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Facts
The assessee, engaged in real estate business, filed its return for AY 2017-18. The case was selected for scrutiny, and the Assessing Officer (AO) accepted the disclosed income. The Principal Commissioner of Income-tax (PCIT) initiated revision proceedings under Section 263 of the Income-tax Act, 1961, setting aside the assessment order, which the assessee is challenging.
Held
The Tribunal held that the PCIT had wrongly invoked revisionary powers under Section 263 of the Act. It was observed that the PCIT did not conduct independent inquiries to establish that the assessment order was erroneous and prejudicial to the revenue. The Tribunal found that the AO had made inquiries, and the PCIT's decision to set aside the assessment without further investigation was not justified.
Key Issues
Whether the PCIT correctly invoked powers under Section 263 of the Act to revise an assessment order without conducting sufficient independent inquiry and establishing prejudice to revenue. Whether the AO's assessment was erroneous due to lack of inquiry or a mere difference of opinion.
Sections Cited
263, 143(3), 142(1), 43CA, 22, 23, 68, 145(2)
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Income Tax Appellate Tribunal, LUCKNOW BENCH “B”, LUCKNOW
Before: SHRI KUL BHARAT & SHRI NIKHIL CHOUDHARY
PER KUL BHARAT, VICE PRESIDENT.: This appeal, by the assessee, is directed against the order of the learned Principal Commissioner of Income-tax (PCIT)- Bareilly, dated 14.03.2022, passed u/s 263 of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), pertaining to the assessment year 2017-18. 2. The assessee has raised the following grounds of appeal: - “Grounds No.1 The Learned PCIT, Bareilly has erred in initiating and completing the revisionary proceedings u/s 263 of the Act in the hands of the assessee, and setting aside the case to the Assessing officer, with total disregard to the facts and circumstances of the case, and is untenable under the law.
1. Page 2 of 16 Grounds No. 2 The Learned PCIT, Bareilly erred in setting aside the assessment made vide order under section 143(3) dated 27/12/2019 and passing an order under section 263 of the Act on the grounds that the original assessment order passed under section 143(3) was erroneous and prejudicial to the interest of the revenue and directing AO to frame fresh assessment order (de novo) after giving reasonable opportunity of hearing to the appellants. Grounds No. 3 The Learned PCIT, Bareilly has further failed to appreciate that the original assessment order was passed by the Assessing officer after considering all the issues mentioned in his show cause notice and after making due enquiries, and thus the case was not the one of lack of inquiry by the Assessing officer. Grounds No. 4 The Learned PCIT, Bareilly erred in law as well as on the facts of the case in wrongly setting aside the assessment order dated 27/12/2019 despite there being complete application of mind by the AO on the subjected issues and it was nothing but a case of change of opinion, based on which, assumption of jurisdiction u/s 263 is not permissible. The impugned order dated 14/03/2022 therefore, lacks valid jurisdiction u/s 263 of the Act and hence, the same kindly be quashed. Grounds No. 5 The Learned PCIT, Bareilly further failed to appreciate that where there were two possible views and a logical view had been taken by the Assessing officer in the original assessment proceedings, the revisionary proceedings could not be initiated to substitute his own view. Grounds No. 6 That the finding of Learned PCIT, Bareilly that order of the learned Assessing Officer is erroneous and prejudicial to the interest of revenue is factually incorrect, legally misconceived, contrary to evidence on record; and in any case is vague, based on surmiseful considerations; and therefore unsustainable. Grounds No. 7 That the Learned PCIT, Bareilly has erred in holding that it is a case of "lack of inquiry" and, further failing to appreciate that alleged inadequate inquiry in the manner suggested without any independent evidence and, without any further enquiries by him cannot be a basis for assumption of jurisdiction u/s 263 of the Act. Grounds No. 8 The Learned PCIT, Bareilly has without conducting any independent enquiries has held the order to be erroneous and prejudicial to the interest of the revenue, has set aside the assessment back to the file of the Assessing officer with total disregard to the facts and circumstances of the case. The CIT has failed to appreciate that powers of revision u/s 263 cannot be exercised for redoing the investigation, rather the CIT ought to have done Prive investigation himself before restoring the matter to the AO. Grounds No. 9 The Learned PCIT, Bareilly has further ignored that in view of the provisions of explanation 2 of section 263, it is incumbent to point out what more enquiries would the AO ought to have conducted. Grounds No. 10 That the Learned PCIT, Bareilly has also failed to appreciate that, u/s 263 of the Act, an order of assessment cannot be set- aside to simply to make further enquiries and thereafter pass fresh order of assessment and as such, impugned order is contrary to law and hence, unsustainable. The learned Principal Commissioner of Income Tax has Page 3 of 16 failed to appreciate that surmises, conjecture and suspicion could not be a basis much less a valid basis to invoke section 263 of the Act. Grounds No. 11 That the Learned PCIT, Bareilly has framed the impugned order without granting sufficient opportunity to the appellant and therefore the order made is illegal, invalid and, vitiated order Prayer - It is therefore prayed that, impugned order dated 14.3.2022 under section 263 of the Act be held to be without jurisdiction and, therefore be quashed and »d appeal of the appellant be allowed. Grounds No. 12 The assessee’s case does not fall within the mischief of section 263 and such the order is bad in law and the same is liable to be cancelled. Grounds No. 13 That the Appellant craves leave to amend alters, add or forego any of the above grounds.”
Briefly, stated facts are that in this case the assessee is a company and engaged in the business of real estate, construction and purchase and sale of immovable properties. The assessee company filed its return of income for A.Y. 2017-18 on 07.11.2017, declaring total income at Rs.81,54,690/-. The case of the assessee was selected for scrutiny under Computer Assisted Scrutiny System (CASS). The statutory notice u/s 143(2) of the Act was issued on 10.08.2018 and duly served upon the assessee. Thereafter, another notices u/s 142(1) of the Act were issued on 07.09.2019, 29.11.2019 and 13.12.2019 along with detailed questionnaire. In response to the notices, the assessee company filed its copy of income tax return with acknowledgment, Audit report, audited balance-sheet, audited Profit & Loss account, copy of bank accounts and other documents as directed by the Assessing Authority. It was noted by the Assessing Authority that although, the case was selected for complete scrutiny but it was selected to examine mainly the issues i.e. (i) Real estate business with high closing stock and (ii) Higher turnover reported in Service Tax Return as compared to Income Tax Return. After considering the assessee’s submission and the material placed before the Assessing Authority, the Page 4 of 16 disclosed income was accepted vide assessment order dated 27.12.2019.
Subsequently, the Ld. PCIT, Bareilly issued a notice u/s 263 of the Act dated 18.11.2021, giving an opportunity to the assessee for hearing before passing the order u/s 263 of the Act. Thereafter, notice of hearing were given on 03.12.2020, 28.01.2021, 18.11.2021, 10.01.2022 and 01.02.2022. In response to the notices, the assessee company duly filed its submissions. After considering the reply, the Ld. PCIT passed the impugned order, thereby he set aside the assessment order dated 27.12.2019 and directed the Assessing Officer to frame de novo assessment order. Aggrieved by this, the assessee is in appeal before this Tribunal.
The assessee has taken multiple grounds against the order passed u/s 263 of the Act. Apropos to the grounds of appeal
, Ld. Counsel for the assessee submitted that the action of Ld. CIT is unjustified and is against the settled principles of law. He contended that in fact, the Assessing Officer had examined all the issues by making multiple queries that were duly replied by the assessee. The order sought to be revised is neither erroneous nor prejudicial to the interests of the Revenue. Even if, in the opinion of Ld. PCIT that the inquiry conducted by the Assessing officer was not sufficient, he ought to have conducted some inquiry himself and pointed out the specific errors in the finding of the Assessing Officer which in his opinion needed further examination and investigation of the issue. To buttress this contention, Ld. Counsel has placed reliance on the decision of the Hon’ble Supreme Court in the case of PCIT vs V-Con Page 5 of 16. Integrated Solutions Pvt Ltd in Special Leave Petition (Civil) Diary No.13205/2025 dated 04.04.2025 and the decision of the Hon’ble Delhi High Court in the case of PCIT vs Delhi Airport Metro Express Pvt Ltd in dated 04.09.2017. He also relied on the decision of the Co-ordinate Bench of this Tribunal in the case of Arun Kumar Garg HUF vs PCIT in ITA. No.3391/Del/2018 dated 08.01.2019. Ld. Counsel for the assessee took us through the questionnaire issued by the Assessing Officer vide notice dated 23.12.2019 u/s 142(1) of the Act. Thereafter, the Ld. Counsel drew our attention to the notices issued on different dates i.e. on 10.08.2019, 07.09.2019 and 29.11.2019, to buttress the contention that the Assessing Officer had duly applied his mind on the facts of the case and accepted the return declared by the assessee as no adverse material was noticed by him. Therefore, he contended that there was no justifiable reason for setting aside the assessment order and directing the AO for framing de novo assessment. He, further submitted that, if Ld. PCIT was not satisfied with regard to the “sufficient enquiry” conducted by the AO, he ought to have made some enquiry by himself and brought some adverse material which could necessitated the revision of the assessment order and for directing the AO for de novo assessment. He submitted that in the absence of any adverse material, is brought on record or any enquiry conducted by the Ld. PCIT, the impugned order is bad in law, in the light of the binding precedents (supra), hence, it cannot be sustained. He, therefore, prayed that the impugned order may be quashed.
6. On the other hand, the Ld. CIT-DR opposed the submissions and submitted that the Ld. PCIT has pointed out Page 6 of 16 multiple issues where the Assessing Officer failed to make inquiry consequently, the order is thus erroneous and prejudicial to the interests of the Revenue. The Ld. CIT-DR has taken us through the notice issued u/s 263 of the Act and also placed reliance on the judgment of the Hon’ble Supreme Court rendered in the case of Malabar Industrial Co. Ltd vs CIT (2000) 109 Taxman 66. He, therefore, submitted that the finding of the Ld. PCIT may be upheld. He contended that from a bare reading of assessment order, it is evident that there is a complete non- application of mind by AO. No issue is discussed in the assessment order. That goes to show that the AO simply made superficial enquiry and did not investigate the relevant issues. He drew our attention towards the assessment order to buttress the contention that the AO did not make any verification of facts and the explanation offered by the assessee. He also submitted that the AO simply accepted it without verifying the correctness of the submissions made by the assessee during the course of assessment proceedings. He submitted that the non-verification of the correctness of the accounts and evidence undisputedly would cause prejudice to the Revenue. Further, he contended that if the accounts are not deeply examined and the correctness of the material placed before the AO is not verified by making necessary enquiry such order is certainly erroneous. Therefore, he submitted that both the fundamental requirements for invoking the provisions of Section 263 of the Act are duly satisfied. He placed strong reliance on the Explanation-2 to Section 263(1) of the Act. He submitted that in view of the unequivocal clarification embodied into the Explanation-2, there is no error in the order passed by the Ld. PCIT and same deserves to be upheld. He prayed, accordingly.
Page 7 of 16 7. In his rejoinder, Ld. Counsel for the assessee Shri Rakesh Garg, Advocate, submitted that the Hon’ble Supreme Court and the Hon’ble High Court categorically ruled that in the event of revising the assessment on the ground of non-enquiry and insufficient enquiry, it is incumbent upon the Ld. PCIT to make some enquiry and bring clearly the material which would necessitate revising the assessment order. He contended that the action of Ld. PCIT is clearly contrary to the law clarified by the Hon’ble Apex Court in the case of PCIT vs V-Con Integrated Solutions Pvt Ltd (supra).
We have heard the rival submissions and perused the materials available on record. The Ld. CIT in the impugned order has recorded the following points on which the AO did not give his finding: - “(i) The main issue of examination before the Assessing Officer was to examine high closing stock and whether the assessee company has followed correct accounting of income. From perusal of the submission of the assessee company, it is noted that the assessee has not followed Accounting Standard (AS-7) regarding ‘Construction Contracts’ issued by ICAI in December, 1983 and subsequently revised in 2002, w.e.f. 1.4.2003 which is mandatory, provides for accounting treatment of revenues and costs associated with ‘construction Contracts’, with reference to the stage of completion of a contract, i.e., as per Percentage of Completion Method (‘POCM').The objective of this Standard is to Prescribe the accounting treatment of revenue and costs associated with construction contracts. Because of the nature of the activity undertaken in construction contracts, the date at which the contract activity is entered into and the date when the activity is completed usually fall into different accounting periods. Therefore, the primary issue in accounting for construction contracts is the allocation of contract revenue and contract costs to the accounting periods in which construction work is performed. This Standard uses the recognition criteria established in the Framework for the Preparation and Presentation of Financial Statements to determine when contract revenue and contract costs should be recognized as revenue and expenses in the P & L A/c. It also provides practical guidance on the application of these criteria. As per AS-7, it is to be applied separately to each construction contract. However, the AO has not obtained separate project-wise details, which was compulsory and necessary to understand whether the assessee company has correctly followed the accounting standards. Besides, to provide certainty for tax purposes, the CBDT had, in terms of section 145(2) of the Act, inter-alia, notified (on 29.09.2016) ICDS-III Page 8 of 16 (Income Computation & Disclosure Standard) relating to construction contracts. But the AO has not examined the case w.r.t. ICDS guidelines. (ii) The assessee company has shown advances from customers at Rs.18.20 crore during the year under consideration. The AO has not made any verification whether these advances are genuinely taken or not. No details of these persons or any confirmation has been obtained. (iii) As per provisions 43CA of the I. T. Act, 1961,7introduced by the Finance Act,2013 (w.e.f. A.Y. 2014-15) which provides that. in case of transfer of immovable property other than capital asset (including stock-in- trade), whereby if the consideration is less than the value adopted, assessed or assessable for the purpose of payment of stamp duty, such stamp duty value will be taken as the full value of consideration for the purpose of computing business income. However, the AO has not examined this aspect. No relevant details or evidences have been obtained whether the sales disclosed by the assessee company are as per provisions of section 43CA of the I. T. Act, 1961. (iv) As per ITR filed by the assessee, it is noted that the assessee company has Shown closing stock at Rs.12.94 crore. The AO has not examined this issue threadbare. The nature and bifurcation of closing stock has not been obtained. Since the assessee is in real estate construction business, it is but natural that there must be completed unsold units/ flats/houses in the closing stock. The AO was required to make examination to tax deemed rent in view of the Hon’ble Delhi High Court Judgement in CIT vs. Ansal Housing (2016) (389 ITR 373) and Hon'ble Bombay High Court judgement in CIT vs. Sane and Doshi Enterprises (2015) (377ITR 165). Vide these judgements, the Courts have held that section 22 and 23 of the I.T. Act, 1961 is applicable to assessees who are engaged in business of construction of house property and are therefore liable to pay tax on annual letting value of unsold flats as “Income from house property”. (v) Besides, being the demonetization assessment year, the AO was required to examine the genuineness of the source of the cash deposits in old SBNSs, if any. CBDT vide internal guidance note for assistance of AOs for verification of cash deposits and framing of assessments in demonetization related cases dated: 13.06.2019 (F.No. 225/145/2019- ITA-II) has issued approach note for verification of cash deposits in demonetization cases. The AO was expected to follow the guidelines and issue specific queries to examine the source of cash deposits as well as to make relevant enquiries before completion of assessment proceedings. However, the AO has not issued any relevant queries for examination of cash deposits during the demonetization period. Even the information collected has not been examined properly to verify whether the cash deposits have actually accrued from the cash sales of the assessee AOP. (vi) From the details available on the file, it is noted that the revenue of the assessee company has not been received in cash. Therefore, the explanation of the assessee that cash withdrawn from bank is deposited back in the bank is not tenable. Similar trend has been seen in preceding year ‘also. where the assessee company has no cash sales hence, consequently almost no cash deposits were made. However, during the demonetization period, it has deposited cash of Rs.25 lakh which was against the business model of the assessee, where’ cash transactions appear to be minimal. Due to this inherent ‘and ‘company Specific trend, the cash deposit has become more so suspicious. ‘When. this, issue was. raised by the AO, the assessee company tried to camouflage the source ‘of Page 9 of 16 cash deposit in SBNs as its own funds which was shown to have been withdrawn from bank. The AO accepted this reply without any further examination. No concerted effort was made by the AO to see through the cooked up story of the assessee to justify the cash deposit during the demonetization period. Since the large amount of idle cash was kept by the assessee, the veracity of the claim should have been examined in the light of the fact that despite having OD bank account as well as loan account why large cash was kept away in cash in hand which as per rational human behaviour should have been deposited in the bank to either earn interest or minimize the interest/charges payable to bank. However, the AO has failed to discharge his duty and no in-depth examination was made. (vii) In the background of the decision of Government of India to demonetize high denomination notes of Rs. 500/&Rs. 1000/-, the cash deposits in SBNs becomes Suspicious. In view of the facts and figures stated above and in the background of demonetization, availability of cash in hand as on 8.11.2016 to the extent claimed is suspect. It is apparent that the assessee has made up a story of cash withdrawals as source of the cash deposits in SBNs in its bank accounts and thus introduced its own unaccounted income in books of account. The AO should have drawn logical inference to the extent unsupported by past trend and data prevailing in its case not be taxed as unexplained cash credits u/s 68 of the Income Tax Act. (viii) Thus the assessee appears to have not been able to substantiate the cash availability leading upto 08/11/2016, the day the govt. announced demonetization. Few details furnished appear to be fabricated one just to show inflated cash balance as on 08/11/2016. In view of facts narrated above, what the AO should have concluded on the basis of bank account details, circumstantial evidences, human conduct and preponderance of probabilities is that what is apparent in this case is not real, that these cash deposits in the garb of cash balance in cash book are sham ones and that this entire arrangement appears only a colourable device used to evade fax. The fax liability in the cases of suspicious transactions, is to be assessed on the basis of the material available-on record, surrounding circumstances, human conduct, preponderance of «probabilities and nature of incriminating information/evidence available with AO. (ix) This entire edifice or arrangement through which. the assessee claimed to have made cash deposits during demonetization period as inflated cash balance in cash book appears to fail the tests of both genuineness and human probabilities. The AO should have placed is reliance-on. The case of Sumati Dayal Vs CIT (214 ITR 801) wherein the Apex court. propounded the principle of human probabilities and applying it in that case held that whether apparent is real is to-be decided on the basis of incriminating circumstances. He should have placed reliance on the decision of the Apex court in the case of Durga Prasad More Vs CIT wherein the principle of human probabilities was relied upon by the court in deciding the case in favour of revenue. The AO should have relied on the ratio of judgment in the case of Somnath Mani Vs ITO (100 TTJ 917) wherein the Chandigarh bench of ITAT held that if facts and circumstances so warrant that it does not accord with the test of human probabilities, transactions have to be held to be non-genuine. (x) As per provisions 43CA of the I. T. Act, 1961, introduced by the Finance Act, 2013 (w.e.f. A.Y. 2014-15) which provides that in case of transfer of immovable property other than capital asset (including stock-in-trade), Page 10 of 16 whereby if the consideration is less than the value adopted, assessed or assessable for the purpose of payment of stamp duty, such stamp duty value will be taken as the full value of consideration for the Purpose of computing business income. However, the AO has not examined this aspect. No relevant details or evidences have been obtained whether the sales disclosed by the assessee company are as per provisions of section 43CA of the I. T. (xi) The assessee company has debited a sum of Rs.44.50 lakh as commission/brokerage. The AO has not made any verification with respect to this head of expenditure. It was duty of the AO to verify whether the commission debited has actually been paid or not. He should have obtained the details of persons to whom the commission was paid. Neither any details of these persons nor any confirmation has been obtained. (xii) The case was picked up for complete scrutiny. However, besides routine queries made, no concerted effort seems to have been made to examine the Books of accounts. No third party enquiries have been undertaken and the AO has accepted all balances in Balance Sheet and P & L account as submitted by the assessee as true and correct without any verification. (xiii) Thus, during the course of assessment proceedings, the Assessing Officer has not examined/enquired into the details of facts of the case by making the assessment order u/s 143(3) of the IT Act.as erroneous in so far as prejudicial to the interest of the revenue as per explanation 2 to section 263 of the IT Act, 1967.”
In this case, undisputedly, the Assessing Officer had issued various notices u/s 142(1) of the Act calling upon the assessee on various issues including the issues which is the subject matter of the proceedings u/s 263 of the Act. Further, AO did not make any addition and accepted the Income Tax Return without making any reference to the enquiry conducted by him. The Revenue has heavily relied on the Explanation-2 to Section 263 of the Act. For the sake of clarity, the Explanation-2 is reproduced as under:-
“Explanation 2.—For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer [or the Transfer Pricing Officer, as the case may be,] shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal [Chief Commissioner or Chief Commissioner or Principal] Commissioner or Commissioner,— a) the order is passed without making inquiries or verification which should have been made; Page 11 of 16 b) the order is passed allowing any relief without inquiring into the claim; c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.
10. It was contended by the Ld. Counsel for the assessee that merely because the Assessing Officer has not discussed about the issues which he has examined would not make the assessment order being erroneous and prejudicial to the interests of Revenue. He placed strong reliance on the order of the Hon’ble Supreme Court rendered in the case of PCIT vs V-Con Integrated Solutions Pvt Ltd (supra) wherein the Hon’ble Court had dismissed the SLP filed by the Revenue by observing as under: - “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.”
Page 12 of 16 11. Further, he placed reliance on the judgment of the Hon’ble Delhi High Court rendered in the case of PCIT vs Delhi Airport Metro Express Pvt Ltd (supra) held as under: - “9. It is seen, in the order dated 30th March 2016, the PCIT has proceeded by setting out the contents of the SCN and the contents of the reply given by the Assessee. It appears that no inquiry, as such, was undertaken by the PCIT to come to the conclusion that the original assessment order was erroneous and prejudicial to the interests of the Revenue.
For the purposes of exercising jurisdiction under Section 263 of the Act, the conclusion that the order of the AO is erroneous and prejudicial to the interests of the Revenue has to be preceded by some minimal inquiry. In fact, if the PCIT is of the view that the AO did not undertake any inquiry, it becomes incumbent on the PCIT to conduct such inquiry. All that PCIT has done in the impugned order is to refer to the Circular of the CBDT and conclude that "in the case of the Assessee company, the AO was duty bound to calculate and allow depreciation on the BOT in conformity of the CBDT Circular 9/2014 but the AO failed to do so. Therefore, the order of the AO is erroneous insofar as prejudicial to the interest of revenue".
In the considered view of the Court, this can hardly constitute the reasons required to be given by the PCIT to justify the exercise of jurisdiction under Section 263 of the Act. In the context of the present case if, as urged by the Revenue, the Assessee has wrongly claimed depreciation on assets like land and building, it was incumbent upon the PCIT to undertake an inquiry as regards which of the assets were purchased and installed by the Assessee out of its own funds during the AY in question and, which were those assets that were handed over to it by the DMRC. That basic exercise of determining to what extent the depreciation was claimed in excess has not been undertaken by the PCIT.
Mr. Asheesh Jain then volunteered that the PCIT had exercised the second option available to him under Section 263 (1) of the Act by sending the entire matter back to the AO for a fresh assessment. That option, in the considered view of the Court, can be exercised only after the PCIT undertakes an inquiry himself in the manner indicated hereinbefore. That is missing in the present case.
Therefore, the Court is of the view that the ITAT was not in error in setting aside the impugned order of the PCIT under Section 263 of the Act. No substantial question of law arises.”
12. Further, the Co-ordinate Bench of this Tribunal in the case of Arun Kumar Garg HUF vs PCIT (supra), after considering the various decisions on the point of exercise of jurisdiction u/s 263 of the Act and also the Explanation-2 has decided the identical issue in favour of the assessee, by observing as under: - Page 13 of 16 “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 ITAT Bench has dealt with Explanation 2 as inserted by Finance Act, 2015 in the case of Narayan Tatu Rane 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 ITAT Mumbai Bench has further held that the intention of the legislature could not have been to enable the CIT 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 ITAT 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. 5.7 We also note that it has been held by the ITAT Mumbai Bench in the case of M/s Indus Best Hospitality & Realtors Pvt. Ltd. in vide order dated 19.01.2018 that Explanation 2 to Section 263 of the Act introduced by Finance Act, 2015 is retrospective in nature. Since the year under consideration is AY 2014-15, we are afraid that Explanation 2 to section 263 will not come to the aid of the department in this case. Similar view has been taken by the various Coordinate Benches of the ITAT in the following cases:- (a) AV Industries v. ACIT [ITA No. 3469/Mu m/2010] dated 06.11.2015 (b) Metacaps Engineering and Mahendra Constructions Co. (JV) v. CIT [ITA No. 2895/Mum/2014] dated 11.09.2017 (c) Reliance Money Infrastructure Ltd. v. PCIT [ITA No. 3259/Mum/2017] dated 06.10.2017. (d) Shantikrupa Estate Pvt. Ltd. [ITA No. 1252/Ahd/2015] dated 09.09.2016 (e) Amira Pure Foods Pvt. Ltd. v. PCIT [ITA No. 451/Del/2017] dated 29.11.2017. 5.8 Accordingly, respectfully following the ratio of the various judgments as referred to in the preceding paragraphs, we have no hesitation in holding that the Ld. Pr.CIT had wrongly invoked the revisionary powers u/s 263 of the Act and we have no option but to quash the same. It is so ordered accordingly.”
13. In the light of the various judicial pronouncement as relied by the Ld. Representatives of the parties. It is to be examined whether the action of the Ld. PCIT for revising the assessment is justified under the facts and circumstances of the present case. As per the Section 263(1) of the Act, the Ld. PCIT is empowered Page 14 of 16 to call for and examine the records of any proceedings under the Act and if, he considers that any order, passed therein by the Assessing Officer is erroneous in so far 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. The Ld. PCIT, in the present case, had set aside the assessment order on the ground of non-investigation of the issues as recorded in the impugned order. The grievance of the assessee is that the Assessing Officer had carried out investigation and examined the issues by issuing various notices u/s 142(1) of the Act along with questionnaire which were duly replied. However, the Ld. PCIT without making any inquiry or bringing any adverse material suggesting that the explanation offered by the assessee during the course of assessment was not correct or found lacking arbitrarily set aside the order. The Hon’ble Supreme Court in the case of PCIT vs V-con Integrated Solutions Pvt Ltd (supra), has categorically observed that 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 prejudicial caused to the Revenue. Therefore, the Ld. PCIT is under legal obligation for recording such finding. In this case, however, Ld. PCIT has narrated the issues and remitted the issues to the AO. Thus, the Ld. PCIT was required to establish the prejudice caused to the Revenue before setting aside the assessment order. In the absence of such clear findings, the impugned order cannot be sustained. Undisputedly, no straight Page 15 of 16 jacket formula can be applied, each case needs to be decided on the basis of the facts of such case. We find that the AO had issued multiple questionnaires to the assessee covering most of the issue that had necessitated scrutiny. However, he has not stated anything in his order that the explanation as offered by the assessee was verified independently or not. In our view, the AO ought to have brought on record the outcome of investigation carried out by him. The assessment order is silent regarding this aspect. But such silence cannot conclusively be inferred that no enquiry was conducted by him. It is now settled that superficial enquiry conducted by the AO would not meet the requirement of law. In such cases, the Ld. PCIT may remit the matter where the facts of the case warrant complete verification. Thus, looking to the facts of the present case, the Assessing Officer has noted in the assessment order about the major issue concerning the scrutiny on these issues, he had issued questionnaire but without discussing each and every issue he merely accepted the return of income. Thus, findings are missing from the assessment order. No other material has been brought to our notice suggesting that the AO in the form of office note recorded any observation/finding. Thus, in the absence of such material, the Ld. PCIT may be justified in a given case invocation of his revisionary powers in terms of Explanation -2 to Section 263 of the Act. But thereafter, he was expected to make some enquiry before cancelling the assessment order and remanding it to AO for decision afresh. As noted by the Hon’ble Supreme Court in the case of PCIT vs V-Con Integrated Solutions Pvt Ltd (supra) that the assessee has no control on the pen of the AO. Therefore, in the light of the decision of Hon’ble Supreme Court, rendered in the case of PCIT vs V-Con Integrated Solutions Pvt Ltd (supra), Page 16 of 16 Ld. PCIT ought to have clearly established by making some investigation at his end that the assessment order was erroneous and prejudicial to the interest of Revenue. In the present case, it is not stated by the Ld. PCIT as to how the order sought to be revised is prejudicial to the interest of the Revenue. Under these facts, the grounds nos. 8, 9 & 10 raised by the assessee are allowed. The remaining grounds are dismissed as infructuous.
In the result, the appeal of the assessee is partly allowed. Order pronounced in the open Court on 30/09/2025.