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The Income Tax Appellate Tribunal (ITAT) Mumbai has held that the revisionary proceedings invoked under section 263 of the Income Tax Act cannot be sustained against Tata Teleservices (Maharashtra) Limited as there is no prejudice to the revenue.

The assessee, a company providing cellular telecommunication communication services, filed its return of income for the relevant year declaring a loss of Rs. 475,90,34,534. The return was selected for complete scrutiny and the Assessment Officer (AO) assessed the total income at a loss of Rs. 317,09,44,630.

Subsequently, the Principal Commissioner of Income Tax (PCIT) initiated revisionary proceedings under section 263 of the Act, arguing that the Marked To Market (MTM) loss claimed by the assessee should not be allowed as it relates to capital expenses. The PCIT set aside the assessment order and directed a re-assessment as per their observations.

The ITAT Mumbai, however, held that for section 263 to be invoked, the assessment order must be both erroneous and prejudicial to revenue. In this case, since the MTM loss was reversed in the subsequent year and offered to tax, there was no prejudice to the revenue. Therefore, the revisionary proceedings under section 263 cannot be upheld. The impugned order passed by the PCIT was quashed.

It is important to note that additional grounds have been raised by the assessee in the appeal, challenging the legality and jurisdiction of the notice and order issued by the PCIT. Furthermore, the assessee argues that proper enquiry and verification were conducted by the AO regarding the claim of MTM loss, and that the lack of discussion in the assessment order does not imply lack of adequate enquiry.

The ITAT Mumbai did not delve into these additional grounds as the appeal was decided based on the lack of prejudice to revenue. The ITAT also mentioned that the PCIT had referred to prior court decisions and instructions in its order, which the ITAT deemed irrelevant in this case.

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