TULSYAN NEC LIMITED,CHENNAI vs. THE PRINCIPAL COMMISSIONER OF INCOME TAX (CENTRAL) 1, CHENNAI

आदेश / O R D E R PER ABY T. VARKEY, JM: This is an appeal preferred by the assessee against the order of the Learned Principal Commissioner of Income Tax (Central), (hereinafter referred to as ‘Ld.PCIT’), Chennai-1, dated 14.03.2026 for the Assessment Year (hereinafter referred to as ‘AY’) 2019-20 passed u/s.263 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’). 2. Brief facts are that the assessee filed its return of income (ITR) on 27.09.2019, declaring NIL income and claiming a loss of

ITA No.1636/Chny/2026 (AY 2019-20) Tulsyan NEC Limited :: 2 :: Rs.250,06,79,502/-. Search u/s.132 of the Act was conducted on 25.06.2018 in the case of the M/s. World Window Group. According, to the AO during the search of the 3rd party M/s. World Window Group, certain incriminating materials were found which had a bearing on the determination of the total income of the assessee. In this regard, the satisfaction note was recorded by AO of the search person on 06.05.2022 which was forwarded to the AO of the assessee who recorded his satisfaction on 27.10.2023 and issued notice u/s.153C on 30.10.2023. Pursuant to which assessee filed its return of income on 24.11.2023 declaring NIL income and claiming a loss of Rs.249,58,42,571/-. And on request of the assessee, copy of the satisfaction-note recorded by the AO of the searched person and the AO of the assessee for proceeding against the assessee u/s.153C along with the incriminating materials pertaining to the assessee-company found during the course of search in the case of M/s. World Window Group of cases was given to the assessee. And thereafter, the AO noted to have inter alia called for the details regarding interest payable pursuant to which assessee furnished the details asked vide letter dated 18.03.2024. Thereafter, the AO is noted to have made an addition of Rs.4,08,798/- u/s.69C of the Act vide assessment order dated 26.03.2024.

ITA No.1636/Chny/2026 (AY 2019-20) Tulsyan NEC Limited :: 3 :: necessary enquiries to ascertain whether the unpaid interest reflected in the balance sheet had been included in the interest expenditure claimed in the Profit and Loss Account. Hence, according to the Ld.PCIT the AO failed to examine the applicability of Section 43B of the Act with regard to allowability of the interest expenditure. Accordingly, the Ld.PCIT was of the view that failure of the AO to conduct necessary enquiries regarding the admissibility of interest expenditure of Rs.77,19,34,000/- has resulted in the assessment order being erroneous insofar as it is prejudicial to the interest of the Revenue. And alleging non-application of mind also, he held this omission of the AO to conduct necessary enquires on this issue renders the assessment order erroneous and prejudicial to the interest of the Revenue. The assessee is noted to have objected to the proposed revision of the assessment order and has raised many legal grounds which have been captured by the Ld.PCIT in the impugned order, but at present we are discussing only one of the legal grounds taken by assessee before the Ld PCIT, that since relevant AY.2019-20 is an unabated assessment, AO was precluded from making any additions unless there was incriminating materials found during the search to justify the same. The Ld AR asserted that (i) it is an undisputed fact that relevant AY.2019-20 is an unabated assessment; (ii) and that issue regarding interest disallowance raised by Ld PCIT to invoke his revisional jurisdiction u/s 263 was not emanating from any incriminating material found or seized from the search. Hence, according to Ld AR, the settled position of law being that AO could not have ventured to make any additions other than what was discovered from the incriminating materials seized qua assessee, the AO’s action of not taking any adverse view in respect of interest payable while framing the assessment order cannot be viewed as erroneous. In support of such a proposition and contention that the AO’s action of not raking up interest disallowance is in consonance

ITA No.1636/Chny/2026 (AY 2019-20) Tulsyan NEC Limited :: 4 :: with that of the settled position of law, the Ld AR cited the ratio of decision of the Hon’ble Supreme Court in the case of PCIT, Central-3 vs. Abhisar Buildwell (P.) Ltd. (2013) 454 ITR 212 (SC) and CIT vs. Kabul Chawala 380 ITR 573 Delhi and CIT vs. Sinhagad Technical Education Society 397 ITR 344 (SC). However, the Ld. PCIT didn’t accept the same by holding as under: -

7.2 The assessee has further contended that AY 2019-20 was a completed assessment and in the absence of incriminating material no addition could have been made in proceedings under section 153C. This contention is also not acceptable in the present revision proceedings for the following reasons: i) The present proceedings are not concerned with any addition made by the Assessing Officer, but rather with the failure of the Assessing Officer to examine a significant claim made by the assessee.

ii) The issue under consideration in the present proceedings relates to the allowability of interest expenditure claimed in the profit and loss account vis-à-vis the outstanding interest payable shown in the balance sheet, which required examination in accordance with the provisions of section 43B of the Act. The revisional jurisdiction under section 263 is exercised where the Assessing Officer has failed to conduct necessary enquiries or verification, irrespective of whether the issue arises from seized material or otherwise. iv) The Hon'ble Courts have consistently held that lack of enquiry by the Assessing Officer renders the assessment order erroneous and prejudicial to the interests of the Revenue, thereby attracting Explanation (2) to section 263 of the Act. Therefore, the assessee's reliance on judicial precedents relating to additions in search assessments is not applicable to the issue under consideration. 7.3 The assessee has submitted that the Assessing Officer had called for details regarding interest payable and that the assessee had furnished the same vide letter dated 18.03.2024, and therefore it cannot be said that there was lack of enquiry. This submission has been examined and is not acceptable for the following reasons:

ITA No.1636/Chny/2026 (AY 2019-20) Tulsyan NEC Limited :: 5 :: i) On perusal of the assessment records, it is observed that although certain details may have been called for, no meaningful enquiry or verification was conducted by the Assessing Officer regarding the applicability of section 43B of the Act in respect of interest payable to banks. ii) The assessment order is completely silent on this issue and does not contain any discussion or finding regarding: whether the unpaid interest shown in the balance sheet formed part of the interest expenditure claimed in the profit and loss account; and whether such interest was allowable in view of the provisions of section 43B of the Act. iii) Merely calling for certain details without conducting proper verification or recording any finding cannot be regarded as due application of mind. iv) In terms of Explanation (2)(a) to section 263, an order shall be deemed to be erroneous insofar as it is prejudicial to the interests of the Revenue if it is passed without making enquiries or verification which should have been made. Thus, the present case is a clear instance of inadequate enquiry amounting to lack of enquiry, which renders the assessment order erroneous and prejudicial to the interests of the Revenue. 4. Thereafter, the Ld.PCIT is noted to have held the assessment order u/s.143(3) r.w.s. 143(1) of the Act dated 26.03.2024 as erroneous and prejudicial to the interest of the revenue, to the extent of allowability of claim of interest expenditure. And hence, he pleased to set aside the assessment order on the said issue and directed the AO to carry out necessary inquiries, verification with regard to the issue and pass assessment order vide the impugned order dated 14.03.2026.

ITA No.1636/Chny/2026 (AY 2019-20) Tulsyan NEC Limited :: 6 :: examine the applicability of Section 43B of the Act with regard to the allowability of the interest expenditure while framing the assessment order, resulted in holding the assessment order as erroneous and prejudicial to the interest of the revenue. According to the Ld.PCIT, assessment suffered from non-application of mind on the part of AO and lack of inquiry on the issue while framing the assessment for AY2019-20, vitiates assessment order and held it to be erroneous and prejudicial to the revenue and justified his invocation of power u/s 263 of the Act. Invoking the revisional jurisdiction by Ld.PCIT have been seriously contested by the appellant. In the circumstances therefore, before adjudicating the legal issue arising from the impugned order, we have to first examine the scope of revisional jurisdiction u/s. 263 of the Act. For that, let us take the guidance of judicial precedence as laid down by the Hon'ble Apex Court in Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83(SC) wherein their Lordship have held that twin conditions should be satisfied before jurisdiction u/s.263 of the Act is exercised by the Ld. CIT. The twin conditions which need to be satisfied are that (i) the order of the Assessing Officer must be erroneous and (ii) as a consequence of passing an erroneous order, prejudice is caused to the interest of the Revenue. In the following circumstances, the order of the AO can be held to be erroneous i.e. (i) if the Assessing Officer's order was passed on assumption of incorrect facts; or assumption of incorrect law; (ii) Assessing Officer's order is in violation of the principles of natural justice; (iii) if the AO's order is passed by the without application of mind; or (iv) if the AO has not investigated the issue before him. In the circumstances enumerated above only the order passed by the Assessing Officer can be termed as erroneous for the purpose of S.263 of the Act. Coming next to the second limb, the AO's erroneous order can be revised by the Ld. CIT(A) only when it is shown that the said order is prejudicial to the

ITA No.1636/Chny/2026 (AY 2019-20) Tulsyan NEC Limited :: 7 :: interest of Revenue. When this aspect is examined, one has to understand what is prejudicial to the interest of the revenue. The Hon'ble Supreme Court in the case of Malabar Industries (supra) held that this phrase i.e. "prejudicial to the interest of the revenue'' has to be read in conjunction with an "erroneous" order passed by the Assessing Officer. The Hon’ble Supreme Court, held that for invoking powers conferred by S.263; the CIT should not only show that the AO's order is erroneous as a result of any of the situations enumerated above but CIT must also further show that as a result of an erroneous order, some loss is caused to the interest of the revenue. Their Lordship in the said judgment held that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. It was further observed that when the Assessing Officer adopts one of the course permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the Ld. CIT does not agree, it cannot be treated as an order prejudicial to the interest of the revenue unless the view taken by the Assessing Officer is unsustainable in law.

ITA No.1636/Chny/2026 (AY 2019-20) Tulsyan NEC Limited :: 8 :: u/s.43B of the Act), AO could have been examined or not and taken adverse view against assessee on this issue while framing assessment u/s.153C of the Act? The answer to this question is that in this case, even though the search was carried out on the premises of M/s. World Window Group on 25.06.2018, the AO has recorded his satisfaction-note to proceed against the other person (3rd Party) i.e. the assessee on 27.10.2023, wherein he concluded that it is a fit case to proceed against the assessee u/s.153C of the Act. By virtue of the 1st proviso to Section 153C of the Act, the reference to the date of initiation of search u/s.132 shall be construed as reference to the date of receiving the incriminating materials by the AO having jurisdiction over the assessee or the satisfaction note recorded by him, which in this case is 27.10.2023 (AY.2024-25). The relevant year under consideration before us is AY 2019-20. As noted, for purpose of assessment u/s 153C, the date of search having been construed as on 26.03.2024, the assessment in respect of AY.2019-20 should be treated as completed and so is not pending before the AO and, therefore, it is a non-abated assessment and therefore without the aid of incriminating material qua the assessee qua AY.2019-20, no addition/disallowance could have been made by the AO as held by the Hon’ble Supreme Court in the cases of PCIT, Central-3 vs. Abhisar Buildwell (P.) Ltd. (2013) 454 ITR 212 (SC) and CIT vs. Kabul Chawala 380 ITR 573 Delhi and CIT vs. Sinhagad Technical Education Society 397 ITR 344 (SC).

ITA No.1636/Chny/2026 (AY 2019-20) Tulsyan NEC Limited :: 9 :: Section 153C of the Act. The Hon’ble Supreme Court in the case of PCIT, Central-3 vs. Abhisar Buildwell (P.) Ltd. (supra) observed as under: -

“3.9 in this regard, we rely on the decision of passed by the Hon'ble Supreme Court in the case of Principal Commissioner of Income Tax, Central-3 vs. Abhisar Buildwell (P.) Ltd [2023] 149 taxmann.com 399 (SC) wherein it was held as under "If the submission on behalf of the revenue that in case of search even where no incriminating material is found during the course of search, even in case of unabated/completed assessment, the Assessing Officer can assess or reassess the income/total income taking into consideration the other material is accepted, in that case, there will be two assessment orders, which shall not be permissible under the law. At the cost of repetition, it is observed that the assessment under section 153A is linked with the search and requisition under sections 132 and 132A. The object of section 153A is to bring under tax the undisclosed income which is found duning the course of search or pursuant to search or requisition. Therefore, only in a case where the undisclosed income is found on the basis of incriminating material, the Assessing Officer would assume the jurisdiction to assess or reassess the total income for the entire six years block assessment period even in case of completed/unabated assessment As per the second proviso to section 153A, only pending assessment/reassessment shall stand abated and the Assessing Officer would assume the jurisdiction with respect to such abated assessments. It does not provide that all completed/unabated assessments shall abate. If the submission on behalf of the revenue is accepted, in that case, second proviso to section 153A and sub-section (2) of section 153A would be redundant and/or rewriting the said provisions, which is not permissible under the law." (emphasis supplied)”

ITA No.1636/Chny/2026 (AY 2019-20) Tulsyan NEC Limited :: 10 :: of the Act, the assessment/reassessment pending on the date on which the assets/documents are received by the AO would abate. In respect of such assessments which have abated, the AO would have the jurisdiction to proceed and make an assessment. However, in respect of concluded assessments, the AO would assume jurisdiction to reassess provided that the assets/documents received by the AO represent or indicate any undisclosed income or possibility of any income that may have remained undisclosed in the relevant assessment years. This Court in CIT v. Kabul Chawla [2015] 61 taxmann.com 412 (Delhi) has held that completed assessments could only be interfered with by the AO on the basis of any incriminating material unearthed during the course of the search or requisition of the documents. In absence of any incriminating material, the AO does not have any jurisdiction to interfere in concluded assessments. This Court had summarized the legal position in respect of Section 153A of the Act as under:— '37. On a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under: i. Once a search takes place under Section 132 of the Act, notice under Section 153 A (1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place. ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise. iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs "in which both the disclosed and the undisclosed income would be brought to tax". iv Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material." v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings. vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO.

ITA No.1636/Chny/2026 (AY 2019-20) Tulsyan NEC Limited :: 11 :: vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment.'

ITA No.1636/Chny/2026 (AY 2019-20) Tulsyan NEC Limited :: 12 :: directed the following excerpts of the said decision of the Hon’ble Supreme court in Singhad Technical Education (supra)

“6. The tribunal has found that incriminating material seized and stated to be pertaining to all six assessment years did not establish any co-relation document- wise with the assessment year in question. In other words, the tribunal concluded that the present matter indicates that the issue of notice could be on the basis that there is specific incriminating information in possession of the Assessing Officer. It is in these circumstances that the tribunal found and as indicated in paragraph 8 of the impugned order that the revenue's assertion that the Assessing Officer is empowered under the statute to assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted and therefore the satisfaction which is recorded in the satisfaction note is enough, is erroneous. Therefore, the notice cannot be upheld and such stand of the revenue cannot be accepted. The reasons, therefor are to be found in paragraph 9 and 10 of the impugned order. If certain items pertain to assessment year 2004-05 or thereafter then it cannot be assumed, that the documents seized or incriminating material giving information are specific and to all assessment years. The tribunal found that they were concluded assessments. They could not have been disturbed. The documents in question are neither incriminating ones nor unaccounted transactions of the assessee. They also did not relate to the four assessment years. It is in these circumstances that the tribunal found that it will not be possible to uphold the stand of the revenue that overall approach in matters of concealment by the group assessee and all the discoveries of the search on Shri Navale and it concerns, will have to be taken into account while forming the satisfaction. The satisfaction note was very closely examined and the reasons assigned by the Assessing Officer were found to be silent about the assessment year in which specific incriminating information or unaccounted or undisclosed hidden information was discovered or seized by the revenue from the assessee. In the circumstances, the general satisfaction and as recorded in the note is not enough. The tribunal has found that with regard to cash and jewellery, the explanation of the assessee was that he had agricultural properties and derived agricultural income. That income was utilised to acquire jewellery that was belonging to him and his family. With regard to cash and stated to be recovered from the students for granting admissions, we do not find that any inquiries were made. There is absolutely nothing to indicate as to in which educational courses, the education is imparted and institution-wise. Whether the admissions are granted to the technical courses merit-wise or on the basis of marks obtained in XIIth standard HSC exam. If any fee structure is approved and cash component is therefore collected over and above the sanctioned fees are matters which ought to have been gone into and there cannot be a general or vague satisfaction as is relied upon. 9. We are of the opinion that the tribunal's conclusion cannot be termed as perverse and given the above-noted factual background. None of these appeals raises any substantial question of law. They are accordingly dismissed. No costs." And the same has been affirmed by the Hon 'ble S. C. in the following manner:

ITA No.1636/Chny/2026 (AY 2019-20) Tulsyan NEC Limited :: 13 :: 18. The ITAT permitted this additional ground by giving a reason that it was a jurisdictional issue taken up on the basis of facts already on the record and, therefore, could be raised. In this behalf, it was noted by the ITAT that as per the provisions of Section 153C of the Act, incriminating material which was seized had to pertain to the Assessment Years in question and it is an undisputed fact that the documents which were seized did not establish any co-relation, document-wise, with these four Assessment Years. Since this requirement under Section 153C of the Act is essential for assessment under that provision, it becomes a jurisdictional fact. We find this reasoning to be logical and valid, having regard to the provisions of Section 153C of the Act. Para 9 of the order of the ITAT reveals that the ITAT had scanned through the Satisfaction Note and the material which was disclosed therein was culled out and it showed that the same belongs to Assessment Year 2004-05 or thereafter. After taking note of the material in para 9 of the order, the position that emerges therefrom is discussed in para 10. It was specifically recorded that the counsel for the Department could not point out to the contrary. It is for this reason the High Court has also given its imprimatur to the aforesaid approach of the Tribunal. That apart, learned senior counsel appearing for the respondent, argued that notice in respect of Assessment Years 2000-01 and 2001-02 was even time barred. 19. We, thus, find that the ITAT rightly permitted this additional ground to be raised and correctly dealt with the same ground on merits as well. Order of the High Court affirming this view of the Tribunal is, therefore, without any blemish. Before us, it was argued by the respondent that notice in respect of the Assessment Years 2000-01 and 2001-02 was time barred. However, in view of our aforementioned findings, it is not necessary to enter into this controversy.” (Emphasis supplied)

ITA No.1636/Chny/2026 (AY 2019-20) Tulsyan NEC Limited :: 14 :: search of the 3rd party M/s. World Window Group, the action of the AO despite having made enquiry during the assessment proceedings, in making any disallowance/addition cannot be faulted and it is in line with the settled position of law while framing the assessment u/s 153C qua an unabated assessment. Hence the Ld PCIT erred in holding the AO’s action to be erroneous and prejudicial to Revenue. 11. Moreover, as discernible from the acknowledgement made by the Ld.PCIT in the impugned order that the fact in issue i.e. interest payable as on 31.03.2019 of Rs.77 crores has been duly disclosed by the assessee in its balance sheet which has been filed along with return of income, hence it cannot be termed as incriminating material found during the search of the 3rd party. Hence, the action of the AO while framing the assessment u/s.153C of the Act, not venturing to take any adverse view qua the issue of interest payable while framing an assessment over an unabated assessment year cannot be said to be erroneous. Hence the Ld PCIT erred in holding the AO’s action to be erroneous and prejudicial to Revenue. Therefore, the action of the Ld.PCIT to invoke the jurisdiction u/s.263 is found to be invalid and hence, we quash the impugned order of this Ld.PCIT. 10. In the result, the appeal of the assessee is allowed.

Order pronounced on the 09th day of July, 2026, in Chennai. Sd/- Sd/- (एबी टी. वक�) (एस. आर. रघुनाथा) (ABY T. VARKEY) (S.R.RAGHUNATHA) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�/ACCOUNTANT MEMBER चे�नई/Chennai, �दनांक/Dated: 09th July, 2026. YS

YASHVIR Digitally signed by YASHVIR SINGH SINGH Date: 2026.07.20 15:52:26 +05'30'

ITA No.1636/Chny/2026 (AY 2019-20) Tulsyan NEC Limited :: 15 :: आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकरआयु�/CIT, Chennai / Madurai / Salem / Coimbatore. 4. िवभागीय�ितिनिध/DR 5. गाड�फाईल/GF