DY. COMMISSIONER OF INCOME TAX CIRCLE 3(3)(1), MUMBAI, MUMBAI vs. SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “F” BENCH, MUMBAI BEFORE SHRI SANDEEP SINGH KARHAIL, JUDICIAL MEMBER SHRI BIJAYANANDA PRUSETH, ACCOUNTANT MEMBER

ITA No. 9171/Mum./2025 (Assessment Year : 2018-19) Deputy Commissioner of Income Tax, Circle – 3(3)(1), 522, 5th Floor, AAyakar Bhavan, M.K. Road, Mumbai - 400020 ……………. Appellant PAN : AABCS3480N v/s

Small Industries Development Bank of India, Swavalamban Bhawan SIDBI C-11, G Blcok, ……………. Respondent Bandra (East), S.O. Mumbai Mumbai – 400051 Assessee by : Shri Rakesh Joshi Revenue by : Shri Rajesh Chandekar, CIT-DR

Date of Hearing – 22/04/2026 Date of Order – 14/05/2026

O R D E R PER SANDEEP SINGH KARHAIL, J.M. The Revenue has filed the present appeal against the impugned order dated 16.10.2025, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [“learned CIT(A)”], which in turn arose from the order dated 24.03.2025 passed under section 143(3) read with section 263 of the Act, for the assessment year 2018-19.

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“1. Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that the assessment order passed under section 143(3) read with section 263 of the Income Tax Act, 1961 was invalid merely because the revisionary order passed under section 263 was subsequently quashed by the Hon'ble ITAT, without appreciating that the assessment was completed in compliance with a valid and subsisting direction issued by the Principal Commissioner of Income Tax, which was operative and binding on the Assessing Officer at the time of passing the assessment order?" 2. Whether the Ld. CIT(A) was justified in deleting the disallowance of Rs.23,24,58,620/- made by the Assessing officer on account of excess deduction claimed under section 36(1)(viii), without appreciating that the recomputation of deduction was made strictly in accordance with the provisions of the Act and in conformity with the directions issued under section 263 by the Principal Commissioner of Income Tax ?" 3. Whether the Ld. CIT(A) was correct in law in holding that deduction under section 36(1)(viii) is to be computed before allowing deduction under section 36(1)(via)(c), contrary to the statutory scheme and legislative intent that deductions under section 36(1) are to be computed sequentially and interdependently?" 4. Whether the Ld. CIT(A) erred in law and on facts in holding that incomes such as upfront and processing fees, commission and brokerage are part of the long term financing activity and should not be excluded while computing profits derived from eligible business for the purpose of deduction under section 36(1)(viii)? 5. Whether the Ld. CIT(A) erred in deleting the addition made in order u/s. 143(3) r.w.s.263 ignoring the fact that the Department has not accepted the decision of Hon'ble ITAT quashing the order u/s.263 and has preferred appeal before the Hon'ble Bombay High Court, and that the issue therefore remains sub judice?" 6. Whether the Ld. CIT(A) erred in law and on facts in deleting the addition made by the Assessing Officer without assigning cogent reasons or examining the detailed computation and reasoning provided in the assessment order passed under section 143(3) read with section 263?”

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assessee was assessed at Rs.1658,77,44,378/- under normal provisions of the Act and at Rs.2088,01,54,696/- under section 115-JB of the Act after making certain additions/disallowance. Subsequently, the learned Principal Commissioner of Income Tax (“learned PCIT”) vide order dated 29.03.2024 passed under section 263 of the Act set aside the assessment order passed under section 143(3) of the Act on the basis that the Assessing Officer (“AO”) while computing the deduction allowable under section 36(1)(viii) of the Act had not reduced the deductions under section 36(1)(viia) of the Act. Accordingly, the learned PCIT held that the assessment order is erroneous insofar as is prejudicial to the interest of the Revenue as per provisions of section 263 of the Act and directed the AO to pass the assessment order de novo. Pursuant to the aforesaid directions issued by the learned PCIT, the AO passed the order dated 24.03.2025 under section 143(3) read with section 263 of the Act, re-computing the deduction under section 36(1)(viii) of the Act. The learned CIT(A), vide impugned order, allowed the appeal filed by the assessee on the basis that the Tribunal has quashed the revisionary proceedings initiated under section 263 of the Act, pursuant to which the impugned additions were made.

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“6. The Ld. AR of the appellant has submitted that in order to invoke the revisional jurisdiction under section 263 of the Act, the Hon'ble Apex Court in the case of M/s. Malabar Industrial Company Vs. Ld. CIT(A) 243 ITR 83 and M/s. Max India Ltd. 295 ITR 282, laid down the law that twin conditions of "erroneous" and "prejudicial to interest of Revenue", should be fulfilled. In other words, the assessing officer should have committed an "error" and that error should consequently result in prejudice to the interest of Revenue and then only Revisional jurisdiction under section 263 of the Act can be invoked by Ld. PCIT. By taking this as yardstick, the Ld. AR of the appellant has submitted that the Ld. AO followed the order passed by the ITAT which is in consonance with the case of Karnataka State Industrial Development Corporation (supra) and hence the order of PCIT under section 263 of the Act to set aside the assessment order is correct and legally valid. 7. Rival submissions are heard. As mentioned above in this order, the Ld. AO has only followed the order of ITAT in his own case and computed the deduction under section 36(1)(viii) of the Act. The Revenue might have contested the case in High Court. As the Ld. AO has taken one of the plausible view, there is no "error" in the assessment order and the PCIT lacks jurisdiction in invoking section 263 of the Act and set aside the assessment order in view of the above decisions of Hon'ble Supreme Court. Hence, the order of PCIT is incorrect as it does not satisfy twin conditions. 8. In view of the above, the order of PCIT is quashed.”

Sd/- Sd/- SANDEEP SINGH KARHAIL BIJAYANANDA PRUSETH JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 14/05/2026 Prabhat

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Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Mumbai; and (5) Guard file. By Order

Assistant Registrar ITAT, Mumbai