PAULPANDIAN UTHAMARAJ WINSTON,CHENNAI vs. PCIT, CENTRAL CIRCLE-1, CHENNAI

There was a delay of 257 days in filing the appeal by the above assessees. The Ld.DR stated in the affidavit for condonation of delay that due to fault of previous Auditor of the assessee, order u/s.263 of the Act was not contested before the ITAT. Moreover, he wrongly opined that since the order is only set aside to redo the assessments, claims of appellants with regard to reduction u/s.24(b) would still prevail. Therefore, the appeals could not be filed within the stipulated period and hence, the present A.R for the assessee seeks for condonation of delay. Having found the reason stated comes under reasonable cause for the delay, we condone the delay in filing of appeals and admitted the same for adjudication.

Briefly stated, an action u/s.133A of the Income Tax Act, 1961 (hereinafter in short „the Act‟) was conducted in the case of the assessee on 22.03.2018 and as a result, the assessment for the above years were reopened and subsequently after appropriate inquiries made through issue of multiple notices u/s.142(1), the assessment orders were finally concluded on 30.03.2022 u/s.147, arriving at a taxable income as under:

According to the Principal Commissioner of Income-tax, (Central) Chennai-1, the above assessment orders passed by the Assessing Officer were erroneous as well as prejudicial to the interest of Revenue as per Clause (a) of Explanation 2 to Sec. 263 and without providing adequate opportunity of being heard to the assessee, the order u/s.263 was passed, to examine a specific issue of allowance of interest u/s.24(b), as according to the Pr.CIT, the assessment orders were passed without making enquiries or verification which should have been made, before allowing the deduction in respect of the interest paid on loans obtained towards the properties from which rental income was reported.

According to the ld. Pr. CIT, there was no enquiry or verification made on the correctness of claim of deduction u/s.24(b) of the Act. However, this characterization was enforced, without conducting enquiries by the revisionary authority or cause such enquiry. The claim of deduction u/s.24(b) was according to the Pr. CIT, an illogical claim, and therefore, through the order u/s.263, the assessing officer was directed to carry out necessary enquiries and verification regarding the claim of interest on borrowed capital under the provisions of Section 24 of the Act and revise the assessment orders passed in respect of above years.

The ld. AR contended that if only the enquiries were undertaken by the Pr. CIT, either on his own or cause such enquiries before passing the order u/s.263, the truth would have gotten unraveled and this unnecessary torment unleashed on the assessee could have been avoided. Therefore, it is evident that it is only the order u/s.263 which is erroneous, since it had failed to follow the principles ordained under the provisions of Section 263, which permits such authority to classify an order to be erroneous, unless an enquiry is conducted by such revisionary authority.

Further, according to the ld.AR, the revisionary authority was premeditated to set aside the order, irrespective of the genuineness of claim of deduction u/s.24(b) proven by the fact that while the notice of hearing was issued on 01.03.2024, fixing the date of hearing with a short gap of four days of compliance on 05.03.2024 and knowing very well that the response is beyond the control of the assessee, and arbitrarily inferred that the assesseehas no objection to the proposed action u/s.263 of the Act.

This contention is substantiated from the plain reading of the provisions of Section 263(1) itself and for ease of reference, the same is captured and provided as follows: “263. Revision of orders prejudicial to revenue.

Therefore, the essential condition to be fulfilled to categorize any order passed by a subordinate authority is that the revisionary authority has to make or cause to be made such enquiry as he deems necessary before passing such order. It can be considered common ground that any accusation has to be backed by proper enquiries and evidence before drawing such conclusion.

In the case under consideration, when the ld.Pr. CIT has formed an opinion that it is a case of lack of enquiry, directing the AO to undertake such enquiry once

The ld. AR cited the decision held by the Hon‟ble Supreme Court in the case of Pr. CIT v. Earth Minerals Co. Ltd. [2024] 162 taxmann.com 273 (SC) which ratified the order of the High Court of Orissa reported in [2024] 162 taxmann.com 272 (Orissa) which affirmed the finding of the Income-tax Appellate Tribunal (Cuttack Bench) delivered in of 2019 (Cuttack ITAT), which had held to be as follows: “on account of the absence of any enquiry being done by the ld. Pr. CIT before passing the order u/s.263 of the Act, the impugned order passed u/s.263 of the Act by the ld. Pr. CIT is held to be bad in law and the same is hereby annulled.”

The ld. AR further contended that the revisionary powers u/s.263 of the Act can only be invoked in certain cases where there is clear material on record which suggests that the AO has adopted an interpretation of statute which has led to an incorrect or incomplete imposition of tax. The ld. AR cited the decision of ITAT, Chennai in Golden Vats Pvt Ltd vs. ACIT in pronounced on 09/01/2024, quoting judicial precedents, that – “when larger issue was pending before CIT(A), the revisionary authority could not exercise jurisdiction u/s.263”.

Per contra, the ld. DR vehemently argued that the AO has failed to verify the genuineness of the claim of deduction towards borrowed capital by calling for details of the parties from whom loans were borrowed and hence, the ld. PCIT came to the conclusion that the assessment framed by theAO was erroneous and prejudicial to :-7-: ITA. Nos.:418 to 425 /Chny/2025 the interest of the Revenue and thus the plea of the assessee may kindly be dismissed. Therefore, the assessment order dated 30/3/2022 deserves revision u/s.263 of the Act.

We have heard both the contentions perused the records and gone through the orders of the authorities. The facts are not repeated for the sake of brevity. The solitary issue which is common to all the eight appeals that needs to be examined is with regard to the correctness of the ld.PCIT‟s action in invoking Section 263 of the Act and interfering with the orders of assessment passed by the Assessing Officer classifying it to be erroneous inasmuch as prejudicial to the interests of Revenue, thereby setting aside the order with a direction to the Assessing Officer to carry out necessary enquires and verification in connection with the claim of interest on borrowed capital under the provisions of Section 24 of the Act and revise the assessment orders passed in respect of above years, is valid or otherwise.

An action under Section 133A was undertaken in the case of the assessee and the sole and whole aspect of investigation in the survey, post-survey enquiry and the reassessment proceedings, was confined to the rental income, which according to the AO was suppressed. When the principal issue is pivoted to the correctness of rental income offered in the returns filed prior to the action under Section 133A, it cannot be said that there was a total lack of enquiry while concluding the assessment proceedings.

Even if it were an error on part of the AO to have missed out to check the correctness of claim of interest u/s.24(a), such omission can only be categorized as a case of „inadequate enquiry‟.

Only in the event of a complete lack of enquiry, can the ld.Pr. CIT revise the order of assessment directly, but in case of inadequate enquiry, the ld. Pr. CIT must make their own enquiries before passing the revision order. If the Commissioner wants to revise the assessment on the ground that the enquiry was inadequate, then he must make an independent inquiry to demonstrate how the assessment is erroneous and prejudicial.

Mere inadequacy of inquiry does not justify revision unless supported by material gathered by the ld.Pr. CIT. If the AO has conducted an enquiry, however inadequate, the ld. Pr. CIT cannot just label it as erroneous without doing further enquiry by himself. In the action taken by the ld.Pr. CIT to revise the eight assessment orders, there is not even an iota of proof having undertaken any inquiry before concluding the orders to be erroneous. Moreover, it is apparent from the period of time made available to the assessee to respond to the notice under Section 263, and the conclusion drawn that the ld. Pr. CIT passed the orders in a hurried and mechanical manner without proper application of mind.

The decision cited by the Ld. AR in the case of Pr. CIT v. Earth Minerals Co. (supra.) rallies squarely in favour of the assessee and in view of the foregoing discussions, we conclude that the issue under question does not warrant invoking of Section 263 and hence set aside the PCIT‟s order which is untenable in law. We also find that the assessee has already preferred an appeal against the assessment order questioning the additions before the ld.CIT(A). Therefore, relying on the decision of ITAT, Chennai in Golden Vats Pvt Ltd vs. ACIT (supra),we are of the view that when the larger issue was pending before the CIT(A), the revisionary authority cannot exercise jurisdiction u/s.263 of the :-9-: ITA. Nos.:418 to 425 /Chny/2025 Act. Hence, we set aside the order u/s.263 of the Act of the ld.PCIT by allowing the grounds of appeal filed by both the assessees in all the eight appeals.

In the result, all the appeals filed by both the assessees are allowed.