ARKRAY HEALTHCARE PRIVATE LIMITED,MUMBAI vs. PRINCIPAL COMMISSIONER OF INCOME TAX, MUMBAI - 6, AAYAKAR BHAVAN, MUMBAI

INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI BENCH: A BEFORE SHRI ANIKESH BANERJEE, JUDICIAL MEMBER AND SHRI BIJAYANANDA PRUSETH, ACCOUNTANT MEMBER ITA 3292/MUM/2026 िनधा�रणवष�/AssessmentYear:2020-21) ARKRAY HEALTHCARE PRIVATE PRINCIPAL COMMISSIONER LIMITED OF INCOME TAX, MUMBAI - 6 701-702 Opulence, 6th Road, Tps 501, 5th Floor, Aayakar Iii, Santacruz (East) S.O, Mumbai- Vs. Bhavan, Maharishi Karve 400055, Maharashtra Road, Churchgate Mumbai-400020, Maharashtra अपीलाथ�Appellant ��थ� Respondent

Permanent Account Number of Assessee: AAGCA6760J

अपीलाथ��ारा/Appellant represented by: Shri Nitin Agrawal, ACA & Ms. Anagha Gangurde, ACA ��थ��ारा/Respondent represented by: Shri Manoj Kumar (CIT-DR) (Virtually appear) सुनवाईकीतारीख/Date of conclusion of hearing: 06-Jul-2026 घोषणाकीतारीख/Date of pronouncement: 08-Jul-2026 आदेश / ORDER

PER: ANIKESH BANERJEE, (JM): The instant appeal of the assessee filed against the order of the Ld. Principal Commissioner of Income Tax, Mumbai-6 [for brevity “Ld. PCIT”], order passed under Section 263 of the Act, for Assessment Year 2020-21, date of order 16.01.2026. The impugned order emanated from the order of 1 Assessment Unit Income Tax Department (for brevity ‘Ld. AO’), order passed under Section 143(3) r.w.s. 144B of the Act, date of order 29.09.2023.

“1. That on the facts and circumstances of the case and in law, the order dated 16-01- 2026 passed by the learned Principal Commissioner of Income-tax (Ld. PCIT) under section 263 of Act setting aside the assessment order under section 143(3) r.w.s. 144B of the Income tax Act, 1961 (‘The Act') dated 29-09-2023 is erroneous and bad in law. 2). That on the facts and circumstances of the case and in law, merely on the basis of audit objections, proceedings under section 263 cannot be initiated by the Ld. PCIT. 3) That on the facts and circumstances of the case and in law, in the order passed under section 263, the Ld. PCIT grossly erred in not forming any opinion or providing categorical finding on merit of issue involved and thereby directing the Assessing officer ('AO') to conduct the assessment de-novo. 4) Without prejudice to above, the learned PCIT ignored the fact that the aforesaid assessment order passed under section 143(3) is not prejudicial to the interest of revenue since the entire exercise is revenue neutral i.e. irrespective of the assessment year in which the expenses are allowed either in AY 2015-16 or in AY 2020-21, the total losses carried forward to subsequent years remain unchanged. 5) That the appellant craves to leave, add, to amend, modify, rescind, supplement, or alter any of the Grounds stated here-in-above, either before or at the time of hearing of this appeal.” 3. The brief facts of the case are that the assessee has filed the return by declaring taxable income nil. The case was selected for complete scrutiny under CASS. The assessee and its parent company that is Arkray Inc. Japan had entered into a cost sharing agreement for the expenditure to be incurred in acquiring the business in India. In terms of para no.3 of the said agreement the cost will be shared by both the parties. Further, in terms of para 3 of the agreement the parent company will raise invoice on the assesse for reimbursement of its share of expenses. Accordingly, the Arkray Inc. Japan has raised an invoice 29.06.2019 for reimbursement of expenses and the assessee debited the said expenses in P&L Account. As per the assessee the expenditure is allowed in the year in which the liability for expenses has been crystallized. Accordingly, the assessee adjusted the Prior Period expenses in the P&L Account. The assessment was completed u/sec. 143(3) without variation of any income. The Ld. PCIT by assumption of jurisdiction invoked the provision u/sec. 263 and issued notice to the assessee with the following observations noted in the impugned revisional order, which is reproduced as below:

“2. With reference to objections raised by Revenue Audit, the assessment records of the assessee company for A.Y. 2020-21 have been carefully examined. The objections raised were as under:- "...........the assessee has debited prior period expenses of Rs.1,69,45,745 (i.e. reimbursement business purchase expense) to the profit and loss account. Further, it was noticed no such expenses were debited to P&L a/c of previous F.Y.2018-19 relevant to A.Y.2019-20. The department in the notice had asked the assessee to furnish details regarding "Other Expense" which included Prior Period expenses. But assessee did not furnish the details. In this circumstance, it is clear that said expenses do not pertain to the F.Y.2019-20 relevant to A.Y.2020-21. Further, these expenditures are in nature of prior period expenses therefore in view of the provision mentioned in 28 to 37 of the Act, this expenditure should have been disallowed. However, this was not done. Therefore, the department should have disallowed the said expenses. Omission to dos so has resulted in underassessment of income to that tune and consequent short levy of tax of Rs.56,13,448/-.... 3. Explanation 2 to section 263 of Income Tax Act, declares that an order shall be deemed to be erroneous in so far as it is prejudicial to the interest of revenue, if, in the opinion of the 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 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.” 4. The assesse submitted the relevant document in compliance of the notice u/sec. 263. Finally the Ld. PCIT by invoking the provision set aside the impugned assessment order for further verification related to the debited the prior period expenses. Being aggrieved assessee filed an appeal before us.

Sr. Order by Name Citation A.Y. No.

1 Hon’ble Mahanagar Gas Ltd. (2014)42 taxmann.com 40 2004-05 Bombay High Court

2 ITAT, Mumbai Benninger India P. ltd. ITA No.2360/Mum/2017, 2011-12 ‘B’ date of pronouncement 28.09.2018

“9.3. The Ld. A.R submitted that it is a recurring issue every year and the AO has allowed similar claim in AY.2003-04 after examining the circumstances under which the prior period expenses were booked by the assessee. Admittedly, the AO did not examine this issue separately in the current year, even though the details of prior period expenses were specifically disclosed in the Annual accounts and Tax audit report. However, it may noticed that the amount of Rs.1.12 crores relating to prior period expenses forms a miniscule part of aggregate expenses of Rs.9232 crores debited in Profit and Loss account. Further, as observed by Hon’ble Supreme Court in the case of Excel Industries Ltd (supra) and Hon’ble Bombay High Court in the case of Nagari Mills Co Ltd (supra), the prior period expenses would involve timing difference only and if it is disallowed in this year and allowed in the appropriate year, then there will no impact on taxes. Considering all these facts, i.e., the recurring nature of expenses, the disclosure duly made by the assessee & tax auditor; the fact that similar claim has been allowed in the earlier years; the fact that the same may be tax neutral; the fact that 20 years have already elapsed from the closure of the year and the smallness of the amount vis-à-vis the aggregate expenditure claimed by the assessee, we are of the view that, in the facts and circumstances of the case discussed above, this reason should not be treated as an appropriate reason to reopen the assessment. Accordingly, we are of the view that this reason would also fail. 10. In view of the foregoing discussions, we are of the view all the reasons narrated by the AO for reopening of assessment would fail and in that case, it has to be held that the reopening of assessment is not valid.” 8. The Ld. DR contended that the Ld. AO had passed a cryptic assessment order during the course of the complete scrutiny proceedings without carrying out any verification of the issue relating to the prior-period expenses. He submitted that the assessee has failed to produce any evidence to demonstrate that the Ld. AO had examined or verified the allowability of the said expenses during the assessment proceedings. Therefore, the impugned assessment order is both erroneous and prejudicial to the interests of the revenue. The Ld. DR further submitted that Explanation 2 to Section 263 of the Act, inserted by the Finance Act, 2015 with effect from 01.06.2015, specifically provides that an order passed without making inquiries or verification which should have been made shall be deemed to be erroneous insofar as it is prejudicial to the interests of the revenue. Since it is an admitted position that no verification was conducted by the Ld. AO on this issue, the judicial precedents relied upon by the Ld. AR are distinguishable and have no application to the facts of the present case. He further contended that the Ld. PCIT, after duly considering the submissions and documents furnished by the assessee, arrived at a prima facie satisfaction that the claim of prior-period expenses required proper verification and that the omission on the part of the Ld. AO could result in escapement of revenue, thereby rendering the assessment order prejudicial to the interests of the revenue. Accordingly, the Ld. DR submitted that the revisional order passed under Section 263 of the Act, setting aside the assessment for fresh examination, is fully justified. He invited our attention to paragraphs 8 and 9 of the impugned revisional order, which are reproduced below:

The submissions of the assessee have been carefully perused and found to be “8. unacceptable. Assessee's contention that the AO vide notice u/s 142(1) dated 22-08- 2023 asked the assessee to submit the details of various expenses debited to Profit & Loss Account including the aforesaid business expenses is not correct. The AO in point no.9 of notice u/s 142(1) notice dated 22.08.2023 asked for expenditure related with Freight outward, Sales promotion expenses, Other selling and distribution expenses, Other expenses, Travelling & Conveyance and Legal & Professional fees. Here 'Other Expenses' are expenses of Rs.1,74,41,378/- reflecting in P&L account of the assessee.

Hence, nowhere in notice u/s 142(1) dated 22.08.2023, the AO had asked for the details of 'Prior period expenses' (Reimbursement of business expenses) Rs.1,69,45,745/-. Thus, 'Prior period expenses' (Reimbursement of business expenses) of Rs.1,69,45,745/- have not been enquired upon by the AO during assessment proceedings. of 9. In view of the above, I am of the considered opinion that the assessment order passed by the Assessing Officer under section u/s.147 r.w.s.144B of the Act dated 13.03.2024 is erroneous in so far as it is prejudicial to the interest of revenue. Accordingly, the said assessment order passed by the Assessing Officer is set aside on the matter of above discussed issue, and the AO is directed to make a detailed enquiry in this matter and reassess the income in accordance with law, after giving an opportunity of being heard to the assessee.” 9. We have heard the rival submissions and perused the material available on record. The undisputed facts reveal that the assessment was completed under Section 143(3) of the Act without any specific enquiry or verification regarding the allowability of the prior-period expenses amounting to Rs.1,69,45,745/-. The assessee has also fairly conceded that no verification was carried out by the Ld. AO on this issue during the assessment proceedings. In such circumstances, the provisions of Explanation 2(a) to Section 263 of the Act are clearly attracted, which deem an assessment order to be erroneous insofar as it is prejudicial to the interests of the revenue where it is passed without making enquiries or verification that ought to have been made. We further find that the Ld. PCIT has not recorded any conclusive finding on the allowability or otherwise of the impugned expenditure. Rather, after considering the material placed before him, he has merely set aside the assessment on the limited issue with a direction to the Ld. AO to conduct a proper enquiry and pass a fresh order in accordance with law after granting adequate opportunity of hearing to the assessee. Such a course of action is fully within the scope of the revisional jurisdiction conferred under Section 263 of the Act. The judicial precedents relied upon by the Ld. AR are distinguishable on facts and are, therefore, misplaced. Those decisions were rendered in entirely different factual and legal contexts where the issue pertained to the allowability of prior-period expenditure on merits or the validity of reopening, whereas the present controversy is confined to the validity of the assumption of jurisdiction under Section 263 in a case where the assessment order was passed without the necessary enquiry. Hence, the said decisions do not advance the case of the assessee. In view of the above facts and circumstances, we find no infirmity in the revisional order passed by the Ld. PCIT under Section 263 of the Act. Accordingly, the same is upheld and the grounds raised by the assessee are dismissed.

Consequently, the appeal of the assessee stands dismissed.

Sd/- Sd/- (BIJAYANANDA PRUSETH) (ANIKESH BANERJEE) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai,िदनांक/Dated: 08/07/2026 SAUMYA Sr.PS Copy of the Order forwarded to: 1. अपीलाथ�/The Appellant , 2. �ितवादी/ The Respondent. 3. आयकरआयु� CIT 4. िवभागीय�ितिनिध, आय.अपी.अिध., मुंबई/DR, ITAT, Mumbai 5. गाड�फाइल/Guard file. BY ORDER, //True Copy// (Asstt. Registrar), ITAT, MUMBAI