CEIGALL INDIA LIMITED, LUDHIANA,LUDHIANA vs. PRINCIPAL COMMISSIONER OF INCOME TAX, LUDHIANA, LUDHIANA

3. Refund Claim Capital Gain (New Issue)(Beyond the issue for Issue considered by which scrutiny assessment was undertaken) the PCITand set aside to the file of Assessing Officer.

4. ICDS compliance and Issue of ICDS (Already discussed during Issue considered by adjustment original proceedings) as is borne out from the the PCIT and set aside relevant query raised by the AO and also to the file of Assessing discussed in the order. Officer. 5. Credit of bought forward TDS Credit of bought forward TDS No adverse view was Already discussed during original proceedings taken by the PCITon this issue. 6. Expenditure by way of penalty Fee&Penalty(Alreadydiscussedduringoriginal No adverse view was proceedings) taken by the PCIT on relevant query raised by the AO and this issue. fine of violation of any law. 7. - AdditionintheFixed Asset(NewIssue) Issue considered by (beyond the PCIT and set aside assessment was undertaken) to the file of Assessing Officer.

2.5 The assessee, on the basis of the above table, submitted that the issues no. 2-7 were already forming part of the assessment order. Further, it was submitted that the issue of professional consulstancy, other expenses claimed by the assessee, scheduled BP were not subject matter of the scrutiny assessment and it was not permissible for the ld. PCIT to raise the fresh issue which was not subject matter of the scrutiny assessment proceedings. Further, with respect to professional consultancy services it was submitted as under; The reply to this issue has been given by the assessee before the PCIT as per Page 68-70 of the Paper Book in detail and facts are as under:-  Please refer to page 20 of the Paper Book, which is part of the Tax Audit Report and at Point No. 34 (a) serial no.4 i.e. Schedule relating to whether assessee is required to deduct or collect tax as per the provision of Chapter XVII-B or Chapter XVII-BB, if applicable, the assessee has declared that, assessee had paid `professional consultancy with applicability of TDS' on amount of Rs. 15,98,35,720/-, on which, applicable rate of TDS u/s 194J have been deducted i.e. 10% at Rs. 1,59,83,572/- of total professional fee paid, TDS is deducted by the assessee.  TDS has been deducted on account of fee for professional and technical services, All such figures are part and parcel of the income and expenditure 4 account and the figure of Rs. 1,88,43,799/- at page of 41 of PB pointed by the PCIT, assessee had been disclosed such amount under the head of 'Professional and Legal charges' and the PCIT has stated that, the balance amount has been not enquired. In this regard, it is submitted that, this issue had been looked into by the AO. Since the Assessing Officer had before him profit Et Loss account and schedule complete audit report, balance sheet, Income Et Expenditure account and notes on accounts, and all figures are borne out from there. Also, the reconciliation was filed by the assessee before Ld. PCIT vide reply to SCN u/s 263, where the assessee has given the breakup of total expenses, claimed under the head`Professional charges' at Rs. 16,10,52,291 /- and out of which Rs. 15,98,35,720/- was liable for TDS deduction and balance amount of Rs. 12,16,571/ - were those kinds of professional expenses which were under the prescribed limits of section 194J i.e. upto Rs. 30,000/-, on which no TDS was liable to be deducted upto this limit. Please refer to our reply to the SCN notice relevant page 69 of the PB. The chart is self-explanatory and all figures are matching with Profit and Loss Account.

 Since, we had deducted the TDS on much larger sum and all such figures are part and parcel of the regular books of accounts and audited set and the nature of the said expenses are clear from the profit and loss account. All such expenses have been reflected in the Profit and Loss Account (page 26) wherein Note number 28 of the profit and loss account is given at page 40 to 41 of the 'paper book', such expenses have been disclosed and the same includes- >Royalty(Page 40) of Rs. 127,554,526/-, Audited remuneration at Rs 5,75,000/-, Legal & Professional Charges at Rs. 1,88,43,799/-, and the profit and loss account also reflects, Misc. Expenses at Rs. 10,90,99,746/-, out of which, amount of Rs. 1,03,65,450/- is relating to Professional in Nature and the remaining expenses of Rs. 37,13,516.96 is relating Rates and Taxes, which has been reported in Schedule No.28 at page 41, under the head of Rate & Taxes, which amounts to Rs. 50,04,868/- and Rs. 37,13,516/- is included in it, as it relates to Professional in nature, is at page 41 of the paper Book. Thus, since all such detail were as per profit and loss account and schedule to notes on account, the AO had verified the same during the assessment proceedings and there is no SO CALLED DIFFERENCE AS ALLEGED BY THE PCIT which makes the said ground void-ab-initio as the said allegation is against the documents furnished during the course of the assessment proceedings and which were part of the record and we had deducted the TDS on much large amount.

 It is reiterated that all such figures are part and parcel of return of income and reflected in the profit and loss account and even the PCIT could have easily verified the same from the profit and loss account and schedules, for which, the reply had been filed by the assessee. Further, no adverse inference was drawn the PCIT against the reply filed by the assessee against the SCN and the PCIT has merely stated that, "Moreover, the submission of the assessee during proceedings u/s 263 regarding reconciliation of expenses on account of professional or technical services as per audit report and as per return of income should have been filed during the course of then assessment proceedings." which means that the PCIT has also not been able to negate the said explanation of the assessee and thus, the genuineness of expenses and the figures are as per our return of income as filed before the Assessing Officer and, therefore, the same is not a ground for revision proceedings u/s 263. 5 2.6 After considering the assessee’s reply dated 26.03.2025, the PCIT held that the AO failed to make adequate enquiries, invoked Explanation 2(a) to section 263, and set aside the assessment for de novo consideration. The finding of the Ld. PCIT is given in paragraphs5.1 to 5.67 and 8. In para 8, it was held as under:- Therefore, considering the entire gamut of facts and in the circumstances of the case and also relying upon the judgments as discussed above, I am of the firm opinion that the Assessing Officer's failure in not examining the impugned issues by way of enquiries/verification that were required in this case, has rendered the assessment order, dated 20.09.2022, passed u/s 143(3)r.w.s. 144B of Income Tax Act, 1961 by the AO in the case of the present assessee, erroneous in so far as it is prejudicial to the interest of the revenue. Both the conditions specified u/s 263 of the Act are satisfied in this case and it is a fit case to invoke provisions of Explanation 2 to the said section. Therefore, as per the provisions of section 263 of the Income Tax Act, I hereby set aside the impugned assessment order dated 20.09.2022, passed u/s 143(3) r.w.s. 144B of Income Tax Act, 1961. Needless to state, the Assessing Officer shall give the assessee reasonable opportunity of being heard and pass a speaking order after taking into consideration the explanation and supporting evidence submitted by the assessee. The assessment order dated 20.09.2022, passed u/s 143(3) r.w.s. 144B Income Tax Act, 1961 is being set aside for the limited purpose for examining the issues as mentioned above in para 5.

3.2 The AO applied his mind and passed a reasoned order. Once due enquiries have been made, the PCIT cannot substitute his judgment. Reliance was placed on Malabar Industrial Co. Ltd. v. CIT (243 ITR 83, SC), Gabriel India Ltd. (203 ITR 108, Bom), V-Con Integrated Solutions (476 ITR 526, SC, 2025) and PCIT v. Aculife Healthcare Pvt. Ltd. (477 ITR 398, SC, 2025).

3.3 The AR submitted that the alleged difference noted by PCIT is misconceived. The assessee paid professional fees of Rs.15.98 crores on which TDS of Rs.1.59 crores was deducted u/s 194J. The balance amount shown under “Legal & Professional Charges”includes items falling below the threshold of TDS 6 or classified under other schedules (such as royalty and auditor’s remuneration). A reconciliation was filed both before the AO and PCIT. The AO had all financials, audit report, and schedules before him; hence there was no lack of enquiry.

3.4 It was contended that the PCIT merely compared the figure of Rs.257.12 crores with the preceding year’s figure of Rs.86.94 crores without appreciating that turnover had increased by 218%. In proportion to sales, expenses had actually decreased. The AO examined comparative statements during assessment; therefore, raising a generic suspicion at 263 stage is not permissible.

3.5 The AR argued that the so-called discrepancy arose on account of “profit on sale of depreciable assets” of Rs.24.22 lakhs which was adjusted in block of assets u/s 50. The computation of income clearly reflected this treatment and the AO had accepted the same. The PCIT overlooked section 50 which mandates such treatment.

3.6 The AR emphasized that this was a specific CASS issue. The AO called for details, perused the tax audit report, financials, and reconciled opening and closing stock. After satisfaction, he recorded findings in assessment order. Once AO has examined the issue, PCIT cannot term it as “lack of enquiry” merely because he preferred a different line of enquiry.

3.7 The assessee submitted a detailed reconciliation of ICDS adjustments vide letter dated 07.12.2021. The AO referred to and accepted the same in the assessment order. The PCIT’s observation that Annexure was not available is factually incorrect.

3.8 The AR pointed out that the assessee furnished details vide reply dated 14.02.2022. The AO verified and accepted the claim. The PCIT’s remark that documents were not filed is contrary to record.

7 3.9 The AR submitted that only Rs.2.32 lakhs was debited, which was apparent in accounts. The AO examined and recorded his satisfaction.

3.10 The AR argued that this was never a CASS issue. Without converting the case into “complete scrutiny”, the PCIT could not travel beyond the limited scrutiny scope. Moreover, purchases were reflected in audited accounts and routed through banking channels.

3.11 In sum, the AR contended that the AO had raised queries, assessee replied, and AO took a possible view. The PCIT has not pointed out any error of law or fact; he has merely directed re-enquiry, which is impermissible.

5.1. The Ld. PCIT in the order in para 5.2 had mentioned with respect to other expensesmentioned as under: Further, during the course of original assessment proceedings, vide point 3 of reply filed dated 07.12.2021 and against notice issued u/s 142(1) Dt. 23.11.2021, the assessee filed before the Ld. AO, the copy of audit report, Balance Sheet, Trading, Profit and Loss account, along with all the annexure for the assessment year AY 2019¬20, 2020-21. The said documents duly reflects the comparative figures of sales and expenses and since the hike in sales as well as expenses claimed by the assessee were part of reply filed by the assessee therefore, the revision u/s 263 on this issue is not called for. From perusal of assessment record and reply of the assessee, it is observed that AO did not call for the party wise details of these expenses amounting to Rs. 257.12 crores, and did not call for the invoices and details of the payments made from bank for these expenses even on test check basis to establish genuineness of these expenses. Therefore, AO failed to make inquiry/ verification on the above mentioned issues. 5.2. Similarly with respect to theissued relating to capital gain as shown under 'Schedule-BP of ITR Form' whereinassessee has shown capital gain amounting to Rs. 69,59,354/- whereas, amount deducted from the computation of income was of Rs. 45,37,109/- only as profit on sale of mutual funds The Ld. PCIT in the order in para 5.3 had noted as under: Further, it is submitted that during the course of assessment proceedings questionnaire dated 23.11.2021 issued by Ld. AO wherein, assessee was asked to file the computation of income for AY 2020-21, which has been filed by the assessee along with reply dated 07.12.2021 vide point no. 4, wherein it is clearly evident that we have duly shown the treatment of above capital gains as per compotation of income. From a collective reading of the Fixed Assets chart and computation of income it is clear that suchso called profit on sale of fixed assets was not liable to be disclosed under the head capital gains since the block of assets have not been exhausted. Thus, no revision u/s 263 in respect of the above issue is called for. However, from perusal of assessment record and reply ofthe assessee, it is observed that AO asked to furnish computation of income for the AY 2020-21 only vide notice u/s 142(1) dated 23.11.2021. However, no specific query regarding capital gains was raised by the AO during the course of assessment proceedings. AO should have called for the details and supporting documents of the fixed assets sold and then would have verified the admissibility of the contention of the assessee. Therefore, the AO failed to examine and verify the issue during assessment.

9 5.3 Further, With regards to the issue of "Stock Valuation", the Ld. PCIT noted in para 5.4 as under: It is submitted that during the course of the assessment proceedings, the said issue has been considered by the Ld. AO and the findings of the same have been given. Thus, it is clearly evident that, the Ld. AO has duly applied his application of on the above said issue of Stock. However, from perusal of assessment record and reply of the assessee, it is observed that the AO has only analyzed tax audit report and financials submitted by the assessee on the issue of stock valuation. Further, perusal of assessment record reveals that no documentary evidence was called for by the AO. The AO has not examined the stock register, quantitative tally of stock and valuation of the same. AO failed to verify the purchases and sales with respect to stock register even on test check basis. Therefore, the AO has failed to make further inquiry and verification which should have been made in respect of this issues. 5.4. Furthermore, regarding the source and genuineness of the addition made to building block of Rs. 4,71,394 and to furniture and fitting block of Rs. 39,11,207 & plant & machinery of Rs. 26,23,71,173, the Ld. PCIT noted in para 5.5 as under: “However, notwithstanding the same, it is submitted that the audit report already reflects the dates and amount of purchases made by the assessee during the year under consideration and the same has been considered by the Ld. AO during the course of the original assessment proceedings. Furthermore, the copy of Accounts of the parties from which the respective purchases have been made are being enclosed and further, it can also be seen that majority of the purchases route through bank account of the assessee company making the transaction genuine. Notwithstanding above, it is submitted that, issue pointed out in SCN is attribute to the issues already discussed during original assessment proceedings, thus, revision proceedings u/s 263 cannot be made.”

5.5 The Ld. PCIT with respect to issue of ICDS compliance and adjustment had noted in para 5.6 as under: Further, as per the assessment order dated 20.09.2022, it has been stated by our Ld. AO in regards of this point that the assessee has provide the details of the ICDS adjustments vide reply dated 07.12.2021 explaining the ICDS adjustments. The same was found to be acceptable, thus no variation proposed. Thus, it is clearly evident that, the Ld. AO has duly applied his mind on the above said issue of ICDS adjustments. On perusal of assessment record, it is observed that the AO called for the details of ICDS adjustment and its effect of taxable income. In response, the assessee vide reply dated 07.12.2021 submitted that the relevant adjustments as per ICDS has been made in the computation of income, wherein it has added the amount of depreciation as per Companies Act, 2013 and the depreciation as per Income Tax Act, 1961. However, the AO did not make inquiries to verify the submission of the assessee, thus, the AO failed to verify the genuineness and admissibility of depreciation as claimed by the assessee in computation of income. AO did not 10 call for the documentary evidence in respect of the additions made in fixed assets and their date of installation to ascertain the amount of depreciation as per provisions of Income Tax Act.

5.6 From the summary of the findings of the Ld. PCIT reproduced hereinabove we can safely conclude that The AO did conduct enquiries on all scrutiny issues, considered assessee’s  submissions, and recorded findings. The PCIT has not demonstrated what specific further enquiry was  necessary or how AO’s view was unsustainable. Merely because PCIT would have conducted deeper verification, revision  cannot be invoked. On issues beyond limited scrutiny, assumption of jurisdiction is itself invalid.  5.7 It is well settled by Malabar Industrial Co. (SC) that both conditions—error and prejudice—must co-exist. Gabriel India Ltd. (Bom HC) has held that mere inadequacy of enquiry does not justify revision. The Hon’ble Supreme Court recently in V-Con Integrated Solutions (476 ITR 526) quashed 263 where AO had raised queries and assessee furnished replies, and PCIT did not specify further enquiry required. Similarly, in Aculife Healthcare Pvt. Ltd. (477 ITR 398, SC), it was held that once AO has adopted a plausible view, revision is not permissible. The Hon’ble Gujarat High Court in case of KanubhaiVanmalibhai Patel[2025] 178 taxmann.com 133 (Gujarat)has held as under: 18. Being aggrieved the assessee preferred an appeal before the Tribunal. Tribunal after considering the submissions of both the sides held as under: "13. We find that though, it was accepted by ld PCIT that the assessing officer raised question for seeking evidence of agriculture income, the assessee failed to prove that land was being used for agricultural purpose by furnishing valid documentary evidence. The assessee claimed that agricultural income was shown in all past three years, is not supported by evidence of actual carrying out of agriculture operations. No cross verification or investigation was made during assessment about the letter issued by Shree Maruti Gaushala regarding taking entire product/crops grown on the said land and donated to such Gaushala. The Assessing Officer has not made any enquiry from agriculture department or revenue agency about the crop cultivation.

12 16. In view aforesaid legal and factual discussions coupled with the facts the assessing officer has examined the issue in depth and allow relief to the assessee. Therefore, the view taken by the assessing officer is one of the reasonable and plausible and legally sustainable, which cannot be said as erroneous.

19. The Hon'ble Jurisdictional High Court in Aryan Arcade Ltd., v. PCIT (2019) 412 ITR 277 (Gujarat) held that merely because Commissioner held a different belief that would not permit him to take the order in revision, it if further held that when Assessing Officer made full enquiry, he made up his mind, the notice of revision is not valid. In CIT v. Nirma Chemical Works (P) Ltd (309 ITR 67 Gujarat)/ 182 Taxman 183 Gujarat, the Hon'ble High Court also held that when assessing officer after making due inquiries had adopted one of the view and granted partial relief, merely because Commissioner took a different view of the matter, it would not be sufficient to permit commissioner to exercise his powers under section 263. The Hon'ble Court in para 22 of its order on the objection of the revenue that there is no discussion of the issue in the assessment order held that the contention on behalf of the revenue that the assessment order does not 13 reflect any application of mind as to the eligibility or otherwise under section 80-I of the Act requires to be noted to be rejected. An assessment order cannot incorporate reasons for making/granting a claim of deduction. If it does so, an assessment order would cease to be an order and become an epic some. The reasons are not far to seek. Firstly, it would cast an almost impossible burden on the Assessing Officer, considering the workload that he carries and the period of limitation within which an order is required to be made; and, secondly, the order is an appealable order. An appeal lies, would be filed, only against disallowances which an assessee feels aggrieved with. (* emphasis added by us).

The Hon'ble Supreme Court has dismissed the SLP filed by the Department against the above said decision of Hon'ble High Court vide its order dt. 01/09/2025 in the case of CIT Vs. KanubhaiVanmalibhaiPatel reportedas 2025] 178 taxmann.com 342 (Hon'ble Supreme Court). The sum and substance of the order of the Hon'ble High Court was that if the adequate enquiries were made by the Assessing Officer then there is no reason to substitute the opinion of the Ld. PCIT and direct the Assessing Officer to conduct the assessment in a particular manner or raise particular questions.