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Facts
The assessee, M/s. Hotel Sai Siddhi Pvt. Ltd., engaged in the hotel business, filed its return for AY 2014-15 declaring a loss. After reopening the case u/s 147, the assessment was completed u/s 143(3) accepting the returned loss. Subsequently, the PCIT initiated revision proceedings u/s 263, finding the AO's order erroneous and prejudicial to revenue due to lack of proper enquiries regarding issues like 'The Beach Goa' hotel's nil income, outstanding liabilities, and depreciation claims. The PCIT's show cause notice u/s 263 was issued based on a proposal sent by the Assessing Officer.
Held
The Tribunal held that Section 263 proceedings cannot be initiated solely based on a proposal from the Assessing Officer. The PCIT must independently call for and examine the records and form their own satisfaction that the order is erroneous and prejudicial to the revenue. As the 263 proceedings in this case were triggered by the AO's proposal, it constituted a 'jurisdiction deficit' and was not in accordance with law. Therefore, the revision proceedings initiated by the Ld. PCIT were quashed.
Key Issues
Whether revision proceedings under Section 263 of the Income Tax Act, 1961 can be validly initiated by the PCIT/CIT solely based on a proposal from the Assessing Officer, or if it requires the PCIT/CIT's independent examination and satisfaction.
Sections Cited
Section 263, Section 147, Section 148, Section 143(3), Section 154, Section 41
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, PUNE BENCH “A”, PUNE
Before: SHRI R. K. PANDA & Ms. ASTHA CHANDRA
This appeal filed by the assessee is directed against the order dated 18.03.2020 passed u/s 263 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) by the Ld. PCIT-1, Nashik relating to assessment year 2014-15.
Although a number of grounds have been raised by the assessee, however, these all relate to the validity of 263 proceedings initiated by the Ld. PCIT.
Facts of the case, in brief, are that the assesse is a company engaged in the business of running hotels at Nashik and Goa. It filed its return of income for the assessment year 2014-15 on 04.02.2016 declaring total loss of Rs.91,83,541/-. The case of the assessee was reopened u/s 147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) and the assessee in response to the notice issued u/s 148 of the Act filed the return of income on 11.02.2017 declaring total loss of Rs.56,21,416/-. The Assessing Officer completed the assessment on 30.12.2017 accepting the returned loss of Rs.56,21,416/-.
Subsequently the Ld. PCIT observed that the assessment proceedings in this case were completed without making proper enquiries and verifications which was expected on the facts and in the circumstances of the case. He noted that the assessee in response to the questionnaire issued by the Assessing Officer filed a detailed submission and audited financial statements. As per Note 4 of the balance sheet, the assessee has three hotels namely ‘Jupiter’, ‘Indraprashtha’ and ‘The Beach Goa’ and the liability against ‘The Beach Goa’ has been shown at Rs.16,74,59,962/- since last many years. The balancing figure of that liability has been shown under tangible asset in the asset side of the balance sheet for all the above 3 hotels combined. He observed from Note.18, 20, 22 & 23 of the P&L account that ‘Income and expenditure statement, separated hotelwise’ has been shown and there was ‘nil’ income shown against ‘The Beach Goa’. Hence, he was of the opinion that the hotel ‘The Beach Goa’ has been closed but the same is not discussed in notes to account of balance sheet. In view of the above and in view of the various other issues as per para 2 of his order, the Ld. PCIT was of the opinion that the order passed by the Assessing Officer is prima facie erroneous and prejudicial to the interests of the Revenue since the same was not only without proper enquiry but also does not comply the relevant provisions of the Act properly. He, therefore, issued a show cause notice u/s 263 of the Act on 03.03.2020 asking the assessee to explain as to why the order passed by the Assessing Officer should not be set aside. Rejecting the various explanations given by the assessee and observing that the Assessing Officer has passed the order without proper verification and enquiries which the Assessing Officer was expected to do, the Ld. PCIT set aside the order passed by the Assessing Officer to his file for deciding the issue afresh and after giving due opportunity of being heard to the assessee.
5. Aggrieved with such order of the Ld. PCIT, the assessee is in appeal before the Tribunal.
6. The Ld. Counsel for the assessee at the outset filed a copy of the proposal sent by the Assessing Officer to the Ld. PCIT for review of the order u/s 263 of the Act. He submitted that the Assessing Officer vide letter dated 23.08.2019 has requested the PCIT-1, Nashik asking him to invoke the provisions of section 263 of the Act on the ground that the order passed by the Assessing Officer for assessment year 2014-15 is erroneous and prejudicial to the interests of Revenue.
Referring to the decision of the Pune Bench of the Tribunal in the case of Alfa Laval Lund AB vs. CIT (International Taxation) reported in (2022) 215 TTJ (Pune) 814 vide order dated 02.11.2021 for assessment year 2012-13, he submitted that the Tribunal in the said decision has held that the process of revision u/s 263 of the Act can be initiated only when the CIT calls for and examines the record of any proceeding under the Act and considers that any order passed by the Assessing Officer is erroneous and prejudicial to the interests of Revenue. Since the Ld. PCIT has initiated revision proceedings pursuant to the proposal sent by the Assessing Officer, the order passed u/s 263 of the Act was held to be not valid.
8. Referring to the decisions of the Co-ordinate Bench of the Tribunal in the case of Shri Premraj Dhanraj Bafna vs. PCIT vide order dated 21.10.2022 for assessment year 2010-11 and in the case of Volkswagen India Pvt. Ltd. Vs. PCIT vide & 148/PUN/2019 order dated 19.10.2023 for assessment years 2012-13 & 2013-14, he submitted that the Tribunal, following the above decisions has quashed the 263 proceedings initiated on the basis of proposal sent by the Assessing Officer. He submitted that the Tribunal in the case of Volkswagen India Pvt. Ltd. Vs. PCIT (supra) has distinguished the decision of Hon’ble Allahabad High Court in the case of CIT vs. Bhagat Shyam & Co. reported in (1991) 188 ITR 608 (Allahabad) and the decision of Hon’ble Calcutta High Court in the case of Smt. Sumitra Devi Khirwal vs. CIT reported in (1972) 84 ITR 26 (Cal) relied on by the Ld. DR and held that the 263 proceedings initiated on the basis of the proposal sent by the Assessing Officer is not in accordance with law. Referring to the decision of the Bangalore Bench of the Tribunal in the case of Bandigadi Chandrappashetty vs. ITO vide & 773/Bang/2023 and & 307/Bang/2025 order dated 23.07.2025 for assessment year 2015- 16 he submitted that the Tribunal, following the decision of the Pune Bench of the Tribunal in the case of Alfa Laval Lund AB vs. CIT (International Taxation) (supra), has quashed the 263 proceedings initiated at the behest of the Assessing Officer. He accordingly submitted that since the Ld. PCIT has initiated the 263 proceedings on the basis of the proposal sent by the Assessing Officer, therefore, the same being not in accordance with law be quashed.
The Ld. DR on the other hand heavily relied on the order of the Ld. PCIT. He submitted that the proposal sent by the Assessing Officer is an internal communication between the Assessing Officer and the Ld. PCIT. Since there are large number of cases under the charge of the Ld. PCIT, therefore, there is nothing wrong on his part in examining the records on the basis of proposal sent by an officer subordinate to him. He submitted that the Ld. PCIT in the instant case has issued notice u/s 263 of the Act after examining the records and he has not acted merely on the basis of proposal sent by the Assessing Officer. Under these circumstances, when the Ld. PCIT, after examining the records, has issued a notice u/s 263 of the Act, therefore, such revisionary proceedings u/s 263 of the Act cannot be held to be invalid. For the above proposition he relied on the decision of the Mumbai Bench of the Tribunal in the case of JP Morgan Chase Bank N.A vs. CIT (International Taxation) reported in (2024) 159 taxmann.com 209 (Mumbai- Trib) and the decision of the Kolkata Bench of the Tribunal in the case of Stewarts & Lloyds of India Ltd. vs. CIT vide order dated 02.03.2016 for assessment year 2004-05. He accordingly submitted that the grounds raised by the assessee on this issue should be dismissed.
We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. PCIT and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. It is an admitted fact that the Assessing Officer completed the assessment u/s 143(3) r.w.s. 147 of the Act on 30.12.2017 accepting the returned loss of Rs.56,21,416/-. We find the Assessing Officer subsequently submitted a proposal to the Ld. PCIT- 1, Nashik vide letter dated 23.08.2019 for invoking the provisions of section 263 of the Act on the ground that the order passed by the Assessing Officer for assessment year 2014-15 is erroneous and prejudicial to the interests of the Revenue. The copy of the proposal sent by the Assessing Officer reads as under:
We find on the basis of this proposal, the Ld. PCIT issued the notice u/s 263 of the Act to the assessee on 03.03.2020 on these very issues except item number (v) above. After considering the submissions of the assessee he set aside the order passed by the Assessing Officer to his file for de novo assessment vide order dated 18.03.2020. It is the submission of the Ld. Counsel for the assessee that since the 263 proceedings were initiated on the basis of the proposal sent by the Assessing Officer, therefore, such 263 proceedings on the basis of the proposal by the Assessing Officer instead of verification of the records by the Ld. PCIT himself, renders the 263 proceedings invalid.
We find some force in the above arguments of the Ld. Counsel for the assessee. We find an identical issue had come up before the Co-ordinate Bench of the Tribunal in the case of Alfa Laval Lund AB vs. CIT (International Taxation) (supra). We find the Tribunal in that case has quashed the 263 proceedings on the ground that the 263 proceedings cannot be initiated on the basis of the proposal sent by the Assessing Officer. The relevant observations of the Tribunal read as under: “3. We have heard both the sides through Virtual Court and gone through the relevant material on record. It can be seen from para 4 of the ld. CIT‟s order that: “A proposal for revision u/s 263 of the IT Act, 1961 was received from DCIT(IT)-1, Pune through the Jt.CIT(IT), Pune vide letter No. Pn/Jt.CIT(IT)/263/2016-17/61 dated 23.05.2016”. It is thus manifest that the edifice of the revision in the extant case has been laid on the bedrock of receipt of the proposal from the AO. At this stage, it would be worthwhile to have a glance at sub-section (1) of section 263 of the Act, which runs as under:- “The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he, may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.” 4. Sub-section (1) of section 263 of the Act is an enabling provision which confers jurisdiction on the CIT to revise an assessment order which he considers erroneous and prejudicial to the interests of revenue. The process of revision u/s 263 of the Act initiates only when the CIT calls for and examines the record of any proceeding under this Act and considers that any order passed by the AO is erroneous and prejudicial to the interests of the revenue. The twin conditions of – (i) the CIT calling for and examining the record; succeeded by (ii) his considering the assessment order as erroneous etc. – are sine qua non for the exercise of power under this section. The use of the word `and’ between the expression `call for and examine the record ….‟ and the expression `if he considers that any order … is erroneous …‟ abundantly demonstrates that both these conditions must be cumulatively fulfilled by the CIT and in the same order, that is, the first followed by the second. In other words, the kicking in point for invoking jurisdiction u/s 263 is calling for and examining the record of any proceedings under the Act by the CIT leading him to consider the assessment order erroneous etc. A communication from the AO is not `the record of any proceedings under this Act’. To put it simply, the consideration that the assessment order is erroneous and prejudicial to the interests of the revenue should flow from and be the consequence of his examination of the record of proceedings. If such a consideration is not preceded by the examination of record of the proceedings under the Act, the condition for revision does not get magnetized.
It is trite that a power which vests exclusively in one authority, can‟t be invoked or cause to be invoked by another, either directly or indirectly. Section 263 of the Act confers power on the CIT to revise an assessment order, subject to certain conditions. Instantly, we are confronted with a situation in which the revision was initiated on the basis of the AO sending a proposal to the CIT and not on the CIT suo motu calling for and examining the record of the assessment proceedings and thereafter considering the assessment order erroneous and prejudicial to the interests of the revenue. The AO recommending a revision to the CIT has no statutory sanction and is a course of action unknown to the law. If AO, after passing an assessment order, finds something amiss in it to the detriment of the Revenue, he has ample power to either reassess the earlier assessment in terms of section 147 or carry out rectification u/s 154 of the Act. He can‟t usurp the power of the CIT and recommend a revision. No overlapping of powers of the authorities under the Act can be permitted. As the revision proceedings in this case have triggered with the AO sending a proposal to the ld. CIT and then the latter passing the order u/s 263 of the Act on the basis of such a proposal, we hold that it became a case of jurisdiction deficit resulting into vitiating the impugned order. Without going into the merits of the case, we quash the impugned order on this legal issue itself.
In the result, the appeal is allowed.”
We find, following the above decision, the Co-ordinate Bench of the Tribunal in the case of Volkswagen India Pvt. Ltd. Vs. PCIT (supra) distinguishing the decision of Hon’ble Allahabad High Court in the case of CIT vs. Bhagat Shyam & Co. reported in (1991) 188 ITR 608 (Allahabad) and the decision of Hon’ble Calcutta High Court in the case of Smt. Sumitra Devi Khirwal vs. CIT reported in (1972) 84 ITR 26 (Cal) relied on by the Ld. DR has observed as under: “7. The ld. AR relied on certain orders of the Tribunal, including the order dt. 02- 11-2021 passed by the Pune Tribunal in Alfa Laval Lund and AB Vs. CIT (ITA No.1287/Pun/2017), holding the initiation of revision proceedings, based only on the proposal sent by the AO for making the revision, lacked jurisdiction. Per contra, the ld. DR relied on certain decisions in support of his case. The first such case is the judgment of the Hon’ble Calcutta High Court in Smt. Sumitra Devi Khirwal Vs. CIT (1972) 84 ITR 26 (Cal.) in which the revision was upheld. In that case, the Commissioner did not himself call for any record but certain records were placed before him and he acted thereon. The assessee’s contention before the Hon’ble High Court that the revision in such circumstances was not valid, came to be jettisoned by the Hon’ble High Court. What is significant to note in that case is that: `certain records were placed before him (CIT) and he acted thereon’ for revising the assessment order. As opposed to that, we are dealing with a situation in which the AO sent a proposal to the ld. Pr. CIT for revision and acting on the same, the latter issued show cause notice for revising the assessment order. Even in that case, the Hon’ble High Court emphatically observed that: “All that the section requires is that before issuing a notice u/s.33B he must call for all relevant papers and documents, examine them and then issue the notice if he is satisfied that the interests of the revenue have suffered” (emphasis supplied by us). It is clear from the ratio of the judgment that the personal satisfaction of the CIT is paramount for revision. This satisfaction may be based on any relevant papers and documents, including the viewpoint of the AO. But, if the satisfaction of the CIT is missing and the notice u/s.263 is based simply on the proposal sent by the AO, then it cannot be said that the twin conditions of examining the record of any proceedings under this Act and thereafter satisfying that the assessment order was erroneous and prejudicial to the interest of the Revenue, are satisfied.
The second judgment relied by the ld. DR is CIT Vs. Bhagat Shyam & Co. (1991) 188 ITR 608 (Allahabad). In that case also, the assessee contended that the ITO placed certain information or material before the Commissioner and hence, the revision u/s.263 was not justified. Repelling such a contention, the Hon’ble High Court held that: “There is no bar to the ITO bringing that material to the notice of the Commissioner. What cannot, however, be denied is that the Commissioner must apply his mind to the material placed before him and satisfy himself that it is a case where he ought to exercise his revisional power”. Again, it is manifest that there is no bar on the AO placing certain information or material before the CIT justifying the invocation of power u/s.263, but ultimately, it is the CIT who must apply his independent mind to such material and satisfy that the revision is warranted. What should follow from the examination of material, including that placed by the AO, is the independent satisfaction of the CIT, after due application of mind, that the assessment order was erroneous and prejudicial to the interest of the Revenue requiring revision. If such satisfaction of the CIT, which is crucial and sine qua non, is missing and the notice is based simply on the proposal sent by the AO for revision, as is the case under consideration, the revision cannot take-off.
9. In view of the foregoing discussion, we are satisfied that the ld. PCIT exercised his jurisdiction to initiate the revision proceedings in a wrongful manner, which, ergo, cannot be accorded our imprimatur.”
We further find, following the decision of the Pune Bench of the Tribunal in the case of Alfa Laval Lund AB vs. CIT (International Taxation) (supra), the Bangalore Bench of the Tribunal in the case of Bandigadi Chandrappashetty vs. ITO (supra) has quashed the 263 proceedings where the CIT has initiated the proceedings u/s 263 of the Act at the behest of the Assessing Officer.
Since in the instant case admittedly the 263 proceedings were initiated on the basis of the proposal sent by the Assessing Officer, therefore, respectfully following the decisions cited (supra), we hold that the notice issued u/s 263 of the Act by the Ld. PCIT on the basis of the proposal sent by the Assessing Officer is not in accordance with law and therefore is liable to be quashed.
So far as the decisions relied on by the Ld. CIT(DR) are concerned, these decisions in our opinion are distinguishable and not applicable to the facts of the present case. In the case of JP Morgan Chase Bank N.A vs. CIT (International Taxation) (supra) although the decision of the Pune Bench of the Tribunal was cited by the assessee, however, the Tribunal has neither distinguished nor passed any comments regarding the said decision. Similarly, in the case of Stewarts & Lloyds of India Ltd. vs. CIT (supra) which was passed on 02.03.2016, the decision of the Pune Bench of the Tribunal was not available at that time. Further, the Tribunal in the said decision has simply mentioned that there is no prohibition u/s 263 of the Act for the CIT to act on the basis of the proposal by the Assessing Officer and the CIT can initiate action u/s 263 only suo motu. However, the Pune Bench of the Tribunal in the case of Alfa Laval Lund AB vs. CIT (International Taxation) (supra) has passed a detailed speaking order regarding the power and duty of the CIT u/s 263 of the Act. Further, in the case of Volkswagen India Pvt. Ltd. Vs. PCIT (supra), the Pune Bench of the Tribunal after considering its earlier order in the case of Alfa Laval Lund AB vs. CIT (International Taxation) (supra) and after distinguishing the decisions rendered by the Hon’ble Calcutta High Court and the Hon’ble Allahabad High Court cited (supra), has held that the order passed u/s 263 of the Act by the Ld. PCIT on the basis of the proposal sent by the Assessing Officer is not in accordance with law. In view of the above discussion and respectfully following the decisions of the Pune Bench of the Tribunal in the case of Alfa Laval Lund AB vs. CIT (International Taxation) (supra) and Volkswagen India Pvt. Ltd. Vs. PCIT (supra), we hold that the 263 proceedings initiated by the Ld. PCIT on the basis of the proposal sent by the Assessing Officer is not in accordance with law. Accordingly, the same is liable to be quashed. Therefore, we quash the revision proceedings initiated u/s 263 of the Act. The grounds raised by the assessee are accordingly allowed.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open Court on 16th January, 2026.