AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2023 (4) TMI 460
X X X X Extracts X X X X
X X X X Extracts X X X X
....The PCIT failed to appreciate that the assumption of jurisdiction u/s 263 of the Act was wrong and not sustainable in law and ought to have appreciated that the twin conditions of error in the assessment order which caused prejudice to the interest of the Revenue were not satisfied concurrently, thereby vitiating the revision order under consideration. 4. The PCIT failed to appreciate that the issue of loss on sale of investments was wrongly interfered with in the revision order and ought to have appreciated that the issue taken up for revision was already considered in the scrutiny assessment thereby ousting the revisional jurisdiction completely. 5. The PCIT failed to appreciate that in any event the loss on sale of investment was correctly claimed as a revenue outgo based on the facts furnished in the assessment as well as in the revisional jurisdiction and hence ought to have appreciated that the findings from para 6.3 of the impugned order were wrong, incorrect, invalid, unjustified, erroneous and not sustainable both on facts and in law. 6. The PCIT failed to appreciate that the replies filed in the assessment as well as in the revisional proceedings even though noticed....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and thus, called upon the assessee to explain 'as to why' the assessment order passed by the AO u/s.143(3) of the Act, dated 28.12.2019 shall not be revised u/s.263 of the Act. 5. In response to the show cause notice, Mr. Mohandass, CA, representative of the assessee appeared on 17.03.2022 and submitted that to increase the capacity and augment the sales of industrial salt, the assessee had acquired equity share interest of 40% in the capital of M/s.ACIPL during the FY 2011-12 by subscribing 40 lakhs equity shares for a sum of Rs.43.68 Crs. Further, M/s.ACIPL was carrying on the business of manufacturing and export of industrial salt, bromine, sulphate, potash and other industrial chemicals from naturally available brine in the Rann of Kutch, Gujarat. In order to capitalize on this planned new facility of Composite Marine Plant of M/s.ACIPL, the assessee had made investment. It was further submitted that later it was seen that M/s.ACIPL was delaying the installation and commencement of the unit and its business did not take off and thus, the assessee has sold its investments in M/s.ACIPL and incurred loss of Rs.24.32 Crs. Since, loss incurred on investment in group companies is i....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... investment or as business assets of the company. The classification of the investments as non-current investments is in line with the requirements of Schedule III of the Companies Act, 2013, wherein the investments made in equity shares of a company needs to be classified as investments, irrespective of whether made for the purpose of augmenting the business or for regular investment purposes. Therefore, the classification of investments in the balance sheet does not indicate the intent of holding the said investments. We draw reference to the decision of the Apex Court in the case of Kedarnath Jute Mfg. Co. Ltd. Vs. CIT [1971] 82 ITR 36 (SC) wherein it was held that entry in books of account cannot be considered as conclusive and the entitlement of particular deduction depends upon the provisions of law relating thereto. If the main reason for holding the investments is for deriving a business advantage to the company, then the said investment is held for the purpose of business and any gains/losses arising on the said investments should be dealt under the head 'Profits and Gains from the Business or Profession'. The well celebrated judgement of the Hon'ble Bombay H....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ve both revenue and capital expenses. The foundational fact in the present case is that the assessee had invested in shares which is, by all definitions, a capital asset unless the assessee was an investment company which, admittedly, it is not. The shares, therefore, could not have been treated as stock in trade. Whatever be the intent of investment, strategic or otherwise, for a non-investment company the investment in shares represents a capital asset. Sale of such asset would, therefore, be expected to lead only to capital gain or loss. The argument advanced by the assessee relying upon the case of Colgate Palmolive stands on no legs. The facts of the assessee's case are very different from that of Colgate Palmolive where the company being invested in was a 100% subsidiary which was manufacturing tooth brushes exclusively for sale by the investing company. 6.7 In any case, post the decision of the Apex Court in the case of Vodofone International Holdings B.V. Vs Union of India, in order dated 20.01.2012 (Civil Appeal No.733 of 2012) it has now been evidently established that companies are entirely separate entities,even if they are hundred percent owned subsidiary compani....
X X X X Extracts X X X X
X X X X Extracts X X X X
....out proper, diligent application of mind and enquiry. In my considered opinion, therefore, the assessment order so passed is erroneous in so far as it is prejudicial to the interest of the revenue. Accordingly, the assessment order is hereby set aside u/s 263 of the Act, with a direction to the Assessing Officer to examine the issue, as discussed supra, and all other issues and to pass a fresh order within the stipulated time, after granting opportunity to the assessee. It is ordered accordingly. 7. The Ld. Counsel for the assessee submitted that the PCIT erred in setting aside the assessment order passed by the AO by exercising his power conferred u/s.263 of the Act, without appreciating the fact that assumption of jurisdiction u/s.263 of the Act was wrong and not sustainable in law. The Ld. Counsel for the assessee further submitted that in order to assume jurisdiction u/s.263 of the Act, twin conditions embedded therein must be satisfied. In this case, none of the conditions are satisfied, because, the AO has verified the issue of loss on investments by issuing a specific notice u/s.143(2) &u/s.142(1) of the Act, on various dates, for which, the assessee has filed its reply o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uthorities below. The provisions of Sec.263 of the Act, conferred suo moto revisional powers to the PCIT, if the PCIT satisfies that the assessment order passed by the AO is erroneous in so far as it is prejudicial to the interest of the Revenue. In order to assume jurisdiction u/s.263 of the Act, twin conditions must be satisfied viz., (i) the order of the AO must be erroneous and (ii) further, it should be prejudicial to the interest of the Revenue. Unless, twin conditions embedded therein, are satisfied, the PCIT cannot revise the assessment order u/s.263 of the Act. In this case, the PCIT has set aside the assessment order passed by the AO on the issue of loss on sale of investment with sister company. According to the PCIT, the assessee has debited loss on sale of investment into P & L A/c, even though, such loss is a capital loss, but the AO has allowed the claim of the assessee without making proper enquiry. The PCIT further noted that as per Explanation-2 to Section 263 of the Act, assessment order can be treated as erroneous in so far as it is prejudicial to the interest of the Revenue, if the order is passed without making enquiries or verification which should have been ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd has applied his mind to relevant facts in right perspective of law. Therefore, we are of the considered view that merely for the reasons that the AO has not discussed the issue in his assessment order, it does not call for interference from the PCIT by exercising his powers conferred u/s.263 of the Act, because, assessment order passed by the AO is definitely not erroneous. This view is fortified by the decision the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT reported in [2000] 243 ITR 83 (SC), where it has been clearly held that the PCIT cannot assume jurisdiction and revise the assessment order, unless the PCIT satisfies that assessment order passed by the AO is erroneous in so far as it is prejudicial to the interest of the Revenue. 11. Having said so, let us examine whether the assessment order passed by the Assessing Officer is prejudicial to the interest of the Revenue. It is a well settled principle of law by the decision of various courts that in order to invoke jurisdiction u/s.263 of the Act, twin conditions embedded therein must be satisfied. As per said section, the assessment order passed by the AO must not only be erroneous but should b....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... when the group companies were delaying installation and commencement of the unit and its business did not take off as initially projected, the assessee decided to upload investment in M/s.ACIPL as the same was not worthwhile any more due to the prevailing conditions. Therefore, the assessee has sold its investments which resulted in loss of Rs.23.32 Crs. Since, the main reason for holding the investment in group company is to derive business advantage and further said investment is held for the purpose of business, any gain/loss arising on sale of said investment should be treated as 'profits and gains' from the business or profession. This view is supported by the decision of the Hon'ble Bombay High Court in the case of CIT v. Colgate Palmolive (India) Ltd.(supra), where it has been clearly held that when investment in subsidiary company is for the purpose of its business and the loss on sale of shares has to be held to be a business loss as the investment was made nothing but a measure of commercial expediency to further the business objectives. The SLP filed by the Department against the said judgment has been dismissed by the Apex Courts. The sum and substance of the ratio lai....
X X X X Extracts X X X X
X X X X Extracts X X X X
....thorities 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 an agreement dated 13.11.1998 (Page 10 of the paper Book) betwe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rn 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d 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 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 t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 w....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....usiness 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....