Loading judgment…
Facts
The Principal Commissioner of Income Tax (PCIT), Chandigarh-1, passed an order under Section 263 of the Income-tax Act, 1961, setting aside the assessment for Assessment Year 2020-21. The PCIT held the original assessment, framed under Section 143(3) read with Section 144B, as erroneous and prejudicial to the revenue's interest on multiple grounds requiring fresh verification, including provision for development expenses, investment in Oxford Street Project (TDS), advances from customers, previous year taxes in Reserves & Surplus, and alleged non-review of Transfer Pricing/MAT. The assessee appealed this order.
Held
The Income Tax Appellate Tribunal (ITAT) found that the Assessing Officer had conducted sufficient inquiries and taken a plausible view on the flagged issues. The Tribunal noted that the PCIT failed to demonstrate how the assessment order was erroneous and prejudicial to the revenue due to inadequate inquiry by the AO, and also observed that the PCIT's show-cause notice was a verbatim copy of an audit objection, suggesting a lack of independent application of mind. The Tribunal concluded that the PCIT's assumption of jurisdiction under Section 263 was invalid.
Key Issues
Validity of PCIT's revisionary order under Section 263 based on alleged inadequate inquiry by the AO on issues such as provision for development expenses, TDS under Section 194-IA for property investment, genuineness of advances from customers, addition under Section 68 for previous year taxes in Reserves & Surplus, and non-review of Transfer Pricing/MAT, and whether such order can be based on a mechanical reproduction of an audit objection without independent application of mind.
Sections Cited
263, 143(3), 144B, 194-IA, 68, 92BA, 92B, 147, 148, 143(2), 142(1), 260A
AI-generated summary — verify with the full judgment below
िनधा"रती की ओर से/Assessee by : Shri Pankaj Bhalla, C.A राज" की ओर से/ Revenue by : Shri Manav Bansal, CIT, DR सुनवाई की तारीख/Date of Hearing : 15/10/2025 उदघोषणा की तारीख/Date of Pronouncement : 29/10/2025 आदेश/Order PER LALIET KUMAR, J.M: This appeal by the assessee is directed against the order passed u/s 263 of the Income-tax Act, 1961 (“the Act”) by the PCIT, Chandigarh-1, dated 19.03.2025, whereby the assessment framed u/s 143(3) r.w.s. 144B on 26.09.2022 for A.Y. 2020-21 was held to be erroneous in so far as prejudicial to the interests of the Revenue and was set aside for fresh verification on multiple issues on the grounds mentioned in the appeal.
Ld. AR submitted that the show-cause under section 263 of the Income Tax Act 1961,extracted by the PCIT identified five heads:
(i) Provision for development expenses of Rs.100 crore; ii) Oxford Street Project, Zirakpur – investment of Rs.26.50 crore and TDS u/s 194-IA; (iii) Advances from customers Rs.64,285.60 lakh and Advance against property Rs.7,607.14 lakh;
(iv) Rs.921.39 lakh “previous year taxes” appearing in Reserves & Surplus, proposed for addition u/s 68; and (v) alleged non-review of Transfer Pricing / MAT.
The Ld. AR had submitted that pursuant to the show cause notice issued by the Ld. PCIT the assessee had submitted the reply, which was reproduced at page 8 of the impugned order as under:
1) Issue No.2.1 at para 2 of the show cause notice: 2.1 The Assessing Officer(AO) wrongly allowed the Development Expense provision of Rs. 100 Crores for pending Mega and Super Mega Project, which was not admissible expense in view of provision for expense being unascertained liability. Moreover, there was no such provision for earlier projects in your accounts. In the background the accounting entry done for provision for development is Provision for development account DR To Development Expenses Payable. It is noteworthy that this is not the first instance where the assessee has recorded the expenditure under the provision for development expenses. In fact, the assessee has consistently booked this expenditure in previous years. Notably, this provision is not debited to the profit and loss account but only to the trading account. Interestingly, the assessee simultaneously increases the value of closing stock by the same amount, rendering the accounting treatment tax-neutral. Since the provision for development is debited to the trading account and the closing stock value is correspondingly increased, there is no revenue loss to the exchequer. ………………………. B) Matter being examined by AO: The said matter has been duly examined by the AO that the provision for development expense is included in the valuation of closing stock. Kind attention of your honour is invited towards Page no. 111 of the paperbook which is the valuation of closing stock which categorically includes the provision for development expense to the tune of Rs. 100 Crore. Now this valuation of the closing stock has been examined by the AO separately and independently on three difference occasions. …………………………… 4. Similarly, the Ld. PCIT had also recorded in the order as under:
2) Issue No. 2.2 in para 2 of the show cause notice: 2.2 It is seen that there was no mention of TDS u/s 1941A of the Act on investment of Rs.2650 lakh in OXFORD Street Project, Zirakpur as per the agreement dated 09.07.2019. The AO failed to verify the genuineness of the investment.
The issue under consideration is whether the provisions of Section 1941A of the Income Tax Act, 1961, are applicable to the alleged agreement dated 09.07.2019. At the outset, it is submitted that the assessee is merely an investor in the partnership firm M/s. SM Hotel and is entitled to receive 38% of the net receipts from the first party. The complete agreement governing this arrangement is enclosed at Page No. 146-157 of the paperbook for reference. In the context of the project, it is pertinent to highlight that the total land area of 30 Kanal 8 Merles was purchased by M/s, SM Hotel from Sh. Sukhbir Singh Badal for a total consideration of 45 crore. Out of this, M/s. SM Hotel made a direct payment of 8.50 crore to Sh. Sukhbir Singh Badal. However, the assessee had made payments aggregating to substantial amount out of which Rs 10 crore was paid back to the assessee company upfront by M/s. SM hotels. Further out of payment made to Sh Sukhbir Badal 26.50 crore was adjusted and was to be treated as investment of assessee company in m/s SM Hotels. This amount of Rs. 26.50 crore was not a direct payment to M/s. SM Hotel but was instead treated as the assessee's investment in the firm which was rather in nature of debtor or receivable and not payment. Importantly, the assessee has not made any independent payment to M/s. SM Hotel or made any purchase from M/s S M hotels, rather, a mere journal entry was passed to transfer the amount from Sh. Sukhbir Singh Badal's account to the account of M/s. SM Hotel. This fact is verifiable from the following documentary evidence. a) The agreement between the assessee and M/s. SM Hotel (Paperbook Page No. 146-157). b) The ledger account of M/s. SM Hotel in the books of the assessee (Paperbook Page No 158). c) The balance sheet of M/s. SM Hotel, wherein the said amount is reflected under "Other Payables" (Paperbook Page No. 367-373). d) The ledger account of Sh. Sukhbir Singh Badal in the books of the assessee (Paperbook Page No. 360-366). Based on the above facts and documentary evidence, it is submitted that pursuant to the impugned agreement the assessee is not acquiring the property but is rather transferring its rightso as to receive consideration. At best the assessee company has stepped into the shoes of seller and not a buyer or purchaser so as to invoke provisions of section 1941A which are attracted on purchaser of immovable property. Further the said journal entry is merely in the nature of an investment in a partnership firm. Therefore, the provisions of Section 1941A or TDS under any other section are not applicable in this case. The contention is proved by means of the following a) As per provision of section 1941A, the TDS on purchase of property has to be deducted at the time of payment, The assessee has already deducted TDS of Sh. Sukhbir Badal at the time of payment which is evident from his ledger account. Kind attention of your honour in invited towards the provisions of section 1941A which are reproduced as under:- ……………………….. 3). Issue No. 2.3 of para 2 of show cause notice:
2.3 It is also seen that there were advances for customers of Rs. 64285.60 lakh towards sale of plots/flats to prospective customers as well as Advance against Property of Rs. 7607.14 lakh. The AO failed to verify the source/genuineness of these advances. The issue of advance received from customers is examined in detail by the Ld. AO. The said issue is rightly examined in detailed length. The details with regard to examination of said issue in length is as under: 1. Query raised at Sr. No. (iii) i.eHigh Creditors/Liabilities in Notice u/s 143(2) of the Income Tax Act, 1961 dated 29.06.2021: (Refer Paperbook page no. 87) Reply Given in response to query is reproduced here as under (Refer paperbook page no. 96) 3) Regarding High Creditors/Liabilities, it is submitted that all the liabilities are duly accounted for in the books of accounts. The high creditors are primarily because of amount of advance received from customers. We would like to clarify at this stage that any amount received by the company towards sale of inventory in form of land/flat etc. is shown as a liability in the balance sheet. Further, the entire amount is transferred to the sale account or income and expenditure account when full and final payment is received. It is further clarified that this accounting treatment is as per AS-9 and as per past history of the company. The said accounting treatment has been categorically accepted by the Income Tax settlement commission and various assessing officers in earlier completed assessments. This is the primary reason for high creditors/liabilities in the books of accounts of the assessee company. The comparative position of creditors over the period of 5 years is attached herewith for your ready reference. The position of creditors is similar to what has been accepted in previous complete assessments calling for no adverse view. ……………………… 4) Issue no. 2.4 of para 2 of the show cause notice: 2.4 Furthermore, the addition of Rs. 921.39 Iakh on account of Previous year taxes in the under Reserve and Surplus, in addition to the profit earned during the F.Y. 201920 was not admissible and should have been added as deemed to be income in view of the same being unexplained u/s 68 of the Act. In said issue it has been alleged that there is an addition of Rs. 921.39 Lacs on account of previous faxes in reserves and surplus. Most humbly it is submitted that the very basis of the show cause notice is factually incorrect. Kind attention of your honour is invited towards the balance sheet of the assessee company wherein the schedule of reserves and surplus is at page no. 54 of the paperbook. It is interesting to note that Rs. 921.39 Lacs is not added in the reserves and surplus but it is infact deducted or reduced. The relevant page of the balance sheet is being reproduced as under:
Since the amount has been deducted from Reserves and Surplus and not added as income, there is no question of making an addition or invoking the provisions of Section 68. For the sake of completeness, we present the background and basis for this deduction or appropriation from Reserves and Surplus: 5. The Ld. AR had submitted that the Assessing Officer in the original assessment had recorded the scrutiny heads as advances from customers, ICDS compliance & adjustments, verification of opening/closing stock and bonus/commission, and ultimately made only one addition on deemed rent of 11 unsold flats at “Regency Heights” (Rs.16,71,571). After recording the same the Assessing Officer had computed the addition in the hands of the assessee. 5.1 The Ld. AR on the basis of assessment order and the department’s own record after referring to the impugned order had submitted that the Assessing Officer before passing the order had issued various notices and called for the replies. The notice u/s 143(2) dated 29.06.2021 was issued; similarly,(b)detailed questionnaires u/s 142(1) were issued on 24.11.2021 and 24.08.2022; and (c) replies were filed on 22.07.2021, 30.11.2021, 26.12.2021, 29.08.2022 and 04.09.2022 respectively. 5.2 The Ld. AR before us, had submitted that the AO specifically verified advances from customers, ICDS compliance, and figures of opening/closing stock and recorded that “no adverse inference is called for” on these flagged issues.
5.3 The Ld. AR submitted that in Show Cause Notice issued under section 263five issues were raised by the Ld. PCIT and the Ld. PCIT opined that the FAO completed the assessment “without making necessary verification/examination”, requiring setting aside for detailed verification. It was further submitted that the order records that the AO’s enquiry was “unsatisfactory and incomplete” and directs factual verification by the AO on each point.
5.4 The Ld. AR drawn our attention to the series of enquiries & replies (notices and responses with paper-book page references), showing that stock valuation (including development provisions) and high creditors/advances from customers were explicitly taken up and answered during assessment; the same were part of “complete scrutiny” heads. The AR reproduced the reply explaining that advances are liabilities till sale is recognized as per AS-9 and this treatment has been consistently accepted earlier.
5.5 On issue (i) (Rs.100 cr provision for development), the AR submitted that the provision was part of trading account and added to closing stock valuation, rendering it tax-neutral; moreover valuation was examined by the AO on multiple occasions.
5.6 On issue (ii) (Oxford Street Project), the AR explained the investment structure— assessee as investor in partnership firm M/s SM Hotel, with ledger movements and journal entry of Rs.26.50 crore treated as investment/receivable rather than a purchase attracting s.194-IA; TDS was already deducted at the time of payment to the land owner.
5.7 On issue (iv) (Rs.921.39 lakh), the AR demonstrated from Reserves & Surplus schedule that Rs.921.39 lakh was a deduction/appropriation (largely interim dividend Rs.9.20 cr and Rs.1.39 lakh under Sabka Vishwas), and not an addition, hence s.68 was misconceived.
On the other hand the Ld. DR supported the case of the Revenue had relied upon the order of the lower authorities and submitted that AO did not carry out “due and necessary” enquiries on the five heads; hence the order is erroneous & prejudicial. Direction: remit for thorough verification.
We have heard the rival contention of the parties and perused he material available on the record. For s.263 to apply, both conditions must co- exist: the order must be erroneous and prejudicial to the interests of the revenue. An order cannot be revised merely for a change of opinion or because the PCIT feels deeper or wider enquiries could have been made; where the AO has raised queries, considered replies, and taken a plausible view, the 263 jurisdiction does not extend to substitution of that view. This is the consistent view of the Hon’ble Supreme Court in catena of judgement more particularly in the case of Malabar Industrial Co., Max India, etc. Having noted the principle governing the field of exercise of power under section 263, now let us look into the facts of the present case.
Issue-wise discussion (A) Rs.100 Crores Provision for development not disallowed 8.1 The Ld. AR had submitted that in the scrutiny assessment the issue of stock valuation was duly considered by the Ld. Assessing Officer. He has drawn our attention to page 175 of the paper book wherein the assessee has try to impress upon that the said provision of Rs. 100/- crores was not routed through P&L account and this practice has been consistently followed by the assessee for making provision for development in the subsequent years also. The Assessing Officer had examined it and after examining it the Assessing Officer has categorically recorded his finding on this aspect i.e. “no adverse inference.”
8.2 On the other hand the Ld. DR drawn our attention to page 15 of the Ld. PCIT order wherein it was mentioned as under:
The submissions of the assessee have carefully been considered with reference to the facts of the case from the relevant assessment records. The assessee's principal contention w.r.t. the discrepancies, mentioned earlier in sub-clause (i) and (iii) of paragraph 2, is that these queries have already been explained and duly examined by the FAO during the course of the assessment proceedings. In support of its claim, the assessee's ARs have produced some documentary evidences along with the written submissions. However, these claims made by the assessee in its written submissions are, prima facie, not found to be verifiable from the facts and the material available on record, and therefore, are required to be subjected to detailed examination and thorough verification by the Assessing Officer. The perusal of the assessment records nowhere shows that these evidences were verified/examined by the FAO during assessment proceedings, as claimed by the assessee.
Furthermore, w.r.t. the discrepancies mentioned earlier at sub-clause (ii), (iv) & (v) of Paragraph 2, the assessee has stated that these issues are non- existent and primarily raised on mis-appreciation of facts. However, this contention of the assessee's AR is, prima facie not verifiable from the facts and material available on record, and therefore, is required to be subjected to detailed examination and thorough verification by the Assessing Officer. The fact of the matter is that the case was selected for 'Complete Scrutiny', as per the assessee's own submission, and the issues outlined above have not been examined by the Assessing Officer. 5.1 In view of the above, there appears to be a failure on the part of the Assessing Officer in framing the assessment order without making the requisite inquiries. There is the imperative legal need in all such inquiries and investigations to comprehensively examine all applicable facts including the relevant minutiae of their applicability, to reconcile every logical inconsistency in the arguments debated, if and as any, and to ensure total compliance to all statutory provisions, rules, regulations, instructions, accounting and other standards and stipulations. It is amply and expressly clear that the investigation/ inquiry carried out by the Assessing Officer in this case is unsatisfactory and incomplete in respect of several of these matters/dimensions including the due and necessary and complete examination of the documentary particulars/details mandated. A partially driven-by whatever reasons — inquiry cannot be held to be a full, proper, satisfactory, complete and therefore statutorily valid inquiry, which partial enquiry as carried out by the Assessing Officer resulting in the impugned assessment order in this case has created a vacuum zone of unexplained facts which constitutes an error on facts. This would be tantamount to a premature, precipitate and erroneous decision not borne out by facts or founded on proper law. Such incomplete inquiry is unacceptable and outside of the pale of law, and inconsistent with the various judicial precedents of the Hon'ble Courts cited later below. This is a clear failure on the part of the Assessing Officer that is being referred to and recognized in this case via this order u/s 263 of the Act. It is such failure which calls for revision of the assessment order u/s 263 of the Act.
On the basis of the above the Ld. DR had submitted that the order of the Assessing Officer is prejudicial to the interest of the revenue.
We have heard the rival contention of the parties and perused the material available on the record. As clear from the bare reading of page 175 of the paper book wherein the assessee has passed the accounting entries “ Provision for Development Account Dr. To Development Expenses Payable”. Thus the assessee has merely debited the amount of Rs. 100/- crores to the trading account and has not shown / accounted in the P&L Account. Furthermore the assessee has correspondingly increased the closing stock by an equal amount of Rs. 100/- crores resulted the net result of making the provision of development and adding the same amount in the closing stock as tax neutral and this exercise of assessee is not prejudicial to the interest of Revenue. Furthermore, the asses see had also shown with reference to the paper book the similar accounting policy that this has been accepted consistently in the subsequent and previous assessment year without any objection. In view of the above, the order under section 263 is not sustainable on this ground.
(B) Oxford Street investment &TDS u/s 194-IA 11. The Ld. AR had submitted that it is an investment/receivable in a partnership (M/S SM Hotel), with a journal entry; TDS was already deducted at the time of payment to the landowner; no purchase by the assessee triggering s. 194-IA. The Ld. AR had also filed the written submission and has submitted the following legal objections in support of the case of the assessee:
Mechanical and Arbitrary Invocation of Section 263 Without Independent or Minimal Enquiry by the Ld. PCIT The Ld. PCIT has not undertaken any independent enquiry or verification, but has merely proceeded on assumptions and conjectures, contrary to the ratio laid down in several judicial precedents as under: a) Hon’ble ITAT Chandigarh in the case of Smt. Teena Garg vs. The PCIT Panchkula reported in pronounced on 20.02.2025 held as under: Further we have perused the reasons for reopening u/s 147/148 of the Act at page 2 B of paper book where no reasons have been given to reopen the assessment on this score of purchase of immovable properties. We further hold that merely because ROI for A.Y 2015-16 is filed for Rs. 19,23,970/-is no ground to order fresh assessment proceedings basis order u/s 263. Assessee in any case has given plausible explanation in reply and Ld. PCIT ought to have considered the same and ought to have made some bare minimum enquiry before ordering fresh assessment no such step was taken under section 263 despite express provision in this regard u/s 263 therefore the impugned order is bad in law, not proper and illegal within the meaning of Section 263 of the Act and accordingly we set aside the same on both counts on basis of which fresh assessment is ordered. b) Similarly, the ITAT Chandigarh Bench in Exotic Realtors & Developers v. PCIT (ITA No. 189/Chd/2023, order dated 26.07.2024)
16.11 We also hold that by virtue of Section 263 it is incumbent upon the Ld. PCIT while exercising supervisory / Revisionary jurisdiction to at least carry out 22 a bare minimum inquiry himself before terming the order of AO as erroneous and prejudicial to the interest of Revenue. In the instant case that has not happened. . . . Following aforesaid we hold that impugned order of PCIT is not proper just and fair and in accordance with law as Ld. PCIT has not made any minimal inquiry before holding that Ld. AO has not made any inquiry and therefore 23 order is erroneous and prejudicial to the interest of the Revenue. We hold that the Ld. PCIT ought not to have passed the impugned order. 16.12 We hold that assessment order of Ld. AO is not erroneous and prejudicial to the interest of Revenue simply because while accepting the return as it is he has not given any reasons in support of his said conclusions. A bare and careful perusal of the assessment order of Ld. AO speaks for itself that within the parameter of Section 143(3) he has passed the assessment order dt. 12/06/2020 as requisite notice under section 143(2) of the Act dt. 22/09/2019 was issued to the assessee firm and that the same was served upon the assessee in time. c) Delhi High Court judgment reported in case of PCIT Vs. Delhi Airport Metro Express P. Ltd 398 ITR 8held that that some minimal inquiry is must on part of Ld. PCIT is mandated. Upon failure CIT is not entitled to exercise power of revision under section 263 by setting aside the orders of Ld. AO. d) M/S Arun Kumar Garg HUF vs. PCIT, /del/2018, dt. 08.01.2019 "5.6 Although, there has been an amendment in the provisions of section 263 of the Act by which Explanation 2 has been inserted w.e.f. 1.6.2015 but the same does not give unfettered powers to the Commissioner to assume jurisdiction under section 263 to revise every order of the Assessing Officer to re-examine the issues already examined during the course of assessment proceedings. The Mumbai IT AT Bench has dealt with Explanation 2 as inserted by Finance Act, 2015 in the case of Narayan Tatu Kane vs. ITO reported in (2016) 70 taxman.com 227 to hold that the said Explanation cannot be said to have overridden the liability as interpreted by Hon 'ble Delhi High Court, according to which the Commissioner has to conduct the inquiry and verification to establish and show that the assessment order was unsustainable in law. The IT AT Mumbai Bench has further held that the intention of the legislature could not have been to enable the C1T to find fault with each and every assessment order without conducting any inquiry or verification in order to establish that the assessment order is not sustainable in law, since such an interpretation will lead to unending litigation and there would not be any point of finality in the legal proceedings. The IT AT Mumbai Bench of the Tribunal went on to hold that the opinion of the Commissioner referred to in section 263 of the Act has to be understood as legal and judicious opinion and not arbitrary opinion. e) Hon’ble ITAT Chandigarh Bench in the case of Sharmanji Yarns Pvt. Ltd. v. PCIT-1, Ludhiana (ITA No. 706/Chd/2025, order dated 08.10.2025) reiterated that:
16. Applying the ratio of all these decisions, we come to a conclusion that various aspects as identified by Ld. AO during the course of regular assessment proceedings were duly been examined by Ld. AO and one of the possible views was taken in the matter. The assessee duly furnished all the information as called for by Ld. AO on all the identified aspects. On new issues as identified by Ld. Pr. CIT, there is no finding as to how non-examination of these aspects made the order erroneous and prejudicial to the interest of the revenue. In the absence of any such independent findings by Ld. Pr. CIT, the impugned revision of the assessment order could not be sustained in law. We order so. Consequently, the assessment as framed by Ld. AO stand restored back.
The appeal stand allowed in terms of our above order. f) Reliance was placed on judgement of ITAT Bangalore in case ofMahesh Reddy Vs. PCIT reported in (2024) 167 Taxmann.com 297 inwhich following extract was relied upon:- “INCOME TAX: Pr. Commissioner, in his revisionary jurisdiction, cannot say order with some enquiry done by Assessing Officer to be erroneous; he can hold non inquiry cases to be erroneous and for this he himself has to bring on record error and prejudice through independent verification and enquiry”
2. Invalid Initiation of Section 263 Proceedings Without Pointing Out Any Specific Error or Demonstrating Prejudice to the Interest of Revenue. It is settled law that both conditions error and prejudice to the interest of revenue must co-exist for valid assumption of jurisdiction u/s 263. The Ld. PCIT has not demonstrated any specific error in the assessment order, nor has he shown how the order is prejudicial to the interest of the Revenue. a) Hon'ble Supreme Court in the case of Pr. CIT v. V-con Integrated Solutions.(P) Ltd. [2025] 173 taxmann.com 774 (SC)/SLP No. 13205/2025. This SLP was filed against the judgement of Hon'ble Punjab & Haryana High Court in Pr. CIT v. V-Con integrated Solutions (P.) Ltd. [2025] 173 taxmann.com 773 (Punj. & Har.)/ ITA No. 88/2024. "In our opinion, the order passed by the High Court, which upheld the decision of the Tribunal, is correct on facts and in law. This case does not involve a failure by the assessing officer to conduct an investigation. Instead, according to the Revenue, it is a case where the assessing officer having made inquiries erred by not making additions. The assessee does not have control over the pen of the Assessing Officer. Once the Assessing Officer carries out the investigation but does not make any addition, it can be taken that he accepts the plea and stand of the assessee. In such cases, it would be wrong to say that the Revenue is remediless. The power under Section 263 of the Income Tax Act, 1961, can be exercised by the Commissioner of Income Tax, but by going into the merits and making an addition, and not by way of a remand, recording that there was failure to investigate. There is a distinction between the failure or absence of investigation and a wrong decision/conclusion. A wrong decision/conclusion can be corrected by the Commissioner of Income Tax with a decision on merits and by making an addition or disallowance.
There may be cases where the Assessing Officer undertakes a superficial and random investigation that may justify a remit, albeit the Commissioner of Income Tax must record the abject failure and lapse on the part of the Assessing Officer to establish both the error and the prejudice caused to the Revenue. Recording the aforesaid, the special leave petition is dismissed. " b) Reliance is placed on the judgment of the Hon’ble Madras High Court in Deloitte Haskins & Sells v. ACIT [(2025) 175 taxmann.com 718 (Madras)], wherein it was held as under: In the notice issued under section 263, there is no explanation as to why the order of the Assessing Officer was prejudicial to the interests of the revenue. It does not suggest in what way there is any prejudice to the interests of the revenue. Even if prejudice to the revenue is to be reckoned in terms of the actual loss to the exchequer, no figures have been given. This is an indication that, as on that date, the Commissioner had no clear idea as to what the difference in tax effect would have been if instead of taxing the assessee as partnership firm, the assessee was taxed as AOP. [Para 13] c) Sanjeev Garg v. PCIT [(2025) 175 Taxmann.com 79 (Chandigarh – Trib.)]: We have duly considered the arguments raised by the ld. CIT DR but we do not find any merit in it. An appeal to the Tribunal against an order passed u/s 263 is a statutory appeal. The powers u/s 263 can be exercised where impugned order of the AO is erroneous and has caused a prejudice to the interests of the Revenue. If any single limb of these conditions is absent, then no action u/s 263 can be taken. The Hon'ble Supreme Court in the case of CIT v. Max India Ltd. [2008] 166 Taxman 188/295 ITR 282 (SC) has reiterated this position of law that on fulfilment of twin conditions, i.e. error committed by the AO which has caused prejudice to the interests of the revenue, only then the order u/s 263 can be passed. This aspect can always be examined by an Appellate Authority against an order passed u/s 263. The position of law was also explained by the Hon'ble Supreme Court in the case of Malabar Industries ( supra) as well as in a large number of judgements. The remedy of appeal before the Tribunal would not become infructuous simply for the reason that AO has passed the consequential order. We would like to make reference to the latest decision of the Hon'ble Supreme Court in the case of Pr. CIT v. V-con Integrated Solutions.(P) Ltd. [2025] 173 taxmann.com 774 (SC)/SLP No. 13205/2025. This SLP was filed against the judgement of Hon'ble Punjab & Haryana High Court in Pr. CIT v. V-Con integrated Solutions (P.) Ltd. [2025] 173 taxmann.com 773 (Punj. & Har.)/ ITA No. 88/2024. . . . .
18. In view of the position of law explained by the Hon'ble Supreme Court, we do not find any merit in the contention of ld. CIT DR. The judgement in the case of Veena Shah (supra) is on the facts and circumstances of that case. The Hon'ble Court has not construed or interpreted the scope of Section 263 by way of this judgement. The scope of Section 263 has been explained by the Hon'ble Supreme Court in a large number of judgements. We may also cite the judgement of Hon'ble jurisdictional High Court in the case of Puneet Singh v. CIT [2019] 110 taxmann.com 116/415 ITR 215 (Punjab & Haryana), Pr. CIT v. Yes Bank [2017] 99 CCH 445. Thus, ld. DR can not take much benefit from the judgement in the case of Veena Shah. Taking into consideration all these facts and circumstances, we are of the view that ld. CIT has erred in taking cognizance u/s 263 in the present case. Accordingly, we allow the appeal of the assessee and quash the impugned order.
11.1 In light of the foregoing detailed factual and legal submissions, it is respectfully submitted that the assessee’s case does not attract the provisions of Section 194IA, as no payment was made by the assessee during the relevant year and the assessee at the best being in the capacity of a seller of development rights. Consequently, there existed no obligation whatsoever upon the assessee to deduct TDS under the said provision.
11.2 It is further humbly submitted that the invocation of revisionary jurisdiction under Section 263 by the Learned PCIT is mechanical, arbitrary, and legally unsustainable, having been initiated without identification of any specific error or demonstration of prejudice to the interests of the Revenue, as mandated by law and as clarified by numerous binding judicial precedents cited above.
11.3 The recent authoritative pronouncements of the Hon’ble Supreme Court, the Hon’ble Punjab & Haryana High Court, and various Benches of the Hon’ble ITAT, including the jurisdictional Chandigarh Bench, have consistently reaffirmed that the power under Section 263 cannot be exercised merely on suspicion, conjecture, or difference of opinion, and that both the elements of error and prejudice must co-exist and be supported by independent verification and enquiry.
Per contra, the Ld. DR relied upon paragraph 5.1 & 5.2 of the Ld. PCIT order (reproduced above) and supported the case of the Revenue.
We have heard the rival contention of the parties and perused the material available on the record. The germain to the dispute is an agreement dt. 09/07/2019 which is available at page 210 to 221 of the paper book. The perusal of the page 210 clearly shows that the assessee has been named as second party. At page 215 of the paper book the clause 2.1, 2.2 and 2.4 to 2.6 mentioned the respective right, title and obligation of the assessee.
2.1 That the said land total measuring 30 Kanal 8 Marla as detailed hereinabove has been purchased by the First party/Promoter hereto against a total consideration amount of Rs. 45,00,00,000/- (Rupees Forty Fire Crores only) which includes Rs. 5,50,00,000/- (Rupees Eight Crores Fifty Lakhs only) already paid by first party to Sh Sukhbir Singh Badal and a gross sum of money amounting to Rs 36,50,00,000/- (Rupees Thirty Six Crores and Fifty Lakhs only has been adjusted against the payment already made by the second party to the earlier owner te. Sh. Sukhbir Singh Badal. Now the first party is paying a gross amount of Rs. 10,00,00,000/- (Rupees Ten Crores only to the second party vide Cheque No. 266837 dated 09.07.2019 of Rs 9,00,00,000/- (Rupees Nine Crores only) drawn on Canara Barik. Patiala Branch and vide Cheque No.266838 dated 18.07.2019 of Rs 1,00,00,000/- (Rupees One Crore only i drawn on Canara Bank, Patiala Branch and balance Rs. 26,50,00,000/- (Rupees Twenty Six Crores Pity Lakhs only has been agreed to be treated as the investment of Second party into the project (“the investment”)i.e; investment into the firm M/S SM. Hotels for the project "Oxford Street only which is acknowledged by all concerned hereto it is on the said invested amount that second party shall be paid returns in the manner as detailed hereinafter. 2.2 That the said investment in the project Oxford Street only by the second party will earn them a return in the shape of share out of the sales proceeds from the project itself as detailed hereinafter wherein it has been agreed that both of them shall share the net profits from the said project in the ratio of 62: 38 wherein first party shall be entitled to 62% of the net receipts and 38% of the net receipts shall be shared by the second party ie. Janta Land Promoters Pvt. Ltd. For calculation of net receipt, it has been agreed that the same shall be an amount which shall be left over after meeting with all the expenses out of the Gross Sale Receipts generated from the project. For the purpose of calculation of expenses it has been agreed that every kind of expenses in the project like administrative expenses, construction- development expenses, incentives, sales promotion expenses, commission, brokerage, advertisement expenses shall be taken into account before apportioning the aforestated funds. Any refunds or cancellations shall not be apportioned and if already apportioned till such time, the same shall be liable to be adjusted in the next settlement. Further, it has been agreed that settlement between the Pirst and Second party shall happen within a period of 10 days of the close of every calendar quarter for the previous quarter. It has been agreed that all expenses post 1 April, 2019 shall be taken into account while apportioning the said 62:38 ratio. 2.4 That further it is clearly agreed and understood between the parties that by virtue of the present agreement, there is no further amount which remains to be paid or refunded or reimbursed etc, in any manner over and above the ratio as agreed as amongst the parties. Meaning thereby that First party shall not be entitled to claim anything towards the expenses made by them towards the regularization of the said colony or for the payment of stamp duty etc. and similarly the second party shall not be entitled to claim any outstanding payment in terms of its previous agreement with seller of land i.e. Sh. Sukhbir Singh Badal in any manner, ie the present agreement supersedes and overrides all and every kind of earlier arrangements as amongst the parties hereto in every possible manner. 2.5 it is clarified that if any amount is due to second party from seller of land namely Sh. Sukhbir Singh Badal, it will be claimed by the Second party directly from Sh. Sukhbir Singh Badal. First Party is not liable for any such amount to Second Party. 2.6 That it is further very explicitly & unequivocally agreed and understood by and between the parties hereto that in case there arise a situation wherein second party initiates any claim to Sh. Sukhbir Singh Badal with any pending claim with respect to the earlier transaction shall have absolutely no effect on transaction/MOU in any manner and ie. the ownership of first the present Party shall not be brought under question or doubt by virtue of any claim arising out of amongst Sh. Sukhbir Singh Badal and Second Party. First Party is and shall remain to be the absolute owner of the said actual land for all times to come. 13.1 From the perusal of the above agreement, it is clear that the assessee is not a purchaser but rather a seller in the agreement dated 09.07.2019. Further, we are of the opinion that the assessee is contributing his already existing rights in land (by virtue of the earlier agreement with Shri Sukhbir Singh Badal), the assessee was entitled to receive 38% of the net receipts in terms of Clause 2.2 of the agreement. Admittedly, no fresh agreement was entered by the assessee with Shri Sukhbir Singh Badal during the year under consideration and no payments were also made by the assessee in the year under consideration. Interestingly as per the page 422 of the paper book the assessee had made the various payments to Shri Sukhbir Singh Badal (HUF) during various earlier years as per the detail below:
13.2 From the perusal of the above noted financials it is abundantly clear that no payment were made b the assessee to Shri Sukhbir Singh Badal (HUF) during the year under consideration. As no payments were made during the year under consideration to Shri Sukhbir Singh Badal (HUF) there was no obligation in law to comply the provision of Section 194 IA of the Income Tax Act. In the present case, neither the acquisition of the property in the year occur nor any payment was made for acquisition of the land. Whaterver transaction happened between the assessee and Shri Sukhbir Singh Badal(HUF) were not relating to the year under consideration hence, there was no obligation to comply the provision of Section 194IA fo the Act.
The Ld. DR , during the argument had relied upon the findings given in para 5 at page 15 of the order wherein the Ld. PCIT is mentioned that these facts are not verifiable from the record. However, we notice that the assessee had categorically provided all the details to the Ld. PCIT during the course of proceedigns under section 263 of the Act. However, the Ld. PCIT, for the reasons best known to him had not examined the said details though made available by the assessee. In our considered opinion this approach of the Ld. PCIT cannot accepted, as some inquiries are required to be made by the Ld. PCIT so as to arrive at the conclusion that the interest of the Revenue had been prejudiced on account of the alleged non examination by the Assessing Officer. Even if the Assessing Officer, in some cases failed to ask the question then also it is incumbent on the PCIT to apply her/his mind and record a finding that the order is prejudicial to the interest of the Revenue. Keeping in view of the above factual and legal position, we are of the considered opinion that the Revenue has failed to demonstrate how the order of the Assessing Officer is prejudicial to the interest of the Revenue more particularly when neither the land was transferred by the assessee nor any payment was made by the assessee during the year under consideration. In view of the above this ground of the Revenue for issuing the show cause notice is not sustainable.
(C) Advances from customers Rs.64,285.60 lakh / Advance against property Rs.7,607.14 lakh
In this regard, the Ld. AR had submitted, that a number of documents which proves that not only the issue has been examined but also as per the material on record it can be comfortably said that there is no iota of doubt regarding genuineness of any single advance from customer. a) Detailed list of advances received including the name of allottee. his PAN. number his address, transaction amount, details of address where the property situated. date of agreement, amount of advance received during the year under consideration, date of receipt, mode of receipt, stage of the specific property, probable date of possession and sale dates in the books of accounts of assessee company. The said detail are available on page no. 223-231 of the paperbook and is forming part of the assessment record. It was submitted by the Ld. AR that in Real Estate Sector it usually takes 3 to 5 years for a project to complete. For a company of the size of the assessee, it is very much normal and probable for the assessee company to receive advances in due course. But interestingly, all the said advances were already converted into sales. The date of booking of sale as per provisions of Accounting Standards -9 is also on record. Thus the genuineness of advances received cannot be doubted. b) Further sample copy of various allotment letters against which advance from customer were received were given at page no. 233 to 377 of the paperbook. It was again reported that the company is RERA registered. All the projects of the company are registered with RERA and the stipulations of RERA are very strict. The company has duly entered with agreement/allottment letter with all the allottees. Ld. AR submitted that this fact may verify from the public portal itself that the projects of the company are registered with RERA. Since the assessee has provided with the copy of agreements/allotments letter and the projects were registered with RERA, the advance received from customers in due course cannot be doubted as ingenuine. c) The genuineness of the advances received is further justified by the following facts and figures: Revenue and other income Particulars Closing Stock FY 19-20 3,28,21,88,280 11,17,40,32,594 FY 20-21 3,24,60,48,000 10,17,90,35,568 FY 21-22 3,44,22,73,231 9,23,78,62,210 FY 22-23 2,45,81,32,922 8,63,79,51,147 FY 23-24 2,96,73,71,518 8,86,68,57,684 The closing stock available with the assessee company even at historical cost and without adding GP is many times the amount of advance received from customer. Even the turnover of next 3 to 5 years is much more than the consolidated amount of advance received from customers. The statistical figures in itself prove that there is no doubt regarding genuineness of advance received from customers. d) As demonstrated above, the entire advance received from customer is converted into sale in subsequent years. Thus there is no loss or prejudice to the revenue and there is no income escapinq'assessment. e) Further for advances paid, the said advances are at par with advances received proving its genuineness. They have already been converted into purchase. Most importantly the- said payment of advances does not even remotely tantamount to claiming of any deduction or expense so the question of any loss to the revenue or prejudice to the revenue is not there is first place.
15.1 Keeping in view of the above, it is submitted that the transaction is totally genuine and there is no loss to the revenue calling for no adverse view.
The Ld. AR relied upon the following decision: o Hon'ble ITAT Chandigarh in the case of Girish Kumar & Sons v. Income- tax Officer reported in [2023] 155 taxmann.com 208 (Chandigarh - Trib.) Hon'ble ITAT Chennai in the case of Income-tax Officer v. Sahana o Jewellery Exports (P.) Ltd. reported in [2023] 157 taxmann.com 680 (Chennai - Trib.) 17. Per contra, the Ld. DR reiterated the earlier submissions and submitted that no verification has been done by the Assessing Officer.
The Ld. AR in rebuttal had submitted that the show cause notice under section 263 of the Act was issued only after the audit objection dt. September 2023 at page 438 of the paper book wherein the identical reasons were given by the audit party. At page 438 in this regard it was mentioned as under: There were advances from customers of Rs. 64285.60 lakh towards sale of plots/flats to prospective customers as well as Advance against Property of Rs. 7607.14 lakh. Assessing officer neither verified the source/genuineness of the advances/ treatment as revenue in view of reality projeetete, nor made addition to the returned income of the assessee. This resulted in an under assessment of income of Rs.71892.74 lakh involving tax effect of Rs.23521.90 lakh.
We have heard the rival contention of the parties and perused the material available on the record. The Assessing Officer vide notice dt. 29/06/2021 has called upon the assessee to give reply to question “high creditors / liabilities“. Further, another notice dt. 24/11/2021 was issued by the Assessing Officer asking the assessee to furnish the details like name, PAN number and address, total amount of transaction, details of transaction, date of agreement to sell, date of signing of sale deed, advance amount received, date of receiving of advance, mode of receipt of payment. In response to the notice the assessee had furnished the information which is clear from page 165 of the paper book. Furthermore, the Assessing Officer again issued a notice on 24/08/2022 asking the assessee to furnish again the same information which were earlier called upon (page 171 of the paper book). The assessee had provided the detail as called for on test check basis which is available at page 223 to 240 of the paper book. On the basis of the above, it was mentioned that the assessee has provided all the information as called for by the Assessing Officer and there was no failure on the part of the assessee to furnish the information. Admittedly, the Ld. Assessing Officer after examining the above said information has not made any addition in the hands of the assessee. Quite contrary to this, the Ld. PCIT after recording at page 10 of the order that the questions were raised by the Assessing Officer had mentioned at page 15 that the Assessing Officer has not verified / examined these evidences. In our view the present is not the case of no verification or no inquiry. The Assessing Officer deemed appropriate to examine the record and comes to the conclusion that the advances received by the assessee were genuine in nature. For that purposes Assessing Officer had asked the assessee to furnish the details as mentioned hereinabove. Furthermore, the paper book at page 223 to 240 clearly shows that the advances received by the assessee were later on utilized for sale of the property and registered sale deed were executed by the assessee in favour of the purchaser / buyer /advances.
In view of the above, we are of the considered opinion that the action on the part of the Ld. PCIT is not in accordance with law as it is for the Assessing Officer to conduct the inquiry in the manner deem fit by him and it cannot be said that the inquiry is required to be conducted in particular manner which is to the liking of the Ld. PCIT. In our view the Ld. PCIT cannot invoke 263 to merely require Assessing Officer to make a deeper enquiry when a plausible view has been taken by the Assessing Officer and sufficient enquiries were made by him. In view of the above the order of the Ld. PCIT on this ground is required to be quashed. (D) Rs.921.39 lakh in Reserves & Surplus to be added u/s 68 21. The Ld. AR has submitted that the show cause notice is factually incorrect and he had drawn our attention to the balance sheet of the assessee company wherein the schedule of reserves and surplus is at page no. 118 of the paper book. It is interesting to note that Rs. 921.39 Lacs is not added in the reserves and surplus but it is infact deducted or reduced. The relevant page of the balance sheet is being reproduced as under:
21.1 On the basis of the above it was submitted that the show cause notice and the order is not sustainable on this ground.
The Ld. DR relied upon the orders of the lower authorities.
We have heard the rival contention of the parties and perused the material available on the record.
The Ld. PCIT at page 11 of the order had categorically noticed and recorded the submission of the assessee and the reply to the show cause noticed given by it. From the perusal of the order it is abundantly clear that the amount of Rs. 921.39 lakhs were deducted from the reserves and surplus and was not added as income, as wrongly mentioned in the show cause notice in the order. We are at loss how this ground can be made basis of invocation of Section 263 or addition under section 68 of the Act when there is no credit entry in records of the assessee. On the contrary, the amount has been deducted and not credited in the assessee’s books of account. As rightly contended by the assessee, it was incumbent upon the learned PCIT to make at least a minimal enquiry and apply his mind before invoking revisionary jurisdiction, so as to establish that the order of the Assessing Officer was erroneous and prejudicial to the interests of the Revenue. Mere issuance of a show-cause notice and repetition of the same allegation, despite a legally tenable and duly supported explanation on record, cannot justify revision under section 263 when the allegation itself is unsustainable in law.
24.1. In view of the above, this ground of the show cause notice and the order is not sustainable and the order under section 263 is required to be quashed. (E) TP/MAT not examined
The Ld. AR submitted that the Ld. PCIT alleges non-review in general terms; no specific international transaction is shown; assessee pointed to non-applicability of specified domestic transactions. (as urged before PCIT). Further , the Ld. AR submitted that the issue raised in the said para pertains to transfer pricing adjustment. From perusal of the financial statements, it is evident that there is neither an international transaction nor specified domestic transactions under Section 92BA apply to the assessee. The Ld. AR had further submitted that the Ld. PCIT has not pointed out, either in the show cause notice or in the impugned order, that the assessee has entered into any international transaction or any specified domestic transaction with its AE. Therefore, the order is not sustainable in the eyes of law.
25.1 Furthermore, the learned Authorised Representative submitted that the provisions of section 92BA have since been repealed from the statute book and, therefore, no addition can be sustained in the hands of the assessee on the basis of a provision which no longer exists in law. He placed reliance on the decision of the coordinate bench in Taxport Technologies Pvt. Ltd. and other judicial pronouncements holding that once a provision has been omitted or repealed without any saving clause, no addition or disallowance can be made by invoking such repealed provision.
Per contra, the Ld. DR relied upon paragraph 5.1 & 5.2 of the Ld. PCIT order (reproduced above) and supported the case of the Revenue.
We have heard the rival contentions of both parties and perused the material available on record. For invoking the provisions relating to specified domestic transactions or international transactions under Chapter X of the Act, it is incumbent upon the Revenue to establish that there exists an international transaction within the meaning of section 92B or a specified domestic transaction within the meaning of section 92BA of the Act. In the present case, the learned PCIT has failed to point out any such transaction entered into by the assessee. In the absence of any specific instance requiring reference for transfer pricing adjustment, it is not permissible to generalise the matter and hold that there was lack of enquiry on the part of the Assessing Officer rendering the assessment order prejudicial to the interests of the Revenue. In our considered view, the learned PCIT is required to specifically identify the transaction which, in his opinion, falls within the scope of section 92B or section 92BA. In the absence of such a pointed and specific finding, the learned PCIT cannot embark upon a roving or fishing enquiry to make out a case of lack of enquiry under section 263 of the Act.
27.1 Furthermore, we find merit in the submission of the learned AR that clause (i) of section 92BA, which defined specified domestic transactions, stood omitted by the Finance Act 2017 w.e.f. 01.04.2017, without any saving clause. The coordinate Bench of the Tribunal in Texport Overseas Pvt. Ltd. v. DCIT (IT(TP)A No. 1722/Bang/2017, order dated 12.03.2018), as affirmed by the Hon’ble Karnataka High Court in has categorically held as under:
Once clause (i) of section 92BA has been omitted by the Finance Act 2017, it shall be deemed to have never been part of the statute. While omitting the said clause, the Legislature did not provide any saving clause to protect pending proceedings or actions initiated thereunder. Therefore, any proceeding initiated or action taken under the said clause would not survive, and the cognizance taken by the Assessing Officer under section 92BA(i) and the reference made to the TPO under section 92CA are invalid and bad in law.
Respectfully following the above ratio, we hold that the impugned order passed by the learned PCIT under section 263 is unsustainable on both counts - first, for want of specific enquiry establishing any transaction under sections 92B/92BA, and second, on account of repeal of the enabling provision itself. Accordingly, the order of the learned PCIT is quashed on this ground also.
(F) Deemed rent addition. 29. In this regard the Ld. AR pointed out that the AO took a conscious view on deemed rent of 11 unsold flats after issuing SCN and considering the assessee’s jurisprudence-based objections; computation is fully recorded in the order. This also evidences active application of mind during assessment.
Per contra, the Ld. DR relied upon the order of the lower authorities
We have heard the rival contention of the parties and perused the material available on the record. The 263 order repeatedly states that enquiries were “unsatisfactory and incomplete” and thus requires “detailed examination” by the AO. However, it does not demonstrate that the AO did not ask the very questions now demanded; in fact, the record shows the AO did. When an enquiry is made, answers are on record, and the AO records a conclusion of no adverse inference, the PCIT cannot treat the order as erroneous merely because he would have reached a different conclusion or wishes the AO to do more.
31.1 The last submission advanced by the learned Authorised Representative was that the very basis of the show-cause notice issued under section 263 was the audit objection raised by the audit party. In this regard, our attention was drawn to page 238 of the paper book, wherein the audit objection is placed. It was submitted that the show-cause notice issued by the learned PCIT is a verbatim reproduction of the said audit objection and, therefore, it clearly establishes that the initiation of revisionary proceedings was solely on the basis of the audit objection. The learned AR contended that it is humanly improbable that two independent authorities could have used identical language, and such mechanical reproduction reflects non- application of mind by the learned PCIT. In support of this contention, reliance was placed on various judicial precedents forming part of the paper book.
On the other hand, the learned Departmental Representative relied upon the order of the learned PCIT and submitted that there is no bar in law for the exercise of jurisdiction under section 263 merely because an audit objection exists, and that two authorities can independently arrive at the same conclusion based on the material available on record.
We have heard the rival contentions of both parties and perused the material available on record. The comparison of the audit objection and the show cause notice shows the verbatim similarity not only the content but also of the language. Therefore, we are not in a position to appreciate whether the Ld. PCIT has applied his mind before issuing the show cause notice afresh or not. The Coordinate Bench in the identical case of AhlconParenterals (India) Ltd.[2024] 162 taxmann.com 759 (Delhi - Trib.) it was held as under: 8. Now, as we appreciate the order of PCIT, it comes up that there is no reference of these proposals. The ld. AR has relied the judgement of the Hon'ble Calcutta High Court in the case of Pr.CIT v. Sinhotia Metals and Minerals Pvt. Ltd. in IA No.GA/1/2019 in ITAT/104/2019 dated 7-1-2022 wherein the Hon'ble Calcutta High Court has held as follows:- "We have gone through the order passed by the Tribunal, wherein we find that the Tribunal has noted the decision of the co- ordinate Bench of the Tribunal in the case of M/s. Rapayan Udyog in said decision the Tribunal points out that the appellant department has not controverted the contents of the letter of the Joint Commissioner of Income Tax dated 18th August, 2016 and has recorded that the said letter clearly brings out that the PCIT has called for proposal from the JCIT/Assessing Officer to exercise jurisdiction under Section 263 of the Act. Therefore, the Tribunal concluded that the PCIT has not exercised jurisdiction under Section 263 of the Act himself, but he exercised jurisdiction at the instance of the Assessing Officer/JCIT, which is against the provisions of law. The argument made by the learned Standing Counsel is that it is the PCIT who has exercised jurisdiction under Section 263 of the Act. From the order passed by the Tribunal we find that the department could not controvert the contents of the letter dated 18th August, 2016. If, according to the department, the contents of the letter were otherwise, then it is for the department to approach the Tribunal for necessary rectification or clarification and the correctness of the order of the Tribunal cannot be decided by us in an appeal under Section 260A of the Act by bringing certain submissions which were never made before the Tribunal. Therefore, we are not inclined to interfere with the order passed by the Tribunal and accordingly, the appeal is dismissed. However, we leave it open to the appellant/department to approach the Tribunal for clarification or rectification of the order, if they are so advised." 9. The ld. DR, on the contrary, relies the Calcutta Bench order in the case of Stewarts & Lloyds of India Ltd. v. CIT [2016] 67 taxmann.com 41/178 TTJ 188/158 ITD 456 (Kolkata - Trib.) to contend that there is no prohibition u/s. 263 of the Act for Revisional Authority to act on the basis of the proposal by the AO if other conditions specified under the said section are satisfied. The ld. DR has, thus, defended the action of the PCIT u/s. 263 submitting that there may have been audit objection and proposal, otherwise, it was on the basis of records the PCIT has exercised its powers. 10. After taking into consideration the aforesaid submissions, we find that the Hon'ble Calcutta High Court in the case of Sinhotia Metals and Minerals Pvt. Ltd. (supra) has, by order dated 7 th January, 2022, categorically upheld the conclusion of the Tribunal that PCIT has not exercised his jurisdiction u/s. 263 of the Act himself but only on proposal of AO. This is a question of fact which was appreciated by the Hon'ble High Court to hold that there was irregular exercise of jurisdiction u/s. 263 of the Act. The Tribunal in the case of Stewarts & Lloyds of India Ltd. (supra) had thoroughly gone on the facts of the case and in that case, independently the AO had made a proposal. In the case in hand before us even the AO made a proposal on the basis of audit report objections. Further, as we examine the notice u/s. 263 available at page 84 of the paper book, it appears that the contents of the notice in a tabular form are similar to the proposal dated 27.09.2018 of the AO. The audit report is provided by Revenue at page no 1 to 9 of PB and same only seems to be the foundation of all the reasons quoted by the PCIT, for giving a finding that assessment order is erroneous. Thus, though not mentioned specifically in the order of the PCIT, that the jurisdiction is being invoked on the basis of the audit objections and the proposal thereof, the manner in which the PCIT has approached the issues by issuing show-cause notice and the discussion made upon the issue establish non-application of independent mind. It appears that based upon the audit objections and proposal only the jurisdiction u/s. 263 was invoked and exercised to hold assessment order to be erroneous so far as prejudicial to Revenue. 33.1 In view of the foregoing discussion, and respectfully following the ratio laid down by the Coordinate Bench in similar circumstances, we are of the considered opinion that the order passed by the Learned Principal Commissioner of Income Tax (PCIT) is not sustainable in the eyes of law. The assessment order passed by the Assessing Officer, after due consideration of the material available on record, cannot be branded as either erroneous or prejudicial to the interests of the Revenue within the meaning of Section 263 of the Act.
33.2 It is a settled principle that mere difference of opinion or disagreement as to the manner of inquiry or the depth of investigation does not, by itself, render an assessment order erroneous. Unless the Revenue is able to demonstrate that such omission or view of the Assessing Officer has resulted in a tangible loss to the exchequer, the pre-requisites for invoking the jurisdiction under Section 263 of the Act remain unfulfilled.
Accordingly, we hold that the assumption of jurisdiction under Section 263 in the present case was invalid, and the order passed thereunder deserves to be quashed and set aside.
Accordingly, the PCIT’s assumption of jurisdiction u/s 263 fails. The impugned order is quashed and the assessment u/s 143(3) r.w.s. 144B dated 26.09.2022 is restored.
In the result, appeal of the Assessee is allowed.