AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2026 (4) TMI 845
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....g substantial questions of law: SUBSTANTIAL QUESTION OF LAW A. "Whether on the facts and the circumstances of the case and in law, the Hon'ble ITAT is justified in quashing order u/s.263 of the Income Tax despite the fact that case is clearly covered under explanation 2 of Section 263 as AO failed to even seek any explanation in respect of taxability of on money of Rs.7.96Cr. despite evidence on record?" B. "Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT is justified in quashing order u/s. 263 of the Income Tax Act, 1961 passed by the Pr. Commissioner of Income Tax by accepting the assessee's stand that on-money received cannot be assessed during the year under consideration as Occupancy Certificate was received in subsequent assessment year ignoring the fact that the AO did neither ask any explanation about taxability of on money of Rs.7.96Cr. nor even asked for Occupancy certificate? 3. The brief facts are as follows:- i) The Respondent-Assessee is engaged in the business of builders and developers. During the year under consideration, the Respondent-Assessee undertook the construction of two projects, namel....
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....96,39,066/- pertaining to the "Spring-II" project. vii) On the basis of the above findings, and after considering the submissions made on behalf of the Respondent-Assessee, the PCIT-II, Thane invoked the provisions of Section 263 of the Act and held that the unaccounted on-money of Rs. 7,96,39,066/- was liable to be taxed in the present AY. On the basis of the aforesaid findings the PCIT-II, Thane sought to bring to tax the balance amount of Rs. 7,96,39,066/- pertaining to the present AY, and also recorded the finding that this on-money received was never brought/offered to tax in any of the subsequent years and that it has no co-relation with receipt of the occupancy certificate. The PCIT-II, Thane sought to invoke clause (a) of Explanation 2 to Section 263 of the Act, which provides that if an order is passed without making enquiries or verification which should have been made, the order passed by the Assessing Officer shall be deemed to be erroneous insofar as it is prejudicial to the interests of the Revenue. The PCIT-II, Thane passed order dated 27th March 2019 holding that the order of the Assessing Officer dated 26th December 2016 is erroneous and prejudicial to the inter....
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....oject, and the same was duly verified by the Assessing Officer, and hence this was not a case where assessment order could be considered to be erroneous and prejudicial to the interest of the Revenue. The ITAT, while reaching its conclusion that the order passed by the Assessing Officer was not erroneous and prejudicial to the interest of the Revenue placed reliance on the decisions of this Court in Grasim Industries Ltd. V. CIT (321 ITR 92), wherein it has been held that the phrase "prejudicial to the interest 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, and therefore, considering the aforesaid ratio, and also ratio as laid down in Malabar Industrial Co.Ltd. Vs. Commissioner of Income Tax (2000) 243 ITR 83 (SC) the ITAT held that the learned PCIT-II, Thane could not invoke its powers of revision under Section 263 of the Act if the Assessing Officer has conducted enquiries and applied his mind, and had taken a possible view of the matter. Further, the ITAT also held that if there was a....
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.... 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 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 taken by the Income-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 82." The principles laid down by the courts are that the Learned CIT cannot invoke his powers of revision under section 263 if the Assessing Officer has conducted enquiries and applied his mind and has taken a possible view of the matter. If there was any enquiry and a possible view is taken, it would not give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has a different opini....
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....rroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under section 263 of the Act. In such matters, to remand the matter to the Assessing Officer would imply and mean the Commissioner of Income tax has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect / question" Similar view has been expressed by Hon'ble Madras High Court in the case of CIT Vs. Amalgamations Ltd (238 ITR 963). The law interpreted by the High Courts makes it clear that the Ld Pr. CIT before holding an order to be erroneous, should have conducted necessary enquiries or verification in order to show that the finding given by the assessing officer is erroneous, the Ld Pr. CIT should have shown that the view taken by the AO is unsustainable in law. 10. In the instant case, we noticed that the Ld PCIT has reached to the conclusion that the difference amount is taxable in AY 2014-15 without referring to any material available on record. It is well settled proposition that the conclusion reached by the Ld PCIT should be supported by the material available on....
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....e occupancy certificate for the "Spring-II" project was received on 11th December 2014, the corresponding income was not offered to tax even in the subsequent AY, i.e., AY 2015-16. It was also urged that the timing of receipt of the occupancy certificate was immaterial, particularly in view of the fact that the on-money receipts had already been admitted by the Respondent-Assessee during the survey conducted under Section 133A of the Act on 16th October 2014. 6. He, therefore, submitted that the PCIT-II, Thane had rightly invoked the provisions of Explanation 2(a) to Section 263 of the Act, as the assessment order dated 26th December 2016 had been passed without making the necessary inquiries or verification of relevant details, thereby rendering the order erroneous and prejudicial to the interests of the Appellant-Revenue. 7. Per contra, learned counsel on behalf of the Respondent-Assessee Mr. Madhur Agrawal, has contended that since Respondent-Assessee was following the project completion method, the profits were being recognized on the basis of the same and being offered to tax accordingly. He also contended that the Respondent-Assessee had offered an amount of Rs.52,85,95....
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.... are possible, and the Income-tax officer has taken a view with which the Commissioner does not agree, it cannot be treated as erroneous order prejudicial to the interest of the Appellant-Revenue unless the view taken by the Income-tax officer is unsustainable in law. 9. It would be beneficial to refer to the decision of the Supreme Court in the case of Commissioner of Income Tax, (CENTRAL) Ludhiana Vs. Max India Limited (2007) 295 ITR 282 wherein in respect of the interpretation of the word "Profits" as defined in the proviso to Section 80-HHC(3) it has been held that when two views were possible in respect of the interpretation of the word "profits", then the Commissioner could not exercise the powers under Section 263 of the Act. Relevant paragraphs of the decision are reproduced below:- 1. In our view at the relevant time two views were possible on the word 'profits' in the proviso to section 80HHC(3). It is true that vide 2005 amendment the law has been clarified with retrospective effect by insertion of the word 'loss' in the new proviso. We express no opinion on the scope of the said amendment of 2005. Suffice it to state that in this particular case when the ord....
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....above we have to take into account the position of law as it stood on the date when the Commissioner passed the order dated 5-3-1997 in purported exercise of his powers under section 263 of the Income-tax Act. 3. For above reasons civil appeals filed by the Department stand dismissed. No order as to costs. (emphasis supplied) 10. Further, this Court in the case of Commissioner of Income Tax Vs. Gabriel India Ltd. (1989) 176 ITR 349 has held that the power of suo moto revision under Section 263(1) of the Act can be exercised only if the circumstances therein exist. For the powers of revision under Section 263 of the Act, two circumstances must exist to enable the Commissioner to exercise the revisionary jurisdiction, i.e., (i) the order is erroneous, (ii) by virtue of the order prejudice is caused to the Revenue. It is therefore to be considered firstly that the order is said to be erroneous, and further if an Income Tax Officer (ITO) has acted in law and has made 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. If the ITO while making an assessm....
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....nsiders that any order passed therein by the ITO is 'erroneous insofar as it is prejudicial to the interests of the revenue'. It is not an arbitrary or unchartered power. It can be exercised only on fulfilment of the requirements laid down in sub-section (1). The consideration of the Commissioner as to whether an order is erroneous insofar as it is prejudicial to the interests of the revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of h....
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.... to be erroneous. Cases may be visualised where the ITO 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 the 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 detemined by the ITO. 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 ITO 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. 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....
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....of statutory power is dependent upon the existence of certain objective facts, the authority before exercising such power must have materials on record to satisfy it in that regard. If the action of the authority is challenged before the Court, it would be open to the Courts to examine whether the relevant objective factors were available from the records called for and examined by such authority. Our aforesaid conclusion gets full support from a decision of Sabyasachi Mukharji, J. (as his Lordship then was) in Russell Properties (P.) Ltd. v. A. Chowdhury, Addl. CIT [1977] 109 ITR 229 (Cal.). In our opinion, any other view in the matter will amount to giving unbridled and arbitrary power to the revising authority to initiate proceedings for revision in every case and start re-examination and fresh enquiries in matters which have already been concluded under the law. As already stated, it is a quasi-judicial power hedged in with limitation and has to be exercised subject to the same and within its scope and ambit. So far as calling for the records and examining the same is concerned, undoubtedly, it is an administrative act, but on examination 'to consider' or in other words, to for....