TaxTMI 
TaxTMI 
2026 (2) TMI 447
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....n holding that assessment order passed u/s 143(3) r.w.s. 144C on 29/09/2022 is erroneous and prejudicial to interest of revenue and set aside such order u/s 263 of the Act. 3. In law and in the facts and the circumstances of the case of the appellant, the Ld. PCIT has erred in observing that AO failed to consider the necessity of revisiting the method of disallowance under Rule 8Dread with Section 14A. 3.1 In law and in the facts and the circumstances of the case of the appellant, the Ld. PCIT has failed to appreciate that the appellant has submitted all relevant details during assessment proceeding which are on record of Ld. Assessing Officer and he duly applied his mind and not made further addition u/s 14A. Thus, the assessment order was not erroneous and prejudicial to interest of revenue. 4. In law and in the facts and the circumstances of the case of the appellant, the Ld. PCIT has erred in concluding that appellant has received accommodation entry from Shri Dilip C. Patel in relation of Robin Goenka (Sankalp Group). 4.1 In law and in the facts and the circumstances of the case of the appellant, the Ld. PCIT has erred in stating that the as....
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....filed by the assessee on 24.02.2025. 4. Before us, the ld.AR contested both the above findings claiming that the assessment order did not suffer from any error, making it prejudicial in terms section 263 of the Act. He made oral as also written submission on the issues involved alongwith a Factual Paper Book containing 112 sheets and a Legal PB of 48 pages. It is argued that in respect of applicability of the provisions of section 14A of the Act,the assessee had furnished all relevant details and explanations during the course of assessment proceedings, which were duly examined by the Assessing Officer, who applied his mind and correctly accepted the disallowance offered. Hence, the assessment order could not be regarded as erroneous or prejudicial to the interests of the Revenue within the meaning of Section 263 of the Act. In this regard, the AO issued various notices under section 142(1), including a detailed notice dated 21.09.2022 wherein he called for details with reference to dividend income amounting to Rs. 2,74,21,78,924/- and expenses of Rs. 1,82,21,8677/-, debited to profit and loss account which related to this exempt income and disallowed u/s 14A of the Act. In resp....
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....see asked for underlying evidence, to respond to the allegation of accommodation entries. Despite this, no material whatsoever was shared with it. Thereafter, ld.PCIT passed the order u/s 263 only on a system-generated Insight Portal flag, without any corroborative evidence and directed the AO to conduct a fresh enquiry, without recording a finding of error in original assessment. It is argued that in the absence of tangible material demonstrating error, assumption of jurisdiction u/s 263 is devoid of foundation and therefore, bad in law. Reliance is placed on the decision of Hon'ble Chhatisgarh High Court in the case of Sun and Sun Inframetric Pvt. Ltd vide TAXC No. 5 & 7 of 2022 dated 03.08.2022.It is further contended that the impugned order merely sets aside the matter to the AO for conducting further verification, without demonstrating any specific error or prejudice caused by the original assessment order. Remand for re-examination on suspicion is outside the scope of Section 263, which cannot be used to initiate a fishing or roving investigation. Reliance is placed on decision of Hon'ble Supreme Court in the case of V-Con Integrated Solutions (P.) Ltd [173 taxmann.com 774]. ....
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....utory formula resulted in under-assessment of income by Rs. 116.30 cr., directly causing loss to the exchequer. The Hon'ble Supreme Court in Malabar Industrial. Co. Ltd. v. CIT (243 ITR 83) clarified that an order that is contrary to law and results in loss of revenue is both erroneous and prejudicial. Therefore, the PCIT was duty-bound to step in and correct the assessment, as inaction would perpetuate an illegality and revenue leakage. The AO's acceptance of the expert's report without verification of its basis or reconciliation with investment figures clearly establishes non-application of mind. The PCIT's satisfaction that the AO failed to carry out proper enquiry is founded on record and not on conjecture. He has examined the assessment file, identified the precise error, quantified the potential prejudice, and passed a speaking order which comply with statutory requirements. Courts have consistently held that where the AO's order lacks reasoning, computation, or record of satisfaction, revision under section 263 of the Act is mandatory to protect the interests of the Revenue. The ld.PCIT has not substituted his view but corrected a legal error done by the AO in not applying t....
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....ation 2 of the Act brought into the statute w.e.f. 01.06.2025, as below: Section-263. Revision of orders prejudicial to revenue. (1) The [Principal Chief Commissioner or Chief Commissioner or Principal Commissioner] or 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 [or the Transfer Pricing Officer, as the case may be,] is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heardand 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 xxxxxxxxxxxxxxxxxxxxxxxx (iii)xxxxxxxxxxxxxxxxxxxx Explanation 1.-xxxxxxxxxxxxxxxxxxxxxxxxxxx Explanation 2.-For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer [or the Transfer Pricing Officer, as the case may be,] shall be deemed to be errone....
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....9; or (d) the order has not been passed in accordance with any decision, prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. 53.3 Applicability: This amendment has taken effect from 1st day of June, 2015." 8.2 Clause (a) as reproduced above talks about the inquiry or investigation having not been made by the AO which 'should have been made'. In the amended provisions, the phrase 'should have been done' as provided in the newly inserted Explanation means the verification/ enquiry which ought to have been done. The Act nowhere provides the exact modalities to be followed to verify a specific claim made by the assessee. It is the prerogative of the AO to decide the extent of verification. But by the amendment made, the Act gives a specific power to the Commissioner to revise the orders made without the inquiry to the extent, he thinks fit. One should not be oblivious of the fact that the fiscal statutes are to be read literally and no equity or logic has to be found in these. Therefore, the parliament in its wisdom has given power to the PCIT to decide the extent of enquiry. A discretion h....
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....t of accommodation of accommodation entries as a consequence of search action on Sankalp Group. This fact has not been controverted by the ld.AR who kept on stressing that the ld.PCIT did not make available the said information to it during revision proceedings without taking due cognizance of the fact that the assessment order has been set aside for necessary verification and enquiry allowing adequate opportunity of hearing to the assessee. This contention of the assessee cannot take away the fact on record that the AO failed to take any note of such vital piece of information which was very much available with him at the time of assessment proceedings. It is also clearly a case of no inquiry, hit by the deeming provisions of Explanation 2. 9. In so far as the requirement of due enquiry to be conducted by the Assessing Officer 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 as in the case of Ram Pyari Devi Saraogi Vs. CIT [1968) 67 ITR 84 [SC) and Tara Devi Aggarwal Vs. CIT(1973) 88 ITR 323 (SC) holding that in a stereo-typed order which simply accepts what the assessee....
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.... be prejudicial to the interest of the Revenue. The expression 'prejudicial to the interest of the Revenue' is of wide import and is not confined to merely loss of tax. The term erroneous' means a wrong/incorrect decision deviating from law. This expression postulates an error which makes an order unsustainable in law. The Assessing Officer is both an investigator and an adjudicator. If the Assessing Officer as an adjudicator decides a question or aspect and makes a wrong assessment which is unsustainable in law, it can be corrected by the Commissioner in exercise of revisionary power. As an investigator, it is incumbent upon the Assessing Officer to investigate the facts required to be examined and verified to compute the taxable income. If the Assessing Officer fails to conduct the said investigation, he commits an error and the word 'erroneous' includes failure to make the enquiry. In such cases, the order becomes erroneous because enquiry or verification has not been made and not because a wrong order has been passed on merits. 9.2 The hon'ble Delhi High Court in Gee Vee Enterprises v. Additional Commission of Income-Tax, Delhi-I, (1975) 99 ITR 375, has o....
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.... Income Tax Act and in exercise of the revisional jurisdiction, set aside the assessment order by specifically observing that the assessment order was erroneous as well as prejudicial to the interest of the Revenue. However, the High Court by the impugned judgment and order has set aside the order passed by the Commissioner by observing that the Commissioner wrongly invoked the powers under Section 263 of the Act. 7.1 Learned counsel appearing on behalf of the assessee has heavily relied upon the decision of this Court in the case of Malabar Industrial Co. Ltd. (supra). It is true that in the said decision and on interpretation of Section 263 of the Income Tax Act, it is observed and held that in order to exercise the jurisdiction under Section 263(1) of the Income tax Act, the Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. It is further observed that if one of them is absent, recourse cannot be had to Section 263(1) of the Act. "What can be said to be prejudicial to the interest of the Revenue" has been dealt with and consider....
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.... the view taken by the Income Tax Officer is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the Revenue. (Rampyari Devi Saraogi v. CIT [(1968) 67 ITR 84 (SC)] and in Tara Devi Aggarwal v. CIT [(1973) 3 SCC 482 : 1973 SCC (Tax) 318 : (1973) 88 ITR 323] .)" 7.2 Thus, even as observed in paragraph 9 by this Court in the case of Malabar Industrial Co. Ltd.(supra) that 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. It is further observed that 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. However, only in a case where two views are possible and the Assessing Officer has adopted one view, such a decision, which might be plausible and it has resulted in loss of Revenue, such an order is not revisable under Section 263. 7.3 Applying th....
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....t, which we uphold/sustain. ." 9.6 The Hon'ble Delhi Court in the case of Pr. Commissioner of Income Tax, Delhi-7 vs M/S Paramount Propbuild Pvt. Ltd. In ITA 247/2023(Del-HC) on 19 March, 2024 held as below: "Unfortunately, the assessment order nowhere reflects any element of inquiry or verification. The discussion about the loan transactions in question is altogether missing. Furthermore, the assessment record 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 i....
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...., even if the necessary inquiries were made or necessary verifications were done, no addition to income or disallowance of expenditure or any other adverse action would have been warranted. Clearly, in such cases, no prejudice is caused to the legitimate interests of the revenue. No interference will be, as such, justified in such a situation. That leaves us with the third possibility, and that is when the Commissioner is satisfied that the necessary inquiries are not made and necessary verifications are not done, and that, in the absence of this exercise by the Assessing Officer, a conclusive finding is not possible one way or the other. That is perhaps the situation in which, in our humble understanding, the Commissioner, in exercise of his powers under section 263, can set aside an order, for lack of proper inquiry or verification, and the Assessing Officer to conduct such inquiries or verifications afresh." 9.8 The co-ordinate bench of ITAT, in Shrenik Bothra, Rajim, Rajim vs PCIT (Central), Bhopal dated 25.09.2024 in ITA 238/RPR/2024 held as below: "19. Our aforesaid view and observations is supported with the principle of law laid down by Hon'ble Apex Court in....
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.... held that non-discussion of claim of deduction allowed by the AO in the assessment order would make it erroneous and prejudicial to the interest of the Revenue. Accordingly, the Ld.PCIT held that the assessment orders passed by the AO for both the years under consideration are rendered erroneous and prejudicial to the interest of the Revenue. Accordingly, he set aside the assessment orders passed for both the years and restored them to the file of the AO for the limited purpose of conducting enquiry with regard to the claim of depreciation of intangible assets and taking decision as per law. The assessee is aggrieved by the revision orders so passed by the Ld.PCIT in both the years under consideration. 4. We heard rival contentions and perused the record. We may first refer to the decisions rendered by Hon'ble High Courts, wherein the law relating to the scope of revision proceedings initiated u/s 263 of the Act have been laid down. We may first refer to the case of Grasim Industries Ltd. V CIT (321 ITR 92)(Bom), wherein the Hon'ble Bombay High Court has rendered its decision taking into account the law laid down by the Hon'ble Supreme Court in the case of Malabar Ind....
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....come-tax Officer is unsustainable in law." The principle which has been laid down in Malabar Industrial Co. Ltd. [2000] 243 ITR 83 (SC) has been followed and explained in a subsequent judgment of the Supreme Court in CIT v. Max India Ltd. [2007] 295 ITR 282." 4.1. Under the provisions of sec. 263 of the Act, the Ld Pr. CIT can revise the order only if it is shown that the assessment order is erroneous in so far as prejudicial to the interests of the revenue. The question as to when an order can be termed as "erroneous" was explained by the Hon'ble Bombay High Court in the case of Gabriel India Ltd (203 ITR 108) as under:- "From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an income tax officer acting in accordance with the law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order, unless the decision is held to ....
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....ssessee contends that the depreciation claimed by the assessee is in accordance with the law laid down by the Hon'ble Supreme Court in the case of Smiffs Securities Ltd (supra), we direct the AO to examine this issue of depreciation claimed on intangible assets by taking into consideration the above said decision of Hon'ble Supreme Court. As directed by Ld.PCIT, the AO should decide this issue in accordance with law without being influenced by any of the observations of Ld PCIT and after affording adequate opportunity of being heard to the assessee." 9.10 Hon'ble Delhi High Court in the case of M.R Apparels Private Limited vs Principal Chief Commissioner Of Income dated 26.09. 2024 in ITA 287/2024 & CM APPL. 29090/2024(Del)(HC) held as below: "11. We find no merit in the appellant's contention. Concededly, the audit report could not have commented upon the dishonour of cheques, as the report was issued prior to the date of the cheques aggregating Rs.1,45,00,000/-.. The AO had accepted the said report. The assessment order does not indicate any enquiries in this regard. The learned CIT has rightly held that the Assessment Order was passed without making the necessary....