TaxTMI 
TaxTMI 
2025 (6) TMI 1107
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....se of inadequate enquiry or non-application of mind by AO. The issue raised by ld. PCIT in notice u/s 263 was already before the AO and as such the jurisdiction on this issue cannot be usurped by the ld. PCIT. 3. That on the facts and in the circumstances of the case, the ld. Principal Commissioner of Income-tax erred in passing the impugned order u/s 263 of the Income-tax Act by holding that the AO failed to examine the 'Interest claimed as part of the capital cost' u/s 48, which is wholly unjustified, bad in law and deserves to be quashed. 4. That on the facts and in the circumstances of the case, the ld. PCIT erred by holding that AO has failed to examine the issue of change in the method of stock valuation. As this issue was not before the AO, it is a settled principle of law the PCIT cannot exercise the power of revision to look into any other issue which the AO himself could not look into. 5. That the appellant craves leave to reserve to itself the right to add, alter, amend, substitute and withdraw and/or any ground(s) of appeal at or before the time of the hearing. 2. The brief facts of the case are that the assessee filed its return of income for the assessm....
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....T held that the assessment order passed under section 147 read with section 144B of the IT Act, 1961 in the case of the assessee for assessment year 2016-17 dated 30.03.2022 was erroneous and prejudicial to the interest of Revenue. Therefore, proceedings under section 263 of the IT Act were initiated and opportunity of being heard was provided to the assessee vide ITBA generated notice dated 13.02.2024, asking the assessee as under: "2. It is noticed that as mentioned in the tax audit report (Point 14b of form 3 CD) for the A.Y 2016-17, profit for the year was to be increased by Rs. 25193726/- under provisions stipulated in section 145A of the Act, due to change in method of accounting from FIFO to weighted average but the same was not added by you while computing income chargeable under the head profit and gain of business or profession. Therefore, the addition of Rs. 2,51,93,726/- was required to be added to assessed income." In response to the said notice, the assessee replied on 22.02.2024 (PB pages 53 to 55) that the 'Profit before tax' reported in the audited financial statements i.e. Rs. 1,57,590.32 is inclusive of the increase in profit of Rs. 2,51,93,726/-, caus....
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....orrowed for the purpose of the acquisition of capital assets. 2.4 After completion of 148 proceedings by Faceless AO, a new proceeding u/s 148 for the same assessment year was initiated on 31/03/2023 by the Jurisdictional AO i.e. ACIT, Jaipur-1 also. The case records of the earlier proceeding conducted u/s 144B were perused by the Jurisdictional AO on the ITBA portal and dropped the proceedings vide order dated 31/03/2024 (PB Pages 49 to 50). 2.5 However, the replies by the assessee did not find favour with the Ld. PCIT and an order u/s 263 was passed on 28/03/2024, setting aside the assessment order with directions for passing a fresh order. Now, being aggrieved by the order of ld. PCIT, the assessee has preferred the present appeal before us. 3. Before us, the ld. A/R of the assessee reiterated his submission as made before the ld. PCIT. He further submitted his ground-wise written submissions as under :- "GROUND No. 1: That on the facts and in the circumstances of the case, the Ld. PCIT grossly erred in passing an order u/s 263 of the Act, ignoring the detailed submissions made by the assessee in response to notice u/s 263 and, in passing the impugned order on assumption....
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.... 31.03.15 2230611.00 Bank Loans/ Unsecured Loans Interest Cost It has to be mentioned that the above amount have not been claimed as expenses after capitalizing them to the cost of land. From the above reply, assessing officer could easily conclude: (a) That no separate/specific borrowings were made for the purchase of Land and the funds from Bank Loan/Unsecured Loan, which were being used for working capital funds, were diverted for purchase of land. (b) Bank Overdraft A/c Funds available at the disposal of assessee, were used for making payment to RIICO Ltd., which is clear from the ledger account of 'Land Purchase' placed before the AO. (c) Requirement of confirmations from the Loan was not required as the bank borrowings were used for payment to RIICO and, in the case of bank borrowing, confirmation are not required. (d) Monthly Interest is charged by Bank upon overdraft facility for which no separate evidence are available. Bank Statement (Debit Entry) of charging interest in overdraft Account is itself a proof of having paid the interest. (e) Interest capitalized as part of the cost of land has not been charged as expense in the P & L Account, implying....
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....without conducting any inquiry or verification in order to establish that the assessment order is not sustainable in law, since such an interpretation will lead to unending litigation and there would not be any point of finality in the legal proceedings. Hon'ble ITAT Mumbai Bench of the Tribunal went on to hold that the opinion of the Commissioner referred to in section 263 of the Act has to be understood as legal and judicious opinion and not arbitrary opinion. 1.6 Hon'ble Delhi ITAT in the case of - Dwarkadhis Buildwell Pvt. Ltd. v. CIT -ITA No. 3097/Del/2014 - order dated 1 July 2019, held: "If Pr. CIT/CIT is of the view that any inquiry is necessary in the matter, then he should either himself make such enquiry or may get such enquiry conducted. For the purpose of exercising jurisdiction u/s 263 of the Act, the conclusion that the order of the AO is erroneous and prejudicial to the interest of the revenue has to be preceded by some minimal enquiry by Pr. CIT/CIT. If the Pr. CIT/CIT is of the view that the AO did not undertake any enquiry, it becomes incumbent on the Pr. CIT/CIT to conduct such enquiry. If the Pr. CIT/CIT does not conduct such basic exercise then the....
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..../- Merely because from a perfectionist point of view, it is felt by Ld. PCIT that some more enquiries and verifications could have been made by the AO, assessment order cannot be declared to be erroneous and prejudicial to the interests of revenue as held by Hon'ble Delhi Tribunal Special Bench in the case of Salora International Ltd. v. Addl. CIT [2005] 2 SOT 705 1.9 Ld. PCIT had relied upon following case laws to support the invocation of Section 263 (as mentioned on para No. 10 on page No. 13 of the order dated 30/03/2024)   Citation of the Case Factual Matrix and whether applicable upon the facts of the appellant 1 Malabar Industrial Limited v. CIT [2000] 109 Taxman 66/243 ITR 83 (SC)  "An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind" Whether applicable on the facts of assessee: 1. No incorrect facts were furnished by assessee nor assumed by the AO. Interest incurred for acquisition of capital asset was capitalised, which was accepted by the AO 2. It is ....
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....ee and as the decision arrived at by the Tribunal being on appreciation offacts and the reason for invocation of Section 263 being that there is a possibility for estimating the income at a higher rate, without there being a finding of error in the Assessment Order, a resort to Section 263 of the Act cannot be made. In the absence of any other material placed before this Court, in the facts of the present case, question No.1 is required to be answered in favour of the assessee and against the Revenue" 1.10.5 CIT, Central-III v. Nirav Modi [2017] 77 taxmann.com 78 (SC) SLP of revenue dismissed against the judgement in the case of [2016] 71 taxmann.com 272 (Bombay) CIT, Central-III v Nirav Modi, Hon'ble High Court held at para 6 of the judgement: "....Thus, this power cannot be exercised unless the Commissioner is able to establish that the order of the Assessing Officer is erroneous and prejudicial to the revenue. Thus, where there are two possible views and the Assessing Officer has taken one of the possible views, no occasion to exercise powers of the revision can arise. Nor can revisional power be exercised for directing a fuller inquiry to find out if the view taken is....
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....n.com 293 (Guj.)(HC). Hon'ble High Court held at para 6 of the judgement: "Thus, the Tribunal has considered in detail the aspect of revisional power to be exercised by the PCIT in the facts of the case and has given a finding of facts that the Assessing Officer has made inquiries in detail and after applying mind, accepted the genuineness of loans received by the respondent assessee from the aforesaid two companies and such view of the Assessing Officer is a plausible view, and therefore, the same cannot be said to be erroneous or prejudicial to the interest of the Revenue" 1.11.9 CIT, Gujarat-II v. Kwality Steel Suppliers Complex [2017] 84 taxmann.com 34 (SC). Hon'ble Supreme court in Para 9 Held : "Where two views are possible and the Assessing Officer has taken one view and the CIT again revised the said order on the ground that he does not agree with the view taken by the Assessing Officer, in such circumstances the assessment order cannot be treated as an order erroneous or prejudicial to the interest of the Revenue, 'Reason is simple. While exercising the revisionary jurisdiction, the CIT is not sitting in appeal." GROUND No. 2: That on the facts and ci....
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....y and it is only in case of no enquiry by the AO, Pr. CIT/CIT can exercise jurisdiction u/s 263 of the Act and not in case where the AO has made enquiries as seems appropriate in the facts and circumstances of the case. Similar proposition was upheld in the following rulings: Delhi Tribunal in the case of Braham Dev Gupta v. PCIT - [2017] 88 taxmann.com 831 (Delhi - Trib.) Bombay High Court in the case of CIT v. Nirav Modi - [2016] 71 taxmann.com 272 (Bombay) [SLP dismissed by SC] 2.4 It is pertinent to mention here that assessment in the present case of the assessee u/s 148 for the year under consideration was carried out in the ''Faceless manner'' by NFAC. It is a fact that every faceless assessment is carried out through a teamwork of assessment unit, technical unit, review unit, verification unit etc. Since different units are headed by Principal Commissioner of Income Tax (PCIT), therefore, in a faceless regime, normally there cannot be a case of prejudice or lack of enquiry for the reason that there is application of mind by multiple officers of the Department and not by a single officer. In the realm of faceless assessment, the units of Assessment, Verifica....
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....wanted further enquiry on the issue on which she assumed jurisdiction. The Ld. PCIT cannot initiate revision proceedings, with a view to conduct fishing and roving enquiry in the matters which are already examined by the A.O. The Department cannot do fresh assessment in the guise of revision on the matters which are examined and concluded by the A.O. The A.O. being a quasi-Judicial authority, shall have the authority to exercise right judgement and discretion on the basis of information available before him. 2.6 Regarding wrongful assumption of jurisdiction by ld. PCIT, in the present case, following judicial precedents are relied upon: Contention Case Laws Assessment was completed by AO on the basis of exhaustive enquiries and detailed submissions filed by the assessee firm and even otherwise Explanation 2 to Section 263, inserted vide Finance Act, 2015,cannot override the basic requirements of subsection (1) of Section 263 1.Torrent Pharmaceuticals Ltd. [2018) 173 ITD 130 (Ahd.- Trib) 2. Eveready Industries India Ltd. [2020] 181 ITD 528 (Kolkata Trib) 3. M/s. Smira Pune Food Pvt. Ltd(ITA No.3205/DEL/2017, ITAT Delhi Bench. 4. Shri Narayan TatuRane, ITA No2690/Mum/2016, IT....
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....e 'Interest claimed as part of the capital cost' u/s 48,which is wholly unjustified, bad in law and deserves to be quashed 3.1 Assessee has submitted before the Ld. PCIT and AO that: "3.3) Interest Cost Incurred on the amount invested: Assessee had not made any separate borrowing for the amount invested in the Land. Working Capital funds, provided thru Work Capital Loan from bank and Unsecured Loans, were used to finance the cost of Land. Therefore, the following amount of interest was added to cost of Land as Interest incurred. These amount are appearing at S. No. 3.1 above and in the Ledger Account 'Cost of Land' attached with this reply. FY DATE AMOUNT PAID TO ON ACCOUNT OF 2012-13 31/03/2013 1488233.00 Bank Loans/ Unsecured Loans Interest Cost 2013-14 31/03/2014 1711466.00 Bank Loans/ Unsecured Loans Interest Cost 2014-15 31/03/2015 2230611.00 Bank Loans/ Unsecured Loans Interest Cost It has to be mentioned that the above amount after capitalizing them to the cost of land, have not been claimed as expenses in the Profit & Loss Account. 3.2 Further the calculation of Interest capitalised which is appearing in the Ledger Account of L....
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....ssment order is : 3. Analysis of information collected/received: On analysis of information, it has been emerged that as per INSIGHT portal sale of immovable property is of Rs. 2,80,07,581/- and the assessee has declared full value of consideration of Rs. 2,80,07,581/- but has claimed cost of acquisition and improvement with indexation of Rs. 3,08,93,570/- which has resulted in Long Term Capital Loss of Rs. 28,85,989/-. The assessee has not provided any evidence for claim of indexed cost of acquisition and improvement in proceedings before DIT(I&CI). " Change in the Stock valuation method was not the reason recorded for reopening. However, the Ld. PCIT wants to enquire on the issues, which was not subject matter of reopening of assessment u/s 147 r.w.s. 148 of the Act. 4.3 This case was reopened prior to 01/4/2021 i.e. date on which the amended section 147 came into force. When the assessment is reopened u/s 147/148 usually, it is not open to AO to go beyond the issues raised in the reasons recorded for reopening of the assessment. In other words, the A.O's jurisdiction is limited to the issues, which are subject matter of reopening. For this purpose, we rely on the judgm....
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....quired disclosure as per the 'Accounting Standards' was also made in the 'Notes to the accounts' forming part of the audited financial statements (Please see the PB No. 59). It is, therefore, prayed that order made u/s 263 of the Act dated 30.3.2022 be quashed. Submitted respectfully for your kind consideration." 4. On the other hand, the ld. D/R supported the order of ld. Principal Commissioner of Income-tax. 5. We have heard rival submissions, perused the material on record, gone through the orders of the lower authorities and the case laws cited before us. The assessment in this case was reopened by issuance of notice u/s 148 dated 30.03.2021 on the basis of information in possession of the AO that the assessee has not provided any evidence for claim of indexed cost of acquisition and improvement, in proceedings before DIT (I&CI). Notices under section 142(1) were issued under Faceless manner dated 24.11.2021 and 11.02.2022 which were duly responded by the appellant and on these replies of the assessee, the AO was satisfied and no disturbance was made by him in the return filed by the assessee vide assessment order dated 30.03.2022 passed u/s 147 r.w.s. 144....
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.... to the AO and even during assessment proceedings the appellant requested the AO to rectify the error committed by it in working out of long Term capital loss which was claimed at Rs. 28,85,989/- in place of correct amount of loss of Rs. 72,14,753/- which was not allowed by the ld. AO and based thereon it was claimed that it cannot be said that the appellant did not furnish any details about interest cost claimed and the AO did not apply his mind on such claim of the assessee. It was also claimed by ld. AR that reassessment proceedings were carried as per Faceless Scheme wherein separate verification unit, review unit are also available and in such mechanism it cannot be said that the submissions of the appellant were accepted without any enquiry. The ld. PCIT - 1, Jaipur did not raise any further query and proceeded to pass the order u/s 263 for setting aside the assessment order and to pass a fresh order in view of her opinion in the matter. 5.2 It has been claimed by the ld. AR that it was the bounden duty of the ld. PCIT to have conducted minimal enquiry before jumping on the conclusion of non enquiry or verification by the AO for invoking section 263. He has relied on the jud....
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....s to undertake at least some exercise to reach on the conclusion that the order passed by AO is erroneous and prejudicial to the interest of revenue. The ld. AR submits that if it is felt by the Ld. PCIT that some more enquiries and verification could have been made by AO, assessment order cannot be declared to be erroneous and prejudicial to the interest of revenue as held by the ITAT (SB) in the case of Salora International Ltd. v/s Addl. CIT (2005) 2 SOT 705. The ld. AR also relied on following case laws :- 1. Malabar Industrial Co. Ltd. v/s CIT (243 ITR 83 (SC)) (2000) 2. CIT v/s Max India Limited (2007) (295 ITR 282 (SC)) 3. Greenworld Corporation (2009) 181 Taxmann 111 (SC) 4. PCIT v/s Dhanna Reddy & Co. (2018) (100 taxmann.com 358 (SC)) 5. CIT, Central III v./s Nirav Modi (2017) 77 taxman.com 78 (SC) 6. PCIT - 2 v/s Shre Gayatri Associates (2019) 106 taxmann.com 31 (SC) 7. PCIT v/s Sumatichand Tolamal Gouti (2019) 111 taxmann.com 287 (SC) 8. CIT, Gujarat - II v/s Kwality Steel Suppliers Complex (2017) 84 taxmann.com 234 (SC) Through all the above case laws ld. AR states that in a case wherever two views are possible and the AO has adopted one possible view w....
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....l in the form which runs into 36 pages (PB Pages 56-58). Secondly such omission does not have any tax effect as these figures do not enter into the computation of tax. At the same time, the required disclosure as per the 'Accounting Standards' was also made in the 'Notes to the accounts' forming part of the audited financial statements (PB Pages 59). With all these submissions he has requested for quashing the order of the ld. PCIT passed u/s 263. 5.5 We find that the instant case was reopened by the AO for examining the claim of the assessee on account of Long Term capital loss incurred on sale of immoveable property and on the basis of replies filed by the appellant the assessment order was passed without any disturbance. The ld. PCIT could not pin pointed any error of the AO in accepting the submissions of the appellant filed before him. The ld. AR claims to had submitted detailed reply on the issue of claim of interest cost as part of cost of acquisition of the immoveable property and the AO has accepted the submissions of the appellant after his thorough examination for which he had a separate verification unit and separate review unit and hence it cannot be ....
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....ich has escaped assessment and which, comes to his notice during the course of the proceedings. However, if after issuing a notice under section 148, he accepted the contention of the assessee and holds that the income which he has initially formed a reason to believe had escaped assessment, has as a matter of fact not escaped assessment, it is not open to him independently to assess some other income. If he intends to do so, a fresh notice under section 148 would be necessary, the legality of which would be tested in the event of a challenge by the assessee." There is another judgement of the Hon`ble Delhi High Court in the case of Ranbaxy Laboratories Ltd. - vs. CIT (2011) 336 ITR 136 (Delhi High Court) wherein also similar view was upheld and following was held :- "21. In view of our above discussions, the Tribunal was right in holding that the Assessing Officer had the jurisdiction to reassess issues other than the issues in respect of which proceedings are initiated but he was not so justified when the reasons for the initiation of those proceedings ceased to survive. Consequently, we answer the first part of question in affirmative in favour of revenue and the second part ....