TaxTMI 
TaxTMI 
2025 (6) TMI 1107
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.... as the power to revise the order can be invoked in the case of lack of enquiry, not in the case 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 ti....
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....ess or profession'. Therefore, the above amount of Rs. 2,51,93,726/- was required to be added to assessed income. Thus, the ld. PCIT 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 bef....
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....as not been claimed. This practice is incompliance with section 36(1)(iii) of the Income Tax Act, 1961 which lays down for not allowing interest on funds borrowed 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 er....
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....unt 'Cost of Land' attached with this reply. FY DATE AMOUNT PAID TO ON ACCOUNT OF 2012-13 31.03.13 1488233.00 Bank Loans/ Unsecured Loans Interest Cost 2013-14 31.03.14 1711466.00 Bank Loans/ Unsecured Loans Interest Cost 2014-15 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....
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....ility as interpreted by Hon'ble Delhi High Court, according to which the Commissioner has to conduct the inquiry and verification to establish and show that the assessment order was unsustainable in law. The ITAT Mumbai Bench has further held that the intention of the legislature could not have been to enable the CIT to find fault with each and every assessment order 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 jurisdicti....
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....firmation of the parties from whom loan taken and showing use of funds for making investment In the given situation, confirmation from parties was not applicable /required. (iii) Assessee has not furnished any evidence of payment of interest through cash or through bank account In the given situation, payment of interest thru bank only as Audit Report did not point out any payment in cash in excess of Rs. 10000/- 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....
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....rder is erroneous; (2) by virtue of the order being erroneous prejudice has been caused to the interest of the revenue, exist." 1.10.4 PCIT v. V. Dhana Reddy & Co. - [2018] 100 taxmann.com 358 (SC) SLP of the revenue dismissed against the judgement in the case of by [2018] 100 taxmann.com 357 (Andhra Pradesh & Telangana) PCIT-I v. V. Dhanna Reddy & Co. Hon'ble High Court held at para 5 of the judgement: "In our opinion, as the AO had opined that renting of the godowns is integral in the business of the assessee 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....
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....uiries as to the nature of expenditure being capital or not. The assessee carried the matter in Appeal before the Tribunal. The Tribunal, by the impugned judgment allowed the assessee's Appeal holding that the Assessing Officer had carried out detailed enquiries and taken a view which was a plausible view The Tribunal, therefore held that the Commissioner erroneously exercised the revision powers" 1.11.8 PCIT v. Shreeji Prints (P.) Ltd. [2021] 282 Taxman 464 (SC) SLP filed against decision of High Court was dismissed by Hon'ble Supreme Court in the case of PCIT v. Shreeji Prints (P) Ltd. (2021) 130 taxmann.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....
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....ith any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person 2.3 If an assessment or any other order is passed after making inquiry on an issue and after having examined the replies of the Assessee with due application of mind, it is not the case where no inquiry was made. Therefore, such a case cannot be treated as a case of "no inquiry" and thus proceedings u/s 263 of the Act cannot be initiated in such a case. Further, an assessment order should not be subject to revision u/s 263 merely because another view is possible on the issue decided by the AO. 2.4 Lack of enquiry/no enquiry is different from inadequate enquiry 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) [SL....
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....se, the A.O. has conducted enquiry for all capital gains cost items forming part u/s 48 and carefully examined the details, various cost documents etc. furnished by the assessee and passed the assessment order. The contention of the Ld. PCIT was that the A.O. has not conducted proper enquiry and also not applied his mind before accepting the deduction of interest claimed as part of cost. The A.O. had called for explanation and the assessee has furnished its explanation. But, the PCIT was of the opinion that the assessing officer could have done well to explore the possibility of asking confirmation of lending parties, bank statements etc. According to Ld. PCIT, the assessing officer has conducted enquiry but inadequate, therefore she 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 ....
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....law is well settled that the assessment order cannot be held to be erroneous simply on the allegation of inadequate enquiry. Unless there is an established case of total lack of enquiry; 1.17 From the facts on record, it is crystal that the order was passed by AO after full enquiries and therefore, the case is not falling within clause (a) and (b) of Explanation 2 to section 263. In view of the above factual and legal position, ld. PCIT has grossly erred in assuming jurisdiction u/s 263. Thus, the entire order by ld.PCIT deserves to be quashed'' GROUND No. 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 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 Ca....
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....id not appreciate the accounting of 'Interest cost' by the assessee and passed the order in a mechanical manner. GROUND No. 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. Submissions: 4.1 AO is not expected to verify and examine each and every item of expenditure and claim of deduction as the assessee was under the tax audit. There was no point made by the auditors of the company and the tax auditors, which had been overlooked by the Assessing Officer. In the garb of exercise of power under section 263, the Ld. PCIT was not entitled to make roving enquiries. 4.2 The reason of reopening u/s 148 as spelt out in the assessment 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 ....
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....ortal is perused and it is noticed that there is Part-A - OI -Other Information in ITR. In column 4d, there is separate column for reporting effect on the profit or loss because of deviation, if any, from the method of valuation prescribed under section 145A but in the ITR of the assessee, this column is left blank, which shows that effect of Rs.2,51,93,726/- has notbeen considered by the assessee in ITR" Ld. PCIT has mistaken belief that omission to mention the effect of change in the profit/loss has resulted in underreporting of the income. Part-A-Other information section in the ITR is meant for filling some columns for information only, and non-filling does not affect the tax computation in any manner. Secondly, these columns are applicable for audit cases only. Though assessee reported in 3CD but omitted to fill in the form which runs into 36pages(Please see the PB No. 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 s....
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....apital Gain on sale of immoveable property for Rs. 2,80,07,581/-. She has stated in the notice that during the assessment proceedings undertaken after issuance of notice u/s 148 dated 30.03.2021 the appellant failed to submit any detail regarding date of loan, person giving loan, amount of loan etc. and further no bank statement was submitted for showing funds received as loan and showing use thereof for the purpose of acquisition of property and no confirmation of parties were furnished and hence she opined that interest expenses to the extent of Rs. 54,30,310/- was not allowable to the assessee as cost of improvement while calculating long term capital gain but the ld. AO allowed the same. 5.1 The appellant filed a reply to such notice of the ld. PCIT - 1, Jaipur and stated that during assessment proceedings it had submitted complete details about interest expenditure which was not separately incurred but were quantified out of working capital loan limit given by the bank and other loans. The appellant claims to had submitted each and every detail to the AO and even during assessment proceedings the appellant requested the AO to rectify the error committed by it in working out....
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....ble Delhi High Court, according to which the Commissioner has to conduct the inquiry and verification to establish and show that the assessment order was unsustainable in law. The ITAT Mumbai Bench has further held that the intention of the legislature could not have been to enable the CIT to find fault with each and every assessment order 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. The ld. AR also relied on another case of ITAT, Delhi Bench in the case of Dwarkadhish Build well P Ltd. v/s CIT 0- (ITA No. 3097/Del/2014) wherein also it was emphasized that for the purpose of exercising jurisdiction u/s 263 of the Income tax Act, 1961 that the CIT has to undertake at least some exercise to reach on the conclusion that the order passed by AO is erroneous and prej....
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....stock due to change in valuation method was not the reason for selection of the case for reassessment an hence ld. PCIT is precluded from entering into such fields which were not subject matter of reassessment. He states that ld. PCIT has held on page no. 5 and para no. 7.6 of her order as under :- "7.6 The ITR filed by assessee in e-filing portal is perused and it is noticed that there is Part-A - OI -Other Information in ITR. In column 4d, there is separate column for reporting effect on the profit or loss because of deviation, if any, from the method of valuation prescribed under section 145A but in the ITR of the assessee, this column is left blank, which shows that effect of Rs.2,51,93,726/- has not been considered by the assessee in ITR" He has mentioned that Ld. PCIT has mistaken belief that omission to mention the effect of change in the profit/loss has resulted in underreporting of the income. Part-A-Other information section in the ITR is meant for filling some columns for information only, and non-filling does not affect the tax computation in any manner. Secondly, these columns are applicable for audit cases only. Though assessee reported in 3CD but omitted ....
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....ich was inserted by judicial interpretation, on the making of an assessment or reassessment on grounds other than those on the basis of which a notice was issued under section 148 setting out the reasons for the belief that income had escaped assessment. Those judicial decisions had held that when the assessment was sought to be reopened on the ground that income had escaped assessment on a certain issue, the Assessing Officer could not make an assessment or reassessment on another issue which came to his notice during the proceedings. This interpretation will no longer hold the field after the insertion of Explanation 3 by the Finance Act (No. 2) of 2009. However, Explanation 3 does not and cannot override the necessity of fulfilling the conditions set out in the substantive part of section 147. An Explanation to a statutory provision is intended to explain its contents and cannot be construed to override it or render the substance and core nugatory. Section 147 has this effect that the Assessing Officer has to assess or reassess the income ("such income") which escaped assessment and which was the basis of the formation of belief and if he does so, he can also assess or reassess ....