AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2025 (12) TMI 1494
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....ssessee had claimed deduction u/s 35(2AB) and AO has allowed the above said deduction claimed by the assessee. However, in AY 2017-18, the erstwhile AO had made the addition on this issue. The AO should have made proper enquiries to verify whether the assessee is entitled for deduction under this section in this year as well. He observed that several other issues were also not verified by the AO as discussed at page 2 of the impugned order and accordingly notice u/s 263 Of the Act was issued to the assessee. Assessee filed its objections. After considering the above objections, ld. PCIT observed that the assessee has submitted basic details, submitted copies of statutory forms and approval etc. and a larger number of section 80G donation receipts. It also submitted various circulars and explanation notes to the provision of Finance Act, 2009. It also filed Form 10DA and audited report as per Rule 18BBB for deduction u/s 80IA was filed. For deduction claimed u/s 35(1) only Form 3CL was filed before the AO. No computation of income or audited financial statement was filed before the AO. Apart from this, for the Transfer Pricing Officer's proposal, a brief note for making necessary co....
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....80JJAA as the conditions of the section need to be verified for its full compliance as per various sub sections of this section. 6. The claim of the assessee for deductions u/s 35(1) and u/s 35(2AB) is disallowed in view of detailed facts brought out above in this order wherein all the conditions are found to be not fulfilled. The form cannot be more important than the substance, as is the basis principle of the jurisprudence. AO is directed that the income computed in the assessment order dated 29.10.2021 may be accordingly revised withdrawing these two deductions. The income as per assessment order is enhanced to this extent. Further, the income may get further enhanced and shall be computed as such on the basis of any further disallowance/addition made by the AO as per the directions contained in 1 to 5 above." 4. After verification of the above, he directed that the income as per assessment order is enhanced to that extent and accordingly AO is directed to recompute the income may be revised withdrawing the deductions u/s 35(1) and 35(2AB) and redo the assessment as per the above directions. 5. Aggrieved with the above order, assessee is in appeal before us raisi....
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.... and prejudicial to the interest of Revenue is arbitrary and bad in law. 7. That in the absence of any finding about the incorrectness of duty draw back received by the assessee and considered by the Assessing Officer, after examining the details, in order u/s 263 of the Act, the Pr. CIT has no jurisdiction u/s 263 to direct the Assessing Officer to re-verify the duty drawback received by the assessee. 8. That the Pr. CIT has erred on facts and under the law that without giving any finding about the effect of application of income computation and disclosure standards adopted by the company under the Income-tax Act and accordingly in the absence thereof the order as passed by the Pr. CIT holding that the order of the Assessing Officer is erroneous and prejudicial to the interest of Revenue is arbitrary and bad in law. 9. That in the absence of any finding about the incorrectness of the claim u/s 80JJAA of the Act made by the assessee and allowed by the Assessing Officer, after examining the details, in order u/s 263 of the Act, the Pr. CIT has no jurisdiction u/s 263 to direct the Assessing Officer to re-examine and re-verify the claim of deduction u/s 80J....
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....venue, 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- (i) an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment; or (ii) an order modifying the order under section 92CA; or (iii) an order cancelling the order under section 92CA and directing a fresh order under the said section. Explanation. 1. - For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,- (a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer or the Transfer Pricing Officer, as the case may be, shall include- (i) ....... (ii) ....... (iii) ....... (b) "record" shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner; (c) ........... Expla....
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.... (i) the order of the Assessing Officer sought to be revised is erroneous, and (ii) it is prejudicial to the interests of the revenue. If one of them is absent - if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue - recourse cannot be had to Section 263(1) of the Act. There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. 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. The phrase "prejudicial to the interests of the Revenue" is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The High Court of Calcutta in Dawjee Dadabhoy & Co. vs. S.P. Jain and Another [31 ITR 872), the High Court of Karnataka in Commissioner o....
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....973] 88 ITR 323 (SC)." The same principle has also been reiterated in the following cases: * 259 ITR 502 (Guj), CIT vs. Arvind Jewellers * 354 ITR 489 (Kar), CIT vs. Digital Global Soft Ltd. * 295 ITR 282 (SC), CIT vs. Max India Ltd. * 395 ITR 1 (SC), CIT vs. Quality Steel Suppliers Complex 6.2 Keeping into consideration the principle as propounded by the Hon'ble Supreme Court in the case of Malabar Industrial (supra), it has been further held by the Hon'ble Jurisdictional High Court in the case of CIT vs. Honda Siel Power Products Ltd. in 333 ITR 547 that where the AO adopts one of the courses permissible in law or where two views are possible and the AO has adopted one of the views, the Commissioner cannot exercise his power u/s 263 of the Act. Similar principle has also been reiterated in the following cases: * 259 ITR 502 (Guj), CIT vs. Arvind Jewellers * 395 ITR 1 (SC), CIT vs. Quality Steel Suppliers Complex * 407 ITR 681 (Guj), Micro Inks Ltd. vs. Pr. CIT Application of Explanation 2 to Section 263 of the Act. 7. At page 8 of order passed u/s 263 of the Act, the Pr. CIT has jus....
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....xplanation. Howsoever wide the scope of Explanation 2(a) may be, its limits are implicit in it. It is only in a very gross case of inadequacy in inquiry or where inquiry is per se mandated on the basis of record available before the AO and such inquiry was not conducted, the revisional power so conferred can be exercised to invalidate the action of AO. 7.3.1 The order of Surat Bench of ITAT has been reproduced by the Gujarat High Court while affirming the judgment of the Surat Bench of ITAT reported in 282 Taxman 465 = [2021] 130 taxmann.com 293. 7.3.2 Later on, the SLP filed by the Revenue against the judgment of Gujarat High Court has also been dismissed by the Hon'ble Supreme Court reported in 282 Taxman 464 = 130 taxmann.com 294 in the case of Pr. CIT vs. Shreeji Prints Pvt. Ltd. 7.4 In the case of Pr. CIT vs. Dharam Singh in 342 CTR 653, the Allahabad High Court has also approved the finding of the Delhi Bench of ITAT in ITA No. 821/Del/2022 dated 18th June 2024, which has been reproduced by the Allahabad High Court in paragraph 6 of its judgment. The Delhi Bench of ITAT has commented upon the availability of power under Explanation 2 to Section 263 ....
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....hat elaborate enquiries are required. 7.7 In the instant case, the AO, not only examined the tax reports available in Form No. 10CCJ in respect of all the units and was also aware about the fact that all the industrial units claiming deduction u/s 80IB and 80IC are old units to whom the deduction has always been allowed. Similarly for claiming deduction, the assessee has not only filed the related documents and complied all the formalities and procedural requirements (as detailed expenditure in the chart annexed) has also explained before the AO vide letter dated 7th January 2021 and apart from that even before the Pr. CIT the assessee has explained not only the formalities as complied but also even the work done in research. 8. So in such circumstances, the order of the AO dated 29,h October 2021 cannot be termed as erroneous because the AO has taken the view and allowed the deduction after considering all the details available with him and he was also aware about the background of the assessee wherein the deduction claimed has also been allowed. No final finding in the order of Pr. CIT 9. In the following cases, it has been consistently held by....
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....Section 35 of the Act, if deduction is allowed u/s 35, then no deduction will be allowed in respect of the expenditure incurred in any other section and accordingly the assessee did not claim the deduction as far as revenue expenditure is concerned u/s 37 of the Act and in respect of the capital expenditure, no depreciation was claimed u/s 32 of the Act. Therefore, if the deduction so disallowed by the Pr. CIT u/s 35 of the Act is upheld by the Hon'ble ITAT, then the deductions u/s 37 for revenue expenditure and depreciation on the capital expenditure should be allowed u/s 32 of the Act." 7. On the other hand, ld. DR of the Revenue submitted asunder :- "In this regard, it is humbly submitted that Explanation 2 has been inserted in Section 263 of IT Act by Finance Act 2015, w.e.f. 01.06.2015, which is reproduced below :- "Explanation 2. - For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner- (a) the order is passed without making inquirie....
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....9 taxmann.com 115 (SC) (2023). 8. Considered the rival submissions and material placed on record. We observe that Ld PCIT gets the power the verify the assessment records and in case he found that the assessment order passed by the AO is erroneous in so far as prejudicial to the interest of revenue. To determine the order passed is erroneous as well as prejudicial to the interest of revenue, he has to first determine twin conditions as indicated above together. Even if the order passed is erroneous but not prejudicial to the interest of the revenue or it is not erroneous but prejudicial to the interest of revenue, in that case, the provisions of section 263 cannot be invoked because twin conditions have to satisfied. Therefore, the Ld PCIT has to first determine above aspect before invoking the Explanation 2(a), as held in the case of Malabar Industrial Co Ltd (supra) and the coordinate bench decision in the case of Dharam Singh (supra) held that Ld PCIT has put much emphasis on Explanation 2 to section 263, in their view, Expln 2 to section 263 does not invest unbridled power with the revisionary authority so as to empower him to invoke revisional jurisdiction arbitrarily. The ....
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....following inquiries: a. The AO may call for books of accounts and accompanying bills and vouchers and also transportation evidences to verify the transfer of each and every items of Plant and Machinery mentioned in column 26(d) of Form 10CCB. b. AO may verify the correctness of the value of plant and machinery received on transfer and fulfillment of all the conditions including conditions mentioned in section 32 and conditions mentioned in section 80IA(3)(ii) read with Proviso and Explanation 1 and Explanation 2 and other relevant conditions as per Rule 18BBB. c. AO may call for and examine separate balance sheet and P&L A/c for each of the undertakings as per the requirement of section 80IA/80IC. The claim may be disallowed if all the conditions as per the Income Tax Act and Rules are not fulfilled or verified to be true. 2. AO may do the verifications regarding duty drawback received, which was one of the CASS reasons was not seen by AO in the assessment proceedings. In case the figures do not get reconciled, necessary additions on this account may be made. 3. AO may examine the issue regarding reduction in profit because of a....
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....t there being any final findings in the order, he cannot set aside the issues directing the AO to make further enquiries, as held in the case of DG Housing Projects Ltd (supra). We observed that the assessee had filed detailed submissions issue wise before the PCIT as well as before us in the form of separate submissions. Considering the facts on record, we are inclined to set aside the order passed u/s 263 of the Act as it is only for the purpose of rowing enquiries and there are no specific findings on the issue of prejudicial to the interest of revenue. Therefore, we are inclined to allow the grounds raised by the assessee. 13. In the result, appeal filed by the assessee is allowed. Order pronounced in the open court on this 14th day of November, 2025. ============= Document 1 Daher 28° March 2004 The Principal Cenmissioner of Income Tax-1 Ngu Delhi (10002 DIN: ITRAREN/F/REN1/2023-24/1063194914(1) dated 22 March 2024 for AV 2018-19 Sale: Show Cause Notice under section 263 of the Income Tax Act. 1961 - PAN AMACDO474C Dear Madam ji. With regards to ongoing re-assessment proceedings u's 263 of the Income Tax Act, your goodself has on 220 March 2024 ....