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Income Tax Appellate Tribunal, HYDERABAD “A” BENCH: HYDERABAD
Before: SHRI MANJUNATHA G & SHRI RAVISH SOOD
ORDER PER MANJUNATHA G. : The above two appeals are filed by the Assessee against the orders both dated 13.03.2025 of the learned Principal Commissioner of Income Tax, Hyderabad-1, Hyderabad, passed u/sec.263 of the Income Tax Act, 1961 [in short “the Act”], relating to the assessment years 2020- 2021 and 2021-2022. Since common issues are involved in both these appeals, these appeals were heard together and are being disposed of by this single consolidated order for
2 ITA.Nos.609 & 610/Hyd./2025 the sake of convenience and brevity. First, we take-up ITA.No.609/Hyd./2025 for the assessment year 2020-2021.
ITA.No. 609/Hyd./2025 – A.Y. 2020-2021 2. The assessee has raised the following grounds in the instant appeal : 1. “The Hon'ble Pr. CIT erred in law and on facts in passing an order u/s 263 without first assuming jurisdiction u/s 263 of the Act.
2. The Hon'ble Pr. CIT erred in law and on facts in holding that the assessment order passed by the assessing officer is erroneous in so far as it is prejudicial to the interest of the revenue.
3. The appellant craves leave to add, alter or withdraw any of the grounds of appeal.”
3. Brief facts of the case are that, the assessee- company is engaged in the business of providing Healthcare Services, filed it’s return of income for the assessment year 2020-2021 on 19.12.2020 admitting total income of Rs.13,24,09,952/-. The case of the assessee-company was selected for scrutiny and assessment has been completed u/sec.143(3) r.w.s.144B of the Income Tax Act, 1961, vide order dated 20.09.2022 determining the total income of the assessee at Rs.13,25,63,360/-. The case has been subsequently taken-up for revision proceedings and 3 ITA.Nos.609 & 610/Hyd./2025 accordingly, a show cause notice u/sec.263 of the Act dated 18.02.2025 was issued to the assessee and called-upon the assessee to explain as to why the assessment order passed by the Assessing Officer shall not be revised for the reasons stated in the said show cause notice. The PCIT, in the said show cause notice observed that, on verification with electronic assessment record available in the ITBA portal, it is found that, the assessee has substantial investments in the nature of equities in different entities which are capable of generating the income, which would be exempted from taxation. However, the assessee has not disallowed associated expenses against these investments. No separate accounts for expenses related to these investments were found to be maintained by the assessee. The PCIT further observed that, perusal of assessment record, it was apparent prima facie that, during the course of assessment proceedings, this aspect of disallowance u/sec.14A read with Rule 8D of I.T Rules, 1962 was not verified by the Assessing Officer while completing the assessment. The omission by the Assessing Officer in passing the order
4 ITA.Nos.609 & 610/Hyd./2025 without making enquiries or verification which should have been made and allowing relief without enquiring into the aspect of disallowance u/sec.14A read with Rule 8D of I.T Rules, 1962, render the assessment order erroneous in so far as prejudicial to the interests of the revenue. Therefore, called-upon the assessee to file it’s objections, if any, for proposed revision of assessment order.
3.1. In response, the assessee submitted that, the assessment order passed by the Assessing Officer u/sec.143(3) r.w.s.144B of the Act, dated 20.09.2022 is neither erroneous nor prejudicial to the interests of the revenue because, the Assessing Officer has passed the assessment order after due verification of relevant aspects including investments in equities, dividend income earned by the assessee for the relevant assessment year and corresponding expenses relatable to the said dividend income and after considering relevant submissions of the assessee, has completed the assessment, without making any disallowance under section 14A of the Act. Therefore, the assessment order passed by Assessing Officer cannot be 5 ITA.Nos.609 & 610/Hyd./2025 considered as erroneous and prejudicial to the interest of revenue. The learned PCIT after considering relevant submissions of the assessee and also taking note of provisions of section 263 and Explanation-2 observed that, the assessment order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of revenue, which is evident from the assessment orders passed by the Assessing Officer u/sec.143(3) r.w.s.144B of the Act, dated 20.09.2022, where the Assessing Officer has accepted the explanation of assessee with regard to investments, without even verifying the relevant facts with regard to applicability of provisions of section 14A read with Rule 8D of I.T. Rules, 1962, which renders the assessment order erroneous and prejudicial to the interests of revenue. The learned PCIT discussed the issue at length, in light of Explanation-2 to Sec.263 of the Act and held that, if an assessment order is passed without making enquiry or verification, which should have been made or the order passed allowing relief without enquiry into the claim, renders the order erroneous and prejudicial to the interest 6 ITA.Nos.609 & 610/Hyd./2025 of revenue. The learned PCIT has also discussed the issue of disallowance under section 14A read with the Rule 8D of I.T. Rules, 1962, in light of Circular No.14 of 2001 issued by the CBDT and held that, although, the assessee has made huge investments in equities, which is capable of generating exempt income and further, the assessee has not disallowed the associated expenses against these investments, but, the Assessing Officer has not verified the issue, which he ought to have verify in light a provisions of section 263 of the Act. Therefore, rejected the explanation of assessee and set-aside the assessment order passed by the Assessing Officer with a direction to re-frame the assessment as per the provisions of law, after considering proper fats and submissions of the assessee on the issue.
Aggrieved by the order of the learned PCIT, the assessee is now, in appeal before the Tribunal.
CA, S. Venugopal, Learned Counsel for the Assessee, submitted that, the learned PCIT is erred in setting aside the assessment orders passed by the Assessing Officer u/sec.143(3) r.w.s.144B of the Act, dated
7 ITA.Nos.609 & 610/Hyd./2025 20.09.2022, without appreciating the fact that, the assessment order passed by the Assessing Officer is neither erroneous nor prejudicial to the interests of the revenue. Learned Counsel referring to various facts, including relevant assessment order passed by the Assessing Officer and notice issued under section 142(1) on various occasions submitted that, the Assessing Officer has called-for specific questions on the issue of nature of investments, source of such investments, expenses incurred for making such investment and also dividend income earned from such investments. The assessee has filed complete details of investments and also explained the source of said investments. The assessee has also submitted details of dividend income earned from investments and the expenses relatable to the said exempt income. The Assessing Officer after considering relevant facts has accepted the explanation of assessee and passed the assessment order. Therefore, it cannot be said that, the Assessing Officer has not carried-out enquiries or verification, which he ought to have been carried-out, in light of Explanation-2 to Sec.263
8 ITA.Nos.609 & 610/Hyd./2025 of the Act. In this regard, he relied upon certain judicial precedents including decision of Hon’ble Supreme Court in the case of Malabar Industrial Company Limited vs. CIT [2000] 243 ITR 83 (SC). The assessee also relied upon decision of ITAT, Hyderabad Bench in the case of ACIT vs., Lycos Internet Ltd., in ITA.No.1769/Hyd./2018, order dated 22.01.2025.
5.1. Learned Counsel for the Assessee further, referring to the assessment order for assessment year 2021- 2022 submitted that, the PCIT has invoked jurisdiction under section 263 of the Act on the issue of disallowance under section 14A read with Rule 8D of I.T. Rules, on very same investment and discussed the issue on same lines with that of the assessment year 2020-2021. Further, the facts remains that, for the assessment year 2021-2022 onwards, dividend income is taxable in the hands of the recipient and in fact, the assessee has earned dividend income and the same has been offered to tax. Further, the assessee had also derived capital gain from sale of investments and the same is subjected to tax. However, the 9 ITA.Nos.609 & 610/Hyd./2025 learned PCIT without verifying the relevant facts, simply invoked jurisdiction under section 263 of the Act on the issue of disallowance of expenses relatable to exempt income under section 14A, even though, the said provisions does not applicable for the assessment year under consideration.
Shri B. Bala Krishna, learned CIT-DR for the Revenue, on the other hand, supporting the order of the learned PCIT submitted that, the assessment order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, because, although, the Assessing Officer has issued show cause notice and called-for specific information with regard to investments and corresponding dividend income and expenses relatable to the said income, but the assessee has made a vague submission without there being any details as to the expenses incurred by the assessee for the relevant assessment year and allocation of said expenditure to the business and investment activities. The Assessing Officer without considering the relevant facts, simply accepted the 10 ITA.Nos.609 & 610/Hyd./2025 claim of the assessee, which renders the assessment order erroneous in so far as it is prejudicial to the interest of revenue, more particularly, in light of Explanation-2 to Sec.263 of the Act, where it has been clearly laid down the principle and as per which, when assessment order passed without making an enquiry or verification, which ought to have been made or an order is passed allowing any relief, without making any enquiry, then, such order becomes erroneous and prejudicial to the interest of revenue. The learned PCIT after considering the relevant facts, has rightly invoked revisionary jurisdiction u/sec.263 of the Act and set-aside the assessment order for the assessment years 2020-2021 and 2021-2022. Learned CIT-DR further, referring to the arguments of the assessee, more particularly, for the assessment year 2021-2022 submitted that, even if dividend income and capital gain is taxable for the year under consideration, still the provisions of section 14A is applicable because, when assessee makes several investments in various companies and out of such investments, only one or two investments yield exempt 11 ITA.Nos.609 & 610/Hyd./2025 income and remaining investments does not yield exempt income, then, the expenses relatable to investment which does not yield exempt income, needs to be computed in light of provisions of section 14A read with Rule 8D of I.T. Rules, 1962. Therefore, he submitted that, the learned PCIT has rightly invoked his revisionary jurisdiction u/sec.263 of the Act and set-aside the assessment order, even for assessment year 2021-2022 and thus, the order of the learned PCIT should be upheld.
We have heard both the parties, perused the material on record and gone through the orders of the authorities below. The learned PCIT has set-aside the assessment order passed by the Assessing Officer for the assessment years 2020-2021 and 2021-2022 on the issue of disallowance under section 14A read with Rule 8D of I.T. Rules, 1962. According to the PCIT, the assessee has made substantial investments in the nature of equity shares in different entities, which are capable of generating the income, which would exempt from tax. Further, the assessee has not disallowed the associated expenses against 12 ITA.Nos.609 & 610/Hyd./2025 these investments. No separate accounts for expenses related to these investments have been maintained by the assessee. Although, the assessee has made substantial investments which are capable of generating the exempt income and further, the assessee has not made suo motu disallowance towards expenses relatable to exempt income, but, the Assessing Officer without verifying relevant facts, in light of provisions of section 14A read with Rule 8D of I.T. Rules, 1962, has completed assessment under section 143(3) r.w.s.144B of the Income Tax Act, 1961, vide orders dated 20.09.2022 and dated 20.12.2022 for the assessment years 2020-2021 and 2021-2022 respectively and accepted the explanation offered by the assessee with regard to investments and expenses relatable to said investments which render the assessment order erroneous and prejudicial to the interests of revenue. The learned PCIT has discussed the issue at length, in light of relevant facts and also provisions of section 263 of the Act and more particularly, Explanation-2 provided therein and held that, if any order is passed without making enquiries or 13 ITA.Nos.609 & 610/Hyd./2025 verification, which should have been made or if, any order is passed allowing any relief, without enquiring into the claim, then, such order shall be deemed to be erroneous in so far as it is prejudicial to the interests of revenue. Therefore, observed that, since the Assessing Officer has not verified the issue in light of relevant provisions of the Act and also simply accepted the explanation of assessee with regard to disallowance contemplated under section 14A read with Rule 8D of I.T. Rules, 1962 and thus, the order passed by the Assessing Officer under section 143(3) r.w.s.144B of the Act, dated 20.09.2022 and dated 20.12.2022 for the assessment years 2020-2021 and 2021-2022 respectively, is erroneous in so far as it is prejudicial to the interests of revenue.
We have deliberated on the issue in light of arguments of both the parties. We find that, the provisions of Section-263 deals with the revisional powers of the PCIT. As per the provisions of Sec.263 of the Act, if the Commissioner satisfied that, the assessment order passed by the Assessing Officer is erroneous in so far as it is 14 ITA.Nos.609 & 610/Hyd./2025 prejudicial to the interests of the revenue, then, the assessment order passed by the Assessing Officer shall be revised. But, in order to invoke jurisdiction under Sec.263 of the Act, the twin conditions provided therein must be satisfied i.e., (i) the order of the Assessing Officer sought to be revised is erroneous and (ii) it is prejudicial to the interests of revenue. If one of them is absent i.e., if the order of the Assessing Officer is erroneous, but, does not prejudicial to the interests of revenue or if the order of the Assessing Officer is not erroneous, but, prejudicial to the interests of revenue, then, recourse cannot be taken under Sec.263 of the Act. In other words, before invoking jurisdiction under Sec.263 of the Act, the PCIT must satisfy himself that, the order passed by the Assessing Officer is erroneous which caused prejudice to the interests of revenue and such opinion should be formed based on subjective satisfaction of the PCIT. In the present case, going by the facts available on record, the learned PCIT assumed jurisdiction u/sec.263 of the Act and set aside the assessment order for both the assessment years, on the 15 ITA.Nos.609 & 610/Hyd./2025 issue of disallowance under section 14A read with Rule 8D of I.T. Rules, 1962. The reasons given by the learned PCIT for setting aside the assessment order for both the assessment years are more or less common. The PCIT observed that, the assessee has made substantial investments in equities, which are capable of generating exempt income and further, the assessee has not made any disallowance of expenses relatable to said investments. In other words, there is no clear-cut finding from the PCIT on the issue of applicability of provisions of section 14A read with Rule 8D of I.T. Rules, 1962, going by the facts available on record that, the assessee has earned exempt income in the form of dividend from investments and further, the assessee has incurred various expenses, which are common in nature, but, the expenditure relatable to investment activity has not been disallowed in terms of section 14A of the Act. The learned PCIT has made a general observation in light of investments made by the assessee without there being any observation with regard to, whether such investments have earned exempt income or not ? and 16 ITA.Nos.609 & 610/Hyd./2025 further, the assessee has incurred any expenditure relatable to exempt income or not ? Therefore, in our considered view, the learned PCIT without even making required enquiry, assumed jurisdiction, without even satisfying that, the facts of the present case requires examination of the issue in light of provisions of section 14A read with Rule 8D of I.T. Rules, 1962, but, the Assessing Officer has failed to carry out required enquiries he ought to have been carried-out in light of Explanation-2 to Sec.263 of the Act. Therefore, in our considered view, the assumption of jurisdiction by the learned PCIT on the issue of disallowance under section 14A read with Rule 8D of I.T. Rules, 1962, is not in accordance with relevant provisions of Sec.263 of the of the Income Tax Act, 1961.
Coming back to the issue on hand. Admittedly the assessee has made investments in equities of various companies and also earned exempt income. For the assessment year 2020-2021, the assessee has earned exempt income of Rs.2,46,018/- and has not made any suo motu disallowance of expenditure relatable to exempt 17 ITA.Nos.609 & 610/Hyd./2025 income. During the course of assessment proceedings, the Assessing Officer issued specific notice under section 142(1) of the Act on 14.03.2022 and 15.07.2022 and called-for specific information like, nature of investments and the source of investment, interest paid on the fund utilised. The Assessing Officer had also called-for relevant details, in light of Rule 8D of I.T. Rules, 1962, including direct expenses and indirect expenses and interest paid on borrowed funds utilized for the investment including computation as per Rule 8D of I.T. Rules, 1962 read with 14A of the Income Tax Act, 1961. The assessee, in response to the said notice, has submitted complete details vide letter dated 20.09.2022 and also furnished details of investments and further explained the amount of dividend income earned for the year and why there is no disallowance of expenses relatable to the said income. The Assessing Officer after considering relevant submissions of the assessee, has accepted the explanation and has not made any disallowance under section 14A read with Rule 8D of I.T. Rules, 1962. Therefore, in our considered view, where the Assessing Officer has taken a 18 ITA.Nos.609 & 610/Hyd./2025 plausible view on the issue, after considering relevant submissions of the assessee, then, the learned PCIT cannot substitute his views on the very same issue, unless, the view taken by the Assessing Officer is unsustainable in law. Since the Assessing Officer has taken one of the ‘plausible view’, in our considered view, the invocation of jurisdiction by the learned PCIT on the ground that, the Assessing Officer has not carried-out any enquiries which he ought to have been carried-out, is contrary to the provisions of Sec.263 of the Act and cannot be upheld for the assessment year 2020-2021.
Coming back to assessment year 2021-2022. Admittedly, the law has been changed from assessment year 2021-2022 onwards in respect of dividend income and capital gains from listed shares. From the assessment year 2021-2022 onwards, the dividend income is taxable in the hands of the recipient and capital gain derived on sale of investment is taxable. In the present case, the assessee has earned dividend income of Rs.22,21,250/- and the same has been offered to tax under the Head “Income from 19 ITA.Nos.609 & 610/Hyd./2025 Business”. Further, the assessee has earned short term capital gain of Rs.10,87,95,688/- and the same has been offered to tax under the Head “Income from Capital gain”. Therefore, in our considered view, once the income from investments is taxable including dividend income and capital gain, then, disallowance of expenses relatable to said investments under section 14A read with Rule 8D does not arise for the assessment year 2021-2022. Although, the assessee has brought all these facts to the notice of the learned PCIT, but, the PCIT has invoked the provisions of section 14A read with Rule 8D of I.T. Rules, 1962, in light of Circular No. 5 of 2014 issued by the CBDT dated 11.02.2014. But, in our considered view, the learned PCIT has completely misunderstood the concept of disallowance of expenses relatable to exempt income under section 14A read with Rule 8D of I.T. Rules, 1962 and wrongly applied CBDT Circular No.5 of 2014, even though, the law has been changed from assessment year 2021-2022 onwards and as per the amended provisions of law, dividend income and capital gain is taxable and, therefore, in our considered 20 ITA.Nos.609 & 610/Hyd./2025 view, the question of application of provisions of section 14A of the Act, is incorrect. Further, as noticed by us, the assessee has already offered the dividend income and capital gain for taxation and not claimed any exempt income u/secs.10(34) and 10(38) of the Income Tax Act, 1961. Once there is no exemption of any income, then, expenses relatable to said income should be allowed in total. The learned PCIT, without appreciating these facts, has simply set-aside the assessment order passed by the Assessing Officer on the issue of disallowance under section 14A read with Rule 8D of I.T. Rules. Therefore, we cannot uphold the reasons given by the learned PCIT to set-aside the assessment order passed by the Assessing Officer for both the assessment years.
The assessee has relied upon the decision of Hon’ble Supreme Court in the case of Malabar Industrial Company Limited vs., CIT (supra). In light of provisions of Sec.263 of the Income Tax Act, 1961, the Hon’ble Supreme Court held as under :
21 ITA.Nos.609 & 610/Hyd./2025 “(i) that the exercise of jurisdiction by the Commissioner under Section 263(1) of the Act was not only unwarranted but also illegal; he contended that mere loss of tax could not be treated as prejudicial to the interests of the revenue and that only when the order of the Assessing Officer would affect the administration of the revenue that it could be treated as prejudicial to the revenue; (ii) that the amount of Rs.3,66,649 was in reality agricultural income and, therefore, ought not to have been brought to tax. Mr. Anoop G. Choudhary, learned senior counsel for the respondent, asserted that the Income-tax Officer passed the order without application of mind and inasmuch as it resulted in loss of tax it was also prejudicial to the interests of the revenue, therefore, the exercise of jurisdiction under Section 263(1) of the Act by the Commissioner was justified and legal. He further submitted that the second contention was not open to the appellant as the basic facts found by the Appellate Tribunal were not questioned before the High Court. To consider the first contention, it will be apt to quote Section 263(1) which is relevant for our purpose:- 263. Revision of orders prejudicial to revenue - (1) The 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 is erroneous insofar 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, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.
22 ITA.Nos.609 & 610/Hyd./2025 Explanation - x x x A bare reading of this provision makes it clear that the prerequisite to exercise of jurisdiction by the Commissioner suo moto under it, is that the order of the Income- tax Officer is erroneous insofar as it is prejudicial to the interests of the revenue. The Commissioner has to be satisfied of twin conditions, namely, (i). the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the revenue. If one of them is absent -- if the order of the Income-tax Officer is erroneous but is not prejudicial to the revenue or if it is not erroneous but is prejudicial to the revenue -- recourse cannot be had to Section 263(1) of the Act. There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer; it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase prejudicial to the interests of the revenue is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The High Court of Calcutta in Dawjee Dadabhoy & Co. Vs. S.P. Jain and Another [31 ITR 872], the High Court of Karnataka in Commissioner of Income- tax, Mysore Vs. T. Narayana Pai [98 ITR 422], the High Court of Bombay in Commissioner of Income-tax Vs. Gabriel India Ltd. [203 ITR 108] and the High Court of Gujarat in Commissioner of Income- tax Vs. Smt. Minalben S. Parikh [215 ITR 81] treated loss of tax as prejudicial to the interests of the revenue. Mr. Abaraham relied 23 ITA.Nos.609 & 610/Hyd./2025 on the judgment of the Division Bench of the High Court of Madras in Venkatakrishna Rice Company Vs. Commissioner of Income-tax [163 ITR 129] interpreting prejudicial to the interests of the revenue. The High Court held, In this context, it must be regarded as involving a conception of acts or orders which are subversive of the administration of revenue. There must be some grievous error in the Order passed by the Income-tax Officer, which might set a bad trend or pattern for similar assessments, which on a broad reckoning, the Commissioner might think to be prejudicial to the interests of Revenue Administration. In our view this interpretation is too narrow to merit acceptance. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the Income-tax Officer, the revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the revenue. The phrase prejudicial to the interests of the revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the Income-tax Officer is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the revenue. Rampyari Devi 24 ITA.Nos.609 & 610/Hyd./2025 Saraogi Vs. Commissioner of Income-tax [67 ITR 84] and in Smt. Tara Devi Aggarwal Vs. Commissioner of Income-tax, West Bengal [88 ITR 323]. In the instant case, the Commissioner noted that the Income-tax Officer passed the order of nil assessment without application of mind. Indeed, the High Court recorded the finding that the Income-tax Officer failed to apply his mind to the case in all perspective and the order passed by him was erroneous. It appears that the resolution passed by the board of the appellant- company was not placed before the Assessing Officer. Thus, there was no material to support the claim of the appellant that the said amount represented compensation for loss of agricultural income. He accepted the entry in the statement of the account filed by the appellant in the absence of any supporting material and without making any inquiry. On these facts the conclusion that the order of the Income-tax Officer was erroneous is irresistible. We are, therefore, of the opinion that the High Court has rightly held that the exercise of the jurisdiction by the Commissioner under Section 263(1) was justified. The second contention has to be rejected in view of the finding of fact recorded by the High Court. It was not shown at any stage of the proceedings, the amount in question was fixed or quantified as loss of agricultural income and admittedly it is not so found by the Tribunal. The further question whether it will be agricultural income within the meaning of Section 2(1A) of the Act as elucidated by this Court in Commissioner of Income-tax, West Bengal, Calcutta Vs. Raja Benoy Kumar Sahas Roy [32 ITR 466] does not arise for consideration. It is evident from the Order of the High Court that findings recorded by the Tribunal that the appellant stopped agricultural operation in November 1982 and the receipt under consideration did not relate to any agricultural operation carried on by the appellant, were not questioned before 25 ITA.Nos.609 & 610/Hyd./2025 it. Though, we do not agree with the High Court that the said amount was paid for breach of contract as indeed it was paid in modification/relaxation of the terms of the contract, we hold that the High Court is justified in concluding that the said amount was a taxable receipt under the head income from other sources. We find no merit in the appeal and dismiss the same with costs.”
The assessee has also relied upon the decision of ITAT, Hyderabad Bench in the case of Lycos Internet Ltd., Hyderabad vs., ACIT, Circle-16(1), Hyderabad, Order dated 22.01.2025, wherein the Coordinate Bench of ITAT, Hyderabad Tribunal on identical set of facts and also in light of provisions of Sec.263 of the Income Tax Act, 1961 held as under :
“22. Once the Assessing Officer has conducted an inquiry, then the case does not fall in the category of complete lack of inquiry on the part of the Assessing Officer while passing the assessment order and therefore, the order of the Assessing Officer cannot be set aside on the ground of lack of inquiry. It is a settled proposition of law that when the Assessing Officer has conducted an inquiry and accepted the claim of the assessee, then it is not mandatory for the Assessing Officer to give a finding on each and every issue he has undertaken during the scrutiny proceedings. The Hon'ble jurisdictional High Court in the 26 ITA.Nos.609 & 610/Hyd./2025 case of Spectra Shares & Scrips (P) Ltd vs. CIT (Supra) has held in para 34 and 35 as under:
“34. It may be that in the Assessment Order, the Assessing Officer has not made an elaborate discussion on the issue as to the nature of activity of the assessee i.e. whether it is an investment or whether it is business income and did not refer to his query on the issue to the assessee before passing the order (in his letter dt.4.8.2008) or the reply given by the assessee to his query (vide it's letter dt.29.8.2008). As held in Vikas Polymers (supra), Sunbeam Auto (supra) and Gabriel India Ltd. (supra), when it is not incumbent on the Assessing Officer to pass a detailed order, merely because the order does not contain reasons as to why he accepted that the assessee is a trading company, his order does not become susceptible for revision. The Assessing Officer while making an assessment had examined the accounts, made inquiries, applied his mind to the facts and circumstances of the case and determined the income of the assessee. Therefore, it is not open to the Commissioner, on the ground that a different view is possible, to reopen the assessment on the ground that the Assessing Officer did not make an elaborate discussion in that regard.
Admittedly, the assessee had given full details of these transactions in its letter/reply dated 29.08.2008 to the Assessing Officers letter dated 04.08.2008, giving details of dates of acquisition of the shares in question and dates of sale of shares. As such this material was available before the Assessing Officer. In its reply dt. 09-03-2011 to the revised show cause notice issued by the respondent also, the appellant had enclosed the list of transactions in relation to the scrips of M/s. Amara Raja Battery, M/s. Reliance Industries, M/s. Gujarat NRE Coke and M/s. Andhra Sugars Limited contending that having purchased the shares of the said companies, it had 27 ITA.Nos.609 & 610/Hyd./2025 retained them for periods ranging from 1 year 2 months to 3 years 6 months before selling them. The counsel for the appellants has taken us through the said statements/list of transactions.”
Therefore, merely because, the Assessing Officer has not given an elaborate reasoning and findings does not lead to the conclusion that the order of the Assessing Officer is erroneous for want of an inquiry. A similar view has been taken by the Hon'ble Bombay High Court in the case of CIT vs. Development Credit Bank (Supra). The Hon'ble Delhi High Court in the case of Income Tax Officer vs. DG Housing Projects Ltd (Supra) has discussed this issue of not giving the conclusive findings on the part of the Commissioner in Para 16 to 19 as under :
“16. Thus, in cases of wrong opinion or finding on merits, the CIT has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under Section 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order passed is not sustainable in law and the said finding must be recorded. CIT cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mistake made by the Assessing Officer, making the order unsustainable in Law. In some cases, possibly though rarely, the CIT can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated 28 ITA.Nos.609 & 610/Hyd./2025 further enquiry or investigation but the Assessing Officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under Section 263 of the Act. In such matters, to remand the matter/issue to the Assessing Officer would imply and mean the CIT has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question.
This distinction must be kept in mind by the CIT while exercising jurisdiction under Section 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interest of Revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged "inadequate investigation", it will be difficult to hold that the order of the Assessing Officer, who had conducted enquiries and had acted as an investigator, is erroneous, without CIT conducting verification/ inquiry. The order of the Assessing Officer may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the CIT to ask the Assessing Officer to decide whether the order was erroneous. This is not permissible. An order is not erroneous, unless the CIT hold and records reasons why it is erroneous. An order will not become erroneous because on remit, the Assessing Officer may decide that the order is erroneous. Therefore, CIT must after recording reasons hold that the order is erroneous. The jurisdictional precondition stipulated is that the CIT must come to the conclusion that the order is erroneous and is unsustainable in law. We may notice that the 29 ITA.Nos.609 & 610/Hyd./2025 material which the CIT can rely includes not only the record as it stands at the time when the order in question was passed by the Assessing Officer but also the record as it stands at the time of examination by the CIT [see CIT v. Shree Manjunathesware Packing & Products Camphor Works [1998] 231 ITR 53 / 98 Taxman 1 (SC)]. Nothing bars/prohibits the CIT from collecting and relying upon new/additional material/evidence to show and state that the order of the Assessing Officer is erroneous.
It is in this context that the Supreme Court in Malabar Industrial Co. Ltd. v. Commissioner of Income Tax, [2000] 243 ITR 83 / 109 Taxman 66 (SC), had observed that the phrase 'prejudicial to the interest of Revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of Revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of Revenue. Thus, when the Assessing Officer had adopted one of the courses permissible and available to him, and this has resulted in loss to Revenue; or two views were possible and the Assessing Officer has taken one view with which the CIT may not agree; the said orders cannot be treated as an erroneous order prejudicial to the interest of Revenue unless the view taken by the Assessing Officer is unsustainable in law. In such matters, the CIT must give a finding that the view taken by the Assessing Officer is unsustainable in law and, therefore, the order is erroneous. He must also show that prejudice is caused to the interest of the Revenue.
In the present case, the findings recorded by the Tribunal are correct as the CIT has not gone into and has not given any reason for observing that the order passed by the Assessing Officer was erroneous. The finding recorded by the CIT is that "order passed by the Assessing Officer may be erroneous". The CIT had doubts about the valuation and sale 30 ITA.Nos.609 & 610/Hyd./2025 consideration received but the CIT should have examined the said aspect himself and given a finding that the order passed by the Assessing Officer was erroneous. He came to the conclusion and finding that the Assessing Officer had examined the said aspect and accepted the respondent's computation figures but he had reservations. The CIT in the order has recorded that the consideration receivable was examined by the Assessing Officer but was not properly examined and therefore the assessment order is "erroneous". The said finding will be correct, if the CIT had examined and verified the said transaction himself and given a finding on merits. As held above, a distinction must be drawn in the cases where the Assessing Officer does not conduct an enquiry; as lack of enquiry by itself renders the order being erroneous and prejudicial to the interest of the Revenue and cases where the Assessing Officer conducts enquiry but finding recorded is erroneous and which is also prejudicial to the interest of the Revenue. In latter cases, the CIT has to examine the order of the Assessing Officer on merits or the decision taken by the Assessing Officer on merits and then hold and form an opinion on merits that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. In the second set of cases, CIT cannot direct the Assessing Officer to conduct further enquiry to verify and find out whether the order passed is erroneous or not.”
Therefore, once the Assessing Officer has adopted one of the courses permissible and available to him, and this has resulted in loss to the Revenue to which the learned Pr. CIT may not agree, the said order cannot be treated as an erroneous order prejudice to the interest of the Revenue unless the view taken by the Assessing Officer is unsustainable in law. In setting aside the matter, the 31 ITA.Nos.609 & 610/Hyd./2025 learned Pr. CIT must give a finding that the view taken by the Assessing Officer is unsustainable in law and therefore, the order is erroneous. The setting aside the order for doing fresh exercise on the part of the Assessing Officer reveals that the learned Pr. CIT was not sure about the correctness of the claim of the assessee and therefore, the learned Pr. CIT must be not sure about the correctness and erroneousness of the order passed by the Assessing Officer. Accordingly, in view of the facts and circumstances as discussed above, we are of the considered opinion that once the Assessing Officer has conducted an inquiry and the case of the assessee does not fall in the category of complete lack of inquiry, the learned Pr. CIT while passing the revision impugned order u/s 263 ought to have given a conclusive findings about the taxability of the income in India as well as the loss of revenue for not including the said income as part of the P&L declared in the ITR. Hence, the impugned order is not sustainable and liable to be quashed. We order accordingly.
In this view of the matter and considering the facts of the case, we are of the considered view that, the assumption of jurisdiction by the learned PCIT u/sec.263 of the Income Tax Act, 1961 and setting-aside the assessment orders passed by the Assessing Officer u/sec.143(3) r.w.s.144B of the Income Tax Act, 1961, dated 20.09.2022 32 ITA.Nos.609 & 610/Hyd./2025 and dated 20.12.2022, for the assessment years 2020- 2021 and 2021-2022, respectively, is incorrect. Thus, we quash the order of the learned PCIT passed u/sec.263 of the Income Tax Act, 1961 for the assessment years 2020-2021 and 2021-2022.
In the result, appeals filed by the assessee for both the assessment years 2020-2021 and 2021-2022 are allowed. Order pronounced in the open Court on 11.07.2025.