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Facts
The assessee filed an appeal against the order of the Principal Commissioner of Income Tax (PCIT) who invoked revisionary powers under Section 263 of the Income Tax Act. The PCIT believed the original assessment order was erroneous and prejudicial to the interest of revenue, citing discrepancies in professional charges and salary expenses.
Held
The Tribunal held that the PCIT erred in invoking Section 263 without conducting independent verification or providing specific findings. The assessment order was not considered erroneous or prejudicial to revenue as the Assessing Officer had made inquiries, and the PCIT's observations were based on suspicion rather than concrete evidence.
Key Issues
Whether the PCIT correctly invoked Section 263 of the Income Tax Act to revise the assessment order without proper inquiry and specific findings, and whether the original assessment order was indeed erroneous and prejudicial to the interest of revenue.
Sections Cited
143(3), 144B, 263, 80JJAA, 37
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCHES ‘E’: NEW DELHI.
Before: SHRI S. RIFAUR RAHMAN & SHRI RAJ KUMAR CHAUHAN
PER S. RIFAUR RAHMAN, ACCOUNTANT MEMBER :
This appeal is filed by the assessee against the order of Principal Commissioner of Income Tax, (PCIT), Faridabad (hereinafter referred to ‘ld. PCIT’) dated 31.03.2025 for AY 2020-21.
Brief facts of the case are, the assessment in the case of the assessee was completed u/s 143(3) r.w.s. 144B of the Income Tax Act, 1961 (in short ‘Act’) vide order dated 06.09.2022, and assessed the total income at Rs.93,87,13,869/- after making addition of Rs.85,87,129/- on account of disallowance of expenditure on cess.
On perusal of the assessment records, Ld. PCIT, Faridabad noticed that that in Form 3CA/3CD assessee has paid fees of Rs. 5,45,71,846/- for professional or technical services, on which TDS was deducted. However, as per the return of income, legal and professional charges have been claimed at Rs. 3,27,75,797/-. He observed that, there is a difference to the tune of Rs. 2,17,96,049/- between the expenses incurred and the amount claimed in the return of income. Ld. PCIT was of the view that, the Assessing Officer has not sought any explanation to reconcile this difference. Similarly, he observed that assessee has paid salary to the extent of Rs. 11,55,18,514/- on which TDS was deducted. However as per the return of income, the salary was claimed at Rs. 20,93,51,160/-. Thus there is a difference of Rs. 9,38,32,646/-. No explanation was sought from the assessee to explain the same by the Assessing Officer. On the basis of above discrepancy, he came to the conclusion that the assessment order is prima facie erroneous in so far as it is pre-judicial to the interest of revenue. Accordingly, a show cause notice u/s 263 of the Act was sent to the assessee, and opportunity was given to the assessee to explain as to why the assessment order u/s 143(3) read with section 144B of the Act should not be set aside and a fresh assessment be directed. In the above said notice apart from the issue of professional charges and differences in salary further issues were raised on claim of deduction u/s 80JJAA and claim of expenses on account of CSR expenses. In response assessee clarified the differences in professional charges paid and claimed by the assessee and also with regard to claim of deduction u/s 80JJAA it is submitted Form 10DA for AY 2017-18, 2018-19 and 2019-20 along with the list of eligible employees. With regard to, discrepancy in salary expenses, assessee has submitted that to the extent of employees who are falling within the taxable limit, TDS was deducted, with regard to other employees no TDS was deducted. Similarly explanation was submitted relating to CSR expenses.
Further, it was submitted that the issues raised by the Ld. PCIT are already considered during the assessment proceedings, therefore, it do not constitute the assessment order erroneous and prejudicial to the interest of the revenue.
After considering the above submissions Ld. PCIT observed that, Assessing Officer had passed assessment order in a casual way without making proper enquiries, as a result of which substantial amount of tax may be lost, and also observed that Assessing Officer had done only a semblance of enquiry and, that too, in very slipshod manner. Assessing Officer had not made any enquiry on many crucial issues as enumerated in para 7 & 7.1 of the impugned order.
Therefore, he came to the conclusion that Assessing Officer should make independent inquiry on the various issues discussed in the impugned order. Accordingly, he treated the assessment order passed u/s 143(3) read with section 144B of the Act without proper perusal, examination & investigation of relevant information, legal issues & records as required under the Act and is prima facie erroneous and pre-judicial to the interest of revenue. He set aside the assessment order and directed the Assessing Officer to pass a fresh assessment order and recompute the assessee’s income as discussed in his order.
Aggrieved with the above order assessee is in appeal before us raising following grounds of appeal:-
1. That on facts and circumstances of the case and in law, the PCIT erred in assuming jurisdiction under section 263 of the Act and holding that the assessment order passed under section 143(3) of the Act is erroneous and prejudicial to the interest of revenue.
2. That on facts and circumstances of the case and in law, the PCIT erred in arbitrary holding that the assessment order passed under section 143(3) of the Act is erroneous and prejudicial to the interest of the revenue, without bringing on record as to how the twin conditions are getting satisfied in case of the Appellant.
3. That on facts and circumstances of the case and in law, the PCIT erred in assuming jurisdiction under section 263 of the Act by merely setting aside the assessment order passed by the Assessing Officer ("AO"): (1) especially when the issues were verified by the AO during the assessment proceedings, and (ii) by not bringing in the order under section 263 as to 4 That on facts and circumstances of the case and in law, the PCIT erred in invoking section 263 of the Act alleging that purported difference of INR 2,17,96,049 existed in the amount of legal & professional expenses incurred and legal & professional expenses claimed in return of income and thus was liable to be treated as unexplained expenditure, without appreciating the submissions of the Appellant reconciling the alleged difference.
5 That on facts and circumstances of the case and in law, the PCIT erred in invoking section 263 of the Act alleging purported difference of INR 9,38,32,646 existed in the amount of salary paid (as per Form 3CA/3CD) and salary expense claimed (as per return of income) to be unexplained, without appreciating that no liability to deduct tax at source existed on the differential amount of INR 9,38,32,646 6 That on facts and circumstances of the case and in law, the PCIT erred in invoking section 263 of the Act alleging the claim of deduction of INR 56,44,273 made by the Appellant under section 8OJJAA of the Act as unverified and in genuine, without appreciating that Form 10DA and other supporting documents were furnished to the AO during the course of original assessment proceedings under section 143(3) of the Act.
That on facts and circumstances of the case and in law, the PCIT erred in invoking section 263 of the Act alleging that the claim of CSR expense amounting to INR 1,01,00,000 was liable to be disallowed without appreciating that the said expense was already disallowed by the Appellant in its return / computation of income.
At the time of hearing, Ld. AR brought to our notice detailed submissions which are submitted during assessment proceedings and Ld. PCIT during revisional proceedings. Further brought to our notice that all these details are placed at paper book in the form of tax audit report, audited financial statements, computation of income and detailed ITR Schedules. He also
Further Ld. AR brought to our notice findings of the Ld, PCIT in the impugned order and brought to our notice para 20 of the impugned order and submitted that even though assessee had submitted detailed submissions before Ld. PCIT, however, Ld. PCIT has not given any findings on the discrepancy in the information submitted by the assessee. Therefore, Ld. PCIT has not given any clear finding how the assessment order is erroneous as well as pre-judicial to the interest of the revenue. In this regard he submitted as under:- a) It is submitted that for initiating revisionary proceedings under the provisions of section 263 of the Act, following two-fold conditions need to be satisfied, i.e., the order sought to be revised must be: (i) erroneous, and (ii) prejudicial to the interest of the revenue Assessment order not erroneous: b) At the outset, it is submitted that the Appellant's case was selected for complete scrutiny assessment, whereby, the AO had duly examined relevant material on record and passed assessment order dated September 06, 2022. c) However, the PCIT under the revisionary proceedings has arbitrarily sought to disregard the inquiry undertaken by the AO and submissions of the Appellant without elucidating any defect in deduction claimed under section 80JJAA of the Act, suo-moto CSR disallowance claimed under section 37 of the Act, and expenditure reported in the books of accounts and ITR (refer page 8 of the appeal set), thereby, failing to demonstrate how revision under section 263 of the Act was justified.
d) In this regard, reliance is placed on following decisions wherein it has been held that the Commissioner in his revisionary jurisdiction is obligated to bring on record error and prejudice through independent verification and inquiry. - CIT vs Vikas Polymers: [2012] 341 ITR 537 (Delhi) - ITO vs D.G. Housing Projects Ltd.: [2012] 343 ITR 329 (Delhi) - CIT vs George Williamson (Assam) Ltd.: [2001] 250 ITR 747 (Gauhati) - Mahesh Reddy vs PCIT: [2024] 167 taxmann.com 297/ITA No. 1379&936/2024 (Bang. - Trib.) - Apna Punjab Resorts Ltd. vs PCIT: [2023] 200 ITD 75 (Chandigarh - Trib.) - ETT Ltd. vs. CIT: [2019] 112 taxmann.com 321/ITA No. 3341 of 2018 (Delhi - Trib.) - Rajiv Arora vs CIT: [2011] 131 ITD 58 (Jaipur - Trib.) - Narayan Tatu Rane vs ITO: (2016) 70 taxmann.com 227/ITA No. 2690, 2691 of 2016 (Mumbai-Trib.) - Eaton Industries Private Limited vs CIT: [2017] (Pune - Trib.) e) It is pertinent to note that the AO had initiated a complete scrutiny on the issues relating, inter alia, to 'Claim of Any Other Amount Allowable as Deduction in Schedule BP' and 'Deduction from Total Income under Chapter VI-A' been selected for examination (refer pages 1-2/PB for notice under section 143(2) of the Act). Accordingly, the AO took a plausible view basis the disclosures made in the following during the course of assessment proceedings. In light of above, there is no doubt that the AO had conducted an inquiry on the impugned issues during the course of assessment proceedings. Therefore, no revision could be made, and it cannot be said to be inadequate inquiry. f) It is submitted that it is only in cases of lack of inquiry', and not 'inadequate inquiry', that would give the right or occasion to the Commissioner to pass order under section 263 of the Act. In this regard, reliance is placed on following decisions wherein it has been held that when the AO has undertaken inquiries, then revision cannot be undertaken because the inquiries are inadequate from the point of view of the Commissioner:
- PCIT vs Asiatic Bearing Co.: [2025] 304 taxman 533/ITA No. 331 of 2024 (Gujarat)
- PCIT vs. Ambika Co-Operative Credit Society Ltd.: [2025] 174 taxmann.com 532/ITA No. 171 of 2024 (Gujarat) - Shree Siddhi Infrabuild (P.) Ltd. vs. PCIT: [2025] 172 taxmann.com 232/SLP No. 5619 & 5621 of 2022 (Gujarat) - PCIT vs Sampark Management Consultancy LLP: [2025] 170 taxmann.com 49/ITA No. 78 of 2024 (Allahabad) - CIT vs. Genpact Consulting Singapore PTE Ltd.: [2024] 169 taxmann.com 441/ITA No. 103 of 2023 (Delhi) - PCIT vs Clix Finance India (P.) Ltd. [2024] 298 Taxman 217/ITA No. 1428 of 2018 (Delhi) - CIT vs Vikas Polymers: [2012] 341 ITR 537 (Delhi) - CIT vs Sunbeam Auto Ltd. [2011] 332 ITR 167 (Delhi) - Olympic Decor LLP vs. PCIT: [2025] 174 taxmann.com 972/ITA No. 423 of 2024 (Ahd - Trib.) - PCIT vs. Kutch District Co. Op. Milk Producers Union Ltd. [2025] 174 taxmann.com 868 (Gujarat) - HSBC Lifesciense Private limited vs PCIT: [2024] of 2023 (Ahd.- trib.) - Mahesh Reddy vs PCIT: [2024] 167 taxmann.com 297/ITA No. 13798936 of 2024 (Bang. - Trib.) - Narayan Tatu Rane vs ITO: [2016] 70 taxmann.com 227/ITA No. 2690,2691 of 2016 (Mum. Trib.)
Assessment Order not prejudicial to interest of revenue: g) Reliance is placed on following decisions wherein it has been held that that even if the assessing officer adopts one of the courses permissible in law, or where the assessing officer has adopted a view with which the Commissioner does not agree, it cannot be treated as an order which is erroneous and prejudicial to the interest of revenue, unless the view taken by assessing officer is unsustainable in law.
- PCIT vs Shreeji Prints (P.) Ltd.: [2021] 282 Taxman 464 (SC) - CIT vs. Kamal Galani, [2019] 110 taxmann.com 213/SLP No. 42784 of 2018 (SC) [upheld CIT vs. Kamal Galani, [2018] 95 taxmann.com 261/ITA No. 1376 of 2007 (Gujarat)] - PCIT vs. Shree Gayatri Associates, [2019] 106 taxmann.com 31/SLP No. 4354 of 2019 (SC) -CIT vs Max India Ltd: [2007] 295 ITR 282 (SC)
- CIT vs Sunbeam Auto Ltd.: [2011] 332 ITR 167 (Delhi) - Grasim Industries Ltd: [2010] 188 taxman 327 (Bombay) - CIT vs Fine Jewellery (India) Ltd: (2013) of 2013 (Bombay) - Sir Ratan Tata Trust vs DCIT: [2021] 188 ITD 151 (Mumbai - Trib.) - Diamines & chemicals Ltd. vs. PCIT: [2022] & ITA No. 219/Ahd/2017 (Ahd. - Trib.) h) It is also settled law that section 263 proceedings cannot be initiated with a view to start fishing and roving inquiries [refer Parashuram Pottery Works Co. Ltd. vs ITO [1977] 106 ITR 1 (SC), CIT vs. Gabriel India Ltd.: [1993] 203 ITR 108 (Bombay), Spectra Shares & Scrips (P.) Ltd. vs CIT: [2013] 354 ITR 35 (Andhra Pradesh), Narayan Tatu Rane vs ITO (supra)]. c) Moreover, it is pertinent to note that in the impugned order passed under section 263 of the Act, the PCIT has not rendered any specific or speaking finding on the allegation of addition in relation to deduction under section 80JJAA of the Act (INR 56,44,273) and CSR expenses (INR 1,01,00,00) (refer pages 10-11 of the appeal set). The impugned order contains no reasoning, no analysis, and no recorded basis to demonstrate how the original assessment is "erroneous" and "prejudicial to the interests of the revenue" on the point of disallowance of deduction under section 80JJAA of the Act. In the absence of any such specific finding, the allegation cannot be sustained. d) Support for this proposition is found in Surjit Singh vs PCIT [ITA No. 31 (Chd.) of 2021 (Chd-Trib.)], wherein the Tribunal held that when a particular issue is not addressed in the Commissioner's final findings under section 263, it is to be presumed that the Commissioner is no longer pursuing that issue. Consequently, an issue not supported by a finding in the 263 order cannot be invoked against the assessee.
In view of the above, the order of the PCIT passed under section 263 of the Act is bad in law and deserves to be quashed.
On the other hand, Ld. DR submitted that as per the Explanation 2a to the Section 263 of the Act the assessment order passed without making enquiries or verification which should have been made specially deemed to be erroneous insofar as it is pre-judicial to the interest of the revenue. In this regard, he relied on the decision of Hon’ble Supreme Court in the case of Malabar Industries case and relied on the findings of the Ld. PCIT.
Considered the rival submissions and material placed on record, we observed that during assessment proceedings, assessee has submitted all the relevant information before the Assessing Officer and further during revisional proceedings Ld. PCIT has issued notice u/s 263 of the Act and enquired about 4 issues, according to him, which was not verified by the Assessing Officer during assessment proceedings. We noticed that assessee has submitted detailed submissions on all the above issues before the Assessing Officer as well as during Section 263 proceedings; however, Ld. PCIT has not verified above said informations and simply remitted the issue back to the file of Assessing Officer to redo the assessment afresh.
In our considered view, all the informations were already placed before during Section 263 proceedings and Ld. PCIT has not even whispered the mistake on the detailed submission made by the assessee. Ld. PCIT merely remitted all the issue back to the file of Assessing Officer without giving any clear cut finding how the assessment order is erroneous as well as pre-judicial to the interest of the revenue as held in the case of Vikas Polymers (Supra), D. G. Housing Projects Ltd. (Supra), it was held that a commissioner in his revisionary jurisdiction is obligated to bring on record error and prejudice through independent verification and inquiry without there being any proper findings the assessment order u/s 143(3) of the Act cannot be treated as erroneous and prejudicial to the interest of the revenue.
We observed from the impugned order that Ld. PCIT observed that the Assessing Officer had passed the assessment order in a casual way without proper inquiries as a result of which substantial amount of tax may be lost, and further he observed that it appears that Assessing Officer had done only a semblance of enquiries.
In our considered view, Ld. PCIT has only expressed suspicion and he failed to substantiate the above suspicion by way of proper verification on the various issues raised by him in his impugned order, merely setting aside the assessment order without clear findings, in our view, the jurisdiction u/s 263 cannot be invoked.
In the result, appeal filed by the assessee is allowed. Order pronounced in the open court on this day of 12th February, 16. 2026. Sd/- Sd/- (RAJ KUMAR CHAUHAN) (S.RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated:12.02.2026 *Mittali Sr. PS