SIMBHAOLI POWER PVT LTD,NEW DELHI vs. PR. CIT GHAZIABAD, NEW DELHI

records carefully perused. Relevant documentary evidence brought on

record duly considered in light of Rule 18(6) of the ITAT Rules.

A.Y 2014-15 was framed u/s 143(3) of the Act vide order dated

22.12.2016. Assuming jurisdiction conferred upon him by provisions of

section 263 of the Act, the PCIT issued show cause notice to the

assessee which reads as under:

PCIT with supporting documentary evidences which were considered by

the PCIT and the PCIT finally completed the proceedings by observing

as under:

“10. It is not necessary for the Commissioner to make further enquiries before cancelling the assessment order of the AO. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the AO. should have made

assessee in its' return. The reasons are obvious. Unlike the Civil Court which is neutral to give decision on the basis of evidence produced before it. an A.O. is not only an adjudicator but is also an investigator. He cannot remain passive in the face of a return which is apparent in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the cases are such as to provoke inquiry. The meaning to be given to the word "erroneous" in section 263 of the I.T. Act. 1961, emerges out of this context. The word "erroneous" in that section includes cases where there has been a failure to make the necessary inquiries (Gee Vee Enterprises Vs. Addl. CIT (1975) 99 IYT375, 386(Oel.).

Ouggal and Company Vs. CIT,(1996) 220 ITR 456, 459 (Del.) CIT Vs. Pushpa Oevi (1987) 1641TR 639 (Pat.) Swaroop Vegetable Products Industries Ltd., Vs. CIT (All.) 1871TR 412

CIT Vs. Smt. Rambha Oevi (1987) 1641TR 658 (Pat.) CIT Vs. Bela Nisa (1988) 1711TR 643 (Pat.) CIT Vs. Smt. Kaushalya Oevi (1988) 1711TR 686 (Pat.) CfT Vs. United Commercial Bank (1993) 201 ITR 162 (Gal.) Jubilant Organosys Vs. CIT (2004) 2651TR 4201137 Taxman 515 (All.) . Malabar Industrial Co. Ltd. Vs. CIT (2000) 109 Taxman 6612431TR 83 (SC) CIT Vs. McMilon and Company (SC) 33 ITR 182 Lajjawati Singhal Vs. CIT (All.) 226 ITR 527

and the conclusions of the PCIT. All that we have to see is whether

the Assessing Officer has made proper enquiry for the impugned issues

as mentioned by the PCIT in his notice/order.

assessment proceedings for A.Y 2014-15 is dated 02.11.2016 and the

same reads as under:

under consideration. The assessee filed a detailed reply vide reply

dated 23.11.2016 and specific mention to questions 5 and 6 is as

under:

“Para 5 - The share was valued on the basis of discounted cash

flow method. The copy of share valuation is attached for your

reference.

Para 6 - This was the second year of the company and

the company having only two share holders are Joint Venture

Partner in this company. The shares were issued to Joint Venture

Partner on the basis of Business Transfer Agreements. The value

of share was decided on the basis of Discount Cash Flow method

under the provisions of Income-tax Act.”

the Assessing Officer which reads as under:

crystal clear that specific queries were raised by the Assessing Officer

during the course of assessment proceedings to which specific replies

were furnished by the assessee. Therefore, it cannot be said that the

Assessing Officer did not make any enquiry.

shows that the Assessing Officer has made enquiries in respect of

security premium and had sought explanation for working of intrinsic

value of shares issued at premium and also sought clarification from

the assessee that since it is incurring losses, then how overseas

companies are consistently purchasing shares at high premium.

Assessing Officer has made enquiry in respect of capital gains. In the

light of the afore-stated facts the Hon'ble Supreme Court in Malabar

Industrial Co. Ltd., 243 ITR 83, has laid down the following ratio:

"A bare reading of section 263 of the Income-tax Act, 1961, makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. 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. If one of them is absent--if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue-- recourse cannot be had to section 263(1) of the Act. The provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order 7 is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous ".

203 ITR 108 has held as under:

“The power of suo motu revision under subsection (1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise power of revision under this sub-section, viz., (i) the order is erroneous; (ii) by virtue of the order being erroneous prejudice has been caused to the interests of the Revenue. It has, therefore, to be considered firstly as to when an order can be said to be erroneous. We find that the expressions "erroneous", "erroneous assessment" and "erroneous judgment" have been defined in Black's Law Dictionary. According to the definition, "erroneous" means "involving error; deviating from the law". "Erroneous assessment" refers to an assessment that deviates from the law and is, therefore, invalid, and is a defect that is jurisdictional in its nature, and does not refer to the judgment of the Assessing Officer in fixing the amount of valuation of the property. Similarly, "erroneous judgment" means "one rendered according to course and 8 practice of court, but contrary to law, upon mistaken view of law; or upon erroneous application of legal principles".

been written more elaborately This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order unless the decision is held to be erroneous. Cases may be visualised where the Income-tax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not 9 feel satisfied with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interests of the Revenue. But that by itself will not be enough to vest the Commissioner with the power of suo motu revision because the first requirement, viz., that the order is erroneous, is absent. Similarly, if an order is erroneous but not prejudicial to the interests of the Revenue, then also the power of suo motu revision cannot be exercised. Any and every erroneous order cannot be the subject-matter of revision because the second requirement also must be fulfilled. There must be some prima facie material on record to show that tax which was lawfully exigible has

not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed. We, therefore, hold that in order to exercise power under sub-section (1) of section 263 of the Act there must be material before the Commissioner to consider that the order passed by the Income-tax Officer was erroneous in so far as it is prejudicial to the interests of the Revenue. We have already held what is erroneous. It must be an order which is not in accordance with the law or which has been passed by the Income-tax Officer without making any enquiry in undue haste. We have also held as to what is prejudicial to the interests of the Revenue. An order can be said to be prejudicial to the interests of the Revenue if it is not in accordance with the law in consequence whereof the lawful revenue due to the State has not been realised or cannot be realised. There must be material available on the 10 record called for by the Commissioner to satisfy him prima facie that the aforesaid two requisites are present. If not, he has no authority to initiate proceedings for revision. Exercise of power of suo motu revision under such circumstances will amount to arbitrary exercise of power. It is well-settled that when exercise of statutory power is dependent upon the existence of certain objective facts, the authority before exercising such power must have materials on record to satisfy it in that regard. If the action of the authority is challenged before the court it would be open to the courts to examine whether the relevant objective factors were available from the records called for and examined by such authority. The Income-tax Officer in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given detailed explanation in that regard by a letter

in writing. All these are part of the record of the case. Evidently, the claim was allowed by the Income-tax Officer on being satisfied with the explanation of the assessee. Such decision of the Income tax Officer cannot be held to be "erroneous" simply because in his order he did not make an elaborate discussion in that regard. Moreover, in the instant case, the Commissioner himself, even after initiating proceedings for revision and hearing the assessee, could not say that the allowance of the claim of the assessee was erroneous and that the expenditure was not revenue expenditure but an expenditure of capital nature. He simply asked the Income- 11 tax Officer to re- examine the matter. That, in our opinion, is not permissible. Hence the provisions of section 263 of the Act were not applicable to the instant case and, therefore, the commissioner was not justified in setting aside the assessment order.”

be exercised by the Commissioner on satisfaction of twin conditions,

i.e., the assessment order should be erroneous and prejudicial to the

interest of the Revenue. By 'erroneous' is meant contrary to law. 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 interest of the Revenue. Thus, where there are two

possible views and the Assessing Officer has taken one of the possible

views, no action to exercise powers of revision can arise, nor can

revisional power be exercised for directing a fuller enquiry to find out

if the view taken is erroneous. This power of revision can be exercised

only where no enquiry, as required under the law, is done. It is not

open to enquire in case of inadequate inquiry. Our view is fortified by

the 12 decision of Hon'ble High Court of Bombay in the case of CIT vs.

Nirav Modi, [2016] 71 Taxmann.com 272 (Bombay)".

Chemical Works Ltd. 309 ITR 67 has observed as under:

“if assessment order were to incorporate the reasons for upholding the claim made by an assessee, the result would be an epitome and not an assessment order. In this case, during the assessment proceedings for both the Assessment Years, the Assessing . A.Y. 2009-10 Officer issued a query memo to the assessee, calling upon him to justify the genuineness of the gifts. The Respondent Assessee responded to the same by giving evidence of the communications received from his father and his sister i.e. the donors of the gifts along with the statement of their Bank accounts. On perusal, the Assessing Officer was satisfied about the creditworthiness/capacity of the donors, the source from where these funds have come and also the creditworthiness/ capacity of the donor. Once the Assessing Officer was satisfied with regard to the same, there was no further requirement on the part of the Assessing Officer to disclose his satisfaction in the Assessment Order passed thereon. Thus, this objection on the part of the Revenue cannot be accepted.”

Sunbeam Auto reported in 332 ITR 167 has held as held as under:

“12. We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the CIT under s. 263 of the IT Act. As noted above, the submission of learned counsel for the Revenue was that while passing the assessment order, the AO 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 AO had not applied his mind on the issue. There are judgments galore laying down the principle that the AO in the assessing 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 14 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 CIT to pass orders under s. 263 of the Act, merely because he has different opinion in the matter. It is only in cases of "lack of inquiry" that such a course of action would be open”.

from a different angle. It is an undisputed fact that the assessee is

subsidiary of listed company, which means that the assessee is a

subsidiary of a company in which public are substantially interested.

Therefore, provisions of section 56(2)(vii)(b) do not apply to the

assessee. Therefore, all the apprehensions raised by the PCIT for

assuming jurisdiction u/s 263 of the Act are futile and without any

backing of any provisions of the Act.

from existing two share holders cannot be brushed aside lightly as the

question of identity, capacity and genuineness of the transaction

cannot be questioned.

even if a subsidiary of a listed company cannot be considered as a

deemed private limited company because the shares were not allotted

unconditionally. This is nothing but a blatant remark of the PCIT

without there being any demonstrative material evidence brought on

record. Surprisingly, such observations are absent in A.Y 2015-16.

of judicial decisions discussed hereinabove, we do not find any error or

infirmity in the assessment order which could make it erroneous and

prejudicial to the interest of the Revenue. Therefore, we set aside the

order of the PCIT and restore that of the Assessing Officer dated

22.12.2016 and 22.12.2017. We order accordingly.

4620/DEL/2019 and ITA No. 505/DEL/2021aren allowed.

The order is pronounced in the open court on 05.01.2024.

Sd/- Sd/-

[YOGESH KUMAR U.S] [N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT MEMBER

Dated: 05th JANURARY, 2024

VL/