THE PR. COMMISSIONER OF INCOME-TAX vs. M/S. TE CONNECTIVITY INDIA PVT. LTD.,

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 5TH DAY OF JUNE, 2025 PRESENT THE HON'BLE MR V KAMESWAR RAO, ACTING CHIEF JUSTICE AND THE HON'BLE MR JUSTICE S RACHAIAH

ITA NO. 53 OF 2024

BETWEEN:

1 . THE PR. COMMISSIONER OF INCOME-TAX, 5TH FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA, BENGALURU - 560 095.

2 . THE PR. COMMISSIONER OF INCOME TAX-2, PRESENT ADDRESS, DCIT, CIRCLE-7(1)(1), 2ND FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA, BENGALURU - 560 095. ...APPELLANTS

(BY SRI. SUSHAL TIWARI N, ADVOCATE)

AND:

M/S. TE CONNECTIVITY INDIA PVT. LTD., TE PARK, 22B, DODDENAKUNDI CORPORATION, 2ND PHASE, INDUSTRIAL AREA, WHITEFIELD ROAD, BENGALURU - 560 048. PAN: AABCT7474C …RESPONDENT

(BY SRI. K. SURYANARAYANA, SENIOR ADVOCATE FOR SMT. TANMAYEE RAJKUMAR, ADVOCATE)

THIS ITA IS FILED UNDER SECTION 260A OF THE INCOME TAX ACT, 1961 PRAYING TO ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME TAX APPELLATE

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TRIBUNAL, BENGALURU IN IT(TP)A NO.738/BANG/2022 DATED 14.06.2023 FOR THE ASSESSMENT YEAR 2015-2016, ETC.

THIS APPEAL HAVING BEEN HEARD AND RESERVED FOR JUDGMENT ON 10.12.2024, COMING ON FOR PRONOUNCEMENT OF JUDGMENT THIS DAY, ACTING CHIEF JUSTICE, DELIVERED THE FOLLOWING:

CORAM: HON'BLE MR V KAMESWAR RAO, ACTING CHIEF JUSTICE AND HON'BLE MR JUSTICE S RACHAIAH

CAV JUDGMENT (PER: THE HON'BLE MR V KAMESWAR RAO, ACTING CHIEF JUSTICE)

The present income tax appeal has been filed by the Principal Commissioner of Income Tax, Bengaluru (‘PCIT’ for short) challenging the order dated 14.06.2023 passed by the Income Tax Appellate Tribunal, “B” Bench, Bengaluru (‘Tribunal’ for short) in IT(TP)A No. 738/Bang/2022, whereby the Tribunal has allowed the appeal filed by the respondent herein challenging the order dated 30.03.2022 passed by the PCIT under Section 263 of the Income Tax Act, 1961 (‘the Act’ for short).

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arrestors, etc. For the assessment year 2015-16, the return of income was filed on 30.11.2015 declaring total income of Rs.7,35,02,720/-. The assessment was selected for complete scrutiny and notice under Section 143(2) of the Act was served on the assessee on 27.06.2016. A draft assessment order (‘DAO’ for short) under Section 143(3) read with Section 144C(13) of the Act was passed on 18.12.2018. Aggrieved by the DAO, the respondent-assessee filed objections to the same. The objections were disposed of, pursuant to which, the Assessing Officer passed the final assessment order dated 25.10.2019. Subsequently, the appellant-PCIT initiated proceedings under Section 263 of the Act on 19.03.2022 seeking to revise the final assessment order dated 25.10.2019. The appellant-PCIT was of the view that, the Assessing Officer has not disallowed the commission payments to the agents, since the said payments were made without deducting tax at source. Further, PCIT was of the view that Assessing Officer ought to have taken note of a similar disallowance made

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in assessment years 2013-14 and 2014-15. The assessee filed reply to the show-cause notice issued under Section 263 of the Act on 23.03.2022. The objections of the assessee were rejected and the order dated 30.03.2022 was passed. The Tribunal has in paragraphs No.10 to 12 of the impugned order, stated as under: “10. From the above show cause notices issued by the AO and the replies submitted by the assessee, it is clear that the AO has examined the impugned transaction in detail during the course of assessment proceedings for the year under consideration. The assessee, during the course of assessment proceedings, had also admittedly placed on record the distribution agreement and the debit notes. From this, the only inference that can be drawn is that AO has taken a conscious decision in not making the disallowance under section 40(a)(ia) of the Act. Therefore, the PCIT's reasoning that the AO has not examined the issue in accordance with law and has not conducted necessary enquiries, is incorrect. Since the AO has taken a plausible view, the said Assessment Order cannot be subjected to revision under section 263 of the Act. In this context, we rely on the judgment of the Hon'ble Apex Court in the case of Max India Ltd., (supra).

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assumed the revisional jurisdiction. The assessee has filed all the details before the Assessing Officer and Assessing Officer has accepted the contention of the assessee that no expenditure is attributable to the exempt income during the relevant Assessment Year. Thus, while recording the aforesaid finding, the Assessing Officer has taken one of the plausible views in allowing the claim of the assessee and therefore, the Commissioner of Income-tax could not have set aside the order of assessment merely on the ground of inadequacy of enquiry, the order passed by the Commissioner of Income-tax is not sustainable in law and the same has rightly been set aside by the Tribunal."

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passed under section 263 of the Act, for the relevant Assessment Year. For the aforesaid reasoning and the judicial pronouncements cited supra, we quash the impugned revisionary order since the AO has taken a plausible view and had not made disallowance of impugned expenditure under section 40(a)(ia) of the Act. We make it clear that we have not considered the issue on merits i.e., whether the impugned expenditure is commission payments or discounts. It is ordered accordingly.”

Submissions: 3. The submissions of learned counsel for the appellant-Revenue are primarily that, the Tribunal has failed to note that the PCIT vide the order passed by it, has observed that an amount of Rs.36,34,10,000/- debited towards commission on sales of profit and loss account without TDS was not disallowed under Section 40(a)(ia) of the Act in the assessment order. Failure to do so has resulted in the short computation of income. Accordingly, the assessment order was considered to be erroneous and prejudicial to the interest of the Revenue in terms of Section 263 of the Act. It is also his submission that, the Tribunal has failed to note that the

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PCIT has also noted that the assessee has not filed necessary evidence to substantiate its claim and TDS was required to be deducted on Rs.36,34,10,000/- debited to profit and loss account. Since the assessee did not deduct TDS on this sum, the disallowance should have been made in terms of Section 40(a)(ia). He also stated that, the Tribunal has failed to note that, a similar disallowance was made in the assessment years 2013-14 and 2014-15. Moreover, it is not a case where one of the legally plausible views has been taken. In support of his submissions, he has relied upon the following judgments: i. Judgment of the Delhi High Court in the case of Commissioner of Income-tax -Vs.- Ashok Logani [(2011) 11 taxmann.com 208 (Delhi)]; ii. Judgment of Punjab and Haryana High Court in the case of Principal Commissioner of Income-tax, Ludhiana -Vs.- Venus Woollen Mills, Ludhiana [(2019) 105 taxmann.com 287 (Punjab & Haryana)]. 4. On the other hand, Sri. K.Suryanarayana, learned Senior Counsel for the respondent-assessee

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would submit that, the respondent is a company engaged in the manufacture and sale of transmission line hardware and accessories. For the assessment year 2015-16, the return of income was filed declaring a total income of Rs.7,35,02,720/-. The assessment was selected for complete scrutiny, and a notice under Section 143(2) of the Act was served on the respondent. Initially, a draft assessment order under Section 143(3) read with Section 144C(13) of the Act was passed on 18.12.2018. The respondent filed objections to the draft assessment order before the Dispute Resolution Panel ('DRP' for short) and pursuant to the directions of the DRP dated 27.09.2021, the Assessing Officer passed the final assessment order under Section 143(3) read with Section 144C(13) of the Act on 25.10.2019. Subsequently, the PCIT issued a notice under Section 263 of the Act seeking to revise the final assessment order dated 25.10.2019 and rejecting the objections of the respondent, passed the revisionary order dated 30.03.2022 (Annexure E) holding that the assessment

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order was erroneous inasmuch as it was prejudicial to the interests of the Revenue. The PCIT held that the respondent had debited Rs.36,34,10,000/- towards commission on sales on which tax had not been deducted at source and consequently that a disallowance under section 40(a)(ia) of the Act ought to have been made. Aggrieved by the order passed under Section 263 of the Act, the respondent filed an appeal before the Tribunal. The Tribunal, in its order dated 14.06.2023, set aside the order passed by the PCIT holding that the jurisdiction under section 263 had not been properly exercised. It was held that the Assessing Officer had, during the course of the assessment proceeding, duly conducted enquires and examined the alleged commission payments in detail and had taken a plausible view that the same tax deduction at source was not required. Following the decision of this Court in CIT -Vs.- Chemsworth Pvt. Ltd [(2020) 119 taxmann.com 358 (Karnataka)), the Tribunal held that although the order of assessment had not discussed the issue, the

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record evidenced examination of the issue and therefore, it was a case where there was application of mind to the issue concerned by the Assessing Officer. The Tribunal also noted that for the subsequent assessment years 2016-17, 2017-18 and 2018-19 too, no disallowance under Section 40(a)(ia) of the Act was made. 5. He also stated, the exercise of jurisdiction by the PCIT purported to be under Section 263 of the Act is totally untenable, as such, a jurisdiction is only available when the assessment order is both erroneous and prejudicial to the interests of the Revenue. According to him, in terms of the Explanation 2(a) to Section 263 of the Act, an order is deemed to be erroneous insofar as it is prejudicial to the interests of the Revenue if the order is passed without making enquiries which should have been made. Therefore, where an order is passed after making enquiries, the same cannot be said to be erroneous insofar as it is prejudicial to the interests of the Revenue simply because the view taken by the Assessing Officer is not acceptable to the PCIT. In

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support of his submissions, he has relied upon the following judgments: i. Malabar Industrial. Co. Ltd. -Vs.- CIT [(2000) 109 Taxman 66 (SC)]; ii. CIT -Vs.- Gabriel India Ltd. [(1993) 71 Taxman 585 (Bombay)]; iii. CIT -Vs.- Sunbeam Auto Ltd. [(2010) 189 Taxman 436 (Delhi)]; iv. Globus Infocom Ltd. -Vs.- CIT [(2014) 50 taxmann.com 100 (Delhi)]; v. CIT -Vs.- Cyber Park Development and Construction Ltd. [(2020) 122 taxmann.com 82 (Karnataka)];

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stated that, another notice dated 12.12.2018 was issued. The respondent again vide letter dated 17.12.2018, explained Section 194H was not applicable. Thus according to him, the Assessing Officer had made elaborate enquiries on the issue of tax deduction at source under Section 194H and had agreed with the respondent that no tax deduction at source was required. He stated, it is settled position that where the record indicates elaborate enquiries being made and application of mind by the Assessing Officer to the query concerned, it is to be deemed that the Assessing Officer accepted the contentions of the assessee, although elaborate discussions may not find place in the assessment order. In support of his submissions, he has relied upon the following judgments: i. Hari Iron Trading Co. -Vs.- CIT [(2003) 131 Taxman 535 (Punjab & Haryana)]; ii. CIT -Vs.- Ashish Rajpal [(2009) 180 Taxman 623 (Delhi)]; iii. CIT -Vs.- Saravana Developers [(2016) 68 taxmann.com 148 (Karnataka)];

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iv. CIT and anr. -Vs.- Sun Microsystems India Pvt. Ltd. (Order dated 06.04.2015 passed by this Court in ITA No. 203/2009); v. CIT -Vs.- Chemsworth Pvt. Ltd. [(2020) 119 taxmann.com 358 (Karnataka)]; vi. ACIT -Vs.- Marico Ltd. [(2020) 117 taxmann.com 244 (SC)]; vii. JCIT -Vs.- Cognizant Technology Solutions India (P.) Ltd. [(2023) 146 taxmann.com 197 (SC)].

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him, the issue stands covered by this Court’s decision in the case of CIT -Vs.- Acer India (P) Ltd. [(2023) 156 taxmann.com 664 (Kar)]. According to him, the Revenue’s SLP before the Hon’ble Supreme Court against the said judgment has been dismissed. He also relied upon the following judgments: i. Bharti Cellular Ltd. -Vs.- CIT [(2024) 160 taxmann.com 12 (SC)]; ii. Bharti Airtel Ltd. -Vs.- DCIT [(2014) 52 taxmann.com 31 (Karnataka)] (affirmed by the Hon'ble Supreme Court in Bharti Cellular (supra); iii. CIT -Vs.- JDS Apparels Pvt. Ltd. [(2015) 53 taxmann.com 139 (Del)].

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Officer in the respondent’s own case for the assessment year 2012-13, accepted the position. For the assessment year 2012-13, upon the Tribunal affirming the directions of the DRP remanding the matter to the Assessing Officer for reconsideration of the issue, the Assessing Officer passed an order dated 10.05.2024 giving effect to the Tribunal’s order, wherein he recorded a finding that the sales undertaken by the respondent are on a principal to principal basis and therefore the discount given to the distributors does not warrant withholding of tax under the provisions of Section 194H of the Act. He also stated, in the previous and subsequent years i.e., assessment years 2016-17, 2017-18 and 2018-19, no disallowance was made under Section 40(a)(ia) for identical expenses. In fact he has also stated, for the assessment year 2012-13, the Assessing Officer has rendered a finding that the payments do not require tax deduction at source. He has relied upon the judgment of the Hon’ble Supreme Court in the case of Radhasoami Satsang -Vs.- CIT [(1992) 193 ITR 321 (SC)],

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wherein it is held that, a fundamental aspect permeating through different assessment years has been found as a fact one way or the other and the parties have allowed that position to be sustained by not challenging the order, it would not be appropriate to allow the position to be changed. On the submission that, if the view is a plausible view, then the said view cannot be disturbed, the counsel has relied upon the following judgments: i. CIT -Vs.- Max India Ltd. [(2008) 166 Taxman 188 (SC)]; ii. CIT -Vs.- Chemsworth Pvt Ltd [(2020) 119 taxmann.com 358 (Karnataka)].

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passed by the Commissioner of Income-tax, which in the case of the respondent expired on 31.03.2023. Since an order giving effect cannot be passed, given that the same is barred by limitation, the present appeal is rendered academic. 10. He stated, in the light of the above submissions, the order of the Tribunal ought to be upheld, and it is therefore submitted that the Revenue's appeal be dismissed by answering the question raised in favour of the respondent and against the Revenue. Analysis:

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transaction in detail during the course of assessment proceedings, for more than one reason: i. Merely because notices have been issued and replies submitted shall not show/depict the Assessing Officer has examined the transaction. ii. Even otherwise, when there is no finding in the DAO/assessment order, it is not clear what were the relevant considerations which weighed with the Assessing Officer to agree with the stand of the respondent. iii. It can be said, in the absence of the finding on the transaction, the Assessing Officer has not examined the same. iv. In the absence of express finding, it cannot be said the view of the Assessing Officer is a plausible view.

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IT Act was completed on 25.10.2019 determining the taxable income at Rs.97,97,75,711/- after making addition for TP adjustment of Rs.82,25,37,671/- and Depreciation on Goodwill on Slump Sale of Rs 11,26,05,318/-. 2. It has been observed that the amount of Rs.36,34,10,000/- towards commission on Sales debited by the assessee to P & L account without TDS, was not disallowed u/s 40(a)(ia) in the assessment order. Failure to do so has resulted in short computation of income of Rs. 10,90,23,000/- (@30% of Rs.36,34,10,000/-) with a consequent tax effect of Rs.5,74,38,221/-, 3. In view of these facts, the assessment order was considered to be erroneous and prejudicial to the interests of revenue in terms of Sec. 263. It was therefore proposed to pass an order u/s. 263 in this case. A show cause notice was issued on 19.03.2022 giving the assessee an opportunity of filing its submissions. In response, the assessee has filed reply dated 22.3.2022. 4. The submissions filed by the assessee have been carefully considered. The assessee's claim that this issue was considered by the AO during asstt. proceedings, is not acceptable considering the facts discussed above, particularly as the assessee has not filed necessary evidence along with its above reply, to substantiate these claims. Considering the facts, it is clear that TDS was required to be done on

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Rs.36,34,10,000/- debited by the assessee to the P & L account towards commission on sales. As the assessee did not do TDS on this amount, the AO should have disallowed this amount u/s 40(a)(ia). The AO has not made this disallowance even though a similar disallowance has been made in AY 13-14 and AY 14-15. The AO has erroneously not made the disallowance in the asstt. order. Not making this disallowance is contrary to law. 5. This is not a case where the Assessing Officer has taken one of the legally plausible views. Not making the above disallowance is legally untenable. Moreover, the Hon'ble Supreme Court (Constitution Bench) have recently in the case of Dilip Kumar and Co. held that- (1) Exemption notification should be interpreted strictly; the burden of proving applicability would be on the assessee to show that his case comes within the parameters of the exemption clause or exemption notification. (2) When there is ambiguity in exemption notification which is subject to strict interpretation, the benefit of such ambiguity cannot be claimed by the subject/assessee and it must be interpreted in favour of the revenue. (3) The ratio in Sun Export Corporation, Bombay v. Collector of Customs Bombay ( 1997) 6 SCC 564 is not correct and all the decisions which took

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similar view as in Sun Export Case stands overruled.

In view of the above, the interpretation based on Sun Export (supra) that if two views on an issue are possible, the one favourable to the assessee has to be preferred is no longer good law. The argument that the Assessing Officer has taken one of the plausible views and therefore, the Assessment Order cannot be revised u/s. 263 is therefore, not acceptable. Moreover, this is not a case where the Assessing Officer has taken one of the legally plausible views. In this case, the Assessing Officer has erroneously not made the disallowance and this is clearly contrary to law. 6. In view of the above discussion, the assessee's reply cannot be accepted. 7. In Cochin International Airport Ltd. (92 taxmann.com 277), the Hon'ble ITAT Cochin have explained the provisions of section 263 and observed as follows: 7.1 In order to ascertain whether an order sought to be revised under Section 263 is erroneous, it should be seen whether it suffers from any of the aforesaid forms of error. In our view, an order sought to be revised under Section 263 would be erroneous and fall in the aforesaid category of "errors" if it is, inter alia, based on an incorrect assumption of facts or an incorrect

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application of law or non-application of mind to something which was obvious and required application of mind or based on no or insufficient materials so as to affect the merits of the case and thereby cause prejudice to the interest of the revenue. 7.2 Section 263 of the Income-tax Act seeks to remove the prejudice caused to the revenue by the erroneous order passed by the Assessing Officer. It empowers the Commissioner to initiate suo moto proceedings either where the Assessing Officer takes a wrong decision without considering the materials available on record or he takes a decision without making an enquiry into the matters, where such inquiry was prima facie warranted. The Commissioner will be well within his powers to regard an order as erroneous on the ground that in the circumstances of the case, the Assessing Officer should have made further inquiries before accepting the claim made by the assessee in his return. The reason is obvious. Unlike the Civil Court which is neutral in giving a decision on the basis of evidence produced before it, the role of an Assessing Officer under the Income-tax Act is not only that of an adjudicator but also of an investigator. He cannot remain passive in the face of a claim, which is apparently in order but calls for further enquiry. He must discharge both the roles effectively. In other words, he must carry out investigation where the facts of the case so require and also decide the matter judiciously on the basis of materials collected by him as also those produced by the assessee before him. The scheme of

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assessment has undergone radical changes in recent years. It deserves to be noted that the present assessment was made under Section 143(3) of the Income-tax Act. In other words, the Assessing Officer was statutorily required to make the assessment under Section 143(3) after scrutiny and not in a summary manner as contemplated by Sub-section (1) of Section 143. Bulk of the returns filed by the assessees across the country is accepted by the Department under Section 143(1) without any scrutiny. Only a few cases are picked up for scrutiny. The Assessing Officer is therefore, required to act fairly while accepting or rejecting the claim of the assessee in cases of scrutiny assessments. He should be fair not only to the assessee but also to the Public Exchequer. The Assessing Officer has got to protect, on one hand, the interest of the assessee in the sense that he is not subjected to any amount of tax in excess of what is legitimately due from him, and on the other hand, he has a duty to protect the interests of the revenue and to see that no one dodged the revenue and escaped without paying the legitimate tax. The Assessing Officer is not expected to put blinkers on his eyes and mechanically accept what the assessee claims before him. It is his duty to ascertain the truth of the facts stated and the genuineness of the claims made in the return when the circumstances of the case are such as to provoke inquiry. Arbitrariness in either accepting or rejecting the claim has no place. The order passed by the Assessing Officer becomes

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erroneous because an enquiry has not been made or genuineness of the claim has not been examined where the inquiries ought to have been made and the genuineness of the claim ought to have been examined and not because there is anything wrong with his order if all the facts stated or claim made therein are assumed to be correct. The Commissioner may consider an order of the Assessing Officer to be erroneous not only when it contains some apparent error of reasoning or of law or of fact on the face of it but also when it is a stereo-typed order which simply accepts what the assessee has stated in his return and fails to make enquiries or examine the genuineness of the claim which are called for in the circumstances of the case. In taking the aforesaid view, we are supported by the decisions of the Hon'ble Supreme Court in Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84, Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC), and Malabar Industrial Co. Ltd.'s case (supra)."

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failure to do so has resulted in short computation of income of Rs. 10,90,23,000/- (@30% of Rs.36,34,10,000/-) with a consequent tax effect of Rs.5,74,38,22/-. This has resulted in Loss to revenue. Considering these facts, the assessment order is erroneous and prejudicial to the interests of Revenue in terms of section 263. 9. This view is supported by the following judicial decisions: 1. Malabar Industrial Co. Ltd [2000] 243 ITR 83 (SC) 2. Daniel Merchants P. Ltd. 2017- TIOL-455- SC-IT 3. Rajmandir Estates P Ltd. (2017) 245 Taxman 127 (SC) 4. Ashok Logani (2012) 347 ITR 22 (Delhi) 5. Gee Vee Enterprises (1975) 99 ITR 375 (Delhi) 6. Vedanta Ltd. (2021) 279 Taxman 358 (Bom) 7. V. K. Bharathi (2019) 102 taxmann.com 255 (Kar) 8. Rajalakshmi Mills Ltd. v. ITO (2009) 121 ITD 343 (Chennai) (SB) 9. Lokesh M. (2021) 187 ITD 342 (Bang)

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accordance with law, after considering the above. The AO shall examine the issues discussed above and conduct necessary inquiries in accordance with law and CBDT guidelines. The AO shall consider disallowance u/s 40(a)(ia) on the transactions discussed above. He shall give the assessee an opportunity to furnish necessary evidence to establish his claim and explain why the proposed additions be not made to income. The AO shall consider the facts, and the results of any enquiries made, as well as the explanation furnished by the assessee, and make a fresh assessment in accordance with law.”

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the appellants in the case of Ashok Logani (supra), wherein the Division Bench of the Delhi High Court has, in paragraphs No.9 to 12, held as under: “9. Admittedly, there is no discussion about the same in the orders of the Assessing Officer which in fact is even taken note of by the Tribunal as well. However, according to the Tribunal, as per the order- sheet in respect of hearings held by the Assessing Officer, on August 24, 2005, the Assessing Officer had asked the assessee to explain the cash found during the course of search. Notings also reveal that the statement of the assessee was recorded on oath on May 27, 2005, on which date, he had explained that there was cash in hand in the books of M/s. In- Style Export of Rs.18,17,202 and in the books of In- Style Export Pvt. Ltd. of Rs. 18,78,518. The total of these two comes to Rs. 36,95,720. Out of the total cash found in the course of search of Rs. 62,30,300, if cash of these two concerns are excluded, the remaining cash is only Rs. 25,34,580 out of which, the assessee had included Rs. 21 lakhs on this account in the return of income filed by him for the assessment year 2004-05 and, hence, the remaining amount is only Rs. 4,34,580 was explained by the assessee as cash as per his own books. On this basis, the Tribunal concluded that the Assessing Officer had examined the claim and accepted the

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claim of the assessee after verifying the books of account. 10. No doubt, the order-sheet shows that the Assessing Officer had asked the assessee to explain the cash found. However, whether the Assessing Officer had, in fact, gone into the issue and accepted the claim of the assessee or not is not discernible from the assessment order. No doubt, the Assessing Officer is not supposed to write the orders in detail in the same manner as a judicial officer is supposed to write the judgments. At the same time, it cannot be ignored that huge cash of Rs. 62,30,300 was found at the time of search and on that date, the assessee had surrendered a sum of Rs. 61.30 lakhs and offered the same for tax. However, in his Income-tax return, the assessee had offered a sum of Rs. 21 lakhs only against the surrendered amount of Rs. 61.30 lakhs at the time of search. In such a scenario, there should have been at least a brief discussion recording a satisfaction on the explanation offered by the assessee. We are constrained to make this observation because of two very important features, which we note in this case. These are: First, keeping cash of Rs. 62.30 lakhs, part of which belongs to his sole proprietorship firm, but another part to a private limited company of which he is the director, at residence, may raise certain doubts. Though in his letter dated January 7, 2004, he had stated that he had kept the cash at his

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residence in safe custody, however, this aspect needed to be properly examined. Secondly, before the Tribunal, the assessee had given an explanation that cash in hands in the books of account of M/s. In-Style Export was Rs. 18,17,202 and in the books of In-Style Export Pvt. Ltd. was Rs. 18,78,518. The balance amount of Rs. 4,34,580, excluding Rs. 21 lakhs surrendered was explained by the assessee "as cash as per his own books". Curiously, the explanation furnished before the Assessing Officer, as recorded by the Commissioner of Income-tax in reply to the show- cause notice was altogether different. In his reply dated May 18, 2005, the assessee had explained as under:

Rs. “(i) M/s. In-Style Exports 17,00,000 (ii) M/s. In-Style Exports Pvt. Ltd. 18,00,000 (iii) Shri Ashok Logani (Pers. Account) 4,00,000 (iv) Smt. Mala Logani (Pers. Account) 2,30,000

41,30,000

The balance cash of Rs. 21 lakhs was declared as income for the year ending March 31, 2004, relevant to the assessment year 2004-05. The assessee had also furnished the copies of the balance-sheet, cash book, bank statements, wealth- tax return, etc., to substantiate the cash balance of these entities. Regarding the statement recorded at

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the time of search it was submitted that the books of account of the proprietorship concern and the company were not readily available with the assessee and, therefore, the precise source of cash found during search could not be explained." This may give an impression that it may be an afterthought on the part of the assessee to explain the cash. 11. Under these circumstances, the Assessing Officer was required to go into this issue in a proper perspective and could not be perfunctory in his approach. The Assessing Officer in the assessment order did not discuss the statement recorded at the time of search. No doubt, as per the assessee, this statement was retracted. In a case like this, it was necessary for the Assessing Officer to at least reflect that the retraction was proper. Another factor which we have highlighted is that the entire cash belonging to two firms was found at the residence. 12. In the aforesaid circumstances, the Commissioner of Income-tax held the view that the matter was not examined by the Assessing Officer. We are of the opinion that it was a reasonably fit case for exercising revisionary jurisdiction under section 263 of the Act. After all, the Commissioner of Income-tax gave another chance to the assessee to explain the source of cash.” (Emphasis supplied)

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If that be so it must be held, exercise of jurisdiction under Section 263 of the Act by the appellant-PCIT herein is justified. 16. Insofar as the reliance placed by the learned Senior Counsel for the respondent on the judgment in the case of Malabar Industrial. Co. Ltd. (supra), more specifically paragraphs No.5 to 7 is concerned, these paragraphs have to be read in conjunction with paragraph No.9, wherein the Hon’ble Supreme Court has held as under: “5. To consider the first contention, it will be apt to quote Section 263(1) which is relevant for our purpose: “263. Revision of orders prejudicial to Revenue.—(1) 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 insofar 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

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assessment and directing a fresh assessment. Explanation.—***”

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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. [(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. xx xx xx xx xx 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 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

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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] .)”

We have already held that in the facts of this case when there is no express view of the Assessing Officer, surely it cannot be said that the same is a plausible view. Hence, the said judgment is clearly distinguishable. 17. Similarly the judgments in the cases of Gabriel India Ltd. (supra), Sunbeam Auto Ltd. (supra), Globus Infocom Ltd. (supra) and Cyber Park Development and Construction Ltd. (supra) on which reliance is placed are clearly distinguishable on facts and in view of our finding above. 18. Insofar as the plea of learned Senior Counsel for the respondent that, the Assessing Officer having accepted the contentions of the assessee although elaborate discussions may not have find place in the assessment order, the order of the Assessing Officer is

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justified is concerned, the same is also not appealing. This we say so for the reason that there is no discussion at all. In the absence of any discussion, to say that the Assessing Officer has accepted the contention of the assessee, cannot be accepted. In support of this submission, reliance placed by the learned Senior Counsel for the respondent on the judgments in the cases of Hari Iron Trading Co. (supra), Ashish Rajpal (supra), Saravana Developers (supra), Sun Microsystems India Pvt. Ltd. (supra), Chemsworth Pvt. Ltd. (supra), Marico Ltd. (supra) and Cognizant Technology Solutions India (P.) Ltd. (supra) are concerned, the same are distinguishable on facts. 19. We also note that, the Senior Counsel for the respondent has made submissions on the merit of the issue to say that the conclusion drawn by the PCIT in the order under Section 263 of the Act that a disallowance under Section 40(a)(ia) of the Act ought to be made is incorrect and erroneous is concerned, we find that the Tribunal has decided the appeal and set aside the order

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of PCIT only on the ground that the Assessing Officer has examined the impugned transaction in-detail during the course of the assessment, without going into the merits of the case. So, we are of the view that, the Tribunal need to examine the issue on merits. We accordingly set aside the impugned order passed by the Tribunal and remand the matter back to the Tribunal for consideration of the appeal filed by the respondent herein on merits in accordance with law. All the contentions of the parties on merits are kept open. We accordingly dispose of the appeal as allowed. No costs. Sd/- (V KAMESWAR RAO) ACTING CHIEF JUSTICE

Sd/- (S RACHAIAH) JUDGE