TaxTMI 
TaxTMI 
TaxTMI 
2025 (10) TMI 932
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....be declared as bad in law and be quashed. 2. The PCIT-4. New Delhi erred in law and on facts in directing the AO to re-examine all issues which do not affect the assessment order in any manner depending on the past history as well as nature of business of the assessee. Thus, the impugned order passed on a change of opinion must be cancelled. 3. The PCIT-4. New Delhi concluded the proceedings in a lopsided manner after conducting the hearing last on 23-09 2024 and thereafter the fresh notice was issued only on 18:03 2025 calling for no fresh information despite the fact that all information containing pages 1-1182 in the following written submissions filed online on 05/02/2024, 12.02.2024, 27.02.2024. 17.07.2024. 23/09/2024. 22/03/2025 and 25/03/2025 and physically also. Thus, the principle of natural justice has been violated besides cancelling the earlier order u/s 143(3) of the Act without showing as to how the same was not only erroneous but also prejudicial to the interest of the revenue. 4. The impugned order passed u/s 263 of the Act lacks the two mandatory conditions being erroneous and prejudicial to the interest of the Revenue needs to be quashed....
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....hermore, it was also observed that assessee claimed 50% deduction u/s 80G 18,00,00,326/- which remained unexamined with respect to its nature of payments and receipts. h) The outstanding trade payables in previous years are as under:- As on 31.03.2020 Rs. 47,71,84,855 As on 31.03.2019 Rs. 46,96,85,985/- As on 31.03.2018 Rs. 38,62,91,826/- As on 31.03.2017 Rs. 26,90,31,069/- (i) That there has was substantial additions in property, plant and equipment to the tune of Rs. 25,04,24,309/- during the year under consideration." 5. The Ld. PCIT issued show cause notice for initiation of proceedings u/s 263 of the Act and the Assessee has filed replies on various dates and after considering the reply of the Assessee, an order came to be passed u/s 263 of the Act on 27/03/2025 by the PCIT, wherein the Ld. PCIT held that the assessment order passed u/s 143(3) r.w. Section 144B of the Act dated 25/08/2022 is erroneous in so far as it is prejudicial to the interest of the Revenue. Accordingly, the Ld. PCIT cancelled the assessment order and directed the A.O. to make necessary examination, verification and enquires in respect of the issues involved th....
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....hat the legislature in its wisdom has provided a detailed SOP to pass Assessment Orders u/s 144B by the NFAC, leaving no discretion on the AO. In fact, each assessment order is passed by different Units and not by any single officer and proceedings of each Unit are monitored by one PCIT in the NFAC. The entire NFAC is headed by one PCIT, the top most officer in the field formation of the income-tax department. It needs to be appreciated that an assessment order u/s 144B of the Act was passed by the NFAC which is a superior authority to the PCIT and not by any individual AO, therefore it cannot be alleged by any PCIT under any circumstance that the NFAC failed to make requisite enquiries as the PCIT. Thus, submitted that very invocation of the provision of Section 263 of the Act by the ld. PCIT is erroneous. 8. Per contra, the Ld. Departmental Representative submitted that the Assessment Order is erroneous and prejudicial to the interest of the Revenue for following reasons:- "1. Initial questionnaire u/s 142(1) is not based on the questionnaires ought to have been asked for the specific case under consideration. 2. Before issuing the internal questionnair....
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....by any individual A.O., therefore the Ld. PCIT cannot decide the legality of the same, the entire provision of Section 263 of the Act becomes redundant in faceless regime. Further submitted that the intention of the legislature to bring Faceless Assessment is not to make provision of Section 263 of the Act redundant and there is no specific bar in the Act for invocation of provision of Section 263 in case of the Assessment framed in Faceless manner. Therefore, submitted that the order of the PCIT passed u/s 263 of the Act requires no interference at the hands of the Tribunal, thus sought for dismissal of the Appeal. 11. We have heard both the parties and perused the material available on record. During the original assessment proceedings initiated u/s 143(3) r.w. Section 144B of the Act, the case of the Assessee was picked up for scrutiny for following reasons:- i. Stock Valuation ii. Loss from currency fluctuations iii. Refund claim 12. The A.O. issued notice u/s 143(2) and 142(1) of the Act to the Assessee, in response; the Assessee furnished the details through e- filing portal. After considering the reply of the Assessee, the A.O. assessed the i....
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....ar, the entire sales was practically closed in the nationwide complete dock down period because of the onset of Covid 19. This also resulted into a reduction of turnover. Then the refund due on account of the estimated advance income tax deposited would have also been significantly lower. After perusal of the reply filed by the assessee, no adverse inference is drawn on this issue. 6. The reply and details uploaded by the assessee were carefully examined. On the basis of material available on record, the explanation of the assessee on the issue(s) is accepted. Accordingly, the assessment is being completed u/s 143(3) of the Income Tax Act, 1961 by accepting the Income processed by the CPC u/s 143(1) of the I.T. Act. Considering the above remarks, the total income of the assessee is assessed as under: Income Processed u/s 143(1) by CPC: Rs. 6,20,42,83,460/-. Total Assessed Income: Rs. 6,20,42,83,460/- 13. The Ld. PCITin exercising the power conferred u/s 263 of the Act, issued notice dated 25/01/2024, which is reproduced as under:- 14. In response to above show cause notice dated 25/01/2024 issued u/s 263 of the Act, the Assessee field submissions be....
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....fication of few necessary issues was left then by a team of many competent officers at different level. Thus, the assessee strongly objects to the proposed action u/s 263 of the Act as above, which is just nothing more than a proposal to make roving enquiries. It is like a proposal where any and all assessment orders will be open to review u/s 263 of the Act on some flimsy pretext or the other at the whims of the revenue officers. This is never the intention of the legislature and such revisionary authority needs to be exercised with care and not for any reason otherwise for fishing/roving purposes. 1.2 On perusal of the same. it is seen that the said mandatory SOP prescribes as below: C. Initial Questionnaire u/s 142(1) C1 Initial questionnaire u/s 142(1) shall be, preferably, issued by AU within 15 days of assignment of cases. C.2 Before issuing the initial Questionnaire, AU shall: C.2.1 Consider all internal data bases of the Department 360 degree in ITBA, Insight, E-filing AO Portal available to the AU; C.2.2 Consider Structured questions, if available, and Guidance notes for each issue/scenario maintained by Insight, on the....
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....r verification and the assessee submitted all the details to the AO who after examining the issues, passed the assessment order u/s 143(3) of the Act, accepting the returned income: (1) Stock valuation (ii) Loss from currency fluctuations (iii) Refund claim 3. The assessee submits that the earlier assessment proceedings completed u/s 143(3) of the Act for this assessment year were faceless. There is and cannot at all also be otherwise any presumption much less allegation by anyone of any connivance of the said assessing officers of the AU with the assessee. It is submitted that the annual audited accounts of the assessee for the 3 past preceding years are also on record of the Revenue submitted on the online portal and in fact some extracts from the same have also been reproduced in the table given in para 8 of the impugned SCN. 4. However, for a quick appreciation of the facts on record of the revenue, the following chart gives comparative figures of the business of the assessee in the last 4 assessment years: In Crores Rs. Sl No. A.Y Turnover Net profit as per P/L account Net Income returned Net profit % to the sal....
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.... in the proposed fresh proceedings now about the same and a mere allegation that something was not examined without stating therein as to what could be erroneous much less prejudicial to the interest of the Revenue for the impugned proceedings. 10. It is not understood as to how it has been alleged in para 7 therein that the assessee paid a sum of Rs 2.50 crores in the Prime Minister Relief Fund in cash during the relevant previous year and not through bank transfer which is beyond comprehension of any normal prudent person that such a huge amount could be given in cash, in hard currency to the PM Relief Fund which is something impossible and nothing has been mentioned therein to presume so. A copy of the bank statement of the assessee with state bank showing payment of this amount to the PM Relief Fund and bank certificate dated 03/04/2020 are attached at PB page no. 130-133. In any case, if deduction u/s 80B(5D) of the Act is not allowable on cash donations, it is a matter of mistake apparent from record and not for a review w/s 263 of the Act. 11. In respect of remaining donation of Rs 36 crores on which deduction w's 80G of the Act was claimed and a doubt ....
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....nt proceedings where the officer is supposed to concentrate on the issues which are prima facie indicating deviation from normal and need examination. However, the assessee has attached herewith the list of said creditors as on 31/03/2020 showing dates of the payments to each of them through proper banking channel. 14. As regards the advances given for the fixed assets and to the suppliers, it is stated that since the assessee is engaged in the agricultural produce where advances to the suppliers are given for each crop because the suppliers have to give it to farmers and then the suppliers store the material purchased at their end by procuring from the farmers in each crop season. Such advances are adjusted in the subsequent years when the raw material is received by the assessee. Copies of accounts of all major suppliers having a balance of Rs 10 lakhs and above as on 31/03/2020 for the subsequent AYs are attached at PB page no. 50-53 showing such adjustment and which is a regular practise year on year basis. Thus, no adverse cognizance can be taken. In any case, advances given have no bearing upon determination of the taxable income and cannot be prejudicial to the inte....
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....ing year, it is stated that those are normal business expenses branch wise details and copies of ledger accounts are attached at PB page no. 68118 and cannot be considered as not authentic for the business necessities. 18. In respect of the GST input credit not available, it is stated that GST became applicable w.e.f. 01/07/2017 and as per the said Act input credits are available on each purchase against GST payable on each sale by the assessee for which necessary forms have to be filed on the GST portal by the purchaser and the seller both. In case the seller failed to file the requisite returns of GST in time or fail to deposit the GST in time then the required GST input credit of the same is not available to the assessee, purchaser. Thus, the said amount was determined by the assessee at the yearend finding that the sellers had not deposited the GST on their sales / services and which was not reflecting on the GST portal of the assessee. This is equivalent to the Form no. 26.AS where if the TDS is not reflected then the assessee is not given any credit for the said TDS made on his behalf. The details of the GST input credit not available for the relevant period on the i....
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....ch less prejudicial to the interest of the Revenue. 21. In respect of expenses of Rs 13.22 crores incurred during the relevant period on centenary celebration of the company, it is not understood as to how this has been alleged that it is not justified as an admissible business expenses. The Revenue must spell out as to how this allegation has been levelled. It is well known that any business house achieving a milestone of a centenary existence, celebrates the same where all suppliers, distributors, staff and other business associates assemble when they not only pay tribute to the founders of the company but also to the persons at the helm of affairs of the company as all of them earning from and contributing to the existence of the company. The invited all of them and met their boarding, lodging, assembly and other expenses incurred for continuous 3 days. On such occasions, group discussions are held, business strategies are decided to maintain continuous growth of the business by looking ahead for another centenary. It needs to be appreciated that a generation gap is normally considered ax 25 years and in a centenary 4 generations are involved to keep the business intact....
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....the period from 01/04/2019 το 31/03/2021 showing regular payments to them for raw material, services and facilities purchase/ availed from them are attached at PB page no. 458-715. 3 Details of raw material purchased item wise in the two periods relevant to the AYs 2019-20 and 2020-21 are given in an attached chart in the desired format at PB page no. 716. 4. Details of finished goods sold in the two periods relevant to the AYs 2019-20 and 2020-21 are attached in the above format at PB page no. 717-722. 5 It needs to be appreciated that no raw material is sold in the same form as purchased after purchases. Each item of the raw material is dried, cleaned, processed and besides kept for processing at later period in bags in the cold storages. It is because every raw material is an agricultural produce which is purchased in crop season from the farmers as it is. 6. It must also be appreciated that every raw material losses weight after passage of time due to dryness, evaporation of moisture therein besides while cleaning some quantity not fit for consumption is also thrown out, losses during packing repacking etc. in each process. Even f....
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....ge no. 723-728) holding that "MDH deals primarily in household products. The contention of MDH that Mr. Dharam Pal Gulati is a pioneer of packaged spices in India and has built the business by his vision and hard work for over six decades has been unable to be contradicted by the Revenue. It is entirely up to the assessee as to how it promotes its products. The Court finds no basis for the AO to have concluded that the expenses on advertisement was not for business purposes and for disallowing 20% of it. The ITAT rightly upheld the order of the CIT (A) deleting the said disallowance." 10. Details of the Centenary Year celebration of the company are given alongwith the evidences in the following broader heads: (1) Payment to hotels for 2-3 days stay of distributors, dealers, suppliers, business associates etc. from the globe are attached at PB page nos. 729-1017. (ii) Centenary Event Celebration at Indira Gandhi Indoor Stadium, copy of bills of event manager are attached at PB page nos. 1018-1023, describing the artists who performed and payments made to each of them. (iii) List of other facilities availed. (PB page nos. 1024-1156) (iv) T....
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....greater part of the submissions canvassed by the learned Government Advocate that the revisional authority does have wide powers exercisable in cases where the decision has been prejudicial to the interest of the revenue and in exercise of those powers modifications are permissible, and furthermore that if the authority is of the view that the assessment is required to be redone that such a direction can still be issued to the assessing officer, we need to at the same time uphold the argument canvassed by the appellant's learned counsel Sri S Narayana that it is wholly impermissible for the revisional authority to step into the shoes of the assessing officer and to redo the assessment or pass a fresh assessment order.." Same has been reiterated in Solidus Hi Tech Products (P.) Ltd. vs. State of Karnataka [2015] 57 taxmann.com 203 (Karnataka). 4. Roving and fishing expedition was also disapproved by the Hon'ble Bombay High Court in Gabriel India Ltd. 203 ITR 108 holding that "There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incompl....
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.... the facts on record. Kindly refer to the notice issued u/s 143(2) of the Act as ITBA/AST/S/2021-22/103378 3788 dated 29/06/2021 at PB page nos. 35-43 filed with the letter dated 05/02/2024 wherein it is mentioned under the heading "What are the issues on which further clarification is required initially' and it has been further mentioned therein only that since it is complete scrutiny, further queries may arise during the course of assessment proceedings. The importance of the word initially cannot be lost sight of. It only means that issues may be expanded later during the course of proceedings in respect of the identified issues but, it can never be said that the AO was required to examine each item which appeared on both sides of the relevant balance sheet/P&L Account. The complete scrutiny mandate was only sort of enabling mandate but it does not mean that the AO must repeat /raise query on all and sundry items even though those issues do not arise during the assessment proceedings or did not require any deep verification. This notice was issued by the ITBA and not by the FAO or Faceless AO. Kindly appreciate that a notice u/s 143(2) of the Act is to accord an opportunity ....
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.... was relevant for the assessment proceedings, particularly in the faceless assessment scheme where the AO conducts the assessment proceedings as per the prescribed SOP and the PCIT cannot substitute his opinion on the SOP. It is a settled law that even each loss cannot result into an error or prejudice to the interest of the revenue. The assessee relies on the following legal propositions: i) Malabar Industrial Co. Ltd. [2000] 243 ITR 83 (SC) 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 the Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an ITO adopts one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO 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 taken by the ITO is unsustainable in law.ii) Daffodills Pharmaceuticals Ltd. [2023] 157 taxmann.com 195 (Delhi - Trib.) A....
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....on under section 263 merely on assumption that order passed by Assessing Officer could possibly have been erroneous. It is further submitted that the Explanation 2 to the section 263 of the Act has been reproduced in the impugned SCN without specifying the applicable limb. It was held by the Hon'ble Supreme Court in ORYX Fisheries Private Limited arising out of Special Leave Petition (C) No.27615/08)- on 29 October, 2010 (copy attached at PB page no. 1157-1167) that "It is of course true that the show cause notice cannot be read hyper-technically and it is well settled that it is to be read reasonably. But one thing is clear that while reading a show-cause notice the person who is subject to it must get an impression that he will get an effective opportunity to rebut the allegations contained in the show cause notice and prove his innocence. If on a reasonable reading of a show- cause notice a person of ordinary prudence gets the feeling that his reply to the show cause notice will be an empty ceremony and he will merely knock his head against the impenetrable wall of prejudged opinion, such a show cause notice does not commence a fair procedure expecially when it is i....
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....t order is both erroneous and prejudicial to the interest of the Revenue, which is a pre-requisite for invoking revisional Jurisdiction u/s 263 of the Act. The Ld. PCIT has asked the Assessee to show cause on the issues which are not examined in the assessment proceedings and nowhere in the notice it is mentioned that the proceedings have been initiated u/s 263 of the Act, which gives an inference that the Ld. PCIT was only trying to enable the A.O. to make fishing and roving enquiry. The Ld. PCIT by way of issuing the show cause notice, tried to make enquiries regarding the very same information taken by the NFAC during the assessment proceedings. After gathering the information from the Assessee, the PCIT could not also point out any adverse inferences or deficiencies in the explanation of the Assessee bringing on record any error committed by the A.O. which in turn had caused prejudice to the interest of the Revenue. The Ld. PCIT was of the opinion that A.O. should have made more enquiries and for which no reasons have been assigned as to why those enquiries necessitated particularly based on chequered history and fast information on record. 16. The Hon'ble Supreme Court ....
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.... and various replies and details were furnished to the AO, considering which the AO has accepted the claim of the assessee. The Id. Counsel, in this respect has submitted that the AO had issued questionnaire dated 28.12.2020 wherein, the following details were asked for from the assessee, on this issue: a) Name and address of the shareholders. b) PAN of the shareholders. c) Face Value of each share d) Number of shares allotted to each shareholder. e) Total value of the shares allotted to each shareholder. f) Payment received from each shareholder during the financial year. 2) Provide documentary evidence to substantiate the identity and ITR of the shareholders to substantiate creditworthiness the shareholders as well as the proof of genuineness of transaction in respect of fresh credit of the share capital account. 3) EPS The valuation report with respect to the working of 4) The comparison of the working of EPS with the immediately prior instance, wherein the shares were allotted. 5) The year wise details of dividend declared during the year and three earlier years." 6. Therefore, it....
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....J.V, i.e the assessee. We are of the considered view that seeking of the aforesaid information in respect of the expenses incurred by the sub-contractor, viz. M/s Urja Infrastructure can safely be characterized as a fishing and roving enquiry on the part of the CIT, which had never formed the basis on which the order of A.O was sought to be revised by the CIT. We are further of the considered view that from a perusal of the order of the CIT it can safely be gathered that the CIT had as a matter of fact, not being in agreement with the mode and manner of verifications done by the A.O, had thus tried to impose the manner in which the same were required to be done. We would not hesitate to observe that unless the CIT is able to show as to how the manner in which the verifications in respect of the issues under consideration were carried out by the A.O, had rendered the assessment as erroneous and prejudicial to the interest of the revenue, he cannot in the garb of the revisional proceedings be permitted to substitute and impose his choice of mode and manner of carrying out the verifications on the A.O. We are constrained to record the aforesaid observations in order to make it clear b....
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....ner 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 interest of the Revenue. But that by itself will not be enough to vest the Commissioner with the power of suomotu revision because the first requirement, namely, the order is erroneous, is absent. Similarly if an order is erroneous but not prejudicial to the interest of the Revenue, then also the power of suomotu revision cannot be exercised. Any and every erroneous order cannot be subject-matter of revision because the second requirement also must be fulfilled. There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed". 16. We further are persuaded to be in agreement with the contention of the ld. A.R that the CIT had even otherwise failed to show as to how the order passed by the A.O was found to be "prejudicial" to the interest of the revenue. We find that the specific contention raised by the assessee during....
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....15‟, w.e.f 01.06.2015, was to be construed as being retrospective in nature and thus would be applicable to the present case of the assessee for A.Y. 2009-10. We are not impressed by the contention of the ld. D.R that as the A.O had passed the assessment order without making inquiries and verifications which he should have made in the opinion of the CIT, therefore, the same rendered the order passed by him amenable for revision under Sec. 263. We have given a thoughtful consideration to the contentions of the assessee and do not find ourselves to be in agreement with his view. We are of the considered view that the Explanation 2 of Sec. 263 as had been made available on the statute vide the „Finance Act, 2015‟, w.e.f 01.06.2015, cannot be construed to be retrospective in nature. We are of the considered view that if the legislative would have intended a retrospective applicability of the same, then there would have been a specific mention as regards the same, which we find is not available. We find that a similar view in respect of prospective applicability of the Explanation 2 of Sec. 263 had been taken by the coordinate benches of the Tribunal in the following c....
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....n view of the above facts and circumstances and by relying on the ratio laid down by the Hon'ble Supreme Court, Hon'ble High Court and the Co-ordinate Bench of the Tribunal (supra), we are of the opinion that action of the PCIT in invoking provision of Section 263 of the Act is against the settled principles of law and nothing but enabling the A.O. to make fishing and roving enquiries. Accordingly, the order impugned dated 27/03/2025 for Assessment Year 2020-21 passed by the NFAC/PCIT u/s 263 of the Act is hereby quashed. 21. Since, we have quashed the order impugned on its merit, the contention of the Ld. Assessee's Representative challenging the jurisdiction of the PCIT to pass order u/s 263 of the Act in the cases of assessment passed by the NFAC requires no adjudication at this point of time which remain academic in nature. 22. In the result, Appeal of the Assessee is allowed. Order pronounced in the open court on 10th September, 2025 ============= Document 1 GOVERNMENT OF INDIA MINISTRY OF FINANCE INCOME TAX DEPARTMENT OFFICE OF THE PRINCIPAL COMMISSIONER OF INCOME TAX PCIT, Delhi-4 To. MAHASHIAN DI HATTI PRIVATE LIMITED 9/44, KIRTI NAGAR INDUSTRIA....
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....CITSIR Director pal Galati Directa Shri Dhar ampel Gelati Director 211 800000 Shut Dha ampal Golall AATIFCITOIR Director Shri Rajeev Galan HEPCITOEN Director Salary Tui Raler Colel IFCITHEN Director Per quisites Shri Rajeev Calan AAHPCITOIN Shri Rajeev Calall AAHPCITHEN Deeri AAHPCI7SIN Tydll Culat AUIFCITSIF Salary AARPCITSIF AAHPCI7IF ADHPREGOEM AANPPOOTTE AEUPCITOIK Heel Derectar Relative of Director Pratibha Kháng Profissional Fees Kiran Grover Relative of Director Professional Fees Further on perusal of financial statements, it is noticed that you have made payment of Rs. 12,00,00,000/- under the head Commission to Directors. However, on perusal of column no. 23 of Form 3CD, it is observed that you have made commission payment of Rs. 27,00,50,650/- to directors. During the assessment proceedings, the FAU has not verified/ examined with regard to the aforesaid payments. Hence, the aforesaid order passed by the FAU is prima-facie erroneous in so far as it is prejudicial to the interests of revenue. . In view of the above, you are requested to file details of said transaction to justify your claim. ....
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....t the payments amounting to Rs. 2,50,00,000/- to PM Relief Fund in cash. Therefore, as per section 80(G)(5D), you are ineligible to claim deduction u/s 80G Furthermore, it is also noticed that you have claimed 50% deduction u/s 80G 8,00,00,326/- which is yet to be examined with respect to its nature of payments and receipts. Whereas on perusal of assessment records, these observations remained unverified. Hence, the aforesaid order passed by the FAU is prima-facie erroneous in so far as it is prejudicial to the interests of revenue. In view of above, you are requested to file details alongwith supporting documentary evidences. 8. On perusal of assessment records and ITRs, the trade payables in previous years are as under :- As on 31.03.2020 As on 31.03.2019 As on 31.03.2018 As on 31.03.2017 Rs. 47,71,84,855 46,96,85,985/- 38,62,91,826 26,90,31,069/- During the assessment proceedings, the FAU has not examined this issue through age-wise outstanding amounts and other related documents. In view of the above, the assessment order passed u/s 143(3) of the Act for the AY 2020-21 prima-facie appears erroneous and prejudicial to the interest of Revenue. 9. On perusal of deta....