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Facts
The assessee, engaged in construction, filed an income tax return. Following a search operation, proceedings under Section 153C were initiated, leading to assessment. The Principal Commissioner of Income-Tax (PCIT) invoked revisional powers under Section 263, finding the assessment order erroneous for not disallowing interest expenditure on unsecured loans treated as non-genuine.
Held
The Tribunal held that the conditions for invoking jurisdiction under Section 263 were satisfied. The PCIT's observation that the Assessing Officer failed to conduct proper inquiry regarding the disallowance of interest expenditure on unsecured loans was considered valid.
Key Issues
Whether the PCIT validly invoked Section 263 powers when the Assessing Officer had allegedly conducted due inquiry and obtained approval under Section 153D for the assessment order.
Sections Cited
153C, 263, 68, 133A, 132, 143(1), 153D
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Income Tax Appellate Tribunal, “B” BENCH, AHMEDABAD
Before: DR. B.R.R. KUMAR, VICE- & MS. SUCHITRA KAMBLE
O R D E R PER DR. B.R.R. KUMAR, VICE-PRESIDENT:- This appeal filed by the assessee is directed against the order passed by the learned Principal Commissioner of Income-Tax (Central) Ahmedabad [here- in-after referred to as “Ld. PCIT”] dated 26.03.2025, in exercise of revisionary powers under Section 263 of the Income-tax Act, 1961 [hereinafter referred to as “the Act”], for the Assessment Year (AY) 2018-19. 2. The assessee has raised the following grounds of appeal:
“1. The Order passed u/s 263 of the Act by the Ld. PCIT is in against law, equity & justice.
The Ld. PCIT has erred in law assuming jurisdiction u/s 263 of the Act as assessment order passed by Ld. AO is itself void.
3. The Ld. PCIT has erred in law in assuming the jurisdiction U/S 263 of the Act as assessment order is passed after obtaining approval u/s 153D of the Act. Mahaan Enterprise Vs. PCIT Asst. Year : 2018-19 - 2–
4. The Order passed u/s 263 of the Act by the Ld. PCIT is void and illegal as not addition/disallowance can be made for unabated assessment without incrementing document.
5. The Ld. PCIT has erred in law and on fats in passing order U/S 263 of the Act to set aside order passed by the Ld. AO.”
The brief facts of the case are that the assessee is engaged in the business of construction. The return of income was filed on 28.09.2018 declaring total income of Rs. 2,33,43,270/- and was processed u/s 143(1) of the Act. A survey u/s 133A was conducted on 24.04.2019 in the case of Rajyash Group, which was subsequently converted into a search u/s 132 on 25.04.2019. During the course of search, certain documents were found which were stated to pertain to the assessee, leading to initiation of proceedings u/s 153C of the Act. Subsequently, the assessment u/s 153C was completed on 30.03.2023 determining total income at Rs. 34,73,72,255/- after making additions including the following:- i) Rs. 2,81,00,000/- u/s 68 on account of unsecured loans, ii) Rs. 29,59,28,985/- on account of unexplained members’ contribution.
The assessee had also claimed interest expenditure of Rs. 63,45,390/- on such unsecured loans.
On examination of records, the Ld. PCIT observed that though unsecured loans were treated as non-genuine, the Assessing Officer had not disallowed the corresponding interest expenditure of Rs. 63,45,390/-. According to the Ld. PCIT, the Assessing Officer had failed to conduct proper enquiry on this issue and therefore the assessment order was erroneous and prejudicial to the interest of the Revenue. Accordingly, the order was set aside with a direction to the Assessing Officer to examine the issue afresh. Mahaan Enterprise Vs. PCIT Asst. Year : 2018-19 - 3–
Aggrieved by the order of the Ld. PCIT, the assessee is now in appeal before the Tribunal.
6 The Ld. AR submitted before us that the year under consideration is an unabated assessment year and no addition could be made in absence of incriminating material found during the course of search. It was further submitted that the issue sought to be revised is not based on any incriminating material and therefore the assumption of jurisdiction u/s 263 is invalid. The Ld. AR also contended that the Assessing Officer had already examined the issue of unsecured loans and made addition u/s 68 of the Act, and the assessment order having been passed with approval u/s 153D, cannot be held to be erroneous merely on account of a different view taken by the Ld. PCIT. The Ld. AR argued that the order passed u/s 263 of the Act by the Ld. PCIT is in against law, equity & justice. The Ld. AR argued that since assessment order itself is void, the Ld. PCIT has erred in law assuming jurisdiction u/s 263 of the Act. The Ld. AR further argued that since the assessment order is passed after obtaining approval u/s 153D of the Act, the Ld. PCIT has erred in law in assuming the jurisdiction U/S 263 of the Act.
The Ld. DR, on the other hand, supported the order of the Ld. PCIT. The Ld. DR submitted that the proceedings were initiated based on the (1) digital data seized and annexed as A/24 seized from the business premises of Reeva Corporation (PAN: AAUFR3518C), M/s. Rajyash M/s. Rajyash Buildcon (PAN : AATFR8334H), M/s. Rajyash Infraspace (PAN: AASFR2340E), M/s. Rajyash Infracon (PAN AAYFR1311D) situated at 305, 405m, Mauryansh Elanza, Near Parekh’s Hospital, Shayamal Char Rasta, Satellite, Ahmedabad- 380015 and (2) page nos. 1 & 6 of the Annex-A/18 seized from the business premises of Reeva Corporation (PAN: AAUFR3518C), M/s. Rajyash M/s. Rajyash Buildcon (PAN : AATFR8334H), M/s. Rajyash Infraspace (PAN: Mahaan Enterprise Vs. PCIT Asst. Year : 2018-19 - 4– AASFR2340E), M/s. Rajyash Infracon (PAN AAYFR1311D) situated at 305, 405m, Mauryansh Elanza, Near Parekh’s Hospital, Shayamal Char Rasta, Satellite, Ahmedabad-380015.
We have heard the rival submissions and perused the material available on record. It is a settled position of law that for invoking jurisdiction under section 263, the order of the Assessing Officer must be both erroneous and prejudicial to the interest of the Revenue. The provisions of Section 263 of the Act read as under:-
“Revision of orders prejudicial to revenue. 263. (1) The Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer or the Transfer Pricing Officer, as the case may be, is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including,— …..
(i) an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment; or (ii) an order modifying the order under section 92CA; or (iii) an order cancelling the order under section 92CA and directing a fresh order under the said section. Explanation 1.—For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,— (a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer or the Transfer Pricing Officer, as the case may be, shall include—
(i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income-tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A; Mahaan Enterprise Vs. PCIT Asst. Year : 2018-19 - 5–
(ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer or 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 not been considered and decided in such appeal.
Explanation 2.—For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer or the Transfer Pricing Officer, as the case may be, shall be deemed to be erroneous in so far as it is prejudicial 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.
Explanation 3.—For the purposes of this section, "Transfer Pricing Officer" shall have the same meaning as assigned to it in the Explanation to section 92CA.
(2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed. (3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in Mahaan Enterprise Vs. PCIT Asst. Year : 2018-19 - 6– consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, the High Court or the Supreme Court. Explanation.—In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and [the period commencing on the date on which stay on any proceeding under this section was granted by an order or injunction of any court and ending on the date on which certified copy of the order vacating the stay was received by the jurisdictional Principal Commissioner or Commissioner] shall be excluded.”
In view of the above specific facts of the case, we are of the considered opinion that the conditions necessary for invoking jurisdiction under section 263 were satisfied in the present case. Accordingly, the order passed by the Ld. PCIT is affirmed.
In the result, the appeal of the assessee is dismissed.