THE INDIAN HOTELS COMPANY LIMITED,MUMBAI V. THE PRINCIPAL COMMISSIONER OF INCOME TAX MUMBAI - 2, MUMBAI

ITA 3036/MUM/2025

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The case involves The Indian Hotels Company Limited appealing against the order of the Principal Commissioner of Income Tax (PCIT), which revised the assessment order for the Assessment Year 2019-20. The original assessment was completed under section 143(3) read with section 144C(13) of the Income Tax Act, where various adjustments and disallowances were made. The PCIT later issued a notice under section 263, claiming the assessment was erroneous and prejudicial to the interests of the revenue, particularly concerning certain disallowances and the treatment of capital work-in-progress and club expenses. The Tribunal's decision focused on the applicability of section 263 to orders passed in accordance with DRP directions under section 144C, ultimately ruling that such orders are not subject to revision under section 263.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 847481 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2026
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Mumbai
• Assessment Year: 2019-2020
• Appeal Filed On: 30-04-2025
• Other Referred Cases: Vodafone India Services Pvt. Ltd. vs. Union of India, Birla Carbon vs. PCIT, Accenture Solutions Private Limited vs. PCIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATYAPAL KUMAR
• Assessee Lawyers: KETAN VEDABDUL KADIR AMALSADWALA; ARS
• Keywords: Revenue expenditure; Transfer pricing; Assessment record; Revision of order
• Section: 143(3); 263; 37; 37(1); 80G

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “I” BENCH, MUMBAI BEFORE SMT. BEENA PILLAI (JUDICIAL MEMBER) & SHRI BIJAYANANDA PRUSETH (ACCOUNTANT MEMBER) I.T.A. No. 3036/Mum/2025 Assessment Year: 2019-20 The Indian Hotels Company Limited 9th Floor, Express Tower Barrister Rajni Patel Marg Nariman Point Mumbai - 400021 [PAN: AAACT3957G] Vs. Principal Commissioner of Income tax- 2, Mumbai (Appellant) (Respondent) Assessee by Shri Ketan Ved/Abdul Kadir Amalsadwala, A/Rs Revenue by Shri Satya Pal Kumar, CIT DR Date of Hearing 09.03.2026 Date of Pronouncement 26.03.2026 ORDER Per Smt. Beena Pillai, JM: Present appeal filed by assessee arises out of the order dated 24/03/2025 passed by Learned Principal Commissioner of Income Tax, Mumbai - 2 [hereinafter referred to as “Ld.PCIT”] for Assessment Year 2019-20, on the following grounds:- “1. Re.: Validity of Order u/s. 263: 1.1. On the facts and in the circumstances of the case and in law, the impugned Order dated 24 March 2025 passed under section 263 of the Act is without jurisdiction and bad in law. Without prejudice to the above, 1.2. On the facts and circumstances of the case and in law, the Principal Commissioner of Income Tax (\"PCIT\") has erred in passing the Order dated 24 March 2025 u/s. 263 of the Act. 1.2.1 On the facts and circumstances of the case and in law, the PCIT has erred in holding that the Order dated 30 January 2023 passed by the Printed from counselvise.com 2 I.T.A. No. 3036/Mum/2025 Assessment Unit, National Faceless Assessment Centre (\"NFAC\") u/s. 143(3) r.w.s 144C(13) r.w.s 144B of the Act was erroneous and prejudicial to the interests of revenue and therefore the revision of the same by the PCIT u/s. 263 of the Act is bad in law. 1.2.2 On the facts and circumstances of the case and in law, the Appellant submits that, NAChad made adequate inquires during the course of assessment proceedings and hence, the assessment order passed by NFAC is neither 'erroneous' nor 'prejudicial' to the interest of the revenue. 1.2.3 On the facts and circumstances of the case and in law, the Appellant submits that the Order passed by the NAC do not fall within the requirements of Explanation 2 to Section 263 and hence said order cannot be deemed to be erroneous or prejudicial to the interest of the revenue. 1.2.4 On the facts and circumstances of the case and in law, the Appellant submits that, the order passed under section 263 amounts to change of view by PCIT and hence the revision u/s. 263 of the Act is bad in law. 1.2.5 The learned PCIT passed the revisionary order on the issues disregarding binding judicial precedents (also submitted during the revisionary proceedings) leading to unwarranted litigation. 1.2.6 On the facts and circumstances of the case and in law, the Appellant submits that, the non-examination of the of issue by the Assessing Officer does not perse make the assessment erroneous and prejudicial to the interests of the revenue. 1.3. On the facts and circumstances of the case and in law, the learned PCIT failed to appreciate that revisionary power u/s 263 of the Act does not cover orders passed by the Assessing Officer in conformity with the directions of the DRP under Section 144C of the Act. 1.4. On the facts and circumstances of the case and in law, the Appellant prays that the impugned Order passed u/s. 263 of the Act by the PCIT is to be struck down. Without prejudice to the aforesaid grounds: 2. Disallowance of capital work in progress written off amounting to Rs. 1,36,99,478/- 2.1. On the facts and in circumstance of the case and in law, the learned PCIT erred in not appreciating the fact that the capital work in progress written off during the year was claimed by the Appellant as deductible expenses as the same was incurred by the Appellant during the course of carrying out the regular business operations. Printed from counselvise.com 3 I.T.A. No. 3036/Mum/2025 2.2. On the facts and in circumstance of the case and in law, the learned PCIT erred in not appreciating the fact that the expenses incurred in relation to conceptualization and design fee for the proposed renovation of hotel properties which could not be completed due to commercial consideration is revenue expenditure and allowable as deduction. 2.3. On the facts and in circumstance of the case and in law, the learned PCIT erred in not appreciating the fact that the expenses incurred for proposed renovation from which, no new asset came into existence which would be of an enduring benefit to Appellant. 2.4. The learned PCIT failed to appreciate the fact that the details of capital work in progress written off during the year was duly disclosed in the tax audit report (Form 3CD) was submitted by the Appellant before the NFAC during the course of assessment proceedings and correctly allowed by AOu/s 37(1) of the Act. 2.5. On the facts and in circumstance of the case and in law, the Order of the PCIT directing the Assessing officer to reexamine the issue needs to be struck down. 3. Disallowance of club expenses incurred by the Appellant amounting to Rs. 23,14,836/- 3.1. On the facts and in circumstance of the case and in law, the learned PCIT failed to appreciate the fact that the said club expenditure was incurred by the Appellant to enable its nominated key managerial personnel for business networking with various individuals including clients, partners and industry peers for business development. 3.2. On the facts and in circumstance of the case and in law, the learned PCIT erred in not appreciating that the club expenses incurred by the Appellant is wholly and exclusively for the purpose of its business and hence allowable as revenue expenditure. 3.3. The learned PCIT failed to appreciate the fact that the details of expenses in relation to club entrance fee/expenditure was duly disclosed in the tax audit report which was submitted by the Appellant before the NAC during the course of assessment proceedings. 3.4. On the facts and in circumstance of the case and in law, the Order of the PCIT directing the Assessing officer to reexamine the issue needs to be struck down. The Appellant craves to add, alter, amend, substitute and/or modify in any manner whatsoever modify all or any of the foregoing grounds of appeal at or before the hearing of the appeal.” Printed from counselvise.com 4 I.T.A. No. 3036/Mum/2025 2. Though the assessee has raised several grounds of appeal, the core contention revolves around Ground No. 1.3, which pertains to the issue that the Ld. PCIT failed to appreciate that the revisionary powers u/s 263 of the Act do not extend to orders passed by the Ld. AO in conformity with the directions of the DRP u/s 144C of the Act. Since this issue goes to the root of the matter, the same is taken up for adjudication first. 3. Brief facts of the case are as under:- The assessee filed its return of income on 29/11/2019 declaring total income at Rs. 475,49,21,520/- for the year under consideration. The return was subsequently revised on 17/06/2020, declaring total income at Rs. 475,32,85,210/-. Thereafter, assessment was completed under section 143(3) read with section 144C(13) of the Act on 30/01/2023, wherein the total income was assessed at Rs. 555,22,54,586/-. In the said assessment, the learned Assessing Officer made, inter alia, an adjustment of Rs. 5,04,31,826/- on account of transfer pricing adjustment under section 92CA(3), disallowance of Rs. 67,03,31,249/- under section 36(1)(iii), disallowance of Rs. 83,000/- under section 14A, disallowance of Rs. 61,61,810/- under section 80G in respect of CSR expenditure, and disallowance of Rs. 6,37,16,959/- on account of education cess. 3.1. Subsequently, the assessment records were called for and examined by the Ld. PCIT. On such examination, a notice under section 263 of the Act dated 13/03/2025 came to be issued, wherein the Ld. PCIT formed a prima facie view that capital work-in-progress Printed from counselvise.com 5 I.T.A. No. 3036/Mum/2025 written off amounting to Rs. 1,36,99,478/- and expenditure of Rs. 23,14,836/- incurred towards club expenses were also not allowable under section 37 of the Act, on the ground that the same were not incurred wholly and exclusively for the purposes of business and were capital in nature. The assessee was, accordingly, called upon to show cause as to why the assessment order dated 30/01/2023 should not be treated as erroneous insofar as it is prejudicial to the interests of the Revenue.** 3.2. In response to the notice issued under section 263, the assessee filed its reply, placed at pages 171 to 179 of the paper book, inter alia submitting that against the assessment order dated 30/01/2023, the assessee had already preferred an appeal before the Tribunal. However, the Ld. PCIT did not accept the submissions of the assessee and proceeded to direct the learned Assessing Officer to frame a fresh assessment order. Aggrieved, the assessee is in appeal before the Tribunal against the order of the Ld. PCIT. 4. The Ld. AR submitted that section 144C of the Act is a self- contained code and provides a complete mechanism for assessment in the case of an eligible assessee. He submitted that, under the procedure prescribed therein, the assessee has the option either to file objections before the DRP against the draft assessment order or to pursue the statutory appellate remedy in the manner provided under the Act. In the present case, the assessee opted to file objections before the Ld. DRP against the draft assessment order, Printed from counselvise.com 6 I.T.A. No. 3036/Mum/2025 challenging the additions proposed by the learned Assessing Officer as well as the Transfer Pricing Officer. 4.1. The Ld. AR further submitted that, once objections are filed before the Ld. DRP, which comprises a collegium of three Principal Commissioners / Commissioners, the learned Assessing Officer is bound to complete the assessment in conformity with the directions issued by the Ld. DRP, and the order so passed assumes the character of a final assessment order under section 143(3) read with section 144C(13) of the Act. He submitted that sub-section (13) of section 144C makes it abundantly clear that, at the stage of passing the final assessment order, the learned Assessing Officer has no discretion to deviate from the directions issued by the Ld. DRP; and it is for this reason that no further opportunity of hearing is contemplated at that stage. 4.2. Proceeding on the aforesaid basis, the Ld. AR submitted that the revisional jurisdiction under section 263 of the Act cannot be invoked in a case where the learned Assessing Officer has merely passed the final assessment order in conformity with the binding directions of the Ld. DRP. According to him, where the ultimate assessment order is only a consequence of, and gives effect to, the directions issued by a high-powered statutory panel comprising three Principal Commissioners / Commissioners, the same cannot be treated as an order independently susceptible to revision under section 263 on issues forming part of such DRP-directed assessment. In support of the said proposition, the Ld. AR placed reliance upon the following decisions of the coordinate benches of the Tribunal:- Printed from counselvise.com 7 I.T.A. No. 3036/Mum/2025 • Mumbai Bench of the Income-tax Appellate Tribunal ['Tribunal] in the Appellant's own case in ITA No. 950/Mum/2021 dated 12 April 2022. • Mumbai Bench of the Tribunal in the case of Birla Carbon vs. PCIT in ITA No. 3768/Mum/2025 dated 22 September 2025. • Mumbai Bench of the Tribunal in the case of Accenture Solutions Private Limited vs. PCIT in ITA No. 3457/ Mum/2025 dated 28 August 2025. 4.3. On the contrary, the Ld. DR placed reliance on the orders passed by the authorities below. We have perused the submissions advanced by both sides in light of the records placed before us. 5. Admittedly, the DRP is a collegium comprising three Principal Commissioners / Commissioners of Income Tax, and the directions issued by it are binding upon the Ld.AO. Hon’ble Bombay High Court, in case of Vodafone India Services Pvt. Ltd. vs. Union of India reported in (2014) 368 ITR 1, has observed that the proceedings before the DRP are not appellate proceedings, but constitute a mechanism in the nature of a second look at the proposed assessment order by higher functionaries of the Revenue, while duly safeguarding the interests of the assessee. Hon’ble High Court further held that the DRP proceedings are in continuation of the assessment proceedings until the final assessment order is passed, which thereafter becomes appealable. It was also noticed that the DRP mechanism is set in motion only at the instance of an assessee objecting to the draft assessment order, thereby enabling corrections in the proposed Printed from counselvise.com 8 I.T.A. No. 3036/Mum/2025 assessment before the final order is framed. Thus, having regard to the statutory scheme of section 144C and the binding nature of the directions issued by the DRP, which is itself a multi-member body comprising officers of a rank equivalent to that of the Principal Commissioner / Chief Commissioner, an assessment order passed by the Ld.AO merely to give effect to such directions cannot be subjected to revision under section 263 of the Act by another authority of coordinate rank. 5.1. In view of the aforesaid discussion, we find no merit in the proceedings initiated under section 263 against the assessment order dated 30/01/2023. Accordingly, the assumption of jurisdiction by the Ld. PCIT under section 263 is held to be unsustainable in law, and the impugned revisional order is quashed. Accordingly, Ground No. 1.3 raised by the assessee is allowed. 6. Since the assessment order itself has been quashed, the other grounds raised on merits become academic in nature and, therefore, do not require any adjudication. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 26/03/2026 Sd/- Sd/- (BIJAYANANDA PRUSETH) (BEENA PILLAI) Accountant Member Judicial Member Mumbai Dated: 26/03/2026 SC Sr. P.S. Printed from counselvise.com 9 I.T.A. No. 3036/Mum/2025 Copy of the order forwarded to: (1)The Appellant (2) The Respondent (3) The CIT (4) The CIT (Appeals) (5) The DR, I.T.A.T. True Copy By order (Asstt. Registrar) ITAT, Mumbai Printed from counselvise.com "