TECHNO ELECTRIC & ENGINEERING COMPANY LTD.,NOIDA, UTTAR PRADESH V. P.C.I.T. - 2, KOLKATA

ITA 971/KOL/2025

AI Insights

The case involves Techno Electric & Engineering Company Limited, which appealed against the order of the Principal Commissioner of Income Tax (PCIT), Kolkata-2, under section 263 of the Income Tax Act. The PCIT had revised the assessment order, directing the Assessing Officer (AO) to reframe the assessment after considering certain issues related to the Income Computation and Disclosure Standards (ICDS) adjustments. The Tribunal examined whether the PCIT's order was validly issued under section 263, which requires the assessment order to be both erroneous and prejudicial to the interests of the Revenue. The Tribunal concluded that the AO had adequately investigated the issues and made a considered decision, thus the PCIT's revision was not justified.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 783454 (ITAT-KOLKATA)
• Duration Of Justice: 5 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-11-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2020-2021
• Appeal Filed On: 06-05-2025
• Other Referred Cases: Malabar Industrial Co. Ltd. Vs. CIT, CIT Vs. Max India Ltd., DIT Vs. Jyoti Foundation, ITO vs. DG Housing Projects Ltd.
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANAT KUMAR RANA
• Assessee Lawyers: SOUMITRA CHOUDHURY; PRANABESH SARKAR
• Keywords: Set aside; Earning of tax free income; Assessment record; Right to appeal; Revision of order
• Section: 143(3); 263; 14A

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, KOLKATA BEFORE SHRI GEORGE MATHAN, JM AND SHRI RAJESH KUMAR, AM ITA No.971/KOL/2025 (Assessment Year:2020-21) Techno Electric & Engineering company Limited C-218, Gr-2, Secror-63 Gautam Budha Nagar, Noida, Uttar Pradesh-201307 Vs. PCIT-2, Kolkata Aaykar Bhawan, P-7, Chowringhee Square, Kolkata-700069, West Bengal (Appellant) (Respondent) PAN No. AAJCS4400J Assessee by : Shri Soumitra Choudhury, & Shri Pranabesh Sarkar Ms. Nandini Sureka, Ars Revenue by : Shri Sanat Kumar Rana, DR Date of hearing: 28.08.2025 Date of pronouncement: 04.11.2025 O R D E R Per Rajesh Kumar, AM: This is an appeal preferred by the assessee against the order of the Pr. Commissioner of Income Tax, Kolkata-2, (hereinafter referred to as the “Ld. CIT(A)”] dated 11.03.2025 for the AY 2020-21. 02. The only issue raised by the assessee in the various grounds of appeal is against the invalid exercise of jurisdiction u/s 263 of the Act and the consequent order passed u/s 263 of the Act by the ld. PCIT, which is nullity and bad in law. 03. The facts in brief are that the assessee company is engaged in the business of power generation and related infrastructure engineering, procuring and operation and maintenance services in the e-industry Printed from counselvise.com Page | 2 ITA No.971/KOL/2025 Techno Electric & Engineering company Limited; A.Y. 2020-21 segment of generation, transmission and power distribution. During the year the assessee filed the return of income u/s 139(1) of the Act on 21.10.2020, declaring total income at ₹181,54,59,090/-, which was selected for scrutiny for the reasons namely; (i) stock valuation (ii) Claim of any other amount allowable as deduction in Schedule BP (iii) Refund Claim (iv) ICDS Compliance and Adjustment (v) Expenses Incurred for earning exempt income. The assessment was framed by the ld. AO vide order dated 20.09.2022, passed u/s 143(3) read with section 144B of the Act, assessing the income at ₹1,84,58,86,675/- after making disallowance u/s 14A and 37. 04. The ld. PCIT on perusal of the assessment records observed that income chargeable under the head profit and gains of business or profession shall be computed in accordance with the income computation and disclosure standard (ICDS) as notified by the Government. The ld. PCIT observed that the assessee’s treatment of ICDS adjustment as noted in Para No.3 page 1 does not seem to be not in order. The ld. PCIT noted from the submission that in A.Y. 2020-21, ₹91,97,826/- has been debited in the Profit and Loss account on account of anticipated loss in Engineering, Procurement and Construction (EPC) contracts, which is not allowable as per ICDS as the same is anticipated loss. Therefore, the ld. PCIT observed that in tax audit report it has rightly been recorded that profit has to be increased of the said amount. The ld. PCIT also noted that any deduction in any assessment year in respect of previous year disallowance made in any earlier year required a corresponding write back (credit) in the Profit and Loss account in the year in which deduction was claimed. The ld. PCIT further noted that no such wright back or credit was noticed or claimed to have been made by the assessee in the Profit and Loss account in A.Y. 2020-21 and as such Printed from counselvise.com Page | 3 ITA No.971/KOL/2025 Techno Electric & Engineering company Limited; A.Y. 2020-21 the deduction of ₹3,02,12,442/- was not allowable and ₹91,97,826/- was required to be added back as ICDS adjustment as per tax audit report in the current assessment year. Accordingly, the ld. PCIT issued show cause notice dated 20.09.2022 asking the assessee as to why the assessment framed shoukd not be treated as erroneous and prejudicial to the interest of the Revenue. The said notice was replied in detail by the assessee vide letter dated 11.02.2015. The ld. PCIT has extracted the reply of the assessee in the revisionary order from page no.9 to 15. In the said reply it was submitted that anticipated loss from EPC contracts were disallowed and added back while calculating the total income. For the sake of ready reference, the table is extracted below:- F.Y. ended A.Y. Anticipated loss Amount showed in TAR (Increase in Profit) Treatment in ITR (ICES Adjustment) 31.03.20218 2018-19 6,68,50,915 6,68,50,915 6,68,50,915 added with income 31.03.2019 2019-20 3,94,10,268 3,94,10,268 2,74,40,647/- (6,68,50,515 minus 3,94,10,268) deducted from income 31.03.2020 2020-21 91,97,826 91,97,826 3,02,12,442 (3,94,10,268 minus 91,97,826/- deducted from income) 05. However ld PCIT revised the assessment vide order dated passed u/s 263 of the Act directing the AO to frame the assessment after taking into account the issues as discussed in order and after affording a reasonable opportunity to the assessee. 06. The ld. Counsel for the assessee submitted that as is evident from the above table in A.Y. 2018-19, the assessee company had estimated anticipated loss from contracts amounting to ₹6,68,50,915/-, which was debited into the profit and loss account of the assessee company Printed from counselvise.com Page | 4 ITA No.971/KOL/2025 Techno Electric & Engineering company Limited; A.Y. 2020-21 but the same was added back while calculating the total income and as such it has resulted in increase in profit as per ICDS. The ld. AR referred to the computation of income, ITR, TAR as enclosed in the annexure 2G. The ld. AR further submitted that in A.Y. 2019-20, the assessee had anticipated the loss from EPC contracts amounting to ₹3,94,10,268/- which was debited in the profit and loss account of the assessee resulting in decrease in anticipated loss as compared to previous year amounting to ₹2,74,40,647/-, which was calculated by subtracting the current year anticipated loss of ₹3,94,10,268/- from the total anticipated loss from EPC contracts in A.Y. 2018-19, of ₹6,68,50,515/- and the same was deducted from the income while calculating the total income and as such it has resulted in decrease in profit as per ICDS. The copies of computation of income, ITR, acknowledgement, TAR, are enclosed as annexure “2H”. Further, in A.Y. 2020-21, the assessee company has estimated anticipated loss from EPC contracts amounting to ₹91,97,826/-, which was debited in the profit and loss account of the assessee which has resulted in decrease in anticipate loss as compared to previous year amounting to ₹3,02,12,442/-, which was calculated in the same manner by subtracting the anticipated loss from EPC contracts in A.Y. 2020-21 of ₹91,97,826/-, from the anticipated loss in A.Y. 2019-20 of ₹3,94,10,268 and the same amount has been deducted from the income while calculating the total income. The ld. Counsel for the assessee submitted that it has resulted in decrease in profit as per ICDS and the copies of computation of income, ITR, TAR are enclosed as annexure I. Therefore, the net result of above adjustments resulted in increase in the taxable income by ₹91,97,826/-. The ld. AR therefore prayed that the ld. PCIT has failed to appreciate this factual aspect and revised the order, which in invalid and deserved to be Printed from counselvise.com Page | 5 ITA No.971/KOL/2025 Techno Electric & Engineering company Limited; A.Y. 2020-21 quashed. Besides, the ld. AR submitted that the purpose of scrutiny u/s 143(2) was only to examine certain adjustments including the income as per ICDS and thereunder and the assessee was specifically called by way of questionnaire to explain the income as per ICDS which was duly replied in detail and the ld. AO only after taking into account all these replies/ submission of the assessee and after having verified the said submissions/ documents, accepted the reply of the assessee and passed the assessment accordingly. The ld. AR therefore prayed that the order passed by the ld. AO is not either erroneous nor prejudicial to the interest of the Revenue and therefore, the jurisdiction u/s 263 of the Act is not available to the ld. PCIT. In defense of his arguments the ld. AR relied on the case of the Hon'ble Apex Court in the case of Malabar Industrial Co. Ltd. Vs. CIT (2000) 243 ITR 83 (SC).The learned Authorized Representative further submitted that the assessee does not have any control over the pen of the learned AO and once, the learned AO has carried out the investigation but does not make any addition, it can be taken or presumed that he accepted the plea of the assessee. In defense of his arguments, he relied on the decision of learned PCIT Vs. M/s V-Con integrated solutions Pvt. Ltd, Special Leave Petition (Civil) Diary No.13205/2025, wherein similar issue has been laid down. The learned authorized representative further submitted that where there are two views are possible and the learned AO has taken one of the two views. Then the assessment cannot be said to be erroneous and prejudicial to the interest of the Revenue, unless view taken by the ITO is unsustainable in the eyes of law or contrary to the facts. In defense of his argument the learned CIT (A) relied on the decision of CIT Vs. Max India Ltd. (213 ITR 266) (SC). The learned Authorized Representative therefore prayed that the revisionary jurisdiction Printed from counselvise.com Page | 6 ITA No.971/KOL/2025 Techno Electric & Engineering company Limited; A.Y. 2020-21 exercised by the learned PCIT is invalid and may kindly be quashed. The learned Authorized Representative also relied on the decisions of DIT Vs. Jyoti Foundation 357 ITR 388 (Delhi) and ITO vs. DG Housing Projects Ltd. 343 ITR 329 (Delhi). Finally, the learned Authorized Representative submitted that the order of learned PCIT passed u/s 263 of the Act may kindly be quashed as being nullity and invalid in the eyes of law. 07. The learned DR on the other hand relied on the order of learned PCIT by submitting that no prejudice is going to be caused to the assessee as the assessee would be heard fully in the set aside proceedings and only then the assessment order would be passed. The learned DR further submitted that the learned PCIT has already issued direction to the learned AO in that regard in the revisionary order. Therefore the pleas and arguments of the ld AR need to be brushed aside at this stage. 08. After hearing the rival contentions and perusing the materials available on records, we find that the scrutiny was selected under Computer Assisted Scrutiny Selection (CASS) in this case for examination of certain items, out of which one item was ICDS compliance and adjustment. We note that during the course of assessment proceedings, the learned AO specifically called upon the assessee to furnish the details of ICDS compliance and adjustment which were duly furnished before the learned AO and the learned AO only, after examining the same, accepted the stand of the assessee and framed the assessment accordingly, without making any addition in respect of ICDS compliance/ adjustment. In our opinion, the order passed by the learned AO is in accordance with law and does not suffer any infirmity, illegality or otherwise. Therefore, the order Printed from counselvise.com Page | 7 ITA No.971/KOL/2025 Techno Electric & Engineering company Limited; A.Y. 2020-21 passed by the learned AO cannot be said to be erroneous in so far as prejudicial to the interest of the Revenue. In our considered view the jurisdiction u/s 263 of the Act was invalidly invoked. In order to invoke the jurisdiction u/s 263 of the Act the assessment has to be erroneous and prejudicial to the interest of the revenue. Both the conditions are to be satisified simultaneously and even if one of the two conditions is satisfied , the jurisdicition u/s 263 of the /act is not available to the ld PCIT. The case of the assessee find support from the decision of Hon'ble Apex Court in the case of Malabar industrial Co. Vs CIT Ltd. (supra), wherein it has been held as under:- “7. In the case of The Malabar Industrial Corporation Ltd. vs. Commissioner of Income Tax [243 ITR pg 83 (SC) | it has been held that \"to exercise of jurisdiction by the Commissioner suo moto under the provisions of Section 263 of the Act, he has to be satisfied of twin conditions, namely (1) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the revemie. If one of them is absentif the order of the Income Tax Officer is erroneous but is not prejudicial to the revenue or if it is not erroneous but is prejudicial to the revenue recourse can not be had to Section 263(1) of the Act\" In the same case it has also been held that \"The phrase 'prejudicial to the interests of the revenue' has to read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial to the interest of the revenue, for example, when an Income Tax Officer adoptedon of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income Tax Officer is unsustainable in law.” 09. In our opinion, once the learned AO has carried out investigation into the issue and has not made any addition then it can be presumed that he has accepted the plea and stand of the assessee. The PCIT has to prove that the assessment framed by the AO is wrong as there was failure to investigate . In our opinion the PCIT has to record the abject failure and lapse on the part of the assessee which rendered Printed from counselvise.com Page | 8 ITA No.971/KOL/2025 Techno Electric & Engineering company Limited; A.Y. 2020-21 the assessment as erroneous and prejudicial to the interest of the revenue and not otherwise. The case of the assessee is squarely covered by the decision of Hon'ble Apex Court in the case of M/s V- Con Integrated Solutions Pvt. Ltd(supra), wherein it has been held as under:- \"The assessee does not have control over the pen of the Assessing Officer. Once the Assessing Officer carries out the investigation but does not make any addition, it can be taken that he accepts the plea and stand of the assessee. In such cases, it would be wrong to say that the Revenue is remediless. The power under Section 263 of the Income Tax Act, 1961, can be exercised by the Commissioner of Income Tax, but by going into the merits and making an addition, and not by way of a remand, recording that there was failure to investigate. There is a distinction between the failure or absence of investigation and a wrong decision/conclusion. A wrong decision/conclusion can be corrected by the Commissioner of Income Tax with a decision on merits and by making an addition or disallowance. There may be cases where the Assessing Officer undertakes a superficial and random investigation that may justify a remit, albeit the Commissioner of Income Tax must record the abject failure and lapse on the part of the Assessing Officer to establish both the error and the prejudice caused to the Revenue. Recording the aforesaid, the special leave petition is dismissed.\"” 010. Similarly, where the learned AO has taken a plausible view of one of the two views even then the order passed by the learned AO cannot be said to be erroneous and prejudicial to the interest of the Revenue unless if the view taken by the ITO is not in accordance with law or contrary to the facts on record. The case of the assessee find support from the decision of the Hon'ble Apex Court in the case of Max India Ltd. (supra) where two view existed and AO has taken one view, it can not said erroneous order prejudicial to the interest of the Revenue unless the view taken by the AO iis unsustainable in law. Similarly, in the case of DG Housing Projects Ltd (supra). The Hon'ble Delhi High Court has held as under:- Printed from counselvise.com Page | 9 ITA No.971/KOL/2025 Techno Electric & Engineering company Limited; A.Y. 2020-21 “Revenue does not have any right to appeal to the first appellate authority against an order passedby the Assessing Officer. S. 263 has been enacted to empower the CIT to exercise power of revision and revise any order passed by the Assessing Officer, if two cumulative conditions are satisfied. Firstly, the order sought to be revised should be erroneous and secondly, it should be prejudicial to the interest of the Revenue. The expression \"prejudicial to the interest of the Revenue\" is of wide import and is not confined to merely loss of tax. The term \"erroneous\" means a wrong/incorrect decision deviating from law. This expression postulates an error which makes an order unsustainable in law. The Assessing Officer is both an investigator and an adjudicator. If the Assessing Officer as an adjudicator decides a question or aspect and makes a wrong assessment which is unsustainable in law, it can be corrected by the Commissioner in exercise of revisionary power. As an investigator, it is incumbent upon the Assessing Officer to investigate the facts required to be examined and verified to compute the taxable income. If the Assessing Officer fails to conduct the said investigation, he commits an error and \"erroneous\" includes failure to make the enquiry. In such cases, the order becomes erroneous because enquiry or verification has not been made and not because a wrong order has been passed on merits.” 011. Considering the facts of the above case, in the light of ratio laid down in the decisions above, we are of the considered view that the jurisdiction u/s 263 was invalidly invoked by the ld. PCIT. Accordingly, we are inclined to quash the order passed u/s 263 of the Act. 012. The appeal of the assessee is allowed. Order pronounced in the open court on 04.11.2025. Sd/- Sd/- (GEORGE MATHAN) (RAJESH KUMAR) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Kolkata, Dated: 04.11.2025 Sudip Sarkar, Sr.PS Printed from counselvise.com Page | 10 ITA No.971/KOL/2025 Techno Electric & Engineering company Limited; A.Y. 2020-21 Copy of the Order forwarded to: BY ORDER, True Copy// Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Kolkata 1. The Appellant 2. The Respondent 3. CIT 4. DR, ITAT, 5. Guard file. Printed from counselvise.com "