DLF HOME DEVELOPERS LIMITED,NEW DELHI vs. PRINCIPAL COMMISSIONER OF INCOME TAX, DELHI-1, NEW DELHI, NEW DELHI

That the direction by PCIT to verify and examine current liabilities as shown in the balance sheet for correctness of the same, is misconceived without any valid basis, as this issue is of general in nature and cannot be a basis for treating the order of the Assessing Officer has erroneous and prejudicial to the interest of the revenue.

That the action of PCIT in setting aside for verification and enquiry by AO regarding the issue related to land parcel at Shivaji Marg, New Delhi which has been sold by the company SPV for Rs. 3700 crores is uncalled for and contrary to facts as this transaction does not pertain to the year under assessment and accordingly the action of the AO in not asking any specific query in this respect does not render the assessment order as erroneous or prejudicial to interest of revenue.

That the order was passed by the Assessing Officer after necessary verification of issues under consideration and assessment order is neither erroneous nor prejudicial to the interest of the revenue.

That order passed by the PCIT, Delhi-1 is not justified on facts and same is bad in law.

Against such order, an appeal was filed by assessee which is still pending for adjudication. In the meantime, Ld. PCIT observed that the order so passed u/s 143(3) is erroneous and pre-judicial to the interest of the Revenue and issued a show cause notice u/s 263(1) of the Act on 20.11.2023 wherein various issues were raised with respect to assessment order passed. The said notice dated 20.11.2023 fixing the date of hearing on 01.12.2023 is available at page 1 to 50 of the Paper Book filed by the assessee. Thereafter, various other notices were issued u/s 263 dated 29.12.2023, 23.02.2024 and final show- cause notice on 24.03.2024 by the Ld. PCIT which are available at pages 51 to 80 of the Paper Book. The assessee has made the submissions of every notice issued by Ld. PCIT and the copies of the replies alongwith the relevant Annexure are placed in the Paper Book filed by the assessee which are available at page 81 to 2890 of the Paper Book. Page | 5

After considering the submission of the assessee, Ld. PCIT has observed that the assessee has not substantiated its claim and deduction and accordingly, the assessment order was held as erroneous in so far as it is pre- judicial to the interest of the Revenue and directions are given to the AO for making further examination and verifications in respect to the following issues- 1. “In view of the above facts of the case and the principles of taxation, AO is directed to compute the Income from the area ‘Sold but the Possession Letter (PL) not issued' and 'Not Sold' as elaborated and directed at 1 to 7 above for all the 11 projects in the chart scanned above as Annexure 'A'. AO is also directed to obtain all necessary documents from assessee and also verify the books of accounts, in order to obtain such information and details about receipts. 2. AO is directed to examine and verify the Financial Expenses which are not in accordance with the commercial expediency and disallow the same. 3. AO is directed to verify and analyse the issue related to income from the house property on which standard deduction claim of 7.61 crores has been made and notional rental income calculated for these properties and the issue of depreciation as a part of P&L account. 4. The writing off of Rs. 336.47 crores on account of amicable settlement regarding a property with madras race club, is not allowable claim as impairment provision. The matter is set aside for verification of the claim to AO. 5. Regarding transferring of rights in the land at Ranga Reddy district Telangana for Rs. 88.50 crores during the year in lieu of gross revenue from the project, the AO is directed to examine the taxability of same.

Regarding current liabilities as shown in the balance sheet, AO is directed to examine the correctness of the same. Page | 6

Regarding issue related to land parcel at Shivaji Marg, New Delhi which has been sold by the company SPV for 3700 crores, the tax implication of this transaction in view of the fact that the registration of the property was got done at a higher value, is set aside for verification and enquiry by the AO.” 6. Against such order passed u/s 263 giving these directions, the assessee is in appeal before the Tribunal by taking grounds of appeal

The Ld.AR for the assessee also submitted that this issue has already been considered and decided by the Co-ordinate Bench of ITAT in the case of group company DLF Assets Ltd. vs PCIT vide order dated 18.09.2024 therefore, even otherwise this issue is covered by the decision of the Co-ordinate Bench of the Tribunal.

On the other hand, the Ld.CIT DR for the Revenue vehemently supported the order of the lower authorities and submitted that the Explanation-II was inserted by Finance Act, 2015 w.e.f. 01.06.2015 wherein the Ld. PCIT can declare the order as erroneous insofar as pre-judicial to the interest of Revenue in the opinion of Ld. PCIT. The order is passed without making enquiry or verification which should have been made. In the instant issue, the AO though had made the enquiries however, not concluded the issue in terms of the observations made by the Ld. PCIT and therefore, the order of Ld. PCIT should be sustained on this score. He further placed reliance on the judgement which are discussed while dealing Ground Nos.1,2 and 11 of the assessee.

We have heard the rival submissions and perused the material available on record. From the directions given by the Ld.PCIT with respect to the Revenue recognition by following POCM as against CCM, we find that the AO himself has rejected the Revenue recognition by the assessee following CCM. It is further seen that Ld. PCIT while giving directions to the AO in para 1 at page 61 of the order (reproduced herein above) directed the AO to compute the income of the leftover part of all the 11 completed projects by ignoring the facts that all the details asked by the AO during the course of assessment proceedings, were filed by the assessee which are available at pages 1038 to 1060 of the Paper Book. In the instant case, the issue of Revenue recognition by following POCM as against CCM adopted, has already been challenged before the Ld. CIT(A) and therefore, it cannot be said that this issue has not been considered/examined. On the other hand, the AO has applied his mind and reaches to the conclusion therefore, the scope of Ld. PCIT u/s 263 for making further enquiries is nothing but change of opinion which is not permissible u/s 263 of the Act. The Hon’ble Supreme Court in the case of PCIT vs Sriji Prints (2021) 130 taxmann.com 294 (SC) has held that once the AO has taken a plausible view, the same cannot be considered as erroneous and pre-judicial to the interest of the Revenue and therefore, the Hon’ble Supreme Court has dismissed the SLP filed by the Revenue against the order of Hon’ble Gujarat High Court filed by the Revenue. 15.1. It is further seen that this issue has been decided by the Co-ordinate Bench in the case of group company namely, DLF Assets Ltd. in wherein vide order dated 18.09.2024, the Co-ordinate Bench in para 4 & 5 of the order has held that the revisional jurisdiction invoked by Ld. PCIT on this issue is bad in law. The relevant observations of the Co-ordinate Bench are as under- 4. “This assessment was subjected to challenge by the assessee before the ld NFAC. The ld NFAC disposed of the appeal on 18.12.2023 giving partial relief to the assessee. It is pertinent to note that the assessee was Page | 12 following Percent of Completion Method (POCM) for recognition of revenue from the business of real estate activities. But during the year, there was a change in the method from percentage of completion to completed contract method (CCM) as per the Accounting Standard-7 (AS-7) issued by Institute Of Chartered Accountants of India (ICAI). The assessee had debited a sum of ₹609185.90 lakhs in the return representing reversal of excess revenues (net of cost) booked in the earlier years in respect of projects under execution as on 01.04.2018 on account of change in the method of accounting from POCM to CCM. In the return of income for the year under consideration, the assessee made a one time claim of ₹609185.90 lakhs in schedule BP in ITR. In the assessment proceedings, the said deduction was subject matter of examination by the ld AO. The assessee filed written submissions vide letters dated 22.09.2021 and 27.09.2021 on this issue before the ld AO. The assessee also pleaded that CCM is also one of the recognized methods under AS-7 issued by ICAI for the assessee engaged in real estate business. The AO disallowed the one time claim of deduction of ₹609185.70 lakhs. However, the ld AO allowed the alternative claim of the assessee as deduction to the tune of Rs. 104226.14 lakhs which was contingent upon and consequent to the outcome of proceedings for AYs 2017-18, 2018-19 and 2019-20. The ld NFAC took cognizance of the fact that the assessee has followed CCM in succeeding assessment years i.e. 2020-21 and 2021-22, for recognition of revenues and it was also accepted by the ld AO while completing the assessment for those two years. The ld CIT(A) found that the AO had indeed accepted the shift in method of accounting from POCM to CCM by the assessee in assessment years 2020-21 and 2021-22 and observed that the AO was not justified in rejecting the same in assessment year 2019- 20. Ld NFAC also took cognizance of the fact that POCM is one of the approved methods and the assessee was indeed entitled to follow the same for recognition of income. Reliance was also placed by the assessee on the decision of the Hon'ble Supreme Court in the case of CIT Vs. Bilahari Investments Pvt Ltd reported in 299 ITR 1 (SC) and the decision of the Hon‟ble Jurisdictional High Court in the case of CIT Vs. Manish Buildwell Private Limited reported in 16 Page | 13 taxmann.com 27 (Del HC) ; decision of Hon‟ble Karnataka High Court in the case of CIT v. Prestige Estate Projects Pvt Ltd reported in 440 ITR 343 (Kar.) ; and decision of Hon‟ble Jurisdictional High Court in the case of Paras Buildtech India Pvt. Ltd reported in 382 ITR 630 (Del). The ld NFAC also gave a categorical finding of reversal of excess revenues, which was booked in earlier years of ₹609185.90 lakhs which was claimed as a one time claim of deduction during the year under consideration due to shift in method of accounting from POCM to CCM was worked out by the assessee on the basis of recognized principles, applicable accounting standards and duly vetted by the auditors. Further, he also observed that the entire exercise of this addition made by the AO in the assessment proceedings is purely academic in nature as it is revenue neutral in view of the fact that the same would have to be allowed as deduction in subsequent years as it is only the effect of timing difference. The ld NFAC took cognizance of the fact that due to the statutory requirement of adoption of Ind AS-115, the assessee had to mandatory change the method of recognizing revenue from POCM to CCM since inception in respect of the projects which are under implementation and are yet to be completed. That being so, the revenue hitherto recognized under POCM followed upto AY 2018-19, the revenue had to be reversed in Assessment Year 2019-20 pursuant to adoption of CCM to avoid the situation of double taxation. Accordingly, the ld NFAC categorically had given observation that if one time claim of deduction of ₹609185.90 lakhs is not allowed to the assessee, then it would result in double taxation of income for the assessee which would in turn impair the real income theory.

In view of the above facts and by respectfully following the judgment of Hon’ble Supreme Court and Co-ordinate Bench of the Tribunal in the group cases, we find no error in the order of the AO and none of the condition of Explanation-2 is violated. Accordingly, the jurisdiction invoked by Ld. PCIT u/s 263 is hereby held as bad in law and the order passed u/s 263 on this issue is hereby quashed. As a result, Ground No.3 of the assessee is allowed. In Ground No.4 of the assessee has challenged the direction of Ld. PCIT 17. to examine and verify the financial expenses allowed by the AO which are not in accordance with commercial expediency.

During the course of hearing, the Ld.AR for the assessee submitted that the AO has made specific query in this regard vide notice dated 12.08.2021 which was replied vide letter dated 21.09.2021 in response to query No. “L” of the said notice. This fact was brought to the knowledge of Ld. PCIT also and the relevant details so submitted were available in Paper Book at Page 444 to 797 relevant Page 448. The copy of the submissions made before the AO vide reply dated 27.09.2021 is also placed at page 1703 to 1706 of the Paper Book. He further submits that the Ld. PCIT has given a general direction for making necessary verification without recording satisfaction that order is erroneous and pre-judicial to the interest of the Revenue by not pointing out which claim of interest on the advances/loans given to group companies is not for commercial expediency. He further submits that AO has made specific query in this regard as observed above and similar claim was made in preceding years where such claim was allowed and therefore, as a principal of consistency, there is no error in the order of the AO. Ld.AR further submits that this issue has already been decided by this Co-ordinate Bench of Tribunal in group company M/s. DLF Assets Ltd. (supra) therefore, even otherwise this issue has already been decided in favour of the assessee. He thus prayed that the order of Ld. PCIT deserves to be quashed on this score.

On the other hand, Ld.CIT DR supported the order of the Ld. PCIT and submitted that the assessee has given interest free advances to subsidiaries and group companies. He further submitted that no amount was charged on the corporate guarantees given to the bank however, all the financial expenses were claimed by the assessee by stating that there were commercial expediency and looking to the deep interest to the group companies which is not correct. He prayed that Ld. PCIT has rightly held the order as erroneous and pre- Page | 16 judicial to the interest of the Revenue as the AO has not make any disallowance u/s 36(1)(iii) of the Act. Therefore, he prayed for confirmation of order of Ld. PCIT on this issue.

We have heard the rival submissions and perused the material available on record. At the outset from the records, it is seen that the AO has made specific queries with respect to the interest and financial expenses claimed by the assessee during the course of assessment proceedings wherein the AO has made the following queries to the assessee:- 6. “Query No.6 “As per notes to the financial statement for the period ended on 31.03.2019, it is noticed that the borrowing cost were not capitalized during the year under consideration. However, the same is debited to profit & loss account. Show cause why the borrowing cost may not be capitalized in view of proviso to section 36(I)(iii) of Income Tax Act, 1961?”

From the perusal of this query which was duly replied by assessee with every possible supporting evidence thus, it is clear that the AO has made very specific query and after considering the past history wherein the similar claim was allowed by the AO and no disallowance u/s 36(1)(iii) was made towards the financial expenses claimed vis-à-vis interest free advances given to group companies. It is further seen that identical issue was come up in case of group company (cited supra) of DLF Assets wherein the Co-ordinate Bench in para 6 of its order has held that there is no error in the order of the AO and quash the revisionary jurisdiction assumed by Ld. PCIT on this issue. The relevant observations are as under:- 6. “The next issue on which the ld PCIT has invoked the revision jurisdiction u/s 263 of the Act was an account of examination of financial expenses claimed by the assessee. We find that the assessee had furnished detailed submissions with regard to eligibility of claim of interest before the ld AO vide its reply dated 02.09.2021 in response to the notice issued by the ld AO dated 26.07.2021. The assessee gave the explanation that the loans were advanced out of commercial expediency and also gave details of availability of own funds in its kitty. The AO having taken cognizance of the same had granted deduction towards interest expenditure claimed by the assessee. This act of the ld AO was sought to be revised by the ld PCIT by invoking revision jurisdiction u/s 263 of the Act without even indicating as to how the order of the ld AO is erroneous which is a pre-requisite before invoking revision jurisdiction u/s 263 of the Act. There is absolutely no discussion of the by the ld PCIT on the issue. Hence, the action of the ld PCIT to revise this issue by giving direction to the ld AO to examine the same is hereby held to be arbitrary and absolutely without any basis. Hence, the assumption of revision jurisdiction on this issue u/s 263 of the Act is quashed.”

In view of the above findings and also looking to the fact that necessary enquiry was made by AO and duly replied by the assessee before the AO as well as before Ld. PCIT. Thus, it is clearly established that the AO has applied his mind before allowing the claim of the assessee and Ld. PCIT has failed to point out any specific error which has resulted into loss of the Revenue. The Ld.PCIT has failed to state which other condition as enumerated in Explanation 2 of section 263 is violated by assessee. Therefore, by respectfully following the judgement of Co-ordinate Bench in DLF Assets wherein the identical issue has been decided by the Co-ordinate Bench, we are of the view that Ld. PCIT has wrongly assumed jurisdiction u/s 263 towards the financial expenses claimed by the assessee accordingly, Ground No.4 of the assessee is allowed.

Ground No.5 of the assessee is related to the directions of Ld. PCIT to examine and analyze the issue related to income from house property and notional rental income on unsold stock.

During the course of hearing, Ld.AR for the assessee submitted that the AO vide Query No.4 of his notice dated 23.09.2021 has specifically asked the assessee to explain as to how the rental income is shown and further asked to file the breakup of the income from unsold stock which was replied by the assessee. The relevant query and answer are available at page 1701 to 1702 of the Paper Book. The Ld.AR for the assessee further submits that the assessee has submitted complete details of the rental income and income shown under Page | 18 the head ‘business and profession’ on account of notional rental income on vacant property held as stock-in-trade. The Ld. PCIT has failed to appreciate these facts and further failed to appreciate that the income declared by the assessee under the head ‘rental income’ was accepted in preceding and succeeding years on the same basis and has never been doubted. Therefore, as a principle of consistency, this issue cannot be held as erroneous and pre- judicial to the interest of the Revenue. He further submits that all these facts were submitted before Ld. PCIT during the course of hearing and necessary replies are available in Paper Book at page 390 to 394 and 435. Thus the order of Ld. PCIT on this issue deserves to struck down.

The Ld.AR for the assessee has also filed a written submission as under:- “In this regard, it is submitted that the direction issued by the PCIT is of general nature and the revisionary order does not contain any specific finding or point out any infirmity in the assessment order vis-à-vis rental income. Further, before the PCIT, the assessee has furnished detailed submission explaining the break-up rental income offered to tax under the head House property and PGBP. Further, the basis of classification of notional rental income on vacant properties held as stock was also furnished. It was further clarified that no depreciation has been claimed on property income from which is taxed under the head House Property. It is astonishing that the revisionary order does not contain any whisper of discussion on the submission filed by the assessee and the direction issued by the PCIT is mechanical and without application of mind. In fact, the issue of taxation of rental income being of recurring nature and accepted in the past as well as future years, there is no ground or basis for terming the assessment as erroneous or prejudicial to the interest of the revenue. [Refer internal Page 44 - 48 & 89 of the reply dated 22/03/24 placed at page no. 390-394 and 435 of the paperbook].”

On the other hand, Ld.CIT DR has submitted that if the case of the assessee was selected for complete scrutiny wherein the AO failed to make necessary inquiries and has not analyzed the details of rental income shown, standard deduction claimed and issue of depreciation. He therefore, submits that by not making such enquiries, the order of the AO is erroneous as well as pre-judicial to the interest of the Revenue.

We have heard the rival submissions and perused the material available on record. The reply submitted before Ld. PCIT during the course of revisionary proceedings, is available at pages 391 to 394 of the Paper Book wherein it is claimed by the assessee that the assessee has declared total rental income of INR 21,19,13,543/- out of which INR 2,20,11,122/- was offered under the head “income from house property” relating to units which were held as inventory and were let out during the year. The details of the same were submitted before the AO during the course of assessment proceedings. Besides this, the assessee has declared income of INR 18,99,02,421/- as notional rent on the vacant properties held as stock-in-trade. The notional rent was determined on the basis of valuation report of independent valuer and all these facts were submitted before Ld. PCIT in the course of revisional proceedings which were ignored by Ld. PCIT. It is also submitted by the assessee that the assessee has not charged any depreciation and in support of such claim, necessary details were filed before Ld. PCIT. The assessee is engaged in the business of real estate where primary motive of assessee of selling the real estate however, the unsold stock was let out for hire and income was shown as ‘income from house property’. The AO found no error in the details so filed nor Ld. PCIT has pointed out any error or any occasion where the tax could not be less charged therefore, it cannot be held that the order is pre-judicial to the interest of Revenue or erroneous and accordingly, the direction of Ld.PCIT to make verifications of the standard deduction claimed and notional rental income declared and depreciation is beyond the jurisdiction u/s 263 of the Act, more particularly, when all the details were filed by the assessee before the AO as well as before Ld. PCIT which were not found to be incorrect. With these observations, in our considered view, the order of Ld. PCIT on this issue of invoking the jurisdiction u/s 263 of the Act is bad in law and thus, is hereby quashed. Ground No.5 raised by the assessee is allowed. Ground No.6 raised by the assessee is with regard to the direction of Ld.

PCIT for making verification of claim of writing off of INR 336.47 crores towards Madras Race Club property.

During the course of hearing, the Ld.AR for the assessee submits that this issue actually pertained to AY 2018-19 wherein the assessee has suo moto disallowed the claim in the computation of income. For this, he placed on record the copy of computation for AY 2018-19 wherein a sum of INR 11,42,36,37,487/- were added to the total income of the assessee as exceptional items for which necessary working was enclosed. From the perusal of that working, a sum of INR 336.47 crores related to Madras Race Club property was found included in the gross total sum of INR 1142.36 crores as stated above. The Ld.AR thus submits that Ld. PCIT has not appreciated this fact which was brought to his notice in terms of the reply submitted during the course of proceedings u/s 263 of the Act vide letter dated 28.03.2024. The relevant reply of the assessee as contained in para 5 of the reply is available in Paper Book at page 2427. The Ld.AR thus, state that there is neither any error in the order of AO nor the order is pre-judicial to the interest of the Revenue on this count. Therefore, action of Ld. PCIT in holding the order is erroneous and pre-judicial to the interest of Revenue deserves to be hold bad in law.

The Ld.CIT DR for the Revenue supported the order of Ld. PCIT and submits that in the financial statement, the assessee has given a note with regard to the amicable settlement of the property with Madras Race Club and writing off of INR 336.47 crores therefore, the order of Ld. PCIT on this issue is correct and deserves to be upheld.

After considering the arguments put forth from the parties and from the perusal of the computation of income filed by the assessee for AY 2018-19, it is seen that the amount of INR 336.47 crores is included in the total amount of exception items added back to the total income u/s 37 of the Act at INR 1142.36 crores and the necessary break-up of the same as provided is reproduced as under:-

Further, the assessee in reply to observations No.4 of Ld. PCIT during the course of revisional proceedings has brought these facts to the notice of Ld. PCIT however, Ld. PCIT merely for the verification of these facts has hold the order as erroneous and pre-judicial to the interest of the Revenue. It is settled law that merely for verification purposes, the order cannot be held as erroneous and pre-judicial to the interest of the Revenue. Ld.PCIT has failed to point out which condition of Explanation 2 of section 263 is applicable on this issue. Looking to these facts, in our considered opinion, the order of Ld. PCIT u/s 263 of the Act on this score holds no water and thus is quashed. Ground No.6 raised by the assessee is accordingly, allowed.

Ground No.7 raised by the assessee is with regard to the direction of Ld. PCIT for examination of taxability of transferring of rights in the land at Ranga Reddy District, Telangana for INR 88.50 crores.

The Ld.AR for the assessee submitted that the assessee has entered into a development agreement with other real estate developers of land parcels at Narsingi Village and Poppalguda Village for construction of multi-storey residential apartment complex wherein the assessee’s share in gross revenue was 24.5%. It was explained by the assessee company that the assessee has given possession of the underlying land parcels to other land owners for the Page | 23 development of the applicants and inventory has been reduced to such extent and was re-classified as receivable. The corresponding sales and cost is recognized in the years of sales booking done by the developers. During the year under consideration out of the total receivable of INR 185.46 crores as outstanding on the first day of the previous year were reduced to INR 88.50 crores as on 31.03.2019. The corresponding decrease in the value of receivables of INR 96.96 crores was recorded as revenue in P&L Account and the remaining amount of INR 88.50 crores was carried over to the next year as receivable which was recorded as revenue in subsequent year when the sale has taken place. Ld. PCIT without raising any doubts on the submissions so made nor finding any error in the same which leads to order as pre-judicial to the interest of revenue, merely direct the AO to make verification of the corresponding Revenue by which it cannot be said that the order is erroneous and pre-judicial to the interest of the Revenue and jurisdiction u/s 263 could be assumed and therefore, he prayed for cancellation of order of Ld. PCIT on this issue.

On the other hand, the Ld.CIT DR supports the order of the AO and further placed reliance on the case laws relied upon by him in its submissions which are reproduced herein above while dealing in Ground No.1 of the assessee.

After careful consideration of the submissions of both the parties and looking to the financial statements of the assessee, we find that during the year under appeal, the assessee has disclosed total consideration of INR 132 crores in its P&L Account against the cost of INR 96.96 crores which was forming part of total receivable as on the first day of the previous year. The amount of INR 88.50 crores is the residuary figure of receivables on account of the remaining stock of the project against which the relevant revenue was recorded in the P&L Account in subsequent years. All these facts are emanated from the submissions made by the assessee before Ld. PCIT during the course of hearing wherein reply to Observation No.5, the assessee has made following submissions:-

“Observation 5: Regarding transferring of rights in the land at Ranga Reddy district Telangana for Rs. 88.50 crores during the year in lieu of gross revenue from the project please show cause as to why the profit from this be not brought to tax and the order of AO be not considered erroneous and prejudicial to this extent, as it was not examined at all. Reply: In connection with the above observation, it is submitted that the Assessee has explained the above transaction in detail in it submission dated 22.03.2024. To reiterate, it is submitted that the Assessee wishes to submit that the Company entered into an Development agreement with other real estate developer in respect of land parcels at Narsingi Village and Poppalguda Village for a multistory residential apartment complex ('the project'), for a consideration of 24.5% of the gross revenue from ultimate sale of the project. It is submitted that in accordance with the said development agreement, the Company has given possession of the underlying land parcels, forming of part of its inventory to the other land owner for development of the multistory residential apartment complex and inventory has been reduced to that extent and has been reclassified as receivable. The corresponding sale and cost is recognized in the year of sales booking done by the developer. The relevant extract of note 10 and note 54 of the audited financial statements explaining the above transaction is reproduced hereunder:

From the above reply of the assessee, it is clear that the assessee has duly offered the income against such cost incurred on the project at Ranga District, Telangana in the year when the income was accrued and therefore, the assessment order was neither erroneous nor pre-judicial to the interest of the Revenue and accordingly, we quash the order of Ld. PCIT passed u/s 263 of the Act on this issue wherein Ld. PCIT has merely direct the AO for making verification of the income offered without in any manner pointing out any error or loss of Revenue. Ground No.7 raised by the assessee is accordingly, allowed.

Ground No.8 raised by the assessee is with regard to the verification of correctness of exceptional gain of INR 261.80 crores and exceptional loss of INR 495.1 crores.

During the course of hearing, the Ld.AR for the assessee submitted that the AO has made a specific query in terms of notice dated 12.08.2021 which was replied by the assessee on 21.09.2021. The relevant copies of the reply are placed in the Paper Book at page 445 to 448. He further submits that Ld.PCIT has given general direction without finding any error in the submissions made by the assessee in its reply dated 28.03.2024 made before Ld.PCIT during revisionary proceedings. The Ld.AR also drew our attention to the computation of income placed at pages 3114 to 3115 of the Paper Book wherein the provision made for exceptional items and exceptional loss were added back to the income and further the exceptional gain of INR 261.80 crores is offered for tax under the head “income from capital gain”. He thus prayed that the order of Ld.PCIT holding the assessment order as erroneous as well as pre-judicial to the interest of the Revenue and devoid on merits and deserves to struck down on this issue. Page | 27 39.1. The Ld.AR also filed written submissions on this issue, which is reproduced as under:- “The PCIT has given general direction to the assessing officer for examination of exceptional gain and loss as appearing the financial statement which is totally beyond the scope of section 263. It is relevant to mention that the assessee before PCIT furnished detailed submission explaining individual exceptional items which are in nature of profit on disposal of investment, provision for impairment of assets and provision for loss. It was clarified that the assessee has suo moto disallowed the provisions in its computation of income and offered the gain on disposal of investment of INR 261.80 crores to tax in the ITR. Further, out of total exceptional loss of INR 495.11 crores as appearing in the P&L a/c, the assessee has only claimed loss of INR 105.81 crores which is actual suffered on account of unrecoverable business advance. However, the PCIT without appreciating the submission issue arbitrary direction to AO sans any application of mind. Accordingly, the assessing officer having verified the exceptional items during the course of assessment proceedings and in absence of any error or infirmity in the same, assessment order is neither erroneous or prejudicial to the interest of the revenue to this effect. [Refer internal page 61-69 of reply dated 22.03.2024 and page 19-24 of the reply dated 28.03.2024 placed at PB page No.407-415 and PB pg.2474-2479 respectively].”

On the other hand, Ld.CIT DR for the Revenue vehemently supported the order of Ld. PCIT and further placed reliance on the judgements as discussed in Ground No.1 above with respect to the power of Ld.PCIT for making necessary verification as provided in Explanation 2 to section 263 of the Act. He thus prayed for confirmation of the order of Ld. PCIT.

We have heard the rival contentions and perused the material available on record. From the reply dated 28.03.2024 filed before the Ld.PCIT, it is clear that total exceptional gain of INR 261.80 crores was offered for tax during the Page | 28 year under appeal and out of exceptional loss of INR 495.1 crores, the assessee has already offered INR 394.30 crores by including the same in the total income which is evident from the computation and left over was claimed as exceptional loss. It is also relevant to state that the AO has made specific query in this regard and after considering the submissions made by the assessee on this issue has accepted the claim of the assessee. The Ld. PCIT has not found any error either in the submissions made by the assessee before the AO or before Ld. PCIT himself nor brought any instance of incorrect claim which leads the assessment order as pre-judicial to the interest of the Revenue. From the perusal of order of Ld. PCIT, we find nowhere Ld. PCIT has been able to make out a case that assessee has violated any of the condition as provided in Explanation 2 of section 263 of the Act. Under these circumstances, in our considered opinion, the action of Ld. PCIT in holding the assessment order as erroneous and pre-judicial to the interest of the Revenue is without any basis and therefore, quash the same on this issue. Accordingly, Ground No.8 of the assessee is allowed. Ground No.9 raised by the assessee is with regard to the direction given 42. by Ld. PCIT for making examination of the correctness of the current liability shown in the balance sheet.

Before us, the Ld.AR submits that during the course of assessment proceedings vide query No. “Q”, the AO has made necessary inquiries about the creditors of liabilities which were duly replied by the assessee in terms of the reply dated 21.09.2021 which is available in the Paper Book at pages 445 to 797 and the relevant pages at 448. He further submits that the AO after making verification of the details submitted, had accepted the claim of the assessee. The Ld. PCIT has given general direction for making verification which are beyond scope of section 263 of the Act. The liabilities are as a result of normal business transaction and they cannot be doubted. The Ld.AR further submits that during the course of revisional proceedings, the assessee has made a specific reply in this regard which has not been considered by the Ld.PCIT in true perspectives and hold the order as erroneous and pre-judicial to the interest of the Revenue without any specific instance of bogus or Page | 29 unverifiable creditors/liabilities and therefore, he prayed for the cancellation of the order of Ld. PCIT on this score.

On the other hand, Ld.CIT DR for the Revenue supports the order of Ld. PCIT and submits that Ld. PCIT has given direction as the AO has failed to examine the applicability of section 68 of the Act in case of creditors and therefore, he prayed for confirmation of order of Ld. PCIT.

On careful consideration of the facts and submissions, we find that this issue has already been examined by the AO where he has asked the assessee to file necessary details of creditors and liabilities and after considering the same, has reached to the conclusion that these are normal business creditors and no adverse inference was recorded. In revisional proceedings, the assessee has demonstrated that all the creditors were genuine creditors and no error was found by Ld. PCIT in the same, who simply direct the AO for making further verification which is beyond the scope of section 263 of the Act. As observed above, the Hon’ble Supreme Court in the case of PCIT vs Shreeji Paints P.Ltd. (supra) has held that once the AO has made inquiry in details and accepted the genuineness of loans received by the assessee, such view of AO was a plausible view and same cannot be considered erroneous or pre-judicial to the interest of the Revenue and therefore, the Hon’ble Supreme Court dismissed the SLP of the Revenue and confirmed the order of Hon’ble Gujarat High Court reported in 130 taxmann.com 293 (Gujarat). In view of the above facts and by respectfully following the judgement of Hon’ble Supreme Court, we find no error in the order of AO and therefore, the order of Ld. PCIT passed u/s 263 on this issue is hereby quashed. Hence, Ground No.9 raised by the assessee is allowed. Ground No.10 raised by the assessee is with respect to the direction of 46. Ld. PCIT for making verification of tax implication on the land parcel at Shivaji Marg to SPV for INR 3700 crores.

In this regard, the Ld.AR for the assessee submits that this issue does not relate to the year under appeal. He further submits that Ld. PCIT picked this issue from Note No.53 of the audited financial statement for the year ended on 31.03.2019 available at page 3107 of the Paper Book wherein the Page | 30 assessee has explained creation of SPV and transfer of land which was done in FY 2015-16 relevant to AY 2016-17. The assessee has entered into the transaction of sale of lands above the circle rate and due tax was offered for tax in AY 2016-17 and this fact was duly brought to the notice of Ld. PCIT in terms of the submissions made during the course of revisionary proceedings vide reply dated 28.03.2024. The Ld.AR submits that since the transaction was not pertained to the year under appeal and necessary revenue has already been offered for tax in the correct AY i.e. AY 2016-17, therefore, solely for making verification of the taxability of the same, the assessment order cannot be held as erroneous and pre-judicial to the interest of the Revenue. Therefore, he prayed that the action of Ld. PCIT deserves to be bad in law and consequent order deserves to be quashed.

On the other hand, Ld.CIT DR for the Revenue supports the order of Ld. PCIT and request for the confirmation of the same.

After considering the rival submissions and perused the material available on record, we find that the assessee in vary specific terms while making reply to the AO as well as before the Ld. PCIT has stated that the relevant consideration of INR 3,700 crore was offered for tax in AY 2016-17 and necessary details were also filed before Ld. PCIT stating that the transaction was not pertaining to the year under appeal. There is no error in the assessment order in respect of the turnover of INR 3,700 crores. Therefore, mere directions for examination of the taxability and with these directions holding the assessment order as erroneous and pre-judicial to the interest of the Revenue is contrary to the provisions of law as has been held by the Hon’ble Supreme Court in the case of PCIT vs Shreeji Paints P.Ltd. (supra). The AR also submits the copy of computation for AY 2016-17 wherein consideration of INR 3,700 crores is offered for tax such as first offered of INR 1,850 crores under the head ‘revenue from operations’ and further offered INR 1,850 crores in the computation of income. This being so, we find no error in the order of AO on this score and therefore, the order of Ld. PCIT hereby, quashed on this issue. Ground No.10 raised by the assessee is accordingly, allowed. Page | 31

Now we take up the legal grounds of appeal

The Ld.AR for the assessee also placed reliance on the following judgements on the issue that Ld. PCIT cannot give blanket direction under revisional proceedings:- [a] DIT vs Jyoti Foundation [2013] 357 ITR 388 (Delhi HC) [b] PCIT vs Delhi Airport Metro Express Pvt.Ltd. [2017] [c] PCIT vs Mohak Real Estate (P.) Ltd. [2024] 161 taxmann.com 388 (Delhi) [d] CIT vs R K Jain Infra Projects P.Ltd. [2024] 297 taxman 369 (SC) [e] CIT vs Gopal Sharma [2024] 298 Taxman 49 (Calcutta) [f] Kiaxon Trading Pvt.Ltd. [TS-728-HC-2023 (Del)] He thus prayed that the order passed u/s 263 of the Act by Ld.PCIT deserves to be quashed.

On the other hand, Ld.CIT DR for the Revenue supported the order of Ld. PCIT and further placed reliance on the following judgments:- 1. Hon'ble Supreme Court in the case of Deniel Merchants Pvt. Ltd. vs. ITO (Appeal No. 2396/2017) dated 29.11.2017 2. Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. Vs CIT [2000] 109 Taxman 66 (SC)/[2000] 243 ITR 83 (SC)/[2000] 159 CTR 1 (SC) 3. Hon'ble Supreme Court in the case of Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 (SC) 4. Hon'ble Supreme Court in the case of Tara Devi Aggarwals v. CIT [1973] 88 ITR 323 (SC) 5. Hon'ble Supreme Court in the case of Toyota Motor Corporation v. CIT [2008] 306 ITR 52 (SC) 6. Rajmandir Estates (P.) Ltd. Vs PCIT [70 taxmann.com 124 (Calcutta)/[2016] 240 Taxman 306 (Calcutta)/[2016] 386 ITR 162 (Calcutta)/[2016] 287 CTR 512

In the instant case, the ld. PCIT has given direction to the AO for making further examination and verification on various issues without pointing out any error in the assessment order on any of such issue raised by ld. PCIT nor any instance was brought on record leading to conclusion that the assessment order is prejudicial to the interest of revenue. As per the provisions of Section 263 of Income Tax Act, 1961, the PCIT/CIT is vested with the supervisory powers of suo-moto revision of any order passed by the Assessing Officer [AO]. For the said purpose, the appropriate authority may call for and examine the record of any proceedings under the Act and may proceed to revise the same Page | 34 provided two conditions are satisfied-(i) the order of the assessing officer erroneous; and (ii) it is prejudicial to the interest of the revenue. If one of the condition is absent i.e. if the order of the Income-tax Officer is erroneous but is not prejudicial to the revenue or if it is not erroneous but it is prejudicial to the revenue, action cannot be taken u/s 263 of the Act as has been held by Hon’ble Supreme Court in Malabar Industrial Co. Ltd. (supra) and followed by Hon’ble Delhi High Court in the case of CIT vs Vikas Polymers reported in 194 Taxman 57(Delhi).

The Hon’ble Supreme Court in Malabar Industrial Co. Ltd. (supra) has held that the phrase 'prejudicial to the interests of the revenue' must be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of the revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income-tax 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).

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. (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 Page | 35 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, any and every erroneous order cannot be the subject matter of revision because the second requirement also must be fulfilled. There must be material on record to show that tax which was lawfully leviable has not been imposed as held in Gabriel India Ltd.(supra). However, the expression "prejudicial to the interest of the revenue", as held by the Supreme Court in the Malabar Industrial Co. Ltd. (supra), is not an expression of art and is not defined in the Act and, therefore, must be understood in its ordinary meaning. The Commissioner's exercise of revisional jurisdiction under the provisions of Section 263 cannot be based on whims or caprice. It is trite law that it is a quasi-judicial power hedged in with limitation and not an unbridled and unchartered arbitrary power. The exercise of the power is limited to cases where the Commissioner on examining the records comes to the conclusion that the earlier finding of the Income-tax Officer was erroneous and prejudicial to the interest of the revenue and that fresh determination of the case is warranted. There must be material to justify the Commissioner's finding that the order of the assessment was erroneous insofar as it was prejudicial to the interest of the revenue.

The Hon’ble Delhi High Court, in the case of Vikas Ploymers (supra) further observed that there is a fine though subtle distinction between "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. In Gabriel India Ltd. (supra), it was expressly observed: - "The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi- judicial controversies 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 figure higher than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the Income-tax Officer has exercised the quasi- judicial power vested in him in accordance with law and arrived at conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. x x x x There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed. The Hon’ble Supreme Court in the case of CIT vs Amitabh Bachchan 59. reported in the case of 69 Taxmann.com 170 held that the power of appeal and revision is contained in Chapter XX of the Act which includes section 263 that confers suo-motu power of revision in the Commissioner. The different shades of power conferred on different authorities under the Act has to be exercised within the areas specifically delineated by the Act and the exercise of power under one provision cannot trench upon the powers available under another provision of the Act. In this regard, it must be specifically noticed that against an order of assessment, so far as the revenue is concerned, the power conferred under the Act is to reopen the concluded assessment under section 147 and/or to revise the assessment order under section 263. The scope of the power/jurisdiction under the different provisions of the Act would naturally be different. The power and jurisdiction of the revenue to deal with a concluded assessment, therefore, must be understood in the context of the provisions of the relevant sections. While doing so, it must also be borne in mind that the legislature had not vested in the revenue any specific power to question an order of assessment by means of an appeal. Regarding applicability of Section 263, what has to be seen is that a satisfaction that an order passed by the Authority under the Act is erroneous and prejudicial to the interest of the revenue is the basic precondition for exercise of jurisdiction under section 263. Both are twin conditions that have to be conjointly present. Once such satisfaction is reached, jurisdiction to exercise the power 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. The Hon’ble Bombay High Court in Moil Ltd. Vs. CIT reported in 81 60. 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 supplied.

The judgements cited by the revenue are on the issue where no enquiry was made by the AO or lack of enquiry on the part of the assessee or where AO has raised the issue but was not replied by the assessee to the satisfaction of the appropriate authorities. However, in the instant case as observed above, the AO has made specific queries in respect to all the issues part of which are discussed by the AO in the assessment order also and remaining were not forming part of the assessment order. Yet the fact remained that proper Page | 38 enquiry was made by the AO and assessee has made reply to each and every query duly supported by the relevant evidence, copies of the same are filed before us in paper books having two volumes of more than 4000 pages. Therefore, the judicial pronouncements relied upon by the revenue are not applicable to the facts of the present case of the assessee.

From the perusal of the revision order of ld. PCIT, we find that Ld. PCIT in its order at page 58 to 59 has reproduced the issues raised vide show cause notice and thereafter, at page 61 to 62 has given certain directions to the AO after holding the assessment order as erroneous and pre-judicial to the interest of the Revenue. After considering these directions and order of Ld. PCIT, we find that nowhere in the order, the satisfaction was recorded by the AO how and on what ground or which of the submission filed by the assessee was not in accordance with the provisions of the law or the claim of the assessee was incorrectly allowed by the AO. Merely for the purpose of verification, the assessment order was held as erroneous and pre-judicial to the interest of the Revenue. As has been observed, the Hon’ble Supreme Court and the various High Courts as cited supra, has held that whether AO examined the issues and after due application of his mind, take a plausible view, such action of AO cannot be held as erroneous without bringing on record any contrary material. In view of above discussion, the order of Ld. PCIT wherein direction has been given for making verification is bad in law and therefore, the order of Ld. PCIT is not liable to be sustained. Accordingly, the same is quashed. Hence, Ground No.1,2 and 11 raised by the assessee are allowed.

Since we have already discussed each of the directions given by Ld. PCIT as agitated by the assessee in separate grounds of appeal and decided such grounds in favour of the assessee. Further the legal grounds taken are also allowed. In view of the observations made herein above, we hold that the assessment order is neither erroneous nor pre-judicial to the interest of revenue and therefore, is quashed.

In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on 23.05.2025.