M/S. EMBASSY PROPERTY DEVELOPMENTS PRIVATE LIMITED,BANGALORE vs. THE PRINCIPAL COMMISSIONER OF INCOME-TAX, (CENTRAL), BANGALORE

IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU “C” BENCH, BENGALURU Before Shri N.V. Vasudevan, Vice President and Ms. Padmavathy S., Accountant Member ITA No. 445/Bang/2022 (Assessment Year: 2017-18)

M/s. Embassy Property vs The Pr. CIT (Central) Developments Pvt. Ltd. C.R. Building No.150, 1st Floor, Embassy Point Queen's Road Infantry Road, Bangalore 560001 Bangalore 560001 PAN – AAACD6927A (Appellant) (Respondent) Assessee by: Shri Sriram Seshadri, CA Revenue by: Ms. Neera Malhotra, CIT-DR Date of hearing: 14/11/2022 Date of pronouncement: 21/11/2022 O R D E R Per: Padmavathy, A.M. This appeal is against the order of the Principal Commissioner of Income Tax (PCIT) passed under section 263 of the Income Tax Act, 1961 (the Act) dated 31.03.2022 for AY 2017-18. The assessee raised the following grounds of appeal: - “1. General Grounds 1.1. The Ld. PCIT erred in passing an order of revision under section 263 of the Act (Impugned Order') for AY 2017-18 (Impugned AY'), which suffers from legal defects such as being passed in violation of principles of natural justice and the provisions of the Act, and is devoid of any merit, and is contrary to facts on record and the applicable law, and the proceedings was completed without adequate inquiries and without adequate inquiries and as such the Impugned Order is liable to be quashed. 2. Jurisdictional Grounds on validity of the Impugned Order 2.1. The Impugned Order passed by the Ld. PCIT is without jurisdiction as the twin conditions prescribed under section 263 of the Act, i.e., the order of

2 ITA No. 445/Bang/2022 M/s. Embassy Property Developments Pvt. Ltd. the Ld. AO shall be 'erroneous' and `prejudicial to the interests of the Revenue', are not satisfied. 2.2. Without prejudice, the Impugned Order is without jurisdiction as it was ostensibly passed on the basis of the reasons recorded by the Ld. AO for reopening the Appellant's assessment under section 147 of the Act, and not based on an independent opinion formed by the Ld. PCIT, pursuant to his examination of records. 2.3. The Ld. PCIT erred in concluding that the Assessment Order for the Impugned AY is erroneous and prejudicial to the interest of the revenue, without appreciating the material on record and the submissions made by the Appellant. 2.4. The Ld. PCIT grossly erred in passing the Impugned Order to, reassess transactions that were already examined/verified and were therefore outside the scope of reassessment, to verify transactions in respect of which no claim was made during the Impugned AY, or for arbitrary verification of routine business expenditure, without any basis/reason. 2.5. The Ld. PCIT erred in alleging that the Ld. AO failed to examine or form/express an opinion on the taxability of inter-corporate deposits (`ICD') received by the Appellant during the Impugned AY, from VTV Infrastructure Management Pvt. Ltd. (VIMPL'), a related party, as deemed dividend under section 2(22)(e) of the Act. 2.6. The Ld. PCIT erred in passing the Impugned Order, inter-alia, on the allegation that the Ld. AO failed to examine/verify and disallow a non- existent claim for deduction of penalty during the Impugned AY, under section 37 of the Act. 2.7. The Ld. PCIT erred in passing the Impugned Order, inter-alia, arbitrarily directing the Ld. AO to make enquiry/verification of brokerage and commission expenses, and travel expenses incurred during the Impugned AY, without considering its submissions in support of the said claim, without identifying any specific issue in relation to the said claim that necessitates a fresh assessment, and in the absence of any reasoning. 3. Non-applicability of the provisions of section 2(22)(e) of the Act 3.1 The Ld. PCIT erred in concluding that the ICD received by the Appellant from VIMPL in the normal course of business, based on commercial considerations, satisfies the conditions prescribed under section 2(22)(e) of the Act, to warrant an addition towards deemed dividend. 3.2 The Ld. PCIT failed to appreciate that no addition can be made in the hands of the Appellant, towards deemed dividend under section 2(22)(e) of the Act, in respect of the ICD received from VIMPL, as the Appellant is neither a registered nor a beneficial 'shareholder' of VIMPL. 3.3 The Ld. PCIT erred in relying upon the decision of the Hon'ble Supreme Court of India (`Hon'ble SC') in the case of 'National Travel Services V. Commissioner of Income Tax Delhi VIII' [Civil Appeal No. 2068-2071 Of 2012] without appreciating that the same is not an order pronouncing the law on section 2(22)(e) of the Act, but is merely an order making a reference to a larger bench of the Hon'ble SC.

3 ITA No. 445/Bang/2022 M/s. Embassy Property Developments Pvt. Ltd. 4. Non-applicability of section 17 of the Act 4.1 The Ld. PCIT has erred in not considering the response submitted by the Appellant, wherein it was pointed out that the order levying the penalty was passed by SEBI on July 3o, 2020 and hence, the subject payment was not debited in the books pertaining to the said assessment year and accordingly, no deduction was claimed by the Appellant under section 37 of the Act. 5. Deductibility of brokerage and commission expenses and travel expenses 5.1 The expenditure incurred by the Appellant towards brokerage and commission charges and travel expenses during the Impugned AY, having been incurred wholly and exclusively for the purpose of business and in respect of which the applicable taxes have been deducted, are eligible for a deduction in computing Business Income under the Act.” 2) The assessee is engaged in the business of real estate and filed the return of income for AY 2017-18 on 30.11.2017 declaring an income of Rs.522,94,35,084/-. The case was selected for scrutiny under CASS and a notice under section 143(2) and 142(1) of the Act were duly served on the assessee. The AO called on the assessee to file various details including a specific query (question no.18) on the inter company deposit (ICD) taken by the assessee from M/s. VTV Infrastructure Management Pvt. Ltd. (VIMPL) and the treatment of the same as deemed dividend under section 2(22)(e) of the Act. In response to the same the assessee furnished the details (page 82 of paper book) Though the AO has not written any elaborate finding specifically on this issue in the order of assessment u/s.143(3), the fact remains that the AO did call for the details and has after scrutinising all the details completed the assessment by making disallowances pertaining to certain other items to the tune of Rs.135,20,60,299/- from which it can reasonable presumed that the issue of treatment of ICD availed by the assessee has been scrutinised in the assessment u/s.143(3). Subsequently a notice under section 148 of the Act to reopen the assessment was issued for the reason that the ICD taken by the assessee from VIMPL is to treated as deemed dividend under section 2(22)(e) of the Act and to that extent income has escaped assessment. The assessee filed its objections challenging the validity of the reassessment proceedings by

4 ITA No. 445/Bang/2022 M/s. Embassy Property Developments Pvt. Ltd. submitting that VIMPL loan transaction and its proposed addition as deemed dividend u/s.22(22)(e) was already subjected to scrutiny during original assessment wherein a specific query was asked against which the assessee duly furnished the details. The assessee therefore contended that the assessment is reopened based on change of opinion and therefore reassessment proceeding is bad in law. This was not accepted by the AO who proceeded to pass the order of reassessment dated 06.01.2022. The assessee challenged the reassessment proceedings by filing writ petition before the Hon’ble High Court. During the pendency of the writ petition the AO dropped the reassessment proceedings vide letter dated 17.02.2022 in which it was stated that dropping the reassessment proceeding was without prejudice to any other proceedings being carried out under the Act. Consequent to the dropping of reassessment proceedings by the AO the Hon’ble High Court disposed off the writ petition as having become infructuous.

3) Subsequently the PCIT issued a show cause notice under Section 263 of the Act dated 24.02.2022 proposing to revise the order passed under Section 143(3) of the Act for the reasons stated below - (i) In relation to the loans given by VTM Infrastructure Management Private Limited (WIMPL') to the Assessee, all the requisite conditions provided under section 2(22)(e) of the Act have been satisfied. However, the Assessing Officer ('Ld. AO') passed the order without making any addition on the issue of deemed dividend. It is observed that the AO had called for details during the assessment proceedings however did not do any verification or made any enquiry on this issue. (ii) It is found that SEBI had levied a penalty of Rs. 10 lakhs on the assessee company during the year for not reducing the promoter shareholding from M/s Mac Charles Ltd within the stipulated time. This charge being penal in nature should have been disallowed under section 37 of the Act, however the issue is not verified by the AO during assessment proceedings (iii) It is observed that the company has debited brokerage and commission expenses of Rs. 8,17,52,678/- and travel expenses of Rs 13,97,20,237. However, during assessment proceedings, it was not

5 ITA No. 445/Bang/2022 M/s. Embassy Property Developments Pvt. Ltd. verified that whether these expenses were wholly and exclusively for business and whether tax had been deducted on the same.” 4) The assessee made a detailed submission before the PCIT challenging the revision proceedings given that the reopening under Section 148 of the Act was dropped by the AO. On merits the assessee submitted that the loan given VIMPL to the assessee was an ICD and these facts have been examined by the AO during the assessment proceedings who has applied his mind while not making any additions towards the same. With regard to penalty levied by SEBI order the assessee submitted that no deduction has been claimed for AY 2017-18 and therefore the question of disallowance of the same does not arise. On the third reason with respect brokerage and commission expenses, the assessee submitted that the said expenses constitute only 2.16% of the total expenditure incurred by the assessee and it is not practically possible to scrutinise the entire books of account at the time of assessment. The assessee in this regard also submitted that the AO examined items which are substantial and exceptional in nature during the course of assessment and therefore the order cannot be erroneous or prejudicial for the AO not seeking any specific details in relation to the subject expenses which are very immaterial compared to the overall expenses incurred by the assessee.

5) The assessee therefore submitted that the assessment order under Section 143(3) of the Act is not erroneous or prejudicial to the interest of Revenue on all the three counts as claimed by the PCIT. The PCIT did not accept the contentions of the assessee and proceeded to set aside the assessment order passed under Section 143(3) of the Act for passing fresh assessment after verification of the issues contained in the show cause notice. Aggrieved by the order of the PCIT the assessee is in appeal before the Tribunal. Ground No.1 is general in nature.

6) Ground No. 2 is on the validity of the impugned order and we will first consider the same for adjudication. The first contention of the learned AR is

6 ITA No. 445/Bang/2022 M/s. Embassy Property Developments Pvt. Ltd. with regard to initiating the revisionary proceedings when the assessment which was reopened on the same ground was dropped by the AO. In this regard the learned AR submitted that the reassessment proceedings originally initiated for the impugned transaction of ICD received by the assessee were dropped by the AO which implies that the Department has accepted the contention that the AO had change of opinion with regard to the said transaction. The show cause notice under Section 263 of the Act was issued within a gap of 4 days which makes it clear that it was a coordinated effort between the AO and the PCIT. The revision u/s.263 is not valid for the reason that as per the provisions of the said section the PCIT is required to call for and independently examine the proceedings under the Act to decide if the order passed by the AO is erroneous and prejudicial to the interest of the Revenue and not based on the coordinated efforts. The learned AR placed reliance in this regard on the decision of Pune Bench of ITAT in the case of Alfa Laval Lund AB vs. CIT (ITA No. 1287/Pun/2017). The next argument of the learned AR is that at the time of original assessment the learned AO has applied his mind while allowing the claim of the assessee and his action of dropping the reassessment proceedings after being challenged on change of opinion by the assessee shows that he again concurred with the view of the assessee. Therefore the PCIT is not correct in alleging that the AO had not formed any opinion since the AO’s decision to drop the reassessment proceedings implies that he has formed an opinion not to tax the ICD u/s.2(22)(e). Reliance in this regard is placed on the decision of the Hon’ble Delhi High Court in the case of Sunbeam Auto Ltd. vs. CIT (2011) 332 ITR 167 (Del). The third contention of the learned AR is that if the PCIT was of the opinion that the income has escaped assessment he should have revised the order dropping the reassessment proceedings and cannot revise the original order of assessment under Section 143(3) of the Act. The PCIT does not have the right or power to revise original assessment order because the AO dropped

7 ITA No. 445/Bang/2022 M/s. Embassy Property Developments Pvt. Ltd. the reassessment proceedings by forming an opinion. The learned AR in this regard relied on the decision of the Indore Bench of ITAT in the case of Devas Silk Mills vs. CIT (2005) 143 Taxman 38 (Indore) and submitted that the recourse to section 263 is only against the order dropping assessment. When a particular aspect has been inquired in the original assessment and the reassessment has also been dropped the PCT cannot revise the assessment under section 263 of the Act. Lastly the learned AR submitted that the PCIT has added two other unsustainable grounds merely to differentiate between the proceedings of reopening and revision and there is no other purpose for those issues in the order of the PCIT.

7) The ld DR relied on the order of PCIT and submitted that the reopening proceedings and revision proceedings are two different proceedings and therefore the order of the PCIT is valid.

8) We heard the rival submissions. The contention of the learned AR is that when the reassessment proceeding which was conducted on the issue of ICD being treated as deemed dividend is dropped, the PCIT cannot initiate revisionary proceedings revising the order u/s.143(3). The legal position at the time of initiating proceedings u/s.263 is that the re-assessment proceedings have been dropped and therefore the income assessed u/s.143(3) gets restored which the PCIT has revised u/s.263 in the given case. If the reassessment proceeding is held to be invalid by higher authorities or is dropped by the revenue for some reason it cannot be said that the original assessment stands obliterated. Therefore the power of the PCIT to revise the order u/s.143(3) cannot be restricted on the ground that the same issues have been the reason for reopening more so when the reassessment proceedings have been dropped subsequently. With regard to the contentions that proceedings u/s.263 is a coordinated effort between the AO and PCIT, the assessee did not bring any

8 ITA No. 445/Bang/2022 M/s. Embassy Property Developments Pvt. Ltd. material on record to support this claim except the fact there has been only a 4 day gap between dropping of reassessment proceedings and initiation of proceeding u/s.263. Therefore we are not in a position based on available facts to agree with this claim of the assessee. On the next contention that that the AO has formed an opinion and that PCIT cannot substitute his view, the powers of the PCIT u/s.263 is supervisory in nature and permits the exercise this if he considers the order to be erroneous and prejudicial to the interest of the revenue. Further in the given case the PCIT has held lack of enquirey as the main reason for invoking the provisions of section 263 and hence the jurisdiction of the PCIT on this ground cannot be questioned.

9) On the issue of whether there was a proper enquiry is conducted by the AO with regard to the impugned issues the ld AR made a detailed written submission the relevant extract of which is given below –

(a) The fact that the Ld. AO has inquired into the transactions, NOT MERELY AS AN INFORMATION GATHERING EXERCISE BUT AS A SHOW CAUSE NOTICE (THOUGHT NOT TITLED SO) AS HE ALLEGED THE TRANSACTION AS DEEMED DIVIDEND IN THE NOTICE, and based on subsequent explanations, he did not make any adjustment. Clearly, it indicates that he has accepted the submissions. Also, this would be evident that he applied his mind, from the fact that the assessment was concluded with an enormous adjustment of INR 150 Crores in the assessment. He has chosen areas of adjustments. Clearly, non-rejection of submission of the Appellant in the order amounts to acceptance by the Ld. AO upon forming an opinion. In this regard, the Appellant places reliance on the decision of the Hon'ble Supreme Court in the case of Marico Ltd. (Enclosed as Annexure 2). The same principle was earlier affirmed in the context of section 263 by Hon'ble Delhi High Court in the case of Sunbeam Auto Ltd.3 and by Hon'ble Andhra Pradesh High Court in the case of Spectra Shares & Scrips Pvt Ltd.

(b) The Ld. PCTT is wrong in holding that there was no inquiry into whether the transaction was ICD or a loan. This is quite clear from the financial statement of the lender company (VIMPL) (Enclosed as Annexure 3), where the deposit to the Appellant has, indeed been disclosed as a deposit only. The Ld. AO clearly had access to the financial statements of VIMPL (hence, he has

9 ITA No. 445/Bang/2022 M/s. Embassy Property Developments Pvt. Ltd. concluded that there are accumulated profits for a deemed dividend possibility to arise plus this is also clear from the reasons recorded for reopening the assessment where the accumulated profits of VMIPL is also specifically quantified (refer Pg. 84 of the Paperbook). Therefore, the Ld. AO knew that this is an ICD and when the Appellant relied on various rulings (captured in the table below) related to ICD not being treated as loan to trigger deemed dividend taxation, he has accepted that and clearly, this is the right position in law or at the least, one of the possible views and hence, a revision under section 263 of the Act would not be permissible. Ref. — Case law Decision Forum Compilation High Court, KIIC Investment Company S.No. 9 — Pg. 74 Delhi Bombay Oil Industries Tribunal, S.No. 10 — Pg. 93 Limited Mumbai IFB Cargo Industries Tribunal, S.No. 11 — Pg. Limited Kolkata 101 Pennwalt India Limited High Court, S.No. 12 — Pg. Bombay 110

xii. It is clear that all the afore-mentioned criteria basis which taxability under section 2(22)(e) of the Act (both factual and legal) can be determined, were submitted during the course of the assessment and reassessment proceedings and examined by the Ld. AO. Accordingly, the assessment order passed cannot be treated as erroneous as all the relevant conditions and criteria were examined and considered at the time of assessment and reassessment proceedings. xiii. In light of the above facts and judicial precedents, the Appellant submits the following – - The Ld. AO had conducted inquiry of the subject transaction and examined all the parameters relevant for determining the taxability of the subject transaction as dividend; - The Ld. AO had verified and considered the submissions made by the Appellant in passing the assessment order and it is not necessary that each and every allowance/disallowance needs to be addressed or elaborated in the assessment order; - The Ld. AO has dropped the reassessment proceedings after realizing that initiation of reassessment proceedings will be invalid as it would amount to change of opinion and therefore is no escapement of

10 ITA No. 445/Bang/2022 M/s. Embassy Property Developments Pvt. Ltd. income based on the substantiation provided by the Appellant on merits. Given the above, the Appellant submits that the order passed by the Ld. AO cannot be treated as erroneous and prejudicial to the interest of the revenue and the proceedings under section 263 of the Act cannot be initiated for the subject reason. 10) The ld DR supported the order of the PCIT and submitted that there is no mention in the order of the AO that there has been a proper enquiry conducted by him on the issue and that he has accepted the claim of the assessee. The ld DR also submitted that mere submission of details does not evidence any enquiry being conducted and to this extent the order is erroneous and prejudicial to the interest of the revenue

11) We heard the rival submissions and perused the material on record. We observe the Pr.CIT has drawn support from Explanation 2 below section 263(1) of the Act introduced by Finance Act, 2015 w.e.f. 1-6-2015 for his action. Before proceeding further, it is apposite to take note of the relevant extract of section 263 and the Explanation (2) to section 263 of the Act, which read as under :-

“Revision of orders prejudicial to revenue. 263. (1) The [Principal Chief Commissioner or Chief Commissioner or Principal Commissioner] or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer 89[or the Transfer Pricing Officer, as the case may be,] is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, 90[including,— **** Explanation 2.—For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer 94[or the Transfer Pricing Officer, as the case may be,] shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal 95[Chief

11 ITA No. 445/Bang/2022 M/s. Embassy Property Developments Pvt. Ltd. Commissioner or Chief Commissioner or Principal] Commissioner or Commissioner,— (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.”

12) 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. It is on this basis, the assessment order passed by the AO under section 143(3) of the Act has been set aside with a direction to the AO to pass a fresh assessment order. We will therefore look into the impact of Explanation 2 for the purposes of section 263 of the Act. The aim and object of introduction of aforesaid Explanation by Finance Act, 2015 was explained in CBDT Circular No. 19/2015 [F.NO.142I14/2015T PL], Dated 27-11-2015 which is reproduced hereunder: "53. Revision of order that is erroneous in so far as it is prejudicial to the interests of revenue.

53.1 The provisions contained in sub-section (1) of section 263 of the Income- tax Act, before amendment by the Act, provided that if the Principal Commissioner or Commissioner considers that any order passed by the Assessing Officer is erroneous in so far as it/s prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and after making an enquiry pass an order modifying the assessment made by the Assessing Officer or cancelling the assessment and directing fresh assessment.

53.2 The interpretation of expression "erroneous in so far as it is prejudicial to the interests of the revenue" has been a contentious one. In order to provide clarity on the issue, section 263 of the Income-tax Act has been amended to provide that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the

12 ITA No. 445/Bang/2022 M/s. Embassy Property Developments Pvt. Ltd. opinion of the Principal Commissioner or Commissioner. (a) the order is passed without making inquiries or verification which, should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision, prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.

53.3 Applicability: This amendment has taken effect from 1st day of June, 2015."

13) From the above it is clear that that the PCIT while exercising the revisionary powers is expected show that the view taken by the AO is wholly unsustainable in law before embarking upon exercise of revisionary powers and cannot be exercised for directing a fuller inquiry to merely find out if the earlier view taken is erroneous particularly when a view was already taken after inquiry. The opinion of the PCIT has to be in consonance with that of the well settled judicial principles and cannot be arbitrarily made discarding the judicial precedent on the subject. We notice that the Hon’ble Delhi High Court in the case of Sunbeam Auto Ltd.(supra) has considered a similar issue and held that -

13 ITA No. 445/Bang/2022 M/s. Embassy Property Developments Pvt. Ltd. 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. In Gabriel India Ltd.'s case (supra), law on this aspect was discussed in the following manner : ". . . From a reading of sub-section (1) of section, it is clear that the power of suo motu revision can be exercised by the Commissioner only if, on examina- tion of the records of any proceedings under this Act, he considers that any order passed therein by the Income-tax Officer is 'erroneous insofar as it is prejudicial to the interests of the revenue'. It is not an arbitrary or unchartered power. It can be exercised only on fulfilment of the requirements laid down in sub-section (1). The consideration of the Commissioner as to whether an order is erroneous insofar as it is prejudicial to the interests of the revenue must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity. [See : Parashuram Pottery Works Co. Ltd. v. ITO[1977] 106 ITR 1 (SC) at page 10]. ****** 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 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 the records, may be of the opinion that the

14 ITA No. 445/Bang/2022 M/s. Embassy Property Developments Pvt. Ltd. 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. . . . There must be some prima facie material on record to show that 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. ****** We may now examine the facts of the present case in the light of the powers of the Commissioner set out above. The Income-tax Officer in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given detailed explanation on that regard by a letter in writing. All these are part of the record of the case. Evidently, the claim was allowed by the Income-tax Officer on being satisfied with the explanation of the assessee. Such decision of the Income-tax Officer cannot be held to be "erroneous" simply because in his order he did not make an elaborate discussion in that regard . . ." (pp. 113-117)

In the present case it is noticed that the AO has in the notice u/s.142(1) dated 11.12.2019, besides raising many queries, has raised specific queries in question no 17 and 18 with regard to deemed dividend u/s.2(22)(e) and in question no.18 the AO has called for further details on the impugned issue loans taken from VMPL the AO (page 68 of paper book). The assessee has given a detailed submission before the AO along with the case laws relied in response to the details called for by the AO u/s.142(1) as given below (page 82 of paper book). Details of advances / Inter-corporate deposits taken / received as on 31.3.2017 As discussed During the FY at Para of From To Remarks 2016-17 ADIT Report Embassy office Parks Pvt Ltd EPDPL NIL (Note a below) 4.1 ICD taken, interest paid (Note b EPDPL 19,75,00,000 4.2 Embassy VTV Infrastructure Management Pvt Ltd below) ICD taken, interest paid (Note b 4.3 Mac Charles India Limited EPDPL 16,00,00,000 below)

15 ITA No. 445/Bang/2022 M/s. Embassy Property Developments Pvt. Ltd. Property advance received for M3 Project culminated into Manyata Promoters Pvt Ltd EPDPL 1,96,05,00,000 4.4 income in the financial year 201819 (Note r. below) Note: a.There are no transactions during the year under reference in case of Embassy Office Parks Pvl Ltd. b.In case of Mac Charles India Ltd and Embassy VTV Infrastructure Management Pvt Ltd, the same relate to Inter Corporate Deposits (ICDs) and interest is paid accordingly. Hence the provisions of deemed dividend are not applicable. Reliance is placed on the decision of Mumbai ITAT 'KIIC Investment Company v. Dy. CIT', ITA No. 1381/Mum/2017 and 564/Mum/2018 wherein it is held that 'AO was wrong in asserting that it was a case of loan so as to fall within the purview of sec.2(22)(e), therefore, addition was deleted. Further reliance is placed on below case laws wherein it is held that Inter-corporate deposit would not come under the purview of sec.2(22)(e): Pennwalt India Ltd (Bombay High Court) (1987) 62 COMP CASE 112 IFB Agro Industries Limited (Kolkota Tribunal)12014142 taxmann.com 428 Schutz Dishman Bio-Tech Pvt. Ltd Vs. DCIT (OSD), ITAT Ahmedabad (2015) c. From the above, it is submitted that provisions of deemed dividend are not applicable in case of Manyata Promoters Pvt Ltd as the said amounts relates to property advances which culminated into income in the financial year 2018-19. 14) It is also noticed that the AO based on the above submissions made substantial additions while completing the assessment u/s.143(3). It is a settled position that it is only in a very gross case of inadequacy in inquiry or where inquiry is per se mandated on the basis of record available before the AO and such inquiry was not conducted the revisional power conferred under explanation (2) can be exercised to invalidate the action of AO. Various judicial precedence has laid down the ratio that lack of enquiry/no enquiry is different from inadequate enquiry and it is only in case of no enquiry by the AO, Pr. CIT/CIT can exercise jurisdiction u/s 263 of the Act and not in case where the AO has made enquiries as seems appropriate in the facts and circumstances of the case. The AO in the present case has not accepted the submissions of the assessee on various other issues by making substantial addition and has shown appetite for inquiry and verifications. If the Assessing Officer has made enquiries during the course of assessment proceedings on the relevant issues and the assessee has given detailed explanation be a letter in writing and the Assessing Officer allowed the claim on being satisfied with the explanation of the assessee, the decision of the Assessing Officer cannot be held to be erroneous on the ground that he does not make an elaborate discussion in that regard. Therefore in our considered view the AO has passed

16 ITA No. 445/Bang/2022 M/s. Embassy Property Developments Pvt. Ltd. the order after making due enquiries issues involved impliedly after due application of mind and order of PCIT u/s.263 on this issue is not sustainable.

15) Since we have already adjudicated the issue on jurisdiction of the PCIT u/s.263 in favour of the assessee, the grounds raised and the submissions made by the ld AR on the merits of the issue have become academic not warranting separate adjudication.

16) The next issue on which the PCIT held the order of the AO to be erroneous and prejudicial to the interest of the revenue is with regard to disallowance of penalty levied by SEBI

17) The Ld. PCIT held that the AO has not examined the penalty amounting to INR 10,00,000 levied by SEBI under section 15-I of the SEBI Act 1992, is which should have disallowed for the impugned AY under section 37 of the Act as the same is penal in nature.

18) In this regard the ld AR submited that the order levying penalty was passed by SEBI on July 30, 2020 (i.e., FY 2020- 21 relevant to AY 2021-22) (refer Pg. 144 of Paperbook) and hence the subject payment was not claimed as a deduction during the Impugned AY.

19) We heard the DR. On perusal of material on record we notice that the order of the SEBI is dated July 30,2020 and hence we see merit in the argument of the ld AR that the said penalty is not part of the financials of the assessee claimed as a deduction. Further the order u/s.143(3) was passed on 25.12.2019, and the PCIT is not correct in holding that the AO has not examined the issue that has arisen subsequent to the date of order. We therefore hold that the order of the PCIT u/s.263 on this issue is not tenable.

17 ITA No. 445/Bang/2022 M/s. Embassy Property Developments Pvt. Ltd. 20) The next ground on which the PCIT held the order of the AO to be erroneous and prejudicial to the interest of the revenue is that the AO has not done any enquiry or verification with regard to the brokerage and travel expenses. In this regard the ld AR submitted that the the said expenses constitute only 2.16% of the total expenditure incurred by the Assessee. The ld AR further submitted that it is not possible for the AO to verify each and every line item in the financial statement and if intervention u/s.263 is allowed for every such non scrutiny of line items there will not be any end to the revisionary proceedings. Without prejudice the ld AR submitted that the impugned expenses have been incurred wholly and exclusively for the purpose of business. The ld AR placed reliance on the order of the Mumbai Bench of the Tribunal in the case of Sir Ratan Tata Trust vs DCIT (2020) 122 taxmann.com 273 (Mumbai-Trib)

21) We heard the rival submissions. During the course of hearing the ld AR drew our attention to the below table (page 56 annexure 9 of written submissions) to substantiate that the impugned expenses are not material spends compared to the overall expenditure and that the same is in trend compared to other year Paperbook FY 2015- FY 2016-17 Pg. reference Particulars Reference 16 122,245,048 pg 41 Travelling Expenses (A) 139,720,237 81,752,678 55,691,093 pg 41 Brokerage & Commission (B) Total of both (C = A+B) 221,472,915 177,936,141 Total Cost - as per P&L (D) 10,234,434,412 7,477,028,379 pg 13 Travelling Expense as a % of Cost (A/D x 100) 1.37% 1.63% Brokerage as a % of Cost (B/D x 100) 0.80% 0.74% Travelling & Brokerage as a % of Cost (C/D x 100) 2.16% 2.38% pg 139

22) We also notice that the Mumbai Bench of the Tribunal in the case of Sir Ratan Tata Trust (supra) has considered a similar issue and held that – That brings one to next question, and that is what a prudent, judicious, and responsible Assessing Officer is to do in the course of his assessment proceedings. Is he to doubt or test every proposition put forward by the assessee and investigate all the claims made in the income tax return as deep as he can?

18 ITA No. 445/Bang/2022 M/s. Embassy Property Developments Pvt. Ltd. The answer has to be emphatically in negative because, if he is to do so, the line of demarcation between scrutiny and investigation will get blurred, and, on a more practical note, it will be practically impossible to complete all the assessments allotted to him within time no matter how liberal a time limit is framed. In scrutiny assessment proceedings, all that is required to be done is to examine the income tax return and claims made therein as to whether these are prima facie in accordance with the law and where one has any reasons to doubt the correctness of a claim made in the income tax return, probe into the matter deeper in detail. He need not look at everything with suspicion and investigate each and every claim made in the income tax return; a reasonable prima facie scrutiny of all the claims will be in order, and then take a call, in the light of his expert knowledge and experience, which areas, if at all any, required to be critically examined by a thorough probe. While it is true that an Assessing Officer is not only an adjudicator but also an investigator and he cannot remain passive in the face of a return which is apparently in order but calls for further inquiry but, as observed by Delhi High Court in the case of Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375], "it is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. It is, therefore, obvious that when the circumstances are not such as to provoke an inquiry, he need not put every proposition to the test and probe everything stated in the income tax return. In a way, his role in the scrutiny assessment proceedings is somewhat akin to a conventional statutory auditor in real life situations. Of course, an Assessing Officer cannot remain passive on the facts which, in his fair opinion, need to be probed further, but then an Assessing Officer, unless he has specific reasons to do so after a look at the details, is not required to prove to the hilt everything coming to his notice in the course of the assessment proceedings. When the facts as emerging out of the scrutiny are apparently in order, and no further inquiry is warranted in his bona fide opinion, he need not conduct further inquiries just because it is lawful to make further inquiries in the matter. A degree of reasonable faith in the assessee and not doubting everything coming to the Assessing Officer's notice in the assessment proceedings cannot be said to be lacking bona fide, and as long as the path adopted by the Assessing Officer is taken bona fide and he has adopted a course permissible in law, he cannot be faulted- which is a sine qua non for invoking the powers under section 263. 23) Though explanation (2) to section 263 contains the phrase ‘should have been done’ which means that the verification/ enquiry which ought to have been done the Act nowhere provides the exact modalities to be followed to verify a specific claim made by the assessee. For the PCIT to invoke the said

19 ITA No. 445/Bang/2022 M/s. Embassy Property Developments Pvt. Ltd. explanation there must be some prima facie material on record to show that 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. There is no dispute that u/s. 263 of the Act, the PCIT does have the power to set aside the assessment order and send the matter for a fresh assessment if he is satisfied that further enquiry is necessary and the assessment order is prejudicial to the interests of the Revenue. However, in doing so, the PCIT must have some material which would enable to form a prima facie opinion that the order passed by the AO is erroneous, insofar as it is prejudicial to the interests of the Revenue. In the present case, the PCIT has not brought out any material on record to substantiate that the amount claimed as deduction towards brokerage and travel expenses is not allowable u/s.37. In view of these discussions and considering the decision of Hon’ble Tribunal in the case of Sir Ratan Tata Trust Supra, we are of the considered view that the PCIT is not correct in invoking the explanation (2) section 263 with regard to issue of AO not examining the brokerage and travel expenses

24) In the result, the appeal filed by the assessee is allowed. Dictated and pronounced in the open Court on 21st November, 2022.

Sd/- Sd/- (N.V. Vasudevan) (Padmavathy S) Vice President Accountant Member Bengaluru, Dated: 21st November, 2022

20 ITA No. 445/Bang/2022 M/s. Embassy Property Developments Pvt. Ltd. Copy to: 1. The Appellant 2. The Respondent 3. The CIT - (Central) 4. The DR, ITAT, Bengaluru 5. Guard File By Order //True Copy// Assistant Registrar ITAT, Bengaluru n.p.