ANI TECHNOLOGIES PRIVATE LIMITED,BENGALURU vs. PRINCIPAL COMMISSIONER OF INCOME-TAX- 1, BENGALURU, BENGALURU
Income Tax Appellate Tribunal, ‘A’ BENCH, BANGALORE
Before: SHRI WASEEM AHMED & SHRI SOUNDARARAJAN KAssessment Year: 2020-21
PER WASEEM AHMED, ACCOUNTANT MEMBER:
This appeal is directed against the order passed by the Principal
Commissioner of Income Tax (“PCIT”) under section 263 of the Income- tax Act, 1961 (“the Act”) for the assessment year 2020-21, dated
18.03.2025. 2. The assessee filed its return of income for AY 2020-21 declaring a total loss of ₹288.66 crores. The case was selected for scrutiny assessment. During the assessment proceedings, the Assessing Officer
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(AO) called for details of additions made towards intangible assets. The assessee furnished a breakup showing purchases of computer software amounting to ₹2,62,26,888.00, along with supporting party-wise details and submissions. The AO, after considering the submissions, passed an assessment order u/s 143(3) of the Act on 26.09.2022, making certain additions but without disturbing the depreciation claimed on computer software. Subsequently, the ld. PCIT on examination of assessment records observed that the software expenditure of ₹₹2,62,26,888.00 was not actually incurred in the year under consideration but represented a provision only, and that the actual costs were incurred in subsequent year. According to the ld. PCIT, the AO accepted the claim for the provision without making proper enquiry, and this amounted to lack of enquiry as per explanation 2 to section 263 of the Act.
Thus, the ld. PCIT was of the view that allowance of depreciation on such provision caused prejudice to the Revenue, since it resulted in excess depreciation being granted in AY 2020-21. The ld. PCIT, therefore, set aside the assessment order and directed the AO to reframe the assessment after verifying the allowability of the expenditure and depreciation claim by the assessee.
Being aggrieved by the order of learned PCIT, the assessee is in appeal before us.
The learned AR submitted that the AO had in fact made detailed enquiry by calling for breakup of intangible assets, party-wise details of software purchases, and supporting documents, all of which were Page 3 of 5
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furnished vide letters dated 20.12.2021. Thus, it was not a case of lack of enquiry. Reliance was placed on CIT v. Sunbeam Auto Ltd. (2010) 189
Taxman 436 (Delhi), holding that inadequate enquiry is not the same as lack of enquiry.
It was further submitted that even assuming that the AO’s view was erroneous, the second condition of section 263 – prejudice to the Revenue – was not satisfied. The assessee was a loss incurring entity not only in AY 2020-21 but also in subsequent years. Therefore, the treatment of the depreciation is a timing difference. If disallowed in the present year, the same would be capitalized and depreciation would be allowable in later years. Reliance was placed on Malabar Industrial Co. Ltd. v. CIT (243 ITR 83, SC), which held that both conditions must be satisfied for attracting the provisions for section 263 of the Act. Further reliance was placed on Soham Buildcon v. PCIT (2024) 160 taxmann.com 1250 (ITAT Ahmedabad), holding that revision cannot be exercised in tax-neutral situations.
Without prejudice, it was argued that the alleged tax effect was wrongly computed by the ld. PCIT at ₹2,72,17,722.00. The real effect would only be the depreciation component (25%), i.e., about ₹65,56,722 only, and even this had no impact as the assessee continued to incur losses.
On the other hand, the learned DR supported the order of the ld. PCIT. It was contended that the AO had accepted the assessee’s claim mechanically, without conducting sufficient enquiry into whether the Page 4 of 5
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provision represented actual expenditure incurred. It was further submitted that Explanation 2 to section 263 deems an order passed without enquiry to be erroneous, and therefore revision was validly exercised.
We have heard the rival submissions of both the parties and perused the materails available on record. The law is well settled that for section 263 to be invoked, the order must be both erroneous and prejudicial to the interests of the Revenue (Malabar Industrial Co. Ltd., SC).
In the present case, the AO had called for details of additions to intangible assets and depreciation claim, which were furnished by the assessee with supporting documents. Thus, it cannot be said that the AO made no enquiry. At best, the ld. PCIT may hold the enquiry to be inadequate, but inadequate enquiry does not empower revision.
Even assuming, the AO erred in allowing depreciation on software expenditure in AY 2020-21, the crucial question is whether such error is prejudicial to the interests of the Revenue. We find that the assessee is a continuous loss-incurring entity in AY 2020-21 and subsequent years. Any disallowance in the present year would only shift the claim to the next year, making the issue tax-neutral.
1 When there is no actual prejudice caused to the Revenue, the exercise of revisionary juri iction fails. Similar view has been taken in Soham Buildcon v. PCIT (supra), where revision was quashed in tax- Page 5 of 5
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neutral circumstances. In view of the above, we hold that even if the assessment order is considered erroneous, it is not prejudicial to the interests of the Revenue, as required under section 263 of the Act. The revisionary order passed by the PCIT is, therefore, unsustainable in law.
Accordingly, the impugned order passed under section 263 is quashed, and the appeal of the assessee is allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in court on 3rd day of November, 2025 (SOUNDARA RAJAN K)
Accountant Member
Bangalore
Dated, 3rd November, 2025
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Copy to:
The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file
By order
Asst.