KARNI AWASH PVT. LTD., ,KOLKATA vs. PR. CIT (CENTRAL) - 2, , KOLKATA

For that the Learned Principal Commissioner of Income Tax was not justified in holding that assessment order as erroneous and prejudicial to the interest of revenue. The conditions precedent to the invocations of the provisions of Section 263 of the Act were absent in this case hence the said order u/s 263 of the Act be quashed.

For that the Learned Principal Commissioner of Income Tax erred in holding that the assessment order was as erroneous and prejudicial to the interest of ITA No(s). 789/KOL/2025 Assessment Year(s) 2021-22 revenue, is without application of mind. Such finding being perverse be reversed and the order u/s 263 of the Act be quashed.

For that the Learned Principal Commissioner of Income Tax erred in holding that the assessment order was without application of mind. Such finding is perverse and be reversed and the order u/s 263 of the Act be quashed.

For that the Learned Principal Commissioner of Income Tax erred in holding that the assessment order was erroneous and prejudicial to the interest of revenue on the issue of Business income of Rs.5,59,031 being rent earned during the year. Such finding is perverse and be reversed and the order u/s 263 of the Act be quashed.

For that the Learned Principal Commissioner of Income Tax erred in holding that the assessment order was erroneous and prejudicial to the interest of revenue on the issue of construction expenses of Rs.31,25,549. Such finding is perverse and be reversed and the order u/s 263 of the Act be quashed.

For that the Learned Principal Commissioner of Income Tax erred in holding that the assessment order was erroneous and prejudicial to the interest of revenue on the issue of unsecured loan of Rs. 1,28,00,000. Such finding is perverse and be reversed and the order u/s 263 of the Act be quashed.

The Learned Principal Commissioner of Income Tax failed to appreciate that the assessment order was passed by the Assessing Officer after due application of mind on all the issues raised by him in the said notice and thus the assessment order could not be set aside holding the same to be erroneous and prejudicial to the interest of the revenue.

The Learned Principal Commissioner of Income Tax failed to appreciate that, where two views are possible and the Assessing Officer, after conduct of due enquiry, has taken one view with which the Pr. CIT does not agree, the assessment order cannot be treated as erroneous and prejudicial to the interest of the revenue.

Assuming without admitting that the present case was a case of inadequate enquiry, the Learned Principal Commissioner of Income Tax failed to appreciate that the power of revision envisaged under section 263 of the Act and the Explanation 2 thereto can be exercised only where no enquiry as required under the law is done and that it is not open to invoke the said provisions in cases of inadequate enquiry.

The Learned Principal Commissioner of Income Tax has not undertaken any independent enquiry, nor has he provided his decision on the merits of the case, and thus the assessment order could not be set aside holding the same to be erroneous and prejudicial to the interest of the revenue.

The Appellant prays that the order passed by the Learned Principal Commissioner of Income Tax under Section 263 of the IT Act is bad in law, devoid of merits, invalid and thus, liable to be quashed.

For that the appellant craves leave to file additional grounds and/or amend or alter the grounds already taken either before or at the time of hearing of the appeal."

Brief facts of the case are that the assessee had filed the return of income for AY 2021-22 on 12.03.2022 showing total income of ₹17,110/- . The assessment u/s 143(3) of the Act was completed on 31.12.2022 at the returned income. Subsequently, the Ld. Pr. Commissioner of Income- tax (“the Ld. PCIT") initiated revisionary proceedings u/s 263 of the Act, and observed that the assessment order was erroneous and prejudicial to the interest of the Revenue as the Assessing Officer (hereinafter referred to as Ld. 'AO') had failed to conduct adequate inquiries regarding the classification of rental income of ₹5,59,031/-, the allowance of construction expenses of ₹31,25,549/-, and the genuineness of unsecured loans amounting to ₹1,28,00,000/-. Consequently, the Ld. PCIT, vide order dated 11.03.2025, set aside the assessment order dated 31.12.2022 and directed the Ld. AO to make a fresh assessment after conducting necessary verification and inquiry into the specified issues.

Aggrieved with the order of the Ld. PCIT, the assessee has filed the appeal before the Tribunal.

Rival contentions were heard and the submissions made have been examined.

In the course of the hearing before us, it was submitted by the Ld. AR the there are three issues. The copy of the order giving effect to the directions of the Ld. PCIT was not filed before us. Our attention was drawn to the notice of hearing at page 1 of the paper book. The first issue is related to rental income which the assessee had been offering as business income. The Ld. AO has mentioned the same in para 1 in the second line of the order. The property was regularly treated as stock-in- trade, it was submitted. The Ld. PCIT was of the view that the same should have been assessed as income from house property. As regards the construction expenses, the Ld. PCIT was of the view that the Ld. AO had allowed the same without examining, and regarding the loan of ₹1.28 crores, the source was from unidentified entities and was not explained. The attention of the Bench was drawn to page 4 to 13 of the paper book filed before us, being the reply to the show cause notice issued. As mentioned at page 6 of the paper book, the decision in the case of Sultan Bros. (P) Ltd. v. CIT (1964) 5 SCR 807 was relied upon and at page 10 of the paper book that in the case of Royla Corporation Pvt. Ltd. v. CIT (2016) 386 ITR 500 (SC) was also relied upon before the Ld. PCIT, and it was submitted before us that right from the year 2005, the rental income had been shown as income from business as the assessee had no other income apart from rental income of ₹559,031/-. As regards the construction expenses, it was submitted that the same were transferred to work-in-progress and were capitalized and was not claimed as a deduction while computing the income, and our attention was drawn to page 120 of the paper book in this regard being the statement of profit and loss for the year ended 31/03/2021. Regarding the loans, our attention was drawn to page 13 of the paper book being the submission before the Ld. PCIT in this regard. It was stated that The Ld. AO had issued notice u/s 133(6) of the Act and was satisfied, and had passed the assessment order and the proceeding u/s 263 of the Act should have been dropped, and so was submitted by the Ld. AR before us. Our attention was also drawn to page 191 being the notice issued to the ITA No(s). 789/KOL/2025 Assessment Year(s) 2021-22 creditors and page 193 of the paper book, being the response from the creditor and to page 120 of the paper book, being the profit and loss account. It was stated that there was no vacancy in the completed building, which had been acquired and had been rented out as per the memorandum of the company. The Ld. AR also filed a bunch of judicial pronouncements as under without specifying as to how the same relate to the facts of the assessee:

1 While the issue before us relates to the order under section 263 of the Act, most of the decisions cited relate to the appellate proceedings and not to the revision proceedings and are therefore, not applicable to the facts of the case of the assessee. On the contrary, the decision in the case of M/s. V-Con Integrated Solutions Pvt. Ltd. (supra) supports the order of the Ld. PCIT in which it is also held that there will be cases where the Assessing Officer undertakes a superficial and random investigation that would justify a remit and in this case the Ld. PCIT has recorded such a lapse on the part of the Assessing Officer to establish both the error and the prejudice caused to the revenue as regards the unsecured loans as discussed in the subsequent paragraph. The Ld. DR relied upon the order of the Ld. PCIT and requested that the same may be confirmed as there was failure to conduct the inquiries by the Ld. AO.

We have considered the submissions made, gone through the facts of the case and perused the record and the order of the Ld. PCIT. Ground No. 4 is allowed as the assessee had only rental income and had been consistently showing the same under the head income from business; therefore, a possible view had been taken by the AO as per the past history of the case and there was no justification for holding that view as erroneous. Further, as regards the construction expenses, a perusal of details filed on page 120 being the statement of profit and loss account of the assessee shows that while a sum of ₹ 31,25,549/- is debited as construction expenses, however the same sum is reduced on account of change in inventory and the total expenses claimed are only ₹ 5,41,917/- . Since the construction expenses were capitalised and not claimed as a deduction, Ground No. 5 is also allowed. However, as regards Ground No. 6 relating to the loans from 3 creditors, as regards the reply of Jajodia Finance Ltd. in response to the notice dated 24/12/2022 of the Ld. AO in connection with loans and advances, in the Schedule 8 on page 215 of the paper book relating to balance sheet as at 31/03/2021, there is no break-up of the long term loans and advances in the case of Jajodia Finance Ltd. and also in the case of the other two creditors. Since the Ld. AO did not examine the credits advanced to the assessee, therefore, the Ld. PCIT was justified in setting aside the order of the Assessing Officer as the Ld. AO appears to have merely accepted the reply filed without examining the same. Therefore, to this extent, the order of the Ld. AO was erroneous in so far as it was prejudicial to the interests of the revenue in view of the decision in the case of M/s. V-Con Integrated Solutions Pvt. Ltd. (supra) as mentioned in paragraph 6 and Ground Nos. 1, 2, 3, 7, 8 and 9 are dismissed. However, as regards the other two issues of income being shown under the head business income and the construction expenses being capitalized, as the same had been examined, and a plausible view had been taken by the Ld. AO, there was no justification for the Ld. PCIT to interfere with the order of the Ld. AO. Hence, the order of the Ld. PCIT is upheld to the extent of verification of the creditor, and the appeal of the assessee is partly allowed. Other grounds being general in nature, do not require any separate adjudication.

In the result, the appeal filed by the assessee is partly allowed. Order pronounced in the open Court on 2nd July, 2026. [George Mathan] [Rakesh Mishra] Judicial Member Accountant Member Dated: 02.07.2026 Bidhan (Sr. P.S.)

CIT-

CIT(DR), Kolkata Benches, Kolkata.

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