PROCTER AND GAMBLE HEALTH PRIVATE LIMITED ,MUMBAI vs. THE PR. COMMISSIONER OF INCOME TAX -8 , MUMBAI

Assuming jurisdiction conferred upon him by the provisions of\nSection 263 of the Act, the ld. PCIT issued notice dated 12/11/2024,\nwhich reads as under:-\n“M/s/Mr/Ms\nSubject: Notice for Hearing in respect of Revision proceedings u/s 263 of the\nTHE INCOME TAX ACT, 1961 - Assessment Year 2018-19.\nIn this regard, a hearing in the matter is fixed on 21/11/2024 at 03:30 PM. You are\nrequested to attend in person or through an authorized representative to submit your\nrepresentation, if any alongwith supporting documents/information in support of the\nissues involved (as mentioned below). If you wish that the Revision proceeding be\nconcluded on the basis of your written submissions/representations filed in this office,\non or before the said due date, then your personal attendance is not required. You also\nhave the option to file your submission from the e-filing portal using the link:\nincometaxindiaafiling.gov.in\nSub.: Show-cause Notice in respect of Revision proceedings u/s 263 of\nthe Income-tax Act, 1961-Assessment Year 2018-19 In the case of M/s\nProcter & Gamble Health Limited (PAN : AAACE2616F)-reg.\nKindly refer to the above.\nIn this case, the return of income was filed by the assessee on 10.10.2018, declaring\ntotal income at Rs.174,81,92,230/-. Assessment u/s 143(3) read with section 144B of\nthe Income-tax Act was made by the Faceless Assessing Officer on 11.04.2022\nassessing total income at Rs.179,46,37,344/- after making addition of Rs.4,64,45,114/-\non account of cash credit u/s 68 of the I.T. Act and u/s 56(2)(x) of the I.T. Act\nrespectively.\n2. On perusal of the assessment records, it is observed that the assessee had\ndebited Rs.4,22,40,716/- and credited Rs.1.46,18,667/- as other comprehensive while\ncomputing taxable income. However, the assesses had not added back debited portion\nof other comprehensive income of Rs.4,22,40,716/- while computing taxable income.\nThis has led to an underassessment of income of Rs.4,22,40,716/-, resulting in a short\nlevy of tax as well as interest.\n2.1.\nOn perusal of the assessment records, it is observed from the computation sheet\nfiled by the assessee that an amount of Rs.6,87.44,074/- was disallowed u/s 40(a)(ia)\nof the I.T. Act being 30 percent of expenditure of Rs.22,91,46,913/- claimed during\nthe year due to the reason that no tax was deducted at source on such expenditure. In\nform 3CD under clause 21(b)(ii)(A), these expenses such as payment to contractors,\nlegal and profession fee, sales promotion etc. were provided during the year on\nestimated basis as the bills were not received before the end of the previous year and\nthese expenses are only a provision made during the year and the exact liability would\nbe known only when the bills are received and booked. Being provision made in the\nbooks, they are not an allowable expense as per the provisions of section 37 of the\nIncome-tax Act. Accordingly, entire expenditure is liable to be disallowed as they are\nin the nature of provisions. While completing the assessment u/s 143(3) read with\nsection 144B of the Income-tax Act dated 11.04.2022, the Assessing Officer did not\nverify the same, which led to underassessment of income amounting to Rs.\n16,04,02,839/-, resulting in a short levy of tax as well as interest accordingly.\n2.2.\nFurther, perusal of the assessment records, it is observed from the profit and\nloss account that the assessee had claimed sales promotion expenses of\nRs.98,99,24,269/-. However, the details of sales promotion expenses were neither\ncalled during the assessment proceeding by Assessing Office nor submitted by the\nassessee. In the sales promotion, the element of freebees cannot be ignored as it is\ninadmissible under section 37(1) of the I.T. Act. Hence, due to non verification of\ndetails in respect of sales promotion called for by Assessing Officer while passing the\norder u/s 143(3) read with section 144B of the Income-tax Act dated 11.04.2022, the\nquantification of freebees was not possible, which lead to underassessment of income.\n3. Therefore, it appears that the assessment order passed under section 143(3)\nread with section 144B of the Income-tax Act, 1961 on 11.04.2022, is erroneous in so\nfar as it is prejudicial to the interest of revenue, within the meaning of Section 263 of\nthe Income-tax Act. In view of this, you are required to show cause as to why the above\nsaid assessment order should not be revised under section 263 of the Income- tax Act,\n1961.\n4.\nIn this connection, you are hereby accorded an opportunity to file\nsubmission/explanation on or 21.11.2024 before through e-fillng Portal, alongwith all\nsupporting documents and evidences or avail personal hearing, you are requested to\nattend the hearing on 21.11.2024 at 03:30 PM at Room No. 611, 6th floor, Aayakar\nBhavan, M.K. Road, Mumbai-400020 either in person or through an authorized\nrepresentative. In case of non-compliance on the stipulated date and time, it will be\npresumed that you have no objection to the proposed revision of the assessment order\npassed by the Assessing Officer under section 143(3) read with section 144B of the\nIncome-tax Act, 1961 on 11.04.2022.\nRAJIV KUMAR SINGH\nPCIT, Mumbai -8 \"\n6.\nThe ld. PCIT alleged that on the aforementioned issues, no enquiry\nwas made by the AO nor any details have been furnished by the assessee,\ntherefore, the impugned assessment order is erroneous insofar as it is\nprejudicial to the interest of the revenue.\n7.\nFacts on record show that the AO issued notice u/s 142(1) of the\nAct dated 11/11/2020 and raised the queries as under:-\n1.\n“Detailed note on Duty Drawback received as shown in the Export Import\nData along with supporting documentary evidence.\n2.\nAudited Balance Sheet and Profit & Loss Account statements (Along with all\nnotes to accounts) for AY 2018-19\n3.\nTax Audit Report for AY 2018-19\n4.\nWith respect to Income for the year under consideration and the claim of refund\nduring the year, kindly submit the below specified details:\ni.\nFurnish computation of income for the relevant AY.\nii.\nProvide a brief note about the nature of business activity carried out by you\nduring the year under consideration.\niii.\nFurnish the details of deductions, exemptions and rebate claimed during the\nyear along with suporting documents.\niv.\nFurnish the statement of set off/adjustment of current year/carried forwareded\nloss against any income of the year under consideration.\nV.\nProvide the comparision of income reported, deductions/exemptions/rebate\nclaimed, current year/carried forwarded loss set-off/adjusted, advance tax paid, self\nassessment tax paid. TDS deducted, total tax paid, refund claimed for the current year\nunder consideration and previous two years.\nvi.\nProvide the comparision of sales/tu mover. gross profit, net profit, GP ratio.\nNP ratio for the year under consideration and previous two years.\nvii.\nProvide the justification of large refund claimed in ITR vis-a-vis advance tax\npaid for the assessment year under consideration\n5.\nIt is observed that you have shown less Sale consideration of the property in\nITR in than sale consideration of property reported in SFT. In this regard you are\nrequested to explain the difference along with supporting documentary evidence. It\nmust include copy of Sale agreement and receipt of stamp duty paid, mode of\ntransaction and evidence thereof.\n6.\nIt is also seen from the records that you have sold a Property at a consideration\n(shown in ITR) less than the value as per Stamp authority) (u/s 50C or any other\nrelevant section). Please furnish the detailed explanation in this regard.\n7.\nExplanatory note on Mismatch in expenditure of personal nature reported in\nAudit Report and ITR\n8.\nExplanatory note on Lower amount disallowed u/s 40(a)(ia) in ITR(Part A-\nOI) in comparison to audit report\n9.\nExplanatory note on Item Any other amount allowable as deduction in\nSchedule BP of ITR along with supporting documentary evidence.\n10. Explanatory note on ICDS Compliance and Adjustment along with\nsupporting documentary evidence.\n11. Explanatory note on Taxable income shown in revised return is less than the\ntaxable income shown in the Original return and large refund has been claimed\n(Business ITR) along with supporting documentary evidence.\n12. Explanatory note on Sale consideration of property in ITR is less than sale\nconsideration reported in Form 26QB along with supporting documentary evidence.\nPlease note all explanation must be supported by documentary evidences and need to\nattach with submission/compliance\nYours faithfully.\nAdditional / Joint / Deputy / Assistant Commissioner of Income Tax/\nIncome-tax Officer.\nNational e-Assessment Centre.\nDelhi\"\n6.

A perusal of the profit and loss account shows that the assessee did\nnot claim expenditure and in the computation of income, the assessee has\nfirst claimed the amount as deduction and then added back the same.\nThis is in respect of the first issue raised by the ld. PCIT. In our view,\nspecific query was raised and specific reply was given. For the second\nissue, the following has been mentioned in the audit report:-\n***This space has been left blank intentionally. P.T.O.***\nStatement showing details of amounts inadmissible u/s 40(a)(ia) of the Act\nSr. No.\nDate of\npayment\nAmount of\nprovision\nAmount\ndisallowed\nNature of payment\nDescription of payment\nName & address of the payee\n1\nNot Paid\n16,106,261\n4,831,878 TDS on Contracts\nC&F\nVarious Parties\n2\nNot Paid\n1,362,741\n408,822 TDS on Contracts\nCanteen\nVarious Parties\n3\nNot Paid\n13,129,420\n3,938,826 TDS on Contracts\nConference\nVarious Parties\n4\nNot Paid\n9,612,546\n2,883,764 TDS on Contracts\nContract Labour\nVarious Parties\nS\nNot Paid\n1,814,390\n544,317 TDS on Contracts\nDisposal expenses\nVarious Parties\n6\nNot Paid\n15,503,607\n4,651,082 TDS on Contracts\nFreight\nVarious Parties\n7\nNot Paid\n700.564\n210,169 TDS on Contracts\nPrinting\nVarious Parties\n8\nNot Paid\n2,890,814\n867,244 TDS on Contracts\nRepairs\nVarious Parties\nه\nNot Paid\n89,477,285\n26,843,136 TDS on Contracts\nSales promotion\nVarious Partics\n10\nNot Pard\n3,197,864\n959,359 TDS on Contracts\nWarehousing\nVarious Parties\n11\nNot Paid\n5,000,000\n1,500,000 TDS on Contracts\nDismantling costs\nVarious Parties\n12\nNot Paid\n882,738\n264,821 TDS on Rent\nRent\nVarious Parties\n13\nNot Paid\n1,789,227\n536,768 TDS on Technical & Professional\nAudit\nVarious Parties\n14\nNot Paid\n67,679,454\n20.303,836 TDS on Technical & Professional\nServices\nLegal & Prof\nVarious Parties\nTotal\n229.146.913\n68,744,074\nNotes:\n(a)\nThe Company prevides for accrued liability on an estimate basis in respect of costs and expenses for which bills invoices are not received as upto the year\nend and deducts tax thereon upon receipt of bills in accordance with the provisions of Chapter XVII-B of the Act.\n(b)\nThe amounts which have been disallowed under section 40(a)(ia) are allowable in computing the total income of the previous yeart(s) in which the amount of\ntax deducted at source and paid and should be allowed accordingly.\n(c)\nThe details have been provided and certified by the Management. We have applied audit tests including test verification of details in accordance with\nprevalent Auditing Standards and the Guidance note on Tax Audit.\n8.\nThis was one of the reasons for scrutiny selection of the return of\nincome as evident from point no. 5 in the reasons given for scrutiny\nselection mentioned elsewhere. A detailed explanation was filed by the\nassessee during the course of the scrutiny assessment proceedings itself\nwhich has been examined by the AO as evident from para 5 of the\nassessment order wherein it has been mentioned as under:-\n“5. Lower amount disallowed u/s 40(a)(ia) In ITR(Part A-OI) in comparison\nto audit report.\nThe assessee was served Showcause notice regarding the said CASS reason. The\nexcerpt of the Showcause is reproduced as such :-\nLesser amount shown as disallowable u/s 40(a)(1) & 40(a)(ai):- You have reported\nlesser amount disallowable under section 40(a)(ia) as per Part A-OI of ITR in\ncomparison to the amount disallowable under section 40(a)(ia) as reported by the tax\nauditor in Form 3CD.\nSince this is a time barring case, Hence you are requested to submit your reply by or\nbefore 9th Feb, 2021 positively.\nIn response to this, the assessee submitted the reply. The excerpt of the reply is :-\nClause\n21(b)(ii)(A)\nEnclosure-9A\nStatement showing details of amounts inadmissible u/s 40(a)(ia) of the Act\nSr. No. Date of payment Amount of provision amount disallowed Nature of payment Descriptions of payment Name &\naddress of the payee\n1\nNot paid\n16,106,261\n4,831,878 TDS on Contracts\nC&F\nVarious Parties\n2\nNot paid\n1,362,741\n408,822\nTDS on Contracts\nCanteen\nVarious Parties\n3\nNot paid\n13,129,420\n3,938,826\nTDS on\nVarious Parties\nConference\n4\nNot paid\n9,612,546\n2,883,764 TDS on Contracts\nContract Labour\nVarious Parties\nS\nNot paid\n1,814,390\n544,317\nTDS on Contracts\nDisposal Expenses\nVarious Parties\n6\nNot paid\n15,503,607\n4,651,082\nTDS on Contracts\nFreight\nVarious Parties\n7\nNot paid\n700,564\n210,169\nTDS on Contracts\nPrinting\nVarious Parties\n8\nNot paid\n2,890,814\n867,244\nTDS on Contracts\nRepairs\nVarious Patries\n9\nNot paid\n89,477,285\n26,843,186 TDS on Contracts\nSales & Promotion\nVarious Patries\n10 Not paid\nVarious Patries\n3,197,864\n959,359\nTDS on Contracts\nWarehousing\n11\nNot paid\nVarious Patries\n5,000,000\n1,500,000\nTDS on Contracts\nDismantling costs\n12\nNot paid\nRent\nVarious Patries\n882,738\n264,821\nTDS on Rent\n13\nNot paid\nVarious Patries\n1,789,227\n536,768\nTDS on Technical & Professional Audit\n14\nNot paid\nVarious Patries\nTotal\n67,679,454\n20,303,836\nServices\nTDS on Technical & Professional Services Legal &prof\n229,146,913\n68,744,075\nOn perusal of the records, it is found that the amount disallowed u/s 40(a)(ia) as per ITR has\nbeen justified in the reply submitted by the assessee in reconciliation as per form 3CD i.e Rs.\n6,87,44,074/-being 30% of Rs.22,91,46,913/-. Therefore, the reply is satisfactory and\nacceptable.\"\n9. It can be seen from the observation of the AO that after examining\nthe details, the AO was satisfied with the correctness and accepted the\nsame.\n10. On the third issue, a notice was issued u/s 31/01/2021 and the\nqueries raised read as under:-\n“A. Please provide the following information with reference to Profit & Loss\naccount,\nwith supporting documents;\n1. Details of sale promotion expenses\n2. Details of Bad debts written off\n3. Details of other and misc. expenses\n4. Details of expenses incurred on Conferences. Distribution of free sample stock.\n5. Details of expenses incurred on agents commission.\nB. It is also observed that you have debited an amount of Rs 1.06,95477/- in you P &\nL account on account of Corporate Social Responsibility. This is not a business expense\nhence non deductible u/s 37. The Corporate Social Responsibility expenses may be\ndeducted after tax not before tax. You are hereby show cause as why CSR expenses\nshall not disallowed and added back to your total income?\nYour reply must reach to this office in given time. Please note since the case is being\ntime barred by limitation, so no more opportunity may be granted. If you fail to reply\nin time, then it may be assumed that you have nothing to say in this matter and\nassessment order may be passed on the basis of material available on record.\nYours faithfully,\nAdditional / Joint / Deputy / Assistant Commissioner of Income Tax/\nIncome-tax Officer,\nNational e-Assessment Centre,\nDelhi\"\n11. And the detailed reply was filed by the assessee along with the\nstatement showing ledger-wise details of sales promotion expenses\nwhich run through pages 156 to 270 of the paper book.\n12. The allegation of the ld. PCIT is that since the same has been\nprohibited by The Indian Medical Council Act, 1956 as amended by the\nIndian Medical Council (Professional Conduct, Etiquette and Ethics)\nRegulations, 2002, the assessee cannot claim such expenditure u/s 37(1)\nof the Act. The amended regulation prohibits gifts, travel facilities,\nhospitalities, cash or monetary gains. However, clause (g) of the\nnotification reads as under:-\n“(g) Affiliation: A medical practitioner may work for pharmaceutical and allied healthcare\nindustries in advisory capacities, as consultants, as researchers, as treating doctors or in\nany other professional capacity. In doing so, a medical practitioner shall always :\n(i)\nEnsure that his professional integrity and freedom are maintained;\n(ii) Ensure that patients interest are not compromised in any way;\n(iii) Ensure that such affiliations arc within the law;\n(iv) Ensure that such affiliations/employments are fully transparent and disclosed.\"\n13. A careful perusal of the details furnished by the assessee show that\nnothing has been paid to the doctors in contravention to the prohibitions\nmentioned in the notification, therefore, it cannot be said that the\nexpenditure has been claimed in respect of items prohibited by the law.\n14.\nConsidering the facts of the case in totality in the light of\naforementioned discussion of the facts, it is clear that specific queries\nwere raised by the AO to which specific replies were furnished by the\nassessee and it cannot be said that no enquiry was made. The Hon'ble\nHigh Court of Bombay in the case of PCIT vs. Cartier Leafin (P) Ltd. 112\ntaxmann.com 63, had the occasion to consider a similar grievance and held\nas under:-\n“7. We find that the finding of fact order of the Tribunal that the proceedings under\nsection 263 of the Act, on the face of it, have been initiated without examination of\nrecords before the Assessing Officer is not shown to be perverse. It is clear that the\nshow cause notice proceeds on the basis that the books of accounts, transaction\naccounts of share trading carried out by the assessee vis-a-vis D-mat accounts have\nnot been examined by the Assessing Officer during the course of assessment\nproceedings. However, we note that in the assessment order dated 28 March 2014 itself\nin paragraph-5.2, the Assessing Officer has recorded that he examined D-mat account\nin order to verify the share trading activities claimed by the assessee. Moreover the\nbefore passing the assessment order, sale, purchase and closing stocks were also\nexamined by the Assessing Officer. Thus, the basis to invoke section 263 of the Act\nfactually did not exist as there was due enquiry by the Assessing Officer during the\nassessment proceedings leading to the assessment order dated 28 March 2014. Thus,\nit is amply clear that the Assessing Officer has applied his mind while accepting the\nclaim of the Respondent of operating loss of Rs.8.79 crore making the proceedings\nunder section 263 of the Act bad in law. In any event, the view taken on fact by the\nAssessing Officer is a possible view and the same is not shown to be bad.”\n15. Similar view was taken by the Hon'ble High Court of Bombay in\nthe case of CIT vs. Nirav Modi 390 ITR 292. The relevant findings read as\nunder:-\n“12. In the present facts, the Assessing Officer was satisfied, consequent to making an\nenquiry and examining the evidence produced by the Assessing Officer, establishing\nthe identity and creditworthiness of the donor as also the genuineness of the gift. The\nCIT in his order of Revision, does not indicate any doubts in respect of the genuineness\nof the evidence produced by the Assessee. The satisfaction of the Assessing Officer on\nthe basis of the documents produced is not shown to be erroneous in the absence of\nmaking a further enquiry. It is made clear that our above observations should not be\ninferred to mean that it is open to the Assessing Officer to enquire into the source of\nsource for the purpose of the present facts. This is a case where a view has been taken\nby the Assessing Officer on enquiry. Even if this view, in the opinion of the CIT is not\ncorrect, it would not permit him to exercise power under Section 263 of the Act. In\nfact, the Apex Court in Amitabh Bachchan (supra) has observed that there can be no\ndoubt that where the view taken by the Assessing Officer is a possible view,\ninterference under Section 263 of the Act, is not permissible.”\n16. The Hon'ble High Court of Delhi in the case of PCIT vs. Clix Finance\nIndia (P) Ltd. [2025] 473 ITR 650 (Delhi) interalia held as under:-\n“19. A bare reading of sub-Section (1) of Section 263 of the Act makes it abundantly\nclear that the said provision lays down a twopronged test to exercise the revisional\nauthority i.e., firstly, the assessment order must be erroneous and secondly, it must\nbe prejudicial to the interests of the Revenue. Further, Explanation 2 to Section 263\nof the Act delineates certain conditions and circumstances when the order passed by\nthe AO can be said to be erroneous and prejudicial to the Revenue.\n20. Clause (a) of Explanation 2 to Section 263 of the Act further stipulates that if an\norder is passed without making an enquiry or verification which should have been\nmade, the same would bestow a revisional power upon the Commissioner. However,\nthe said Clause or any other condition laid down in Explanation 2 does not warrant\nrecording of the said enquiry or verification in its entirety in the assessment order.\n21. Admittedly, in the instant case, the questionnaire dated 02.11.2004, which has\nbeen annexed and brought on record in the present appeal, would manifest that the\nAO had asked for the allowability of the claims with respect to the issues in question.\nConsequently, the respondent-assessee duly furnished explanations thereof vide\nreplies dated 09.12.2004, 20.12.2004 and 06.01.2005. Thus, it is not a case where no\nenquiry whatsoever has been conducted by the AO with respect to the claims under\nconsideration. However, this leads us to an ancillary question- whether the mandate\nof law for invoking the powers under Section 263 of the Act includes the cases where\neither an adequate enquiry has not been made and the same has not been recorded in\nthe assessment order or the said authority is circumscribed to only consider the\ncases where no enquiry has been conducted at all.\n22. Reliance can be placed on the decision of this Court in the case of CIT v. Sunbeam\nAuto Ltd. [2010] 189 Тахтаn 436/[2011] 332 ITR 167 (Delhi)/[2009] SCC OnLine\nDel 4237, wherein, it was held that if the AO has not provided detailed reasons with\nrespect to each and every item of deduction etc. in the assessment order, that by itself\nwould not reflect a non-application of mind by the AO. It was further held that\nmerely inadequacy of enquiry would not confer the power of revision under Section\n263 of the Act on the Commissioner. The relevant paragraph of the said decision\nreads as under:-\n\"17. We have considered the rival submissions of the counsel on the other side and\nhave gone through the records. The first issue that arises for our consideration is\nabout the exercise of power by the Commissioner of Income-tax under section 263 of\nthe Income-tax Act. As noted above, the submission of learned counsel for the\nRevenue was that while passing the assessment order, the Assessing Officer did not\nconsider this aspect specifically whether the expenditure in question was revenue or\ncapital expenditure. This argument predicates on the assessment order, which\napparently does not give any reasons while allowing the entire expenditure as\nrevenue expenditure. However, that by itself would not be indicative of the fact that\nthe Assessing Officer had not applied his mind on the issue. There are judgments\ngalore laying down the principle that the Assessing Officer in the assessment order\nis not required to give detailed reason in respect of each and every item of deduction,\netc. Therefore, one has to see from the record as to whether there was application of\nmind before allowing the expenditure in question as revenue expenditure. Learned\ncounsel for the assessee is right in his submission that one has to keep in mind the\ndistinction between "lack of inquiry" and "inadequate inquiry". If there was any\ninquiry, even inadequate that would not by itself give occasion to the Commissioner\nto pass orders under section 263 of the Act, merely because he has a different opinion\nin the matter. It is only in cases of "lack of inquiry" that such a course of action\nwould be open. In Gabriel India Ltd. [1993] 114 CTR 81/203 ITR 108/CIT v. Gabriel\nIndia Ltd. [1993] 71 Taxman 585/203 ITR 108 (Bom.), law on this aspect was\ndiscussed in the following manner (page 113) ***\"\n23. A similar view was taken by this Court in the case of CIT v. Anil Kumar Sharma\n[2010] 194 Тахтап 504/[2011] 335 ITR 83 (Delhi)/[2010] SCC OnLine Del 838,\nwherein, it was held that once it is inferred from the record of assessment that AO\nhas applied its mind, the proceedings under Section 263 of the Act would fall in the\ncategory of Commissioner having a different opinion. Paragraph 8 of the said decision\nreads as under:-\n\"8. In view of the above discussion, it is apparent that the Tribunal arrived at a\nconclusive finding that, though the assessment order does not patently indicate that\nthe issue in question had been considered by the Assessing Officer, the record showed\nthat the Assessing Officer had applied his mind. Once such application of mind is\ndiscernible from the record, the proceedings under section 263 would fall into the\narea of the Commissioner having a different opinion. We are of the view that the\nfindings of facts arrived at by the Tribunal do not warrant interference of this court.\nThat being the position, the present case would not be one of \"lack of inquiry\" and,\neven if the inquiry was termed inadequate, following the decision in Sunbeam Auto\nLtd. [2009] 227 CTR 133/[2011] 332 ITR 167/[2010] 189 Taxman 436 (Delhi) (page\n180) : \"that would not by itself give occasion to the Commissioner to pass orders\nunder section 263 of the Act, merely because he has a different opinion in the matter.\"\nNo substantial question of law arises for our consideration.\"\n24. In Ashish Rajpal as well, this Court was of the view that the fact that a query\nwas raised during the course of scrutiny which was satisfactorily answered by the\nassessee but did not get reflected in the assessment order, would not by itself lead to\na conclusion that there was no enquiry with respect to transactions carried out by\nthe assessee.\n25. Further, the decision of the Hon'ble Supreme Court in the case of Malabar\nIndustrial Co. Ltd., enunciates the meaning and intent of the phrase \"prejudicial to\nthe interests of the Revenue\", in the following words:-\n\"8. The phrase \"prejudicial to the interests of the Revenue\" is not an expression of\nart and is not defined in the Act. Understood in its ordinary meaning it is of wide\nimport and is not confined to loss of tax. The High Court of Calcutta in Dawjee\nDadabhoy & Co. v. S.P. Jain [1957] 31 ITR 872 (Calcutta), the High Court of\nKarnataka in CIT v. T. Narayana Pai[1975] 98 ITR 422 (Karnataka), the High Court\nof Bombay in CIT v. Gabriel India Ltd. [1993] 71 Taxman 585/203 ITR 108\n(Bom.)/[1993] 203 ITR 108 (Bom) and the High Court of Gujarat in CIT v. Minalben\nS. Parikh [1995] 127 CTR 333/215 ITR 81/79 Taxman 184 (Gujarat) treated loss of\ntax as prejudicial to the interests of the Revenue.\n9. Mr. Abraham relied on the judgment of the Division Bench of the High Court of\nMadras in Venkatakrishna Rice Co. v. CIT[1987] 62 CTR 152/163 ITR 129/30\nTaxman 528 (Madras) interpreting \"prejudicial to the interests of the Revenue\". The\nHigh Court held:\n\"In this context, (it must) be regarded as involving a conception of acts or\norders which are subversive of the administration of revenue. There must\nbe some grievous error in the order passed by the Income Tax Officer, which\nmight set a bad trend or pattern for similar assessments, which on a broad\nreckoning, the Commissioner might think to be prejudicial to the interests\nof Revenue Administration.\"\nIn our view this interpretation is too narrow to merit acceptance. The scheme of the\nAct is to levy and collect tax in accordance with the provisions of the Act and this\ntask is entrusted to the Revenue. If due to an erroneous order of the Income Tax\nOfficer, the Revenue is losing tax lawfully payable by a person, it will certainly be\nprejudicial to the interests of the Revenue.\n10. The phrase \"prejudicial to the interests of the Revenue\" has to be read in\nconjunction with an erroneous order passed by the Assessing Officer. Every loss of\nrevenue as a consequence of an order of the Assessing Officer cannot be treated as\nprejudicial to the interests of the Revenue, for example, when an Income Tax Officer\nadopted one of the courses permissible in law and it has resulted in loss of revenue;\nor where two views are possible and the Income Tax Officer has taken one view with\nwhich the Commissioner does not agree, it cannot be treated as an erroneous order\nprejudicial to the interests of the Revenue unless the view taken by the Income Tax\nOfficer is unsustainable in law. It has been held by this Court that where a sum not\nearned by a person is assessed as income in his hands on his so offering, the order\npassed by the Assessing Officer accepting the same as such will be erroneous and\nprejudicial to the interests of the Revenue. (See Rampyari Devi Saraogi v. CIT[1968]\n67 ITR 84 (SC) and in Tara Devi Aggarwal v. CIT (1973) 3 SCC 482 : 1973 SCC\n(Tax) 318 : (1973) 88 ITR 323.\"\n[Emphasis supplied]\n26. Recently, the Hon'ble Supreme Court in the case of CIT v. Paville Projects (P.)\nLtd. [2023] 149 taxmann.com 115/293 Тахтап 38/453 ITR 447 (SC)/[2023] SCC\nOnLine SC 371, while relying upon Malabar Industrial Co. Ltd., has discussed the\nsanctity of twofold conditions for the purpose of invoking jurisdiction under Section\n263 of the Act. The relevant paragraph of the said decision reads as under:-\n\"27. Learned counsel appearing on behalf of the assessee has heavily relied upon the\ndecision of this Court in the case of Malabar Industrial Co. Ltd. (supra). It is true\nthat in the said decision and on interpretation of Section 263 of the Income Tax Act,\nit is observed and held that in order to exercise the jurisdiction under Section 263(1)\nof the Income tax Act, the Commissioner has to be satisfied of twin conditions,\nnamely, (i) the order of the Assessing Officer sought to be revised is erroneous; and\n(ii) it is prejudicial to the interests of the Revenue. It is further observed that if one\nof them is absent, recourse cannot be had to Section 263(1) of the Act.\n***11\n27. Considering the aforesaid judicial pronouncements, it can be safely concluded\nthat inadequacy of enquiry by the AO with respect to certain claims would not in\nitself be a reason to invoke the powers enshrined in Section 263 of the Act. The\nRevenue in the instant case has not been able to make out a sufficient case that the\nCIT has exercised the power in accordance with law. Rather, in our considered\nopinion, the facts of the case do not indicate that the twin conditions contained in\nSection 263 of the Act are fulfilled in its letter and spirit.\n28. Notably, the ITAT, while making a categorical finding that the CIT had failed to\npoint out any definite or specific error in the assessment order, has satisfactorily\nexplained both the claims in question in Paragraph 8.2 of its order, which reads as\nunder:-\n\"8.2 In the Impugned Order, the Ld. Commissioner of Income Tax-IV, Delhi held\nthat the AO had not examined the aforesaid two issues properly and, therefore, set\naside the issues for further inquiries to be conducted by the AO. As regards the first\nissue is concerned, we note that out of total provision of Rs.1114.68 lacs, a sum of\nRs.7,60,76,105/- was suo moto added back in the computation of income and a\nfurther sum of Rs.73,46,160- was disallowed by the AO in the original assessment\norder dated 30.3.2005. Therefore, out of Rs.1114.68 lacs, Rs.834.22 lacs already\nstood disallowed in the original assessment order. The balance amount represented\nactual write off which was palpably clear from page 2 of the impugned order itself.\nNo deduction on account of any such provision was, therefore, allowed to the\nassessee. Hence, there is no error or prejudice to the interest of revenue. As regards\nsecond issue it was noted that interest rate swap was an actual loss and only the net\nloss of Rs.114.05 lacs after setting of gain of interest rate swap was claimed as\ndeduction. However, we find that both these issues were duly examined by the AO\nvide Questionnaire dated 2.11.2004 (Page 1-2 of the Paper Book) to which replies\ndated 9.12.2004, 20.12.2004 and 6.1.2005 (Page No. 3-39 of Paper Book-1) were\nfurnished and, therefore, the finding of the Ld. CIT that the issues were not examined\nproperly was not correct. Even the Ld. CIT has not pointed out the definite and\nspecific error in the original assessment order and observed that the inquiry made by\nthe AO was inadequate or improper without first pointing out the error in the\noriginal assessment order passed by the AO, particularly because both the aforesaid\nissues were duly examined at the stage of the original assessment proceedings, hence,\nthe impugned order is beyond jurisdiction, bad in law and void-ab-initio.\"\n29. It is discernible from the aforenoted findings of the ITAT that both the claims\nwere duly examined during the original assessment proceedings itself and neither\nthere was any error nor the same was prejudicial to the interests of the Revenue.\nThus, the findings of fact arrived at by the ITAT do not warrant any interference of\nthis Court.\n30. So far as the reliance placed by the CIT on Umashankar Rice Mill is concerned,\nthe same is misplaced, particularly in light of the insertion of Explanation 2 to\nSection 263 of the Act, brought in place by the Finance Act, 2015. The said\namendment markedly specifies various conditions to exercise the authority vested in\nthe Commissioner under Section 263 of the Act, leaving no ambiguity in the\ninterpretation of the said provision.\n31. In view of the aforesaid, the appeal preferred by the Revenue is dismissed\nalongwith the pending application(s), if any.\"\n17. Considering the facts of the case in totality, in light of the judicial\ndecisions discussed hereinabove, we set aside the order of the ld. PCIT\ndated 21/02/2025 and restore that of the AO dated 11/04/2022 framed\nu/s 143(3) r.w.s 144B of the Act.\n18. In the result, appeal of the assessee is allowed.\nOrder pronounced in the Court on 14th August, 2025 at Mumbai.\nSd/-\n(SANDEEP SINGH KARHAIL)\nJUDICIAL MEMBER\nMumbai, Dated 14/08/2025\n*SC SPS\nSd/-\n(NARENDRA KUMAR BILLAIYA)\nACCOUNTANT MEMBER\nआदेश की प्रतिलिपि अग्रेषित/