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

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर
IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”B” JAIPUR

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BEFORE: DR. S. SEETHALAKSHMI, JM & SHRI GAGAN GOYAL, AM vk;dj vihy la-@ITA No. 788/JPR/2024
fu/kZkj.k o"kZ@Assessment Year : 2016-17
Commissioner of Income-tax-I,
Jaipur.

LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No. AAECS 0826 R vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@Assessee by : Shri Pravin Saraswant, CA jktLo dh vksj ls@Revenue by : Mrs. Alka Gautam, CIT DR lquokbZ dh rkjh[k@Date of Hearing:
23/01/2025

?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.

2
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 juri iction on this issue cannot be usurped by the ld. PCIT.

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

4
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 :

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“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.”

6
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 Juri ictional
AO i.e. ACIT, Jaipur-1 also. The case records of the earlier proceeding conducted u/s 144B were perused by the Juri ictional 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.
3. Before us, the ld. A/R of the assessee reiterated his submission as made before the ld. PCIT. He further submitted his ground-wise written submissions as under :-
“GROUND No. 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.

Submissions:
1.1
Concluding Para No. 9 on Page No. 13 of the order passed by Ld. PCIT reads as under:
“The reply of the assessee has been considered and perused carefully but the same was not found tenable for the reasons that the assessee has not furnished any documentary evidence with regards to interest cost. The assessee has not furnished confirmation from the parties to whom loan taken and showing use of these funds for 7
Shree Auto Iron Ltd. vs. PCIT making investment. Further the assessee has not furnished any evidence of payment of interest through cash or through bank account. Thus it is clear that the interest expense of Rs. 54,30,310/- was not allowable as cost of improvement while calculating the LTCG on sale of the property but the same was allowed by the AO”

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.
FY
DATE
AMOUNT
PAID TO ON ACCOUNT
OF 2012-13
31.03.13
1488233.00
Bank Loans/
Unsecured Loans
Interest Cost
2013-14
31.03.14
1711466.00
Bank Loans/
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.
2014-15
31.03.15
2230611.00
Bank Loans/
Unsecured Loans
Interest Cost

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“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.”

10
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 with regard to interest cost

Documentary evidence except journal entries of books of 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 the parties from whom loan taken and showing use of funds for making investment
In the given situation, confirmation from parties was not applicable /required .
iii)
Assessee has not furnished any evidence of payment of interest through cash or through bank account
In the given situation, payment of interest thru bank only as Audit
Report did not point out any payment in cash in excess of Rs.
10000/-

11
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

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”

12
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 juri iction 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:

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“….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 14
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 juri iction, 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 juri iction on this issue cannot be usurped by the Ld. PCIT.

“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 15
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”

Smt.
LataPhulwani pronounced on 06/10/2020
Hon'ble ITAT, Jaipur Bench, in the case of Annu Agrotech Private Limited,
ITA No. 09/JP/2021, apropos assumption of juri iction 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 juri iction 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

“3.3) Interest Cost Incurred on the amount invested:

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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.

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:

#

#

i n 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
FY
DATE
AMOUNT
PAID TO ON ACCOUNT
OF 2012-13
31/03/2013
1488233.00
Bank Loans/
Unsecured Loans
Interest Cost
2013-14
31/03/2014
1711466.00
Bank Loans/
Unsecured Loans
Interest Cost
2014-15
31/03/2015
2230611.00
Bank Loans/
Unsecured Loans
Interest Cost
FINANCIAL
YEAR
OPENING
BALANCE OF LAND COST
ROI
APPLIED
ON OPENING
BALANCE
INTEREST
CALCULATED
CLOSING
VALUE OF LAND COST
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
2014-15
1,31,21,240.00
17%
22,30,611
1,80,38,983 #

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Shree Auto Iron Ltd. vs. PCIT documentary evidence with regard to interest cost except journal entries of 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 the parties from whom loan taken and showing use of funds for making investment
In the given situation, confirmation from parties was not applicable.
iii)
Assessee has not furnished any evidence of payment of interest through cash or through bank account
In the given situation, payment of interest thru 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.

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 juri iction 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”

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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.”

23
Shree Auto Iron Ltd. vs. PCIT tax Act, 1961. Meaning thereby that the reason for which reassessment proceedings were taken up did not subsist any more as the AO was satisfied about the matter which prompted him to initiate reassessment proceedings. Thereafter the ld. PCIT – 1, Jaipur had issued a show cause notice dated 13.02.2024 fixing the date of hearing as 20.02.2024 whereby she asked the response of the assessee on the issue of not adding the amount of variation in the closing stock for a sum of Rs.
2,51,93,726/- on account of change of system of valuation of inventory from FIFO to weighted average. It was alleged in the notice that the appellant failed to add the above said amount in closing stock even after duly mentioned by tax auditor in form 3CD at point no. 14b. The said notice was replied by the appellant vide submissions dated 22.02.2024 wherein it was explained that the above said variation has already been accounted for by the appellant and the profit has been offered for tax after incorporating such variation of Rs. 2,51,93,726/-. Thereafter the ld. PCIT – 1 again issued a new notice dated 11.03.2024 in continuation to revision proceedings whereby she asked the response of the assessee on a different issue i.e. claim of Rs,. 54,30,310/- as interest cost as part of cost of acquisition for working out Long Term Capital Gain on sale of immoveable property for Rs.
2,80,07,581/-. She has stated in the notice that during the assessment proceedings undertaken after issuance of notice u/s 148 dated 30.03.2021 the appellant failed to submit any detail regarding date of loan, person giving loan, amount of loan etc.

24
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 25
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.”

26
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 juri iction 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)

27
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)

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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).

29
With all these submissions he has requested for quashing the order of the ld. PCIT passed u/s 263. 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 mi oing 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

30
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 juri iction 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.”

31
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 juri iction 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 juri ictional 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 juri iction came to a stop at that, and he did not continue to possess juri iction, 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

32
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.
6. In the result, this appeal of the assessee is allowed.

Order pronounced in the open court on 12/03/2025. ¼ xxu xks;y ½

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(Gagan Goyal)

(Dr. S. Seethalakshmi) ys[kk lnL; @Accountant Member U;kf;d lnL;@Judicial Member

Tk;iqj@Jaipur fnukad@Dated:- 12/03/2025. *Santosh

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