TaxTMI 
TaxTMI 
2025 (7) TMI 878
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.... as well as in law, the Learned CIT has erred in passing order u/s 263, directing the assessing officer to modify the assessment order passed u/s 143(3) r.w.s 144B by dis-allowing deductions u/s 80G amounting to Rs. 18,06,528/-. 3. On the facts and circumstances of the case as well as in law, the Learned CIT has erred in passing order u/s 263, setting aside assessment order passed u/s 143(3) r.w.s 144B on account of deduction of ESOP expenses amounting to Rs. 1,98,715/-. 4. On the facts and circumstances of the case as well as in law, the Learned CIT has erred in passing order u/s 263, directing the assessing officer to modify the assessment order passed u/s 143(3) r.w.s 144B by dis-allowing ESOP expenses amounting to Rs. 1,98,715/- 5. On the facts and circumstances of the case as well as in law, the Learned CIT has erred in passing order u/s 263 without granting sufficient opportunity of being heard to the appellant. 6. The Learned CIT has erred in passing order u/s 263, merely on the basis of issue raised in audit objection. 3. Ground no. 1 and 2 pertain to the deduction of CSR expenses claimed u/s 80G of the Act. In this case, assessment or....
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....f CSR expenses claimed u/s 80G is concerned, it was open for adjudication before the AO. We observed that the assessee had duly disclosed such facts on record during assessment proceedings and the AO taking note of such facts with specific reference to CSR expenditure claimed as deduction, preferred to allow the claim of the assessee u/s 80G of the Act. Therefore, on facts and the circumstances of the case, it can be safely construed that the issue has been taken note of by the AO who accepted the claim of the assessee. Thus, the AO has considered the issue and allowed the claim of deduction u/s. 80G in respect of CSR expenses which is a plausible view taken by him. 5. The Hon'ble Supreme Court in the case of Malabar Industries Ltd. v. CIT 243 ITR 83 has held that twin conditions needs to be satisfied before exercising revisional jurisdiction u/s 263 of the Act by the CIT. The twin conditions are that the order of the Assessing Officer must be erroneous and so far as prejudicial to the interest of the Revenue. In the following circumstances, the order of the AO can be held to be erroneous order, that is (i) if the Assessing Officer's order was passed on incorrect assumption of f....
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....wer side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interests of the Revenue. But that by itself will not be enough to vest the Commissioner with the power of suo-motu revision because the first requirement, viz., that the order is erroneous, is absent." (Emphasis supplied) 5.1 Apart from the above principles, we deem it appropriate to make reference to the decision of the Hon'ble Delhi High Court in the case of CIT vs. Sun Beam Auto 227 CTR 113 wherein the Hon'ble High Court has pointed out a distinction between lack of inquiry and inadequate inquiry. The following observations of the ....
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....er the CSR expenditure is allowable u/s. 80G of the Act is also no more res integra by a catena of decisions by various Co-ordinate Benches of the Tribunal. The Mumbai Bench of the Tribunal in the case of Alubond Dacs India (P.) Ltd. in (2024) 163 taxmann.com 536 (Mum)considered the provisions of Companies Act and I.T. Act and held as follows: "11. We have heard the rival submissions and perused the materials available on record. The only morn question to be decided here is whether the expenditure towards CSR activities are an allowable deduction us 80G of the Act. The CSR expenses are governed by section 135 of the Companies Act, 2013, Schedule VII of the Act and Companies (CSR) Policy Rules, 2014 where companies having net worth of Rs 500 crores of more or turnover of Rs. 1000 crores or more or net profit of Rs 5 crores of more have to mandatorily comply with the CSR provisions specified us. 135(1) of the Companies Act, 2011. The above mentioned companies are liable to spend atleast 25% of its average net profit for the immediately preceding three financial years on CSR activities. In the present case, the assessee has contributed Rs 30 lacs to various educational and ch....
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....falls under the nature specified in section 30 to 36 of the Act are an allowable deduction u/s 80G of the Act. 12. On the above observation, we deem it fit to hold that the assessee is entitled to deduction claimed u/s. 80G of the Act towards the CSR expenditure incurred by it. We, therefore, direct the ld. A.O, to allow the claim of the assessee subject to the condition that the assessee has satisfied the other requirements warranted u/s.80G of the Act. Hence, ground no. 2 raised by the assessee is allowed." 7. In the case under consideration, the proposed revision is sought to be done merely on change of opinion disagreeing with the opinion of the AO that the expenditure is not deductible under sec 80G of the Act. Further, it is a settled position of law that where there are two views possible and the AO has adopted one of the two possible views, then the order cannot be held to be erroneous/ prejudicial to the interest of the revenue and thereby proceedings under section 263 of the Act could not be sustained. Moreover, as discussed in the preceding paras, the deduction of CSR expenses under section 80G of the Act is held allowable consistently by the courts. Hence, b....
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....Karnataka High Court)that such expenditure is merely a notional expenditure and not a real expenditure as neither any liability to pay arose to the assessee nor there is a case of any loss to the assessee company. Moreover, in the case of Biocon Ltd(supra) he pointed out that the Department has filed SLP against the said decision of Hon'ble Karnataka High Court in the case of Biocon(supra) which has been admitted by the Hon'ble Apex Court. 9. During hearing, the ld.DR argued that on facts of the case and in the light of the provisions of the Act and also lack of any enquiry into the impugned issue by the AO, the ld.PCIT was fully justified in invoking the provisions of section 263 of the Act as the assessment order was erroneous and prejudicial to the interest of the Revenue on both the counts. 10. Before us, the ld.AR has submitted that in the course of assessment proceedings u/s 143(3), the assessee has submitted detailed Profit and Loss Account for the relevant year. Vide Note 28 to the Profit and Loss Account under the head of "Employee of Benefit Expenses", it could be observed that the assessee had debited an amount of Rs. 1,98,715/- being share based payment which was ....
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....es that the order passed without making inquiries or verification 'which should have been made' will be deemed to be erroneous insofar as it is prejudicial to the interest of the Revenue. 12. In so far as the requirement of due enquiry to be conducted by the AO while scrutinising any case in the course of assessment order is concerned, it would be relevant to quote certain landmark decisions of hon'ble Supreme Court in Rampyari Devi Saraogi versus CIT, (1968) 67 ITR 84 (SC) and Tara Devi Aggarwal (Smt) versus CIT, (1973) 88 ITR 323 (SC) wherein it has been observed that where the AO had accepted a particular contention or issue without inquiry whatsoever, the order was erroneous and prejudicial to the interest of Revenue. These two decisions show that it is not necessary for the Commissioner to make further inquiries before cancelling the assessment order of the Income-tax Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income-tax Officer should have made further inquiries before accepting the statements made by the assessee in his return. The aforesaid observations have to be understood in the factual b....
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....sarily follow that in all such cases the matters can be remitted back to the assessment stage f or such inquiries and verifications. There can be three mutually exclusive situations with regard to exercise of power s under section 263, read with Explanation 2(a) thereto, with respect to lack of proper inquiries and verifications. The first situation could be this. Even if necessary inquiries and verifications are not made, the Commissioner can, based on the material before him, in certain cases straight away come to a conclusion that an addition to income, or disallowance from expenditure or some other adverse inference, is warranted. In such a situation, there will be no point in sending the matter back to the Assessing Officer for fresh inquiries or verification because an adverse inference against the assessee can be legitimately drawn, based on material on record, by the Commissioner. In exercise of his powers under section 263, the Commissioner may as well direct the Assessing Officer that related addition to income or disallowance from expenditure be made, or remedial measures are taken. The second category of cases could be when the Commissioner finds that necessary....
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....cord would also reflect that the AO has not taken any concrete steps to ascertain the genuineness and creditworthiness of the transactions, which merits consideration in the light of the findings that emerged from the DDIT investigation report and assessment proceedings of M/s. Upaj Leasing & Finance Pvt. Ltd. It emerges that the present is a case where the AO failed not only to spell out any finding about the DDIT investigation report and assessment proceedings of M/s. Upaj Leasing & Finance Pvt. Ltd. but also to scrutinize the highlighted aspects in the said report qua the genuineness and creditworthiness of aforenoted loan transactions. Therefore, this is the minimum inquiry which atleast was expected to have been made by the AO. 25. At this juncture, it is apposite to point out that clause (a) of Explanation 2 of Section 263 of the Act introduces a deeming fiction to the effect that the order passed by the AO shall be considered erroneous and prejudicial to the interests of the Revenue, if the order is passed without making inquiries or verification, which should have been made. Henceforth, since neither there is any facet of discussion about the aforenoted aspects in ....
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....wn by the Hon'ble Supreme Court in the case of Malabar Industrial Co Ltd vs. CIT (2000)(243 ITR 83)(SC). The relevant observations made by Hon'ble Bombay High Court are extracted below: "Section 263 of the Income-tax Act, 1961 empowers the Commissioner to call for and examine the record of any proceedings under the Act and, if he considers that any order passed therein, by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, to pass an order upon hearing the assessee and after an enquiry as is necessary, enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment. The key words that are used by section 263 are that the order must be considered by the Commissioner to be "erroneous in so far as it is prejudicial to the interests of the Revenue". This provision has been interpreted by the Supreme Court in several judgments to which it is now necessary to turn. In Malabar Industrial 243 ITR 83, the Supreme Court held that the provision "cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer" and "it is only when an order is erroneous that t....
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....passed the order, unless the decision is held to be erroneous. Cases may be visualised where the Income tax officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income tax officer. That would not vest the Commissioner with power to examine the accounts and determine the income himself at a higher figure. It is because the Income tax officer has exercised the quasi judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion.... There must be some prima facie material on record to show that the tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or inco....
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.... that the Assessment Order was passed without making the necessary inquiries and verification. Thus, in terms of clause (a) of Explanation 2 to Section 263 of the Act, the assessment order is deemed to be erroneous in so far as it is prejudicial to the interests of the revenue." 12.7 Reference is also made to a recent decision in the case of KEC International (2025) 171 Taxmann.com 197(Del) "19. The issue which requires consideration is whether the order passed under Section 143(3) dated 28 February 1991 is erroneous and prejudicial to the interest of revenue and further whether the order under Section 263 gives a conclusive finding on issue relating to Section 115J of the IT Act so as to permit the Appellant-Assessee to agitate the issue on merits. 22. At the outset a query was raised by the Court as to whether there is any material on record to show that the assessing officer in the course of the original assessment proceedings had raised a query on the issues which were the subject matter of proceedings under Section 263, and whether the Appellant-Assessee had filed any response/reply to such query on these issues having been raised by the assessing officer ....