AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2025 (11) TMI 1141
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....d Adjustment 5. High interest expenditure / finance costs" 3. The Assessing Officer completed the assessment u/s 143(3) of the Act on 21.09.2022 accepting the income returned by the assessee. 4. Subsequently the Ld. PCIT called for the record and examined the same and observed that the assessee in the computation sheet at Note No. 30 has noted as under: "The Debenture Holders, vide letters dated 04/02/2019 have revised the terms of debenture agreement and waived the right to receive the interest for the Financial Year 2018-19 on Optionally Convertible Debentures" 5. However, the Assessing Officer has not gone through the issue of cessation of liability u/s 41(1) of the Act to the extent of Rs. 7,25,50,622/-. The assessee has also not added the same to its total income. Similarly the Assessing Officer has also allowed the claim of Education Cess Allowance of Rs. 16,97,508/- which is not an allowable expenditure. He, therefore, issued a show cause notice u/s 263 of the Act asking the assessee to explain as to why the order passed by the Assessing Officer should not be revised as per the provisions of section 263 of the Act. 6. The assessee in response to....
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....s. Thus, the assessee submits that once it has not claimed * any expenditure of interest on the OCDs wherein there was waiver of interest, question of offering any amount to tax as cessation of liability u/s 41(1) in AY 2020-21 simply does not arise. In view of above, it is submitted that there is no cessation of liability at all and accordingly the assessment order passed u/s 143(3) is neither erroneous nor prejudicial to the interest of the revenue. In view of above we submit that there is no reason to revise the assessment order on the above issue. 2. Point 4-(ii) - Claim of deduction on account of Education Cess - In Para 4-(ii) of your notice, Your Honor has stated that the assessee has claimed deduction of Education Cess Allowance of Rs. 16,97,508/-. The Education Cess is not an allowable expense by the virtue of amendment in Section 40(ii) of Income Tax Act, 1961 in Finance Act, 2022 by clarifying that the term "tax" includes and shall be deemed to have always included any surcharge or Cess by whatever name called on such tax. According to Your Honor, the verification to examine the above issue has not conducted in the Assessment Order. Hence, Your Honor ha....
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.... at rest by the Finance Act, 2022 by clarifying that the term "tax" includes and shall be deemed to have always included any surcharge or Cess by whatever name called on such tax. Thus, the order passed seems to be prima facie erroneous in so far as it is prejudicial to the interests of the Revenue. 6. After the introduction of Explanation 2 to Sec. 263, it has been made clear as to what kind of assessment order shall be deemed to be erroneous in so far as it is prejudicial to the interest of the revenue. The Explanation 2 to Sec. 263 is reproduced below :- "Explanation 2 .- For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer [or the Transfer Pricing Officer, as the case may be.] shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal [Chief Commissioner or Chief Commissioner or Principal] Commissioner or Commissioner,- (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not bee....
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....NT PRASAD PCIT, Pune-4 8. Aggrieved with such order of the Ld. PCIT, the assessee is in appeal before the Tribunal by raising the following grounds: 1] The learned Pr. CIT erred in revising the asst. order u/s and directing the A.O. to verify the issue of the income taxable u/s 41(1) on account of waiver of right to receive interest by the debenture holder. 2] The learned Pr. CIT erred in holding that the learned A.O. had failed to examine the taxability of business liability written off u/s 41(1) and hence, the asst. order to that extent was erroneous and prejudicial to the interest of the revenue. 3] The learned Pr. CIT failed to appreciate that the assessee had not claimed any expenditure of interest on the OCDs wherein there was waiver of interest in the earlier year and hence, there was no question of cessation of liability u/s 41(1) and accordingly, the learned Pr. CIT erred in revising the asst. order passed by the learned A.O. 4] The learned Pr. CIT ought to have appreciated that there was no waiver of interest in the year under consideration and hence, no amount was taxable u/s 41(1) of the Act and therefore, the question of learne....
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....ordingly submitted that invoking of section 263 provisions by Ld. PCIT on wrong appreciation of facts is incorrect. 11. So far as the issue relating to education cess is concerned, he drew the attention of the Bench to the reply given before the Ld. PCIT on this issue. He submitted that following the amendment incorporated by the Finance Act, 2022, CBDT notified Form No.69 for applying for computation of income due to disallowance of surcharge / cess. Referring to pages 65 and 66 of the paper book, he drew the attention of the Bench to the Form No.69 filed by the assessee computing its income without claiming the education cess / allowance. Referring to para 5.1 of the order of the Ld. PCIT at page 5 he drew the attention of the Bench to the reasons for invoking jurisdiction u/s 263 of the Act. 12. Referring to the decision of the Pune Bench of the Tribunal in the case of Desai Infra Projects (I) Ltd. vs. Pr.CIT vide ITA No.1851/PUN/2024 order dated 23.05.2025 for assessment year 2020-21, he drew the attention of the Bench to paras 10.1 and 11 of the said order and submitted that the Tribunal in the said decision has held that even if the issue is set aside to the file of the....
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.... orders of the Assessing Officer and Ld. PCIT and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Ld. PCIT in the instant case invoked his revisionary powers u/s 263 basically on 2 issues - (1) cessation of liability u/s 41(1) of the IT Act, 1961 on account of surrender of right to receive interest on Optionally Convertible Debentures by the Debenture Holders and (2) claim of deduction on account of Education Cess Allowance. So far as the first issue i.e. cessation of liability u/s 41(1) is concerned, we find the Ld. PCIT observed that since the debenture holders have surrendered their right to receive interest of Rs. 7,25,50,622/- and the assessee has not added such cessation of liability as income u/s 41(1) of the Act but has claimed the same as expenditure and the Assessing Officer has not examined the issue of taxability of business liability written off u/s 41 or any other section, therefore, the Assessing Officer has failed to verify the same for which the order has become prima facie erroneous in so far as it is prejudicial to the interest of Revenue. So far as the 2nd issue is concerned, he noted tha....
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....ification dated 28.09.2022. We find in compliance with this the assessee company has filed Form No.69 on 23.03.2023, copy of which is placed at pages 65 to 66 of the paper book which is as under: 19. We, therefore, find merit in the arguments of the Ld. Counsel for the assessee that the assessment order passed u/s 143(3) of the Act should not be considered erroneous and prejudicial to the interest of Revenue. 20. We find the Hon'ble Delhi High Court in the case of PCIT vs. Delhi Airport Metro Express (P.) Ltd. (supra) while quashing the proceedings u/s 263 of the Act has observed as under: "10. For the purposes of exercising jurisdiction under section 263 of the Act, the conclusion that the order of the Assessing Officer is erroneous and prejudicial to the interests of the Revenue has to be preceded by some minimal inquiry. In fact, if the Principal Commissioner of Income-tax is of the view that the Assessing Officer did not undertake any inquiry, it becomes incumbent on the Principal Commissioner of Income-tax to conduct such inquiry. All that the Principal Commissioner of Income tax has done in the impugned order is to refer to the circular of the Central Board of ....
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.... pointing out the reasons for the formation of his belief that action u/s 263 is required on a particular order of the Assessing Officer. At this stage the opportunity to the assessee would be given. The learned Commissioner has to conduct an inquiry as he may deem fit. After hearing the assessee, he will pass the order. This is the 4th compartment of this section. The learned Commissioner may annul the order of the Assessing Officer. He may enhance the assessed income by modifying the order. He may set aside the order and direct the Assessing Officer to pass a fresh order. At this stage, before considering the multi-fold contentions of the ld. Representatives, we deem it pertinent to take note of the fundamental tests propounded in various judgments relevant for judging the action of the CIT taken u/s 263. 10.2. Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT (2000) 243 ITR 83 (SC)has laid down following ratio with regard to provisions of section 263 of the Act: "There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer; it is only when an order is ....
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.... called for. So far as investment made in equity shares of Nature Delight Dairy and Dairy Products P. Ltd., we find that the Hon'ble Delhi High Court in the case of PCIT vs. Era Infrastructure (India) Ltd. in ITA No.204/2022 dated 20/07/2022 held that disallowance u/s. 14A of the Act should not exceed the exempt income earned by the assessee during the year. Respectfully following the said judgment, we find that since the dividend income has not been earned from the investment in equity shares, no disallowance u/s. 14A of the Act is called for on the alleged investment in equity shares. To conclude, we find that since the assessee had not made any investment in Kalyan Raj Desai JV and has not earned dividend income from investment in equity shares of NDDADPPL, no disallowance u/s. 14A is called for. Thus, even if the issue is set aside to the file of the Ld.AO for necessary enquiry, no disallowance will be called for and, therefore, no prejudice is caused to the Revenue." 22. Since in the instant case the assessee has debited interest of Rs. 7.26 crores which is on account of the non-convertible debentures issued to KKR India Asset Finance Ltd. and not in respect of OCDs in ....