ASIAN HOTELS (NORTH) LIMITED,NEW DELHI vs. PR, CIT, DELHI-1, NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘A’, NEW DELHI BEFORE SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER and SHRI SUDHIR PAREEK, JUDICIALMEMBER ITA No.654/DEL/2021 (Assessment Year : 2016-17) M/s. Asian Hotels (North) Limited, vs. Pr.CIT, 1A, Hotel Hyatt Regency, Delhi – 1. Bhikaji Cama Place, New Delhi – 110 066. (PAN: AAACA0125H) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri Abhishek Jain, CA REVENUE BY : Shri Javed Akhtar, CIT DR Date of Hearing : 17.09.2024 Date of Order : 26.11.2024 O R D E R PER S. RIFAUR RAHMAN, AM : 1. This appeal is filed by the assessee against the order of ld. Principal Commissioner of Income-tax, Delhi-1 (hereinafter referred to ‘ld. PCIT’) dated 31.03.2021 for Assessment Year 2016-17. 2. Brief facts of the case are, assessee filed its return of income on 29.09.2016 declaring a loss of Rs.32,48,76,393/-. The case was selected for complete scrutiny under CASS. The assessment was completed under section 143 (3)

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of the Income-tax Act, 1961 (for short ‘the Act’) on 23.11.2019 making an addition of Rs.19,07,225/- and accordingly, the income was assessed at a loss of Rs.32,29,69,170/-. Ld. PCIT, Delhi-I while perusing the assessment order dated 23.11.2018 observed that the order passed u/s 143(3) of the Act was believed to be erroneous and prejudicial to the interest of Revenue for the following reasons :- “2. On perusal of assessment order dated 23.11.2018, the assessment order was believed to be erroneous and prejudicial to the interest of revenue as per observations given hereunder: i. Large increase in Sundry creditors and reduction in business income as compared to preceding year : During the assessment proceedings, this issue was raised by the then A.O. However, the genuineness and creditworthiness of the sundry creditors was not verified at the time of assessment proceedings. No proper examination was made to identify the veracity of showing large increase in sundry creditors. ii. Gross total income is less than the value of foreign remittance sent : During the assessment proceedings, this issue was raised by the then A.O. However, the aspect of withholding of taxes and reporting of such remittance was not examined rendering the issue unverified. iii. Large business loss set off against other heads of income: The assessee company has declared income of Rs.54,93,70,062/- under the head Capital Gain and Rs.1,14,84,307/- under the head "Income from other sources" and set-off the same against current year's business loss of Rs. 88,57,30,762/-. The correctness of Assessee Company's claim of income from capital gain and other sources was not verified and examined properly during the course of assessment proceedings.

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iv. Large cash payments made for credit card purchases (AIR 002): In its reply dated 0.09.2018, the assessee company sought the details of AIR 002. However, this information was not provided and the assessment proceedings were concluded without examining this issue. v. Low income from TCS receipts- Liquor (TCS and Profit in part B-TI/Part A-P&L of ITR):On perusal of the assessment record, it is noticed that as per Schedule 18- revenue from operation of the Audited Financial Statement, the income shown from sale of wines and liquor is declared as under: FY 2015-16 FY 2014-15 Revenue From operation of Wines and Liquor However, as per Schedule 20 i.e. Consumption of Wine and Liquor, it is noticed that the same is as under: FY 2015-16 FY 2014-15 Consumption of Wines and Liquor 682.98 lakhs 597.85 lakhs From the above, it is noticed that the consumption of Wine and Liquor in the current year is increased by Rs. 85 Lakhs but the sale is stated to be reduced by Rs.223.31 Lakhs, which is possible only if there is drastic all in prices of wine & liquor but the same is nowhere been mentioned in the replies of the assessee company and same is also not examined by the then AO. Hence, taking proportionate ratio of consumption to sale of FY 2014-15, the revenue that should have been generated from Sale of Wine and Liquor in FY 2015-16 would have been at Rs. 2460.06 Lakhs. Thus, Sale of wine and liquor is shown less by Rs.529.94 Lakhs. However, this issue has not been examined in details by the then AO at the time of assessment proceedings. vi. As per the computation of Income, the assessee company has claimed deduction u/s 438 of the Income-tax Act, 1961 of

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earlier years amounting to Rs.34,67,86,614/-. However, the correctness of same appears to have not been verified by the then AO at the time of assessment proceedings. vii. In the computation of Income, the assessee company has first added amount charges to tax u/s 41(1) of Rs. 4,47,34,762/- and then claimed deduction of the same by stating Income from write-back of credit balance pertaining to 41 (1) cases. However, no query was raised for its verification. viii. In the computation of Income, the assessee company has deducted profit on sale of land treated under capital gain of Rs. 4,63,79,0271- whereas the same is not appearing in the P&L Account. This issue has not been examined by the then AO. ix. As per Annexure XVI of the Tax Audit Report-Payment of Rs.29,22,13,920/- has been made to Non Resident Indian u/s 195 of the Income-tax Act, 1961 on which TDS of Rs.3,05,59,077/- @ 10.45% has been deducted. However, the purpose for which this payment was made to NRI has not been called for and examined during the assessment proceedings. x. As per XIX of the Form 3CD-Turnover and Net Profit has been shown as Nil for current year as well as for preceding year thereby making the Tax Audit Report defective as per Section 139(9) of the Income-tax Act, 1961. xi. As per Form 3CD- Stamp value of Kolkata property is shown at Rs.130,90,91,035/- as against the sale consideration of Rs. 80,61,00,0001-. Further, as per reply dated 04.09.2018 - Form No. 26QB/26AS - TDS deducted is only at Rs.80,61,000/-. However, the AO did not verify whether TDS is deductible on Rs.130,90,91,035 or on Rs.80,61,00,000/-. In addition to the same, the cost price of the Kolkata property was Rs.63,24,17,825/- as per reply of the assessee company dated 01.10.2018. The cost of improvement at Rs.8,20,640/- and expense incurred in connection with transfer are Rs.12,64,82,507/-. However, the AO did not verify as to how

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the expenses of Rs.12,64,82,507/- (approx. 20% of cost price) can be incurred on such transfer.” 3. Further ld. PCIT observed that the reasons for selection of the case for scrutiny through CASS was not examined and order is passed in prima facie view, without making enquiries and verification which should have been made. By recording the above reasons, a notice u/s 263 of the Act was issued to the assessee vide letter dated 20.03.2021 and 24.03.2021 as to why provisions of section 263 of the Act should not be initiated. Accordingly, opportunity was granted. In reply, assessee has submitted that the issue on which the case was selected for scrutiny was examined by the AO during the assessment proceedings and assessee also submitted reply vide letter dated 04.09.2018 and further other issues were either explained during assessment proceedings were not asked for by the AO but can be easily explainable. After considering the above submissions, ld. PCIT observed that large increase in sundry creditors and reduction in business income as compared to preceding year, gross total income is less than the value of foreign remittances, large business loss set off against them other heads of income, large cash payments were made for credit card purchases and low income from TCS receipts. Ld. PCIT has discussed this aspect in his order and observed that the assessee has submitted cryptic reply and AO has accepted

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without making any enquiry in unusual circumstances as discussed in his order and came to the conclusion that the assessment order passed by the AO is without making required enquiries and verification. Accordingly, he invoked Explanation 2 to section 263 of the Act and the AO was directed to make fresh investment de novo in terms of the above observations in the order passed u/s 263 of the Act. 4. Aggrieved with the above order, assessee is in appeal before us raising following grounds of appeal :- “On the facts and in the circumstances of the case and in law, the learned Principal Commissioner of Income Tax, Delhi - 1 ['PCIT'] has erred in passing the order under section ('u/s') 263 of the Income Tax Act, 1961. ('Act'), setting aside the order passed by the learned Assistant Commissioner of Income Tax, Circle 3(2), Delhi (' AO') and directing him to make a fresh assessment de-novo. Each of the ground is referred to separately, which may kindly be considered independent of each other. 1. Ground No.1 1.1 On the facts and in circumstances of the case and in law, the learned PCIT has erred in passing the revision order in haste without giving fair and proper opportunity of being heard and without following the principles and rules of natural justice. 2. Ground No. 2 2.1 On the facts and in circumstances of the case and in law, the order passed by the learned PCIT under section 263

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of the Act setting aside the assessment framed under section 143(3) of the Act as erroneous and prejudicial to the interests of the revenue is bad in law and void-ab- initio. 2.2 On the facts and circumstances of the case and in law, the learned PCIT failed to appreciate that the Appellant has disclosed fully and truly all the material facts necessary for the assessment and that the original assessment was made by the then learned AO under section 143(3) of the Act after due and proper consideration of the same; 2.3 On the facts and in the circumstances of the case and in law, the learned PCIT erred in invoking jurisdiction under Section 263 and setting aside the Assessment Order under section 143(3) of the Act for reviewing and re-examining the facts, details, documents, evidences already examined by the learned AO, who had already made judgment based on the same and had passed the order of Assessment under section 143(3) of the Act.”

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response submitted by the assessee for various queries raised by the AO.

For the sake of clarity, the same is reproduced below :-

S.No. Issues Raised Comments of CIT Date of Notice in which Date of Response to issue was asked during the issue 143(3) 1 Large increase in This issue was raised Notice dt. 05.01.2018 Reply dt. 22.03.2018 Sundry creditors by the then A.O. (Pg.no.22, Query-17) and (Pg.no.31, Q.no.17) and reduction in during assessment Notice dt. 16.08.2018 Reply dt. 04.09.2018 business income as but genuineness and (Pg.no.24, CASS Reason – (Pg.no.35, Point-e) compared to creditworthiness of e), Reply dt. 29.10.2018 preceding year the sundry creditors (Pg.No.26, Query – 22) (Pg.no.51, Q.no.22) was not verified at And the time of Reply dt. 13.11.2018 assessment (Pg.no.56, Point proceedings. No no.1) proper examination was made to identify the veracity of showing large increase in sundry creditors. 2 Gross total income Issue was raised by Notice dt. 16.08.2018 Reply dt. 04.09.2018 is less than the the then A.O. (Pg.no.24, CASS Reason – (Pg.no.36, Point-f) value of foreign However, the aspect F and L) (Pg.no.37, Point-L) remittance sent of withholding of taxes and reporting of such remittance was not examined rendering the issue unverified. 3 Large business The correctness of Notice dt. 16.08.2018 Reply dt. 04.09.2018 loss set off against Assessee Company’s (Pg.no.24, CASS Reason – (Pg.no.36, Point-h) other heads of claim of income from h) and income capital gain and other (Pg.no.26, Query – 14) Reply dt. 15.10.2018 sources was not (Pg.no.43, Q.no.14) verified and examined properly during the course of assessment proceedings. 4 Large cash Information was not Notice dt. 16.08.2018 Reply dt. 04.09.2018 payments made for provided and the (Pg.no.24, CASS Reason– (Pg.no.37, Point-n) credit card assessment n) purchases (AIR proceedings were 002) concluded without examining this issue. 5 Low income from This issue has not Notice dt. 16.08.2018 Reply dt. 04.09.2018 TCS receipts – been examined in (Pg.no.24, CASS Reason – (Pg.no.36, Point-j) Liquor (TCS and details by the then j)

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profit in Part B- Assessing Officer at TI/Part A-P&L of the time of ITR) assessment proceedings. 6 Deduction u/s 43B Correctness not Notice dt. 16.08.2018 Reply dt. 01.10.2018 of the Income-tax verified by the then (Pg.no.24, Query – 5) (Pg.no.41, Act, 1961 of AO at the time of Q.no.5(c)) earlier years assessment and amounting to proceedings. Reply dt. 12.11.2018 Rs.34,67,86,614/- (Pg.no.52 - 53) 7 Deduction of No query was raised - - Income from for its verification. write-back of credit balance pertaining to 41(1) cases of Rs.4,47,34,762/- 8. Deducted profit on This issue has not Notice dt. 16.08.2018 Reply dt. 04.09.2018 sale of land treated been examined by the (Pg.no.24, CASS Reason – (Pg.no.35, Point-d) under capital gain then AO. d) and of (Pg.no.25, Query – 1) Reply dt. 01.10.2018 Rs.4,63,79,027/- (Pg.no.38, Q.no.1) whereas the same is not appearing in the P& L account. 9 Payments made to The purpose for Notice dt. 16.08.2018 Reply dt.04.09.2018 NRI of which this payment (Pg.no.24, CASS Reason – (Pg.no.36, Point-f) Rs.29,22,13,920/- was made to NRI has f and L) (Pg.no.37, Point-L) not been called for (Pg.no.26, Query - 21) Reply dt.29.10.2018 and examined during (Pg.no.48, Interest the assessment on Foreign Currency proceedings. Loan) And Reply dt. 21.11.2018 (Pg.no.58) 10 Reporting Net - Notice dt. 16.08.2018 Reply dt.04.09.2018 Profit as NIL in (Pg.no.24, CASS Reason – (Pg.no.36, Point-g) Form 3CD making g) TAR Defective 11 Stamp value of 1. The A.O. did not Notice dt. 16.08.2018 Reply dt.04.09.2018 Kolkata Property – verify whether TDS (Pg.no.24, CASS Reason – (Pg.no.35, Point-d) Rs.130,90,91,035/- is deductible on d) And whereas sale Rs.130,90,91,035/- or (Pg.no.25, Query - 1) Reply dt.01.10.2018 consideration is on Rs.80,61,00,000/- (Pg.no.38, Q.no.1) Rs.80,61,00,000/- (TDS deducted on Rs.80,61,00,000/-) Cost of Property – 2. The A.O. did not 63,24,17,825/- verify as to how the Cost of expenses of Improvement – Rs.12,64,82,507/- Rs.8,20,640/- approx. 20% of cost

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Transfer Expenses price) can be incurred – on such transfer. Rs.12,64,82,507/-

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reproduced and the AO has not verified all the issues which were necessary for selection of the case under CASS. Since AO has not verified as per the mandate, the order passed by the AO is falling within the ambit of Explanation 2 to section 263 of the Act and he relied on the findings of ld. PCIT. 8. Considered the rival submissions and material placed on record. We observed from the detailed submissions and chart submitted by the assessee that ld. PCIT has raised 11 issues which required verification, which the AO has failed to carry out. It is brought to our notice that the AO has issued several notices to the assessee on various dates on all the issues and assessee has submitted relevant information as called for. Based on the submissions made by the assessee, the AO completed the assessment and taken one of the possible views in all the issues for which assessment was initiated. However, ld. PCIT has reviewed the assessment order and according to ld. PCIT, the verification carried out by the AO is not justified and he should have properly verified. Accordingly, he has invoked the Explanation 2 to section 263 of the Act. It is also brought to our notice that as regards issue no.7, no doubt raised by ld. PCIT, however in order giving effect to the revision order, AO has not made any addition after due verification. On careful consideration, we observed that similar issue was came up in the case

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of Pr.CIT vs. Clix Finance India (P.) Ltd. (supra) and Hon’ble Delhi High Court considered the similar issue and adjudicated as under :- “20. Clause (a) of Explanation 2 to Section 263 of the Act further stipulates that if an order is passed without making an enquiry or verification which should have been made, the same would bestow a revisional power upon the Commissioner. However, the said Clause or any other condition laid down in Explanation 2 does not warrant recording of the said enquiry or verification in its entirety in the assessment order. 21. Admittedly, in the instant case, the questionnaire dated 02.11.2004, which has been annexed and brought on record in the present appeal, would manifest that the AO had asked for the allowability of the claims with respect to the issues in question. Consequently, the respondent-assessee duly furnished explanations thereof vide replies dated 09.12.2004, 20.12.2004 and 06.01.2005. Thus, it is not a case where no enquiry whatsoever has been conducted by the AO with respect to the claims under consideration. However, this leads us to an ancillary question whether the mandate of law for invoking the powers under Section 263 of the Act includes the cases where either an adequate enquiry has not been made and the same has not been recorded in the order of assessment or the said authority is circumscribed to only consider the cases where no enquiry has been conducted at all. 22. Reliance can be placed on the decision of this Court in the case of CIT v. Sunbeam Auto Ltd. [2009 SCC OnLine Del 4237], wherein, it was held that if the AO has not provided detailed reasons with respect to each and every item of deduction etc. in the assessment order, that by itself would not reflect a non-application of mind by the AO. It was further held that merely inadequacy of enquiry would not confer the power of revision under Section 263 of the Act on the Commissioner. The relevant paragraph of the said decision reads as under:- “17. We have considered the rival submissions of the counsel on the other side and have gone through the

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records. The first issue that arises for our consideration is about the exercise of power by the Commissioner of Income-tax under section 263 of the Income-tax Act. As noted above, the submission of learned counsel for the Revenue was that while passing the assessment order, the Assessing Officer did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order, which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the Assessing Officer had not applied his mind on the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between "lack of inquiry" and "inadequate inquiry". If there was any inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has a different opinion in the matter. It is only in cases of "lack of inquiry" that such a course of action would be open. In Gabriel India Ltd. (1993) 203 ITR 108 (Bom), law on this aspect was discussed in the following manner (page 113) ***” 23. A similar view was taken by this Court in the case of CIT v. Anil Kumar Sharma [2010 SCC OnLine Del 838], wherein, it was held that once it is inferred from the record of assessment that AO has applied its mind, the proceedings under Section 263 of the Act would fall in the category of Commissioner having a different opinion. Paragraph 8 of the said decision reads as under:-

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“8. In view of the above discussion, it is apparent that the Tribunal arrived at a conclusive finding that, though the assessment order does not patently indicate that the issue in question had been considered by the Assessing Officer, the record showed that the Assessing Officer had applied his mind. Once such application of mind is discernible from the record, the proceedings under section 263 would fall into the area of the Commissioner having a different opinion. We are of the view that the findings of facts arrived at by the Tribunal do not warrant interference of this court. That being the position, the present case would not be one of "lack of inquiry" and, even if the inquiry was termed inadequate, following the decision in Sunbeam Auto Ltd. (2011) 332 ITR 167 (Delhi) (page 180) : "that would not by itself give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has a different opinion in the matter." No substantial question of law arises for our consideration.” 24. In Ashish Rajpal as well, this Court was of the view that the fact that a query was raised during the course of scrutiny which was satisfactorily answered by the assessee but did not get reflected in the assessment order, would not by itself lead to a conclusion that there was no enquiry with respect to transactions carried out by the assessee. 25. Further, the decision of the Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd., enunciates the meaning and intent of the phrase “prejudicial to the interests of the Revenue”, in the following words:- “8. The phrase “prejudicial to the interests of the Revenue” is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The High Court of Calcutta in Dawjee Dadabhoy & Co. v. S.P. Jain [(1957) 31 ITR 872 (Cal)], the High Court of Karnataka in CIT v. T. Narayana Pai [(1975) 98 ITR 422 (Kant)], the High Court of Bombay in CIT v. Gabriel India Ltd.

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[(1993) 203 ITR 108 (Bom)] and the High Court of Gujarat in CIT v. Minalben S. Parikh [(1995) 215 ITR 81 (Guj)] treated loss of tax as prejudicial to the interests of the Revenue. 9. Mr. Abraham relied on the judgment of the Division Bench of the High Court of Madras in Venkatakrishna Rice Co. v. CIT [(1987) 163 ITR 129 (Mad)] interpreting “prejudicial to the interests of the Revenue”. The High Court held: “In this context, (it must) be regarded as involving a conception of acts or orders which are subversive of the administration of revenue. There must be some grievous error in the order passed by the Income Tax Officer, which might set a bad trend or pattern for similar assessments, which on a broad reckoning, the Commissioner might think to be prejudicial to the interests of Revenue Administration.” In our view this interpretation is too narrow to merit acceptance. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the Income Tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. 10. The phrase “prejudicial to the interests of the Revenue” has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the 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

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Income Tax Officer is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the Revenue. (See Rampyari Devi Saraogi v. CIT [(1968) 67 ITR 84 (SC)] and in Tara Devi Aggarwal v. CIT [(1973) 3 SCC 482 : 1973 SCC (Tax) 318 : (1973) 88 ITR 323].)” [Emphasis supplied] 26. Recently, the Hon’ble Supreme Court in the case of CIT v. Paville Projects (P) Ltd. [2023 SCC OnLine SC 371], while relying upon Malabar Industrial Co. Ltd., has discussed the sanctity of twofold conditions for the purpose of invoking jurisdiction under Section 263 of the Act. The relevant paragraph of the said decision reads as under:- “27. Learned counsel appearing on behalf of the assessee has heavily relied upon the decision of this Court in the case of Malabar Industrial Co. Ltd. (supra). It is true that in the said decision and on interpretation of Section 263 of the Income Tax Act, it is observed and held that in order to exercise the jurisdiction under Section 263(1) of the Income tax Act, the Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. It is further observed that if one of them is absent, recourse cannot be had to Section 263(1) of the Act. ***” 27. Considering the aforesaid judicial pronouncements, it can be safely concluded that inadequacy of enquiry by the AO with respect to certain claims would not in itself be a reason to invoke the powers enshrined in Section 263 of the Act. The Revenue in the instant case has not been able to make out a sufficient case that the CIT has exercised the power in accordance with law. Rather, in our considered opinion, the facts of the case do not indicate that the twin conditions

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contained in Section 263 of the Act are fulfilled in its letter and spirit.” 9. Respectfully following the above decision, we are inclined to observe that the AO has duly verified various issues raised by the ld. PCIT and he has taken one of the possible views. Now ld. PCIT has invoked Explanation 2 to section 263 of the Act with a view that AO has passed the order without making an enquiry or verification, is not justified as per various documents submitted before us. Respectfully following the above decision, we are inclined to set aside the order passed u/s 263 of the Act. Accordingly, grounds raised by the assessee are allowed. 10. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on this 26th day of November, 2024.

sd/- sd/- (SUDHIR PAREEK) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 26.11.2024 TS Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI