LIVLONG INSURANCE BROKERS LIMITED ,MUMBAI vs. PCIT -4 , MUMBAI

IN THE INCOME-TAX APPELLATE TRIBUNAL “A” BENCH,
MUMBAI
BEFORE SHRI SANDEEP GOSAIN, JUDICIAL MEMBER
&
SHRI PRABHASH SHANKAR, ACCOUNTANT MEMBER
Livlong Insurance Brokers
Limited,
IIFL
House,
Sun
Infotech Park, Plot No. B23,
Road No. 16, Wagle Estate,
Thane- 400 604, Maharashtra v/s.
बनाम
Principal
Commissioner of Income Tax, Mumbai - 4,
Room No. 629, 6th Floor,
Aayakar Bhavan, Maharishi
Karve
Road,
Mumbai
-
400020, Maharashtra
स्थायी लेखा सं./जीआइआर सं./PAN/GIR No: AABCI5762M
Appellant/अपीलार्थी
..
Respondent/प्रतिवादी

Appellant by :
Shri Pritesh Mehta,AR
Respondent by :
Shri Aditya Rai, (Sr. DR)

Date of Hearing
09.06.2025
Date of Pronouncement
17.06.2025

आदेश / O R D E R

PER PRABHASH SHANKAR [A.M.] :-

The present appeal is filed by the assessee against the order passed by the Principal Commissioner of Income-tax, PCIT-4, Mumbai
[hereinafter referred to as “PCIT”] u/s 263 of the Act dated 28.03.2025
pertaining to assessment order passed u/s. 143(3) of the Income-tax Act,
1961 [hereinafter referred to as “Act”] dated 27.09.2022 for the Assessment Year [A.Y.] 2020-21. P a g e | 2
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Livlong Insurance Brokers Limited issue of claim of CSR expenses as well as deduction u/s. 80G of the Act.
It is stated by him that the CSR expenses are mandatory in nature incurred by virtue of compliance to Section 135 of Companies Act 2013
read with Schedule VII of this Companies Rules, 2014. Further,
Explanation 2 to Section 37 of the Act mandates that CSR expenses shall not be allowed as business expenditure. It is also an undisputed fact that the donations u/s 80G have to be voluntary and this has been upheld by Hon’ble Apex Court in 1 SCR 1017G(1967) in the case of Commissioner of Expenditure Tax vs PVG Raju, Rajah of Vizianagaram. Thus, the CSR expenses as statutory obligation fails the test of voluntariness so as to be eligible for deduction u/s. 80G of the Act. Accordingly, it was concluded that the deduction u/s. 80G could not be allowed for deduction.
3.1 In response to show cause issued in this regard, the assessee made a submission dated which is also reproduced in the revision order stating that specific query was raised by the AO in the matter and in response to which it was submitted to him that no deduction of CSR expenses u/s 37 was claimed being personal in nature.However,it was claimed that the assessee made claim u/s 80G of the 50% of such expenses and the AO being satisfied did not make any further query nor made any disallowance. Therefore, it was claimed that necessary enquiry was indeed was made and no action u/s 263 of the Act was deemed

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Livlong Insurance Brokers Limited necessary. However, the ld.PCIT concluded that as noted from the assessment order, the AO had not carried out any enquiry on the issue and to this extent the assessment order was prima facie, erroneous and prejudicial to the interest of revenue in terms of section 263 of the Act.
4. We have carefully considered all relevant facts of the case,rival submissions and also the contents of the revisions order. In so far as the issue of deduction of CSR expenses claimed u/s 80G is concerned, it was open for adjudication before the AO. We observed that the assessee had duly disclosed such facts on record during assessment proceedings and the AO taking note of such facts with specific reference to CSR expenditure claimed as deduction, preferred to allow the claim of the assessee u/s 80G of the Act. Therefore, on facts and the circumstances of the case, it can be safely construed that the issue has been taken note of by the AO who accepted the claim of the assessee. Thus, the AO has considered the issue and allowed the claim of deduction u/s. 80G in respect of CSR expenses which is a plausible view taken by him.
5. The Hon’ble Supreme Court in the case of Malabar
Industries Ltd. v. CIT 243 ITR 83has held that twin conditions needs to be satisfied before exercising revisional juri iction u/s 263 of the Act by the CIT. The twin conditions are that the order of the P a g e | 5
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Assessing Officer must be erroneous and so far as prejudicial to the interest of the Revenue. In the following circumstances, the order of the AO can be held to be erroneous order, that is (i) if the Assessing Officer’s order was passed on incorrect assumption of fact; or (ii) incorrect application of law, or (iii) Assessing Officer’s order is in violation of the principle of natural justice, or (iv) if the order is passed by the AO without application of mind. (v) if the AO has not investigated the issue before him; because AO has to discharge dual role of an investigator as well as that of an adjudicator then in aforesaid any event the order passed by the AO can be termed as erroneous order. Coming next to the second limb, which is required to be examined as to whether the actions of the AO can be termed as prejudicial to the interest of Revenue. When this aspect is examined one has to understand what is prejudicial to the interest of the revenue. Their Lordship held when the AO adopted one of the courses permissible in law and it has resulted in loss to the revenue, or where two views are possible and the AO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the Revenue "unless the view taken by the Assessing Officer is unsustainable in law". Thus, in our considered view following Apex Court ruling the Revision order passed by Ld. PCIT on the above issue is not sustainable in law. Reference could also be made

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Livlong Insurance Brokers Limited to the decision of the juri ictional High Court in the case of CIT vs
Gabriel India Ltd. (203 ITR 108) (Bom) with regard to assumption of juri iction by the PCIT in the para below:
"12. From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualize a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order unless the decisions is held to be erroneous. Cases may be visualized where the Income-tax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interests of the Revenue. But that by itself will not be enough to vest the Commissioner with the power of suo-motu revision because the first requirement, viz., that the order is erroneous, is absent." (Emphasis supplied)
5.1Apart from the above principles, we deem it appropriate to make reference to the decision of the Hon’ble Delhi High Court in the case of CIT vs. Sun Beam Auto 227 CTR 113 wherein the Hon’ble
High Court has pointed out a distinction between lack of inquiry and inadequate inquiry. The following observations of the Hon’ble Delhi
High Court are worth noting:

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"12. We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the Commissioner of Income-tax under section 263 of the Income-tax Act. As noted above, the submission of learned counsel for the revenue was that while passing the assessment order, the Assessing Officer did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure.
However, that by itself would not be indicative of the fact that the Assessing Officer had not applied his mind on the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between "lack of inquiry" and "inadequate inquiry". If there was any inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has different opinion in the matter.
It is only in cases of "lack of inquiry", that such a course of action would be open".
6. We find from the assessment records that the AO has brought on record material facts which go to show that necessary enquiries were indeed made on the impugned issue. Moreover, as stated in preceding paras, the very basis of selection of the case hinged upon the issue of deduction u/s 80G of the Act, and seen in the light of specific queries and replies of the assessee, it can be safely concluded that the issue was duly examined and the AO allowed the claim after due application of mind and in accordance with the provisions of the Act. We do not find that the assessment order could be considered as erroneous and prejudicial and liable to application of Explanation 2 to section 263 of the Act.

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(supra) is distinguishable on the facts of the present case where there is no requirement of proving the voluntariness of the donation contributed by the assessee for claiming deduction u/s. 80G of the Act. The amendment brought about by Finance Act, 2015 to section 80G of the Act which had inserted the sub clauses
(iiihk) and (iiihl) to be the exception for qualifying a donation for claiming us. 80G of the Act could also be an evidencing factor to substantiate that CSR expenditures which falls under the nature specified in section 30 to 36 of the Act are an allowable deduction u/s 80G of the Act.
12. On the above observation, we deem it fit to hold that the assessee is entitled to deduction claimed u/s. 80G of the Act towards the CSR expenditure incurred by it.
We, therefore, direct the ld. A.O, to allow the claim of the assessee subject to the condition that the assessee has satisfied the other requirements warranted u/s.80G of the Act. Hence, ground no. 2 raised by the assessee is allowed."
7. In the case under consideration, the proposed revision is sought to be done merely on change of opinion disagreeing with the opinion of the AO that the expenditure is not deductible under sec 80G of the Act. Further, it is a settled position of law that where there are two views possible and the AO has adopted one of the two possible views, then the order cannot be held to be erroneous/ prejudicial to the interest of the revenue and thereby proceedings under section 263 of the Act could not be sustained. Moreover, as discussed in the preceding paras, the deduction of CSR expenses under section 80G of the Act is held allowable consistently by the courts. Hence, both on legal ground as also on merits, appeal of the assessee has sufficient force. Therefore, respectfully following the above judicial precedents, the Revision order on the impugned issue is held to be unsustainable, thus grounds no. 1
and 2 of appeal raised by the assessee are allowed.

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Livlong Insurance Brokers Limited enquiry on the issue of ESOP expenses debited in the P&L account and to this extent the assessment order was prima facie, erroneous and prejudicial to the interest of revenue in terms of section 263 of the Act.
8.1 Before him, it was contented by the assessee that the impugned item of ESOP was duly reflected in the audited books of account and the AO must have taken note of it and did not raise any query and allowed the deduction. The ld.PCIT further observed that though the assessee has argued that the ESOP expenditure was allowable and referred to various decisions on this issue including the decision of CIT vs. Biocon Limited 121 taxmann.com 351 (Karnataka
High Court)that such expenditure is merely a notional expenditure and not a real expenditure as neither any liability to pay arose to the assessee nor there is a case of any loss to the assessee company. Moreover, in the case of Biocon Ltd(supra) he pointed out that the Department has filed
SLP against the said decision of Hon’ble Karnataka High Court in the case of Biocon(supra) which has been admitted by the Hon’ble Apex
Court.
9. During hearing, the ld.DR argued that on facts of the case and in the light of the provisions of the Act and also lack of any enquiry into the impugned issue by the AO, the ld.PCIT was fully justified in invoking

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Livlong Insurance Brokers Limited the provisions of section 263 of the Act as the assessment order was erroneous and prejudicial to the interest of the Revenue on both the counts.
10. Before us, the ld.AR has submitted that in the course of assessment proceedings u/s 143(3), the assessee has submitted detailed
Profit and Loss Account for the relevant year. Vide Note 28 to the Profit and Loss Account under the head of "Employee of Benefit Expenses", it could be observed that the assessee had debited an amount of Rs.1,98,715/- being share based payment which was on account of ESOP.As such, the AO was fully aware of the facts regarding ESOP expenses and he passed assessment order on the basis of his satisfaction.
The assessee has correctly made the claim of the ESOP expenses debited in its books of accounts as a Revenue Expenditure and the same were incurred in the normal course of activities of the assessee. In view of the latest decisions of various courts allowing the deduction of ESOP expenses, it is submitted that the said ESOP expenses are allowable as deduction in the hands of the assessee. It cannot be said that the assessment order passed was without making enquiry or verification on this ground. Further, it cannot be said that the assessment order passed by the AO is erroneous in so far as it is prejudicial to the interest of the revenue on this ground as he has passed the assessment order after

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Livlong Insurance Brokers Limited being satisfied regarding the allowability of deduction of ESOP expenses.
11. We have heard rival submissions. On perusal of the facts and materials on record, we are of the view that the initiation of proceeding u/s. 263 is valid on the issue of ESOP as the assessment order is not only erroneous but also prejudicial to the interest of revenue as the AO has failed to enquire into the issue at all.After going through the assessment order as well as the response of the assessee to the show cause notice issued before invoking provisions of section 263 of the Act, we note that no query has been raised by the AO in the matter. No contrary material has been brought on record by the ld.AR. Certainly there is non-application of mind by the AO. There is no material before us which could have suggested that he had conducted enquiry or taken follow-up action after applying his mind on this issue. The contention that the said item duly reflected in the audited account would imply that the AO has examined the issue is devoid of any merit. Moreover, even the contention on merits based on judicial decisions is not acceptable in adjudicating on the applicability of revisionary powers of the ld.PCIT on the impugned issue which basically revolves around the applicability of Explanation 2 to section 263 vis-à-vis enquiries conducted. We observe the ld.PCIT has drawn support from Explanation 2 below section P a g e | 14
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263(1) of the Act introduced by Finance Act, 2015 w.e.f. 01.06.2015 for his action. The Explanation 2 inter alia provides that the order passed without making inquiries or verification 'which should have been made'
will be deemed to be erroneous insofar as it is prejudicial to the interest of the Revenue.
12. In so far as the requirement of due enquiry to be conducted by the AO while scrutinising any case in the course of assessment order is concerned, it would be relevant to quote certain landmark decisions of hon’ble Supreme Court in Rampyari Devi Saraogi versus CIT,
(1968) 67 ITR 84 (SC) and Tara Devi Aggarwal (Smt) versus
CIT, (1973) 88 ITR 323 (SC) wherein it has been observed that where the AO had accepted a particular contention or issue without inquiry whatsoever, the order was erroneous and prejudicial to the interest of Revenue. These two decisions show that it is not necessary for the Commissioner to make further inquiries before cancelling the assessment order of the Income- tax Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income-tax Officer should have made further inquiries before accepting the statements made by the assessee in his return. The aforesaid observations have to be understood in the factual background and matrix involved. In the said cases, the Assessing Officer had not P a g e | 15
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Livlong Insurance Brokers Limited conducted any enquiry or examined evidence whatsoever. There was total absence of enquiry or verification.
12.1 In the case of PVS Multiplex India Ltd V CIT in ITA No.
2370/Del /2013 on identical facts it was held that,
“wherein the Assessing Officer conducted the assessment proceeding and passed impugned assessment order accepting the return of income of the assessee, we clearly observe that the Assessing Officer has not made inquiry on the issue of interest free advances and proportionate disallowance of interest thereon, on the issue of verification on TDS and on the claim and calculation of the assessee for the purpose of deduction u/s 80IB(7A) of the Act specially on the issue of exclusion of income/receipt on sale of shop and FDR interest. In this situation, we have no hesitation to hold that the order of the AO which is apparently very precise and cryptic, was not passed after due examination and verification of certain issues and therefore, there was an error on the part of AO which leads to a correct conclusion of the CIT that the order of the AO is not only erroneous but also prejudicial to the interest of Revenue. We may further point out that the assessment order suffers from lack of necessary enquiry on certain important issues which have been raised by the CIT in the notice issued to the assessee and impugned order u/s 263 of the Act. Therefore, we reach to a conclusion that the assessment order is not sustainable and in accordance with the provisions of the Act which is not only erroneous but also prejudicial to the interest of the Revenue. Hence, we are inclined to hold that the issuance of notice u/s 263 of the Act and impugned order passed by the CIT u/s 263
of the Act is validly assumed juri iction of revisional powers u/s 263 of the Act which cannot be alleged as invalid assumption of juri iction or bad in law and we confirm the same.”
12.2 The co-ordinate bench of ITAT, Patna in ITA Nos. 356 to 360/PAT/2024 in the case of Gandhipati Construction Private
Limited observed as below:
“Having said that, we may also add that while in a situation in which the necessary inquiries are not conducted or necessary verifications are not done,
Commissioner may indeed have the powers to invoke his powers under section 263 but that it does not necessarily follow that in all such cases

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Livlong Insurance Brokers Limited the matters can be remitted back to the assessment stage f or such inquiries and verifications. There can be three mutually exclusive situations with regard to exercise of power s under section 263, read with Explanation 2(a) thereto, with respect to lack of proper inquiries and verifications.
The first situation could be this. Even if necessary inquiries and verifications are not made, the Commissioner can, based on the material before him, in certain cases straight away come to a conclusion that an addition to income, or disallowance from expenditure or some other adverse inference, is warranted. In such a situation, there will be no point in sending the matter back to the Assessing Officer for fresh inquiries or verification because an adverse inference against the assessee can be legitimately drawn, based on material on record, by the Commissioner. In exercise of his powers under section 263, the Commissioner may as well direct the Assessing Officer that related addition to income or disallowance from expenditure be made, or remedial measures are taken. The second category of cases could be when the Commissioner finds that necessary inquiries are not made or verifications not done, but, based on material on record and in his considered view, even if the necessary inquiries were made or necessary verifications were done, no addition to income or disallowance of expenditure or any other adverse action would have been warranted. Clearly, in such cases, no prejudice is caused to the legitimate interests of the revenue. No interference will be, as such, justified in such a situation. That leaves us with the third possibility, and that is when the Commissioner is satisfied that the necessary inquiries are not made and necessary verifications are not done, and that, in the absence of this exercise by the Assessing Officer, a conclusive finding is not possible one way or the other. That is perhaps the situation in which, in our humble understanding, the Commissioner, in exercise of his powers under section 263, can set aside an order, for lack of proper inquiry or verification, and the Assessing Officer to conduct such inquiries or verifications afresh.”
12.3 The co-ordinate Mumbai Bench of the ITAT w.r.t
Explanation 2 thorough an elaborate order in the case of Madhurima
International (P.) Ltd. v. Pr.CIT [ITA No.421/ Mumbai] held that,
“. In the instant case, the AO has not enquired the fair value adopted by the assessee in proper perspective and in the manner indicated under law as detailed above.
Moreover , explanation 2 to Section 263 of the 1961 Act is inserted by Finance Act,
2015, which deems an order to be erroneous in so far as prejudicial to the interest of P a g e | 17
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Revenue if the order is passed without making inquiries or verification which should have been made. Thus, in the instant case , we have already held that proper enquiries were not made by the AO before passing assessment order dated 23-03-
2016 u/s 143(3) of the 1961 Act , as are mandated u/s 263 of the 1961 Act. In our considered view, the ld. Pr. CIT has rightly invoked the provisions of section 263 of the Act, which we uphold/sustain. ."
12.4 The Hon’ble Delhi Court in the case of Pr. Commissioner of Income Tax, Delhi-7 vs M/S Paramount Propbuild Pvt. Ltd.
in ITA 247/2023(Del-HC)on 19 March, 2024 held as below:
“Unfortunately, the assessment order nowhere reflects any element of inquiry or verification. The discussion about the loan transactions in question is altogether missing. Furthermore, the assessment record would also reflect that the AO has not taken any concrete steps to ascertain the genuineness and creditworthiness of the transactions, which merits consideration in the light of the findings that emerged from the DDIT investigation report and assessment proceedings of M/s. Upaj Leasing &
Finance Pvt. Ltd. It emerges that the present is a case where the AO failed not only to spell out any finding about the DDIT investigation report and assessment proceedings of M/s. Upaj Leasing & Finance Pvt. Ltd. but also to scrutinize the highlighted aspects in the said report qua the genuineness and creditworthiness of aforenoted loan transactions. Therefore, this is the minimum inquiry which atleast was expected to have been made by the AO.
25. At this juncture, it is apposite to point out that clause (a) of Explanation 2
of Section 263 of the Act introduces a deeming fiction to the effect that the order passed by the AO shall be considered erroneous and prejudicial to the interests of the Revenue, if the order is passed without making inquiries or verification, which should have been made. Henceforth, since neither there is any facet of discussion about the aforenoted aspects in the assessment order nor the assessment record duly reflects that the AO has done inquiry in the light of the findings of the investigation report. We find that the present is a fit case to invoke the revisional powers under Section 263 of the Act.”
12.5 The co-ordinate bench of ITAT, Mumbai in the case of Agricom Foods Private Limited ,Mumbai vs Principal
Commissioner Of Income Tax dated 9.12.2024 in ITA
Nos. 2709 & 2716/Mum/2024 held as below:

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“1. The Ld.PCIT, however, did not accept the above said contentions of the assessee.
He held that the enquiries conducted by different official (the Investigation Wing) cannot be considered as the enquiry of AO and hence, it cannot be said that there was application of mind by the AO. The Ld.PCIT also observed that the AO did not discuss anything about the claim of depreciation on the intangible assets in the impugned assessment orders. Accordingly, he held that, the impugned assessment orders are rendered erroneous and prejudicial to the interests of revenue on this count also. In support of this proposition, the Ld.PCIT took support of the decision rendered by Hon’ble Karnataka High Court in the case of Infosys Technologies Ltd., [341 ITR
293], wherein the Hon’ble Karnataka High Court has held that non-discussion of claim of deduction allowed by the AO in the assessment order would make it erroneous and prejudicial to the interest of the Revenue. Accordingly, the Ld.PCIT held that the assessment orders passed by the AO for both the years under consideration are rendered erroneous and prejudicial to the interest of the Revenue.
Accordingly, he set aside the assessment orders passed for both the years and restored them to the file of the AO for the limited purpose of conducting enquiry with regard to the claim of depreciation of intangible assets and taking decision as per law. The assessee is aggrieved by the revision orders so passed by the Ld.PCIT in both the years under consideration.
4. We heard rival contentions and perused the record. We may first refer to the decisions rendered by Hon’ble High Courts, wherein the law relating to the scope of revision proceedings initiated u/s 263 of the Act have been laid down. We may first refer to the case of Grasim Industries Ltd. V CIT (321 ITR 92)(Bom), wherein the Hon’ble Bombay High Court has rendered its decision taking into account the law laid down by the Hon'ble Supreme Court in the case of Malabar Industrial Co Ltd vs.
CIT (2000)(243 ITR 83)(SC). The relevant observations made by Hon’ble Bombay
High Court are extracted below:
“Section 263 of the Income-tax Act, 1961 empowers the Commissioner to call for and examine the record of any proceedings under the Act and, if he considers that any order passed therein, by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, to pass an order upon hearing the assessee and after an enquiry as is necessary, enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment. The key words that are used by section 263 are that the order must be considered by the Commissioner to be “erroneous in so far as it is prejudicial to the interests of the Revenue". This provision has been interpreted by the Supreme Court in several judgments to which it is now necessary to turn. In Malabar Industrial 243 ITR 83, the Supreme Court held that the provision "cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer" and "it is only when an order is erroneous that the section will be attracted". The Supreme Court held that an incorrect assumption of fact or an incorrect application of law, will satisfy the requirement of the order being erroneous. An order passed in violation of the principles of natural justice or without application of mind, would be an order falling in that category. The expression
"prejudicial to the interests of the Revenue", the Supreme Court held, it is of wide import and is not confined to a loss of tax. What is prejudicial to the interest of the Revenue is explained in the judgment of the Supreme Court (headnote).

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"The phrase „prejudicial to the interests of the Revenue‟ has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial to the interests of the Revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income-tax
Officer is unsustainable in law."
The principle which has been laid down in Malabar Industrial Co. Ltd. [2000] 243
ITR 83 (SC) has been followed and explained in a subsequent judgment of the Supreme Court in CIT v. Max India Ltd. [2007] 295 ITR 282."
4.1. Under the provisions of sec. 263 of the Act, the Ld Pr. CIT can revise the order only if it is shown that the assessment order is erroneous in so far as prejudicial to the interests of the revenue. The question as to when an order can be termed as “erroneous” was explained by the Hon’ble Bombay High Court in the case of Gabriel
India Ltd (203 ITR 108) as under:-
"From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an income tax officer acting in accordance with the law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order, unless the decision is held to be erroneous. Cases may be visualised where the Income tax officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income tax officer. That would not vest the Commissioner with power to examine the accounts and determine the income himself at a higher figure. It is because the Income tax officer has exercised the quasi judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion.... There must be some prima facie material on record to show that the tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed"

Livlong Insurance Brokers Limited specific enquiry on this issue conducted in both the years under consideration, in our view, it cannot be said that there was conscious application of ind by the AO in allowing depreciation claimed on intangible assets.2024 both the years under consideration. We may refer to clause (b) of Explanation 2 to sec.263 of the Act, wherein it is stated that an order passed allowing any relief without inquiring into the claim shall be deemed to be erroneous in so far as prejudicial to the interests of revenue.

Livlong Insurance Brokers Limited proceedings under Section 263, and whether the Appellant-Assessee had filed any response/reply to such query on these issues having been raised by the assessing officer during the course of the original assessment proceedings. We were not shown any such material. Therefore, admittedly the assessing officer had not examined the issue during the course of the original assessment proceedings on the subject matter of Section 263 proceedings. Even in reply to the show cause notice under Section 263, the Appellant- Assessee has not stated that this issue was examined during the course of the original assessment proceedings nor was it the case of the Appellant-Assessee before the Tribunal.
Therefore, there can be no dispute that the issues raised in revisional proceedings were never examined during the course of original assessment proceedings. The finding of the Tribunal on this issue has also not been challenged in this appeal.”
13. In view of all the relevant facts of the case as also the provisions of law in the matter narrated above and the legal position emerging from the catena of decisions of various courts on law in this regard, we are inclined to conclude that in the instant case, ld.PCIT has validly assumed juri iction under section 263 r.w. Explanation 2
thereof as the AO has not made any inquiry in the impugned issue at all.
It is not a case of inadequate enquiry but a clear case of no enquiry or verification on part of the ld.AO. The broad principle that emerges from the decisions relied upon above is that if AO has merely accepted the assessee’s explanation on various issues without proper inquiry then the same would come within the ambit of 'lack of inquiry' and not ‘inadequate inquiry’. Moreover, there cannot be any dispute that in the instant case, there is no enquiry at all by the AO. The ld.CIT has merely set aside the assessment order for framing it de novo.Therefore, the AO would examine the issue involved and needless to say, he would also allow the assessee opportunity of hearing following the principles of P a g e | 22
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Livlong Insurance Brokers Limited natural justice. In view of these facts, we are of the considered view that the assessee should not prejudiced by the revision order, otherwise also.
Therefore, we do not have any hesitation to conclude and concur with the ld.PCIT that the assessment order is not only erroneous but also prejudicial to the interests of the revenue and was therefore, rightly set aside by him by resorting to the revisionary powers u/s 263 of the Act in respect of ESOP expenses. Accordingly, the ground no. 3 and 4 of appeal of the assessee are dismissed.
14. Ground no.5 and 6 are general in nature and do not need any adjudication.
15. In the result, the appeal filed by the assessee is partly allowed.
Order pronounced in the open court on 17.06.2025. SANDEEP GOSAIN
PRABHASH SHANKAR
(न्याययक सदस्य /JUDICIAL MEMBER)
(लेखाकार सदस्य/ACCOUNTANT MEMBER)

Place: म ुंबई/Mumbai
ददनाुंक /Date 17.06.2025
Lubhna Shaikh / Steno

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Livlong Insurance Brokers Limited

आदेश की प्रयियलयि अग्रेयिि/Copy of the Order forwarded to :
1. अपीलार्थी / The Appellant
2. प्रत्यर्थी / The Respondent.
3. आयकर आयुक्त / CIT
4. विभागीय प्रविविवि, आयकर अपीलीय अविकरण DR, ITAT,
Mumbai
5. गार्ड फाईल / Guard file.

सत्यावपि प्रवि ////
आदेशानुसार/ BY ORDER,

उि/सहायक िंजीकार (Dy./Asstt.