TaxTMI 
2025 (4) TMI 2485
X X X X Extracts X X X X
X X X X Extracts X X X X
....icer was neither erroneous nor prejudicial to the interests of the revenue. 2. That on the facts and in the circumstances of the case and in law, the Ld Pr. CIT erred in setting-aside the order as passed by the assessing officer by invoking the provisions of section 263 of the Income-tax Act, 1961 for re-examining the issue of disallowance of expenses under section 14A of the Act even when the said issue was outside the purview of reasons for which the case of the appellant was selected for scrutiny for Assessment Year 2018-19 and therefore, the assessing officer has rightly passed assessment order under section 143(3) r.w.s 143(3A) and 143(3B) of the Act after examining the issues for which the case of the appellant was selected for scrutiny. 3. That on the facts and in the circumstances of the case and in law, the Ld Pr. CIT erred in setting aside the order as passed by the assessing officer by invoking the provisions of section 263 of the Income-tax Act. 1961 even when the assessment order was passed by the assessing officer under section 143(3) rus 143(31) and 143(3B) of the Act after conducting necessary enquiries and after due application of mind. 4....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the assessee relates to only one single issue objecting to the assumption of jurisdiction by the Ld. PCIT u/s 263 of the Act, 61, whereby the assessment has been set aside, back to the files of the Assessing Officer for re-examining the issue in respect of applicability of disallowance under section 14A of the Act. 4. The facts emerging from the records are that that the assessee is engaged in software development and has filed its return u/s 139(1) of the Act declaring a total income of Rs. 5,86,75,750/- which was selected for scrutiny and statutory notices issued u/s 143(2) and u/s 142(1) of the Act, has been duly complied with, by the assessee and subsequently assessment completed u/s 143(3) of the Act accepting the returned income, without any variation and without much discussion in the assessment order. 5. The three basic issues for which the case was selected for scrutiny where as follows: "i. Claim of Any Other Amount Allowable as Deduction in Schedule BP ii. Exemption for Undertakings in FTZ/SEZ (Section 10A, 10AA) iii. Disallowance u/s 40A(7) (Gratuity provision)." 6. On perusal of assessment records, it was observed by the Ld PCIT tha....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of section 14A of the Act vis a vis the exempted income disclosed in the computation, leading to the conclusion that the assessment has been passed without any application of mind, without conducting necessary inquiries and verifications which was supposed to have been made. 9. It was further observed by the ld. Commissioner, that in course of proceedings u/s 263, the assessee, sou-moto has furnished a fresh computation along with workings of disallowance u/s 14A which works out to Rs. 1,34,052/-, which points to the fact that the order passed by the AO is erroneous so far as it is prejudicial to the interest of the revenue and there has been a tacit admission on the part of the assessee itself indicating loss of legitimate taxes. 10. The ld. CIT has further relied on the decision of jurisdictional High Court in the case of Deepak Kumar Garg (299 ITR 435 M. P. High Court) to submit that in the instant case, the AO has not done any inquiry, regarding the applicability of section 14A, in spite of exempted income being reflected in the computation and has accepted the same without proper inquiry causing loss of substantial taxable income. 11. Therefore, he arrived at a concl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed. On that basis the Commissioner of Income-tax had, after setting aside the order of the Assessing Officer, simply directed the Assessing Officer to carry thorough and detailed inquiry. It is this order which is upheld by the High Court. We see no reason to interfere with the order of the High Court. The Special Leave Petitions are dismissed." (iii) Nagal Garment Industries (P.) Ltd, v. CIT [2020] 113 taxmann.com 4 (M.P.), the Hon'ble High Court has upheld the findings of the Tribunal: "8. The Income-tax Appellate Tribunal, by relying on the decision of the Supreme Court rendered in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83/109 Taxman 66, the order passed by the Supreme Court in the case of Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 and CIT v. Amitabh Bachchan [2016] 69 taxmann.com 170/240 Taxman 221/384 ITR 200 (SC) relevant extracts of which have been quoted by the Income-tax Appellate Tribunal in paragraphs 4 2 and 4.3 of its order, has arrived at a conclusion that as the Assessing Officer has passed the order of assessment without making a proper enquiry and without applying his mind to the return and the documents filed by the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....relevant facts and reasons for coming to the conclusion based on those facts and law. [Para 10] It was found that the order passed by the Assessing Officer was cryptic, to say the least, and it could not be sustained. The Tribunal could not substitute its own reasoning to justify the order passed by the Assessing Officer when the Assessing Officer himself did not give any reason in the order passed by him. [Para 11] Therefore, the matter was to be remanded to the file of the Assessing Officer to decide the issue afresh in terms of the order passed by the Commissioner under section 263. [Para 12] 13. Referring to all the above particulars the Ld. PCIT, set aside the matter to the AO for re- examining only the issue relating to expenditure incurred for earning exempted income after causing necessary verification, inquiries and investigations, and pass orders as per procedure of law. 14. Before the tribunal the ld. AR of the assessee filed a paper book consisting of notices issued u/s 142(1) calling for particulars on various issues, and corresponding replies submitted by the assessee explaining the queries, along with copies of TAR and financial statements, an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ged in section 263, since, the AO has already carried out detail examination in respect of the case selected. 18. Thereafter, the Ld AR relied on some judicial precedent, in support of his contention to argue, that the AO is not required to give details reasoning in respect of each and every item of deduction and the question whether there has been an application of mind before allowing expenditure has to be examined from the record of the case, and in the instance case, the assessee has filed all details before the AO which the AO has accepted, there is no expenditure attributable to the exempted income during the relevant assessment year and relied upon (CIT, Bangalore v. Chemsworth (P) Ltd. reported in [2021] 119 taxmann.com 358 (Karnataka). He further submitted that when the facts as emerging out of the scrutiny proceedings are apparently in order and no further inquiry is warranted in his bonafide opinion he need not conduct any further inquiry just it is lawful to make inquiry in these matters. 19. The ld. AR further relying on the judgment of the Hon'ble Apex Court in the case of Malabar Industrial Co. Ltd. v. CIT reported in [2000] 243 ITR 83 (SC)to point out that the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s 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, prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. 1.12.2] The Hon'ble ITAT Mumbai Bench in the case of Narayan Tatu Rane v. ITO reported inTS-5393-ITAT-2016[Mumbai)-O has held that: "19. 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 40 is unsustainable in law, in the instant case, the Ld Pr. CIT has foiled to do so and has simply expressed the view that the assessing officer should have conducted enquiry in a particular manner as desired by him. Such a course of act....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d have carried out or not. It does not authorize or give unfettered powers to the Ld Pr. CIT to revise each and every order, if in his opinion, the same has been passed without making enquiries or verification which should have been made. In our view, it is the responsibility of the Ld Pr. CIT to show that the enquiries or verification conducted by the AO was not in accordance with the enquries or verification that would have been carried out by a prudent officer. Hence, in our view, the question as to whether the amendment brought in by way of Explanation 2(a) shall have retrospective or prospective application shall not be relevant." 1.12.5] The Hon'ble ITAT Delhi Bench in the case of Pushp Steel and Mining Private Ltd v. PCIT reported in TS-7875-ITAT-2021 (Delhi)-O has held that: 16. As far as the invocation of Explanation 2 to Section 263 by PCIT in the present case is concerned, we are of the view that only in a very gross case of inadequacy in inquiry or where inquiry is per se mandated on the basis of record available before the AO and such inquiry was not conducted, the revisional power so conferred can be exercised to invalidate the action of AO. In v....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... by the AO is very cryptic without containing any reasons and it is not a self contained order and does not give any relevant facts and reasons for coming to the conclusion based on such facts and it not possible for the parties to know the reasons that have weighed with the adjudication authority in coming to a conclusion. He further submitted that it is not clear from the notices and replies contained in the paper book, whether the AO has at all examined the applicability of section 14A and applied his mind to the said aspect because there is no specific mention of the same anywhere neither in any notice issued nor in any reply of the assessee even though financials and TAR and computation of income are on record, but application of mind of the AO to the materials before him is absent, more so on the specific issue of section 14A is totally missing and since the application of mind itself is not there, there cannot be any probability of recording of satisfaction, because satisfaction can only be recorded for invoking section 14A, in cases where there is application of mind to the documents on record. In this case the very application of mind to the computation on record by the AO....