TaxTMI 
TaxTMI 
2026 (1) TMI 1653
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....ent order was passed u/s 143(3) r.w.s 144B of the Act on 27.03.2023 at INR 40,38,41,399/- by making additions of INR 17 crores on account of disallowance out of Royalty, INR 3,02,419/- u/s 14A of the Act and INR 3,21,33,700/- as Long Term Capital Gain ("LTCG"). Thereafter, Ld. PCIT had issued show cause notice u/s 263 of the Act dated 05.03.2025 wherein PCIT observed that the assessee has made deposits as well as huge Long and short terms financial obligations and the AO has failed to examine the details with regard to the interest paid on such loans vis-a-vis its business expediency and the justification of the loans taken. The assessee has filed a detailed submissions and after considering the submissions made, ld. PCIT in terms of the impugned order dated 28.03.2025 held the assessment order as erroneous and pre-judicial to the interest of the revenue by invoking the Explanation-2 of section 263 and the assessment order is partly set aside and direct the AO to conduct fresh inquiries and investigations with respect to the borrowings as well as the interest paid etc. 3. Against the said order, the assessee is in appeal before the Tribunal by taking following grounds of appeal:....
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....submits that the financial statements were produced before the AO who after examining the same was of the view that these deposits were taken as securities against the supplies which were received under normal course of business and were adjusted against the outstanding payables of the customers/vendors therefore, there is nothing abnormal in accepting securities deposits which is common practice in this line of trade. Ld.AR drew our attention to the reply submitted before the AO during the course of assessment proceedings dated 07.02.2022, wherein the details of the securities deposits were submitted before the AO. The said reply is available at pages 99 to 103 of the Paper Book. 6. Regarding second allegation of ld. PCIT of non-verification of long term maturity of finance lease obligations of INR 92,19,43,164/-, ld.AR submits that AO has made specific query on this issue vide notice dt. 29.06.021, available at pages 77 to 84 of the Paper Book, and the assessee has filed the reply vide letter dated 26.07.2021, available at page 89 to 92 of the Paper Book. As per ld. AR in the said assessee submitted all the details alongwith list of creditors before the AO. Further, details we....
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....acts of the case, reached to the conclusion that the AO has not made any proper verification and investigation in the matter. He therefore, prayed that Ld. PCIT has rightly held the assessment order as erroneous and pre-judicial to the interest of the revenue and requested to confirm the order of ld. PCIT passed us/ 263 of the Act. 11. Heard both the parties and perused the material available on record. From the perusal of revision order of PCIT, we find that ld. PCIT has not specified the error in the assessment order. He observed in para 6 of the order that the AO has passed the assessment order without making proper inquiries or verification which should have been made and thus the order erroneous and prejudicial to the interest of revenue. However, what kind of inquiries were remained to be made or verification which was not done by the AO has not been pointed out in the revision order. Ld. PCIT has taken resort to Explaination-2 of section 263 of the Act to hold the assessment order pre-judicial and erroneous to the interest of the revenue. Ld. PCIT failed to appreciate that the AO has made the inquiries with respect to all the issues raised by ld. PCIT, more particularly, ....
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....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" 16. Hon'ble Supreme Court in the case of PCIT vs NYA International, while dismissing the SLP filed by the Revenue in Special Leave Petition (civil) Diary No.1845/2025 the Hon'ble Court vide order dated 17.02.2025 has made following observations:- "Delay condoned. This special leave petition is misconceived and is completely contrary to the law pertaining to Section 263 of the Income Tax Act, 1961. The notice under Section 148 of the 1961 Act referred to two reasons. The first reason was with regard to non-declaration of the account in ING Vysya Bank with a credit of ....
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....tisfactorily 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- was disallowed by the AO in the original assessment order dated 30.3.2005. Therefore, out of Rs. 1114.68 lacs Rs. 834.22 lacs already stood disallowed in the original assessment order. The balance amount represented actual write off which was palpably clear from page 2 of the impugned order itself. No deduction on account of any such provision was, therefore, allowed to the assessee. Hence, there is no error or prejudice to the interest of revenue. As regards second issue it was noted that interest rate swap was an actual loss and only the net loss of Rs. 114.05 lacs after setting of gain of interest rate swap was claimed as deduction. H....
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....Office carries out the investigation but does not make any addition, it can be taken that he accepts the plea and stand of the assessee. In such cases, it would be wrong to say that the Revenue is remediless. The power under Section 263 of the Income Tax Act, 1961, can be exercised by the Commissioner of Income Tax, but by going into the merits and making an addition, and not by way of a remand, recording that there was failure to investigate. There is a distinction between the failure or absence of investigation and a wrong decision/conclusion. A wrong decision/conclusion can be corrected by the Commissioner of Income Tax with a decision on merits and by making an addition or disallowance There may be cases where the Assessing Officer undertakes a superficial and random investigation that may justify a remit, albeit the Commissioner of Income Tax rust record the abject failure and lapse on the part of the Assessing Officer to establish both the error and the prejudice caused to the Revenue." 19. It is further observed that in the instant case, ld. CIT(A) invoked the provisions of Explanation-2 of section 263 which conferred power to the PCIT/CIT to give direct....
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....ax Officer has taken one view with which the Commissioner does not agree, it cannot be held as an erroneous order which is prejudicial to the interest of the revenue, unless the view taken by the Income-tax Officer is unsustainable in law. This principal has been again reiterated by Hon'ble Court in its subsequent judgment in the case of CIT vs Max India Ltd. reported in 295 ITR 282 (SC). 23. The Hon'ble Delhi High Court in CIT V/s Vikas Polymers (supra), further observed that as regards the scope and ambit of the expression "erroneous", Hon'ble Bombay High Court in CIT vs. Gabriel India Ltd. reported in (1993) 203 ITR 108 (Bom) 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 writt....
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....s as it must in other spheres of human activity [Parashuram Pottery Works Co. Ltd. vs. ITO, (1977) 106 ITR 1 (SC)]. It was further observed as under: - "From the aforesaid definitions as 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 more elaborately. This section does not visualize 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 be erroneous. Cases may be visualized where the Income-tax Officer 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 fig....
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....er would be available subject to observance of the principles of natural justice which is implicit in the requirement cast by the section to give the assessee an opportunity of being heard. Further, there could be no doubt that so long as the view taken by the Assessing Officer is a possible view, the same ought not to be interfered with by the Commissioner under Section 263 merely on the ground that there is another possible view of the matter. Permitting exercise of revisional power in a situation where two views are possible would really amount to conferring some kind of an appellate power in the revisional authority. This is a course of action that must be desisted from. 26. The Hon'ble Bombay High Court in Moil Ltd. Vs. CIT reported in 81 Taxmann.com 420 has observed that if a query is raised during the assessment proceedings which was responded to by the assessee, the mere fact that the query was not dealt with in the assessment order then it would not lead to a conclusion that no mind has been applied to it and the Assessing Officer is not expected to raise more queries, if he was satisfied about the admissibility of claim on the basis of the material and the details supp....