SHREE AURO IRON LIMITED ,JAIPUR vs. PRINCIPAL COMMISSIONER OF INCOME TAX-I, JAIPUR

23/01/2025 lquokbZ dh rkjh[k@Date of Hearing: ?kks"k.kk dh rkjh[k@Date of Pronouncement: 12/03/2025 vkns'k@ORDER PER DR. S. SEETHALAKSHMI, J.M. The present appeal has been filed by the assessee against the order of ld. PCIT, Jaipur-1 dated 28.03.2024 passed under section 263 of the I.T. Act, 1961, for the assessment year 2016-17. The assessee has raised the following grounds of appeal :-

1. That on the facts and in the circumstances of the case, the ld. PCIT grossly erred in passing an order u/s 263 of the Act, ignoring the detailed submissions made by the assessee in response to notice u/s 263 and, in passing the impugned order on assumptions, presumptions, conjectures and surmises, which are bad in law.

Shree Auto Iron Ltd. vs. PCIT 2. That on the facts and circumstances of the case, the order u/s 263 passed by ld. PCIT is unsustainable as the power to revise the order can be invoked in the case of lack of enquiry, not in the case of inadequate enquiry or non-application of mind by AO. The issue raised by ld. PCIT in notice u/s 263 was already before the AO and as such the jurisdiction on this issue cannot be usurped by the ld. PCIT.

3. That on the facts and in the circumstances of the case, the ld. Principal Commissioner of Income-tax erred in passing the impugned order u/s 263 of the Income-tax Act by holding that the AO failed to examine the ‘Interest claimed as part of the capital cost’ u/s 48, which is wholly unjustified, bad in law and deserves to be quashed.

4. That on the facts and in the circumstances of the case, the ld. PCIT erred by holding that AO has failed to examine the issue of change in the method of stock valuation. As this issue was not before the AO, it is a settled principle of law the PCIT cannot exercise the power of revision to look into any other issue which the AO himself could not look into.

5. That the appellant craves leave to reserve to itself the right to add, alter, amend, substitute and withdraw and/or any ground(s) of appeal at or before the time of the hearing.

Accordingly, notice under section 148 dated 30.03.2021 was served on the assessee. Subsequently, the case was transferred to the faceless assessment unit. Accordingly, notices under section 142(1) were issued on 24.11.2021 and 11.02.2022. In response the assessee filed replies on 09.12.2021, 24.01.2022 & 19.02.2022. The AO, after taking into account all relevant material on record and the information furnished by the assessee, the assessment of total income is made at Rs. Nil vide assessment order dated 30.03.2022 passed under section 147 r.w.s. 144B of the IT Act, 1961. No modification to the income assessed under section 143(1A) has been made. 2.1 The ld. PCIT on perusal of the assessment order and details available on record, noticed that as mentioned in the Tax Audit Report (Point 14b of form 3 CD) for the AY 2016-17, profit for the year under reference was to be increased by Rs. 2,51,93,726/- under provisions stipulated in section 145A of the Act due to the change in the method of accounting from ‘First in First Out’ (FIFO) to ‘Weighted Average’ but the same was not added by the assessee while computing income chargeable under the head ‘profit and gain of business or profession’. Therefore, the above amount of Rs. 2,51,93,726/- was required to be added to assessed income. Thus, the ld. PCIT held that the assessment order passed under section 147 Shree Auto Iron Ltd. vs. PCIT read with section 144B of the IT Act, 1961 in the case of the assessee for assessment year 2016-17 dated 30.03.2022 was erroneous and prejudicial to the interest of Revenue. Therefore, proceedings under section 263 of the IT Act were initiated and opportunity of being heard was provided to the assessee vide ITBA generated notice dated 13.02.2024, asking the assessee as under : “2. It is noticed that as mentioned in the tax audit report(Point 14b of form 3 CD) for the A.Y 2016-17, profit for the year was to be increased by Rs. 25193726/- under provisions stipulated in section 145A of the Act, due to change in method of accounting from FIFO to weighted average but the same was not added by you while computing income chargeable under the head profit and gain of business or profession. Therefore, the addition of Rs. 2,51,93,726/- was required to be added to assessed income.”

In response to the said notice, the assessee replied on 22.02.2024 (PB pages 53 to 55) that the ‘Profit before tax’ reported in the audited financial statements i.e. Rs. 1,57,590.32 is inclusive of the increase in profit of Rs. 2,51,93,726/-, caused by the change in stock valuation method. ‘Business income’ in the ITR already includes the effect of the change in the valuation method. Therefore, the question of making a separate addition of Rs. 2,51,93,726/- to the assessed income does not arise. This notice under section 263 proposed to tax the same income twice, and, therefore, assessee requested to drop the proceedings. 2.2 Thereafter, the ld. PCIT issued a second notice under section 263 dated 11.03.2024 (PB pages 60 to 61) alleging that :

Shree Auto Iron Ltd. vs. PCIT “In continuation of the revision proceedings u/s. 263 of the I.T.Act in your case, it is also noticed on perusal of the details available on record that your case was reopened on the issue of sale of immovable property of Rs. 2,80,07,581/-. On further perusal of the details, it is noticed that you had claimed cost of interest on the investment made in land as indexed cost of acquisition, while computing long term capital gain on the sale of this property. However, no such evidences were furnished with regard to interest cost. Further, no details regarding date of loan, person giving loan, amount of loan had been furnished. No bank statement had been furnished showing fund received through loan and showing use of these funds for making investment in purchase of land. No confirmations from the parties giving loan had been furnished by you. There is no evidence of payment of interest through cash or through bank account. Thus, it is clear that the interest expense amounting to Rs. 54,30,310/- was not allowable as cost of improvement while calculating long term capital gain on sale of this property but the same was allowed by AO with indexation.”

2.3 Assessee replied on 16/03/2024 (PB pages 62 to 71) that no separate borrowings were made and existing borrowed funds from the bank were used for this investment and proportionate interest relatable to land purchase, was capitalized as `Land Cost’ out of the total interest cost, and therefore desired evidences such as proof of borrowings, bank statement etc. were notapplicable in this case. Interest capitalized as part of the cost of land has not been chargedas an expense in the P &L Account, implying that the double benefitof the same expense has not been claimed. This practice is incompliancewith section 36(1)(iii) of the Income Tax Act,1961 which lays down for not allowing interest on funds borrowed for the purpose of the acquisition of capital assets.

Shree Auto Iron Ltd. vs. PCIT 2.4 After completion of 148 proceedings by Faceless AO, a new proceeding u/s 148 for the same assessment year was initiated on 31/03/2023 by the Jurisdictional AO i.e. ACIT, Jaipur-1 also. The case records of the earlier proceeding conducted u/s 144B were perused by the Jurisdictional AO on the ITBA portal and dropped the proceedings vide order dated 31/03/2024(PB Pages 49 to 50). 2.5 However, the replies by the assessee did not find favour with the Ld. PCIT and an order u/s 263 was passed on 28/03/2024, setting aside the assessment order with directions for passing a fresh order. Now, being aggrieved by the order of ld. PCIT, the assessee has preferred the present appeal before us.

1.2 Para No. 11 of the page No. 13 of the order concludes as under: “……….The order of the AO is, therefore, liable to revision under the explanation (2) clause (b) and clause (a) of the Section 263.” 1.3 Ld. PCIT had raised two issues while invoking the section 263: a) Effect of Change in the Stock valuation methodreported in 3CD but not considered in the tax computation, and b) Inadequate inquiry regarding the interest cost forming part of the cost for computation of LTCG. From the above concluding para 9 & 11 of the order, it becomes clear that Ld. PCIT was satisfied about the issue (a) i.e. effect of change in the stock valuation method and the only issue which led to invocation of Section 263 was (b) i.e. inadequate inquiry regarding interest cost. 1.4 Assessee has clarified to Ld. PCIT on page No. 4 vide reply dated 16/03/2024(Please see PB No. 65)as under: 3.3) Interest Cost Incurred on the amount invested:

Assessee had not made any separate borrowing for the amount invested in the Land. Working Capital funds, provided thru Working Capital Loan from bank and Unsecured Loans, were used to finance the cost of Land.

Therefore, the following amount of interest was added to cost of Land as Interest incurred. These amount are appearing at S. No. 3.1 above and in the Ledger Account `Cost of Land’ attached with this reply. ON ACCOUNT FY DATE AMOUNT PAID TO OF Bank Loans/ 2012-13 31.03.13 1488233.00 Interest Cost Unsecured Loans Bank Loans/ 2013-14 31.03.14 1711466.00 Interest Cost Unsecured Loans It has to be mentioned that the above amount have not been claimed as expenses after capitalizing them to the cost of land. From the above reply, assessing officer could easily conclude: a) That no separate/specific borrowings were made for the purchase of Land and the funds from Bank Loan/Unsecured Loan, which were being used for working capital funds, were diverted for purchase of land. b) Bank Overdraft A/c Funds available at the disposal of assessee, were used for making payment to RIICO Ltd., which is clear from the ledger account of `Land Purchase’ placed before the AO. c) Requirement of confirmations from the Loan was not required as the bank borrowings were used for payment to RIICO and, in the case of bank borrowing, confirmation are not required. d) Monthly Interest is charged by Bank upon overdraft facility for which no separate evidence are available. Bank Statement (Debit Entry) of charging interest in overdraft Account is itself a proof of having paid the interest. e) Interest capitalized as part of the cost of land has not been charged as expense in the P & L Account, implying that the double benefit of the same expenses has not been claimed. This practice is in compliance with Section 36(1)(iii) of the Income Tax Act, 1961 f) Assessee is a limited liability company whose books of accounts subjected to the Tax Audit under the Income Tax Act, 1961 and Statutory Audit under the Companies Act, 2013. Thus, after appreciation of all these facts, the Ld. AO had accepted the claim.

1.5 Ld. PCIT did not raise further queries on the aforesaid reply and went ahead to pass the order u/s 263 for setting aside the assessment order. It was the bounden duty of Ld. PCIT to have conducted minimal inquiry before jumping on the conclusion of `non-inquiry or verification’ by the AO for invoking Section 263.In the case of Arun Kumar Garg HUF v. Pr. CIT in for Assessment year 2014-15 dated 8.1.2019 it has been held:

Shree Auto Iron Ltd. vs. PCIT “5.4 In the present case, it is apparent that the Ld. Pr. CIT, unmindful of the inquiries conducted by the Assessing Officer during the course of assessment proceedings and the submissions made by the assessee in response to notice u/s 263 of the Act, has merely observed that the assessment order was passed without making proper inquiries and it is a matter of record that the Ld. Pr.CIT has himself not undertaken any inquiry to reach a conclusion that the order is erroneous and prejudicial to the interest of the revenue.”

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 TatuRane 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. Hon’ble 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 understoodas legal and judicious opinion and not arbitrary opinion.

1.6 Hon’ble Delhi ITAT in the case of – DwarkadhisBuildwell Pvt. Ltd. v. CIT – – order dated 1 July 2019, held: “If Pr. CIT/CIT is of the view that any inquiry is necessary in the matter, then he should either himself make such enquiry or may get such enquiry conducted. For the purpose of exercising jurisdiction u/s 263 of the Act, the conclusion that the order of the AO is erroneous and prejudicial to the interest of the revenue has to be preceded by some minimal enquiry by Pr. CIT/CIT. If the Pr. CIT/CIT is of the view that the AO did not undertake any enquiry, it becomes incumbent on the Pr. CIT/CIT to conduct such enquiry. If the Pr. CIT/CIT does not conduct such basic exercise then the Pr. CIT/CIT is not justified in setting aside the order u/s. 263 of the Act.”

Shree Auto Iron Ltd. vs. PCIT 1.7 There does not appear to be any prima facie case that the learned Assessing Officer was oblivious of his responsibilities while completing assessment under section 147 r.w.s. 144B, as alleged by the Ld. PCIT. The Ld. PCIT has stated that the assessment has been completed without application of mind and incorrect assumption, but she has not pointed out that any extraordinary circumstances existed so as to warrant assessment proceedings in an extraordinary manner in this case. As to the examination of the facts and bringing material on record, it is quite possible that the learned PCIT would have liked it in more depth and detail. From that it does not follow that the learned Assessing Officer did not perform his task properly. While it is true that on the particular facts and the circumstances of a case, want of enquiry and examination of facts on the part of the Assessing Officer in itself may render the assessment order erroneous and prejudicial to the interest of revenue, but it is not that if an assessment order suffers from some deficiency from the perfectionist point of view that order is erroneous and prejudicial to the interest of revenue. 1.8 Issues raised in the Show Cause notice (Please see PB No. 60-61 for SCN) issued in pursuance to Section 263 proceedings stood examined by the AO. The following tabular analysis compares the issues raised in the SCN/Order u/s 263by Ld. PCIT and coverage thereof by the AO during the assessment proceedings:

S. No. Observations of the PCIT Facts in reply of assessee i) Assessee has not furnished any Documentary evidence except documentary evidence with regard to journal entries of books of interest cost accounts were not applicable as the Interest cost was capitalised from the Interest cost booked in P & L Account. Ledger account, submitted to AO, duly reflected those entries ii) Assessee has not furnished confirmation of In the given situation, the parties from whom loan taken and confirmation from parties was not showing use of funds for making investment applicable /required . iii) Assessee has not furnished any evidence of In the given situation, payment of payment of interest through cash or through interest thru bank only as Audit bank account Report did not point out any payment in cash in excess of Rs. 10000/- Shree Auto Iron Ltd. vs. PCIT Merely because from a perfectionist point of view, it is felt by Ld. PCIT that some more enquiries and verifications could have been made by the AO, assessment order cannot be declared to be erroneous and prejudicial to the interests of revenue as held by Hon’ble Delhi Tribunal Special Bench in the case of Salora International Ltd. v. Addl. CIT [2005] 2 SOT 705 1.9 Ld. PCIT had relied upon following case laws to support the invocation of Section 263 (as mentioned on para No. 10 on page No. 13 of the order dated 30/03/2024) Citation of the Case Factual Matrix and whether applicable upon the facts of the appellant 1 Malabar Industrial “An incorrect assumption of facts or an incorrect Limited Vs. CIT 243 application of law will satisfy the requirement of the ITR 83(SC) order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind” Whether applicable on the facts of assessee: 1. No incorrect facts were furnished by assessee nor assumed by the AO. Interest incurred for acquisition of capital asset was capitalised, which was accepted by the AO 2. It is law settled by the various judgements that Interest incurred for funds used for acquisition capital asset is as cost of asset allowable u/s 48.

1.10 Appellant relies upon the following landmark judgements by Hon’ble Supreme Court which have laid the law / clarified the law of Section 263:

1.10.1Malabar Industrial Co. Ltd. v. CIT [243 ITR 83 (SC)] (2000) Held at Para No. 10 ".. Every loss of revenue as a consequence of an order of assessing officer cannot be treated as prejudicial to the interests of the revenue, for example, when an Income Tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the Income Tax Officer is unsustainable in law”

Shree Auto Iron Ltd. vs. PCIT 1.10.2CIT v. Max India Limited [2007] 295 ITR 282 ) (SC) Held at para No. 1: “Suffice it to state that in this particular case when the order of the Commissioner was passed under section 263 of the Income-tax Act two views on the said word 'profits' existed. In our view the matter is squarely covered by the judgment of this Court in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 as also by the judgment of the Calcutta High Court in the case of Russell Properties (P.) Ltd. v. A. Chowdhury, Addl. CIT [1977] 109 ITR 229” 1.10.3Greenworld Corporation – [2009] 181 Taxman 111 , 314 ITR 81 (SC) Held at para No. 29: “The scope of provisions of section 263 of the Act is no longer res integra. The power to exercise of suomotu of revision in terms of section 263(1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein, viz., (1) the order is erroneous; (2) by virtue of the order being erroneous prejudice has been caused to the interest of the revenue, exist.” 1.10.4 PCIT v. V. Dhana Reddy & Co. – [2018] 100 taxmann.com 358(SC) SLP of the revenue dismissed against the judgement in the case of by [2018] 100 taxmann.com 357 (Andhra Pradesh & Telangana) PCIT-I v. V. Dhanna Reddy & Co. Hon’ble High Court held at para 5 of the judgement: “ In our opinion, as the AO had opined that renting of the godowns is integral in the business of the assessee and as the decision arrived at by the Tribunal being on appreciation of facts and the reason for invocation of Section 263 being that there is a possibility for estimating the income at a higher rate, without there being a finding of error in the Assessment Order, a resort to Section 263 of the Act cannot be made . In the absence of any other material placed before this Court, in the facts of the present case, question No.1 is required to be answered in favour of the assessee and against the Revenue” 1.10.5CIT, Central-III v.Nirav Modi [2017] 77 taxmann.com 78 (SC) SLP of revenue dismissed against the judgement in the case of [2016] 71 taxmann.com 272 (Bombay) CIT, Central-III v Nirav Modi, Hon’ble High Court held at para 6 of the judgement:

Shree Auto Iron Ltd. vs. PCIT “….Thus, this power cannot be exercised unless the Commissioner is able to establish that the order of the Assessing Officer is erroneous and prejudicial to the revenue. Thus, where there are two possible views and the Assessing Officer has taken one of the possible views, no occasion to exercise powers of the revision can arise. Nor can revisional power be exercised for directing a fuller inquiry to find out if the view taken is erroneous when a view has already been taken after inquiry. This power of revision can be exercised only where no inquiry as required under the law is done. It is not open to enquire in cases of inadequate inquiry” 1.11.6 PCIT-2 v. Shree GayatriAssociatesjavascript:void(0);[2019] 106 taxmann.com 31 (SC) SLP of revenue dismissed against the judgement in the case of [2019] 106 taxmann.com 30 (Guj.) PCIT -2 v. Shree Gayatri Associates. Hon’ble High Court held at para 2 of the judgement: “PCIT, therefore, exercised power of revision flowing from Section 263 of the Act. Under such revision order, he held and observed that the Assessing Officer had failed to carry out proper inquiries with respect to assessee's on-money receipts. The assessee carried the issue before the Tribunal. The Tribunal, by the impugned judgment, reversed the order of the Commissioner. In such judgment, the Tribunal observed that in the order of assessment, the Assessing Officer had raised multiple queries calling upon the assessee's response. The Tribunal was of the opinion that the Assessing Officer had carried out detailed inquiries. The Commissioner was incorrect in holding that no inquiries were carried out. The revisional powers, therefore, could not have been exercised” 1.11.7 PCIT v. Sumatichand Tolamal Gouti–[2019]111taxmann.com 287 (SC) SLP filed against decision of High Court was dismissed by Hon’ble Supreme Court in the case of PCIT v. Sumatichand Tolamal [2019] 111 taxmann.com 286 (Bombay)

Hon’ble High Court held at para 2 of the judgement: “The Commissioner took the order of the assessment in revision under Section 263 of the Income Tax Act, 1961 ("the Act" for short) on the ground that the Assessing Officer had not carried out any enquiries as to the nature of expenditure being capital or not. The assessee carried the matter in Appeal before the Tribunal. The Tribunal, by the impugned judgment allowed the Shree Auto Iron Ltd. vs. PCIT assessee's Appeal holding that the Assessing Officer had carried out detailed enquiries and taken a view which was a plausible view The Tribunal, therefore held that the Commissioner erroneously exercised the revision powers” 1.11.8 PCIT v. Shreeji Prints (P.) Ltd. (2021) 282 Taxman 464 (SC) SLP filed against decision of High Court was dismissed by Hon’ble Supreme Court in the case of PCIT v. Shreeji Prints (P) Ltd. (2021) 130 taxmann.com 293 (Guj.)(HC). Hon’ble High Court held at para 6 of the judgement: “Thus, the Tribunal has considered in detail the aspect of revisional power to be exercised by the PCIT in the facts of the case and has given a finding of facts that the Assessing Officer has made inquiries in detail and after applying mind, accepted the genuineness of loans received by the respondent assessee from the aforesaid two companies and such view of the Assessing Officer is a plausible view, and therefore, the same cannot be said to be erroneous or prejudicial to the interest of the Revenue” 1.11.9 CIT, Gujarat-II v. Kwality Steel Suppliers Complex [2017] 84 taxmann.com 234 (SC). Hon’ble Supreme court in Para 9 Held : "Where two views are possible and the Assessing Officer has taken one view and the CIT again revised the said order on the ground that he does not agree with the view taken by the Assessing Officer, in such circumstances the assessment order cannot be treated as an order erroneous or prejudicial to the interest of the Revenue, 'Reason is simple. While exercising the revisionary jurisdiction, the CIT is not sitting in appeal." GROUND No. 2: That on the facts and circumstances of the case, the order u/s 263 passed by Ld. PCIT is unsustainable as the power to revise the order can be invoked in the case of lack of enquiry, not in the case of inadequate enquiry or non-application of mind by AO. The issue raised by Ld. PCIT in notice u/s 263 was already before the AO and as such the jurisdiction on this issue cannot be usurped by the Ld. PCIT.

2.1 Ld. PCIT held in order u/s 263 at paraNo. 10:

“10. As discussed above, the AO failed to apply his mind on the material available on record and failed to invoke the applicable provisions of law. This in turn has resulted in passing of an erroneous order by the AO in the case due to non-application of mind to relevant material, an incorrect assumption of facts and Shree Auto Iron Ltd. vs. PCIT an incorrect application of mind to the law which is prejudicial to the interest of the revenue and hence liable for revision under section 263 of the Act” 2.2 The law inserted as explanation to Section 263 w.e.f 01/06/2015 lays down: Explanation 2.—For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer 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 Commissioner: a) the order is passed without making inquiries or verification which should have been made; (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 Instructions or circulars which are contrary to the law (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 2.3 If an assessment or any other order is passed after making inquiry on an issue and after having examined the replies of the Assessee with due application of mind, it is not the case where no inquiry was made. Therefore, such a case cannot be treated as a case of “no inquiry” and thus proceedings u/s 263 of the Act cannot be initiated in such a case. Further, an assessment order should not be subject to revision u/s 263 merely because another view is possible on the issue decided by the AO. 2.4 Lack of enquiry/no enquiry is different from inadequate enquiry and it is only in case of no enquiry by the AO, Pr. CIT/CIT can exercise jurisdiction u/s 263 of the Act and not in case where the AO has made enquiries as seems appropriate in the facts and circumstances of the case. Similar proposition was upheld in the following rulings: Delhi Tribunal in the case of Braham Dev Gupta v. PCIT – [2017] 88 taxmann.com 831 Bombay High Court in the case of CIT v. Nirav Modi – [2016] 71 taxmann.com 272 (Bombay) [SLP dismissed by SC] 2.4 It is pertinent to mention here that assessment in the present case of the assessee u/s 148 for the year under consideration was carried out in the ''Faceless manner'' by NFAC.

Shree Auto Iron Ltd. vs. PCIT It is a fact that every faceless assessment is carried out through a teamwork of assessment unit, technical unit, review unit, verification unit etc. Since different units are headed by Principal Commissioner of Income Tax (PCIT), therefore, in a faceless regime, normally there cannot be a case of prejudice or lack of enquiry for the reason that there is application of mind by multiple officers of the Department and not by a single officer. In the realm of faceless assessment, the units of Assessment, Verification, Technical, and Review are the pillars that uphold the integrity and efficiency of the entire process. The Assessment Unit takes charge of conducting meticulous assessments, ensuring accurate liability determination, and addressing key issues. The Verification Unit assumes the vital role of validating information, conducting thorough inquiries, and verifying the authenticity of data. In parallel, the Technical Unit extends its expertise, providing specialized advice on multifaceted matters, bolstering the assessment and verification units. Lastly, the Review Unit serves as the guardian of quality, meticulously reviewing draft assessment orders to ensure compliance with legal provisions and the incorporation of relevant facts and judicial decisions. Collectively, these units stand as guardians of fairness, accuracy, and transparency in the dynamic landscape of faceless assessment procedures.

The assessee had furnished the requisite information and the NFAC has processed the assessment order after considering all the facts and the order has passed thru all stages, therefore, the order passed by the AO cannot be termed as erroneous. and, therefore, the case does not fall within the clause (a) and (b) of Explanation 2 to section 263 of the Act. Hence, the ld. PCIT has erred in assuming jurisdiction u/s 263 on the alleged non-application of mind by the AO. 2.5 Once the A.O. examined the issues, the Ld. CIT cannot assume jurisdiction on the same issues which are already considered by the A.O., by stating that the A.O. has conducted inadequate enquiry or there is a lack of enquiry or non-application of mind. In the present case, the A.O. has conducted enquiry for all capital gains cost items forming part u/s 48 and carefully examined the details, various cost documents etc. furnished by the assessee and passed the assessment order. The contention of the Ld. PCIT was that the A.O. has not conducted proper enquiry and also not applied his mind before accepting the deduction of interest claimed as part of cost. The A.O. had called for explanation and the assessee has furnished its explanation. But, the PCIT was of the opinion that the assessing officer could Shree Auto Iron Ltd. vs. PCIT have done well to explore the possibility of asking confirmation of lending parties, bank statements etc. According to Ld. PCIT, the assessing officer has conducted enquiry but inadequate, therefore she wanted further enquiry on the issue on which she assumed jurisdiction. The Ld. PCIT cannot initiate revision proceedings, with a view to conduct fishing and roving enquiry in the matters which are already examined by the A.O. The Department cannot do fresh assessment in the guise of revision on the matters which are examined and concluded by the A.O. The A.O. being a quasi-Judicial authority, shall have the authority to exercise right judgement and discretion on the basis of information available before him. 2.6 Regarding wrongful assumption of jurisdiction by ld. PCIT, in the present case, following judicial precedents are relied upon: Contention Case Laws Assessment was completed by AO on the basis of 1.Torrent Pharmaceuticals Ltd. exhaustive enquiries and detailed submissions filed [2018) 173 ITD 130 (Ahd.- Trib) by the assessee firm and even otherwise Explanation 2. Eveready Industries India 2 to Section 263, inserted vide Finance Act, Ltd. [2020] 181 ITD 528 (Kolkata 2015,cannot override the basic requirements of sub- Trib) section (1) of Section 263 3. M/s. Smira Pune Food Pvt. Ltd(ITA No.3205/DEL/2017, ITAT Delhi Bench.

4. Shri Narayan TatuRane, ITAT Mumbai Bench Case was selected for scrutiny for specific purpose for verification of capital gain and therefore, Smt. LataPhulwani ITA there cannot be any presumption of lack of No.246/JP/2020 pronounced on enquiry(copy of order attached with this PB at 72 to 06/10/2020 93) Where AO has exercised the quasi judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be considered erroneous simply because the PCIT does not feel satisfied with the conclusion. Ganpat Ram Vishnoi, 296 ITR 292 Provisions of Section 263 nowhere allows to Shree Auto Iron Ltd. vs. PCIT challenge the judicial wisdom of the AO or to replace (Raj) the wisdom in the guise of revision unless theview taken by the AO is not at all sustainable in law. Extent of enquiry cannot be stretched to any level by forcing the AO to go through the assessment process again and again.

2.7 Hon'ble ITAT, Jaipur Bench, in the case of Annu Agrotech Private Limited, apropos assumption of jurisdiction under section 263 by the Id. PCIT, laid down the following ratio:- 1.14 (i). Every loss of Revenue as a consequence of the order of the AO cannot be treated as prejudicial to the interest of the Revenue. If the AO has adopted one of the two or more courses permissible in law and it has resulted in loss of revenue, or where two views are possible and AO has taken one view with which the PCIT does not agree, it cannot be treated as an erroneous order and it is prejudicial to the interest of the Revenue, unless the view taken by the AO is totally unsustainable in law; 1.14 (ii). The law is well settled that the assessment order cannot be held to be erroneous simply on the allegation of inadequate enquiry. Unless there is an established case of total lack of enquiry; 1.17 From the facts on record, it is crystal that the order was passed by AO after full enquiries and therefore, the case is not falling within clause (a) and (b) of Explanation 2 to section 263. In view of the above factual and legal position, ld. PCIT has grossly erred in assuming jurisdiction u/s 263. Thus, the entire order by ld.PCIT deserves to be quashed'' GROUND No. 3: That on the facts and in the circumstances of the case, the Ld. Principal Commissioner of Income-tax erred in passing the impugned order u/s. 263 of the Income-tax Act by holding that the AO failed to examine the `Interest claimed as part of the capital cost’ u/s 48,which is wholly unjustified, bad in law and deserves to be quashed 3.1 Assessee has submitted before the Ld. PCIT and AO that: “3.3) Interest Cost Incurred on the amount invested:

Shree Auto Iron Ltd. vs. PCIT Assessee had not made any separate borrowing for the amount invested in the Land. Working Capital funds, provided thru Work Capital Loan from bank and Unsecured Loans, were used to finance the cost of Land. Therefore, the following amount of interest was added to cost of Land as Interest incurred. These amount are appearing at S. No. 3.1 above and in the Ledger Account `Cost of Land’ attached with this reply.

ON ACCOUNT FY DATE AMOUNT PAID TO OF Bank Loans/ 2012-13 31/03/2013 1488233.00 Interest Cost Unsecured Loans Bank Loans/ 2013-14 31/03/2014 1711466.00 Interest Cost Unsecured Loans Bank Loans/ 2014-15 31/03/2015 2230611.00 Interest Cost Unsecured Loans

It has to be mentioned that the above amount after capitalizing them to the cost of land, have not been claimed as expenses in the Profit & Loss Account. 3.2 Further the calculation of Interest capitalised which is appearing in the Ledger Account of Land, furnished to AO and Ld. PCIT shows following calculation:

FINANCIAL OPENING ROI INTEREST CLOSING YEAR BALANCE OF APPLIED CALCULATED VALUE OF # LAND COST ON LAND COST OPENING BALANCE 1 2 3 4 4 (2+4) # 2012-13 99,21,541.00 15% 14,88,233 1,14,09,774 2013-14 1,14,09,774.00 15% 17,11,466 1,31,21,240 i n 2014-15 1,31,21,240.00 17% 22,30,611 1,80,38,983 # c l udes payment to RIICO amounting Rs. 26,87,132.00 3.3. On contrasting the observations of Ld. PCIT and reply of assessee, following facts emerge: S. No. Observations of the PCIT Facts in reply of assessee i) Assessee has not furnished any No documentary evidence Shree Auto Iron Ltd. vs. PCIT documentary evidence with regard to except journal entries of interest cost books of accounts were possible as the Interest cost was capitalised from the Interest cost booked in P & L Account. Ledger account, submitted to AO, reflected those entries ii) Assessee has not furnished confirmation of In the given situation, the parties from whom loan taken and confirmation from parties showing use of funds for making investment was not applicable. iii) Assessee has not furnished any evidence of In the given situation, payment of interest through cash or through payment of interest thru bank account cash/bank was not applicable It appears that Ld. PCIT did not appreciate the accounting of `Interest cost’ by the assessee and passed the order in a mechanical manner.

GROUND No. 4: That on the facts and in the circumstances of the case, the Ld. PCIT erred by holding that AO has failed to examine the issue of change in the method of stock valuation. As this issue was not before the AO, It is a settled principle of law the PCIT cannot exercise the power of revision to look into any other issue which the AO himself could not look into.

Submissions: 4.1 AO is not expected to verify and examine each and every item of expenditure and claim of deduction as the assessee was under the tax audit. There was no point made by the auditors of the company and the tax auditors, which had been overlooked by the Assessing Officer. In the garb of exercise of power under section 263, the Ld. PCIT was not entitled to make roving enquiries.

4.2 The reason of reopening u/s 148 as spelt out in the assessment order is : 3. Analysis of information collected/received: On analysis of information, it has been emerged that as per INSIGHT portal sale of immovable property is of Rs. 2,80,07,581/- and the assessee has declared full value of consideration of Rs. 2,80,07,581/- but has claimed cost of acquisition and improvement with indexation of Rs. 3,08,93,570/- which has resulted in Long Term Capital Loss of Shree Auto Iron Ltd. vs. PCIT Rs. 28,85,989/-. The assessee has not provided any evidence for claim of indexed cost of acquisition and improvement in proceedings before DIT(I&CI).”

Change in the Stock valuation method was not the reason recorded for reopening. However, the Ld. PCIT wants to enquire on the issues, which was not subject matter of reopening of assessment u/s 147 r.w.s. 148 of the Act. 4.3 This case was reopened prior to 01/4/2021 i.e. date on which the amended section 147 came into force. When the assessment is reopened u/s 147/148 usually, it is not open to AO to go beyond the issues raised in the reasons recorded for reopening of the assessment. In other words, the A.O's jurisdiction is limited to the issues, which are subject matter of reopening. For this purpose, we rely on the judgment of Hon'ble Supreme Court in the case of LD. Pr. CIT v. Jet Airways (I) Ltd.[2010] 195 Taxman 117/[2011] 331 ITR 236 wherein it was held that "AO may assess or reassess income in respect of any issue, which comes to his notice subsequently in the course of proceedings, though the reasons for such issue were not included in the notice. However, if after issuing the notice u/s 148 of the Act, the ld. AO accepted the contention of the assessee and holds that the income which he has initially formed a reason to believe had escaped assessment, has as the matter of fact not escaped assessment, it is not open to him independently to assess some other income", which is clear from the observation of the Hon'ble Supreme Court. 4.4 It is a settled principle of law that the PCIT cannot exercise the power ofrevision to look into any other issue which the assessing officer himself couldnot look into under the scrutiny proceeding. In other words the powersof the PCIT for revision under Section 263 of the Act would be limited to theissues which has been examined by the AO in the scrutiny/reopening assessment; therevisionary powers under Section 263 cannot be exercised beyond the issuesconsidered in the scrutiny. 4.5 Ld. PCIT has held on page No. 5 and Para No. 7.6 of her order: “7.6 The ITR filed by assessee in e-filing portal is perused and it is noticed that there is Part-A – OI –Other Information in ITR. In column 4d, there is separate column for reporting effect on the profit orloss because of deviation, if any, from the method of valuation prescribed under section 145A but inthe ITR of the assessee, this column is left blank, which shows that effect of Rs.2,51,93,726/- has notbeen considered by the assessee in ITR”

Shree Auto Iron Ltd. vs. PCIT Ld. PCIT has mistaken belief that omission to mention the effect of change in the profit/loss has resulted in underreporting of the income. Part-A-Other information section in the ITR is meant for filling some columns for information only, and non-filling does not affect the tax computation in any manner. Secondly, these columns are applicable for audit cases only. Though assessee reported in 3CD but omitted to fill in the form which runs into 36pages(Please see the PB No. 56-58 ). Secondly such omission does not have any tax effect as these figures do not enter into the computation of tax. At the same time, the required disclosure as per the `Accounting Standards’ was also made in the `Notes to the accounts’ forming part of the audited financial statements (Please see the PB No. 59). It is, therefore, prayed that order made u/s 263 of the Act dated 30.3.2022 be quashed. Submitted respectfully for your kind consideration.”

Shree Auto Iron Ltd. vs. PCIT and further no bank statement was submitted for showing funds received as loan and showing use thereof for the purpose of acquisition of property and no confirmation of parties were furnished and hence she opined that interest expenses to the extent of Rs. 54,30,310/- was not allowable to the assessee as cost of improvement while calculating long term capital gain but the ld. AO allowed the same. 5.1 The appellant filed a reply to such notice of the ld. PCIT – 1, Jaipur and stated that during assessment proceedings it had submitted complete details about interest expenditure which was not separately incurred but were quantified out of working capital loan limit given by the bank and other loans. The appellant claims to had submitted each and every detail to the AO and even during assessment proceedings the appellant requested the AO to rectify the error committed by it in working out of long Term capital loss which was claimed at Rs. 28,85,989/- in place of correct amount of loss of Rs. 72,14,753/- which was not allowed by the ld. AO and based thereon it was claimed that it cannot be said that the appellant did not furnish any details about interest cost claimed and the AO did not apply his mind on such claim of the assessee. It was also claimed by ld. AR that reassessment proceedings were carried as per Faceless Scheme wherein separate verification unit, review unit are also available and in such mechanism it cannot be said that the submissions of the appellant were accepted without any enquiry. The Shree Auto Iron Ltd. vs. PCIT ld. PCIT – 1, Jaipur did not raise any further query and proceeded to pass the order u/s 263 for setting aside the assessment order and to pass a fresh order in view of her opinion in the matter. 5.2 It has been claimed by the ld. AR that it was the bounden duty of the ld. PCIT to have conducted minimal enquiry before jumping on the conclusion of non enquiry or verification by the AO for invoking section 263. He has relied on the judgment of the co-ordinate bench of ITAT, Delhi in the case of Arun Kumar Garg HUF v/s PCIT (ITA No. 3391/Del/2018 wherein it was held :-

“5.4 In the present case, it is apparent that the Ld. Pr. CIT, unmindful of the inquiries conducted by the Assessing Officer during the course of assessment proceedings and the submissions made by the assessee in response to notice u/s 263 of the Act, has merely observed that the assessment order was passed without making proper inquiries and it is a matter of record that the Ld. Pr.CIT has himself not undertaken any inquiry to reach a conclusion that the order is erroneous and prejudicial to the interest of the revenue.”

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 Shree Auto Iron Ltd. vs. PCIT 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. Hon’ble 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.

The ld. AR also relied on another case of ITAT, Delhi Bench in the case of Dwarkadhish Build well P Ltd. v/s CIT 0- (ITA No. 3097/Del/2014) wherein also it was emphasized that for the purpose of exercising jurisdiction u/s 263 of the Income tax Act, 1961 that the CIT has to undertake at least some exercise to reach on the conclusion that the order passed by AO is erroneous and prejudicial to the interest of revenue. The ld. AR submits that if it is felt by the Ld. PCIT that some more enquiries and verification could have been made by AO, assessment order cannot be declared to be erroneous and prejudicial to the interest of revenue as held by the ITAT (SB) in the case of Salora International Ltd. v/s Addl. CIT (2005) 2 SOT 705. The ld. AR also relied on following case laws :- 1. Malabar Industrial Co. Ltd. v/s CIT (243 ITR 83 (SC)) (2000) 2. CIT v/s Max India Limited (2007) (295 ITR 282 (SC)) 3. Greenworld Corporation (2009) 181 Taxmann 111 (SC) 4. PCIT v/s Dhanna Reddy & Co. (2018) (100 taxmann.com 358 (SC)) 5. CIT, Central III v./s Nirav Modi (2017) 77 taxman.com 78 (SC)

Shree Auto Iron Ltd. vs. PCIT 6. PCIT – 2 v/s Shre Gayatri Associates (2019) 106 taxmann.com 31 (SC) 7. PCIT v/s Sumatichand Tolamal Gouti (2019) 111 taxmann.com 287 (SC) 8. CIT, Gujarat – II v/s Kwality Steel Suppliers Complex (2017) 84 taxmann.com 234 (SC) Through all the above case laws ld. AR states that in a case wherever two views are possible and the AO has adopted one possible view which cannot be termed as not in accordance with law, and revision exercise cannot be taken by ld. PCIT. 5.3 The ld. AR has also stated that in the instant case the AO was provided with each and every explanation required in the matter and he has passed the order after full examination thereof then his order cannot be termed as erroneous and prejudicial to the interest of revenue until and unless the ld. PCIT finds that the AO has passed an order which is unsustainable in law and in the instant case no such grave error of the AO has been pointed out by the ld. PCIT and therefore her action in revising the order is wrong. For this proposition he has relied on following case laws :- 1. Torrent Pharmaceuticals Ltd. (2018) 173 ITD 130 (Ahd. – ITAT) 2. Eveready Industries India Ltd. (2020) 181 ITD 528 (Kolkata ITAT) 3. Smira Pune Food P Ltd. (ITA No. 3205/Del/2017 – ITAT, Delhi) 4. Shri Narayan Tatu Rane (ITA No. 2690/Mum/2016 – ITAT Mumbai) 5. Smt. Lata Phulwani (ITA No. 246/JP/2020 – Jaipur ITAT) 6. Ganpat Ram Vishnoi (296 ITR 292 – Rajasthan HC)

Shree Auto Iron Ltd. vs. PCIT 7. Agrotech P Ltd. (ITA No. 9/JP/2021 – Jaipur ITAT) 5.4 The ld. AR has also stated that the issue of understatement of closing stock due to change in valuation method was not the reason for selection of the case for reassessment an hence ld. PCIT is precluded from entering into such fields which were not subject matter of reassessment. He states that ld. PCIT has held on page no. 5 and para no. 7.6 of her order as under :- “7.6 The ITR filed by assessee in e-filing portal is perused and it is noticed that there is Part-A – OI –Other Information in ITR. In column 4d, there is separate column for reporting effect on the profit or loss because of deviation, if any, from the method of valuation prescribed under section 145A but in the ITR of the assessee, this column is left blank, which shows that effect of Rs.2,51,93,726/- has not been considered by the assessee in ITR”

He has mentioned that Ld. PCIT has mistaken belief that omission to mention the effect of change in the profit/loss has resulted in underreporting of the income. Part-A-Other information section in the ITR is meant for filling some columns for information only, and non-filling does not affect the tax computation in any manner. Secondly, these columns are applicable for audit cases only. Though assessee reported in 3CD but omitted to fill in the form which runs into 36 pages (PB Pages 56-58 ). Secondly such omission does not have any tax effect as these figures do not enter into the computation of tax. At the same time, the required disclosure as per the `Accounting Standards’ was also made in the `Notes to the accounts’ forming part of the audited financial statements (PB Pages 59).

5.5 We find that the instant case was reopened by the AO for examining the claim of the assessee on account of Long Term capital loss incurred on sale of immoveable property and on the basis of replies filed by the appellant the assessment order was passed without any disturbance. The ld. PCIT could not pin pointed any error of the AO in accepting the submissions of the appellant filed before him. The ld. AR claims to had submitted detailed reply on the issue of claim of interest cost as part of cost of acquisition of the immoveable property and the AO has accepted the submissions of the appellant after his thorough examination for which he had a separate verification unit and separate review unit and hence it cannot be said that the order had been passed without any enquiry and hence without proving any misdoing by the AO, the ld. PCIT cannot hold the assessment order to be erroneous and prejudicial to the interest of revenue. We also find that the AO had adopted one possible view on the issue of claim of interest cost as part of indexed cost of acquisition which has not been held to be erroneous by the ld. PCIT, the proceedings u/s 263 cannot be sustained merely on the reason that the ld. PCIT wanted some more enquiries or had some other opinion about the matter. It was so held in the case of Malabar Industrial Co. Ltd. by the Hon’ble 5.6 We also find that since the issue of claim of interest cost as part of cost of acquisition (which was the only ground for reassessment ) was settled, the AO lost his jurisdiction to assess other issues coming to his knowledge during assessment proceedings. This was so held by the Hon’ble Bombay High Court in the case of CIT vs. Jet Airways (I) Ltd. (2011) 331 ITR 236 (Bom)(HC)wherein it was held that :-

16. Explanation 3 lifts the embargo, which was inserted by judicial interpretation, on the making of an assessment or reassessment on grounds other than those on the basis of which a notice was issued under section 148 setting out the reasons for the belief that income had escaped assessment. Those judicial decisions had held that when the assessment was sought to be reopened on the ground that income had escaped assessment on a certain issue, the Assessing Officer could not make an assessment or reassessment on another issue which came to his notice during the proceedings. This interpretation will no longer hold the field after the insertion of Explanation 3 by the Finance Act (No. 2) of 2009. However, Explanation 3 does not and cannot override the necessity of fulfilling the conditions set out in the substantive part of section 147. An Explanation to a statutory provision is intended to explain its contents and cannot be construed to override it or render the substance and core nugatory. Section 147 has this effect that the Assessing Officer has to assess or reassess the income ( such income") which escaped assessment and which was the basis of the formation of belief and if he does so, he can also assess or reassess any other income which has escaped assessment and which, comes to his notice during the course of the proceedings. However, if after issuing a notice under section 148, he accepted the contention of the assessee and holds that the income which he has initially formed a reason to believe had escaped assessment, has as a matter of fact not escaped assessment, it is not open to him independently to assess some other income. If he intends to do so, a fresh notice under section 148 would be necessary, the legality of which would be tested in the event of a challenge by the assessee.”

Shree Auto Iron Ltd. vs. PCIT There is another judgement of the Hon`ble Delhi High Court in the case of Ranbaxy Laboratories Ltd. - vs. CIT (2011) 336 ITR 136 (Delhi High Court)wherein also similar view was upheld and following was held :-

21. In view of our above discussions, the Tribunal was right in holding that the Assessing Officer had the jurisdiction to reassess issues other than the issues in respect of which proceedings are initiated but he was not so justified when the reasons for the initiation of those proceedings ceased to survive. Consequently, we answer the first part of question in affirmative in favour of revenue and the second part of the question against the revenue.

We also quote the case of Hon`ble jurisdictional High Court of Rajasthan in the case of CIT vs Shri Ram Singh [2008] 306 ITR 343 (Raj.) wherein it was held that :-

“32. The result of the aforesaid discussion is, that the question framed, in the order dated. 23rd May, 2006, is required to be, and is, answered in the manner, that the Tribunal was not justified in holding, that the proceedings for reassessment under section 148/147 were initiated by the AO, on non-existing facts. because ultimately the assessee has been able to explain the income, which was believed to have been escaped assessment, was explainable. It is further held, that the AO was justified in initiating the proceedings under section 147/148, but then, once he came to the conclusion, that the income, with respect to which he had entertained "reason to believe" to have escaped assessment, was found to have been explained, his jurisdiction came to a stop at that, and he did not continue to possess jurisdiction, to put to tax, any other income, which subsequently came to his notice, in the course of the proceedings, which were found by him, to have escaped assessment.” Hence as held by above judicial authorities, we find that the issue of undervaluation of closing stock due to change in method of valuation could not have been raised by the AO while passing the order u/s 147 and what an AO Shree Auto Iron Ltd. vs. PCIT cannot do in assessment order, which has been made subject matter of revision proceedings, cannot be done by ld. PCIT in proceedings u/s 263. 5.7 Hence we find force in the submissions of the ld. AR and quash the order passed by ld. PCIT u/s 263 of the Income tax Act, 1961. The appeal of the assessee is allowed.