M/S. AMBER DESIGN TECH PRIVATE LIMITED ,MUMBAI vs. PCIT-6, MUMBAI

This appeal by the assessee is directed against the order dated 06.02.2026 passed by the learned Principal Commissioner of Income-tax- 6, Mumbai [hereinafter referred to as the ‘learned PCIT’] under section 263 of the Income-tax Act, 1961 (‘the Act’), arising out of the assessment order dated 26.05.2023 passed under section 147 read with section 144B of the Act for the assessment year 2016-17.

The assessee has raised the following grounds of appeal:

The assessee also raised an additional legal ground contending that the reassessment order passed under section 147 is invalid since the proceedings were founded on material emanating from a search and, therefore, an assessment, if any, could have been made only under section 153C of the Act. Since the additional ground is legal in nature and the relevant facts are available on record, the same is admitted for adjudication.

Briefly stated, the assessee filed its return of income for the year under consideration on 09.09.2016 declaring total income at Rs. Nil. Information available on the Insight Portal indicated that the assessee had allegedly advanced a cash loan of Rs.1,30,00,000 to M/s Evergreen Enterprises, an entity stated to have been operated and controlled by Shri Nilesh Bharani. A search under section 132 had been conducted at the premises of M/s Evergreen Enterprises and statements concerning its alleged cash borrowing and lending activity were recorded. After proceedings under section 148A and obtaining the prescribed approval, notice under section 148 dated 31.07.2022 was issued. The assessee filed a return in response thereto on 13.08.2022 declaring income at Rs. Nil.

During the reassessment proceedings, notices under sections 143(2) and 142(1) were issued. The assessee furnished its bank statement, ledgers of advances and long-term deposits. It also placed on record the letter retracting the statement of Shri Nilesh Bharani, his subsequent statement dated 19.12.2018, affidavit dated 27.11.2019, detailed written submissions and judicial precedents. The Assessing Officer examined the material and recorded that the assessee’s explanation regarding the retraction was acceptable and that no adverse inference was called for. The reassessment was accordingly completed under section 147 read with section 144B on the returned income of Rs. Nil.

The learned PCIT initiated proceedings under section 263 principally on the ground that additions on similar information had been made in the assessee’s cases for assessment years 2013-14 and 2014-15 and, therefore, an addition of Rs.1,30,00,000 ought also to have been 3 made for the year under consideration for the sake of consistency. Rejecting the assessee’s objections, the learned PCIT held that the assessment order was erroneous in so far as it was prejudicial to the interests of the Revenue, set it aside on this issue and directed the Assessing Officer to conduct a detailed enquiry and reassess the income in accordance with law.

The learned Authorised Representative first addressed the additional ground. He submitted that the very foundation of the proceedings was information and material arising from a search conducted in the case of M/s Evergreen Enterprises. According to him, the special machinery of section 153C alone could have been invoked and recourse to section 147 was without jurisdiction. On merits, he submitted that the Assessing Officer had called for the relevant records, examined the retraction, subsequent statement, affidavit and legal submissions, and thereafter adopted a possible view. The learned PCIT could not substitute his view merely because additions had been made for other assessment years. Reliance was placed, inter alia, on Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 (SC), CIT v. Gabriel India Ltd. [1993] 203 ITR 108 (Bom), CIT v. Nirav Modi [2016] 71 taxmann.com 272 (Bom) and PCIT v. Yes Bank Ltd. in ITA No. 599 of 2015 (Bom).

The learned Departmental Representative supported the impugned order. He submitted that the search statement and the material available with the Department established the assessee’s involvement in the cash- loan transaction. Since additions had been made on the same issue for assessment years 2013-14 and 2014-15, the Assessing Officer was not justified in accepting the explanation for this year. According to him, the learned PCIT had correctly invoked Explanation 2 to section 263 and directed a fresh enquiry.

We have heard the rival submissions and perused the material available on record. We first deal with the additional ground. Section 153C is attracted only on fulfilment of the statutory conditions prescribed therein, namely, the Assessing Officer of the searched person must be satisfied that money, bullion, jewellery, other valuable article or thing, or books of account or documents seized or requisitioned belong to, or pertain or relate to, a person other than the searched person and that such books or documents have a bearing on the determination of the total income of such other person. The mere fact that information used for reopening was generated in consequence of a search upon a third party does not, by itself, establish the jurisdictional facts required under section 153C.

In the present case, no seized money, valuable article, books of account or documents satisfying the above statutory description have been identified by the assessee. The assessment order records that information was available on the Insight Portal and refers to the search, documentary evidence and statements recorded in the case of M/s Evergreen Enterprises. Such reference, without anything further demonstrating that seized material belonging to or pertaining to the assessee and having a bearing on its income was handed over in the manner contemplated by section 153C, does not oust the jurisdiction under section 147. The assessee had responded to the proceedings under sections 148A and 148, filed its return in response to the notice under section 148 and participated in the reassessment. The notice was issued after following the procedure prescribed under section 148A and after obtaining the statutory approval. Participation by itself cannot confer jurisdiction where it is otherwise absent; however, on the facts before us, the assessee has failed to establish the foundational facts that would make section 153C the exclusive route. We therefore find no merit in the additional ground and dismiss the same.

We now examine the validity of the revisional order. The settled position is that both conditions stipulated in section 263 must coexist: the assessment order must be erroneous and, by reason of such error, prejudicial to the interests of the Revenue. Where the Assessing Officer makes enquiries, considers the explanation and adopts a view which is legally possible, the Commissioner cannot invoke section 263 merely because he prefers another view. In Malabar Industrial Co. Ltd. (supra), the Hon’ble Supreme Court held that where two views are possible and the Assessing Officer has taken one view with which the Commissioner does not agree, the assessment order cannot be treated as erroneous and prejudicial unless the view taken by the Assessing Officer is unsustainable in law.

The relevant principle stated by the Hon’ble jurisdictional High Court in CIT v. Gabriel India Ltd. (supra) is that the Commissioner cannot initiate proceedings under section 263 with a view to starting fishing and roving enquiries in matters already concluded; the power does not permit substitution of the Commissioner’s judgment for that of the Assessing Officer unless the latter’s decision is shown to be erroneous. The Hon’ble jurisdictional High Court in CIT v. Nirav Modi (supra) has also explained that revisional power cannot be exercised merely to direct a fuller enquiry when the Assessing Officer has already made enquiries and adopted a possible view.

Tested on these principles, this is not a case of lack of enquiry. The reassessment order itself records the specific information regarding the alleged cash loan of Rs.1,30,00,000, the notices issued, the documents furnished, the retraction of Shri Nilesh Bharani, his subsequent 6 statement, affidavit and the judicial precedents relied upon by the assessee. After examining these materials, the Assessing Officer categorically recorded that the explanation was satisfactory and that no adverse inference was warranted. The conclusion may not have found favour with the learned PCIT, but the record does not support the finding that the Assessing Officer passed the order without making enquiries or verification.

Explanation 2(a) to section 263 deems an order erroneous and prejudicial where it is passed without making enquiries or verification which should have been made. It does not authorise revision merely because the learned PCIT considers the enquiry inadequate or desires the Assessing Officer to repeat it. Likewise, clause (b) of Explanation 2 is not attracted because no relief or claim was allowed without enquiry. The issue forming the subject matter of revision was the very issue for which the assessment had been reopened and was expressly examined and decided by the Assessing Officer. Therefore, the assessment order is not covered by Explanation 2 to section 263.

The further reasoning that additions had been made for assessment years 2013-14 and 2014-15 does not establish error in the assessment order for the present year. Each assessment year is a separate unit of assessment, and the material and explanation relevant to the year under consideration were required to be examined independently. The learned PCIT has neither demonstrated that the documents considered by the Assessing Officer were false nor shown that the view taken was contrary to any binding decision or statutory provision. His direction for a detailed enquiry thus amounts to setting aside a concluded examination for another round of enquiry, which is impermissible in the facts of this case.

In view of the foregoing, we hold that the conditions precedent for assumption of jurisdiction under section 263 were not satisfied. The assessment order dated 26.05.2023 is neither shown to be erroneous nor covered by Explanation 2 to section 263. We accordingly quash the impugned order passed under section 263 and restore the assessment order. The original grounds raised by the assessee are allowed, whereas the additional ground is dismissed.

In the result, the appeal of the assessee is partly allowed.