TaxTMI 
TaxTMI 
2026 (6) TMI 132
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....nt to be made de novo being without jurisdiction and unlawful is void ab initio and deserves to be quashed. 2. That the Ld. PCIT erred on facts and in law in exercising revisionary powers under section 263 of the Act on 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 being unlawful deserves to be quashed. 3. That the Ld. PCIT erred in setting aside the assessment order by exercising powers undersection 263 of the Act, without appreciating that: (a) it was not a case of lack of enquiry on any of the issues raised; (b) the view taken by the assessing officer in respect of the various issues was, in any case, a plausible view; and (c) revisionary proceedings under section 263 could not be initiated on a mere 'difference of view'. 4. That the PCIT erred in setting aside the assessment order on certain issues (ground nos. 5 to 6), with vague directions, without even recording any prima facie findings on merits, thereby, not demonstrating how and why the final assessment order was erro....
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....therefore, violated the provisions of section 269T of the Act and thus, liable for penalty u/s 271E of the Act. The Ld. PCIT after receiving the audit objections, perused the assessment folder and that the assessment order dated 17.09.2022 was passed without making enquiry on the above stated issues and thus prima facie is erroneous in so far as it is prejudicial to the interests of revenue and issue show cause notice dated 13.02.2025, asked the assessee to explain the aforesaid issues pointed out by the revenue audit. 4. With respect to the first issue of receipt of loan in violation of section 269SS, the AO vide its reply has stated that it had received Rs. 1,48,50,000/- from M/s New Delhi Exports House through banking channel and thus, there is no violation of section 269SS of the Act. Regarding the Second issue of repayment of loans in violation to section 269T of the Act, it is submitted that there was closing balance of liability against loan received from M/s New Delhi Exports House of Rs. 2,88,47,000/- and in terms of the directions given by the said company and in terms of Tri-party agreement dated 31.03.2020 executed between the assessee, M/s New Delhi Exports House an....
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....n which a prudent officer should carried out and there is difference between lack of enquiry and inadequate enquiry. If there is even inadequate that would not give rise to exercise jurisdiction u/s 263 of the Act. For this Ld. AR placed reliance on the judgment of jurisdictional High Court in the cased of CIT vs. Sunbeam Auto Limited reported in (2010) 189 Taxmann 436 (Delhi) and CIT Vs. Vodafone South Ltd. reported in [2012] 28 taxmann.com 273(Delhi). 6. The Ld. AR further submits that the dual conditions as prescribed u/s 263 of the Act i.e. the order must be erroneous as well as prejudicial to the interest of Revenue should be satisfied cumulatively. Ld. AR submits that in the instant case, both the conditions are not satisfied, therefore, the provisions of section 263 cannot be invoked. For this reliance is placed on the judgment of Hon'ble Supreme Court in the case of Malabar Industries Co. Ltd. vs. CIT [2000] 243 ITR 83 (SC), and on the judgement of Hon'ble Bombay High Court in the case of the CIT vs. Gabriel India Ltd. 203 ITR 108 (Bom.). 7. On merits of the issues, ld. AR submits that first allegation of Ld. PCIT is that assessee has violated the provisions of sectio....
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....as passed without verification. Ld. CIT-DR submits that the assessment order is very short and no detailed discussion was made on the issues for which the case was selected for scrutiny. Since, the assessee has violated the provisions of Companies Act in accepting the loan from public which is prohibited under the Companies Act and further advanced to the directors which is also in violation to the provisions of section 185 of the Companies Act, 2013. This fact has not been examined/considered by the AO, therefore, the assessment order is erroneous and prejudicial to the interest of the Revenue and it is thus prayed for confirmation of the order of Ld. PCIT. 9. Heard the parties and perused the materials available on record. It is observed that Ld. PCIT in the show cause notice issued for initiating proceedings u/s 263 of the Act, vide Notice dated 13.02.2025 has raised two issues (i) violation of provisions of section 269SS liable for levy of penalty u/s 271D of the Act (ii) violation of the provisions of section 269T liable for levy of penalty u/s 271E of the Act. It is observed that while holding the assessment order as erroneous and prejudicial to the interest of the Revenue....
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....d/approved balances sheet as on 31. 03. 2015 in support of valuation of market rate in terms of Rule 11 UA, whereby it was demonstrated that FMV of equity share as on date of valuation 28.02 .2015 is Rs. 9.94 per share and as on 31.03.2015 is Rs. 9 .79 per share. 12. The proceedings u/s 263 were completed on 31.03.2021 setting aside the original assessment order dated 09. 08.2017 with the direction to examine two issues afresh: a. Value of investment u/s 56(2)(via) read with rule 11UA to ascertain income under that provision - Issue referred in SCN though with changed basis. b. Sources of long terms loans with income thereon. 13. From the record and the order of the ld. PCIT, we find that no show cause notice has been issued to the assessee asking for any explanation with regard to sources of long terms loans with income thereon, however, the same has been directed to be examined by the Assessing Officer. The ld. PCIT has fall into error by directing the AO on the issue for which no show cause has been issued to the assessee. 14. Further, we find that the case was selected for " limited scrutiny" to enquire large investment in unquoted s....
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.... 263 of Act and whether he could have set aside the assessment on the ground that the assessing officer did not invoke Section 56(2)(vii)b(ii). The reading of the assessment order shows that the case was selected for limited scrutiny only on this aspect regarding the sale consideration paid by the assessee for purchase of the immovable property and the source of funds. The assessing officer has noted that the sale consideration paid by the assessee was Rs. 41,50,000/- and she has paid stamp duty and other expenses of Rs. 5,75,000/-. The source of funds was verified and the assessing officer was satisfied with the same. The PCIT while invoking his power under section 263 of Act, faults the assessing officer on the ground that he did not make proper enquiry. It is not clear as to what in the opinion of the PCIT is 'proper enquiry'. By using such expression, it presupposes that the assessing officer did conduct an enquiry. However, in the opinion of the PCIT, the enquiry was not proper in absence of not clearly stating as to why in the opinion of PCIT, the enquiry was not proper, we have to necessarily hold that the invocation of the power under section 263 of the Act was not ....
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....the show cause notice, vitiates the proceedings u/s. 263 and consequently the order u/s. 263 passed by the learned PCIT is also rendered bad in law." Above case is affirmed in CIT vs. Krishak Bharati Cooperative Ltd. (2017) 80 taxmann. com 326 (DEL HC) (ii) B. S. Sangwan vs. ITO [2015] 53 taxmann. com 402 (Delhi) "where specific addition sought to be made as per SCN but ultimately directed to conducted enquiries on the issue thus the basis is changed which is not allowable u/s 263." (iii) Electra Paper and Board Pvt. Ltd. vs. Income Tax Officer in ITA No. 222/Chd/2021 "8 In other words, the twin conditions mandated under Rule 11U(b) for a balance sheet on the basis of which valuation is to be made i.e. (i) The Balance Sheet should be drawn of the date of valuation; and (ii) The Balance Sheet should be audited by the Auditors of the Company appointed under the provisions of the Companies Act; are satisfied in present case. In our considered opinion, the emphasis is on drawing of balance sheet on the date of valuation. The rule does not mandate that the balance sheet should also be audited on the date of valuatio....
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....Exports House and Smt. Kusum Uppal partner of M/s New Delhi Exports House, made a journal entry of transfer of outstanding balance of loan amount in its books of accounts in the name of M/s New Delhi Exports House to the ledger account of Smt. Kusum Uppal. It is further observed that the Ld. PCIT has alleged that this transaction is in violation of provisions of section 73 and section 185 of the Companies Act, 2013. Though the assessee has not violated any provision of the Companies Act, 2013 however, in the income tax proceedings, the same could be made basis to hold the assessment order as erroneous and prejudicial to the interest of revenue. Further the assessee claimed that M/s New Delhi Exports House is a firm in which Director of the assessee company are partners which includes Smt. Kusum Uppal. As per the Companies Act, loan can be taken from the Directors or their entities in which they are interested and such loan came under the exception categorically and therefore, there is no violation of section 73 of the Companies Act. With respect to the violation of section 185 of the Companies Act, it is observed that assessee company has taken loan from M/s New Delhi Exports House....
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....dinate Bench of the Tribunal in the case of ITO vs. Dinesh Jain (supra) has held that the provisions of section 269T are applicable where the actual repayment is loan is made and merely by making the book entry it cannot be said that there is a repayment of loan. The relevant observations of the Co- ordinate Bench are as under: "9. Even on the merits, it is not a fit case for levy of penalty under section 271E. Penalty under section 271E is leviable if a person repays any loan, otherwise, than in accordance with provisions of section 269T. As per section 269T no person shall repay the loan otherwise, than by an account payee cheque or account payee bank draft drawn in the name of the person who has made the loan. Now in this case admittedly the appellant has transferred the loan by way of journal entry to his wife. Therefore, the question is whether there is violation of section 269T so as to penalise the appellant as required under section 271E, When the appellant has transferred the loan from himself to his wife by way of journal entry, it is only the substitution of one debtor by another debtor. So far as creditors, i.e., MGF Developments Ltd. is concerned, it has not r....
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....h Court in the case of in the case of Sunbeam Auto Ltd. (supra) and the Hon'ble Bombay High Court in the case of CIT vs Gabriel India Ltd. (supra) has held that under section 263, the ld. PCIT cannot ask to make enquiries in the manner he likes, once it is established that the Assessing Officer has made the enquiries and verifications, they may be in the opinion of Ld. PCIT are inadequate however this alone cannot be the reason for holding the assessment order as erroneous and prejudicial to the interest of the Revenue. 18. The Co-ordinate Bench of ITAT, Delhi in the case of Mukul Rohatgi vs PCIT in ITA No.2427/Del/2025 vide order dt. 16.02.2026, has held that once the AO has made the inquiries and investigations and ld. PCIT must bring the material on record to point out what was the error based on which the revisionary powers are exercised by Ld. PCIT. The relevant observations as contained in para 43 of the order are reproduced as under:- 43. "On each of the issues discussed above i.e., investment made by the assessee in various funds whether these are equity oriented funds or not and liable to capital gain tax under the head 'long term capital gain' to be ta....
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....also prejudicial to the interest of the Revenue. We noted from the findings of the PCIT, in the present case before us, on various issues that the PCIT has not recorded reason for his conclusion, which is necessary for any quasi-judicial order required to be made by a quasi-judicial authority. The necessary consequence of revision order is that while passing the order revising an order passed by a subordinate authority, the PCIT must record reasons in support of his conclusion that the order is revised being erroneous and that it would be prejudicial to the interest of the Revenue due to such errors. In case the PCIT does not indicate the reasons for invoking the provisions of Section 263, his order cannot be held to be valid. In the present case, the entire material in regard to all the funds and the properties where ALV was questioned by the PCIT, the assessee has produced relevant material and offered explanations in pursuance to the notices issued under Section 142(1) and 143(2) of the Act and, after considering the materials and explanations, the Assessing Officer passed the assessment order and came to a conclusion and accepted the explanation. The mere fact that a different ....
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....n was not made for the first reason. In the given facts, the assertion by the Revenue that inquiry and verification in re the bank account was not made is ex-facie incorrect. This being the position, this is not a case of failure to investigate, but as no addition was made, the Revenue can argue that it is a case of wrong conclusion and decision in the re-assessment proceedings. Therefore, to exercise jurisdiction under Section 263 of the 1961 Act, the Commissioner of Income Tax should have examined the merits and only on reaching a finding that the re-assessment order was erroneous and prejudicial to the interest of the Revenue made an addition. This is not a case of 'no inquiry and verification', but as made out by the Revenue, a case of wrong conclusion. The difference between the two situations is clear and has different consequences. This being the position, the High Court was right in dismissing the appeal preferred by the Revenue. The special leave petition is dismissed in the above terms. Pending application(s), if any, shall stand disposed of." 21. The Hon'ble Delhi High Court in the case of PCIT vs. Clix Finance Indi....
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....n the Ld. CIT has not pointed out the definite and specific error in the original assessment order and observed that the inquiry made by the AO was inadequate or improper without first pointing out the error in the original assessment order passed by the AO, particularly because both the aforesaid issues were duly examined at the stage of the original assessment proceedings, hence, the impugned order is beyond jurisdiction, bad in law and void-ab-initio." 29. It is discernible from the aforenoted findings of the ITAT that both the claims were duly examined during the original assessment proceedings itself and neither there was any error nor the same was prejudicial to the interests of the Revenue. Thus, the findings of fact arrived at by the ITAT do not warrant any interference of this Court. 30. So far as the reliance placed by the CIT on Umashankar Rice Mill is concerned, the same is misplaced, particularly in light of the insertion of Explanation 2 to Section 263 of the Act, brought in place by the Finance Act, 2015. The said amendment markedly specifies various conditions to exercise the authority vested in the Commissioner under Section 263 of the Act, leavin....