TaxTMI 
TaxTMI 
2026 (7) TMI 609
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....ocessed under section 143(1) on 09.11.2022 at the same total income. Thereafter, the case was selected for scrutiny and an assessment order under section 143(3) read with section 144B was passed on 18.03.2024. The record shows that, pursuant to the scheme of amalgamation approved by the NCLT by order dated 07.02.2023, Madura Microfinance Ltd. was amalgamated with the assessee company with retrospective effect from 01.04.2020. Accordingly, the assessee filed a modified return for A.Y. 2022-23 under section 170A of the Act to give effect to the amalgamation. The modified return, filed on 26.08.2023 vide acknowledgement No. 209681391260823, declared a total income of Rs. 4,54,33,58,600/-. The assessment for A.Y. 2022-23 was completed under section 143(3) read with section 144B by order dated 18.03.2024 at an assessed income of Rs. 6,01,59,08,131/-, after considering the modified return. In the assessment order, the Assessing Officer disallowed the provision for bad debts not written off in the accounts under section 36(1)(viia), amounting to Rs. 111,94,45,789/-, and preliminary expenses under section 35D, amounting to Rs. 5,79,19,225/-. 3. On perusal of the assessment order dated 1....
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....r be deemed to have been transferred to the transferee company, which would be entitled to such claim. The scheme also permitted the transferee company, upon the scheme becoming effective, to revise and file income-tax and other statutory returns, as applicable, and expressly reserved its right to make such claims, provisions, refunds or credits, notwithstanding expiry of the statutory period for such revision or filing. A copy of the scheme of amalgamation was filed as Annexure-2. The assessee submitted that the claim in the modified return arose only because a combined return was filed consequent to the merger of the two entities. Further, as a matter of abundant caution, the assessee had filed a modified Form 3CD, and the details of the combined claim under section 80JJAA arising from the merger were disclosed in clause 33 of the revised tax audit report filed on 26.08.2023. A copy of Form 3CD was filed as Annexure-3. It was also submitted that Rule 19AB read with Form 10DA does not require filing of a revised report merely because a modified return under section 170A is filed. The report already submitted and forming part of the assessment record was sufficient compliance with ....
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....thin the meaning of Explanation 2 to section 263 of the Income-tax Act, 1961. Accordingly, the assessment order was set aside, and the Assessing Officer was directed to revise the assessment in accordance with law after examining the assessee's claim under section 80JJAA, in addition to the issues already examined. The Assessing Officer was also directed to conduct the necessary enquiries and verification, follow the applicable CBDT instructions, give the assessee an opportunity to produce supporting evidence and explain why the proposed addition or disallowance should not be made, and thereafter consider the facts, enquiry results, and the assessee's explanation. 8. Assessee is in appeal before us. 9. The ld Authorized Representative submits that:- 1. The Appellant is a company incorporated under the provisions of Companies Act, 1956. The Company is registered as a non-deposit accepting Non-Banking Financial Company with the Reserve Bank of India and got classified as Non-Banking Financial Company - Micro Finance Institution with effect from September 5, 2013. 2. The Appellant is engaged in the business of providing micro finance loans to rural women who ar....
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....s allowed the appeal in favour of the Appellant with respect to disallowance of amount claimed as other deduction. However, Ld. CIT(A) order is silent with respect to the allowance of part deduction claimed under section 80JJAA to the tune of Rs. 13,20,881. A copy of the CIT(A) order is enclosed in Annexure 3. Since, order has not dealt with the Appellant's ground relating to claim of deduction under section 80JJAA, the Appellant has filed a rectification petition under section 154 of the Act requesting the Ld. CIT(A) to rectify the order to the extent of claim of deduction under section 154 of the Act. A copy of the rectification petition is enclosed in Annexure 4. 10. While the appeal was pending before. Ld. CIT(A), the Ld. Principal Commissioner of Income Tax ("Ld. PCIT") issued notice dated 16ª July 2025 issued under section 263 of the Act proposing to set aside the original assessment order on the ground that the Assessing officer has erred in allowing deduction under section 80JJAA of the Act. 11. Thereafter, the Ld. PCIT passed the order under section 263 of the Act dated 17th November 2025 setting aside the original assessment order and directing ....
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....ld like to submit that Ld. PCIT has proceeded on an erroneous presumption that no details apart from Form 10DA was called for and filed during the assessment proceedings. iii. The Appellant would like to refer to Annexure 6 wherein the notice issued by the Assessment Unit during the assessment proceedings dated 14th February 2024 is enclosed. In para 3 of the notice, the Assessment Unit has called for details relating to claim of deduction under section 80JJAA including the following details: * Details of additional employees such as Name, PAN and address * Documentary evidence in respect of the claim * Rationale/ justification for the claim made under the section iv. In reply to the notice, the Appellant has furnished a detailed response vide letter dated 26thFebruary 2024. Copy of the response along with data submitted is enclosed in Annexure 7. Inthe response, the Appellant has provided the following detailed documentation in support of the deduction claimed under section 80JJAA * Year-wise break up of the deduction claimed under section 80JJAA * Detailed computation for the deduction claimed. This computation captur....
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....g the course of assessment proceedings and drawn conclusions as to whether the order is erroneous and prejudicial to the interests of revenue after giving proper reasons based on enquiry conducted and details submitted during the assessment proceedings. ix. This demonstrates that Ld. PCIT has not properly appreciated the record of the documents and details submitted during the assessment proceedings before passing the order under section 263 of the Act and has remanded the matter back to the Assessment Unit in a mechanical manner. There are plethora of rulings wherein it has been held that revisionary powers under section 263 cannot be invoked in a mechanical manner. x. In this regard, the Appellant relies on the Hon'ble Jammu and Kashmir High Court ruling in the case of Commissioner of Income-tax, Jammu vs. Green Fields Commercial (P.) Ltd. 120151 57 taxmann.com 64 (Jammu & Kashmir) wherein the High Court held as below: "The assessee-company submitted a detailed reply to the notice issued, controverting all factual aspects of the case reflected in the notice. The Commissioner surprisingly in its order did not deal with detailed reply supported by rea....
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.... Refer Annexure CL-2 ii. Primary reasoning of the Ld. PCIT to set aside the assessment order as erroneous and prejudicial to the interests of the Revenue is that no details related to deduction under section 80JJAA were filed during the assessment proceedings and the Assessing Officer has not verified the same and the deduction under section 80JJAA is not allowable in the event of business reorganization. iii. The Appellant submits that neither of it is factually correct in this case. As already elaborated above, detailed submission along with all documentary evidence was made with respect to the deduction during the assessment proceedings. Further, the provisions of clause (b) to section80JJAA(2) of the Act are not even applicable in the facts of the case. This is elaborated further in Para 4). Therefore, the premise on which the Ld. PCIT concludes that assessment order is erroneous and prejudicial to the interests of the revenue is not valid. iv. The entire computation details along with documentary evidence was submitted during the assessment proceedings. The fact that there was an amalgamation was also communicated to the Assessment Unit vide ....
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....ries raised or the answers given thereto. But the fact is, the Assessing Officer had issued a questionnaire under section 142(1) raising 34 questions on various issues and assessee had given an explanation and also submitted materials. It is viewed that once a notice is issued and assessee is called upon to show cause or give explanation or submit documents and assessee has complied, not giving a finding or discussing the same would mean that the Assessing Officer was satisfied with the explanation given by the assessee." Refer Annexure CL-4 ix. The Appellant would like to rely on the following rulings in this regard: * Supreme Court in the case of Commissioner of Income-tax vs. M. Chandra Sekhar [1985] 20 Taxman 3 (SC)/[1985] 151 ITR 433 (SC) * Jurisdictional High Court in the case of Commissioner of Income-tax, Bangalore vs. Saravana Developers [2016] 68 taxmann.com 148 (Karnataka) (Refer Annexure CL-5) * Jurisdictional High Court in the case of PCIT vs Chemsworth (P.) Ltd. [2020] 119 taxmann.com 358 (Karnataka) (Refer Annexure CL-6) * Delhi High Court in the case of Leisure Wear Exports Ltd. [2011] 11 taxmann.com 54 (Delhi) ....
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.... iii. This position was upheld by the Hon'ble Supreme Court ruling in the case of PCIT vs V-Con Integrated Solutions Pvt Ltd 120251 173 taxmann.com 774 (SC)/[2025] 304 Taxman 598 (SC)/[2025] 476 ITR 526 (SC)(04-04-20251. Relevant extract from the ruling is provided below: "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 adecision on merits and by making an addition or disallowance. Refer Annexure CL-3 iv. In this case, it is beyond doubt that verification was conducted by the Assess....
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....ll not be available in the event of business reorganization. Since, in this case, there is an amalgamation of the Appellant with MMFL w.e.f. 1st April 2020, the Appellant shall not be eligible to claim the deduction of Rs. 7,57,15,461 which includes the deduction of Rs. 13,20,881 claimed on account of MMFL. ii. In this case, the Appellant is already engaged in the business as a Micro Finance NBFC. The Appellant was incorporated in the year 1991 and it has been engaged in the NBFC business since its incorporation. As per its business requirement, the Appellant employs new employees in respect of which it is entitled to claim deduction under section 80JJAA subject to satisfaction of other conditions prescribed therein. iii. During the year, the Appellant had claimed in its original income tax return deduction under section 80JJAA to the tune of Rs. 7,43,94,580. Break up of that is provided below: Financial Year Year of claim Amount of additional employee cost Amount of deduction (30%) FY 2021-22 1st year 9,82,92,758 2,94,87,827 FY 2019-20 3rd year 14,96,89,186 4,49,06,756 Total 7,43,94,580 iv. As....
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....e, the effect of business reorganization i.e., transfer of business along with the employees is nowhere given effect to in the claims made by the respective Companies. x. This is also true because the scheme of amalgamation clearly provides that employees of MMFL as on the Effective date of the amalgamation shall become employees of the Appellant upon the scheme becoming effective. Relevant extract of the scheme is provided below: "Upon the coming into effect of this Scheme, all Employees as on the Effective Date shall become the permanent employees of the Transferee Company on terms and conditions not less favourable than those on which they are engaged by the Transferor Company and without any interruption of, or break in service as a result of the transfer of the Undertaking. The past services of the Employees and benefits to which the Employees are entitled in the Transferor Company be taken into account for the purpose of payment of any compensation, gratuity and other terminal benefits by the Transferee Company." xi. As per the scheme of amalgamation, the Effective date of amalgamation is 15th February 2023 which is after the approval of scheme of a....
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....n respect of which the additional employee cost is incurred. Therefore, the test to be applied is what is the business in respect of which the deduction is claimed? and whether that business is acquired under a business reorganization? xix. The Appellant had claimed the deduction to the tune of Rs. 7,43,94,580 in respect of additional employees employed by it in the business carried on by itself and not in respect of business acquired by it under the amalgamation. The claim is made in respect of 796 additional employees employed by the Appellant during the year. As explained above, this does not include the employees who have joined the Appellant from MMFL pursuant to the merger. Therefore, there is no occasion for invocation of subsection 2(b) of section 80JJAA. xx. In this regard, the Appellant would also like to refer to the object and purpose of the section as explained vide CBDT Circular No. 772 dated 23-12-1998. Relevant extract from the Circular is provided below: "45.1 Despite increase in employment of new workmen, economic growth and the employment growth rate has not been high enough to absorb addition to the workforce. In order to encourage emp....
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....reasonably and liberally. It also being on account of the fact that section 80.1J-AA relating to deductions under Chapter is an incentive and, therefore, has to be read liberally. In this aspect, we are also supported by the decision of the Apex Court in Mavilayi Service Co-operative Bank Ltd.'scase (supra), wherein the Apex Court has held that a benevolent provision has to be read liberally and reasonably and if there is an ambiguity in favour of the Assessee. xxiv. Bearing the above principle in mind, the anti abuse provision contained in sub section 2(b) must be interpreted in a manner which serves its purpose. The section denies the deduction when the business is acquired under business reorganization for the reason that although employees acquired by the transferee due to business reorganization are new employees from the perspective of the transferee but it does not create any new employment opportunities. Rather it only transfers the existing set of employees from one entity to another. Therefore, it provides that if the business is acquired by way of transfer or business reorganization, then the additional employment cost of such business will not be a....
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.... appeal before the Commissioner of Income Tax (Appeals) on both the grounds including the disallowance of 80JJAA deduction. A copy of the grounds of appeal is enclosed in Annexure 9. iii. Thus, it is clear that both at the time of invocation of proceedings under section 263 and at the time of passing of order under section 263, the matter relating to claim of deduction under section 263 was pending before the Commissioner of Income Tax (Appeals). iv. Explanation 1(c) to section 263(1) clearly provides that the powers of Principal Commissioner under the section shall be extended to only matters which had not been considered in the appeal. So, in respect of matters which are pending before the Commissioner of Income Tax (Appeals), the PCIT cannot invoke his revisionary powers. v. This position was upheld by the Hon'ble Allahabad High Court in the case of Commissioner of Income Tax, Meerut vs. Vam Resorts & Hotels (P.) Ltd. [2019]111 taxmann.com 62 (Allahabad) wherein the Court held that where an appeal is pending before the Commissioner, the exercise of jurisdiction under section 263 is barred. Refer Annexure CL-8 vi. The Appellant would also l....
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...., it is not mandatory under the Act to furnish the revised Form 10DA along with the modified return under section 170A. v. Further, the Ld. PCIT erred in not appreciating the fact that the Appellant is not making any fresh claim of deduction under section 80JJAA. Having already claimed the deduction under section 80JJAA in its original return of income, the Appellant had claimed the deduction pertaining to MMFL's portion in its modified return of income which is also duly certified under a Form 10DA filed by MMFL. The claim made by the Appellant is duly certified by the Accountant and can be easily verified from the original Form 10DA filed by the Appellant and MMFL. vi. Without perjudice to above, even assuming without admitting that filing of revised Form 10DA was required in this case, substantial claim of the Appellant cannot be denied merely due to procedural omission to file the revised Form. There are plethora of rulings which confirm thatfiling of Form 10DA is procedural in nature. In this regard, the Appellant would like to rely on the following rulings: * Deputy Jurisdictional ITAT in the case of IFLSamasta Finance Ltd. vs. Deputy Commission....
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....ed by the Assessing Officer and referred to paragraphs 30 to 34 of the assessee's letter, which explained each aspect of the deduction claimed. He further submitted that the assessee had merely aggregated the deduction claimed by the original company, amounting to Rs.7,43,94,580, and the deduction relating to the amalgamating company, amounting to Rs.13,20,880, resulting in a total claim of Rs.7,57,15,461. According to him, the letter dated 26 February 2024 submitted before the Assessing Officer fully explained the computation, statutory basis and eligibility of the claim. On merits, he submitted that the issue is squarely covered in favour of the assessee by the decision of the Hon'ble Karnataka High Court in Commissioner of Income-tax, LTU v. Texas Instruments India (P.) Ltd. [2021] 127 taxmann.com 59 (Karnataka). He further submitted that neither the Act nor the Rules require filing of a revised Form 10DA in these circumstances. Referring to the decision of the Hon'ble Supreme Court in PCIT v. V-Con Integrated Solutions Pvt. Ltd. [2025] 476 ITR 526, he submitted that the learned PCIT had not identified any further enquiry that the Assessing Officer was required to make. He also ....
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.... support of the claim. 13. During the assessment proceedings, the Assessing Officer issued a notice under section 142(1) of the Act dated 14 February 2024, calling upon the assessee to furnish recruitment details in support of its deduction claim of Rs.7,43,94,583 under section 80JJAA. In paragraph 3 of the notice, the assessee was required to provide details of additional employees, including their names, PANs, complete postal addresses and the additions made during the year. The assessee was also asked to submit supporting documentary evidence and the rationale and justification for the claim. In response, by letter dated 26 February 2024, the assessee furnished the details of additional employee cost of Rs.14,96,89,186 for the year ended 31 March 2020 and Rs.9,82,92,752 for the year ended 31 March 2022. On the aggregate additional employee cost, the assessee claimed deduction of Rs.7,43,94,583, being 30% thereof. The assessee also furnished Form 10DA before the Assessing Officer, along with a sheet containing the complete list of new employees added during the year. The claim was further supported by pay slips of the employees treated as additional employees for the purpose o....
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.... the assessment order contained no discussion on the deduction under section 80JJAA. On this basis, he held that the assessment order was erroneous in so far as it was prejudicial to the interests of the Revenue. 17. We find that the Assessing Officer examined the assessee's claim fordeduction of Rs.7,43,94,580 under section 80JJAA.In response to the notice issued under section 142(1) of the Act, the assessee furnished details of additional employees, additional employee cost and a tabulated explanation showing compliance with the conditions prescribed under section 80JJAA. The assessee also submitted pay slipsand an employee-wise Excel sheet containing the relevant particulars and corresponding additional employee cost. The claim was further supported by Form 10DA prescribed under the Income-tax Rules. In the return filed after amalgamation, the assessee explained that its own deduction claim remained Rs.7,43,94,580 and that the deduction of Rs.13,20,880 claimed by the amalgamating company was merely aggregated, resulting in a total claim of Rs.7,57,15,461. Thus,the amalgamation did not increase the assessee's own eligible claim. We have also considered the definition of 'busin....