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Facts
The assessee's original income tax return was reopened under Section 148, and the assessment was completed. The PCIT initiated proceedings under Section 263, observing a discrepancy of 1940 MT in the closing stock as per the assessee's Form 3CD report, and set aside the assessment order for a fresh assessment.
Held
The ITAT noted that the Assessing Officer had conducted specific inquiries regarding stock details during the original assessment, and the assessee had provided explanations for the discrepancy, including a revised Form 3CD. The PCIT's order was based on a change of opinion without demonstrating a lack of inquiry or application of mind by the AO.
Key Issues
The key legal issues were whether the PCIT's order under Section 263 was valid when the AO had already conducted inquiries on the stock discrepancy, and if the discrepancy was merely a technical error due to the transition from VAT to GST reporting.
Sections Cited
Section 263, Section 148, Section 147, Section 144B, Section 142(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, RAIPUR BENCH, RAIPUR
Before: SHRI PARTHA SARATHI CHAUDHURY, JM & SHRI AVDHESH KUMAR MISHRA, AM
O R D E R
Per Avdhesh Kumar Mishra, AM:
This appeal for Assessment Year (‘AY’) 2018-19 filed by the assessee is directed against the order dated 24.03.2025 of the Principal Commissioner of Income Tax, Raipur-1 (‘PCIT’) passed under section 263 of the Income Tax Act, 1961 (‘Act’).
Initial grounds of appeal
raised by the assessee were substituted, vide letter dated 07.07.2025, with the following grounds:
1. In the facts and circumstances of the case and in law, the notice issued u/ s. 263 of the Income-tax Act, 1961 is arbitrary and issue without application of mind in so far as the learned Pr. Commissioner of Income- tax has worked out understated value of raw materials at Rs.
1 Jain Enterprises vs. Pr. CIT, Raipur-1 7,54,07,800/- by adopting average rate of Rs.38,870 /- per ton on the basis of purchases debited to Profit & Loss Account because the referred stock comprises various items like coke, H. B. wire, zinc ingot which are of different values independently.
2. In the facts and circumstances of the case and in law, the learned Pr. Commissioner of Income-tax. has erred in passing order u/s. 263 of the Income-tax Act, 1961 by observing that no enquiry on the issues or non- application of mind for reaching the conclusion and the order is erroneous and prejudicial to the interest of revenue, overlooking that specific enquiries were conducted through notice issued u/s.142(1) of the Act on 07/02/2023 and the assessment was completed after considering the assessee's reply filed in response thereto.
3. In the facts and circumstances of the case and in law, the learned Pr. Commissioner of Income-tax has erred in passing order u/s. 263 of the Income-tax Act, 1961 and in setting aside assessment order dated 27/03/2023 passed u/s. 147 r.w.s. 144B of the Act and issuing directions to reframe the assessment denovo.
4. The impugned order is bad in law and on facts as it was passed without fulfilling conditions stipulated under the Act.
The appellant reserves the right to addition, after or omit all or any of the grounds of appeal in the interest of justice.”
The relevant facts giving rise to this appeal is that the assessee filed its original Income Tax Return (‘ITR’) on 24.10.2018 declaring income of Rs.1,31,70,740/-. Later, the case was reopened under section 148 of the Act and the consequential reopened assessment was completed at income of Rs.3,49,09,323/- vide order dated 27.03.2023 passed under section 147 r.w.s. 144B of the Act. Aggrieved with the reopened assessment order passed under section 147 r.w.s. 144B of the Act, the assessee filed appeal before the Ld. Commissioner of Income Tax (Appeals)
2 Jain Enterprises vs. Pr. CIT, Raipur-1 [‘CIT(A)’]. Meanwhile, the reopened assessment order dated 27.03.2023 was revised under section 263 of the Act by the Ld. PCIT, who set aside the reopened assessment order passed under section 147 r.w.s. 144B of the Act and directed the Ld. AO to make afresh assessment as under: “8. Considering the above legal provisions of the Act and the factual position of this case as emanating from the assessment order and case records as well as the judicial precedents as discussed above, the undersigned is of the considered opinion that the assessment order is erroneous in so far as it is prejudicial to the interests of revenue in view of Section 263 of the Income tax Act. Thus, the assessment order is held to be erroneous in so far as it is prejudicial to the interests of revenue. The said assessment order is hereby set-aside to the file of the AO with a direction to pass a fresh assessment order in a speaking manner after making all necessary enquiries required and after providing due and adequate opportunity of being heard to the assessee and after considering all the submissions, etc. made and counter-reply submitted by the assessee in a fair and judicious manner.”
3.1 The Ld. PCIT, noticing the shortage of 1940 MT in closing stock as evident from the Form 3CD report of the assessee, show-caused the appellant assessee to explain the said discrepancy in the stock. In response to the show-cause notice issued under section 263 of the Act; the assessee questioned not only the legality of reopened assessment but also the proceedings initiated under section 263 of the Act. The assessee, during the proceedings under section 263 of the Act, claimed that the proceedings under section 263 of the Act were unjustified as the issue of reopening of assessment was subjudiced before the Ld. CIT(A). The assessee; therefore, requested the Ld. PCIT to drop the proceedings initiated under section 263 of the Act 3 Jain Enterprises vs. Pr. CIT, Raipur-1 on this technical reason. In support of its claim, the assessee placed reliance on various decisions in the cases of Maruti Clean Coal Power Ltd. 2010 (10) TMI 1215 ITAT Raipur, Anil Nachrani 2024 (2) TMI 745 ITAT Raipur, Westlife Development Ltd. (2017) 88 Taxmann.com 439, Hari Mohan Das Tandon (HUF) 91 Taxmann.com 199 and Escort Farms Pvt. Ltd. 180 ITR 280. But the Ld. PCIT proceeded with the revision proceedings as the issue raised in the notice under section 263 of the Act was not a matter of dispute before the Ld. CIT(A).
3.2 During the proceedings under section 263 of the Act, the assessee submitted that the anomaly in the quantitative details of the Coke took place due to error/mistake crept in the reporting in Form No. 3CD. It was further submitted by the assessee that it was required to incorporate all quantitative stock details as per the new GST law which was effective from 01.07.2017 (relevant year). During the proceedings under section 263 of the Act, the attention of the Ld. PCIT was drawn to the fact that certain HSN Codes of Coke were amalgamated into one in the new GST regime from many in the old VAT regime. It was specifically submitted that the Coke earlier categorised under the head Coke-30 & Coke-90 separately was required to be shown under the head “Coke” in different HSN Code. Since there was change in the reporting of stock in the new tax regime of GST; therefore, the assessee transferred all the quantitative details of stock in the prescribed format of GST. In case of merger of categories of stock in one HSN Code; there was no column to report the stock falling under two heads into one in the Tally Accounting System on which the assessee was maintaining its books of account. Therefore, such stock got entered into the 4 Jain Enterprises vs. Pr. CIT, Raipur-1 prescribed format of GST through consumption and production without having any actual consumption and production. This transition of tax regime from VAT to GST resulted anomaly in the stock reporting. It was thus, submitted that the said stock, which was nothing but transfer of the stock shown under consumption and production resulted anomaly of 1940 MT. To explain the admitted anomaly in reporting quantitative details in Form 3CD, the assessee filed a revised/corrected Annexure-I of Clause 35(b) of the audit report in Form 3CD before the Ld. PCIT explaining the details thereof during the proceedings under section 263 of the Act. The relevant part of the revised/corrected Annexure-I (Page 51-53 of the Paper Book-I) is reproduced herein:
5 Jain Enterprises vs. Pr. CIT, Raipur-1 6 Jain Enterprises vs. Pr. CIT, Raipur-1 3.3 It was specifically admitted before the Ld. PCIT that this revised/corrected Annexure-I (Page 51-53 of the Paper Book-I) was not filed before the Ld. AO. Further, the assessee, vide its reply filed before the Ld. PCIT (Page 5 and 6 of the Paper Book-I) admitted as under:
“19. However, while filling relevant columns of Form 3CD, relevant particulars required to be submitted by assessee and endorsed by Auditor, the Assessee has inadvertently once again incorporated the quantitative details stock transfer of Coke-30 and Coke-00 disremembering that said transfer details were already incorporated in the Stock Register through Tally accounting. Since the figure of 1995.069 MT was incorporated both in the inward (production) and outward (consumption) columns, the figure of 1995.069 MT has got enhanced on both sides without any actual purchase/consumption or sales/ production. The figure is merely superfluous and redundant as it was already incorporated in the stock register, the closing figure from which were taken as per practice. To explain the inadvertency, the figures shown in Form 3CD are bifurcated as under: Particulars Op Purchases Consumption Sales Closing Stock Stock Actual Stock of 691 12088 32 10215 2532 total coke as per stock register Quantity of stock - 1995 1963 32 - transfer inadvertently repeated while filling Form 3CD Total Quantity 691 14083 1995 10247 2532 reflected in Form 3CD after 7 Jain Enterprises vs. Pr. CIT, Raipur-1 repetition of transfer figures.
Thus, there is no actual difference, as pointed out in the notice Admittedly, the Ld. Assessing Officer had called for all the details especially the complete stock register, GST/VAT returns only for examining this discrepancy and as per assessee's humble understanding he had examined the redundant nature of the figures and preferred not to draw any adverse inference. Therefore, this apparent error and not rendering separate findings on this issue in the assessment order itself cannot be treated as lack of enquiry or inadequate verification as observed in the notice. It is a factual error without any effect on the book results. Nevertheless, the assessee had requested the Auditor to endorse corrected Annexure "I" on Clause 35(b) of Form 3CD by resubmitting along with related working. The same as certified by the Auditor is submitted herewith as ANNEXURE-4 with prayer that same may be substituted to Annexure-1 of the Audit Report already submitted.”
3.4 The assessee, during the course of proceedings under section 263 of the Act, also challenged the proposed valuation of stock by applying average price rather than the actual cost/market price being lesser. The assessee questioned the proposed applicability of the average price for valuation of raw material by submitting that it would result distorted valuation of the stock as Banana and Apple could not be valued at the same average price. He prayed for applicability of actual price for each category of raw material. 3.5 Further, the assessee questioned the revisionary proceedings under section 263 of the Act that the Ld. AO had already applied his mind on the quantitative details of consumption as he had already asked for the relevant details. After analysing the quantitative details and other documents furnished in response to notice u/s 142(1) of the Act, the Ld. AO did not find anything adverse, hence he did not draw any 8 Jain Enterprises vs. Pr. CIT, Raipur-1 adverse inference thereon. Accordingly, the assessee, before the Ld. PCIT, questioned the revisionary proceedings initiated under section 263 of the Act as it was a case of change of opinion only. The assessee placed reliance on decisions in the cases of Anil Kumar Sharma 2010 SCC Online Del 838, Clix Finance India Pvt. Ltd. (SC) and Sunbeam Auto Ltd 2009 SCC Online Del 4237 3.6 The Ld. PCIT was not satisfied with the explanation of the assessee; therefore, he set aside the reopened assessment passed under section 147 r.w.s. 144B of the Act and remanded the issue of 1940 MT of closing stock to the Ld. AO with specific directions.
Before us, Shri S. R. Rao, Ld. Counsel representing the assessee, drew our attention to the notice issued under section 142(1) of the Act, wherein the Ld. AO had called various details (page no. 98-99 of the PB Volume-I). He emphasized on the question no. 10,11 & 14 of the notice issued under section 142(1) of the Act on 07.02.2023, which read as under: “10. Complete item-wise detailed daily stock register for the F.Y. under consideration duly supported with the relevant supporting documents.
Furnish month-wise details of opening stock, purchase, sales and closing stock of different material - Indicate quantity and value.
14. Copy of the VAT/GST (Whichever applicable) return monthly, quarterly as well as annual return filed along-with all annexures where complete details of party- wise sales and purchases are reported to the VAT Department during the year under consideration.” 5. Further, the Ld. Counsel drew our attention to the reply given by the assessee and referred para 08, 10, 14 at page no. 105, 108 & 109 of the PB Volume- 9 Jain Enterprises vs. Pr. CIT, Raipur-1 I. Further, the Ld. Counsel placed emphasized on the quantitative details filed before the Ld. AO (page 110 of the PB). He submitted that the Ld. AO had verified the stock register which was produced before him along with the above details and found nothing adverse. Hence, the AO did not point to the said anomaly which had been pointed out by the Ld. PCIT in the impugned order. Thus, the Ld. Counsel questioned the order passed under section 263 of the Act on reasoning that it was a case of change of opinion. He placed reliance on the following decision: 1. Malabar Industrial Co. Ltd. (2000) 243 ITR 83 (SC) 2. Mahavir Ashok Enterprises Pvt Ltd. [2024] 167 taxman.com 396 (Chhattisgarh) 3. CIT Vs. Arvind Jewellers (2003) 259 ITR 502 (Guj)
The Ld. Counsel reiterated the submissions/contentions/arguments filed/ taken before the Ld. PCIT. His contentions/arguments were confined on the issues of (i) validity of reassessment (ii) applicability of average price for valuation of the closing stock (iii) non-appreciation of the transfer of quantitative details from VAT regime to GST regime and the hardship faced by the assessee during the course of transaction phase [VAT to GST].
On the other hand, Shri Ram Tiwari, Ld. CIT-DR defended the impugned order by reiterating the details mentioned therein. The Ld. CIT-DR contended that the reopened assessment order passed under section 147 rws 144B of the Act was pending for adjudication before the Ld. CIT(A); therefore, raising the validity of the reopened assessment order here was premature as the appeal against the said reopened assessment order was not the subject matter of appeal here. That 10 Jain Enterprises vs. Pr. CIT, Raipur-1 proceedings were different. The Ld. CIT-DR also submitted that the order passed under section 147 rws 144B of the Act was not held as non-est/invalid on or before the impugned order; therefore, the legality of reopened assessment could not be questioned at this stage. The Ld. CIT-DR further submitted that the Ld. AO did not complete the assessment after proper investigations as emerged from the notice issued under section 263 of the Act; therefore, the Ld. PCIT was legally competent and bound to hold the order erroneous and prejudicial to the interest of revenue as the Ld. AO required to examine all aspects of the ITR after reopening of the case, under legal obligation, had failed to examine the issue of stock highlighted by the Ld. PCIT in the order under section 263 of the Act; therefore, the reopened assessment order passed under section 147 rws 144B of the Act was rightly held erroneous and prejudicial to the interest of revenue to the extent of issue raised in the show cause notice issued under section 263 of the Act. To buttress his contentions, the Ld. CIT- DR placed emphasis on explanation-2(d) of section 263 of the Act and submitted that an assessment order passed without making the requisite inquiries or verifications should be deemed to be erroneous and prejudicial to the interest of revenue. It was categorically submitted by the Ld. CIT-DR that since the AO had failed to make requisite inquiries/verifications which he should have done; therefore, the impugned order of the Ld. PCIT required to be upheld. He prayed for dismissal of the appeal.
8. The Ld. CIT-DR, after explaining the entire facts, submitted that the Ld. AO did not make any enquiry regarding the issue highlighted by the Ld. Pr. CIT. Therefore, in terms of Explanation 2 inserted in section 263 of the Act, the 11 Jain Enterprises vs. Pr. CIT, Raipur-1 assessment order had to be deemed to be erroneous insofar as prejudicial to the Revenue, contended the Ld. CIT-DR. He relied on the case laws mentioned in the impugned order.
We have heard both parties and have perused the material available on the record. We perused the show-cause notice issued by the Ld. PCIT and the assessee’s reply to the said show-cause notice.
10. As far as the issue of maintainability of the impugned order on the argument that the revised reassessment order by the Ld. PCIT is not valid is concerned, it is worth mentioning that the reopening of this case has been done within four years from the end of the relevant AY. Thus, the law contained in proviso to section 147 of the Act will not apply whereby ascribing of failure on part of the assessee by the AO is sine-qua-non to acquire the jurisdiction beyond the period of 4 years. It is nowhere borne out from the record that the Ld. AO has properly verified the issue raised by the Ld. PCIT in the impugned order. Before us, the Ld. Counsel contended that the Ld. AO had enquired the issue raised in the show-cause notice under section 263 of the Act and thereafter the Ld. AO did not draw any adverse inference. However, there is no whisper about any enquiry or verification done by the Ld. AO in this regard. There is no categorical justification mentioned on accepting the said anomaly in the stock. This shows completely lack of application of mind on the part of the Ld. AO. The AO, after having reopened the case under section 147 of the Act, was required to carry out detailed enquiry and verification, not only on the reasons for reopening the case but also on other issues emerged during the reopened assessment 12 Jain Enterprises vs. Pr. CIT, Raipur-1 proceedings. However, the reopened assessment order passed under section 147 rws 144B of the Act is found lacking in carrying out any enquiry or verification on the issue raised in the show-cause notice under section 263 of the Act.
11. The contention raised by the Ld. Counsel is that the reassessment order passed under section 147 rws 144B of the Act is not a valid order, therefore, the same cannot be revised under section 263 of the Act. Against the reassessment order, the appellant assessee has filed appeal before the CIT(A). From perusal of the order passed under section 147 rws 144B of the Act, it is evident that the Ld. AO did not carry out any enquiry/investigation/verification in respect of the issue raised by the Ld. PCIT. However, keeping in view the decisions in cases of Mehak Finvest P. Ltd. 367 ITR 769 (P & H) [SLP filed against this decision has been dismissed by the Hon’ble Supreme Court], N. Govind Raju 60 taxmann.com 333 (Kar) and Majinder Singh Kang 25 Taxmann.com124 (P & H), we are of the considered view that the AO is legally competent to travel beyond the issues for which the assessment has been reopened under section 148 of the Act. The reopened assessment order dated 27.03.2023 passed under section 147 rws 144B of the Act has not been held non-est or invalid by the Hon’ble High Court and any appellate authority as of now. The appeal against the reopened assessment order dated 27.03.2023 is pending before the Ld. CIT(A). We therefore, are refraining to comment thereon. Considering the facts in entirety and above discussions, we are of the considered view that when the Ld. AO has failed to carry out requisite inquiry and verification on the issue raised by the Ld. PCIT, the reassessment order dated 27.03.2023 passed under section 147 rws 144B of the Act in the case in hand has become erroneous and prejudicial to the interest 13 Jain Enterprises vs. Pr. CIT, Raipur-1 of the Revenue. The case laws relied upon by the Ld. Counsel are held distinguishable on the facts and not relevant for the case in hand. Building of a case by emphasizing part of the decisions and observations therein is not justified when the facts of the said decision has not been appreciated in entirety.
The relevant part of the section 263 of the Act is extracted hereunder: - “Explanation 2. — For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner, —
(a) the order is passed without making inquiries or verification which should have been made;
(b) the order is passed allowing any relief without inquiring into the claim;
(c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.”
From perusal of the reassessment order, it is not discernible that whether the Ld. AO has carried out the requisite inquiries or verification which should have been made as there is no mention of the issue in the reassessment order as far as the anomaly in stock pointed out by the Ld. PCIT is concerned. Non filing of the revised/corrected Annexure-I (Page 51-53 of the Paper Book-I) before the Ld. AO buttresses the inference that this issue was not examined/investigated/verified by the Ld. AO. The show-cause notice issued under section 263 of the Act by the Ld. PCIT 14 Jain Enterprises vs. Pr. CIT, Raipur-1 clearly shows that the Ld. AO has not carried out the requisite inquiries or verification on the issue raised by the Ld. PCIT, which should have been made. From perusal of the reassessment order dated 27.03.2023, it is not evident that the Ld. AO has gone through various details, documents, etc. furnished by the assessee during the reassessment proceedings and carried out any enquiry/investigation/verification, which should have been made before concluding the reassessment.
The Hon'ble Supreme Court, in the case of Paville Project Pvt. Ltd. in Civil Appeal No. 6126 of 2021 order dated 06.04.2023 has held that the scheme of the Income Tax is to levy and collect tax in accordance with the provisions of the Act which 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. The Court upon perusing the assessment order and the order passed by the Commissioner of Income Tax and relying upon Malabar Industries Company Ltd. (2000) 2 SCC 718 has held that the order passed by the AO is erroneous as well as prejudicial to the interest of the Revenue. The relevant part of the order of the Hon’ble Supreme Court in the case of Paville Project Pvt. Ltd. reads as under:
“7. In the present case, the Commissioner, in exercise of the powers under Section 263 of the Income Tax Act and in exercise of the revisional jurisdiction, set aside the assessment order by specifically observing that the assessment order was erroneous as well as prejudicial to the interest of the Revenue. However, the High Court by the impugned judgment and order has 15 Jain Enterprises vs. Pr. CIT, Raipur-1 set aside the order passed by the Commissioner by observing that the Commissioner wrongly invoked the powers under Section 263 of the Act.
7.1 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. “What can be said to be prejudicial to the interest of the Revenue” has been dealt with and considered in paragraphs 8 to 10 in the case of Malabar Industrial Co. Ltd. (supra), which are as under:-
“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. [(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 16 Jain Enterprises vs. Pr. CIT, Raipur-1 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.
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 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] .)”
7.2 Thus, even as observed in paragraph 9 by this Court in the case of Malabar Industrial Co. Ltd. (supra) that 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. It is further observed that if due to an erroneous order of the Income Tax Officer, the Revenue is losing tax lawfully payable by a person, it will 17 Jain Enterprises vs. Pr. CIT, Raipur-1 certainly be prejudicial to the interests of the Revenue. However, only in a case where two views are possible and the Assessing Officer has adopted one view, such a decision, which might be plausible and it has resulted in loss of Revenue, such an order is not revisable under Section 263. 7.3 Applying the law laid down by this Court in the case of Malabar Industrial Co. Ltd. (supra) to the facts of the case on hand and even as observed by the Commissioner, the order passed by the Assessing Officer is erroneous as well as prejudicial to the interest of the Revenue. Having gone through the assessment order as well as the order passed by the Commissioner of Income Tax, we are also of the opinion that the assessment order was not only erroneous but prejudicial to the interest of the Revenue also. In the facts and circumstances of the case, it cannot be said that the Commissioner exercised the jurisdiction under Section 263 not vested in it. The erroneous assessment order has resulted into loss of the Revenue in the form of tax.
Under the Circumstances and in the facts and circumstances of the case narrated hereinabove, the High Court has committed a very serious error in setting aside the order passed by the Commissioner passed in exercise of powers under Section 263 of the Income Tax Act.
In view of the above and for the reasons stated above, present appeal succeeds. The impugned judgment and order passed by the High Court is hereby quashed and set aside and that the order passed by the Commissioner passed in exercise of powers under Section 263 of the Income Tax Act is hereby restored.”
The Ld. PCIT has amply demonstrated in his order that the issue under reference was not properly enquired/investigated/verified by the Ld. AO. The anomaly in stock of 1940 MT pointed out by the Ld. PCIT is due to change in indirect tax regime, i.e. VAT to GST, which entail the assessee to transfer stock from VAT to 18 Jain Enterprises vs. Pr. CIT, Raipur-1 GST under new & different HSN Code. The admission of the assessee during the proceedings under section 263 of the Act that the anomaly in the quantitative details of the Coke has taken place due to error/mistake crept in the reporting in Form No. 3CD clearly pin-points that the Ld. AO has not examined the quantitative details of stock to arrive the anomaly in stock pointed out by the Ld. PCIT. This inference also gets support from the fact that the assessee has filed for first time a revised/corrected Annexure-I of Clause 35(b) of the audit report in Form 3CD along with explanation thereof for the anomaly in stock before the Ld. PCIT explaining the anomaly in stock during the proceedings under section 263 of the Act. Had the Ld. AO examined properly, this revised format along with justification in anomaly in stock should have been filed before him also. Calling details and not examined it in right perspective will invites revisionary proceedings under section 263 of the Act [Paville Project Pvt. Ltd. (SC) (supra)]. Undisputedly, there is a change in reporting of stock in the new tax regime of GST from VAT; therefore, the assessee is bound to bring all quantitative details of stock in the prescribed format of GST. In case of merger of categories of Coke in one HSN Code; the claim of the assessee that there is no column to report the stock falling under two different HSN Codes into one in the Tally Accounting System on which the assessee has maintained its books of account; therefore, such stock has been entered into the prescribed format of GST through consumption and production without having any actual consumption and production, has not been examined/ investigated/verified by the Ld. AO by calling the details from the GST Department to ascertain the truth that the above mentioned anomaly in stock of 1940 MT. has taken place due to bonafide error in reporting or there has been actual 19 Jain Enterprises vs. Pr. CIT, Raipur-1 consumption and production on which input credit of GST has been taken in case of consumption and GST has been paid on production.
Explanation 2(a) to section 263 of the Act, in an unambiguous manner states that where the order is passed without making enquiries or verification which should have been made, the same shall be deemed to be erroneous and in so far as it is prejudicial to interest of revenue. Applying the law laid down by the Hon’ble Supreme Court in the case of Paville Project Pvt. Ltd. (supra) to the facts of the present case mentioned in the impugned order and keeping in vie the above observations, we hold that the Ld. PCIT has rightly exercised his jurisdiction under section 263 of the Act in setting aside the assessment order of the Ld. AO being erroneous in so far it is prejudicial to the interest of the Revenue. Accordingly, we uphold the order of the Ld. PCIT and dismiss the appeal of the assessee.
In the result, appeal of the assessee is dismissed as above.
Order pronounced in the open court on 11/02/2026. (PARTHA SARATHI CHAUDHURY) (AVDHESH KUMAR MISHRA) "ाियक सद" / JUDICIAL MEMBER लेखा सद" / ACCOUNTANT MEMBER रायपुर / Raipur; िदनांक Dated 11/02/2026 HKS, PS & Vaibhav Shrivastav, Stenographer आदेशकी "ितिलिप अ"ेिषत / Copy of the Order forwarded to : 1. अपीलाथ"/ The Appellant- Jain Enterprises, Bhilai 20 Jain Enterprises vs. Pr. CIT, Raipur-1