SEVUGAN PETHAPERUMAL,MADURAI vs. PCIT, MADURAI-1,, MADURAI

आयकर अपीलीय अधिकरण, ’सी’ न्यायपीठ, चेन्नई।
IN THE INCOME TAX APPELLATE TRIBUNAL
‘C’ BENCH: CHENNAI
श्री जॉजज जॉजज के, उपाध्यक्ष एवं श्री अमिताभ शुक्ला, लेखा सदस्य के समक्ष
BEFORE SHRI GEORGE GEORGE K, VICE PRESIDENT AND SHRI AMITABH SHUKLA, ACCOUNTANT MEMBER

आयकर अपील सं./ITA No.1196/Chny/2025
Assessment Years: 2020-21

Sevugan Pethaperumal,
No.41, First Main Street,
Narayanapuram West,
Madurai,
Tamil Nadu-625 014. [PAN: AFJPP5984J]

Principal Commissioner of Income
Tax,
Madurai-1,
Madurai.

(अपीलार्थी/Appellant)

(प्रत्यर्थी/Respondent)
अपीलार्थी की ओर से/ Assessee by :
Shri G.Tarun, Advocate
प्रत्यर्थी की ओर से /Revenue by :
Shri Bipin C.N, CIT

सुनवाई की तारीख/Date of Hearing
:
06.08.2025
घोषणा की तारीख /Date of Pronouncement
:
25.08.2025

आदेश / O R D E R

PER AMITABH SHUKLA, A.M :

This appeal is filed by the assessee against the order bearing DIN
& Order No.ITBA / REV / F / REV5 / 2024-25 / 1075052788(1) dated
26.03.2025 of the Learned Principal Commissioner of Income Tax [herein after “PCIT), Madurai, for the assessment year 2020-21. The reference to the word “Act” in this order hereinafter shall mean the Income Tax Act,
1961 as amended from time to time.
2.0
The only issue raised by the assessee through its grounds of appeal is regarding the revisionary powers invoked by the Ld. PCIT-1,
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Chennai u/s 263 of the Act. The assessee has assailed the order u/s 263
dated 26.03.2025 by which the Ld. PCIT, Madurai has held that the order u/s 143(3) dated 12.09.2022 is erroneous in as much as it is prejudicial to the interest of the Revenue and consequently directing to modify the assessment qua his directions given in para 8 to 8.1.0 of his order. Brief factual matrix of the case is that the assessee is an individual deriving income from salary and other sources. Return declaring Income of Rs.2,63,150/- was filed by the assessee on 25.08.2020. Order u/s 143(3) was passed by the Ld.AO on 12.09.2022 accepting returned income. Pertinently, the case was selected in the limited scrutiny category to examine the “deduction from other sources. Before the Ld.AO, the assessee had submitted that he is the owner of a property viz
PY Mahal situated in Coimbatore and the rent received therefrom have been disclosed under the head income from other sources. The Ld.AO noted that the impugned property was rented out by the assessee to one
M/s.Orient Hospital Pvt Ltd and had shown income of Rs.88 lakhs as income from other sources. As evident from page 3 of the assessment order, the Ld.AO conducted detailed enquiries between the period
08.12.2021 to 29.08.2022 before concluding that “keeping in view of the above facts and documents filed during the course of assessment proceedings, no adverse inference is drawn and returned income of the assessee is accepted. Total income as per computation sheet attached.”.
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assessee per se is legally permissible under the provisions of the Act and the same was enquired into by the Ld.AO, the same cannot be revisited through the revisionary powers of the Ld.PCIT u/s 263 of the Act. It was accordingly pleaded that the 263 order may be set aside and quashed.
5.0
Per contra, the Ld.DR argued in favour of the revisionary order of Ld.PCIT u/s 263. It was vehemently argued that the Ld.AO has not made requisite enquiries into the issue.
6.0
We have heard the rival submissions in the light of material available on records. Before proceeding further, we deem it appropriate to briefly examine the statutory provisions u/s 263, 36(1)(vii) and section 37 which are seminal to the controversy.
“……..Section - 263, Income-tax Act, 1961 - FA, 2025
E.-Revision by the 28[Principal Commissioner or] Commissioner*
Revision of orders prejudicial to revenue.
29 263. (1) The 28[ 30[Principal Chief Commissioner or Chief Commissioner or Principal Commissioner] or] Commissioner may call for and examine 31 the record 32 of any proceeding under this Act, and if he considers that any order 32 passed therein by the 33[Assessing] Officer 34[or the Transfer Pricing
Officer, as the case may be,] is erroneous 32 in so far as 32 it is 32prejudicial to the interests of the revenue 32, 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, 32pass such order thereon as the circumstances of the case justify, 35[including,-
(i) an order enhancing or modifying the assessment or cancelling the assessment 32 and directing a fresh assessment; or (ii) an order modifying the order under section 92CA; or (iii) an order cancelling the order under section 92CA and directing a fresh
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order under the said section].
36[ 37[Explanation 1.]-For the removal of doubts 38, it is hereby declared that, for the purposes of this sub-section,-
(a) an order passed 39[on or before or after the 1st day of June, 1988] by the Assessing Officer 40[or the Transfer Pricing Officer, as the case may be,]
shall include-
(i) an order of assessment made by the Assistant Commissioner 41[or Deputy Commissioner] or the Income-tax Officer on the basis of the directions issued by the 42[Joint] Commissioner under section 144A;
(ii) an order made by the 42[Joint] Commissioner in exercise of the powers or in the performance of the functions of an Assessing
Officer 40[or the Transfer Pricing Officer, as the case may be,]
conferred on, or assigned to, him under the orders or directions issued by the Board or by the 43[Principal Chief Commissioner or]
Chief Commissioner or 43[Principal Director General or] Director
General or 43[Principal Commissioner or] Commissioner authorised by the Board in this behalf under section 120;
44[(iii) an order under section 92CA by the Transfer Pricing Officer;]
(b)
45“record” 46[shall include and shall be deemed always to have included] all records relating to any proceeding under this Act available at the time of examination by the 43[Principal 47[Chief
Commissioner or Chief
Commissioner or Principal] Commissioner or] Commissioner;
(c) where any order referred to in this sub-section and passed by the Assessing Officer 44[or the Transfer Pricing Officer, as the case may be,]
had been the subject matter 48 of any appeal 49[filed on or before or after the 1st day of June, 1988 48], the powers of the* 50[Principal Commissioner or] Commissioner under this sub-section shall extend 49[and shall be deemed always to have extended] to such matters as had not been considered and decided in such appeal.]
51[Explanation 2.-For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer 52[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 Page - 6 - of 13

interests of the revenue, if, in the opinion of the Principal 53[Chief Commissioner or Chief Commissioner or Principal] Commissioner or Commissioner,-
(a) the order is passed without making inquiries or verification which should have been made 48;
(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 juri ictional High Court or Supreme Court in the case of the assessee or any other person.]
54[Explanation 3.-For the purposes of this section, “Transfer Pricing Officer” shall have the same meaning as assigned to it in the Explanation to section 92CA.]
55[(2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed.]
(3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, 56 the High Court or the Supreme
Court.
Explanation.-In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and 56a[the period commencing on the date on which stay on any proceeding under this section was granted by an order or injunction of any court and ending on the date on which certified copy of the order vacating the stay was received by the juri ictional
Principal
Commissioner or Commissioner] shall be excluded.

Other deductions.
36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28-
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59(vii) subject to the provisions of sub-section (2), the amount of 60[any 61bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year]:

62[Provided that in the case of 63[an assessee] to which clause (viia) applies, the amount of the deduction relating to 61any such debt or part thereof shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account made under that clause:]

64[Provided further that where the amount of such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof becomes irrecoverable or of an earlier previous year on the basis of income computation and disclosure standards notified under sub-section (2) of section 145 without recording the same in the accounts, then, such debt or part thereof shall be allowed in the previous year in which such debt or part thereof becomes irrecoverable and it shall be deemed that such debt or part thereof has been written off as irrecoverable in the accounts for the purposes of this clause.]

65[ 66[Explanation 1].-For the purposes of this clause, any bad debt or part thereof written off as irrecoverable in the accounts of the assessee shall not include any provision for bad and doubtful debts 67 made in the accounts of the assessee.]

68[Explanation 2.-For the removal of doubts, it is hereby clarified that for the purposes of the proviso to clause (vii) of this sub-section and clause (v)of sub-section (2), the account referred to therein shall be only one account in respect of provision for bad and doubtful debts 69 under clause (viia) and such account shall relate to all types of advances, including advances made by rural branches;]
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………………………………………………………………………………………….
30(2) In making any deduction for a bad debt or part thereof, the following provisions shall apply-
31[(i) no such deduction shall be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year, or represents money lent in the ordinary course of the business of banking or money-lending which is carried on by the assessee;]
ii) if the amount ultimately recovered on any such debt or part of debt is less than the difference between the debt or part and the amount so deducted, the deficiency shall be deductible in the previous year in which the ultimate recovery is made;

General.
36 37. 37 (1) 38Any expenditure 39 (not being expenditure of the nature described in sections 30 to 3640[***] and not being in the nature of capital expenditure 41 or personal expenses of the assessee), laid out or expended wholly and exclusively 41 for the purposes of the business 41 or profession shall be allowed in computing the income chargeable under the head “Profits and gains of business or profession”…..”

of Revenue if the order is passed without making inquiries or verification which should have been made. The law thus stipulates that if an assessing officer is found to have made enquiries in a case, the revisionary authority cannot be exercised by the supervisory commissioner. It is in this context that the nature of enquiries made by the Ld.AO in this case assumes significance. The Ld.AO has accepted the assessee’s claims of taxability of the impugned income as income from other sources after holding detailed enquiries. The enquiries conducted by the Ld.AO are evidenced from the details available on page
3 of the assessment order as well as in the details placed by the assessee in its paper book. The said documents provide sufficient credibility to allude towards truthfulness of hypothesis propounded by the assessee. Consequently we are not in agreement with the conclusions drawn by the Ld.PCIT that the Ld.AO has failed to conduct necessary enquiries in this case and proceeded in drawing his conclusions of the assessment order passed by the assessing officer being erroneous in so far as it is prejudicial to the interest of Revenue and consequently directing the AO for making fresh enquiries and verification and assessment of income.
8.0 We have noted that the Hon’ble Delhi High court in the case of Vikas Polymers 194 taxmann 57 have held that there is distinction between “lack of enquiry” and “inadequate enquiry. Whereas the former
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can be a case for exercise of revisionary authority, the latter cannot be a ground for initiating action u/s 263 by the supervisory commissioner.
The Hon’ble High Court ruled that.
“…This is for the reason that if a query is raised during the course of scrutiny by the Assessing Officer, which was answered to the satisfaction of the Assessing
Officer, but neither the query nor the answer were reflected in the assessment order, this would not by itself lead to the conclusion that the order of the Assessing
Officer called for interference and revision. In the instant case, for example, the Commissioner has observed in the order passed by him that the assessee has not filed certain documents on the record at the time of assessment. Assuming it to be so, in our opinion, this does not justify the conclusion arrived at by the Commissioner that the Assessing Officer had shirked his responsibility of examining and investigating the case. ….”.

In the instant case the evidence on record vividly suggests that the Ld.AO did make enquiries in the case. It is not the case of the Revenue that no enquiries were made but rather that the Ld.AO ought to have collected and considered for verification different set of evidences qua rental income.
9.0
Again in the case of Anil Kumar Sharma 194 taxman 504,
Hon’ble Delhi High Court have ruled that once it is inferred from the records that the Ld.AO had applied his mind, action u/s 263 cannot be taken. Merely because the Ld. Commissioner holds a different opinion on the view taken by the Ld.AO would not make his order erroneous in as Page - 11 - of 13

much as prejudicial to the interest of Revenue as mandated u/s 263 of the Act. Thus Hon’ble Delhi High Court held as under:-
“…..7. In view of the above discussion, it is apparent that the Tribunal arrived at a conclusive finding that, though the assessment order does not patently indicate that the issue in question had been considered by the Assessing Officer, the record showed that the Assessing Officer had applied his mind. Once such application of mind is discernible from the record, the proceedings under section 263 would fell into the area of the Commissioner having a different opinion. We are of the view that the findings of facts arrived at by the Tribunal do not warrant interference of this Court. That being the position, the present case would not be one of 'lack of inquiry' and, even if the inquiry was termed as inadequate, following the decision in Sunbeam Auto Ltd.'s case (supra), "that would not by itself give occasion to the Commissioner to pass orders under section 263 of the said Act, merely because he has a different opinion in the matter". No substantial question of law arises for our consideration. Consequently, the appeal is dismissed….”.

In the instant case Ld.PCIT has also assailed the order of the Ld.AO for non-application of mind but the same is not evident from the assessment order.
10.0
On the issue of allegation of non-conduct of enquiry by the Ld.AO, there is other angle which deserves consideration. It has been clearly exhibited by the Ld.AO in opening para of his order that the assessee’s case was selected in the limited scrutiny category to examine the “deduction from income from other sources”. In the impugned limited scrutiny category an AO is mandated to only hold enquiries and verification into the limited area in respect of which the case is selected
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for scrutiny assessment. As for CBDT instructions, an AO is empowered only to limit his enquiries qua reasons for which the case is selected for limited scrutiny and cannot travel beyond. In the present case, the Ld.AO was to examine the assessee’s claim of deductions from income from other sources. Thus, in principle, the Ld.AO was only authorized to examine the claim of deduction made by the assessee in persuance to its income offered under the head other sources. In fact, in a limited scrutiny case revisionary authority u/s 263 can only be exercised if the Ld.AO is found to have not enquired into reasons for which limited scrutiny was undertaken. In the instant case, limited scrutiny was not undertaken to examine whether rental income was to be assessed as Income from other sources or Income from house property. It was merely mandated to examine the “deduction” from other sources i.e. as to whether expenses claimed as deduction by the assessee while offering
Income from other sources were genuine, incidental to income and properly vouchered or not. There is nothing on records that the Ld.AO was found wanting in this regard.
11.0
We are therefore of the considered view that in the light of statutory provisions authorizing invocation of revisionary authority u/s 263, judicial precedents discussed herein above, the exercise of revisionary authority u/s. 263 by the order of Ld.CIT-1, Chennai is not in order. The order of Ld.CIT-1, Chennai dated 26.03.2025 is therefore
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set aside and all the grounds of appeal raised by the assessee are therefore allowed.
12.0
In the result, the appeal of the assessee is allowed.
Order pronounced on 25th , Aug-2025 at Chennai. (जॉजज जॉजज के)
(GEORGE GEORGE K)
उपाध्यक्ष / vice president (अधिताभ शुक्ला)
(AMITABH SHUKLA)
लेखा सदस्य /Accountant Member
चेन्नई/Chennai, धदनांक/Dated: 25th , Aug-2025. KB/-
आदेश की प्रतितिति अग्रेतिि/Copy to:
1. अिीिार्थी/Appellant
2. प्रत्यर्थी/Respondent
3. आयकर आयुक्त/CIT - Chennai/Coimbatore/Madurai/Salem.