannot be said that assessment order passed by the Assessing Officer is erroneous in so far it is prejudicial to the interest of the revenue. 6. The ld.PCIT after considering relevant submissions of the assessee and also taken note of various facts opined that assessment order passed by the Assessing Officer u/s.143(3) of the Act, dated 28.12.2019 is erroneous in so far as it is prejudicial to the interest of the revenue, because, the Assessing Officer has simply accepted explanation furnished by the assessee without carrying out enquiries, which he ought to have been carried out in terms of Explanation-2 to Sec.263 of the Act, which rendered the assessment order passed by the Assessing Officer erroneous in so far it is prejudicial to the interest of the revenue. Therefore, set ITA No.232/Chny/2022 M/s.SPIC Ltd. :: 5 :: aside the assessment order passed by the Assessing Officer and direct the Assessing Officer to re-do the assessment after examining all the issues in details after affording sufficient opportunities of being heard to the assessee. The relevant findings of the PCIT are as under: 5. The submissions filed by the assessee company are carefully considered and verified with records. 6. The first issue is regarding company's investment written off amounting to Rs.184,53,62,000/- from subsidiary company (SFGL, Mauritius). It is also stated by the company that "SPIC Fertilizers and Chemicals Company, LL.C: Approval from the Ministry of Commerce, Government of India, was obtained for setting up a joint venture company for establishing a fertilizer complex in tr.3 Middle Ease, for the. manufacture of ammonia and urea. Accordingly, a joint venture company in the name and style of SPIC Fertilizers and Chemicals Company, LL.C. has been incorporated in Dubai, UAE. The proposed project will have a capacity to manufacture 700 TPD of ammonia and 1200 TPD of urea, it will utilize the plant bought from Sri Lanka and will be in a position to produce ammonia and urea at minimal cost." 6.1 It is not clear that how the establishment of a plant which produce ammonia and urea at Dubai by a subsidiary will be beneficial for the Indian Company which also produce similar products. The assessee is not claiming that ammonia and urea are scarce raw materials for their Indian plants. On verification of the annual report of the assessee company, the manufacture of Urea is the main activity of company which contributes to 99% of the turnover of the company. 6.2 It may also be noticed that the UAE plant is not a branch or unit of the Assessee company. It is separate legal entity and its income is not liable to be taxed in India. The corollary is that its losses cannot be adjusted against the profits of the Assessee company. 6.3 In view of the above, I don't agree with the contention of the Assessee company that there is a direct nexus between the investment and the business of the Assessee in India. Therefore, the investment written off to the tune of Rs.184,53,62,000/- is not an allowable deduction for the Assessee company. ITA No.232/Chny/2022 M/s.SPIC Ltd. :: 6 :: 6.4. From this, it is clear that the Assessing Officer had not examined this issue in detail, which was erroneous as it was prejudicial to the interest of the revenue. 7. The next issue is regarding expenses on account hedging loss to the tune of Rs.453.74 Lakhs. From the submissions made by the Assessee, it is clear that these are for the import of raw materials and not for speculation purposes as Assessee had to get these raw materials mainly by import only. All the hedging contracts were closed within the year and no open contracts as on 31.03.2017 i.e. end of the financial year. 7.1 From the above, it is clear that the Assessee had followed the provisions of Section 43AA of the Income Tax Act and hence it is an allowable expenditure. In view of this, proceedings u/s.263 on this issue is hereby dropped. 8. The next issue is regarding the Rs.20,547.39 Lakhs which is debited in the P&L A/c towards the winding up of the subsidiary company. As mentioned in Paras 6 to 6.4, this is apparently not an allowable expenditure as it was not incurred for the purposes of earning income in India. From this, it is clear that the Assessing Officer had not examined this issue in detail, which was erroneous as it was prejudicial to the interest of the revenue. 9. The next issue is regarding the deduction claimed while computing of book profit under section 115JB for the amount of Rs.138,40,21,000'--. which is for diminution in the value of investments. 10. However, the clause (i) of the Explanation to subsection 2 of the Section 115JB dearly states that "the amount or amounts set aside as provision for the diminution in the value of assets" are to added to the book profit. 10.1. This year the Assessee's book profit is Rs.2739.31 Lakhs and the amount and in the MAT computation statement the Assessee claimed a deduction of Rs.138,40,21,000/- claiming that it was disallowed in the MAT computation for the financial year 2008-09. For this, they are quoting the provisions of Section 115JA which is not applicable from 01.04.2001 as the said section was replaced by Section 115JB. In view of this, it is clear that the Assessing Officer had not examined this issue in detail, which was erroneous as it was prejudicial to the interest of the revenue. 11. From the facts mentioned in above Paras it is clear that the assessment was clearly erroneous as it was prejudicial to the interest of the revenue in the first, third and fourth issues as mentioned in the show cause notice dated 02.03.2022. Therefore, I hereby set aside the ITA No.232/Chny/2022 M/s.SPIC Ltd. :: 7 :: assessment to the file of the Assessing Officer to examine all these issues in detail, after affording sufficient opportunities of being heard to the Assessee. 7. The ld.AR for the assessee submitted that the ld.PCIT erred in assuming jurisdiction u/s.263 of the Act and holding that the assessment order is erroneous and prejudicial to the interest of the revenue, merely, because the decision of the Assessing Officer is not inconsonance with the view of the PCIT. The ld.AR for the assessee submitted that during scrutiny assessment the assessee has filed all details and the Assessing Officer after being satisfied with the explanation furnished by the assessee accepted the claim of write off loss on investment. Therefore, it cannot be said that the assessment order passed by the Assessing Officer is erroneous and prejudicial to the interest of the revenue, merely because there is no specific discussion on this issue in the assessment order. The ld.AR for the assessee further submitted that the assessee has filed all details regarding provision made for diminution in value of investments and subsequent disallowance of said loss in the income memo for relevant assessment years. The assessee had also explained to the Assessing Officer reversal of provision created in books when it is no longer required and also excluding the same from book profits in terms of Clause (i) of Explanation 2 to Sec.115JB of the Act. The Assessing Officer after considering relevant facts has rightly allowed the claim of the assessee and thus, the PCIT is erred in revising the assessment order u/s.263 of the Act. ITA No.232/Chny/2022 M/s.SPIC Ltd. :: 8 :: 8. The ld.DR, on the other hand, supporting the order of the PCIT submitted that the PCIT has brought out clear facts to the effect that the assessment order passed by the Assessing Officer u/s.143(3) dated 28.12.2019 is erroneous in so far it is prejudicial to the interest of the revenue and thus, the order of the PCIT should be upheld. 9. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The PCIT has assumed jurisdiction u/s.263 of the Act, and set aside the assessment order passed by the Assessing Officer u/s.143(3) of the Act, dated 28.12.2019 on three issues. The first three issues pertain to the same point namely write off of the investment in subsidiary of Rs.184,53,62,000/- under the Normal provisions and Rs.138,40,21,000/- under the computation of Book Profits u/s 115JB of the Act. The facts of the case are that the Appellant had made investment in SFCL, Dubai, UAE for the purpose of manufacture and supply of Ammonia and Urea to the Appellant to be used by the Appellant in their business of manufacture of Fertilizer. The AR submitted that as there was shortage of Urea in India and the Company was permitted to import the same, the company concluded that it would be more beneficial if a manufacturing unit was set up in Dubai, where the raw material of natural gas was easily available, for manufacture of Ammonia and Urea for the exclusive use of the Appellant. The shareholders of the Company approved promotion of wholly owned subsidiary in Dubai in the AGM of the Company. There was ITA No.232/Chny/2022 M/s.SPIC Ltd. :: 9 :: an agreement dated 13.11.1998 (Page 10 of the paper Book) between the Dubai Company and the Appellant for the off take by the Appellant of the entire production of the Dubai unit at arm's length price. This agreement was also approved by the Government of India vide their letter dated 8.12.1998. (Page 11 of the Paper Book) Thus, the investment was in the course of and for the purpose of the Business of the Assessee. Necessary approval for promoting and investing in a wholly owned subsidiary company in Dubai, UAE was obtained from RBI vide their letter dated 5.3.1997 (page 13 of paper Book). Later on due to statutory requirement of UAE, the investment of the Appellant in the UAE subsidiary was routed through wholly owned subsidiary in Mauritius. This restructuring had the approval of RBI vide their letter dated 25.3.1998 (Page 20 of the paper Book). The Company in Mauritius had only investment in the Dubai Company as its asset. Subsequently, when the Dubai entity was not able to obtain Natural gas, required for the manufacture of Ammonia and urea, the Dubai Company had no other alternative but to wind up its operation. The Appellant had provided for the entire investment in Dubai through the Investment in Mauritius in the Assessment years 2008-09 and 2009-10 to the tune of Rs.4613.40 lakhs and Rs.13840.21 lakhs respectively and the same was disallowed in computing the taxable income for the Assessment Years 2008-09 and AY 2009-10. The Memo of computation of income was submitted before the Assessing officer. As the company at Dubai was wound up, during the ITA No.232/Chny/2022 M/s.SPIC Ltd. :: 10 :: year the investments made by the Appellant in that company through its subsidiary in Mauritius was written off. As the Investment was in the course of and for the purpose of the business of the Assessee, the amount written off was claimed as a deduction from the business income. The Assessee did not claim the write off in their first return of income but claimed it in the revised return. 10. During original assessment proceedings, the Assessing officer in the notice u/s 142(1) dated 5.10.2019 and 28.11.2019, inter alia, wanted the assessee the particulars and the reason for filing revised return. The main reason for filing of the revised return was the claim of the write off of business investment. In response to the query raised under Notice u/s 142(1) dated 5.10.2019 the Appellant in their reply dated 27.11.1019 had explained the reason for filing a revised return as under: Point No: 1(iv) :- Copy of return of income -- Original or revised, if any, for AY 2017 18. Please state the reason for filling revised return (if applicable) with proper evidence for substantiating the changes Please find enclosed herewith revised return vide Annexure 3. Company made provision for diminution in the value of investment during the Assessment year 2008-09 and 2009-10 to the tune of Rs.4613.40 lakhs and Rs.13840.21 Lakhs respectively and the same was disallowed by us in the respective year memo computation of income enclosed vide Annexure 4 and 5. We made the said investments to set up Urea and Ammonia Plant at Dubai which is supported by EGM minute's approval enclosed vide Annexure 6. During the current assessment year the investment was written off in Statement of Profit and Joss and claimed as deduction under memo computation of income (Copy of the relevant extract of Board Resolution enclosed vide Annexure 7). There is a direct nexus between the said investment and the business of the assessee which was also confirmed in our own case by /TAT for the assessment year 2000-01 vide IT.A. NO.2252/Mds/2003 copy enclosed vide Annexure 8 allowed with respect to interest on advance given to SFCL allowable as business expenditure under section 37 of Income Tax Act. ITA No.232/Chny/2022 M/s.SPIC Ltd. :: 11 :: Further we are enclosing vide Annexure 9 herewith ITAT Delhi order on Sahara Global Vision Private Limited Vs ACIT, allowing loss due to write off of investments in joint venture is allowable business expenditure. The above said disallowance was properly claimed under MAT computation DUE not considered in regular computation hence filed revised return to consider the same. 11. Thus, the entire background of investment in the Subsidiary in Dubai through the pass through subsidiary in Mauritius as well as the reason for writing off was fully explained in the reply dated 27.11.2019. The assessee had also explained its case with help of decision of the Delhi tribunal where it was held that loss on account of divestment of investment made in subsidiary for the purpose of business is allowable as a business loss. The Assessing Officer after considering relevant submissions, had completed assessment and accepted write off of loss on account of investment in subsidiary. 12. Further, the Chennai tribunal, in Appellant's own case for AY 2000- 01, in its order dated 20.10.2004 in ITA No.2252/Mds/2003 (reported in 93 TTJ 161) has held in Para 18 of their order: 18. Now, coming to the second contention of the assessee, we find considerable force in the argument of the learned counsel for the assessee and the decision of the Hon'ble Madras High Court in the case of Indian Commerce & Industries Co. (P) Ltd. vs. CIT (supra) squarely covers this issue. In that case, as noted by the learned CIT(A), it was held "that the shares were purchased because of coercion by the company and also with a view to increase the assessee's business with the company. Hence, there was a nexus between the business of the assessee and the purchase of shares." In the present case also, we find that since the assessee had made the investment in a company which was to produce the basic raw material required by the assessee, it has to be held to be a case of the assessee's expansion of business and, therefore, the funds were utilized for business purpose. The assessee in its written submissions has pointed out that both the companies were subsidiaries of the assessee. It is pointed out that IM/s Indo Jordan Chemical Co., Jordan, with which the assessee had entered into a joint venture, owned phosphate mines which was a basic raw material for manufacture of phosphoric acid. Similarly, SPIC Fertilizers and Chemicals, FZE, (SFCL), at Dubai was engaged in the manufacture of ammonia and urea which were raw materials for the fertilizer business of the assessee. It is pointed out ITA No.232/Chny/2022 M/s.SPIC Ltd. :: 12 :: that both ammonia and phosphoric acid accounted for 44.27 per cent in value of the total raw material consumption. Thus, even if borrowed funds were utilized, still the assessee would be entitled for deduction under s. 36(1)(iii) of the Act, in view of the decision of the Hon'ble Madras High Court in the case of Sivakami Mills Ltd. (supra), affirmed by the Hon'ble Supreme Court in (1998) 144 CTR (sc) 172: (1997) 227 ITR 465 (SC) (supra), wherein it was held that interest on deferred payment for purchase of machinery was revenue expenditure. The decision in State of Madras vs. G.J. Coelho (supra) also supports this view. In this case it was held that the payment of interest on the amount borrowed for the purchase of the plantation when the whole transaction of purchase and the working of the plantation was viewed as an integrated whole, was so closely related to the plantation that the expenditure could be said to be laid out or expended wholly and exclusively for the purpose of the plantations. Therefore, the assessee, in any view of the matter, succeeds on the strength of its second contention. 13. The Department has accepted the same and has not filed any appeal on this aspect. The Assessing officer had in the order of Assessment u/s.143(3) of the Act, dated 28.12.2019 has observed that "Further Notices under sec.142(1) of the Act, were issued to the Assessee on dated 5.10.2019 and 28.11.2019 electronically”. In response, the Assessee has submitted the details/ explanations called for digitally besides filing hard copy. The submissions of the Assessee-Company have been duly considered. Ongoing through the details and documents submitted by the Assessee -company, the assessment is completed by accepting the claim for write off of investments in subsidiaries. Further, when the entire gamut of investment in the subsidiary, the reason for the same, how it is for the business of the Appellant, necessary approvals from the Government/RBI for the same, the reason for winding up of the subsidiary and write off of investments have been explained to the Assessing Officer, who after examining the details and explanations did not disallow the claim for write off and as it is a plausible stand which is ITA No.232/Chny/2022 M/s.SPIC Ltd. :: 13 :: not unsustainable in law. Therefore, the PCIT cannot substitute his opinion on the same set of facts. 14. It is relevant to consider the Apex Court in the case of Malabar Industrial Co. Ltd. vs. CIT (Reported in 243 ITR 83) where it was held as under: A bare reading of this provision makes it clear that the prerequisite to exercise of jurisdiction by the CIT suo motu under it, is that the order of the ITO is erroneous insofar as it is prejudicial to the interests of the Revenue. The CIT has to be satisfied of twin conditions, namely, (i) the order of the AO sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent-if the order of the ITO is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue-recourse cannot be had to s. 263(1) of the Act. Again the court observed: The phrase 'prejudicial to the interests of the Revenue' has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue as a consequence of an order of AO cannot be treated as prejudicial to the interests of the Revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the ITO is unsustainable in law. 15. The Apex High Court in the case of CIT v. Max India Ltd vs CIT reported in (295 ITR 282) has held as under: At this stage we may clarify that under para 10 of the judgment in the case of Malabar Industrial Co. Ltd. (supra) this Court has taken the view that the phrase “prejudicial to the interest of the Revenue” under s. 263 has to be read in conjunction with the expression “erroneous” order passed by the AO. Every loss of revenue as a consequence of an order of the AO cannot be treated as prejudicial to the interest of the Revenue. For example, when the ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the ITA No.232/Chny/2022 M/s.SPIC Ltd. :: 14 :: interest of the Revenue, unless the view taken by the ITO is unsustainable in law. 16. Thus, all the details in connection with the write off was claimed as a deduction was before the AO who had accepted the claim of the Appellant on the basis of the submissions and documents filed by the Appellant. When the AO has taken a decision based on the facts submitted and it is one of the permissible views, the PCIT erred in assuming jurisdiction and imposing his views over that of the AO. When two views are possible and the view taken by the AO is not unsustainable under law, the PCIT does not have the jurisdiction to revise that issue as it is not erroneous and prejudicial to the interest of the Revenue. 17. Further on merits, the AR had relied on in addition to the case of Sahara Global Vision P Ltd. v. ACIT (supra) cited before the Assessing officer in the course of the Assessment proceedings also relied on the following decisions in support of their claim for deduction of the write off of investments made for the purpose of the business. (i). ACE designers Ltd v ACIT 275 Taman 100 (Kar.) (ii). CIT v Colgate Palmolive (India) Ltd 370 ITR 728 Born. (iii). Indian Commerce and Industries Co P Ltd 213 ITR 533 Mad. (iv). Patnaik and Co Ltd. 161 ITR 365 SC. 18. On a perusal of these cases, the common ratio is that loss on investments made for the purpose of the business is allowable as a revenue loss. ITA No.232/Chny/2022 M/s.SPIC Ltd. :: 15 :: 19. In the case of ACE Designers Ltd. vs. ACIT (LTU) reported in 120 Taxman.com 321, the Hon’ble Karnataka High Court has held as under:- "7. In the backdrop of aforesaid well settled legal position, the facts of the case in hand may be adverted to. From the perusal of the note annexed to the income filed before the assessing officer, it is evident that assessee had set up an establishment in USA during Financial Year 1992-93 for the exclusive purpose of marketing assessee's products and for promoting its business in US and Latin America. It has further been stated in the note that looking to the stringent norms of product liability in US market, the assessee decided to have a separate Wholly Owned Entity in the US having limited liability. The approval for aforesaid purpose was obtained from the Reserve Bank of India. The assessee therefore, invested funds in equity for meeting the revenue expenses of Wholly Owned Subsidiary Company's balance sheet. However, WOS could not perform up to company's expectations and therefore, it was decided to wind up WOS operations in USA. While granting approval for closure of was, RBI permitted the company to write off the whole of investment made in WOS and unrealized export receivables. The assessee therefore, made a claim to write off the loss of Rs.3,41,23,200/-as revenue expenses allowable under the provisions of the Act. 20. Thus, from perusal of the aforesaid facts, it is evident that the issue involved in this appeal is covered by decision of the Hon’ble Bombay High Court in the case of CT v. Colgate Palm Olive (India) Ltd. (supra), which has been upheld by the Supreme Court. The ratio of aforesaid decision is where the assessee makes investment in its 100% subsidiary for business purpose, loss on sale of investment has to be treated as business loss of the assessee. In the instant case, the assessee made investment in the shares of WOS for the business purpose i.e., for the enhancement of business activity of the assessee in global market which primarily related to business operation of the assessee. The WOS suffered losses and therefore the assessee wrote off the investment of Rs.3,41,23,200/-as ITA No.232/Chny/2022 M/s.SPIC Ltd. :: 16 :: business loss. The investment was made for the purpose of extension of business activity and not with a view to creating capital asset in the form of holding shares. It is also pertinent to note that the assessee never acquired any capital asset or expenditure of enduring benefits to WOS and there is no relinquishment or transfer of capital asset to any third party". 21. The Jurisdictional High Court in the case of Indian Commerce and Industries Co P Ltd v CIT (213 ITR 533) has held that "In view of those findings, it is apparent that there is a nexus between the business of the company and the purchase of the shares. The business of the company would not have increased as it did actually but for these shares. There is no reason why the loss suffered by the assessee in this case should not be treated as a business loss". 22. In the case of decision in the Case of Bombay High Court in the case of Colgate Palmolive (India) Ltd (370 ITR 728) it was held as under:- "The Commissioner and the Tribunal concurrently found that the Camelot was fully owned subsidiary of the Assessee and engaged in the manufacturing of tooth brushes exclusively for the sole client namely the Assessee. Shares purchased of Camelot were also sold by the Assessee to one Ramesh Sukharam Vaidya for consideration of Rs.45,00,000/-. The Assessing Officer held that the sum of Rs.5,50,00,000/- which was invested by the Assessee in the equity of Camelot on 17 March 2003 and which have been used to repay the loan to the Assessee company, amounting to Rs.5.5 crores, before 1 March 2003 would demonstrate that the purpose of investment was to give a Long Term Enduring Benefit to the Assessee. Merely because it was made in the normal course of business, it cannot be termed as anything but long term investment. This conclusion of the Assessing Officer was challenged in the Appeal before the First Appellate Authority and the Commissioner concluded that the main reason for setting up Camelot was to manufacture tooth brushes exclusively for the Assessee. Since the Assessee was relying on Camelot for manufacturing of tooth brushes to be traded by the Assessee, the ITA No.232/Chny/2022 M/s.SPIC Ltd. :: 17 :: investment is nothing but a measure of commercial expediency to further business objectives and primarily related to the business operations of the Assessee. At no point of time the investment in Camelot was made with an intention to realize any enhancement value thereof or to earn dividend income. The investment was made to separately house the integral part of the business activity. In such circumstances, the Commissioner relied upon the above judgments and allowed the Appeal. He concluded that the loss of Rs.5.50 crores is a business loss in the hands of the Assessee. He set aside the order of the Assessing Officer. 8. The Revenue carried the matter in Appeal and the Tribunal has dealt with this issue extensively. In para 7 of its order, the Tribunal has upheld the conclusion of the Commissioner and by giving additional reason. 9. Upon perusal of this material, we are unable to agree with Mr.Pinto that question 5.1 reproduced above is a substantial question of law. Given the peculiar facts and circumstances and the nature of the investment so also being for commercial expediency, the view taken by the Commissioner and the Tribunal concurrently cannot be termed as perverse. That view being imminently possible in the given facts and circumstances. It does not raise any substantial question of law." 23. All the above cases relied on the ratio of the Apex Court in the case of Patnaik and Co Ltd v CIT (161 ITR 355 SC) where it was held that purchase of Government Securities and the close proximity of the investment with the receipt of the Government orders, would lead to an inescapable view that the investment was made in order to furtherance the sales of the assessee and boost its business. Hence, the loss on sale of Government securities was a business loss. 24. The ratio of the above decisions would squarely cover the case on hand. The Appellant had proved that the investment in subsidiary was solely for the purpose of obtaining scarce raw material for being used in their business. The investment was written off when the subsidiary was ITA No.232/Chny/2022 M/s.SPIC Ltd. :: 18 :: wound up. Applying the ratio of the above decisions including those of jurisdictional High Court and the Apex Court, the claim of the Appellant that the write off of investment in the subsidiary made for the purpose of the business is allowable as revenue expenditure. When the ratio of the decision of the Apex Court and the Jurisdictional High Court support the claim of the Appellant and accepted by the AO, the order of assessment cannot be held to be erroneous and PCIT erred in assuming jurisdiction u/s 263 of the Income Tax Act, 1961. 25. Coming back to PCIT observations on this issue. The PCIT has observed in Para 6 of their order that it is not clear that how the establishment of a plant which produce ammonia and urea at Dubai by a subsidiary will be beneficial for the Indian Company which also produce similar products. The assessee is not claiming that ammonia and urea are scarce raw materials for their Indian plants. On verification of the annual report of the assessee company, the manufacture of Urea is the main activity of company which contributes to 99% of the turnover of the company. The PCIT further held that it may also be noticed that the UAE plant is not a branch or unit of the Assessee company. It is separate legal entity and its income is not liable to be taxed in India. The corollary is that its losses cannot be adjusted against the profits of the Assessee Company. Therefore, the PCIT opined that the investment written off to the tune of Rs.184,53,62,000/- is not an allowable deduction for the Assessee company. ITA No.232/Chny/2022 M/s.SPIC Ltd. :: 19 :: 26. We do not find any merits in observations of the PCIT for simple reason that the PCIT has not applied his mind to the facts of the case before coming to the conclusion. All the details about the investment and the reason why it is considered as for the purpose of business was explained to AO. The investments have been approved by Government of India/ RBI. The ITAT in Assessee's own case for the AY 2000-01 has held that the investment in the subsidiary in Dubai is for the purpose of business. Submissions before the AO were also submitted before the PCIT. It is apparent that the decision of the AO was based on application of his mind on the submissions of the Appellant. Merely because the AO, after calling for explanation and satisfying himself, has not mentioned the same in his Assessment order would not mean that he has not applied his mind on the specific submissions of the Appellant. Therefore, we are of the considered view that the PCIT erred in assuming jurisdiction in an issue which has been considered by the AO and his decision is one of the possible views and is not unsustainable in law. Further on merits also, the claim of investment written off to the tune of Rs.184,53,62,000/- is an allowable deduction on the facts of the case and applying the ratio of the decisions referred to supra. Therefore, on this issue assumption of jurisdiction by the PICT fails. 27. The next issue is regarding Rs.205.47 Crores which is debited in the P&L A/c towards the winding up of the subsidiary company. As mentioned in para 6 to 6.4 of Pr. CIT order, it was held that this is not an allowable ITA No.232/Chny/2022 M/s.SPIC Ltd. :: 20 :: expenditure as it was not incurred for the purpose of earning income in India. From this, it is clear that the Assessing Officer had not examined this issue in detail, which was erroneous as it was prejudicial to the interest of the revenue. We find that said amount of Rs.205.47 Crores consist of two parts, namely investment written off in SFCL of Rs.184.53 Crores and balance Rs.20.94 Crores represents write off of Rs.17.41 Crores towards Advance to SFCL & Rs.3.53 Crores receivable from SFCL towards cost of employees deputed by the Appellant. With respect to SFCL investment written off to the tune of Rs.184.53 Crores, already we held that it is revenue in nature and is allowable business expenditure. As regards remaining amount, the Assessee made provision in the books of accounts towards SFCL advance to the tune of Rs.16.30 Crores in AY 2008-09, Rs.0.93 Crores in AY 2009-10 & Rs.0.18 Crores in AY 2010-11 and disallowed the same in the respective year Computation of Memo of income. Also amounts receivable from SFCL to the tune of Rs.3.53 Cores provided in books during AY 2008¬09 was also disallowed in the memo of income. Appellant had provided copy of the respective year's memo of computation. Though in the years of making provision the same was disallowed in the memo of computation for the respective years, but in the year under appeal the amount was written off by adjusting the provision against the receivable, but the same was not claimed as deduction in the Memo of income. Therefore, the PCIT's observation in dealing with disallowance of Rs.205.47 Crores is infructuous as (i) claim ITA No.232/Chny/2022 M/s.SPIC Ltd. :: 21 :: for deduction of Rs.184.53 Crores has been dealt with by the PCIT separately (earlier point) and the balance of Rs.20.94 Crores was not at all claimed by the Appellant or allowed in the Assessment. In fact, the AR made a feeble attempt that the additional amount of Rs.20.94 Crores being an eligible deduction the appellate authority may allow the additional deduction Rs.20.94 Crores. As this is an appeal against the order of PCIT dealing with erroneous and prejudicial orders, it is not permissible to grant additional benefit while disposing an order of revision u/s 263. Hence, this issue does not arise separately as the claim for Rs.184.53 Crores has been dealt with above and the additional deduction of Rs.20.54 Crores was not claimed by the Appellant in their return. Hence, revision power of the PCIT on this issue is also fails. 28. The next issue is regarding the deduction claimed while computing book profit under section 115JB for the amount of Rs.138,40,21,000/- which is for diminution in the value of investments. The PCIT observed that clause (i) of the Explanation to subsection (2) of the Section 115JB clearly states that "the amount or amounts set aside as provision for the diminution in the value of assets" are to be added to the book profit. This year the Assessee's book profit is Rs.2739.31 Lakhs and in the MAT computation statement the Assessee claimed a deduction of Rs.138,40,21,000/- claiming that it was disallowed in the MAT computation for the financial year 2008-09. For this, they are quoting the provisions of Section 115JA which is not applicable from 01.04.2001 as ITA No.232/Chny/2022 M/s.SPIC Ltd. :: 22 :: the said section was replaced by Section 115JB. In view of this, it is clear that the Assessing Officer had not examined this issue in detail, which was erroneous as it was prejudicial to the interest of the revenue. 29. We do not find any merits in observations of the PCIT for simple reason that first up all this amount of Rs.138.40 Crores is also part of the Investment of Rs.184.53 Crores made in SFCL Dubai, discussed in the earlier points which was written off in the books. During the Financial Year 2008-09 (AY 2009-10) Appellant made provision towards diminution in the value of investment to the tune of Rs.138,40,21,000/- and was disallowed while computing the book profit. Appellant had filed copy of the Book Profit computation before the AO and PCIT, to substantiate that the said amount was disallowed during the Assessment Year 2009-10 under clause (i) of Section 115JB of the Income Tax Act, 1961. As explained earlier, during the current financial year 2016-17 (AY 2017-18), the said investment was written off in the books of accounts by debit to P&L. The provision made in AY 2009-10 towards diminution in value of investment was reversed as no longer required and credited to the P&L. The write off of the investment was claimed as a deduction as loss on investment of the assets and the amount of provision reversed and credited to P&L was excluded in computing the Book Profits under Clause (i) to Explanation (1) to Section 115JB, which reads as under: ITA No.232/Chny/2022 M/s.SPIC Ltd. :: 23 :: "Section 115JB Explanation: if any amount referred to in clauses (a) to (i) is debited to the statement of profit and loss or if any amount referred to in clause (j) is not credited to the statement of profit and loss, and as reduced by, (i) the amount withdrawn from any reserve or provision (excluding a reserve created before the 1st day of April, 1997 otherwise than by way of a debit to the statement of profit and loss), if any such amount is credited to the statement of profit and loss: Provided that where this section is applicable to an assessee in any previous year, the amount withdrawn from reserves created or provisions made in a previous year relevant to the assessment year commencing on or after the 1st day of April, 1997 shall not be reduced from the book profit unless the book profit of such year has been increased by those reserves or provisions (out of which the said amount was withdrawn) under this Explanation or Explanation below the second proviso to section 115JA, as the case may be" 27. The Appellant had filed the Memo of computation of Book Profits for the AY 2009-10 wherein the provision for diminution of Assets to the extent of Rs.138.42 Crores was added back in computing the Book Profits for that year. Therefore, the reversal of this amount to the credit of the P&L was rightly excluded while computing Book Profit in view of Explanation (i) extracted above. Further when the diminution in value or provision is reduced from the Asset value, it will tantamount to writing off. Hence, it is not includible in computing Book Profits u/s 115JB of the Act. In this regard it is relevant consider the following case laws wherein identical issue has been dealt. Yokogawa India Ltd 204 Taxman 305 (Kar). Shriram Transport Finance Co Ltd 97 CCH 178 Chennai HC. CIT vs. Kirloskar Systems Ltd. 220 TAXMAN 0001 (Karnataka) and CIT vs. Vodafone Essar Gujarat Ltd (2017) 397 ITR 0055 (Guj) ((F) 30. In this view of the matter and settled cases referred above it is clear beyond doubt that the deduction claimed is permissible deduction under regular computation as well as under MAT. The main reason for the PCIT to come to above conclusion is that there is difference between provisions of section 115JA and 115JB. But, fact remains that the ITA No.232/Chny/2022 M/s.SPIC Ltd. :: 24 :: Appellant was claiming deduction only under sec 115JB and sec 115JB has similar provision as sec 115JA in so far as provision of diminution in value of assets and withdrawal of provisions. For the reasons stated above, the Appellant had rightly claimed deduction under Book Profits on the write off of assets and exclusion of amounts withdrawn from Provision created earlier. Therefore, we are of the considered view that in the course of Assessment and also the legal provisions and decisions of the Appellate authorities, there is no error in the order of the Assessing Officer or in any event the AO has taken one possible view and hence, the PCIT is precluded from imposing his opinion by resorting to revision u/s 263. Thus, we are of the considered view that the power of revision of PCIT on this issue is also failed. 31. At this stage, it is necessary to understand legal position as per decision of various courts. The Hon’ble courts held that the language used by the Legislature in s. 263 is to the effect that the CIT may interfere in revision if he considers that the order passed by the ITO is erroneous in so far as it is prejudicial to the interests of the Revenue. It is quite clear that two things must co-exist in order to give jurisdiction to the CIT to interfere in revision. The order of the ITO in question must not only be erroneous but also the error in the ITO's order must be of such a kind that it can be said of it that it is prejudicial to the interests of the Revenue. In other words, merely because the officer's order is erroneous, the CIT cannot interfere. Again, merely because the order of the officer is ITA No.232/Chny/2022 M/s.SPIC Ltd. :: 25 :: prejudicial to the interests of the Revenue, then again, that is not enough to confer jurisdiction on the CIT to interfere in revision. These two elements must co-exist. This is because, the first of the two requirements namely, (i) the order is erroneous and (ii) the same is also prejudicial to the interests of the Revenue, is not satisfied. Similarly, if an order is erroneous but not prejudicial to the interests of the Revenue, then also the power of suo motu revision cannot be exercised. Any and every erroneous order cannot be the subject-matter of revision because the second requirement also must be fulfilled. There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed. 32. The phrase ‘prejudicial to the interests of the Revenue’ has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue as a consequence of an order of AO cannot be treated as prejudicial to the interests of the Revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the ITO is unsustainable in law. An order of assessment passed by the ITO without making necessary enquiries on certain ITA No.232/Chny/2022 M/s.SPIC Ltd. :: 26 :: important points connected with the assessment would be erroneous and prejudicial to the interests of the Revenue When the ITO is expected to make an enquiry of a particular item of income and he does not make an enquiry as expected, that would be a ground for the CIT to interfere with the order passed by the ITO since such an order passed by the ITO is erroneous and prejudicial to the interests of Revenue. Where the ITO had made enquiries in regard to the nature of the expenditure incurred by the assessee who had given detailed explanation in that regard by a letter in writing and all these are part of the record of the case and 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. 33. In this case, the issue questioned by the PCIT in 263 proceedings have been thoroughly examined by the AO during original assessment proceedings u/s.143(3) of the Act, where the assessee has filed a detailed Written Submissions in response to a specific question raised by the AO. The Ld.AO after considering relevant submissions of the assessee has taken one of the possible view and accepted write off investment in subsidiary as business loss and also reversal of provision created for diminution in value of investment and credited to P&L A/c from the book profit computed u/s.115JB of the Act. Further, on merits also deduction claimed by the assessee towards loss on investment in subsidiary is allowable deduction as Revenue expenditure, because, the investment in ITA No.232/Chny/2022 M/s.SPIC Ltd. :: 27 :: subsidiary is for the purpose of business of the assessee and assessee has derived business advantage by making investment in subsidiary. Further, exclusion of reversal of provision from book profit computed u/s.115JB of the Act, is also in accordance with Clause (i) of Explanation (1) to Sec.115JB of the Act, and the assessee has rightly excluded reversal of provision in the impugned assessment year, because, when provision was created in the AY 2009-10, the assessee has added back said provision while computing book profit u/s.115JB of the Act. Therefore, we are of the considered view that the PCIT is erred in assuming his jurisdiction u/s.263 of the Act, and setting aside the assessment order passed by the AO u/s.143(3) dated 28.12.2019. Hence, we quashed the order passed by the PCIT u/s.263 of the Act. 34. In the result, appeal filed by the assessee is allowed. Order pronounced on the day of 23 rd September, 2022, in Chennai. Sd/- (वी. दुगा राव) (V. DURGA RAO) याियकसद य/JUDICIAL MEMBER Sd/- (जी.मंजूनाथा) (G. MANJUNATHA) लेखासद य/ACCOUNTANT MEMBER चे ई/Chennai, !दनांक/Dated: 23 rd September, 2022. TLN आदेशक ितिलिपअ&ेिषत/Copy to: 1. अपीलाथ /Appellant 4. आयकरआयु'/CIT 2. यथ /Respondent 5. िवभागीय ितिनिध/DR 3. आयकरआयु' (अपील)/CIT(A) 6. गाड फाईल/GF