Madras High Court
Ms Grace Infrastructure Private … vs The Principal Commissioner Of Income … on 20 July, 2026
Author: C.Saravanan
Bench: C.Saravanan
W.P.No.18451 of 2025
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Reserved on 22.04.2026
Pronounced on 20.07.2026
CORAM
THE HONOURABLE MR.JUSTICE C.SARAVANAN
W.P.No.18451 of 2025
and
W.M.P.No.20670 of 2025
M/s. Grace Infrastructure Private Limited
Represented by its Managing Director
Mr.A.L.Shah
A-5, Industrial Estate, Thattanchavadi
Pondicherry - 605009. ... Petitioner
Vs.
1. The Principal Commissioner of Income Tax-3
Income Tax Department
Main Building IV Floor,
No.121, Mahatma Gandhi Road
Nungambakkam, Chennai - 600 034.
2. The Assistant Commissioner Income Tax Officer, Circle-1
Office of the Assistant Commissioner Income Tax
M.G.Road, Puducherry – 605 003. ... Respondents
Writ Petition filed under Article 226 of the Constitution of India, for
issuance of a Writ of Certiorari, calling for the records of the 2nd respondent
relating to the Impugned order in PAN: AACCG1992N dated 30.03.2025 in
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DIN & Order No. ITBA/REV/F/REV5/2024-25/1075280540 (1) passed
under Section 263 of the Income Tax Act, 1961, for the Assessment Year
2020-21 and quash the same.
For Petitioner : Mr.K.Ravi
Senior Counsel
For Rugan and Arya
For Respondents : M/s.Dr.C.P.Priya
Senior Counsel
ORDER
In this writ petition, the petitioner has challenged the impugned order
dated 30.03.2025 passed by the 1st respondent under Section 263 of the
Income Tax Act, 1961, for the Assessment Year 2020-2021.
2. The impugned order was preceded by a show cause notice dated
05.03.2025. By the impugned order, the assessment order passed under
Section 143(3) on 30.09.2022 has been revised.
3. The brief facts that are relevant for disposal of the present writ
petition are that the petitioner company had two divisions, namely, the Wind
Mill Energy Division and the Nut Division. The company was engaged in the
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W.P.No.18451 of 2025
generation of wind power and the manufacture of nuts, bolts, screws and
other similar metal products.
4. The petitioner company was demerged under Section 232 of the
Companies Act, 2013 by the Scheme of Amalgamation and Arrangement
(Demerger) as per the Common Order dated 04.03.2021 in C.P.Nos.208 to
211 of 2020 in C.A.Nos.1211 to 1214 of 2019 sanctioned under Sections 230
to 232 of the Companies Act, 2013.
5. By virtue of the aforesaid demerger, the Nut Division has been
hived off and merged with a resulting company viz., Fastenex Private
Limited. As per the sanctioned scheme of demerger, the effective date of the
demerger was 01.04.2019.
6. The assessment order dated 30.09.2022 was passed in response to a
revised Return of Income filed by the petitioner company on 31.03.2021.
However, the due date for filing the revised Return of Income had already
expired on 15.02.2021.
7. While the petitioner was required to file their tax audit report by
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W.P.No.18451 of 2025
15.01.2021, they filed it only on 31.03.2021 i.e., the same day the revised
return was submitted. Thus, in the assessment order itself, it has been stated
that the petitioner was to be separately proceeded under Section 271D of the
Income Tax Act, 1961, for the imposition of penalty.
8. The revised return that was filed on the date mentioned above was
filed only after the aforesaid order of the NCLT was passed on 04.03.2021,
wherein the scheme of Demerger was sanctioned with the effective date of
the demerger as 01.04.2019. It is in this background, the petitioner has filed
the revised Return of Income on 31.03.2021.
9. The assessment that was completed on 30.09.2022 was preceded by
a notice dated 29.06.2021 under Section 143(2) of the Income Tax Act, 1961,
which inter alia contemplates that,-
“Where a return has been furnished under section 139, or
in response to a notice under sub-section (1) of section 142, the
Assessing Officer or the prescribed income-tax authority, as the
case may be, if, considers it necessary or expedient to ensure that
the assessee has not understated the income or has not computed
excessive loss or has not under-paid the tax in any manner, shall
serve on the assessee a notice requiring him, on a date to be
specified therein, either to attend the office of the Assessing
Officer or to produce, or cause to be produced before the
Assessing Officer any evidence on which the assessee may rely in
support of the return:
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W.P.No.18451 of 2025Provided that no notice under this sub-section shall be served on
the assessee after the expiry of six months from the end of the
financial year in which the return is furnished.]”
10. It is in this background, the petitioner filed a reply on 12.07.2021.
A communication to that effect was also issued by the department on
17.12.2021 stating that the assessment was getting time-barred, and therefore,
requested the petitioner to furnish the PAN details of the demerged entity.
This was complied with by the petitioner by a reply dated 20.12.2021.
11. The petitioner was thus called upon by the 2 nd respondent on
11.02.2022 under Section 142(1) to furnish the following documents:
“1. Income Computation segment wise of original and received
returns for the financial year 2019-20.
2. What are the operations performed by the demerged entity?
Explain with proof that the income of the demerged entity has
been returned in the returns of the resultant company (M/s
Fastenex Limited) and taxes paid there on.
3. Give details of schedule of assets and liabilities before and
after the demerger and at what values they are transferred to the
resultant company.
4. Explain the depreciation schedule for the financial year 2019-
20. What is the WDV of the assets of the existing company and
WDV of assets transferred in the demerged company?
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W.P.No.18451 of 2025
5. Details of 80 IA deductions claimed with supporting
documents.
6. Reasons for large claim of refund.
7. Give reasons of loss from currency fluctuations if any.
8. Copy of GSTR return furnished during the financial year
2019-20. Explain the difference in turnover if any.
9. Give reasons for the mismatch in purchases and import data
as per ITR and CBEC date and reconcile the same.
10. What is the stock held by the company before and after the
demerger and explain the differences in closing and opening
stock during the FY 2019-20?”
12. It is noticed that the petitioner had responded to the same in its
reply dated 23.02.2022. As far as Serial No.3 in the Section 142(1) notice
dated 11.02.2022 is concerned, the petitioner had given the following details:
“3. Give details of schedule of assets and liabilities before and
after the demerger and at what values they are transferred to
the resultant company.
a) Enclosed the details of schedule of Assets and Liabilities dt.
21.12.2020 before demerger-Annexure-IV (GIPL-Consolidated
Nut division and Wind Division)
b) Enclosed the details of schedule of Assets and Liabilities
dt.05.03.2021 after demerger-Annexure-V (Grace Infrastructure
Pvt Ltd – Wind Division only)
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W.P.No.18451 of 2025
c) Consequent to the NCLT Order, an actual values of all the
Assets and liabilities of Nut division has been transferred to
Fastenex Pvt Ltd.”
13. Thus, it is evident that pursuant to the NCLT Order dated
04.03.2021, the information furnished by the petitioner before the respondent
was not based on the audited balance sheet following the demerger. Instead,
the petitioner explained the same through their Chartered Accountant on
13.09.2022 in the form of a reply.
14. The balance sheet enclosed with the reply dated 13.09.2022
appears to be that of 31.03.2020, signed on 21.12.2020 both by the Chartered
Accountant, namely R.Subramanian & Company LLP, and by the petitioner
company on behalf of the Board, and also countersigned by the company’s
secretary, namely Somayajula Venkat Shastry.
15. Thus, pursuant to the order of demerger dated 04.03.2021 of NCLT
(with an effective date of 01.04.2019), the profit and loss account and the
balance sheet of the petitioner company as of 31.03.2020 ought to have been
filed for a proper assessment under Section 143(3) of the Income Tax Act,
1961.
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16. The balance sheet that was filed on 21.12.2020 could not have
formed the basis for the revised Return of Income filed on 15.02.2021 or
31.03.2021, nor for the assessment order passed on 30.09.2022.
17. In fact, the law mandates that the petitioner should have filed a
proper revised return after the order of demerger was passed on 04.03.2021,
although there was no specific provision similar to Section 170A of the
Income Tax Act, 1961, which was inserted with effect from 01.04.2022.
18. The Hon’ble Supreme Court, while dealing with a situation similar
to the present case in Dalmia Power Limited vs Assistant Commissioner of
Income Tax [(2020) 14 SCC 736], after taking note of Section 139(5) and
Section 170 of the Income Tax Act, 1961, held as under:
“12. In the present case, the predecessor
companies/transferor companies have been succeeded by the
appellants/transferee companies who have taken over their
business along with all assets, liabilities, profits and losses, etc.
In view of the provisions of Section 170(1) of the Income Tax Act,
the Department is required to assess the income of the appellants
after taking into account the revised returns filed after
amalgamation of the companies.
19. The said case dealt with a demerged resulting company. The
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W.P.No.18451 of 2025
logical corollary flowing from the above position is that even the demerged
company will have to file a revised return after the profit and loss account is
prepared based on the audited balance sheet.
20. Section 139(5) and Section 170 of the Income Tax Act, 1961, are
reproduced below:-
Section 139(5) Section 170
If any person, having furnished a (1) An assessee shall make a
return under sub-section (1) or sub- secondary adjustment in every
section (4), discovers any omission or case where primary adjustment of
any wrong statement therein, he may one crore rupees or more to the
furnish a revised return at any time transfer price—
[before three months prior to the end]
of the relevant assessment year or (a) has been made by the assessee
before the completion of the on his own in his return of income;
assessment, whichever is earlier.
(b) made by the Assessing Officer
has been accepted by him;
(c) is determined by an advance
pricing agreement entered into by
him under section 168;
(d) is made as per the safe
harbour rules made under section
167; or
(e) is arising as a result of
resolution of an assessment by
way of the mutual agreement
procedure under an agreement
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W.P.No.18451 of 2025
entered into under section 159 for
avoidance of double taxation.
(2) The excess money or part
thereof available with its
associated enterprise shall be
deemed to be an advance made by
the assessee to such associated
enterprise if––
(a) as a result of primary
adjustment to the transfer price,
there is an increase in the total
income or reduction in the loss, as
the case may be, of the assessee;
and
(b) such excess money or part
thereof is not repatriated to India
within the time as may be
prescribed.
(3) The excess money or part
thereof referred to in sub-section
(2) may be repatriated from any of
the associated enterprises of the
assessee which is not a resident in
India.
(4) The interest on advance as
referred to in sub-section (2) shall
be computed in such manner as
may be prescribed.
(5) Without prejudice to the
provisions of sub-section (2),
where the excess money or part
thereof has not been repatriated
within the prescribed time, the
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W.P.No.18451 of 2025
assessee may, at his option, pay
additional income-tax at the rate
of 18% on such excess money or
part thereof, as the case may be.
(6) The tax on the excess money or
part thereof so paid by the
assessee under sub-section (5)
shall be treated as the final
payment of tax in respect of the
excess money or part thereof not
repatriated and no further credit
thereof shall be claimed by the
assessee or by any other person in
respect of tax so paid.
(7) Deduction under any other
provision of this Act shall not be
allowed to the assessee in respect
of the amount on which tax has
been paid as per sub-section (5).
(8) In a case where the additional
income-tax referred to in sub-
section (5) is paid by the assessee,
he shall not be required to make
secondary adjustment under sub-
section (1) and compute interest
under sub-section (4) from the
date of payment of such tax.
(9) For the purposes of this
section,—
(a) “arm’s length price” shall have
the meaning assigned to it in
section 173(a);
(b) “excess money” means the
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W.P.No.18451 of 2025
difference between the arm’s
length price determined in
primary adjustment and the price
at which the international
transaction has actually been
undertaken;
(c) “primary adjustment” to a
transfer price, means the
determination of transfer price as
per the arm’s length principle
resulting in an increase in the
total income or reduction in the
loss, as the case may be, of the
assessee;
(d) “secondary adjustment” means
an adjustment in the books of
account of the assessee and its
associated enterprise to reflect
that the actual allocation of profits
between the assessee and its
associated enterprise are
consistent with the transfer price
determined as a result of primary
adjustment, thereby removing the
imbalance between cash account
and actual profit of the assessee.
21. In this background, Section 263 notice dated 05.03.2025 was
issued to the petitioner to revise the assessment order dated 30.03.2025
passed by the 2nd respondent.
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22. In my view, Section 263 notice dated 05.03.2025 has noted the
discrepancies arising out of the revised Return of Income filed on 31.03.2021.
In Paragraph No.3 of the said notice, it has been inadvertently stated that
pursuant to demerger order, the petitioner had issued 1404278 shares at 5163
per share in consideration of the Net assets transferred to it.
23. The facts remain that pursuant to a business transfer due to a
demerger, the capital gains arising out of such a transfer are exempt under
24. Section 47(vib), as inserted by the Finance Act, 1999 with effect
from 01.04.2000, reads as under:
“any transfer, in a demerger, of a capital asset by the demerged
company to the resulting company, if the resulting company is an
Indian company.”
25. In the facts of the present case, the net value of the assets (other
equity) before the NCLT was shown as Rs.336,70,09,063. However, it is
noticed that the valuation of the said asset in the hands of the petitioner was
Rs.317,95,35,034.
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26. It is in this background, in the notice dated 05.03.2025 issued under
Section 263 of the Income Tax Act, 1961, the Assessing Officer stated as
under in Paragraph Nos.6 and 7:-
“6. However, the Assessing Officer without making proper
verification, which should have been made, has passed
assessment order without considering the above issue. In view of
the above, the order passed u/s. 143(3) r.w.s 144B of the Income
Tax Act on30.09.2022 by the Faceless Assessing Officer is
erroneous and prejudicial to the interest of revenue in terms of
clause (a) of Explanation 2 under sub-section(1) of section 263.
Hence, this is fit case for initiating proceedings u/s 263 of the
Income-tax Act, 1961.
7. You are therefore requested to show cause as to why the
order u/s. 143(3) r.w.s. 144B of the Income Tax Act dated
30.09.2022 passed by the Faceless Assessing Officershould not
be treated as erroneous and prejudicial to the Interest of
Revenue and to be revised u/s 263 of the Income-tax Act, 1961.
In this context, you may file your written submissions through e-
mail id ([email protected]) on or before
12.03.2025 @ 02.30 PM. If you desire you may appear in person
before the undersigned on the above date, on failure to do so, it
will be presumed that you have no objection to the proposal for
revision and the proceedings will be finalized.”
27. The share was valued at Rs.100, and the net book value of the
assets transferred to the resulting company was Rs.336,70,09,062. The net
worth of the demerged company before the demerger was shown as
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W.P.No.18451 of 2025
Rs.317,95,35,034. Thus, the cost of acquisition of shares in the demerged
company was calculated at Rs.106.
28. The above calculations have been explained in Paragraph No.5 of
the said show cause notice dated 05.03.2025, which is reproduced below:
“5. In this connection it is observed that in as much as the conditions
stipulated in sec.2(19AA) are not complied with, the transfer is not
eligible for exemption u/s.47(vib) and thus the shareholders of the
demerged company are required to be taxed with capital gains tax for the
shares allotted to them in consideration for the transfer of their shares in
the demerged company.
Original cost of shares of the demerged company = 100
Net book value of the assets transferred
to the resulting company = Rs.336,70,09,062Net worth of the demerged company
before demerger = Rs.317,95,35,034Cost of acquisition of shares
in the resulting company = Rs.106Calculation of Capital gains:
Consideration value = Rs.725,02,87,314 (5163*1404278)
Cost = Rs.14,88,53,468 (106*14042278)
Capital gains = Rs.710,14,33,846
(to be shared b/w the shareholders in the ratio of 94.8 and 5.2%)
29. It is in this background that the impugned order has been passed
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W.P.No.18451 of 2025
after considering the petitioner’s reply dated 18.03.2025.
30. It is evident that the impugned order has been passed in a hurry to
ensure that the proceedings are completed within the limitation period
prescribed under Section 263 of the Income Tax Act, 1961, while there is no
doubt that the Assessing Officer had a prima facie view that the assessment
that was completed earlier on 30.09.2022 was both erroneous and prejudicial
to the interest of the revenue.
31. The impugned order passed under Section 263 on 30.03.2025
suffers from non-application of mind. Therefore, I am of the view that the
impugned order is liable to be set aside, and the matter deserves to be
remitted back to the 1st respondent to pass a fresh order, as expeditiously as
possible, within a period of six months from the date of receipt of a copy of
this order.
32. It is noticed that the revised returns were filed before the 2 nd
respondent before the Audited Balance Sheets and Profit and Loss Accounts
were made ready. Therefore, the case is remitted back to the 1 st respondent
subject to the Petitioner filing a proper revised Return of Income based on the
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W.P.No.18451 of 2025
revised balance sheet and audited profit and loss account after the order was
passed by the NCLT on 04.03.2021, and the same may be taken in
consideration while passing a fresh order.
33. It is needless to state that the petitioner shall be heard, before the
final order is passed.
34. I deliberately refrain from expressing any opinion on the merits of
the case. Therefore, the respondent, while passing a de novo order, shall
decide the matter independently without being influenced by any
observations made in this order on the merits.
35. This writ petition is disposed of with the above directions. No
costs. Connected Miscellaneous Petition is closed.
20.07.2026
raja
Neutral Citation : Yes / No
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W.P.No.18451 of 2025
To
1. The Principal Commissioner of Income Tax-3
Income Tax Department
Main Building IV Floor,
No.121, Mahatma Gandhi Road
Nungambakkam, Chennai – 600 034.
2. The Assistant Commissioner Income Tax Officer, Circle-1
Office of the Assistant Commissioner Income Tax
M.G.Road, Puducherry – 605 003.
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C.SARAVANAN, J.
raja
Pre-delivery Order in
W.P.No.18451 of 2025
20.07.2026
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