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Facts
The assessee's appeal challenges the revision order passed by the PCIT under Section 263 of the IT Act, which was based on the ground that the Assessing Officer (AO) had not conducted a proper enquiry. The PCIT's revision order identified several issues including non-addition of agricultural income, unsecured loans, disallowance of expenditure under Section 14A, and claim of depreciation.
Held
The Tribunal found that the PCIT's assumption of jurisdiction under Section 263 was unsustainable. It noted that the AO had issued show cause notices, conducted enquiries, and applied his mind to the issues. The PCIT failed to point out any specific defects or elaborate on the nature of the enquiry that the AO should have conducted.
Key Issues
Whether the PCIT was justified in invoking Section 263 of the Income Tax Act, 1961, to revise the assessment order on the grounds of inadequate enquiry by the AO.
Sections Cited
263, 14A, 32, 68, 143(3), 144B, 40A(2)(b), 36(1)(va)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH “F”: NEW DELHI
The appeal of the assessee is directed against the order of the 1. ld. Pr. Commissioner of Income Tax-7, Delhi dated 30.03.2025 pertaining to AY 2020-21.
At the outset, the ld counsel of the assessee submitted that the 2. core issue involved in the case is assumption of jurisdiction by the ld PCIT u/s 263 of the Act. It is stated that the ld PCIT assumed jurisdiction u/s 263 only on the ground that the AO had not conducted worthwhile enquiry during assessment. It is submitted that the PCIT Page 1 of 7 Golden Sandhar Mills Ltd wrongly held the AO order erroneous in so far as it is prejudicial to the interests of the revenue which is apparent from the following reasons: - i) Non addition of Agricultural Income of Rs. 7,95,49,478/- as was done in in assessee’s own case for AY 2015-16 even though, the same was decided in the favour of the assessee by Hon’ble Delhi High Court (ITA NO. 742/2023 dated 23.08.2024) but department has not accepted the issue on merit. However, further appeal in the matter has not been preferred due to low tax effect (Rs. 3,29,99,973/-). (ii) Unsecured loans amounting to Rs. 4,33,22,948/- (out of which only Rs. 64,60,000/- u/s 68 of the I. T. Act, 1961 were added in the income of the assessee company) on the ground that there are many such parties whose creditworthiness was not in tune with the corresponding income shown in their ITRs. The same was not properly examined/verified by the assessing office (iii) Disallowance of Expenditure amounting to Rs. 45,083/- under u/s 14A on the ground that during the assessment proceedings, the assessee company vide letter dated 24.02.2022 submitted that it has not earned any interest or exempt dividend from the investment in unquoted equity. Thus, the expenditure amounting to Rs. 45,083/- should be added to the income of the assessee company in view of the Explanation to the provisions of Section 14 of the I. T. Act, 1961 (iv) Claim of Depreciation u/s 32 of I. T. Act, 1961 on the ground that the Review Report dated 26.09.2022 was not Golden Sandhar Mills Ltd considered by the assessing officer while passing the order u/s 143(3) r.w.s. 144B of the I. T. Act, 1961 dated 29.09.2022, wherein it was suggested that: (i) Claim of Depreciation u/s 32 of I. T. Act, 1961 be verified; admissibility of Payments made u/s 40A(2)(b) of I. T. Act, 1961 and (v) addition of A sum of Rs. 56,175/- received u/s 36(1) (va) in view of the decision of the Hon'ble Supreme Court in the case of M/s. Checkmate Services Pvt. Ltd. Vs CIT-1 (Civil Appeal No. 2833 of 2016) passed on 12.10.2022.
The ld AR submitted that the PCIT, without giving any reasons, 3. held that the Assessing Officer has not made proper inquiries to ascertain the nature of financial transactions of the assessee mentioned above and never pointed out the inadequacies in the AO assessment order.
Per contra the ld DR relied on the order of the ld PCIT. 4.
We find that the ld PCIT has invoked Explanation 2 to section 5. 263 of the Act and directed the AO to conduct assessment afresh on the ground that the AO had not conducted worthwhile enquiries. On the issue of Agricultural income, we find that the ld PCIT sought addition of Agricultural Income of Rs. 7,95,49,478/- because it was added in assessee’s own case for AY 2015-16 even though, the same was decided in the favour of the assessee by Hon’ble Delhi High Court (ITA NO. 742/2023 dated 23.08.2024). We are of the opinion that such Golden Sandhar Mills Ltd a reason does not make the AO’s order erroneous in so far as it is prejudicial to the interests of the revenue.
The ld PCIT felt that unsecured loans amounting to Rs. 6. 4,33,22,948/- (out of which only Rs. 64,60,000/- u/s 68 of the I. T. Act, 1961 should have been added on the ground that there are many such parties whose creditworthiness was not in tune with the corresponding income shown in their ITRs. The ld PCIT has not pointed out the details of lender whose credibility was questioned. We find that the assessee had filed documents/bank statements to substantiate the lenders credibility which the AO had duly examined. We therefore are of the view that the PCIT was not justified in setting aside the order of the AO on this count.
With respect to disallowance of Expenditure amounting to Rs. 7. 45,083/-under u/s 14A, when the PCIT himself acknowledges that the assessee company has not earned any interest or exempt dividend from the investment in unquoted equity, there is no scope of invoking provisions of Section 14 of the I. T. Act, 1961.
We also find that the PCIT is not justified in invoking 263 on the 8. ground that claim of Depreciation u/s 32 of I. T. Act, 1961 in view of Review Report dated 26.09.2022; admissibility of Payments made u/s Golden Sandhar Mills Ltd 40A(2)(b) of I. T. Act, 1961 and (v) addition of A sum of Rs. 56,175/- received u/s 36(1) (va) in view of decision in M/s. Checkmate Services Pvt. Ltd. Vs CIT-1, was not considered by the assessing officer.
We find that AO had issued show cause notices and had enquired 9. the issue of agricultural income, unabsorbed business loss, interest u/s 14A, deferred revenue expenditure. The AO upon receipt of response from the assessee was satisfied on all these issues. We are of the opinion that the AO had applied his mind on the issues before him and the ld PCIT has not pointed out any defect on the decision arrived by the AO. The PCIT has not elaborated the nature of investigation/enquiry which the AO should have carried out on the issues raised as above. We are thus of the opinion that the order of the assessing officer does not suffer from lack of enquiry, rendering the order erroneous in so far as it is prejudicial to the interests of the revenue. We are therefore, compelled to say that the assumption of jurisdiction by the ld PCIT u/s 263 is unsustainable in law. The order u/s 263 is therefore, quashed.