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Income Tax Appellate Tribunal, SURAT BENCH, SURAT
Before: SHRI PAWAN SINGH, JM & DR. A. L. SAINI, AM
आदेश / O R D E R PER DR. A. L. SAINI, AM: By way of this appeal, the assessee has challenged the correctness of the order passed by the Learned Principal Commissioner of Income Tax, Valsad [in short ‘the Ld. PCIT’], dated 10.03.2023, under section 263 of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’] for the Assessment Year (AY) 2018-19.
The grounds of appeal
raised by the assessee are as follows: “1. On the facts and in circumstances of the case as well as law on the subject, the learned Pr. CIT has erred in passing the order u/s 263, although the assessment order passed u/s. 143(3) r.w.s. 143(3A) & 143(3B) of the I.T. Act, 1961 was neither erroneous nor prejudicial to the interest of the revenue.
2. On the facts and circumstances of the case as well as law on the subject, the learned Pr. CIT has erred in holding that amount of Rs.3,10,98,776/- is disallowable u/s. 80IA r.w. Rule 18BBE of the IT Rules.
/AY.2017-18 Manish Packaging Pvt. Ltd.
3. It is therefore prayed that above order passed by Pr. CIT u/s 263 may please be quashed.
4. Appellate craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal.”
The facts of the case which can be stated quite shortly are as follows: Before us, the assessee is a Private Limited company and filed its return of income for assessment year (A.Y.) 2018-19 on 25/09/2018, declaring total income at Rs.15,69,53,860/-. The assessee`s case was selected for Complete Scrutiny under E- Assessrnent Scheme 2019, to verify the issues of (i) Duty Drawback and (ii) Deduction Claimed for industrial Undertaking under section 80IA / 80IAB / 80IAC /IB / IC/ IBA / 80ID / 80IE / 10A / 10AA of the Act. The Scrutiny assessment under section 143(3) r.w.s. 143(3A) & 143(3B) of the Act, 1961 was completed on 04.03.2021 at assessed income of Rs.15,93,16,342/-.
Later on, Learned Principal Commissioner of Income Tax, Valsad [in short ‘the Ld. PCIT’], has exercised his jurisdiction under section 263 of the Income Tax Act, 1961. On verification of the records, it was observed by ld PCIT that the assessee has claimed deduction of Rs.3,10,98,776/-, u/s 80IA of the Act, in respect of income generated from six wind mills. As per the Rule 18BBB of the Income Tax Rules, the eligible entity is liable to file separate report for each of the undertaking or enterprise claiming deduction u/s 801 or 801A or 80IB or 80IC, accompanied by the Profit and Loss account and Balance Sheet of the undertaking or enterprise, as if each undertaking or enterprise were a distinct entity. The ld PCIT quoted the provisions of Rule 18BBB of the Income Tax Rules, 1962, which are reproduced as under:
/AY.2017-18 Manish Packaging Pvt. Ltd. “18BBB-Form of audit report for claiming deduction under section 80-I or section 80-IC 18BBB.(1) The report of the audit of the accounts of an assessee, which is required to be furnished under sub-section (7) of section 80-IA or sub- section (7) of section 80-I, except in the cases of multiplex theatres as defined in sub-section (7A) of section 80IB or convention centers as defined in sub-section (7B) of section 80-IB [or areas as defined in sub- section (11B) of section 80-IC], shall be in Form No.10CCB. (2) A separate report is to be furnished by each undertaking or enterprise assessee claiming deduction under section 80-I or 80-IA or 80-IB [or 80- IC] and shall be accompanied by the Profit and Loss Account and Balance Sheet of the enterprise as if the undertaking or the enterprise were a distinct entity. (3) In the case of an enterprise carrying on the business of developing or operating and maintaining or developing, operating and maintaining an infrastructure facility,, the form shall he accompanied by a copy of the agreement of the enterprise with the Central Government or the State Government or the local authority for carrying on the business of developing or operating and maintaining or developing, operating and infrastructure facility. (4) In any other case, the form shall be accompanied by an approval or permission, as the case may be, to carry on the activity signed or issued by the Central Government or the State Government or the local authority for carrying on the eligible business.”
In the light of the above Rule 18BBB of the Rules, the ld. PCIT observed that during the assessment proceedings, vide notice u/s 142(1) of the Act dated 16.11.2020, the assessee was requested to justify the large deduction claimed u/s 80IA, as compared turnover with supporting cogent documents. With respect to the deduction claimed u/s 801A, the assessee was categorically requested to submit the Profit & Loss account, Balance sheet & Tax audit report for the year under consideration. In compliance with the show cause notice, the assessee vide reply dated 27.11.2020 furnished form 10CCB with respect to all the six wind mill units and requested twice for adjournments for further submission, which were given to the assessee. On 04.12.2020, the assessee furnished agreement copy for 3 /AY.2017-18 Manish Packaging Pvt. Ltd. transfer of wind power supply with Gujarat energy Transmission Corporation Ltd. In spite of availing ample opportunities of being heard, the assessee failed to furnish separate balance sheets for each of the six wind mills, which is required for availing deduction u/s 80IA of the Act as per Rule 18BBB(2) of the I.T. Rules, 1962. The Assessing Officer has allowed deduction of Rs.3,10,98,776/- u/s 80IA, despite the fact that the assesses has failed to submit separate balance sheets in respect of each of the six mills, thereby not fulfilling the condition laid down in Rule 188BBB of the Income Tax Rules for claiming deduction u/s 80IA of the Act. Thus, the action of the Assessing Officer and the assessment order in question is erroneous in so far as it is prejudicial to the interests of the revenue within the meaning of section 263 of the Act, 1961.
In view of the above, it was observed by ld PCIT that while finalizing the assessment proceedings, the AO has allowed the deduction of Rs.3,10,98,776/- claimed u/s 80IA of the Act despite the fact that the assessee did not furnish all the supporting documents required as laid down in Rule 18BBB of the income Tax Rules for claiming deduction u/s 80IA of the Act This shows lack of verification and application of mind. Therefore, ld PCIT issued a show cause notice to the assessee bearing DIN No ITBA/COM/F/17/2022-23/1047640899(l) dated 25.11.2022 which was duly served upon the assessee.
In compliance with the above show cause notice, the assessee has furnished its reply on 02.12.2022 and has furnished the submission before ld PCIT. However, ld PCIT after carefully considered the facts of the case, assessment records and written reply/explanation/submission furnished by the assessee, observed that 4 /AY.2017-18 Manish Packaging Pvt. Ltd. the assesses had failed to offer cogent supporting documents to substantiate its claim u/s 80IA of the Act. The AO was required to disallow the deduction claimed u/s 80IA of the Act, which the AO failed to do so. In view of the above, it is clear that while finalizing the assessment proceedings, the AO has allowed the deduction of Rs.3,10,98,776/- claimed u/s 80IA of the Act, despite the fact that the assessee did not furnish all the supporting documents fulfilling the condition laid down in Rule 18BBB of the Income Tax Rules for claiming deduction u/s 80IA of the Act, which shows lack of verification and application of mind by the AO. Thus, the assessment order passed u/s 143(3) r.w.s. 143(3A) & 143(3B) of the Act, dated 04.03.2021 was deemed to be erroneous in so far as it is prejudicial to the interest of Revenue. Therefore, ld PCIT directed the assessing officer to pass fresh assessment order after taking into consideration the issues as may have been already considered together with the issue discussed herein above also.
Aggrieved by the order of ld. PCIT, the assessee is in appeal before us.
Shri Rasesh Shah, Learned Counsel for the assessee submitted that during the assessment proceedings, the assessee submitted unit- wise profit and loss account and unit-wise form no.10CCB under the Income Tax Rules. The assessee also submitted the combined Balance sheet of these units during the assessment proceedings. Apart from this, the assessee also submitted unit-wise balance sheets of these units, which were uploaded by the assessee, on the site of Income Tax Department, however the assessing officer could not able to download the same. The ld. Counsel for the assessee, invited our attention towards page no.122 of paper book and stated that the 5 /AY.2017-18 Manish Packaging Pvt. Ltd. Assessing Officer has issued the notice under section 142(1) of the Act, which is placed at page nos.121 to 125 of paper book. The ld. Counsel also stated that the query has been raised by the Assessing Officer by way of notice under section 142(1) of the Act, which is mentioned at page no.122 of paper book. The assessee has submitted its reply against the notice issued by the Assessing Officer under section 142(1) of the Act, which is placed at page no.126 of paper book. Therefore, ld. Counsel contended that issue raised by the ld. PCIT under section 263 of the Act has been thoroughly examined by the Assessing Officer. The ld. Counsel also submitted that before the Assessing Officer, the assessee has explained each and every windmill, the explanation given by the assessee for each and every windmill, is placed at page no.133 of paper book. The ld. Counsel also stated that for each and every windmill, the assessee submitted audit report unit-wise, profit and loss account unit-wise, combined balance sheet. The assessee also uploaded the unit-wise balance sheet of windmill but the Assessing Officer could not download from net, however assessee’s side the assessee has submitted each and every document during the assessment proceedings. The ld. Counsel also submitted that during the revision proceedings under section 263 of the Act, the assessee submitted unit-wise balance sheet and unit-wise profit and loss account, unit-wise audit report before the ld. PCIT, however the ld. PCIT has not even conducted minimum enquiry from his side. Therefore, ld Counsel contended that order passed by the assessing officer is neither erroneous nor prejudicial to the interest of Revenue, hence order of ld PCIT may be quashed.
On the other hand, Ld. Departmental Representative (ld. DR) for the Revenue submitted that as per Rule 18BBB of the Rules, the 6 /AY.2017-18 Manish Packaging Pvt. Ltd. unit-wise profit and loss account and unit-wise balance sheet should be submitted before the Assessing Officer. No doubt, the Assessing Officer has examined the unit-wise profit and loss account and combined balance sheet, however unit-wise balance sheet has not been examined by the Assessing Officer, therefore order passed by the Assessing Officer is clearly erroneous and prejudicial to the interest of Revenue and therefore order of the ld. PCIT may be upheld.
We have heard both the parties and carefully gone through the submissions put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the facts of the case including the findings of the ld. PCIT and other material brought on record. We find that one key issue arises for our apt adjudication in the instant lis, which is, whether the assessee has submitted unit-wise Balance Sheets or not?
We note that it is undisputed fact that following documents and evidences were before the assessing officer:
(i) Unit-wise profit and loss account. (ii) Combined balance sheets of all units, (iii) Form No.10CCB with respect to all the six wind mill units. (iv) Tax audit report.
We note that ld PCIT has exercised his jurisdiction under section 263 of the Act solely on the issue that assessee has failed to submit Unit- wise balance sheets of all the six wind mill units. The relevant observations of ld PCIT is reproduced below for ready reference below: 7 /AY.2017-18 Manish Packaging Pvt. Ltd. “In spite of availing ample opportunities of being heard, the assessee failed to furnish separate balance sheets for each of the six wind mills, which is required for availing deduction u/s 80IA of the Act as per Rule 18BBB(2) of the I.T. Rules, 1962.”
We note that ld Counsel submitted before the Bench, the screen shot wherein it is claimed that unit-wise balance sheets were also submitted before the assessing officer, however, the assessing officer was unable to download the same due to technical error. Therefore, as per assessee everything was submitted before the assessing officer. Therefore, ld Counsel contended that order passed by the assessing officer is neither erroneous nor prejudicial to the interest of Revenue.
We note that in compliance with the show cause notice of the assessing officer, the assessee vide reply dated 27.11.2020, furnished form 10CCB with respect to all the six wind mill units, unit-wise profit and loss account, Balance sheets and explanation for each unit. We note that Assessing Officer, vide its notice dated 16.01.2020 under section 142(1) of the Act, raised the query relating to deduction and exemption claim by the assessee which is placed at page no.22 of paper book. The relevant question raised by the Assessing Officer by way of notice under section 142(1) of the Act, is reproduced below: “5. Kindly give details of deduction and exemptions claimed and explain allowability thereof with respect to various provisions of the Income Tax Act.”
In response to notice under section 142(1) of the Act, the assessee has submitted unit-wise reply and detailed explanation before the Assessing Officer which is placed at page no.126 to 128 of paper book and the assessee also submitted further reply before the Assessing Officer. We note that Assessing Officer has issued further notice under section 142(1) of the Act, which is placed at page no.129 of paper book, wherein the Assessing Officer asked the assessee to 8 /AY.2017-18 Manish Packaging Pvt. Ltd. submit the details and documents of windmill unit-wise. In response to notice issued by the Assessing Officer, the assessee submitted its detailed reply along with documents and evidences, which is placed at page nos. 131 to 145 of paper book. Therefore, we note that detailed reply and explanation were submitted before the Assessing Officer. We note that Assessing Officer could not download the unit-wise balance sheets due to technical error, therefore ld. Counsel submitted that there is no mistake on the part of the assessee in submitting the unit-wise balance sheets. We note that the issue under consideration is directly covered by the judgment of the Hon'ble Gujarat High Court in the case of Zenith Processing Mills vs. CIT (1996) 219 ITR 721, dated 28.09.1995 (vide Pb.68) wherein it was held as follows:
“For the relevant assessment year, while framing the assessment, the ITO allowed the assessee's claim for deduction in respect of profit and loss arising from its newly established undertaking. The Commissioner in exercise of powers under section 263 withdrew the relief under section 80J holding that sub-section (6A) of section 80J lays down the mandatory requirement that before a claim under section 80J is admissible for any assessment year, the assessee must have his accounts of the relevant previous year audited by an accountant and the assessee must furnish along with his return of income the report of such audit in the prescribed form duly signed and verified by such accountant and as the assessee had not furnished the report of such audit in the prescribed form duly signed and verified by the accountant, it was not entitled to relief under section 80J. The assessee sought permission to furnish Form No. 10-D but the Commissioner rejected the request. The Tribunal dismissed the assessee's appeal. On reference: HELD From a perusal of sub-section (6A) of section 80J, it is apparent that compliance with two things is necessary. The first requirement is that the statement of accounts for the previous year relevant to the assessment year for which deduction is claimed must have been audited by an accountant and the second part is that the assessee must furnish along with his return of income the report of such audit in the prescribed form duly signed and verified by such accountant. It can be stated without fear of contradiction that the former is the requirement which furnishes 9 /AY.2017-18 Manish Packaging Pvt. Ltd. substantial foundation for claiming allowance and the latter is the requirement of furnishing proof that foundation for claiming such deduction has been laid. While compliance with the former before the deduction is claimed is mandatory and so far as manner of submitting proof of such compliance of filing along with the return is concerned, is directory because such requirement falls in the realm of procedure for furnishing evidence in support of the claim and which can be furnished at the time while allowance or disallowance under section 80J is being considered by the concerned authority. Thus, the provision of section 80J(6A) to the extent it requires furnishing of the auditor's report in the prescribed form along with the return is directory in nature and not mandatory. As the provision of furnishing of the report in the prescribed form is held to be directory, the assessee can be permitted to produce such report at a later stage when the question for disallowance arises during the course of the proceedings in a given case, it will depend upon the facts and circumstances of each case and, therefore, the assessee may be permitted to produce such report, if it has not been produced earlier. The requirement of furnishing the auditors' report is in the realm of furnishing proof about the fact that accounts have been audited and substantial compliance with this provision has been held to be sufficient compliance. During the course of assessment, the assessee had furnished accounts stamped with the auditor's seal which were treated by the assessee as well as the Assessing Officer to be sufficient compliance of giving proof of the fact that accounts had in fact been audited and on that basis the assessment was framed. It was only during the course of proceedings before the Commissioner under section 263 that the question was considered whether the document furnished by the assessee amounted to sufficient compliance of furnishing such proof or not and that having been negatived the occasion arose to furnish the proof which according to the Commissioner of Income-tax was wanting in declaration that the accounts had been duly audited which is required by sub-section (6A) of section 80J and if the assessee requires production of evidence before the allowance made by the ITO under section 80J was withdrawn, that would have been sufficient compliance with the requirement and the assessee ought not to have been visited with the disallowance or withdrawal of the allowance already made without affording opportunity to do so. It may be noted that in a given case, the assessee's return having a claim of deduction under section 80J may be accepted by the ITO without holding an inquiry, though it may not have been accompanied with proof of accounts being audited in the manner prescribed. The question of furnishing proof of such audited accounts in the prescribed form at a later stage arises only when the matter is being actively considered for disallowance by the concerned authority. If the assessee does not offer to furnish proof even at the stage when it is pointed out to him that requirements of law are not fulfilled to sustain the claim made by him and he fails to fulfil the requirements of law at that stage, it can be said that the assessee had failed to rectify the defect at the earliest opportunity offered to him. 10 /AY.2017-18 Manish Packaging Pvt. Ltd. It is an inherent part of section 143(3) that where the Assessing Officer is not inclined to accept the return submitted by the assessee and if he wants to modify the assessment from the return a show-cause notice is required to be given to the assessee. Giving of this opportunity will include opportunity to erase procedural defect, if any, which is directory in nature. In the instant case, the claim made by the assessee though not admissible for want of the auditor's report on record, yet the same was allowed under a mistake by the Assessing Officer leaving no opportunity to the assessee to complete the requirements. The condition of non- fulfilment of the requirement under sub-section (6A) was made known to the assessee during the proceedings under section 263 although the assessee asked for an opportunity to produce the auditor's report to fulfil the requirements under section 80J(6A), the Commissioner ought to have afforded an opportunity to the assessee to furnish that proof and then examined the admissibility of the claim in the light of the proof furnished.”
Our view is fortified by the judgment of the Hon'ble Gujarat High Court in the case of PCT vs. M/s. Shreeji Prints Pvt. Ltd., in R/Tax Appeal No.828 of 2019, dated 03.02.2020, wherein it was held as follows:
3.3 The Principal Commissioner of Income Tax [for short, 'the PCIT'] invoked Section 263 of the Act, 1961 for revising the assessed income of the respondent assessee. It was noticed by the PCIT that the unsecured loans obtained by the respondent assessee are shown as investment in the name of the assessee in the share application as well as in the balance sheet of the respective companies. The PCIT passed an order under Section 263 of the Act, 1961 dated 28th March 2018 directing the Assessing Officer to pass fresh assessment order under Section 143(3) of the Act, 1961 on the aspect of unsecured loans shown by the respondent assessee. 4 Being aggrieved by the order passed by the PCIT under Section 263 of the Act, 1961, the assessee went before the Tribunal. The Tribunal, after considering the submissions made by the assessee and after considering the scope of power to be exercised by the PCIT under Section 263 of the Act, 1961 came to be conclusion that the Assessing Officer has made inquiries in detail about two unsecured loans taken by the respondent assessee and observed as under:
13 In the light of the aforesaid judicial precedents in the present case what has to be seen is whether the AO has made enquiries about two loans taken from GTPL and PAFPL. If the answer is affirmative, then second question arises whether the acceptance of the claim by the AO was a plausible view or on the facts of the finding on the facts that the said funding of the AO can be termed as sustainable in law. We find that vide notice issued u/s.142(1) dated 13.10.2015 placed at Page No. 1 of Paper 11 /AY.2017-18 Manish Packaging Pvt. Ltd. Book shows the AO vide item no.(iii) has asked the information regarding details of unsecured loan outstanding as on 31.03.2013 and the loans were squared up amounts in the format prescribed therein. In compliance to thereof, the assessee has furnished complete details of the unsecured loans outstanding / squared up vide para 3 of his letter dated 02.11.2015 placed as Annexure2 at page 4 of paper book. The assessee has also furnished details consisting of copy of ledger account, copy of acknowledgment of income filed for A.Y. 201213 and 201314 and copy of bank statement reflecting the payment received was paid during the financial year 201213 relevant to assessment year 2013-14 which are placed at paper book, page 9 to 49 in respect of GTPL as well as PAFPL. This indicate that the assessee has furnished account confirmation of the depositor, acknowledgment of income of the parties, audited balanced sheet and profit and loss account of the parties and bank pass book and bank statement of the parties. During the course of assessee proceedings, form these facts it is clear that the assessee has not only proved the from these facts it is clear that the assessee has not only proved the identity of the lenders but also the genuineness of the transactions and credit worthiness of the lenders. Accordingly, the Ld. AO after verifying the details of unsecured loans being satisfied, accepted the submissions of the assessee which leads to infer that the Assessing Officer had made full enquiries of unsecured loans by raising the queries and calling for the all information in respect of the loan taken along with details evidences in support thereof and the same were also duly replied by the assessee and on receipt of all the details of evidences, the unsecured loans received by the assessee were accepted by the Assessing Officer and the assessment was finalised u/s.143(3) of the Act on 15.03.2016. We also note that there was audit objection in the case of the assessee. The language of audit objection and showcause notice under section 263 is same meaning thereby that the show cause notice u/s.263 has been issued by the PCIT Without going through assessment records and without exercising his own application of his mind. The assessee has not only filed complete details of Income Tax Return, audited balance sheet, profit and loss account and bank statement. The assessee further explained that both the these unsecured loans stands fully repaid as on the date and there is no capital creation by the assessee on this count. In view of these facts and circumstances, we are of the considered opinion that the order of the Assessing Officer is not erroneous nor it is prejudicial to the interest of revenue. It was also brought to the notice of the PCIT that entire share capital of GTPL being already tax, all the investment made by the said C/TAXAP/828/2019 ORDER company recorded in its balance sheet stands explained tax in its hands itself and hence,"there is no question of adding the same amount in the hands of the assessee. As regards loans from PAFPL, it was submitted that assessee company has made voluntary disclosure of income of Rs.1.5 crore under IDS 2016 in September 2016 and the said loan was repaid before making declaration. In view of these facts and circumstances, we find that the AO has made due enquiries. Since we find that the AO had made enquiries regarding unsecured loans and accepted the claim of the assessee after detailed enquiries."
/AY.2017-18 Manish Packaging Pvt. Ltd. "15 The Pr.CIT had observed that Explanation 2 of Section 263 of the Act is clearly applicable and it is clear that the Assessing Officer has passed the assessment order after making enquiries for verification which ought to have been made in this case. However, we find that the Pr. CIT has not mentioned in the showcause notice issued under section 263 that he is going to invoke the Explanation 2 to 263 hence, invocation of Explanation in the order without confronting the assessee is not appropriate and sustainable in law in support of this contention, the ld. Counsel has placed reliance on the following decision: CIT v/s Amir Corporation 81 CCH 0069 (Guj.), CIT Mehrotra Brothem 270 ITR 0157 (MP,CIT v/s. Ganpet Ram Bishnoi 296 ITR 0292 (Raj.), Cadila healthcare Ltd. Vs. Cl 7, Ahmedabadh1 [ITA no. 1096/Ahd/2013 & 910/Ahd/2014], Sri Saí Contractors Vs. ITO [ITO no. 109Nizag/2002] and Pyare lal Jaiswal Vs. CIT, Vamnesi [(201 4) 41 texmann.com 27&(AII Trib.)]. It was contended by the Learned Counsel that Clause (a) & (b) of Explanation 2 of Section 263 are not applicable as the Assessing Officer has made enquiry and verification which should have been made. Further, in the show cause notice, the Explanation2 of section 263 was not invoked by the PCIT and it was referred in the order u/s.263 of the Act. Therefore, in the light of decision of the Coordinate Bench of Mumbai in the case of Narayan Tatu Rane 70 taxmann.com 227 (Mum. Trt.) [PB 1531561 wherein held that explanation cannot laid to have over ridden the law as interpreted / the various High Courts where the High Courts have held that before reaching the conclusion that the order of the Assessing Officer is erroneous prejudicial to the interest of Revenue. The CIT himself has to undertake some enquiry to establish that the assessment order is erroneous and prejudicial to the interest of Revenue. The ld. Counsel relied on the decision of M/s. Amira Pure Foods Pvt. Ltd., Vs. PCIT in and Ahmedabad Tribunal in the case of Torrent Pharmaceuticals Ltd. Vs. DCIT [2018] 97 TAXMANNCOM 671 (Ahmedabad Tribunal). it is clear from the enquiries made by the Assessing Officer and submissions made by the assessee that the Assessing Officer has taken the plausible view which is valid in the eyes of law. The Assessing Officer was satisfied consequent to making enquiry and after examining the evidences produced by the assessee, he accepted the C/TAXAP/828/2019 ORDER assessee's claim of loan similar view were also expressed by the Hon'ble Delhi High Court in the case of CIT Vs. Vodafone Essar South Ltd. [2013] 212 taxman 0184. We observe the Pr.CIT has drawn support from newly inserted Explanation 2 below Section 263(1) of the Act introduced by Finance Act, 2015 w.e.f. 01.06.2015 for his action. The Explanation 2 inter alia provides that the order passed without making inquiries or verification 'which should have been made' will be deemed to be erroneous insofar as it is prejudicial to the interest of the Revenue. It is on this basis, the assessment order passed by the AO under section 143(3) of the Act has been set aside with a direction to the AO to pass a fresh assessment order. It will be therefore imperative to dwell upon the impact of Explanation 2 for the purposes of Section 263 of the Act. The aim and object of introduction of aforesaid Explanation by Finance Act, 2015 was explained in CBDT Circular No. 13 /AY.2017-18 Manish Packaging Pvt. Ltd. 19/2015 [F.NO.142I14/2015T PL], Dated 2711 2015 which is reproduced hereunder: "53. Revision of order that is erroneous in so far as it is prejudicial to the interests of revenue. 53.1 The provisions contained in subsection (1) of section 263 of the Incometax Act, before amendment by the Act, provided that if the Principal Commissioner or Commissioner considers that any order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and after making an enquiry pass an order modifying the assessment made by the Assessing Officer or cancelling the assessment and directing fresh assessment. 53.2 The interpretation of expression "erroneous in so far as it is prejudicial to the interests of the revenue" has been a contentious one. In order to provide clarity on the issue, section 263 of the Income tax Act has been amended to provide 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, prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. C/TAXAP/828/2019 ORDER 53.3 Applicability: This amendment has taken effect from 1st day of June, 2015." "17 We thus find merit in the plea of the assessee that the Revisional Commissioner is expected show that the view taken by the AO is wholly unsustainable in law before embarking upon exercise of revisionary powers. The revisional powers cannot be exercised for directing a fuller inquiry to merely find out if the earlier view taken is erroneous particularly when a view was already taken after inquiry. If such course of action as interpreted by the Revisional Commissioner in the light of the Explanation 2 is permitted, Revisional Commissioner can possibly find fault with each and every assessment order without himself making any inquiry or verification and without establishing that assessment order is not sustainable in law. This would inevitably mean that every order of the lower authority would thus become susceptible to Section 263 of the Act and, in turn, will cause serious unintended hardship to the tax payer concerned for no fault on his part. Apparently, this is not intended by the Explanation. Howsoever wide the scope of Explanation 2(a) may be, its limits are implicit in it. It is only in a very gross case of inadequacy in inquiry or where inquiry is per se mandated on the basis of record available before the AO and such inquiry was not conducted, the 14 /AY.2017-18 Manish Packaging Pvt. Ltd. revisional power so conferred can be exercised to invalidate the action of AO. The AO in the present case has not accepted the submissions of the assessee on various issues summarily but has shown appetite for inquiry and verifications. The AO has passed after making due enquiries issues involved impliedly after due application of mind. Therefore,the Explanation 2 to Section 263 of the Act do not, in our view, thwart the assessment process in the facts and the context of the case. Consequently, we find that the foundation for exercise of revisional jurisdiction is sorely missing in the present case.
18. In the light of above facts and legal position, we are of the considered view that the AO had made detailed enquiries and after applying his mind and accepted the genuineness of loans received from GTPL and PAFPL, which is also plausible view. Therefore, we find that twin conditions were not satisfied for invoking the jurisdiction under section 263 of the Act. The case laws relied by the ld. CIT(D.R.) are distinguishable on facts and in law hence, by the ld. Counsel as well and we concur the same hence not applicable to present facts of the case. Therefore, in absence of the same, the ld. CIT ought to have not exercised his jurisdiction under section 263 of the Act. Therefore, we cancel the impugned order under section 263 of the Act, allowing all grounds of appeal
of the Assessee."
5. The Tribunal has found that in the order passed by the PCIT, Explanation 2 of Section 263 of the Act, 1961 is made applicable. The Tribunal observed that the PCIT has not mentioned in the show cause notice to invoke the Explanation 2 of Section 263 of the Act 1961. Therefore, by invocation of Explanation in the order without confronting the assessee and giving an opportunity of being heard to the assessee is not appropriate and sustainable in law.
6. Thus, the Tribunal has considered in detail the aspect of revisional power to be exercised by the PCIT in the facts of the case and has given a finding of facts that the Assessing Officer has made inquiries in detail and after applying mind, accepted the genuineness of loans received by the respondent assessee from the aforesaid two companies and such view of the Assessing Officer is a plausible view, and therefore, the same cannot be said to be erroneous or prejudicial to the interest of the Revenue.
7. In view of such finding of facts arrived by the Tribunal, no questions of law much less of any substantial questions of law arise out of the impugned order passed by the Tribunal. The appeal, therefore, fails and is dismissed. No order as to costs.”
17. From the above judgment of the Hon'ble Gujarat High Court in the case of PCT vs. M/s. Shreeji Prints Pvt. Ltd. (supra), it is vivid that the revisional powers cannot be exercised for directing a fuller /AY.2017-18 Manish Packaging Pvt. Ltd. inquiry to merely find out if the earlier view taken is erroneous particularly when a view was already taken after inquiry. A mere observation that no proper details have been obtained, cannot be sufficient to come to a conclusion that the AO did not make proper and adequate inquiries which he ought to have made in the given facts and circumstances of this case. In the conclusion, we are of the view that none of the reasons set out by the PCIT for invoking the jurisdiction u/s 263 of the Act are sustainable. The impugned order of the PCIT has to be quashed for the reason that order of the Assessing Officer sought to be revised in the impugned order was neither erroneous nor prejudicial to the interest of the revenue for the reason of any lack of inquiry that the Assessing Officer ought to have made in the given facts and circumstances of the case. We accordingly quash the order u/s. 263 of the Act, and allow the appeal of the assessee.
In the result, appeal filed by the assessee is allowed.
Order is pronounced on 26/09/2023 in the open court.