MAYUR KHARA,YAVATMAL vs. PRINCIPAL COMMISSIONER OF INCOME TAX-2, NAGPUR

IN THE INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR BEFORE SHRI SANDEEP GOSAIN, JM & SHRI ARUN KHODPIA, AM ITA No. 64/NAG/2021 Assessment Year: 2016-17 Shri Mayur Khara Vs. The PCIT Datta Chowk Nagpur-2 Yavatmalm 445 001 (Maharastra) PAN No.:ABWPK 8869 N Appellant Respondent ITA No. 63/NAG/2021 Assessment Year: 2016-17 Shri Amit Khara Vs. The PCIT Datta Chowk Nagpur-2 Yavatmalm 445 001 (Maharastra) PAN No.:ABWPK 8868 P Appellant Respondent Assessee by: Shri Mahavir Atal, CA Revenue by :Shri Piyush Kolhe (CIT-DR) Date of Hearing: 28/04/2022 Date of Pronouncement: 28 /06 /2022 ORDER PER: SANDEEP GOSAIN, J.M. Both these appeals have been filed by the above mentioned assessees against two different orders passed u/s 263 of the Act by the ld. Pr.CIT, Nagpur- 2 dated 17-02-2017 and 16-02-20217 for the assessment year 2016-17 respectively. The grounds of raised by the above mentioned assessees are as under:-

2 ITA No. 64/NAG/2017 Shri Mayur Khara vs Pr. CIT-2, Nagpur ITA No.64/Nag/2021 – Mayur Khara ‘’1. Whether the revision order passed by the ld. PCIT by taking a recourse to Section 263 is illegal and bad in law. 2. Whether the revision order passed by the ld. PCIT without considering appellant’s submission and on wrong assumption of facts is illegal and bad in law. 3. Whether the revision order passed by the ld. PCIT without referring to the relevant clause of Explanation 2 is illegal and bad in law. 4. Whether the ld. PCIT was justified in setting aside the entire assessment order for fresh assessment instead on the issues on which according to him additional verification should have been done.’’ ITA No.63/Nag/2021 – Amit Khara ‘’1. Whether the revision order passed by the ld. PCIT by taking a recourse to Section 263 is illegal and bad in law. 2. Whether the revision order passed by the ld. PCIT without considering appellant’s submission and on wrong assumption of facts is illegal and bad in law. 3. Whether the revision order passed by the ld. PCIT without referring to the relevant clause of Explanation 2 is illegal and bad in law. 4. Whether the ld. PCIT was justified in setting aside the entire assessment order for fresh assessment instead on the issues on which according to him additional verification should have been done.’’ 2.0 First of all, we take up the appeal of Shri Mayur Khara (ITA No. 64/NAG.2016) for adjudication.

3 ITA No. 64/NAG/2017 Shri Mayur Khara vs Pr. CIT-2, Nagpur 2.1 Apropos above grounds of appeal of the assesseee, brief facts of the case are that the return of income has been electronically furnished by the assessee on 14-09-2016 declaring total income of Rs.18,67,310/-. The assessee derives income from Automark Industries Pvt. Ltd. as a directorial remuneration. The assessee also earns income from saving account, FDR as well as agriculture. The case of the assessee was selected for scrutiny through CASS under the category of ‘’Limited Scrutiny. In this case, the assessment for the year 2016-17 was completed u/s 143(3) of the Act vide order dated 14.12.2018 by the AO.

2.2 The Ld. PCIT vide his notice dated 18.11.2020 observed by invoking the provisions of sec. 263 of the Act that the assessment order is erroneous as well as prejudicial to the interest of the revenue on the ground that the AO has not made proper enquires to ascertain the correct taxable income and did not bring on record supporting evidences to rely on assessing of such income.

2.3 Against the revision order dated 17.02.2021, u/s 263 of the Act, the appellant is in appeal. 2.4 During the course of hearing, the ld. AR of the appellant submitted that the impugned notices of Ld. PCIT are not maintainable since the mandatory statutory requirement provided in the Act for a valid assumption of jurisdiction u/s 263 remains unfulfilled and unsatisfied. It is further stated that the provisions of section 263 can be validly invoked only if the twin conditions that the order is

4 ITA No. 64/NAG/2017 Shri Mayur Khara vs Pr. CIT-2, Nagpur erroneous and that it is prejudicial to the interest of revenue only then such action could have been taken and relied upon the decision of Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. 243ITR 83 (SC). As per the principles laid down in the case of Malabar Industrial Co. Ltd both the conditions must co-exist and even if one of the conditions is absent, recourse cannot be had to the provisions of section 263. The ld. AR pleaded that in the light of the law declared by the Hon’ble Supreme Court in the case of Malabar that none of the grounds stated in the impugned notices constitute a valid ground or basis for the lawful assumption of jurisdiction u/s 263 of the Act. A perusal of the impugned notice issued reveals that the provisions u/s 263 of the Act has been proposed to be invoked on the ground that the Assessing Officer has not made proper enquiries during the course of assessment proceedings and accordingly the assessment order is erroneous and has caused loss to the revenue. The ld AR further pleaded that a bare statement to the effect that the AO has not done proper inquiries per se doesn’t constitute a valid basis for assuming jurisdiction u/s 263 of the Act. It is a settled law that the provisions of section 263 cannot be invoked on mere presumptions or suspicion that an enquiry might have unearthed any escaped taxable income as held by the Hon’ble Delhi High Court in its judgment in the case of CIT vs. Leisure Wear Exports Ltd. (2010) 46 DTR (Del) 97wherein the Hon’ble Court while relying upon the principle laid down by the Hon’ble Apex Court in the case of Malabar Industrial Co. Ltd 243 ITR 83 (SC) 4

5 ITA No. 64/NAG/2017 Shri Mayur Khara vs Pr. CIT-2, Nagpur has held that in the entire revision order emphasis laid by the CIT is that in respect of four issues mentioned by him, no queries were raised by the AO. On this premise, though it is observed that there was no application of mind on the part of the AO and the AO has not recorded any reasons to justify the omission to consider the said facts, the CIT does not take the said order to its logical conclusion which was the prime duty of the CIT in order to justify exercise of power under s.263. There is not even a whisper as to what independent enquiry was conducted by the ld. PCIT to come to the conclusion that the order is erroneous. Even if it is inferred that non-consideration of the issues pointed out by the CIT would amount to an erroneous order, it is not stated as to how this order is prejudicial to the interest of the revenue and this satisfaction could be reached only when the ld. PCIT does an independent investigation himself and founds something to implicate that the investigation done by the AO was not in a proper direction. The AR appearing for the appellant, vehemently supported the order of the Assessing Officer and took us through the notices as well as the relevant portion of the assessment order to highlight the fact that a detailed investigation was done by the AO.

 Vide 142(1) notice, 31/07/2018, the appellant was directed to submit P&L account, balance sheet, capital account and proof regarding agricultural income and agricultural expenses. (Page 1 & 2

6 ITA No. 64/NAG/2017 Shri Mayur Khara vs Pr. CIT-2, Nagpur of the paper book). The Appellant uploaded requisite details. (Page 3 & 4 of the paper book)

 In view of Board Instructions, no 03/2018 dated 20/08/2018, the appellant was directed to produce all books of accounts and vouchers for manual verification. The appellant attended office and all his books of accounts were verified. (Fact noted in assessment order). The relevant extract of the assessment order is reproduced below :-

“The assessee in response to notice u/s 142(1) submitted P&L account, balance sheet, capital account and proof regarding agricultural income and agricultural expenses and other relevant details. Considering high agriculture income, the assessee was issued notice u/s 142(1) on 31.08.2018. In view of Board’s instruction no. 03/2018 dt. 20.08.2018 to produce books of account and vouchers manually. The assessee attended office on 13.09.2018 and produced all books of account and vouchers.”

 To verify genuineness of transaction, summons u/s 131 of the I.T. Act were issue to parties from whom the assessee has taken land on lease and letter were also issue to a few parties to whom agricultural produce were sold to confirm transactions and also whether they had paid transportation charges.The parties have confirmed the

7 ITA No. 64/NAG/2017 Shri Mayur Khara vs Pr. CIT-2, Nagpur transaction with theassessee. (Fact is noted in the assessment order). “Both the parties agreed of receiving lease rental and their recorded statement is placed on records. With regards to sale of agricultural produce notice u/s 133(6) were issued directly to the parties to confirm transaction and mode of payment. All the parties have confirmed the transaction.” Therefore, all the facets of the transactions have been verified.  Factum of lease of land :- Verified by the issuing summons to the lessors. Their statements were recorded. All have confirmed the transaction and also receipt of lease rental. (Fact noted in the assessment order)  Verification of bills &Vouchers :- The Appellant was asked to appear personally and all the books and vouchers were verified. This fact is also noted in the assessment order.  Sale of goods :- Notice under section 133(6) was issued to the purchasers and the purchasers have duly confirmed the transactions. (Fact noted in the assessment order)

Drawing reference to all the above factual matrix, the AR buttressed that all the facets of the transactions have been verified. The AR pleaded that the observation of the Ld. PCIT, that the AO has not conducted any enquiry is nothing less than conjecture and surmises. The ld. AR further relied on the case CIT v. Sunil Sankhla (2019) 411 ITR 437 (Raj.)(HC), the High court where it was observed that theLd. Commissioner passed the revision order on the ground that

8 ITA No. 64/NAG/2017 Shri Mayur Khara vs Pr. CIT-2, Nagpur the Ld. AO has passed the order without verification. Tribunal held that the Ld. AO has passed the order after examining the details and the financial statements had accepted the business profit declared by the appellant and had adopted a view that the order passed by the Assessing Officer was not prejudicial to the interest of the Revenue and that the Ld. Principal Commissioner was not justified to replace the Assessing Officer’s view. High Court up held the order of the Appellate Tribunal. The appellant contended that in the present case also the order was made after due verification of the details submitted. The ld. AR of appellant also relied on the following cases with regard to the very jurisdiction invoked under section 263 and submits that in absence of the twin conditions being satisfied, the revision was not justified.

a. CIT v. Max India Ltd. (2007) 295 ITR 282 (SC)

b. Malabar Industrial Co. Ltd. vs. CIT[2000] 243 ITR 83(SC),

c. CIT vs. Gabriel India Ltd. [1993] 203 ITR 108(Bom)(HC)

d. CIT vs. Vikas Polymers [2012] 341 ITR 537(Delhi)(HC)

e. CIT vs. Design and Automation Engineers (Bombay) Pvt. Ltd. [2010] 323 ITR632 (Bom)(HC),

f. Grasim Industries Ltd vs. CIT [2010] 321 ITR 92(Bom)(HC)

g. CIT vs. NiravModi [2017] 390 ITR 292(Bom) (HC)

9 ITA No. 64/NAG/2017 Shri Mayur Khara vs Pr. CIT-2, Nagpur The ld. AR of appellant further submitted that each of the query of the AO was replied, which is on record and not denied by the Ld. PCIT. The ld. AR of appellant further submitted that even on the merits of the issues mentioned in the notice of PCIT, the assessment order passed by the AO is neither erroneous nor prejudicial to the interests of revenue. The AR further submitted that it is a case of change of opinion. The learned PCIT is of the opinion that the necessary enquiry has not been conducted, while the AO has conducted complete enquiry. The ld. AR drew support from the above judgments to highlight that it is an accepted jurisprudence that the provisions of section 263 cannot be invoked on the basis of change of opinion. The ld. AR also took up another legal issue by stating that the order is silent on the issue as to what enquiries the learned PCIT has carried out before arriving at a conclusion that the order passed by the AO is erroneous and prejudicial to the interest of the revenue. It was further pleaded that the view of the Ld. PCIT that the order passed by the Assessing Officer is erroneous or prejudicial to the interest of revenue has to backed by minimal enquiry at the end of the CIT. The AR relied on the following judgments to submit that the order passed by the learned PCIT, without independent enquiry is not sustainable and pleaded for quashing of the order.

10 ITA No. 64/NAG/2017 Shri Mayur Khara vs Pr. CIT-2, Nagpur  ITO vs. DG Housing Projects Ltd[2012] 343 ITR 329(Delhi)(HC)  PCIT vs. Delhi Airport Metro Express Pvt.Ltd.[2017] ITA NO.705/2017(Delhi)(HC)  Secure Meters Ltd. V/s Pr.CIT (ITA 02/JODH/2021) dated 07.09.2021

2.5 The ld. CIT DR relied on the Ld. PCIT’s order and submitted that in view of the Explanation 2 inserted in section 263, the ld. PCIT has a vide power u/s 263, and whereever it is found that due enquiry as required has not been made, such order can be directed to be reframed in accordance with the law. The contention of the ld. CIT- DR was that if the due enquiry as required was not made assessment was rightly set aside. The ld. CIT DR also highlighted that the summons issued by the AO was not uploaded into the system by the AO and the AO has not verified the nature of the land.

2.6 We have considered the rival contentions of both the parties, carefully perused the material placed on record and also considered the order passed u/s 263 and his observation therein and appellant reply to the PCIT and the original assessment order and are of the view that the appellant has furnished all information as asked for by AO during the course of assessment proceedings and which have been duly considered by him as evident from the assessment order. The AO had issued detailed questionnaire raising various issues which were also

11 ITA No. 64/NAG/2017 Shri Mayur Khara vs Pr. CIT-2, Nagpur replied by the appellant from time to time. The appellant had also appeared personally and filed the detailed replies to all the queries raised and books of accounts were also produced. The Ld. PCIT has failed to specify as to how and on what ground the assessment order is erroneous. For sake of easy reference we wish to reproduce here, the relevant extract of the assessment order u/s 143(3) passed on 14.12.2018 wherein the Assessing Officer has stated –

The notices were issued for examining two Issues. Firstly whether the share capital is genuine and from disclosed sources and secondly whether claim of agriculture income is correct. On perusal of reply submitted by the assessee the major reason for increase in capital is agricultural income claimed by appellant. During the year the assessee has claimed agricultural income of Rs. 2,26,07,294/-. The assessee in response to notice u/s 142(1) submitted P&L account, balance sheet, capital account and proof regarding agricultural income and agricultural expenses and other relevant details. Considering high agriculture income, the assessee was issued notice u/s 142(1) on 31.08.2018. In view of Board’s instruction no. 03/2018 dt. 20.08.2018 to produce books of account and vouchers manually.The assessee attended office on 13.09.2018 and produced all books of account and vouchers.Another notice was issued on 08.11.2018 to produce evidences regarding purchase of seeds, manure, fertilizers, insecticides and mode of payment. The assessee was also asked to submit details of labour payment and details of payment. In regard to sale of agricultural produce, the assesseewas asked to submit details of markets were agriculture produce were sold and mode of receipt of consideration. The assesseewas also directed to submit passbook wherein agricultural income had been reflected and other ancillary details were called for. On this given date no submission was received by the assessee. However, subsequently the assessee uploaded all relevant details. It is observed that the assessee has taken agricultural

12 ITA No. 64/NAG/2017 Shri Mayur Khara vs Pr. CIT-2, Nagpur land on lease (batai) from various individuals on which farming was done and agricultural produce were sold to various entities and companies. To verify genuineness of transaction, summons u/s 131 of the I.T. Act were issue to two parties from whom the assesseehas taken land on lease and letter were also issue to a few parties to whom agricultural produce were sold to confirm transactions and also whether they had paid transportation charges. The parties to whom summons were issued attended on 12-12- 2018 and requested for early recording of their statements citing some personal reasons. Their request was acceded to and the statements were recorded accordingly. Both the parties agreed of receiving lease rental and their recorded statement is placed on records. With regards to sale of agricultural produce notice u/s 133(6) were issued directly to the parties to confirm transaction and mode of payment. All the parties have confirmed the transaction.’’ The DR during the course of hearing also pointed out to the revision order para 5.1 of wherein the Ld.PCIT has stated that-

Perusal of the records show that the AO has issued notices U/s 142(1) dated 31.08.2018, 28.09.2018, 25.10.2018, 8.11.2018 and notice u/s 143(2) dated 11/7/2017. Since there was no compliance from the assessee the AO has also issued Show cause notice dated 22/11/2018 for best judgement assessment u/s 144. The AO relying on CBDT Instruction No. 3/2018 dated 20/08/2018 has claimed to have issued summons u/s 131 and notices u/s 133(6) and mentioned the same in the assessment order. However, none of the summons or the notices have been uploaded on the system inspite of specific direction given in the said Instruction no. 3/2018 as submitted by the JCIT in his letter dt.24.01.2019 for remedial action,.” The said observation of the Ld.PCIT that AO has not uploaded the summons issued by him online, is nothing but a procedural default on the part of the AO. The said procedural default cannot be used to draw inference that AO has not 12

13 ITA No. 64/NAG/2017 Shri Mayur Khara vs Pr. CIT-2, Nagpur issued any summons. In fact the Ld.PCIT has not recorded any observation in the revision order, that no such summons were issued. It is simply mentioned that the AO has not uploaded any summons. Therefore, this is a procedural default and in the absence of any independent enquiry by ld. PCIT during the revision proceedings to check whether summons were issued or not, the said observation cannot lead to conclusion that the order is erroneous. It is also noted that the Assessing Officer has categorically stated in the assessment order that he has verified the books of accounts of the Appellant. The AO has issued notices to the purchasers of the agricultural produce and the parties have confirmed the transactions with the appellant. Thus, the fact that the claim of agricultural income was enquired by the Assessing Officer and that the submissions were made by the appellant as well as the third parties confirming the transaction is borne out of the assessment order and said fact is not disputed by the Ld.PCIT. It is further noted that Vide para 5.4 of the revisionary order, the learned PCIT has stated that as the total receipts from agricultural income is Rs.2,49,13,054/-, the gross income of the appellant comes to Rs. 2,15,809/- per acre. The said observation of the Ld.PCIT, shows his apprehension about the high agriculture income. However, this is subjective observation and the case has been selected for scrutiny to verify this fact. The AO has verified the transaction in detail and only after being satisfied about the documents and claim, he accepted the returned income of the appellant. It is also noted that Vide same para 5.4, the 13

14 ITA No. 64/NAG/2017 Shri Mayur Khara vs Pr. CIT-2, Nagpur another concern raised by the Ld.PCIT is that agricultural expenses have been incurred by the appellant in cash. In this regard, it was submitted during the appellate proceedings as well as during the revision proceedings that the appellant has incurred agricultural expenses such as purchase of seeds, tractor expenses, labour expenses, salary expenses, tarpaulin expenses, lease rent, etc. To this effect, the AO on the page 2 of the assessment order has stated that all the bills and vouchers of purchase, sales and expenses were verified by him manually as per the CBDT guidelines. Therefore, even though the expenses were incurred in cash but as the genuineness of the expenses have been verified and there is no factual finding dislodging sanctity and veracity of the expenses, the order cannot be termed as erroneous only on the basis of cash expenditure. In the same para 5.4 the another concern which is raised by the ld PCIT is that the Appellant had made sales of Rs. 57,81,768/- through the Krishi Upaj Samiti, Seoni, MP and the other sales shave been stated to be made to the other parties directly. Even this observation does not lead to any conclusive evidence to submit that the transactions were not entered. Neither the ld. PCIT nor the ld DR brought anything on record to buttress the opinion of the ld. PCIT that it is mandatory to sell all agricultural produce only through the Agricultural Produce Market Committee (APMC) or Mandi. There is neither any requirement in the Income Tax Statute nor in any other statutory law to mandate the agriculturist to sell their produce only through the APMC or Mandi. Therefore, even if goods were 14

15 ITA No. 64/NAG/2017 Shri Mayur Khara vs Pr. CIT-2, Nagpur not sold through APMC it should not lead to drawing negative inference against the appellant. The AO has verified the transactions from purchaser and they have confirmed the transaction. Vide para 5.5 of the revision order it has been stated that the appellant has not submitted 7/12 extract of the land which is a vital document for agricultural document. In this regard it was submitted by the AR during the hearing that 7/12 extract is a public document and it is available online on the public platform and it can be easily accessed by any one. There is apparently no observation in the revision order that the PCIT has verified 7/12 extract and he has found something against the appellant. In the absence of any investigation or fact finding, mere apprehension cannot lead to the inference of order, being erroneous and prejudicial to the interest of revenue. It is further noted in clause (d) of para 5.5, the ld PCIT has stated that the crops which are grown are not cash crops and the expenses claimed are also meager. In this regard it was submitted that the crops grown and quantum of expenditure incurred are subjective thing and it depends on the facts and circumstances of each case. The Appellant has submitted all documentary evidences in order to substantiate his claim whatsoever may be the quantum involved. The ld. PCIT has not brought on record any quantitative details to support his apprehension. Vide para 5.6 of the revision order, it is stated that the Assessing Officer has not considered all the submissions made by the Appellant and has passed assessment order within 7 days only after concluding all his enquiries. In this 15

16 ITA No. 64/NAG/2017 Shri Mayur Khara vs Pr. CIT-2, Nagpur regard even though the assessment order is passed at the fag end of the year, the AO has carried out all his enquiries after due verification and comprehensive investigation completed the assessment and allowed the claim of the appellant. Moreover, there is no instruction or CBDT circular which provides the the AO guidelines as to how much time the AO should take to pass an order after receiving the complete information. It is further noted that Vide para 6 of the revision order it has been stated by the learned PCIT that :-

“6. In the light of facts mentioned in the foregoing paras it is to be construed that the assessment order passed u/s. 143(3) by the then A.O. is erroneous and prejudicial to the interest of revenue. The details on record clearly indicate that the said issue and discrepancies were neither verified nor inquired upon and the effect of the same has not been brought on the record and in the absence of express consideration and reflection of same in the assessment order as well as on perusal of the records, it is clear that the Assessing Officer has not properly caused the necessary enquiries and verification of the minute facts and figures and also failed to include the same in the calculation and computation for arriving at the correct figure as per the provision of the Income Tax Act 1961”.

The observation of the ld. PCIT that the said issue has not been verified nor enquired is incorrect as well as the statement that the assessment order does not reflect any enquiries conducted by him is ill founded as the assessment order clearly states that the notices were issued and the appellant was asked to submit the requisite details manually which the appellant submitted. Therefore, 16

17 ITA No. 64/NAG/2017 Shri Mayur Khara vs Pr. CIT-2, Nagpur the observation of the PCIT that the AO has not verified and enquired into the facts of the case is contrary to facts on the record. It is a clear case of a change of opinion. The ld. PCIT is of the opinion that the necessary enquiry has not been conducted, while the AO has conducted complete enquiry. It is an accepted jurisprudence that the provisions of section 263 cannot be invoked on the basis of change of opinion. For this proposition, we draw support from the following judicial precedents :-

 The Hon’ble Apex Court in case of Malabar Industrial Co. Ltd. vs. CIT[2000] 243 ITR 83(SC), Court held that every loss of tax cannot be said to be prejudicial to the interests of the Revenue. If two views are possible, and the AO has adopted one of those views, the order of assessment cannot be prejudicial to the interests of the Revenue.

 Bombay High Court in case of CIT vs. Gabriel India Ltd. [1993] 203 ITR 108(Bom)(HC) wherein it was held that what constitutes an erroneous order is one which is not in accordance with law or one which is carried out in undue haste. It was held that the Commissioner cannot substitute his opinion for that of the AO. That the order needs to be erroneous for the Commissioner to exercise his power under Section 263 of the Act. On these grounds the Court found favour with the appellant and dismissed the appeal.  Similarly in case of CIT vs. Vikas Polymers [2012] 341 ITR 537(Delhi)(HC), The Court held that if the AO has made inquiries and replied to by the appellant, then exercise of revisional powers are not warranted. Also, want of evidence cannot be a ground to disturb the findings of the AO or to state that the AO has shirked his responsibility.

 In another case of CIT vs. Design and Automation Engineers (Bombay) Pvt. Ltd. [2010] 323 ITR632 (Bom)(HC), the AO had issued called for the details of expenses of the appellant before passing the order under Section 143(3) of the Act. In the order of assessment, the AO allowed the 80HHC

18 ITA No. 64/NAG/2017 Shri Mayur Khara vs Pr. CIT-2, Nagpur deduction on the identifiable export profits. The Revenue admitted that the AO’s view was a possible view, but stated that the AO had not applied his mind in computing the deduction. The Bombay High Court held that it cannot be said that the AO had not applied his mind while allowing the deduction only because there was no mention of details in the assessment order. The queries had been made by the ITO and replied to by the appellant with full details and explanations, and that would suffice. Thus, the order cannot be said to be erroneous or prejudicial to the interests of the Revenue. It is observed that in the entire order the ld PCIT has stated that the Assessing Officer has not carried out adequate enquiry and has made out a case of inadequate enquiry however, the order is silent on the issue as to what enquiries the ld PCIT has carried out before arriving at a conclusion that the order passed by the AO is erroneous and prejudicial to the interest of the revenue. Ld. Counsel for the appellant apart from reiterating the submissions made before A.O during the course of assessment proceedings and before Ld. PCIT during the course of proceedings u/s 263 of the Act further argued that the order u/s 143(3) of the Act is passed by A.O after making inquiries and verification which should have been made. The AO, exercising its quasi-judicial power, had issued a detailed questionnaire u/s 142(1) which was duly answered by way of various details, explanations and letters. Complete books of account supported with documentary evidences were produced and examined by the AO during the assessment proceedings. The appellant had appeared before the AO and filed replies, however, the ld. PCIT has completely ignored the detailed enquiry conducted by the AO and has, therefore, erred in exercising jurisdiction u/s 263

19 ITA No. 64/NAG/2017 Shri Mayur Khara vs Pr. CIT-2, Nagpur of the Act in respect of the issues which were already examined by the AO. It is submitted that under the jurisdiction u/s 263 of the Act, the Ld. PCIT has initiated revision proceedings in order to carry out fishing and roving enquiries in the matters which are already concluded by the AO and therefore the exercise of jurisdiction u/s 263 of the Act is bad in law. The Ld. PCIT has erred in exercising jurisdiction u/s 263 of the Act when the issues raised therein were already enquired into by the AO during the assessment proceedings. The AO had passed the assessment order only after conducting detailed enquiry on various issues appearing in the show cause notice issued u/s 263 of the Act. The assessment order is passed after due application of mind, therefore, the impugned notice and order u/s 263 of the Act alleging that proper and adequate enquiry was not made, rendering the Assessment Order erroneous and prejudicial to the interest of revenue, is arbitrary based on conjecture and surmises. The Ld. PCIT has not given any finding as to how and in what manner the order of the AO on the various issues noted in its order u/s 263 of the Act was erroneous and prejudicial to the interest of the Revenue. The ld. PCIT has not made any enquiry on his own but simply directed the AO to make further verification and examination therefore, the order of the ld. CIT u/s 263 of the Act deserves to be set aside. The ld. AR relied on the judgment of the Hon'ble Delhi High Court in the case of Ld. Pr.CIT v. Delhi Aitport Metro Express (P.) Ltd. [2018] 99 taxmann.com 382/398 ITR 8, where in it was held that for the purpose of exercising 19

20 ITA No. 64/NAG/2017 Shri Mayur Khara vs Pr. CIT-2, Nagpur jurisdiction u/s 263 of the Act and reaching a conclusion that the order is erroneous and prejudicial to the interest of revenue, the ld. PCIT has to undertake some minimal inquiry and in fact where the ld. PCIT is of the view that AO had not undertaken any inquiry, it becomes incumbent on the Ld. PCIT to conduct such enquiry. Further in the case of Pr.CIT v. Modicare Ltd. [IT Appeal No. 759 of 2017] Hon'ble Delhi High Court has followed its decision in Income- tax Officer v. DG Housing Projects Ltd. [2013] 212 Taxman 132 (Mag.)/[2012] 20 taxmann.com 587/343 ITR 329, DIT v. Joyti Foundation [2013] 38 taxmann.com 180/219 Taxman 105 (Mag.)/357 ITR 388 (Delhi) and Ld. PCIT v. Delhi Airport Metro Express (P.) Ltd. (supra) to hold that the exercise of jurisdiction u/s 263 of the Act cannot be outsourced by the PCIT to the AO and therefore, the PCIT cannot direct the AO to provide details of the facts on the basis of which the proceedings u/s 263 of the Act could have been initiated. In the instant case, the ld. PCIT, unmindful of the enquiries conducted by the AO during the assessment proceedings and submissions made by the appellant in response to notice u/s 263 of the Act, has merely observed that the assessment order was passed without making proper enquiries and it is a matter of record that Ld. PCIT has himself not undertaken any enquiry to reach a conclusion that the order is erroneous and prejudicial to the interest of revenue. Therefore, in the absence of any justification for exercise of jurisdiction u/s 263 of the Act, the order of ld. PCIT passed u/s 263 of the Act is liable to be set aside. There is 20

21 ITA No. 64/NAG/2017 Shri Mayur Khara vs Pr. CIT-2, Nagpur difference between 'Lack of enquiry' and 'inadequate enquiry'. It is for the AO to decide the extent of enquiry to be made as it is his satisfaction as what is required under law. Reliance is placed on the decision of CIT v. Sunbeam Auto Ltd. [2010] 189 Taxman 436/[2011] 332 ITR 167 (Delhi), wherein Hon'ble Delhi High Court has held that if there was any inquiry, even inadequate, that would not by itself, give occasion to the Ld. PCIT to pass order u/s 263 of the Act, merely because the Ld. PCIT has a different opinion in the matter and that only in cases where there is no enquiry, the power u/s 263 of the Act can be exercised. The ld. PCIT cannot pass the order u/s 263 of the Act on the ground that further/thorough enquiry should have been made by AO. The ld. counsel for the appellant submitted that even though there has been an amendment in the provisions of section 263 of the Act by which Explanation 2 is inserted, w.e.f. 1- 6-2015 but the same does not give unfettered powers to the Commissioner to assume jurisdiction u/s 263 of the Act to revise every order of the AO to re- examine the issues already examined during the course of assessment proceedings. The Hon'ble Mumbai ITAT has dealt with Explanation 2 as inserted by the Finance Act, 2015 in the case of Narayan TatuRane v. ITO [2016] 70 taxmann.com 227 to hold that the said Explanation cannot be said to have overridden the law as interpreted by the Hon'ble Delhi High Court, according to which the Ld. PCIT has to conduct an enquiry and verification to establish and show that the assessment order is unsustainable in law. The Tribunal has further 21

22 ITA No. 64/NAG/2017 Shri Mayur Khara vs Pr. CIT-2, Nagpur held that the intention of the legislature could not have been to enable the ld. PCIT to find fault with each and every assessment order, without conducting any enquiry or verification in order to establish that the assessment order is not sustainable in law, since such an interpretation will lead to unending litigation and there would not be any point of finality in the legal proceedings. The opinion of the Ld. PCIT referred to in section 263 of the Act has to be understood as legal and judicious opinion and not arbitrary opinion. Before proceeding to examine the facts of the case we will first go through the provisions of Section 263 and various judgments and decisions rendered with regard to Section 263 of the Act. Section 263 of the Act reads as under:— 263. (1) The Principal Commissioner or 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 in so far as it is prejudicial to the interests of the revenue, he may, after giving the appellant 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 assessment and directing a fresh assessment.

Explanation 1.—For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,—

(a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include— (i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income-tax Officer on the basis of the directions issued by the Joint Commissioner under section

23 ITA No. 64/NAG/2017 Shri Mayur Khara vs Pr. CIT-2, Nagpur 144A;

(ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General or Principal Commissioner or Commissioner authorised by the Board in this behalf under section 120;

(b) "record" shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Principal Commissioner or Commissioner;

(c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Principal Commissioner or] Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal.

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

24 ITA No. 64/NAG/2017 Shri Mayur Khara vs Pr. CIT-2, Nagpur (d) the order has not been passed in accordance with any decision which is prejudicial to the appellant, rendered by the jurisdictional High Court or Supreme Court in the case of the appellant or any other person. (2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed.

(3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, National Tax Tribunal, the High Court or the Supreme Court.

Explanation.—In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the appellant to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded.

From perusal of the aforesaid section, it is apparent that there are mainly four features of the power for revision to be exercised u/s 263 of the Act by the Pr. CIT: i. The Pr. CIT may call for and examine the records of any proceedings under the Act and for this purpose he/she need not show any reason or record any reason to belief as it is required u/s 147 or 143(2) of the Act.

ii. He/She may consider any order passed by the Assessing Officer as erroneous as well as prejudicial to the interest of the Revenue. This is

25 ITA No. 64/NAG/2017 Shri Mayur Khara vs Pr. CIT-2, Nagpur exercised by calling for and examining the record available at this stage.

iii. If after calling for and examining the records the Commissioner considers that the order of the Assessing Officer is erroneous is so far it is prejudicial to the interest of the Revenue, he is bound to give an opportunity to the assessee of being heard and after that as he/she may deem fit, pass such order thereon as the circumstances of the case may justify including an order enhancing or modifying the assessment or cancelling assessment and directing a fresh assessment or make such enquiries as he deems necessary.

iv. Under the provisions of section 263 of the Act Pr. CIT/CIT can enhance or modify the assessment as a result of inquiry conducted and hearing of the assessee.

It is well settled law that for invoking the provisions of section 263 of the Act both the conditions that the order must be erroneous and prejudicial to the interest of revenue needs to be satisfied. Under section 263(1) two pre-requisites must be present before the Commissioner can exercise the revisional jurisdiction conferred on him. First is that the order passed by the ITO must be erroneous. Second is that the error must be such that it is prejudicial to the interests of the revenue. If the order is erroneous but it is not prejudicial to the interests of the revenue, the Commissioner can not exercise the revisional jurisdiction under section 263(1). Section 263(1) clearly contemplates that the order of assessment itself should be prejudicial to the interests of the revenue and this prejudice has 25

26 ITA No. 64/NAG/2017 Shri Mayur Khara vs Pr. CIT-2, Nagpur to be proved by reference to the assessment order only. It cannot be argued that there is some possibility of the assessment order being challenged or revised in appeal and, therefore, on account of this contingency, the order becomes prejudicial to the interests of the revenue." Hon'ble Apex Court in the case of Malabar Industrial Co. Ltd. (supra) - order pronounced on 10-2-2000 - HEAD NOTE -"Section 263 of the Income-tax Act, 1961 – Revision - Of orders prejudicial to interests of revenue - Assessment year 1983-84 -Whether in order to invoke section 263 Assessing Officer's order must be erroneous and also prejudicial to revenue and if one of them is absent, i.e., if order of Income-tax Officer is erroneous but is not prejudicial to revenue or if it is not erroneous but is prejudicial to revenue, recourse cannot be had to section 263(1) - Held, yes -Whether if due to an erroneous order of ITO, revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to interests of revenue - Held, yes - Appellant-company entered into agreement for sale of estate of rubber plantation - As purchaser could not pay installments as scheduled in agreement, extension of time for payment of installments was given on condition of vendee paying damages for loss of agricultural income and appellant passed resolution to that effect - Appellant showed this receipt as agricultural income - Resolution passed by appellant was not placed before Assessing Officer - Assessing Officer accepted entry in statement of account filed by appellant and accepted same - Commissioner under section 263 held that said amount was not connected with agricultural activities and was liable to be taxed under head 'Income from other sources' - Whether, where Assessing Officer had accepted entry in statement of account filed by appellant, in absence of any supporting material without making any enquiry, exercise of jurisdiction by Commissioner under section 263(1) was justified -Held, yes 26

27 ITA No. 64/NAG/2017 Shri Mayur Khara vs Pr. CIT-2, Nagpur

Even jurisdictional Bombay High Court, in the case of CIT vs. NiravModi [2017] 390 ITR 292(Bom) (HC), has held that the appellant had received gifts from donors located abroad. The gifts were received in previous years relevant to Assessment Years 2007-2008 and 2008-2009. The AO on enquiry as to the identity and creditworthiness of the donor accepted the claim of the assessee and did not note any details with respect to the gifts in the order of assessment. The Commissioner sought to revise the order of assessment by directing the AO to rexamine the claim of the assessee. The Revenue argued that in the absence of any detail in the order of assessment, no enquiry was made, and that the AO had not examined the donors. Therefore, that the order was rightly revised by the Commissioner. The Court held that enquiries were made by the AO and such enquiries need not reflect in the order of assessment especially if the AO has accepted the claim, for if the issues which have attained finality are discussed in the the order of assessment, it would become an epitome and not a judicial order. That the order of assessment simply records the dissatisfaction of the AO with respect to amounts claimed or where tax has escaped assessment. Also, that neither is the AO expected to enquire into the source of the source of the alleged funds as that is not mandated by law. Also, that the Commissioner simply directed the AO to re-examine the claim and that was not permissible. The Commissioner had to be specific and must arrive at 27

28 ITA No. 64/NAG/2017 Shri Mayur Khara vs Pr. CIT-2, Nagpur findings as to how the order in question is erroneous. That duty cannot be cast on the AO by directing him to examine if his own order is erroneous. Lastly, that the view taken by the AO was certainly a possible view. In the facts and circumstances, the appeal was dismissed. Hon'ble Gujarat High Court in the case of CIT v. Smt. Minalben S. Parikh [1995] 79 Taxman 184/215 ITR 81 - order pronounced on 17-10-1994 – Para 12 – "From the aforesaid, it can well be said that the well-settled principle in considering the question as to whether an order is prejudicial to the interests of the revenue or not is to address oneself to the question whether the legitimate revenue due to the exchequer has been realised or not or can be realised or not if his orders under consideration are allowed to stand. For arriving at this conclusion, it becomes necessary and relevant to consider whether the income in respect of which tax is to be realised, has been subjected to tax or not or if it is subjected to tax, whether it has been subjected to tax at a rate at which it could yield the maximum revenue in accordance with law or not. If income in question has been taxed and legitimate revenue due in respect of that income had been realised, though as a result of erroneous order having been made in that respect, in our opinion, the Commissioner cannot exercise powers for revising the order under section 263 merely on the basis that the order under consideration is erroneous. If the material in that regard is available on the record of the appellant concerned, the Commissioner cannot exercise his powers by ignoring that material which links the income concerned with the tax realization made thereon. The two questions are inter-linked and the authority exercising powers under section 263 is under an obligation to consider the entire material about the existence of income and the tax which is

29 ITA No. 64/NAG/2017 Shri Mayur Khara vs Pr. CIT-2, Nagpur realizable in accordance with law and further what tax has in fact been realised under the alleged assessment orders."

Hon'ble Karnataka High Court in the case of V. G. Krishnamurthy v. CIT [1985] 20 Taxman 65/152 ITR 683 - order pronounced on 19-3-1984 – Para 10 – "Section 263 can be invoked by the Commissioner only when he prima facie finds that the order made by the ITO was erroneous and was prejudicial to the interests of the revenue. Both these factors must simultaneously exist. An order that is erroneous must also have resulted in loss of revenue or prejudicial to the interests of the revenue. Unless both these factors co-exist or exist simultaneously, the Commissioner cannot invoke or resort to section 263. It cannot be exercised to correct every conceivable error committed by an ITO. Before the suomoto power of revision can be exercised, the Commissioner must at least prima facie find both the requirements of section 263, namely, that the order sought to be revised is prima facie erroneous and prejudicial to the interests of the revenue. If one of the other factor was absent, the Commissioner cannot exercise the suomoto power of revisionunder section 263."

In the case of CIT v. NageshKnitwears (P.) Ltd. [2012] 22 taxmann.com 309/210 Taxman 145 (Mag.)/345 ITR 135 (Delhi) the Hon'ble Delhi High Court has elucidated and explained the scope of provision of Section 263 of the Act and the same has been extracted by the Hon'ble Delhi High Court in the case of CIT v. Goetze (India) Ltd. [2014] 44 taxmann.com 138/225 Taxman 135 (Mag.)/361 ITR 505 (Delhi) as under :—

30 ITA No. 64/NAG/2017 Shri Mayur Khara vs Pr. CIT-2, Nagpur "Thus, in cases of wrong opinion or finding on merits, the Commissioner of Income-tax has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under section 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order is not sustainable in law and the said finding must be recorded. The Commissioner of Income-tax cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the Commissioner of Income-tax must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the Commissioner of Income-tax and he is able to establish and show the error or mistake made by the Assessing officer, making the order unsusstainable in law. In some cases possibly though rarely, the Commissioner of Income-tax can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the Assessing Officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under section 263 of the Act. In such matters, to remand the matter/issue to the Assessing Officer would imply and mean the Commissioner of Income-tax has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question…." Similar view has been expressed by Hon'ble Madras High Court in the case of CIT v. Amalgamations Ltd. (238 ITR 963)

The law interpreted by the Hon'ble courts makes it clear that Ld. PCIT before holding the order of the Ld. A.O as erroneous in so far as prejudicial to the 30

31 ITA No. 64/NAG/2017 Shri Mayur Khara vs Pr. CIT-2, Nagpur interest of revenue should have to conduct necessary enquiries or verification in order to show that the findings given by Ld. A.O is unsustainable in law. Similar view was taken by the Hon'ble Delhi High Court in the case of D.G. Housing Projects Ltd. (supra) wherein the Hon'ble Court after referring to judgments of Hon'ble High Court in the case of Addl. CIT v. Gee Vee Enterprise [1975] 99 ITR 375 (Delhi), Sunbean Auto Ltd. (supra), Malabar Industries (supra) held in favour of the appellant confirming the order of the Tribunal observing as follows:—

32 ITA No. 64/NAG/2017 Shri Mayur Khara vs Pr. CIT-2, Nagpur recorded is erroneous and which is also prejudicial to the interest of the Revenue. In latter cases, the CIT has to examine the order of the Assessing Officer on merits or the decision taken by the Assessing Officer on merits and then hold and form an opinion on merits that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. In the second set of cases, CIT cannot direct the Assessing Officer to conduct further enquiry to verify and find out whether the order passed is erroneous or not. The CIT is patently wrong in mentioning and stating that Schedule III to the Wealth Tax Act, 1957 was not applicable but, the Assessing Officer should have adopted the said formula/method. The aforesaid reasoning cannot be accepted and does not show or establish that the assessment order was erroneous. In view of the aforesaid reasoning, the question of law is answered in favour of respondent appellant and against the Revenue and the appeal is accordingly dismissed. No costs.

The Hon'ble Delhi High Court in the case of CIT v. Sunbeam Auto Ltd. reported in (2011) 332 ITR 167 (Del.) : in Paragraph 17 has ruled that one has to keep in mind the distinction between 'lack of inquiry' and 'inadequate inquiry' and further if there was any inquiry, even inadequate, that would not by itself give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has a different opinion in the matter. It was further held by the Hon'ble Delhi High Court that if any assessing officer, acting in accordance with law, makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. In another case of PCIT vs. Delhi Airport Metro

33 ITA No. 64/NAG/2017 Shri Mayur Khara vs Pr. CIT-2, Nagpur Express Pvt.Ltd.[2017] ITA NO.705/2017(Delhi)(HC), the Commissioner opined that assessing officer allowed depreciation in excess of what was assessing officer to make fresh assessment. the Delhi High Court has held that or the purpose of exercising jurisdiction under section 263 of the Act, the conclusion that the order of the assessing officer is erroneous and prejudicial to the interests of the Revenue has to be preceded by some minimal inquiry. That basic exercise of determining as to what extent the depreciation was claimed in excess has not been undertaken by the Pr. CIT. He had exercised the second option available to him under section 263(1) of the Act by sending the entire matter back to the assessing officer for a fresh assessment. That option, in the considered view of the Court, can be exercised only after the Pr. CIT undertakes an inquiry himself. The High Court held that revision was not justified. The relevant para of this judgement is reproduced below :- Para 9:- It is seen, in the order dated 30th March 2016, the PCIT has proceeded by setting out the contents of the SCN and the contents of the reply given by the Appellant. It appears that no inquiry, as such, was undertaken by the PCIT to come to the conclusion that the original assessment order was erroneous and prejudicial to the interests of the Revenue. Para 10:-

34 ITA No. 64/NAG/2017 Shri Mayur Khara vs Pr. CIT-2, Nagpur 10. For the purposes of exercising jurisdiction under Section 263 of the Act, the conclusion that the order of the AO is erroneous and prejudicial to the interests of the Revenue has to be preceded by some minimal inquiry. In fact, if the PCIT is of the view that the AO did not undertake any inquiry, it becomes incumbent on the PCIT to conduct such inquiry. Para 12:- Mr. Asheesh Jain then volunteered that the PCIT had exercised the second option available to him under Section 263 (1) of the Act by sending the entire matter back to the AO for a fresh assessment. That option, in the considered view of the Court, can be exercised only after the PCIT ITA No.705/2017 Page 5 of 5 undertakes an inquiry himself in the manner indicated hereinbefore. That is missing in the present case. Para 13:- Therefore, the Court is of the view that the ITAT was not in error in setting aside the impugned order of the PCIT under Section 263 of the Act.

In another case of Secure Meters Ltd. V/s Pr.CIT (ITA 02/JODH/2021) dated 07.09.2021, the Bench has considered the decision of Hon’ble Delhi High Court in the case of Delhi Airport Metro Express Ltd. reported in 2017 (398 ITR 8)(Delhi). The relevant para of this judgment is reproduced below :-

35 ITA No. 64/NAG/2017 Shri Mayur Khara vs Pr. CIT-2, Nagpur examined. As regards claim of bad debts and foreign exchange fluctuation the issue was duly examined by AO and we find nothing has been pointed out with regard to the allowability of the same or as to how the decision of the AO was erroneous or prejudicial to the interest of revenue. 24. In light of above discussion we hold that the order u/s 263 cannot be sustained as we find that the assessment order passed by the AO cannot be said to be erroneous or prejudicial to the interest of revenue, and accordingly the order made u/s 263 is quashed. In our considered opinion, the ld Principal Commissioner, without making further inquiry on his own account, has simply stated in the impugned order that the Assessing Officer was required to make more inquiries. The learned Principal Commissioner has not pointed out as to what further inquiry was the assessing officer required to make and as to how without those inquires the order of the assessing officer was erroneous in so far as prejudicial to the interest of the Revenue. As per the provisions of section 263(1) of the Act, after getting the explanation of the appellant to the show cause notice, the learned Principal Commissioner is supposed to examine the contention of the appellant and before passing an order cancelling the assessment, he is supposed to conduct an inquiry himself or cause to make such an inquiry, as he deems fit/necessary. As far as the invocation by the learned Principal Commissioner of Explanation 2 to section 263 of the Act is concerned, the Delhi Bench of the Income Tax Appellate Tribunal had an occasion to consider this aspect in the case of Amira Pure Foods (P) Ltd. v. Pr. CIT (2017) 51 CCH 0473 (Del-Trib) wherein, the Delhi Bench,

36 ITA No. 64/NAG/2017 Shri Mayur Khara vs Pr. CIT-2, Nagpur while relying upon the judgment of the Hon'ble Delhi High Court in the case of Pr. CIT v. Delhi Airport Metro Express (P) Ltd. (ITA No. 705/2017) (Del- HC) has held that Explanation 2 cannot be stated to have overridden the law as interpreted by various High Courts, where the High Courts have held that before reaching the conclusion that the order of the assessing officer is erroneous and prejudicial to the interest of Revenue. The Commissioner himself has to undertake some enquiry to establish that the assessment order is erroneous and prejudicial to the interest of Revenue. Similarly, the Coordinate Bench of Income Tax Appellate Tribunal, Mumbai in the case of Narayan TatuRane reported in TS- 290-ITAT 2016 (Mumbai) : (Mum-Trib) has held that Explanation 2 to Section 263does not provide unfettered right to the Principal Commissioner to revise each and every order. It was held that it is the responsibility of the Principal Commissioner to show that the enquiry for verification conducted by the assessing officer was not in accordance with the enquires or verification that would have been carried out by a prudent officer.We also find that on similar issue the Delhi Bench of ITAT had occasion to examine this issue in the case of M/s Amira Pure Foods Private Limited vs. PCIT in ITA No. 3205/Del/2017, in which following the decision of Hon’ble Delhi High Court in the case of Delhi Airport Metro Express Ltd. reported in (2017) 398 ITR 8 (Delhi) in which it has been held as under : It is seen, in the order dt. 30th March 2016, the Principal CIT has 36

37 ITA No. 64/NAG/2017 Shri Mayur Khara vs Pr. CIT-2, Nagpur proceeded by setting out the contents of the show-cause notice and the contents of the reply given by the appellant. It appears that no inquiry, as such, was undertaken by the Principal CIT to come to the conclusion that the original assessment order was erroneous and prejudicial to the interests of the Revenue. For the purposes of exercising jurisdiction under s. 263, the conclusion that the order of the AO is erroneous and prejudicial to the interests of the Revenue has to be preceded by some minimal inquiry. In fact, if the Principal CIT is of the view that the AO did not undertake any inquiry, it becomes incumbent on the Principal CIT to conduct such inquiry. All that Principal CIT has done in the impugned order is to refer to the Circular of the CBDT and conclude that "in the case of the appellant-company, the AO was duty bound to calculate and allow depreciation on the BOT in conformity of the CBDT Circular No. 9 of 2014 but the AO failed to do so. Therefore, the order of the AO is erroneous insofar as prejudicial to the interest of revenue. This can hardly constitute the reasons required to be given by the Principal CIT to justify the exercise of jurisdiction under s. 263. In the context of the present case if, as urged by the Revenue, the appellant has wrongly claimed depreciation on assets like land and building, it was incumbent upon the Principal CIT to undertake an inquiry as regards which of the assets were purchased and installed by the appellant out of its own funds during the assessment year in question and, which were those assets that were handed over to it by the DMRC. That basic exercise of determining to what extent the depreciation was claimed in excess has not been undertaken by the Principal CIT. It was argued that the Principal CIT had exercised the second option available to him under s. 263(1) by sending the entire matter back to the AO for a fresh assessment. That option, in the considered view of the Court, can be exercised only after the Principal CIT undertakes an inquiry himself in the manner indicated hereinbefore. That is missing in the present case. Tribunal was not in error in setting aside the impugned order of the Principal CIT under s. 263. No substantial question of law arises.

38 ITA No. 64/NAG/2017 Shri Mayur Khara vs Pr. CIT-2, Nagpur We may also refer to the findings of the ITAT Delhi Bench in the case of Amaira Pure Foods Private limited reported in (2018) 63 ITR (Trib) 355 (Delhi) in which it has been observed as under : “29. We are also of the view that as per instruction No. 3 of 2016, it was not mandatory for the AO to make a reference to TPO. The appellant had explained before the learned Principal CIT that its case does not fall under the conditions referred to in the instruction No. 3 of 2016 and as such it wasn’t obligatory for the AO to make a reference to TPO. The learned Principal CIT has not dealt with this contention of the appellant and has given a bald finding that AO should have referred to TPO as per instruction No. 3 of 2016. The learned Principal CIT has not specified under which condition of instruction No. 3 of 2016, the AO should have referred to TPO. The argument of the learned Departmental Representative that selection under CASS was made because of mismatch in foreign remittent and Form 15CA, also doesn’t help the cause of the Revenue. As per r. 37BB, the reporting in Form 15CA is in respect of payment made to non-resident not being a company or to a foreign company. The reporting is not limited or is not particularly in respect of payment made to associated enterprise. We are of the view that the CASS selection was not on the basis of TP risk parameters as envisaged in instruction No. 3 of 2016 and as such the AO was not bound to make a reference to the TPO. 30. The appellant had filed various replies to the learned PCIT in response to notice under s. 263 of the Act stating that all the issues raised by the learned Principal CIT have been examined by the AO during the course of assessment. The learned Principal CIT has ignored the replies of the appellant. He merely states that the reply has been filed by the appellant but he nowhere discusses the contentions raised by the appellant and why he does not agree with the contentions of the appellant. The learned Principal CIT has merely remitted the matter back to the AO without making any enquiry himself. The learned Principal CIT has mentioned that the fresh loans have not been

39 ITA No. 64/NAG/2017 Shri Mayur Khara vs Pr. CIT-2, Nagpur examined by the AO. The learned Principal CIT has not considered the contentions of the appellant that there is no fresh loan. Similarly, the other replies of the appellant filed during the course of assessment and in response to notice under s. 263 of the Act have been totally ignored. No enquiry has been made by the learned Principal CIT. It was incumbent for the learned Principal CIT to make some minimum independent enquiry to reach to the conclusion that the order of the AO is erroneous and prejudicial to the interest of revenue. The reliance is rightly placed on the decisions of Delhi High Court in learned Principal CIT vs. Delhi Airport Metro Express (P) Ltd. (supra) and ITO vs. DG Housing Projects Ltd. (supra). The Hon’ble Delhi High Court in Delhi Airport Metro Express (P) Ltd. (supra) has made the following observation: "10. For the purposes of exercising jurisdiction under s. 263 of the Act, the conclusion that the order of the AO is erroneous and prejudicial to the interests of Revenue had to be preceded by some minimal inquiry. In fact, if the learned Principal CIT is of the view that the AO did not undertake any inquiry, it becomes incumbent on the learned Principal CIT to conduct such inquiry." 31. The learned Principal CIT has not referred to Expln. 2 of s. 263 of the Act which has been inserted w.e.f. 1st June, 2015 however we agree with the finding of the Co-ordinate Bench in the case ofNarayanTatuRane(supra), wherein it has been held that explanation cannot said to have overridden the law as interpreted by the various High Courts, where the High Courts have held that before reaching a conclusion that the order of the AO is erroneous and 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. In the case of Narayan Rane a doubt is also expressed regarding the applicability of Expln. 2, which was inserted by Finance Act 2015 w.e.f. 1st June, 2015, the bench also observed that if the explanation is interpreted to have overridden the law as laid down by various High Courts, then the same would empower the Principal CIT to find fault with each and every assessment order and also to 39

40 ITA No. 64/NAG/2017 Shri Mayur Khara vs Pr. CIT-2, Nagpur force the AO to conduct enquiries in the manner preferred by the Principal CIT, thus prejudicing the mind of the AO, however, the intention of the legislature behind the explanation could not have been so as the same would lead to unending litigation and no finality in the legal proceedings. It is also noted that vide para 8 of the revision order, the learned PCIT relied on the Supreme Court Judgments in case of CIT/ V/s Amitabh Bachchann of 2016 in Civil Appeal No.5009. The facts of the appellants’ case and the case before Hon’ble Supreme court are different. In the case before the Supreme Court, the assesse had filed a revised return, claiming additional expenses. The Assessing Officer enquired about the expenses and asked the assesse to furnish the details with regards to expenses incurred. The Appellant submitted that the expenses are incurred out of the cash balance available with him. When the assessing officer commenced enquiry about the claim of expenditure out of cash balance, the assesse withdrew his revised return. The Assessing Officer accepted the same and made no further enquiries. Thus, this was a case where, once the claim was withdrawn, then the enquiry which was to be conducted was aborted by the Assessing Officer. Therefore, a case of non enquiry. In such a case even if the CIT would have taken a view that the satisfaction of the Assessing officer is not correct, he would not have been able to exercise his powers of revision under section 263 of the Act. In the facts of the present case, the Assessing Officer was satisfied consequent to making an enquiry and examining the

41 ITA No. 64/NAG/2017 Shri Mayur Khara vs Pr. CIT-2, Nagpur evidences produced by the appellant for the claim of agricultural income. The learned PCIT in the revision order has not doubted any evidences produced by the appellant. However, he made out case of inadequate enquiry, but he erred in not doing minimal enquiry to ascertain the fact that whether the order is erroneous or not. The learned PCIT has relied on the decision of Hon’ble ITAT Bench (E) in the case of AppolloTyres Ltd ACIT (65 ITD 263(Delhi). In this regards we humbly wish to state that the jurisprudence discussed in this case is not relevant for the present case. In this case the Hon’ble Delhi High Court has upheld the jurisdiction of CIT to revoke 263 provision on proposal of the AO and the legality of invoking of 263 provision when alternate course of action in the form of 147 was also available. In the present case, non of these legal grounds has been raised by the appellant. Thus, the decision of the aforementioned judgment is not applicable to the appellant’s case. Therefore, on an overall view of the facts of the case, we are of the considered opinion that the exercise of revisional jurisdiction by the learned Principal Commissioner is without any justification. The learned Principal Commissioner has sought to reappraise the evidence in the garb of revisional jurisdiction. In light of above discussion we hold that the order u/s 263 cannot be sustained as we find that the assessment order passed by the AO cannot be said to be erroneous or prejudicial to the interest of revenue, and accordingly the order made u/s 263 is quashed. Thus the appeal of the assessee is allowed. 41

42 ITA No. 64/NAG/2017 Shri Mayur Khara vs Pr. CIT-2, Nagpur 3.0 Now we take up the appeal of Shri Amit Khara (ITA No.63/NAG/2021) for adjudication. 3.1 At the outset of hearing of the appeal, the Bench noted that there is delay of 72 days in filing the present appeal by the assessee which the assessee has filed an application dated 7-10-2021 for condonation of delay, praying therein as under.

“The statute provides 60 days from the date of service of order of Commissioner of Income Tax appeals for filing appeal before the Income Tax Appellate Tribunal. In this case order has been received by the Appellant on 16/02/2021 and the appeal was filed on 28/06/2021 i.e. beyond the limit provided by the statute. However, the Hon’ble Supreme Court vide the order dated 27/04/2021 in Miscellaneous Application No. 665/2021 has extended the period of limitation as prescribed under any general or special laws in respect of all judicial or quasi judicial proceedings till the further orders. The Hon’ble Supreme Court has further adjourned the case to 19/07/2021. Therefore, the period of limitation from 01/03/2020 to 19/07/2021 has been excluded till the further order by the Hon’ble Supreme Court. In case of present appeal, the period of limitation falls within the aforementioned period. Therefore, the appeal filed by the Appellant are not barred by limitation. I humbly request your kindness to accept our appeal.For this act of kindness we shall always remain obliged.” 3.2 On the other hand, the ld CIT- DR opposed the condonation application but could not rebut the facts submitted by the assessee before us for seeking condonation of delay.

43 ITA No. 64/NAG/2017 Shri Mayur Khara vs Pr. CIT-2, Nagpur 3.3 We have heard the rival contentions and pursued the material available on record. There is no dispute and is an admitted fact that there has been a delay in filing the present appeal by 72 days. It is also an undisputed fact that the Hon’ble Supreme Court vide the order dated 27/04/2021 in Miscellaneous Application No. 665/2021 has extended the period of limitation as prescribed under any general or special laws in respect of all judicial or quasi judicial proceedings till the further orders. There is also no dispute that under section 253(5) of the Income Tax Act, 1961 (in short, the Act) the Tribunal may admit an appeal filed beyond the period of limitation where it is satisfied that there exists a sufficient cause on the part of the assessee for not presenting the appeal within the prescribed time. The explanation of the assessee therefore becomes relevant to determine whether the same reflects sufficient and reasonable cause on his part in not presenting the present appeal within the prescribed time. In case of Collector, Land Acquisition, Anantnag & Anr. Vs Mst. Katiji and others (1987) 2 SCC 107, the Hon'ble Supreme Court has held that the expression ‘Sufficient Cause’ employed by the legislature is adequately elastic to enable the Courts to apply the law in a meaningful manner to sub-serves the ends of justice that being the life-purpose of the existence of the institution of Courts. It was further held by the Hon’ble Supreme Court that such liberal approach is adopted on one of the principles that refusing to condone delay can result in a meritorious matter being thrown out at the very threshold and cause 43

44 ITA No. 64/NAG/2017 Shri Mayur Khara vs Pr. CIT-2, Nagpur of justice being defeated. As against this, when delay is condoned, the highest that can happen is that a cause would be decided on merits after hearing the parties. Another principle laid down by the Hon’ble Supreme Court is that when substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred for the other side cannot claim to have vested right in injustice being done because of a non-deliberate delay. It was also held by the Hon’ble Supreme Court that there is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of male fides. A litigant does not stand to benefit by resorting to delay. In fact, he runs a serious risk. In the instant case, applying the same principles, we find that there is no culpable negligence or malafide on the part of the assessee in delayed filing of the present appeal and it does not stand to benefit by resorting to such delay more so considering the fact that it has applied for settlement of present dispute and payment of appropriate taxes. Therefore, in the factual matrix of the present case, we find that there exists sufficient and reasonable cause for condoning the delay in filing the present appeal and as held by the Hon’ble Supreme Court, where substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserved to be preferred. In light of aforesaid discussions, in exercise of powers under section 253(5) of the Act, we hereby condone the delay in filing the present appeal as we are satisfied that there was sufficient cause for not 44

45 ITA No. 64/NAG/2017 Shri Mayur Khara vs Pr. CIT-2, Nagpur presenting the appeal within the prescribed time and the appeal is hereby admitted for adjudication on merits.

4.1 Apropos grounds of appeal in respect of Shri Amit Khara, the ld. Pr.CIT vide para 10 of his order has set aside the assessment order passed by the AO by observing as under:-

‘’10. In view of the above discussion and considering the fact that necessary enquiry were not conducted and the issue was not examined by the Assessing Officer and further in view of the provisions of the Act and the judicial interpretation thereto, the order of the Assessing Officer is erroneous insofar as it is prejudicial to the interest of revenue. This being so the said assessment order passed by the AO is set aside. The Assessing Officer is directed to reassess the income of the assessee afresh after examining the relevant details and such other issues and conduct proper and necessary enquiry, as may be relevant and necessary and then pass a speaking assessment order. Needless to state, the Assessing Officer should follow due procedure and also afford reasonable and fair opportunity of being heard to the assessee before the completion of reassessment.’’ 4.2 After hearing both the parties and perusing the materials available on record, the Bench finds that the issue raised in the case of Shri Amit Khara is same as in the case of Shri Mayur Khara. Therefore, the decision taken by the

46 ITA No. 64/NAG/2017 Shri Mayur Khara vs Pr. CIT-2, Nagpur Bench in the case of Shri Mayur Khara shall apply mutatis mutandis in the case of Shri Amit Khara. Thus the appeal of the assessee is allowed.

5.0 In the result, Both the appeals of above mentioned assessee’s are allowed. Order pronounced in the open court on 28/06/2022. Sd/- Sd/- Sd/- Sd/- (ARUN KHODPIA) (SANDEEP GOSAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER

Nagpur DATED: 28/ 06 /2022 *Mishra Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Nagpur City concerned; (5) The DR, ITAT, Nagpur; (6) Guard file. True Copy By Order

Assistant Registrar ITAT, Nagpur