TaxTMI 
TaxTMI 
2026 (9) TMI 769
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...., is bad in law and on facts and circumstances of the case. 2. The CIT(A) has erred in law in upholding the action of the AO in rejecting the rectification application made by the Appellant against the addition made in the intimation issued under section 143(1) of the Act on the basis that the same is beyond the scope of rectification. 3. The CIT(A) and the AO have erred in law in taking contrary stand of rejecting the rectification application on the basis that the subject issue requires deeper scrutiny on the one hand, and upholding the addition made in the intimation under section 143(1) on the other hand. 4. The CIT(A) has erred law in not appreciating that the submission made by the Appellant were not considered as mandated under second proviso to section 143(1)(a) of the Act and that the relevant documents were filed by the Appellant before the AO at the instance of AO himself through the grievance redressal mechanism. 5. Without prejudice the above, the adjustment proposed under Sec.143(1)(a)(iv) by way of addition of the diminution in the value of its investment in subsidiary to the returned income, is wholly unjustified and unsustainable....
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....ome under the purview of rectification under section 154 of the Act. 5. The learned CIT(A), vide impugned order, dismissed the appeal filed by the assessee and held that the issue is beyond the scope of rectification under section 154 of the Act as the assessee's claim of allowance of diminution in the value of investment in subsidiary requires deeper scrutiny of the case for which the assessee would need to file necessary documents. Being aggrieved, the assessee is in appeal before us. 6. We have considered the submissions of both sides and perused the material available on record. In the instant case, the assessee, being an IT consulting and services company, acquired OSS Cube LLC, a U.S.-based digital transformation company, in the year 2017, with the objective of reaching USD 100 million and strengthening its position as a world-class service provider. As per the assessee, the said acquisition was made to further strengthen and expand the assessee's portfolio of transformative offerings in the consulting-led digital space. Through this acquisition, a team of 240 employees from the new subsidiary joined the workforce of around 2200 employees of the assessee and expanded it....
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...., and therefore, this issue is certainly beyond the scope of the provisions of section 154 of the Act. 8. As per the assessee, since the decision of investment in the wholly-owned subsidiary was a conscious decision for strengthening and expanding the already existing business operations of the assessee, any reduction in the value of such investment is the revenue expenditure. In this regard, the assessee has placed reliance upon the decision of the Hon'ble Jurisdictional Karnataka High Court in Ace Designers Ltd. (supra). From the perusal of this decision, we find that in the facts of that case, the taxpayer had set up an establishment in the USA for the exclusive purpose of marketing its products and for promoting its business in the USA and Latin America. Subsequently, the taxpayer invested funds and equity to meet the revenue expenses of the wholly-owned subsidiary. However, the wholly owned subsidiary subsequently failed to meet the taxpayer's expectations, and it was therefore decided to wind up its operations in the USA. Accordingly, after receiving the necessary approvals, the taxpayer wrote off the entire investment in the wholly owned subsidiary, and the loss was claim....
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....been noted by Income-tax Appellate Tribunal, New Delhi Bench in its order dated 31-12-2018 in Cosmos Industries Ltd. (supra) In Patnaik & co. Ltd. (supra), it was held that the assessee did not hold on the investment the loan indefinitely and there was no enduring advantage and the investment did not bring in an asset of a capital in nature and the loss suffered by the assessee was a revenue loss and not a capital loss. In Investa Industrial Coporation Ltd.,(supra), the division Bench of the High court dealt with a question whether the finances made by the assessee to manage the company were part of or incidental to carrying on a business by the assessee a and since, the managed company went into liquidation the advances became irrecoverable, the loss sustained by the assessee shall be regarded as trading loss. 7. In the backdrop of aforesaid well settled legal position, the facts of the case in hand may be adverted to. From the perusal of the note annexed to the income filed before the assessing officer, it is evident that assessee had set up an establishment in USA during Financial Year 1992-93 for the exclusive purpose of marketing assessee's products and for promot....
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....s contained against the assessee is quashed. Accordingly, the appeal is allowed." 9. It is pertinent to note that the Hon'ble Jurisdictional Karnataka High Court rendered its decision in Ace Designers Ltd. (supra) on 09/09/2020, while the CPC rejected the contention of the assessee and made the adjustment by disallowing the diminution in the value of investment in the wholly-owned subsidiary vide intimation dated 19/11/2020. Thus, on the date of issuance of the intimation under section 143(1) of the Act, the decision of the Hon'ble Jurisdictional Karnataka High Court in Ace Designers Ltd. (supra) was already pronounced. Further, when the said decision was specifically brought to the attention of the AO by way of rectification application under section 154 of the Act, the plea of the assessee was rejected on technical grounds. 10. From the record, it is evident that the CPC issued intimation under the first proviso to section 143(1) of the Act, proposing to make impugned adjustment under clause (ii) and clause (iv) of section 143(1)(a) of the Act. Therefore, before proceeding further, it is pertinent to note the relevant provisions of section 143(1)(a) of the Act, whi....
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.... section 143(1) of the Act, once the intimation is issued to the assessee and the order under section 143(1)(a) of the Act is passed after seeking the assessee's response, the CPC is discharging a quasi-judicial function. Therefore, we are of the considered view that, being a quasi-judicial authority, the CPC cannot take a view contrary to the binding decisions of the Hon'ble Jurisdictional High Court, and the Tax Audit Report cannot be the reason enough to disregard the binding decision of the Hon'ble Jurisdictional High Court. In the present case, since the assessee is assessed to tax in Bangalore and the Hon'ble Karnataka High Court is the Hon'ble Jurisdictional High Court for all matters pertaining to the assessee, the CPC is bound by the decision of the Hon'ble Jurisdictional High Court. 13. It is pertinent that after the CPC disallowed the diminution in the value of investment in subsidiary, the assessee filed a rectification application under section 154 of the Act on this issue, specifically placing reliance upon the decision of the Hon'ble Jurisdictional High Court in Ace Designers Ltd (supra). However, the Jurisdictional AO, vide order dated 23/06/2023, passed under se....