TaxTMI 
TaxTMI 
2025 (7) TMI 895
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....law and on facts in passing an order u/s 263 without first assuming jurisdiction u/s 263 of the Act. 2. The Hon'ble Pr. CIT erred in law and on facts in holding that the assessment order passed by the assessing officer is erroneous in so far as it is prejudicial to the interest of the revenue. 3. The appellant craves leave to add, alter or withdraw any of the grounds of appeal." 3. Brief facts of the case are that, the assessee-company is engaged in the business of providing Healthcare Services, filed it's return of income for the assessment year 2020-2021 on 19.12.2020 admitting total income of Rs. 13,24,09,952/-. The case of the assessee-company was selected for scrutiny and assessment has been completed u/sec.143(3) r.w.s.144B of the Income Tax Act, 1961, vide order dated 20.09.2022 determining the total income of the assessee at Rs. 13,25,63,360/-. The case has been subsequently taken-up for revision proceedings and accordingly, a show cause notice u/sec.263 of the Act dated 18.02.2025 was issued to the assessee and called-upon the assessee to explain as to why the assessment order passed by the Assessing Officer shall not be revised for the reasons sta....
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....assessment orders passed by the Assessing Officer u/sec.143(3) r.w.s.144B of the Act, dated 20.09.2022, where the Assessing Officer has accepted the explanation of assessee with regard to investments, without even verifying the relevant facts with regard to applicability of provisions of section 14A read with Rule 8D of I.T. Rules, 1962, which renders the assessment order erroneous and prejudicial to the interests of revenue. The learned PCIT discussed the issue at length, in light of Explanation-2 to Sec.263 of the Act and held that, if an assessment order is passed without making enquiry or verification, which should have been made or the order passed allowing relief without enquiry into the claim, renders the order erroneous and prejudicial to the interest of revenue. The learned PCIT has also discussed the issue of disallowance under section 14A read with the Rule 8D of I.T. Rules, 1962, in light of Circular No.14 of 2001 issued by the CBDT and held that, although, the assessee has made huge investments in equities, which is capable of generating exempt income and further, the assessee has not disallowed the associated expenses against these investments, but, the Assessing Offi....
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....owance under section 14A read with Rule 8D of I.T. Rules, on very same investment and discussed the issue on same lines with that of the assessment year 2020-2021. Further, the facts remains that, for the assessment year 2021-2022 onwards, dividend income is taxable in the hands of the recipient and in fact, the assessee has earned dividend income and the same has been offered to tax. Further, the assessee had also derived capital gain from sale of investments and the same is subjected to tax. However, the learned PCIT without verifying the relevant facts, simply invoked jurisdiction under section 263 of the Act on the issue of disallowance of expenses relatable to exempt income under section 14A, even though, the said provisions does not applicable for the assessment year under consideration. 6. Shri B. Bala Krishna, learned CIT-DR for the Revenue, on the other hand, supporting the order of the learned PCIT submitted that, the assessment order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, because, although, the Assessing Officer has issued show cause notice and called-for specific information with regard to investme....
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....e substantial investments in the nature of equity shares in different entities, which are capable of generating the income, which would exempt from tax. Further, the assessee has not disallowed the associated expenses against these investments. No separate accounts for expenses related to these investments have been maintained by the assessee. Although, the assessee has made substantial investments which are capable of generating the exempt income and further, the assessee has not made suo motu disallowance towards expenses relatable to exempt income, but, the Assessing Officer without verifying relevant facts, in light of provisions of section 14A read with Rule 8D of I.T. Rules, 1962, has completed assessment under section 143(3) r.w.s.144B of the Income Tax Act, 1961, vide orders dated 20.09.2022 and dated 20.12.2022 for the assessment years 2020-2021 and 2021-2022 respectively and accepted the explanation offered by the assessee with regard to investments and expenses relatable to said investments which render the assessment order erroneous and prejudicial to the interests of revenue. The learned PCIT has discussed the issue at length, in light of relevant facts and also provis....
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.... assessment years, on the issue of disallowance under section 14A read with Rule 8D of I.T. Rules, 1962. The reasons given by the learned PCIT for setting aside the assessment order for both the assessment years are more or less common. The PCIT observed that, the assessee has made substantial investments in equities, which are capable of generating exempt income and further, the assessee has not made any disallowance of expenses relatable to said investments. In other words, there is no clear-cut finding from the PCIT on the issue of applicability of provisions of section 14A read with Rule 8D of I.T. Rules, 1962, going by the facts available on record that, the assessee has earned exempt income in the form of dividend from investments and further, the assessee has incurred various expenses, which are common in nature, but, the expenditure relatable to investment activity has not been disallowed in terms of section 14A of the Act. The learned PCIT has made a general observation in light of investments made by the assessee without there being any observation with regard to, whether such investments have earned exempt income or not ? and further, the assessee has incurred any expend....
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....he view taken by the Assessing Officer is unsustainable in law. Since the Assessing Officer has taken one of the 'plausible view', in our considered view, the invocation of jurisdiction by the learned PCIT on the ground that, the Assessing Officer has not carried-out any enquiries which he ought to have been carried-out, is contrary to the provisions of Sec.263 of the Act and cannot be upheld for the assessment year 2020-2021. 10. Coming back to assessment year 2021-2022. Admittedly, the law has been changed from assessment year 2021-2022 onwards in respect of dividend income and capital gains from listed shares. From the assessment year 2021-2022 onwards, the dividend income is taxable in the hands of the recipient and capital gain derived on sale of investment is taxable. In the present case, the assessee has earned dividend income of Rs. 22,21,250/- and the same has been offered to tax under the Head "Income from Business". Further, the assessee has earned short term capital gain of Rs. 10,87,95,688/- and the same has been offered to tax under the Head "Income from Capital gain". Therefore, in our considered view, once the income from investments is taxable including dividend....
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....ght to tax. Mr. Anoop G. Choudhary, learned senior counsel for the respondent, asserted that the Income-tax Officer passed the order without application of mind and inasmuch as it resulted in loss of tax it was also prejudicial to the interests of the revenue, therefore, the exercise of jurisdiction under Section 263(1) of the Act by the Commissioner was justified and legal. He further submitted that the second contention was not open to the appellant as the basic facts found by the Appellate Tribunal were not questioned before the High Court. To consider the first contention, it will be apt to quote Section 263(1) which is relevant for our purpose:- 263. Revision of orders prejudicial to revenue - (1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous insofar as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the ....
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....which might set a bad trend or pattern for similar assessments, which on a broad reckoning, the Commissioner might think to be prejudicial to the interests of Revenue Administration. In our view this interpretation is too narrow to merit acceptance. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the Income-tax Officer, the revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the revenue. The phrase prejudicial to the interests of the revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view take....
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....indeed it was paid in modification/relaxation of the terms of the contract, we hold that the High Court is justified in concluding that the said amount was a taxable receipt under the head income from other sources. We find no merit in the appeal and dismiss the same with costs." 12. The assessee has also relied upon the decision of ITAT, Hyderabad Bench in the case of Lycos Internet Ltd., Hyderabad vs., ACIT, Circle-16(1), Hyderabad, Order dated 22.01.2025, wherein the Coordinate Bench of ITAT, Hyderabad Tribunal on identical set of facts and also in light of provisions of Sec.263 of the Income Tax Act, 1961 held as under : "22. Once the Assessing Officer has conducted an inquiry, then the case does not fall in the category of complete lack of inquiry on the part of the Assessing Officer while passing the assessment order and therefore, the order of the Assessing Officer cannot be set aside on the ground of lack of inquiry. It is a settled proposition of law that when the Assessing Officer has conducted an inquiry and accepted the claim of the assessee, then it is not mandatory for the Assessing Officer to give a finding on each and every issue he has undertaken during....
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....s erroneous for want of an inquiry. A similar view has been taken by the Hon'ble Bombay High Court in the case of CIT vs. Development Credit Bank (Supra). The Hon'ble Delhi High Court in the case of Income Tax Officer vs. DG Housing Projects Ltd (Supra) has discussed this issue of not giving the conclusive findings on the part of the Commissioner in Para 16 to 19 as under : "16. Thus, in cases of wrong opinion or finding on merits, the CIT has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under Section 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order passed is not sustainable in law and the said finding must be recorded. CIT cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mistake made....
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.... stands at the time of examination by the CIT [see CIT v. Shree Manjunathesware Packing & Products Camphor Works [1998] 231 ITR 53 / 98 Taxman 1 (SC)]. Nothing bars/prohibits the CIT from collecting and relying upon new/additional material/evidence to show and state that the order of the Assessing Officer is erroneous. 18. It is in this context that the Supreme Court in Malabar Industrial Co. Ltd. v. Commissioner of Income Tax, [2000] 243 ITR 83 / 109 Taxman 66 (SC), had observed that the phrase 'prejudicial to the interest of Revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of Revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of Revenue. Thus, when the Assessing Officer had adopted one of the courses permissible and available to him, and this has resulted in loss to Revenue; or two views were possible and the Assessing Officer has taken one view with which the CIT may not agree; the said orders cannot be treated as an erroneous order prejudicial to the interest of Revenue unless the view taken by the Assessing Officer is unsustainable in law. In s....