SR TRUST,MADURAI vs. PCIT(CENTRAL), CHENNAI

आदेश / O R D E R

PER G. MANJUNATHA, AM: This appeal filed by the assessee is directed against the order of the

Principal Commissioner of Income Tax (Central), Chennai-2, dated

18.03.2022, passed u/s.263 of the Income Tax Act, 1961, and pertains to

assessment year 2017-18.

ITA No.213/Chny/2022 M/s.S.R.Trust :: 2 ::

public charitable trust registered u/s.12AA of the Act, is running a hospital

in the name of Meenakshi Mission Hospital and Research Centre, in

Madurai. A search action u/s.132 of the Act was carried out in the chamber

of Dr.S.Gurushankar in Meenakshi Mission Hospital, Madurai. The assessee

had filed return of income for the AY 2017-18 on 11.10.2017 admitting ‘nil’

total income. The assessment has been completed u/s.143(3) on

31.12.2019 and determined total income of Rs.1,75,14,608/- by making

additions towards cash deposits during demonetization period amounting

to Rs.1,75,14,608/-.

u/s.263 of the Act, and accordingly, show cause notice dated 15.02.2022

was served on the assessee. In the said show cause notice, the PCIT has

taken up the issue of payment made to M/s.Sun Med Health Care Pvt. Ltd.,

and purchase of medical equipments from said party on the ground that

the assessee could not furnish necessary evidences including details of

ITA No.213/Chny/2022 M/s.S.R.Trust :: 3 ::

equipments procured from the parties. The PCIT had also questioned

depreciation claimed on additional construction under the head ‘building’

and observed that although, the assessee claims to have been made

payment of Rs.4,02,90,104/- for repairs and renewals of building, but no

proper evidence was filed to justify the claim. The PCIT had also taken up

the issue of depreciation on building under construction and observed that

no details like copy of estimate, approval obtained from local authority for

construction, bills and vouchers relating to construction expenses, were

furnished. Likewise, the PCIT had also questioned certain creditors

appeared in the balance sheet in the name of parties and observed that, no

evidence has been filed including confirmation from the parties to justify

creditors shown in the books of accounts. Although, the assessee has not

filed necessary details about those issues, the AO has completed

assessment order on 28.01.2019 u/s.144 r.w.c.153C of the Act, which

rendered the assessment order to be erroneous in so far as it is prejudicial

to the interest of the Revenue. Therefore, called upon the assessee to

explain, as to why, the assessment order dated 31.12.2019, shall not be

revised under provisions of Sec.263 of the Act.

submission on the issue, which has been reproduced at Para No.14 at Page

Nos.5-12 of the PCIT’s order. The sum and substance of the arguments of

the assessee before the PCIT are that the assessment order passed by the

AO u/s.144 r.w.s.153C of the Act, is neither erroneous nor prejudicial to

ITA No.213/Chny/2022 M/s.S.R.Trust :: 4 ::

the interest of the Revenue. Because, all four issues questioned by yourself

had been thoroughly examined by the AO during the course of assessment

proceedings, where the assessee has furnished complete details about

payment made to M/s.Sun Med Health Care Pvt. Ltd., and procurement of

medical equipments from the parties. The assessee had also furnished

copies of bills along with VAT returns filed for the relevant month to prove

that purchases from said parties are genuine in nature. The assessee had

also filed details about additions to building construction and depreciation

claimed on said building and the AO has considered all evidences filed by

the assessee and accepted depreciation claimed on building. Likewise, the

assessee has furnished details of depreciation on building under

construction and also name and address of creditors appears in the books

of accounts. The AO after considering relevant submissions has rightly

completed assessment without making any additions on those issues, which

find place in your show cause notice. Therefore, merely for the reason that

there is no specific discussion on those issues in the assessment order, it

cannot be said that the AO has not considered the issues and applied his

mind in right perspective of law and thus, claimed that invocation of

jurisdiction u/s.263 of the Act, is incorrect.

also by relying upon the decision of the Hon’ble Supreme Court in the case

of Malabar Industrial Co. Ltd. v. CIT reported in [2000] 243 ITR 83 (SC),

held that failure on the part of the AO to apply his mind during the course

ITA No.213/Chny/2022 M/s.S.R.Trust :: 5 ::

of assessment proceedings, is sufficient ground for invoking sec.263 of the

Act, as the order in such case is erroneous in so far as it is prejudicial to

the interest of the Revenue and thus, rejected objection filed by the

assessee and set aside the assessment order with a direction to the AO to

examine the issue in light of explanation and pass order as per law.

Aggrieved by the order of the PCIT, the assessee is in appeal before us.

assuming jurisdiction u/s.263 of the Act, and set aside the assessment

order without appreciating the fact that in order to exercise his powers

conferred u/s.263 of the Act, the PCIT should explain ‘how and why’ the

assessment order passed by the AO is erroneous in so far as it is prejudicial

to the interest of the Revenue. The Ld.Counsel for the assessee referring

to plethora of judicial precedents, including the decision of the Hon’ble

Supreme Court in the case of Malabar Industrial Co. Ltd., (supra) submitted

that prejudicial to the interest of the Revenue u/s.263 of the Act, has to be

read in conjunction with the expression erroneous order passed by the AO.

In this case, the assessment order passed by the AO is neither erroneous

nor prejudicial to the interest of the Revenue. Therefore, assumption of

jurisdiction by the PCIT to set aside the assessment order is illegal and

incorrect. The Ld.Counsel for the assessee had also argued the issues

questioned by the PCIT on merits and submitted that the assessee has filed

complete details about payment made to M/s.Sun Med Health Care Pvt.

Ltd., along with ledger copy, copy of invoices, payment details and VAT

ITA No.213/Chny/2022 M/s.S.R.Trust :: 6 ::

returns of the above company. The assessee had also furnished details of

improvement to building and payment made to M/s.VSK Constructions, for

renovation work done by them. The assessee had also filed details about

depreciation claim on building under construction and filed necessary

details. As regards to Issue No.4 of the show cause notice dated

15.02.2022, the assessee has filed name and address of the creditors and

confirmation letters including purpose of said creditors was also explained.

The AO after examining the issue has chosen not to make any additions on

those issues. Therefore, invocation of revisional powers on said issue is

incorrect.

Supreme Court in the case of Malabar Industrial Co. Ltd. (supra) submitted

that although, the Counsel for the assessee has heavily relied upon the

decision of the Hon’ble Supreme Court in the above case, but fact remains

that said decision goes in favour of the Revenue, because, it has clearly laid

down a ratio on the powers of the PCIT u/s.263 of the Act, and as per

which, if the assessment order passed by the AO is erroneous in so far as

it is prejudicial to the interest of the Revenue, the PCIT is well within his

powers to set aside the assessment order with a direction to re-do the

assessment. If you go through the assessment order passed by the AO

u/s.144 r.w.s.153C of the Act, the assessment order is completely silent on

four issues taken up by the PCIT in revisional proceedings. Therefore, there

ITA No.213/Chny/2022 M/s.S.R.Trust :: 7 ::

is no error in the reasons given by the PCIT to set aside the assessment

order and their orders should be upheld.

record and gone through orders of the authorities below. The provisions of

Sec.263 of the Act, conferred suo moto revisional powers to the PCIT, if the

PCIT satisfies that the assessment order passed by the AO is erroneous in

so far as it is prejudicial to the interest of the Revenue. In order to assume

jurisdiction u/s.263 of the Act, twin conditions must be satisfied viz., (i) the

order of the AO must be erroneous and (ii) further, it should be prejudicial

to the interest of the Revenue. Unless, twin conditions embedded therein,

are satisfied, the PCIT cannot revise the assessment order u/s.263 of the

Act. In this case, the PCIT has revised the assessment order on four issues

right from payment made to M/s.Sun Med Health Care Pvt. Ltd., and

purchases of medical equipments from them, depreciation on improvement

to building, depreciation on building under construction and creditors

appear in books of accounts of the assessee. The PCIT has discussed each

and every issue in his show cause notice and observed that the AO has not

carried out required enquiries, he ought to have been carried out in terms

of Explanation (2) to sec.263 of the Act, inserted by the Finance Act, 2012

w.e.f. AY 2013-14. According to the PCIT, although, the assessee has not

furnished complete details about those issues, the AO has completed

u/s.144 r.w.s.153C of the Act, at the fag end of limitation period, which

means, the AO has not carried out necessary enquiries on those issues.

ITA No.213/Chny/2022 M/s.S.R.Trust :: 8 ::

The PCIT had also taken support from the decision of the Hon’ble Supreme

Court in the case of Malabar Industrial Co. Ltd. (supra) while arriving at

conclusion that the assessment order passed by the AO is erroneous in so

far as it is prejudicial to the interest of the Revenue.

present case, we find that the assessment order passed by the AO is neither

erroneous nor prejudicial to the interest of the Revenue, for the simple

reason that all four issues finding place in the show cause notice of the

PCIT, are emanating from the balance sheet and financial statement filed

by the assessee for the relevant assessment year. Further, the PCIT has

questioned payment made to M/s.Sun Med Health Care Pvt. Ltd., and

procurement of medical equipments from the parties. We find that said

issue is emanating from the financial statement filed by the assessee and

during the course of assessment proceedings which is a primary document

placed before the AO and the AO has considered financial statement of the

assessee and has chosen not to make any additions on this issue, which

means, the assessee has furnished complete details on the issue and the

AO has examined the case in right perspective of law. As regards

depreciation on improvement to building, the only objection of the PCIT is

that no proper evidence was filed, otherwise, the PCIT did not make any

observations with regard to ‘how and why’ depreciation claimed on

improvement to building is incorrect. The PCIT has also simply set aside

the assessment order for further verification without any observations as

ITA No.213/Chny/2022 M/s.S.R.Trust :: 9 ::

to how depreciation on building under construction, is not in accordance

with law. Further, the PCIT has also not observed anything about creditors

appear in books of accounts to direct the AO to bring said creditors within

the provisions of Sec.68 of the Act. If you go through the order of the PCIT

u/s.263 of the Act, dated 18.03.2022, it is very very cryptic and brief. The

PCIT has simply by relying upon the decision of the Hon’ble Supreme Court

in the case of Malabar Industrial Co. Ltd. (supra) held that failure on the

part of the AO to apply his mind during the course of assessment

proceedings, is sufficient ground for invoking sec.263 of the Act, and the

order in such case is erroneous in so far as it is prejudicial to the interest

of the Revenue. In our considered view, the PCIT is grossly erred in setting

aside the assessment order with one-line cryptic observation that the AO

has not applied his mind on four issues without bringing on record, how the

Revenue is prejudiced from those issues. Further, in the show cause notice

also the PCIT has failed to give any plausible reasons ‘as to how’ the

assessment order passed by the AO is erroneous in so far as it is prejudicial

to the interest of the Revenue. From the above, it is clear that the PCIT

has simply assumed jurisdiction and set aside the assessment order without

satisfying himself about erroneous order passed by the AO, which caused

prejudicial to the interest of the Revenue on four issues.

Supreme Court in the case of Malabar Industrial Co. Ltd. (supra), where it

has been held that the phrase ‘prejudicial to the interest of the Revenue

ITA No.213/Chny/2022 M/s.S.R.Trust :: 10 ::

u/s.263 of the Act’, has to be read in conjunction with the expression

erroneous order of the AO. Further the Courts observed that every loss of

Revenue as a consequent of an order of the AO, cannot be treated as

prejudicial to the interest of the Revenue. At this juncture, it is relevant to

discuss various case laws relied upon by the Ld.Counsel for the assessee,

on provisions of Sec.263 of the Act:

• The Hon'ble Apex Court in the case of CIT Vs. Max India Ltd.(295 ITR 282) has held that when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue or where two views are possible and the ITO has taken one view with which the CIT did not agree, it cannot be treated as an erroneous order prejudicial to the interest of revenue. The Madras High Court followed the above decision of the Supreme Court in the case of CIT Vs. Tamilnadu Warehousing Corpn. (292 ITR 310). • The Punjab and Haryana High Court followed the above decision of Supreme Court in the case of CIT Vs. Nahar Exports Ltd. (173 Taxman 3 P & H). • The jurisdictional Madras High Court in the case of CIT Vs. Mepco Industries Ltd. (294 ITR 121) has held that the order to be revised under section 263 should not only be erroneous but also prejudicial to the interest of revenue. It held that where two views are possible order cannot be termed as erroneous. The powers under section 263 cannot be exercised merely because a different view is possible - SC dismissed the SLP against 259 ITR 502 CIT Vs. Arvind Jewellery (266 ITR 101) St. • In the case of CIT vs. Bharat Aluminum Co. Ltd. (303 ITR 256), the Hon'ble High 'Court of Delhi has held that for revision under section 263, the Commissioner of Income-tax has to be satisfied of two conditions viz. (i) the order of the AO sought to be revised is erroneous and (ii) It is prejudicial to the interest of Revenue. If one of them is absent, he cannot invoke the provisions of section 263. • Hon'ble Delhi High Court in the case of Commissioner of Income-tax v. Sunbeam Auto Ltd [2010] 189 Taxman 436 (Delhi) where in it was held that "The submission of the revenue was that while passing the assessment order, the Assessing Officer did not consider the aspect specifically whether the expenditure in question was revenue or capital expenditure. That argument predicated on the assessment order, which apparently did not give any reason 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 to the issue. There are judgments galore laying dawn the principle that the Assessing Officer in the assessment order is not required to give detailed reasons 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. 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 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".

issues questioned by the PCIT in their show cause notice issued u/s.263 of

ITA No.213/Chny/2022 M/s.S.R.Trust :: 11 ::

the Act, has been thoroughly examined by the AO during the course of

assessment proceedings, which is evident from notice issued by the AO and

reply furnished by the assessee. Even during revision proceedings, the

PCIT did not specify’ how and why’ the assessment order passed by the AO

is erroneous in so far as it is prejudicial to the interest of the Revenue.

Further, if you go by the observations of the PCIT, it is abundantly clear

that the PCIT has set aside the assessment order for further verification

which in our considered view is not permissible u/s.263 of the Act, even

after insertion of Explanation (2) to sec. u/s.263 of the Act. Therefore,

considering the facts and circumstances of the case and also by following

the ratio laid down by various case laws discussed hereinabove, we are of

the considered view that the assessment order passed by the AO is neither

erroneous nor prejudicial to the interest of the Revenue and thus, we

quashed the order passed by the PCIT u/s.263 of the Act.

Order pronounced on the 04th day of November, 2022, in Chennai.

Sd/- Sd/- (वी. दुगा� राव) (जी. मंजूनाथा) (G. MANJUNATHA) (V. DURGA RAO) लेखा सद�य/ACCOUNTANT MEMBER �याियक सद�य/JUDICIAL MEMBER

ITA No.213/Chny/2022 M/s.S.R.Trust :: 12 :: चे�ई/Chennai, �दनांक/Dated: 04th November, 2022. TLN आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 4. आयकर आयु�/CIT 2. ��यथ�/Respondent 5. िवभागीय �ितिनिध/DR 3. आयकर आयु� (अपील)/CIT(A) 6. गाड� फाईल/GF