SARDARSAROVAR NARMADA NIGAM LTD.,GANDHINAGAR V. THE PR. CIT, AHMEDABAD-3, AHMEDABAD

ITA 821/AHD/2024

AI Insights

The case involves Sardarsarovar Narmada Nigam Ltd., which appealed against the revisionary order of the PCIT, Ahmedabad-3. The PCIT had set aside the original assessment order passed by the National Faceless Assessment Centre (NFAC), Delhi, concerning the Assessment Year 2018-19. The primary issue was the allowability of Rs.20.26 crores debited as Labour Welfare Cess under 'Other Expenses'. The PCIT found that this expenditure related to capital works and should not have been allowed as a deduction under section 37(1) of the Act. The Tribunal supported the PCIT's decision, emphasizing the need for a detailed inquiry into significant claims in cases selected for complete scrutiny under the Computer Aided Scrutiny Selection (CASS) mechanism.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 126014 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-04-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2018-2019
• Other Referred Cases: Malabar Industrial Co. Ltd. v. CIT [(2000) 243 ITR 83 (SC)]
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ALPESH PARMAR
• Assessee Lawyers: ARTI N. SHAH
• Keywords: Set aside; Revised return; Assessment record; Revision of order
• Section: 143(3); 142(1); 143(2); 263; 37; 2(A); 37(1)

Judgement Text

" आयकर अपीलीय अिधकरण, अहमदा बा द \u0012ा यपीठ “ए“, अहमदा बा द । IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, AHMEDABAD सु\u0018ी सुिच\u001aा का \u001bले, \u0012ा ियक सद एवं \u0018ी मकरंद वसंत महा देवकर, लेखा सद क े सम\"। ] ] BEFORE MS. SUCHITRA KAMBLE, JUDICIAL MEMBER AND SHRI MAKARAND V. MAHADEOKAR, ACCOUNTANT MEMBER आयकर अपील सं /ITA No.821/Ahd/2024 िनधा \u0010रण वष\u0010 /Assessment Year : 2018-19 Sardarsarovar Narmada Nigam Ltd. Block-12, 1st Floor Near Sachivalaya Complex Gandhiangar -382 010 (Gujarat) बनाम/ v/s. The Pr.CIT, Ahmedabad-3 Ahmedabad – 380 014 \u0014थायी लेखा सं./PAN: AACCS 6704 L अपीलाथ%/ (Appellant) &' यथ%/ (Respondent) Assessee by : Ms. Arti N. Shah, AR Revenue by : Shri Alpesh Parmar, CIT-DR सुनवाई की तारीख/Date of Hearing : 22/04/2025 घोषणा की तारीख /Date of Pronouncement: 24/04/2025 आदेश/O R D E R PER MAKARAND V. MAHADEOKAR, AM: This appeal by the assessee is directed against the revisionary order passed by the Principal Commissioner of Income Tax, Ahmedabad-3 [hereinafter referred to as \"PCIT\"] under section 263 of the Income Tax Act, 1961 [hereinafter referred to as \"the Act\"] dated 08.03.2024 for the Assessment Year 2018-19, whereby the learned PCIT set aside the assessment order dated 27.05.2021 passed under section 143(3) read with section 144B of the Act by the National Faceless Assessment Centre (\"NFAC\"), Delhi, and directed the ITA No.821/Ahd/2024 Sardarsarovar Narmada Nigam Ltd. vs. The Pr.CIT Asst. Year : 2018-19 2 Assessing Officer to pass a fresh assessment order after examining the allowability of Labour Welfare Cess expenditure. Facts of the Case: 2. The assessee, Sardar Sarovar Narmada Nigam Ltd, is a company engaged in the execution of the Sardar Sarovar Project comprising construction of dams, canal networks, powerhouses, and related infrastructure for providing drinking water and irrigation facilities across multiple states. The assessee filed its original return of income for the Assessment Year 2018-19 on 13.10.2018 declaring a total loss of Rs.31,29,63,81,420/-. Subsequently, the assessee filed a revised return of income on 12.02.2019 declaring an enhanced loss of Rs.36,89,61,55,368/-. The case was selected for scrutiny under the Complete Scrutiny category through Computer Aided Scrutiny Selection (CASS) mechanism. Pursuant to the notices issued under sections 143(2) and 142(1) of the Act, the assessee filed submissions online along with requisite information and documents. 3. The Assessing Officer, after considering the material placed on record, accepted the returned loss and completed the assessment under section 143(3) read with section 144B of the Act vide assessment order dated 27.05.2021, assessing the total income at Nil and determining the current year’s business loss at Rs. 36,89,61,55,368/-. 3.1. Thereafter, the learned PCIT, on examination of the assessment records, noted that the assessee had debited an amount of Rs.20.26 crores towards Labour Welfare Cess under the head \"Other Expenses\" (Schedule 33). The learned PCIT was of the view that the said expenditure related to ITA No.821/Ahd/2024 Sardarsarovar Narmada Nigam Ltd. vs. The Pr.CIT Asst. Year : 2018-19 3 capital works and thus ought not to have been allowed as a deduction under section 37(1) of the Act. The PCIT observed that the Assessing Officer failed to make necessary inquiries or disallowance in this regard, thereby rendering the assessment order erroneous in so far as it is prejudicial to the interests of the Revenue. 4. Accordingly, the learned PCIT issued a show-cause notice dated 28.12.2023 proposing to invoke section 263 of the Act. After considering the assessee’s detailed submissions, the learned PCIT passed the impugned order under section 263 of the Act dated 08.03.2024, setting aside the assessment order dated 27.05.2021 and directing the Assessing Officer to examine afresh the allowability of Labour Welfare Cess and pass a denovo assessment order in accordance with law. 5. Being aggrieved by the said order of the learned PCIT, the assessee is in appeal before us raising following grounds: 1. The Hon'ble Principle Commissioner of Income-tax (\"Hon'ble PCIT\") erred in law and facts of the case by invoking the revision proceedings u/s 263 of the Act on the premise that the learned Assessing Officer failed to disallow Labour welfare cess amounting to Rs.20.26 crores which renders the assessment order dated 27.05.2021 passed u/s. 143(3) of the Act as erroneous and prejudicial to the interest of the revenue, despite the fact that the learned Assessing Officer during the assessment proceedings, thoroughly reviewed all the details, including audited accounts showing the impugned Labour Welfare Cess expenditure, and after detailed inquiry and verification, passed the aforesaid order accepting the returned loss. It is submitted that, the order dated 08.03.2024 passed by the Hon'ble PCIT u/s.263 of the Act is bad in law and therefore, be set aside. 2. Without prejudice to the above, even on merits of the case, the Hon'ble PCIT erred in invoking provision of section 263 for disallowing the expenditure of Labour Welfare Cess amounting to Rs.20.26 crore incurred by the appellant for the purpose of business without appreciating the fact that the impugned expenditure is eligible for deduction under section 37 of the Act. It is submitted ITA No.821/Ahd/2024 Sardarsarovar Narmada Nigam Ltd. vs. The Pr.CIT Asst. Year : 2018-19 4 that order passed by learned AO was neither erroneous nor prejudicial to the interest of the department and hence provision of section 263 should not have been invoked at all. It is submitted that it be so held now and the order passed by learned PCIT u/s 263 be quashed. 3. The Appellant reserves the right to add, alter, amend and /or withdraw any of the above Grounds of Appeal. 6. During the course of hearing before us, the learned Authorized Representative (AR) appearing on behalf of the assessee submitted that the Faceless Assessing Officer (FAO), during the course of assessment proceedings, had duly issued a notice under section 143(2) of the Act dated 22.09.2019, wherein specific information was called for regarding the \"Claim of any other amount allowable as deduction in Schedule BP.\" The learned AR further drew attention to the notices issued under section 142(1) of the Act dated 06.01.2021 and 05.03.2021, wherein the FAO specifically sought detailed information relating to the \"Any other amount allowable as deduction\" amounting to Rs.67,53,500/-, along with a break-up of such amount and copies of the ledgers pertaining to each expense account. The learned AR submitted that in response to the aforesaid notices, the assessee had duly furnished all the requisite details and documents. It was explained that the Labour Welfare Cess expenditure was clearly reflected in the audited Statement of Profit and Loss under Note No. 30 and Note No. 33 forming part of the annual financial statements filed during the assessment proceedings. Specifically, the learned AR pointed out that the amount of Rs.20.26 Lacs representing the Labour Welfare Cess payment was duly disclosed under Note No. 33, which enumerated \"Other Expenditures.\" The learned AR emphasized that the said disclosure was available on record, and the FAO had, after considering the same along with other materials, consciously ITA No.821/Ahd/2024 Sardarsarovar Narmada Nigam Ltd. vs. The Pr.CIT Asst. Year : 2018-19 5 accepted the returned loss without making any disallowance in respect of the Labour Welfare Cess. 6.1. The learned AR submitted that the FAO had thus conducted appropriate inquiry on the issue and that the acceptance of the claim after due verification could not be regarded as non-application of mind. It was argued that once the Assessing Officer had applied his mind to the material available on record and taken a plausible view, the exercise of jurisdiction under section 263 of the Act by the learned PCIT was impermissible. 6.2. On the merits of the claim of expenditure, the learned AR submitted that the Labour Welfare Cess expenditure was incurred wholly and exclusively for the purposes of business and is allowable under section 37(1) of the Act, as it formed part of the statutory obligations of the assessee company in the course of carrying out construction works under the Sardar Sarovar Project. In support of the submissions, reliance was also placed on some judicial precedents. 7. The Departmental Representative (DR) strongly supported the order passed by the PCIT and submitted that the FAO failed in conducting adequate inquiry on the issue specifically pointed out by the PCIT. 8. We have carefully considered the rival submissions, perused the material placed on record, including the notices issued, replies filed, assessment order, and the impugned order passed under section 263 of the Act. The principal contention of the assessee is that the Faceless Assessing Officer (FAO) had made due inquiries during the course of assessment ITA No.821/Ahd/2024 Sardarsarovar Narmada Nigam Ltd. vs. The Pr.CIT Asst. Year : 2018-19 6 proceedings, specifically with respect to the claim of deductions allowable under Schedule BP, and that the Labour Welfare Cess expenditure amounting to Rs.20.26 crores was duly disclosed in the audited financial statements under Note No. 33 as part of \"Other Expenditures.\" It is the claim of the assessee that the FAO, after considering the submissions and documents filed, consciously accepted the returned loss, and therefore, the order cannot be regarded as erroneous so as to warrant revision under section 263 of the Act. 8.1. However, on a careful examination of the assessment records and the submissions made, we find that while the assessee had furnished certain documents in response to the notices issued under sections 143(2) and 142(1), such as the financial statements, bank account details, computation of income, and shareholding documents, the specific ledger relating to the Labour Welfare Cess expenditure of Rs.20.26 Lacs was not submitted before the FAO. The ledger accounts submitted by the assessee pertained only to Leave Salary (four ledgers) and Profit on Sale of Vehicles (Group V). There is no material placed on record to show that the FAO had called for or examined the ledger relating to Labour Welfare Cess or conducted any inquiry regarding its allowability. 8.2. Upon consideration of the rival submissions and the records, we find merit in the contentions advanced by the learned DR. The failure of the FAO to examine the allowability of a material expenditure item amounting to Rs.20.26 lacs constitute a lapse in the conduct of the assessment proceedings. It is particularly significant to note that the assessee’s case was selected for Complete Scrutiny under the Computer Aided Scrutiny Selection (CASS) ITA No.821/Ahd/2024 Sardarsarovar Narmada Nigam Ltd. vs. The Pr.CIT Asst. Year : 2018-19 7 mechanism. In cases selected for Complete Scrutiny, the Assessing Officer is expected to examine all material aspects of the return of income diligently and conduct inquiries into all significant claims made by the assessee. In the absence of any specific inquiry or verification, the assessment order cannot be said to have been passed after due application of mind. It is well settled that where an assessment order is passed without making inquiries or verification which ought to have been made, such an order is erroneous and prejudicial to the interests of the Revenue. The Hon'ble Supreme Court in Malabar Industrial Co. Ltd. v. CIT [(2000) 243 ITR 83 (SC)] has laid down that the failure of the Assessing Officer (in present case FAO) to examine crucial issues during assessment renders the order susceptible to revision under section 263 of the Act. Explanation 2(a) to section 263 of the Act inserted by the Finance Act, 2015, also creates a deeming fiction that an order shall be treated as erroneous where inquiries or verifications which should have been made are not conducted. 8.4. We would also like to clarify that in the present proceedings, we are not adjudicating the merits of the allowability or otherwise of the Labour Welfare Cess expenditure under section 37(1) of the Act. Our decision is confined to the examination of the correctness of the exercise of revisionary jurisdiction by the learned PCIT under section 263 on the ground of failure to conduct necessary inquiry. 8.5. The judicial precedents relied upon by the learned AR, have been duly considered. However, in the facts of the present case, where there is a patent lack of inquiry on a material claim, those decisions do not come to the aid of ITA No.821/Ahd/2024 Sardarsarovar Narmada Nigam Ltd. vs. The Pr.CIT Asst. Year : 2018-19 8 the assessee. It is well settled that when there is a complete absence of inquiry, the revisionary jurisdiction under section 263 can validly be exercised. 8.6. In view of the foregoing, we hold that the learned PCIT was justified in invoking revisionary jurisdiction under section 263 of the Act and setting aside the assessment order dated 27.05.2021 for passing a fresh assessment order after conducting due inquiry into the allowability of Labour Welfare Cess expenditure. 9. In the result, the appeal filed by the assessee stands dismissed. Order pronounced in the Open Court on 24 April, 2025 at Ahmedabad. Sd/- Sd/- (SUCHITRA KAMBLE) JUDICIAL MEMBER (MAKARAND V. MAHADEOKAR) ACCOUNTANT MEMBER अहमदाबाद/Ahmedabad, िदनांक/Dated 24/04/2025 टी.सी.नायर, व.िन.स./T.C. NAIR, Sr. PS आदेश की #ितिलिप अ$ेिषत/Copy of the Order forwarded to : 1. अपीलाथ% / The Appellant 2. #&थ% / The Respondent. 3. संबंिधत आयकर आयु' / Concerned CIT 4. आयकर आयु' ) अपील ( / The CIT(A)-(NFAC), Delhi 5. िवभागीय #ितिनिध , आयकर अपीलीय अिधकरण , राजोकट/DR,ITAT, Ahmedabad, 6. गाड\u0010 फाईल / Guard file. आदेशानुसार/ BY ORDER, स&ािपत #ित //True Copy// सहायक पंजीकार (Asstt. Registrar) आयकर अपीलीय अिधकरण, ITAT, Ahmedabad "