TaxTMI 
TaxTMI 
2026 (7) TMI 894
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....own in GSTR 1 return". Thereafter, the AO issued questionnaires specifically ask the assessee to file the details of expenses claimed on account of payments made to such suppliers. After considering the submissions made and the evidences produced, the AO has passed the assessment order accepting the declared income. Thereafter, in terms of the notice dated 28.08.2025, Ld. PCIT show caused the assessee wherein it is alleged that the assessee has made payments of INR 18,31,81,421/- to various parties including M/s Motley International wherein the Directors of the assessee company are partners and to whom total payment of INR 150,38,97,650/- was made. Ld. PCIT further observed that the payments of more than INR 18.31 crores were made against the exempted Service under the GST Act and the AO had not verified/examined these issues in depth. Accordingly, Ld. PCIT asked the assessee why not the assessment order be held as erroneous and pre-judicial to the interest of the Revenue in terms of Explanation 2 to section 263 of the Act. In response, the assessee filed detailed written submissions which is reproduced in the order of Ld. PCIT. In the said reply, assessee explained the nature of b....
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....For the supply of the services, the assessee has obtained services from established Multi- National Companies who are legally established as per law. Ld.AR submits that under the GST Act, Oceans freight services provided by suppliers are exempted. Ld.AR submits that it is not the first year of the business and identical services were obtained in preceding AYs where services provided by the service provider companies were accepted without any doubts. Ld.AR submits that during the course of assessment proceedings, notices u/s 142(1) were issued to furnish the comprehensive details of the expenses claimed on this account. He drew our attention to page 3 of the Paper Book where a copy of notice issued u/s 142(1) dated 04.12.2023 is placed where in Point No.3, the AO has specifically asked the assessee to file the details of the transactions carried out with M/s Motley International to whom payments of INR 13,58,97,650/- were made. Besides this, vide said query letter, AO further asked the assessee to file the details of expenses of INR 18,31,81,421/- reported in Tax Audit report for the services exempt from GST. The assessee submits that all the necessary replies were filed including c....
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....rved that the AO has not examined the said details in the manner he desired nor any further inquiries were made and thus held the assessment order as erroneous and prejudicial to the interest of the Revenue and direct the AO to pass the assessment order afresh after making adequate inquiry and verification. Ld.AR submits that it is the duty of Ld. Pr. CIT to point out the defects in the details so filed by the assessee and further to identify the area of investigation which has not been done in the instant case and held the order as erroneous and prejudicial to the interest of the Revenue. He thus, requested that the order passed by ld. Pr. CIT be held as bad in law and quashed. Ld.AR placed reliance on various judicial pronouncements of Hon'ble Supreme Court, Hon'ble High Courts and Co-ordinate Bench of the Tribunal and the copy of the same are placed in case-laws compilation. The list of the said orders are as under:- (1) PCIT 1 CHANDIGARH Vs. V-CON INTEGRATED SOLUTIONS PVT LTD reported as SLP (Civil) Diary No. 13205/2025 by the Hon'ble Supreme Court of India (2) PCIT-2, DELHI Vs. CLIX FINANCE INDIA PVT LTD reported as ITA 1428/2018 by the Hon'ble High C....
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....G Vs. PCIT 13, NEW DELHI reported as ITA No. 3391/Del/2018 by the Hon'ble ITAT New Delhi (23) SMALL WONDER INDUSTRIES Vs. CIT-24, MUMBAI reported as ITA No. 2464/Mum/2013 by the Hon'ble ITAT Mumbai (24) BEENA JAIN Vs. CIT, MEERUT reported as ITA No. 2080/Del/2013 by the Hon'ble ITAT New Delhi (25) PCIT-3, NEW DELHI Vs. DELHI AIRPORT METRO EXPRESS PVT LTD reported as ITA 705/2017 by the Hon'ble High Court of Delhi (26) STUDDS Accessories Ltd. vs PCIT, Faridabad reported as ITA No.3570/Del/2025 by the Hon'ble ITAT, New Delhi." 7. On the other hand, Ld. CIT DR for the Revenue vehemently supports the orders of the ld. Pr. CIT and submits that case was selected under CASS for the sole reasons that the assessee has made purchases from various parties who have filed non-business ITR or reflected substantial low turnover in ITR as compared to turnover shows in GST return thus, there is a possibility that the assessee might have booked bogus expenses in order to reduce its profit / income. Ld. CIT DR submits that the details filed by the assessee were not examined by the AO as could be seen from the assessment order where the assessment....
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....ct, 1961: You are requested to furnish the following necessary details which are required in the assessment proceedings: 1. Please give a detailed note on your business affairs to understand the nature of business which may be helpful in the assessment proceedings. Please explain what's method of booking and forwarding of freights, which types of freights are handled by you. 2. Please submit copy of computation of Income. It is also requested to please provide copy of the GST Return(s) 3. It is observed that you have paid Rs. 13,58,97,650/- to M/s Motley International (PAN: ABCFM1597P) which is a partnership firm of the Directors. Please explain in details about the services for which the payments have been made. Please explain the reasonability of the payments as per the prevailing market rate and practices. Please explain whether provisions of TDS as per the Income Tax Act, 1961 have been complied with for the said payments. It is requested to please attach the Audit Report along with the schedules and annexure of M/s Motley International and copy of the ITR for the A.Y. 2022-23. It is also requested to please provide copy of the GST return....
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....nt, GST exempt and taxable supply invoices and bank statement and TDS details. The claim of the assessee was that all the payments were made against the services rendered by them in regular course of business and payments of similar nature were made in the preceding AYrs also as well as in subsequent AYrs where, the same were never doubted by the Revenue. The assessee further submits that all the payments were made through banking channel and duly backed by the respective copies of invoices raised. The service provider companies are foreign Multi National and filed GSTR details and all the payments were made after deducting tax at source in accordance with law. With respect to the payment s made against the services rendered by the sister concern, M/s Motley International Ltd., the assessee filed its ITR, copy of account statement, audited financial statement and its GST returns. All these facts were available before Ld. Pr. CIT during the course of revisionary proceedings however, Ld. Pr. CIT has failed to point out any error in any of the details filed by the assessee. 11. The Hon'ble jurisdictional High Court in the case of DIT vs Jyoti Foundation in ITA No.267/2013 vide orde....
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.... 6. Therefore, it is noted that the Assessing Officer had issued a questionnaire on 28.12.2020 and had also asked for documents, which were answered and furnished to the Assessing Officer by the assessee and the same were also informed to the PCIT, who ensued proceedings under Section 263 of the IT Act. However, PCIT have not pointed out any further enquires, which were required to be made by the Assessing Officer in this case, which have not been so made. The scope of Section 263 of the IT Act, is apparently to see whether the concerned Assessing Officer has failed to conduct a proper inquiry, and therefore, committed an error resulting in causing loss to the revenue. Simply by holding that the Assessing Officer was required to make more enquiries, would not be a valid ground for treating the order of the Assessing Officer, as erroneous and prejudicial to the interests of the revenue. The power under Section 263 of the Act cannot be invoked in such circumstances by the PCIT. The order, therefore, passed by the PCIT is not sustainable in the eyes of law and the same has been quashed by the ITAT, which does not warrant any interference by this Court in appeal." 12. It is ....
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....icial to the interests of the revenue, if, in the opinion of the Principal [Chief Commissioner or Chief Commissioner or Principal] Commissioner or Commissioner,- (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under Section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.] ***" 19. A bare reading of sub-Section (1) of Section 263 of the Act makes it abundantly clear that the said provision lays down a two pronged test to exercise the revisional authority i.e., firstly, the assessment order must be erroneous and secondly, it must be prejudicial to the interests of the Revenue. Further, Explanation 2 to Section 263 of the Act delineates certain conditions and circumstances when the order passed by the AO can be said to be erroneous and prejudici....
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....capital expenditure. This argument predicates on the assessment order, which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the Assessing Officer had not applied his mind on the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between "lack of inquiry" and "inadequate inquiry". If there was any inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has a different opinion in the matter. It is only in cases of "lack of inquiry" that such a course of action would be open. In Gabriel India Ltd. (1993) 203 ITR 108 (Bom), law on this aspect was discussed in the following mann....
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.... 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 08(Bom)] and the High Court of Gujarat in CIT v. Minalben S. Parikh [(1995) 215 ITR 81 (Guj)] treated loss of tax as prejudicial to the interests of the Revenue. 9. Mr. Abraham relied on the judgment of the Division Bench of the High Court of Madras in Venkatakrishna Rice Co. v. CIT [(1987) 163 ITR 129 (Mad)] interpreting "prejudicial to the interests of the Revenue". The High Court held: "In this context, (it must) be regarded as involving a conception of acts or orders which are subversive of the administration of revenue. There must be some grievous error in the order passed by the Income Tax Officer, which might set a bad trend or pattern for similar assessments, which on a broad reckoning, the Commissioner might think to be prejudicial to the interests of Revenue Administration." In our view this interpretation is too narrow to merit acceptance. 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. If due to an erroneous order of the Income Tax O....
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....cluded that inadequacy of enquiry by the AO with respect to certain claims would not in itself be a reason to invoke the powers enshrined in Section 263 of the Act. The Revenue in the instant case has not been able to make out a sufficient case that the CIT has exercised the power in accordance with law. Rather, in our considered opinion, the facts of the case do not indicate that the twin conditions contained in Section 263 of the Act are fulfilled in its letter and spirit. 28. Notably, the ITAT, while making a categorical finding that the CIT had failed to point out any definite or specific error in the assessment order, has satisfactorily explained both the claims in question in Paragraph 8.2 of its order, which reads as under:- "8.2 In the Impugned Order, the Ld. Commissioner of Income Tax-IV, Delhi held that the AO had not examined the aforesaid two issues properly and, therefore, set aside the issues for further inquiries to be conducted by the AO. As regards the first issue is concerned, we note that out of total provision of Rs. 1114.68 lacs, a sum of Rs. 7,60,76,105/- was suo moto added back in the computation of income and a further sum of Rs. 73,46,160-....
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....AO and reached to the conclusion that the income declared by the assessee was correct. Under these circumstances it is incorrect to hold that no inquiry was made by the AO. It can be a case of inadequate enquiry however, is not the case of no enquiry. The Explanation (2) to section 263 provided that where the assessment order is passed without making inquiry or investigation, it the order can be held as erroneous and pre-judicial to the interest of the Revenue. In this regard, we may refer the judgment of Hon'ble Supreme Court in the case of PCIT vs Nya International wherein the Hon'ble Supreme Court vide order dated 17.02.2025 in SLP Diary No.1845/2025 has held as under:- "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 reassessment 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....
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....uity oriented funds and once these are not equity-oriented funds, these are not to be taxed under the special rate of taxation under Section 112A of the Act. We note that the assessee could explain before us that the funds are equity-oriented funds and we have given a clear finding in paragraph 6 of this order. We also find that the PCIT has not given a finding or has not observed that how these funds are not equity oriented funds and without that, the PCIT cannot invoke the revisionary power. We are of the view that consideration of the PCIT as to whether an order is erroneous insofar as it is prejudicial to the interest of the Revenue must be based on materials on record of the proceedings called for by him. If there is no such material on record on the basis of which it can be said that the PCIT acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without justification. In similar circumstances, Hon'ble Bombay High Court in the case of CIT Vs. Gabriel India Ltd. (199) 203 ITR 108 (Bom) held the similar views. We are of the view, though, it is not expected of the PCIT to record his final conclusion i....
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.... of Pr. CIT vs Shreeji Prints (P.) Ltd. reported in [2021] 130 taxmann.com 294 (SC) has held as under:- "Section 69, read with section 263, of the Income-tax Act, 1961 - Unexplained investments (Unsecured loans) - Assessment year 2013-14 - Assessee-company had received unsecured loans from two different companies - Commissioner noting that said loans were shown as investment in assessee's name in balance sheet of respective companies exercised revisionary powers and passed an order without giving an opportunity to assessee of being heard, invoking Explanation 2 to section 263 - High court by impugned order held that since Assessing Officer has made inquires in details and accepted genuineness of loans receive by assessee, such view of Assessing Officer was a plausible view and same cannot to be considered erroneous or prejudicial to interest of revenue - Whether SLP against said impugned order was to be dismissed - Held, Yes" 18. The Hon'ble Supreme Court in the case of PCIT vs. V. Con Integrated Solutions Private Ltd. reported in [2025] 173 Taxmann.com 473 (SC) while dismissing the SLP of the assessee observed as under:-:- "In our opinion, the order passed....
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.... "lack of inquiry" and "inadequate inquiry". It is only in cases of "lack of inquiry" that the Commissioner is empowered to exercise his revisional powers by calling for and examining the records of any proceedings under the Act and passing orders thereon. 21. Hon'ble Bombay High Court in CIT vs. Gabriel India Ltd. (supra) held with reference to Black's Law Dictionary that an "erroneous judgment" means "one rendered according to course and practice of Court, but contrary to law, upon mistaken view of law; or upon erroneous application of legal principles" and thus 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 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 differently or more elaborately. The Section does not visualize the substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order unless the decision is not in accordance with law. Further, each and every erroneous order cannot be the subject matter of revision bec....