TaxTMI 
TaxTMI 
2026 (4) TMI 1620
X X X X Extracts X X X X
X X X X Extracts X X X X
....;the Act) is without jurisdiction, illegal, bad in law, void ab initio and liable to be quashed. 2. That the PCIT erred in invoking revisionary jurisdiction under section 263 of the Act qua assessment completed by National Faceless Assessment Centre ('NFAC/assessing officer') under section 143(3) read with sections 144C(3) and 144B of the Act, which is a complete code in itself. 3. That on the facts and circumstances of the case, the impugned order having been passed by the PCIT in undue haste without: (a) considering the submissions filed, and (b) first disposing off the legal objections by passing a separate speaking order, and (c) providing a reasonable opportunity of being heard, is illegal, bad in law and liable to be quashed set aside. 4. That the PCIT erred on facts and in law in exercising revisionary powers under section 263 of the Act on various issues in the impugned order, without satisfying the twin jurisdictional conditions of the assessment order being: (a) erroneous; and (b) prejudicial to the interests of the Revenue and consequently, the impugned order is illegal, bad in law and liable to be quashed. 5. That the order pa....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (i) nature and details of expenses falling under various heads viz., Delivery charges, Facilities operation expenses, Interco commission expenses, reimbursement of expenses; (ii) the business need behind such payments and applicability of provisions of section 40A(2) thereon. 9.1 Without prejudice, the PCIT erred in issuing vague/open ended directions to the assessing officer to examine the aforesaid issue of 'payment to related parties' [refer ground No.9 supra]. That the PCIT failed to appreciate that expenses were duly examined and accepted in the original assessment order after due application of mind and after undertaking adequate inquiries/ investigation, wherever and to the extent deemed fit and appropriate by the assessing officer. Qua disallowance under section 40(a)(ia) of the Act 10. That on the facts and circumstances of the case and in law, the exercise of revisionary jurisdiction by the PCIT under section 263 on the issue of disallowance of various expenses under section 40(a)(ia) of the Act, is without jurisdiction and bad in law. 10.1 Without prejudice, the PCIT erred in issuing vague/ open ended ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....28.06.2022 was issued and duly served upon the assessee within the stipulated time. The assessee is engaged in the business of retail trading of food products. 3. Details of opportunities given: Type notice/communication Date notice/communication Date of compliance given Response of the assessee received/not received Date of response if received Response Notice u/s. 143(2) of the Act 28.06.2022 13.07.2022 Received 13.07.2022 Part Notice u/s. 142(1) of the Act 08.08.2022 23.08.2022 Received 23.08.2022 Part Notice u/s. 142(1) of the Act 19.10.2022 27.10.2022 Received 27.10.2022 Part Notice u/s. 142(1) of the Act 05.12.2022 08.12.2022 Received 08.12.2022 Part Notice u/s. 142(1) of the Act 09.12.2022 12.12.2022 Received 12.12.2022 Full 4. Thereafter, notices u/s 142(1) of the Act were issued on 08.08.2022,19.10.2022, 05.12.2022 & 09.12.2022 alongwith questionnaire asking the assessee to file relevant details for verification. In response to the statutory notices, the assessee has filed details on various dates. 5. After considering all facts an....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the parties to whom these expenses/payments was made was genuine or not, and also examine these expenses from the point of views of u/s 40A(2) of the Income Tax Act, 1961. As regard issues highlighted in para 6: AO is required to examine this issue, as already highlighted in para 6.3 above. The expenses made under the heads, Delivery charges, Facilities operations expenses, Interco commission expenses, such expenses/payments have been made to persons specified in s.40A(2)(b) of the Act. All these expenses are required to be deeply examined and wherever it is observed that have been paid above the arms length, ie. excessive or unreasonable payment has been made to these related parties, necessary additions to the total income of the assessee is required to be made in accordance with the provisions of s.40A(2)(b) of the Act. For this purpose, the terms of contracts with these related parties and the business need of such transactions is required to be examined. The amount of expenses claimed in the preceding years, under these heads of expenses, is also required to be studied, whether there has been any Disproportionate increase during the A.Y. under consideration,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essee adequate opportunity of being heard and to make relevant submissions. In this regard, it is noted that the written submissions and paper books filed by the assessee during the course of these proceedings u/s 263 are part of record. The AO, while conducting assessment proceedings in consequence to this order, is expected to take into consideration the various written submissions and paper books filed by the assessee during the course of these proceedings u/s 263, which are already available on record. Accordingly, AO may call the further details, as required, from the assessee, in accordance with the directions imparted to AO." 6. We have heard rival submissions in the light of material available on records. The statutory prescription contained in section 143(2),(3) and section 263 of the Act which is seminal to the controversy, read as under:- Provisions of section 143(2) and 143(3) "........... 143(2) where a return has been furnished under section 139, or in response to a notice under sub-section -1 of section 142, the assessing officer or the prescribed income tax authority as the case may be, if, considers it necessary or expedient to ensu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in exercise of the powers or in the performance of the functions of an Assessing Officer for the Transfer Pricing Officer, as the case may be,] conferred on, or assigned to, him under the orders or directions issued by the Board or by the Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General or Principal Commissioner or Commissioner authorised by the Board in this behalf under section 120; [(iii) an order under section 92CA by the Transfer Pricing Officer;] (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) where any order referred to in this sub-section and passed by the Assessing Officer [or the Transfer Pricing Officer, as the case may be,] had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Principal Commissioner or Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had n....
X X X X Extracts X X X X
X X X X Extracts X X X X
....by the ld. AO and thus making the impugned assessment order erroneous in so far as it is prejudicial to the interest of the Revenue and consequent invocation of proceeding under section 263, is patently wrong. Citing references to its paper book, it was contended that the ld. AO had issued notices requiring the appellant assessee to furnish varied details and which were complied. It was submitted that the said requisition of details and submissions from the assessee and the consequent acceptance of returned income alludes towards the hypothesis of necessary enquiries done by the AO so as to preclude the assessment order from the clutches of clause (a) of Explanation-2 of section 263. In support of his submissions, Shri Vohra, has relied a catena of judicial pronouncements of this Tribunal, Hon'ble High Courts including jurisdictional High Courts and the Hon'ble Apex Court stated to be in his favour. It was contended that the assessment order does not meets the twin conditions of being both erroneous as well as prejudicial to the interest of the Revneue and hence the invocation of section 263 in its case is incorrect. 8. The ld. CIT-DR, Ms. Amish S Gupt, vociferously argued in fa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in which the provision of various sections including 142(1), 143(2), 143(3), 133(6) etc. need to be harmoniously understood. 10. We have considered the exchange of communication between the ld. Assessing Officer and the assessee made during the assessment proceedings, copies of which have been placed in the paper book of the appellant assessee. From the very perusal of the same, it transpires that the ld. AO is largely soliciting generalized information and which were complied. We have noted that the ld. AO initiated his enquiries between the period August, 2022 to December, 2022, in which he issued basically just three query letters. The fact of the matter however remains that there is nothing on records to suggest that the ld. AO had conducted any enquiry or verification in the details provided by the assessee. It's a clear case of ld. AO primarily soliciting information from the taxpayer and placing the same on records without committing any enquiries with the assessee and or any third parties. Thus, the ld. AO has primarily accepted the information provided by the assessee on its face value qua its correction. The presumption raised by the ld. PCIT-1, Delhi of no enquiry bee....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 considered in paragraphs 8 to 10 in the case of Malabar Industrial Co. Ltd. (supra), which are as under:- "8. 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 DawjeeDadabhoy& Co. v. S.P. Jain [(1957) 31 ITR 872 (Cal)], the High Court of Karnataka in CIT v. T. Narayana Pai [(1975) 98 ITR 422 (Kant)], the High Court of Bombay in CIT v. Gabriel India Ltd. [(1993) 203 ITR 108 (Bom)] and the High Court of Gujarat in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ra) 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 the law laid down by this Court in the case of Malabar Industrial Co. Ltd. (supra) to the facts of the case on hand and even as observed by the Commissioner, the order passed by the Assessing Officer is erroneous as well as prejudicial to the interest of the Revenue. Having gone through the assessment order as well as the order passed by the Commissioner of Income Tax, we are also of the opinion that the assessment order was not only erroneous but prejudicial to the interest of the Revenue also. In the facts and circumstances of the case, it cannot be said that the Commissioner exercise....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ther investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word "erroneous" in section 263 includes the failure to make such an enquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct." 14. As regards the argument that the appellant had provided all the details to the AO during assessment proceedings, we have noted the decision in the case of CIT v. Emery Stone Mfg. Co. [1995] 213 ITR 843/83 Taxman 643 (Raj.) delivered by the Hon'ble Rajasthan High Court that omission to hold necessary enquiry resulted in non-application of mind "From the assessment order framed under section 143(3) it is clear that the Inspecting Assistant Commissioner has not applied his mind at all and there is no finding in the assessment order regarding the application or non-application of Explanation 3 to section 43(1). The Inspecting Assistant Commissioner having not applied his mind at all and having allowed the depreciation at the enhanced value without considering Explanation 3, the order was prejudicial to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....unal is accepted as the correct view then the Explanation cannot be invoked in any case, and, therefore, in order to find out whether the Explanation is applicable or not, the entirety of the circumstances has to be taken into consideration and it could not be for one reason or the other. It was a case where the assessing authority has not applied his mind. That was the end of the matter for exercising power under section 263 and, therefore, the matter should have been sent back to the assessing authority for applying his mind to find as to whether the Explanation is applicable or not. The observation of the Tribunal that full facts were brought to the notice of the Inspecting Assistant Commissioner (Assessment) is also not correct inasmuch as after giving statement with regard to the actual cost of the assets and depreciation claimed thereon, the assessing authority was bound to consider the Explanation. Simply because the facts have been disclosed by the assessee, it does not give immunity from revisional jurisdiction which the Commissioner can exercise under section 263 and as such even in a case where the facts have been disclosed by the assessee to the assessing authority and ....