Loading judgment…
Facts
The assessee claimed a deduction of Rs. 54,47,586/- under Section 80P. The Assessing Officer (AO) allowed this deduction without proper verification. The Principal Commissioner of Income Tax (PCIT) invoked Section 263, holding the AO's order erroneous and prejudicial to the revenue due to lack of inquiry.
Held
The Tribunal held that the AO failed to conduct necessary inquiry regarding the deduction claimed under Section 80P. The PCIT correctly invoked Section 263 to direct further verification. The appeal by the assessee was dismissed, with directions for the AO to conduct a fresh assessment after due inquiry and opportunity to the assessee.
Key Issues
Whether the PCIT was justified in invoking Section 263 due to the AO's failure to adequately verify the Section 80P deduction, and whether such lack of inquiry makes the assessment order erroneous and prejudicial to the revenue.
Sections Cited
80P, 143(2), 142(1), 143(3), 144B, 263, 80P(4), Chapter VI-A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SMT. BEENA PILLAI & SHRI ARUN KHODPIA
Per: Smt. Beena Pillai, J.M.: The Present appeal filed by the assessee arises out of order dated 18/03/2025 passed by Ld.PCIT Mumbai-20, for assessment year 2020-21 on following grounds of appeal:
“1. On the facts and in the circumstances of the case and in law, the learned PCIT erred in invoking provision of section 263 treating the
2. On the facts and in the circumstances of the case and in law, the learned PCIT erred in cancelling and setting aside the assessment order and directing the AO to make necessary enquiry and verification in respect of deduction u/s 80P of Rs. 54,47,586, when on record the appellant has been consistently claiming deduction every year.
Appellant craves leave to add, alter and/or modify the grounds of appeal on or before the date of hearing of the appeal.”
Brief facts of the case are as under:
The assessee file its return of income for the year under consideration on 29/12/2020 declaring total income at loss of Rs.1,47,96,198/-. The assessee claimed deduction of Rs.54,47,586/- under section 80P of the act. The return was selected for complete scrutiny under CASS to examine following issues: • high creditors/liabilities • investments/advances/loans • high interest expenditure/finance costs • deduction from total income under chapter 6A 3. Subsequently,notice under section 143(2) of the act was issued along with notice under section 142(1) of the act. The assessee furnished various details from time to time and had filed its reply to the notice is issued wide letter dated 29/07/2021, 22/09/2021, 29/12/2021, 21/01/2021, and 25/02/2022 before the Ld.AR. Considering the submissions filed, the Ld.AO accepted the return of income filed by the assessee reassessment order on 02/09/2022 under section 143 (3) read with 144B of the act.
A.Y. 2020-21 M/s. Dharavi Sahakari Patpedhi Maryadit 4. Subsequently, the Ld.PCIT upon perusing the assessment records observed that, during the assessment proceedings, the assessing officer allowed deduction of Rs. 54,47,586/- under sections 80P of the act, without carrying out any verification. The Ld.PCIT noted that, the assessing officer did not examine the claim of the assessee. 4.1 The Ld.PCIT thus issued notice under section 263 of the Act on 24/12/2024, that reads as under:
4.2 The Ld.PCIT during the revision proceedings, called for various documents and submissions furnished by the assessee during the assessment proceedings. It was noted that, the assessee furnished submission in respect of the issue under consideration,vide letter dated 22/09/2021 and 21/01/2022 placed at pages 9 and 18 of the paper book, wherein submission provided by the assessee reads as under:
“Deduction under chapter VIA, Rs.54,47,586: the assessee has claimed deduction under section 80P of the income tax act since it fulfils all conditions stipulated in section 80 P.” 4.3 The Ld.PCIT thus was of the opinion that, the Ld.AO did not verify the deduction claimed by the assessee even though this A.Y. 2020-21 M/s. Dharavi Sahakari Patpedhi Maryadit issue was one of the subject matter for verification in the scrutiny assessment notice, based on limited submission by the assessee Ld.AO did not verify any document or called for any further evidence is in support of the claim from the assessee and accepted the assessee’s submission. 4.4 The Ld.PCIT thus by placing reliance on various decision observed and held as under:
6. Considering the facts mentioned above and relying on the judicial pronouncements, I am satisfied that the order passed by the AO is erroneous in so far as it is prejudicial to the interests of the revenue in terms of Section 263 of the Act. Hence, the assessment order is cancelled and set-aside to the AO for making fresh assessment in the light of the discussion above. The AO shall make necessary inquiry and verification in respect of deduction of Rs. 54,47,586/- claimed under section 80Pof the Act and shall give opportunity of being heard to the assessee before passing necessary order Aggrieved by the order of the Ld.PCIT, assessee is in appeal before the Tribunal.
The Ld.AR submitted that, the notice dated 29/06/2021 issued under section 143 (2) of the act, indicating one of the reason for scrutiny being deduction claimed under set chapter VI A, Placed in the paper book at page 1-13 on the paper. He further submitted that, vide notice dated 03/12/2012 specific query in para D was raised, calling upon assessee to furnish details of earnings under the relevant heads against which deduction was claimed note on eligibility criteria of deduction claimed under different sections of chapter VIA and documentary evidence in respect of the investment/expenditure/repayment etc made to claim the deduction.
A.Y. 2020-21 M/s. Dharavi Sahakari Patpedhi Maryadit 5.1 The Ld.AR submitted that, to the above notice, assessee filed its reply vide letter dated 21/01/2022 placed at page 18 -25 of paper book. The Ld.AR the submitted that, all relevant details in respect of the claim of deduction was filed before the Ld.AO and therefore deduction under section 80P of the act stands verified by the Ld.AO during the assessment proceedings. He submitted that merely because the assessing officer did not carry out any investigation on this issue, will not justify the initiation of proceedings under section 263 of the Act. 5.2 On the contrary, the Ld.DR vehemently supported the order passed by the Ld.PCIT. He submitted that, the assessee filed submission in respect of the deduction claimed vide reply dated 21/01/2022 merely stating that assessee satisfies the conditions to claim deduction under section 80P. He submitted that the Ld.AO did not verify manner in which the assessee claimed deduction under section 80P. The Ld.DR submitted that as per explanation 2 of section 263, the present case falls under lack of investigation, and therefore invoking provisions of section 263 stands satisfied. We have perused the submissions advanced by both sides in the light of the records placed before us.
Admittedly, notice under section 143(2) was issued to the assessee wherein one of the reasons for selection for scrutiny was to verify the deduction claim by the assessee under chapter VIA as against the total income. However during the assessment proceedings, the Ld.AO limited the verification in respect of the other issues, where he called for relevant documents in support. It is noted that, the Ld.AO except for issuing questionnaire A.Y. 2020-21 M/s. Dharavi Sahakari Patpedhi Maryadit against which the assessee has replied in a very brief manner as noted by the Ld.PCIT, did not further proceed or take any necessary step to verify the claim of the assessee. The notice issued by the Ld.AO called for all necessary documents in support of the deduction under chapter VIA.Howeverthere is nothing on record to establish that assessee furnished specific details in respect of the claim except for filing general submission as recorded herein above and financial statements/bank statements. The Ld.AO also did not call upon assessee to furnish specific details in respect of the deduction claimed under section 80P. 6.1 Undoubtedly, the Ld.AO has broad powers u/s.143(2) when it is a complete scrutiny. The notice issued under 143(2) was for complete scrutiny.Howeverclarification and documents were called for in respect of unsecured loans only. During the assessment proceedings, the Ld.AO thus limited the scrutiny to issue relating to unsecured loans. There is nothing on record to suggest that, details relating to other issues were verified by the Ld.AO. It is noted that, the questioner issued by the assessing officer though required the assessee to furnish all information pertaining to computation of income verification unsecured loans was only made. At this juncture it is relevant to peruse provisions of section 263 of the Act that read as under :- 263. Revision of orders prejudicial to revenue. (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 A.Y. 2020-21 M/s. Dharavi Sahakari Patpedhi Maryadit 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 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." (Emphasis added) 6.2 Therefore, while deciding the question as to whether or not the jurisdiction was rightly exercised by the Ld.PCIT under Section 263 of the Act, we would have to take into consideration the provisions of Section 263 of the Act, sans Explanation 2, inserted by Finance Act 2015 w.e.f. 1/04/2015 that elucidated the circumstances when an assessment order can be held to be erroneous and prejudicial to the interests of the Revenue.
6.3 We also note that even before the said amendment, it stipulated the mandatory requirement of the order being “erroneous” as well as “prejudicial to the interests of the Revenue”. Therefore, what manifests from the above is the fact that, the twin conditions have to be met before assuming A.Y. 2020-21 M/s. Dharavi Sahakari Patpedhi Maryadit jurisdiction under Section 263 of the Act, and the PCIT has to form an opinion that the order passed by the assessing officer is “erroneous” and “prejudicial to the interests of the Revenue”.
6.4 We also note that prior to the amendment, the scope of these words were explained by the Hon'ble Supreme Court. We refer to the decision of Malabar Industrial Co. Ltd. Vs. CIT reported in (2000) 243 ITR 83 Hon’ble Supreme Court inter alia laid down that, the prerequisite for exercise of jurisdiction by the Ld.PCIT under section 263 is that, the order of the assessing officer must be erroneous in so far as it is prejudicial to the interests of Revenue. The PCIT thus has to satisfy twin conditions, namely : (a) The order of the assessing officer sought to be revised is erroneous, and (b) It is prejudicial to the interests of the Revenue. 6.5 Hon’ble Supreme Court held that, if one of them is absent i.e; if the order of the assessing officer is erroneous, but is not prejudicial to the revenue, or, if it is not erroneous, but is prejudicial to the interest of the revenue, recourse cannot be had to section 263(1) of the Act. Hon’ble Supreme Court further held that: 9. The phrase 'prejudicial to the interests of the revenue' has to 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 interests of the revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the ITO is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same A.Y. 2020-21 M/s. Dharavi Sahakari Patpedhi Maryadit as such will be erroneous and prejudicial to the interests of the revenue - Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 (SC) and in Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC). 6.6 The Income-tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in respect of return which is picked up for complete scrutiny. The assessing officer must ascertain the truth of the facts stated in the return. It is in this context that Hon’ble Supreme Court assigns such meaning to the word "erroneous" for the purposes of section 263.
6.7 In present facts of the case, the return was picked up for complete scrutiny, as per the notice issued under section 143(2). It was thus incumbent on the assessing Officer to investigate all the facts stated in the return, and circumstances would make prudent that the word "erroneous" in section 263 includes the failure to make such an inquiry. The order becomes erroneous because no inquiry was made, and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct. 6.8 Considering the totality of the facts and the decisions relied by both sides as discussed herein above, we concur with the invoking provisions of section 263by the Ld.PCIT as the assessing officer failed to carry out any inquiry on the deduction claimed by assessee under Chapter VI-A and failed to apply his mind while passing the assessment order in respect of the same.
On perusal of the directions issued by the loan and PCITit is noted that,the Ld.AO is to make necessary enquiry and verification in respect of the deduction claimed under section 80P of the act by giving proper opportunity of being heard to the assessee. We do not find any infirmity with such direction and A.Y. 2020-21 M/s. Dharavi Sahakari Patpedhi Maryadit the same is upheld. However the Ld.AO while carrying out necessary verification may keep the in mind the ratio and the principle laid downbyHon’ble Supreme Courtin the case of Mavilayi Service Co-operative Bank Ltd. v. CITreported in (2021) 123 taxmann.com 161 and in case of Kerala State Co-Operative Agricultural & Rural Development Bank Ltd. vs. Assessing Officerreported in (2023) 154 taxmann.com 305.
With the above modified directions, we do not find any merit in the grounds raised by the assessee.
Accordingly the grounds raised by the assessee the stands dismissed. In the result appeal filed by the assessee stands dismissed.
Order pronounced in the open court on 28/10/2025