MAHASHIAN DI HATTI (P) LTD,NEW DELHI vs. PCIT-4, NEW DELHI

if he considers that the order has been passed without making enquiry or verification which should have been made, the PCIT is empowered to treat the assessment order erroneous in so far as it is prejudicial to the interest of the Revenue. Therefore submitted that in the present case, the Ld. PCIT rightly invoked explanation 2 to Section 263 of the Act. The Ld. Departmental Representative further submitted that the Ld. PCIT has dealt with each and every issue and come to the conclusion that the assessment order passed u/s 143(3) read with Section 144B of the Act dated 25/08/2022 is erroneous and prejudicial to the interest of the Revenue, therefore, submitted that the Ld. PCIT has rightly cancelled the assessment order and remanded the matter to the file of the A.O. for fresh adjudication of the matter, which requires no interference at the hands of the Tribunal.

10. Further submitted that in the assessment proceedings,the NFAC is not involved in framingthe assessment proceedings, the assessment will be framed by the designated A.O. and the assessment Unit is defined u/s 144B(4) of the Act having various authorities/ and the NFAC is only a monitoring Authority. If the argument of the Ld. Assessee's Representative that the assessment is done by the NFAC which is superior authority to the PCIT and not by any individual A.O., therefore the Ld. PCIT cannot decide the legality of the same, the entire provision of Section 263 of the Act becomes redundant in faceless regime. Further submitted that the intention of the legislature to bring Faceless Assessment is not to make provision of Section 263 of the Act redundant and there is no specific bar in the Act for invocation of provision of Section 263 in case of the Assessment framed in Faceless manner. Therefore, submitted that the order of the PCIT passed u/s 263 of the Act requires no interference at the hands of the Tribunal, thus sought for dismissal of the Appeal.

12. The A.O. issued notice u/s 143(2) and 142(1) of the Actto the Assessee, in response; the Assessee furnished the details through e- filing portal. After considering the reply of the Assessee, the A.O. assessed the income of the Assessee at returned income in following manners:-

“5. The complete description of issue is as under: 1. Stock Valuation:- The assessee has stated that during the close of relevant period i.e. as on31.03.2020 the assessee had an inventory of Rs. 142.68 crores as against the inventory of Rs. 131.99 crores in the preceding year as on 31.03.2019. The turnover of the assessee during the relevant period was Rs. 1319.71 crores as aginstRs. 1190.48 crores in the preceding year. This means that there was an increase of 10.85% in the turnover whereas the increase in the inventory was 8.10% which was slightly lower than the increase in the turnover because of proper inventory management particularly of the finished goods which reduced to Rs. 19.62Crores in the relevant period as against Rs. 23.09 crores in the preceding year. Similarly, the cost of material consumed during the relevant period was Rs. 610,96crores during the relevant period as against Rs. 574.60 crores in the preceding period and thus it was 46.29% of the sale during the relevant period as against 48.27% in the preceding year. Thus the consumption of raw material was lower by almost 2% resulting into increase in the assessable net profit by almost Rs. 26 crores just because of the better management of the inventory.

After perusal of the reply filed by the assessee, no adverse inference is drawn on this issue.

1. Loss from Currency fluctuations:- The assesse has stated that during the relevant period the assessee had a gain on foreign currency exchange fluctuation of Rs. 1,14,94,396/- which is verifiable from the Schedule 19 of other income. A copy of computation of the assessable income for relevant period is enclosed by the assessee. Hence, no adverse inference is drawn on this issue.

6. The reply and details uploaded by the assessee were carefully examined. On the basis of material available on record, the explanation of the assessee on the issue(s) is accepted. Accordingly, the assessment is being completed u/s 143(3) of the Income Tax Act, 1961 by accepting the Income processed by the CPC u/s 143(1) of the I.T. Act.

Considering the above remarks, the total income of the assessee is assessed as under:

Income Processed u/s 143(1) by CPC :Rs. 6,20,42,83,460/-. Total Assessed Income:Rs. 6,20,42,83,460/-

13. The Ld. PCITin exercising the power conferred u/s 263 of the Act,issued notice dated 25/01/2024, which is reproduced as under:-

“

14. In response to above show cause notice dated 25/01/2024 issued u/s 263 of the Act, the Assessee field submissions before the PCIT vide letters dated 05/02/2024, 12/02/2024, 17/02/2204 and 25/03/2024 which are reproduce as under:-

“(i) 05/02/2024 "In response to the above SCN dated 25/01/2024 though issued on 29/01/2024, under instructions of the above assessee, it is stated that it seems that the facts of the assessee as on record have not been properly examined by the revenue before issuing the impugned SCN. It is patent from para 3 of your above notice stating that "Hence, you are requested to file details of such advances given and whether the issue got examined by the FAU during assessment proceedings", meaning undisputedly that you are not aware of the issues examined by the FAU. The above assessment order was passed u/s 143(3) of the Act by the NFAC where in terms of the detailed instructions of the CBDT by way of a SOP for faceless assessment proceedings bearing no. NaFAC/Delhi/CIT-1/2022-23/112/92 dated 03/08/2022, copy attached at PB page no. 1-34, and obviously, a very elaborate procedure laid in the said SOP must have been followed by the AO and every assessment unit in the NFAC must have vetted the return and other information in the assessment proceedings. It cannot be alleged that all the officers in the assessment unit could commit the error of not examining the information which are now being proposed in the SCN. The system of assessment in the Faceless is not in the hands of an individual AO as it used to be earlier in the physical procedure. Therefore, the allegations need to be levelled only in terms of the Faceless assessment proceedings procedures. As elaborated by the Hon'ble jurisdictional Delhi High Court in CIT v Usha International Ltd. [2012] 348 ITR 485 (Del) section 114 of Evidence Act raises presumption that official acts have been regularly done. There are no reasons to presume that the FAU has not followed the said SOP.

1.1 As per the SOP, the initial notice u/s 142(1) was required to be issued considering 360% information/ portal etc. where all the information including history and other nature of business of the assessee as well as the findings / additions in the earlier assessments before strategizing the approach to conduct the assessment proceedings. When such an elaborate assessment procedure has been laid by the above SOP which pass through many authorities then how could it be presumed now that the verification of few necessary issues was left then by a team of many competent officers at different level. Thus, the assessee strongly objects to the proposed action u/s 263 of the Act asabove, which is just nothing more than a proposal to make roving enquiries. It is like a proposal where any and all assessment orders will be open to review u/s 263 of the Act on some flimsy pretext or the other at the whims of the revenue officers. This is never the intention of the legislature and such revisionary authority needs to be exercised with care and not for any reason otherwise for fishing/roving purposes.

1.2 On perusal of the same. it is seen that the said mandatory SOP prescribes as below:

C. Initial Questionnaire u/s 142(1)

C1 Initial questionnaire u/s 142(1) shall be, preferably, issued by AU within 15 days of assignment of cases.

C.2 Before issuing the initial Questionnaire, AU shall:

C.2.1 Consider all internal data bases of the Department 360 degree in ITBA, Insight, E-filing AO Portal available to the AU; C.2.2 Consider Structured questions, if available, and Guidance notes for each issue/scenario maintained by Insight, on the points of enquiry:

C.2.3 Structured questions, if available, on the points of enquiry may be modified, as required; C.2.4 In Reopened cases The initial questionnaire shall seek specific information/evidence on the grounds that led to reopening:

C.2.5 In Set aside cases The initial questionnaire shall seek specific information/evidence on the grounds that led to the case being set-aside; C.2.6 In Compulsory scrutiny cases The initial questionnaire shall seek specific information arising from the return of income or information available on record that led to the case being under compulsory scrutiny.

C3 Due care may be taken to ensure:

C.3.1 Assessee is not asked to submit documents / information already filed by the Assessee and available on record that is accessible to the AU C.3.2 The initial questionnaire is comprehensive, so that multiple notices u/s 142(1) are avoided.

C.3.3 Questions are asked relating to specific details of change in status of the assessee, due to events like restructuring, merger, demerger, amalgamation, cessation, death or dissolution etc. at the time of assessment proceedings.

C.3.4 If so required, questions seeking PAN/TAN, correspondence address, emails etc. are asked in relation to third parties, to facilitate verification/inquiry.

D. Process for issuance of notice w/s 142(1)

D.1 Notice is to be served on the assessee with the approval of Unit Head of the AU, under the digital signature of the Assessment Unit through NaFAC. 1.3 Thus, the AO/AU had examined all the issues by taking care as mentioned in the SOP. The AO could not extend the scope of examination/verification just on his whims as is being proposed now in the impugned SCN, though none of the issues raised therein are erroneous much less prejudicial to the interest of the revenue. The impugned SCN completely fails to address as how the same was erroneous. It is a settled law that just to make roving enquiries to satisfy the whims of the revisionary authority in an already competed assessment u/s 143(3) of the Act, no proceedings u/s 263 of the Act can at all be initiated.

2. Further, on perusal of the attached copy of the notice dated 29/06/2021 issued u/s 143(2) of the Act at PB page no. 35-43, it is seen that only the following 4 issues were flagged for verification and the assessee submitted all the details to the AO who after examining the issues, passed the assessment order u/s 143(3) of the Act, accepting the returned income:

(1) Stock valuation (ii) Loss from currency fluctuations (iii) Refund claim

4. However, for a quick appreciation of the facts on record of the revenue, the following chart gives comparative figures of the business of the assessee in the last 4 assessment years: In CroresRs.

Sl A.Y Turnover Net Net Net Income Gross No. profit as Income profit% to tax donations per P/L returne the sales paid u/s 80G account d 1 2020-21 1319.71 600.42 640.42 45.50 216.64 38.51 2 2019-20 1190.48 527.03 574.41 44.27 189.88 44.69 3 2018-19 1095.09 486.23 496.25 44.40 169.16 12.17 4 2017-18 978.27 380.93 391.66 38.94 132.43 16.45

6 It is also on record that the assessee is engaged in the business of processing and marketing spices, mixed masalas, ground spices, ever since under an internationally famous brand name of MDH. There has been no change in the business of the assessee and its nature during the relevant period as compared to the preceding assessment year which is very much mentioned in the tax audit reports for this AY as well as the preceding AY, copies attached at PB page no. 44-45, in particular where reference is made about the nature of business.

8. Thus, there was no reason for the AO, NF AC to presume necessity of endless and futile verification on other issues and in fact not even in this proceeding, as there is nothing on record which may cause suspicion needing further examination particularly when the net profit declared to the turnover was more than 1% higher at 44.50% than the preceding AY when it was 44.27%.

9 It is also beyond apprehension as to what the AO NFAC, will examine in the proposed fresh proceedings now about the same and a mere allegation that something was not examined without stating therein as to what could be erroneous much less prejudicial to the interest of the Revenue for the impugned proceedings.

11. In respect of remaining donation of Rs 36 crores on which deduction w's 80G of the Act was claimed and a doubt of the source of the same has been expressed therein, again shows a high immaturity. The assessee had declared a taxable income of more than Rs 640 crores/book profit of more than Rs 600 crores during the relevant period which was after deduction of such donation. Thus, the sources were very much on record particularly when the books of account of the assessee were not only audited under the Companies Act but also under the Income-tax Act and the reports for which were very much on record of the revenue as part of the income tax return. The details of all the donees being their names, complete addresses and PANs was very much given in the relevant column in the return of income and all of them were registered u/s 12A of the Income-tax Act as is mentioned therein. A copy of the relevant page of the said details submitted in the return of income is attached at PB page no. 46-49 for your ready reference. It needs to be appreciated that the AO of the donor is not supposed to see the usage of the funds received as donation by the donee as the same needs to be verified by the AO of the donee while assessing the income of the recipient donee. The requisite details of the donees were on record which were considered by the AO NFAC in terms of the SOP and accepted. It is on record that the assessee has been giving such donations every year as is mentioned in the chart herein above. Thus, now making any such enquiry will tantamount to making roving enquiries, not permitted to initiate a proceeding u/s 263 of the Act. It is again stated how non examination of the same could not be termed as erroneous much less prejudicial to the interest of the Revenue, the basic two conditions which need to be satisfied to initiate an action u/s 263 of the Act.

15. In respect of advance for assets/properties, it is stated that during the relevant period the assessee had given instalments of Rs 14.49.91,615/- as advances to builders for shops to be acquired as retail outlets of the produce of the assessee as per the list attached which were adjusted in the subsequent AYs when those assets were registered in the name of the assessee as per the dates mentioned therein. All these purchases are duly recorded in the audited financial accounts for the subsequent years which are on your record filed electronically. In any case, advances given to builders have no bearing upon determination of taxable income and cannot be prejudicial to the interest of the revenue.

16. In respect of the expenses of repair and maintenance during the year at Rs 6.88 crores branch wise details and copies of ledger accounts are attached at PB page no. 54-67, it is stated that the factory premises where the goods are processed and stored had become quite old buildings and needed major repairs. Thus, accordingly expenses incurred for such major repairs were claimed as revenue business expenditure. It must be appreciated that all the business premises of the assessee must be waterproof as any water seepage therein makes the entire produce whether finished or raw material unfit for human consumption, particularly when the product of the assessee covered in the Rules of the FSSAL. It is also because for many years such major repairs were kept on accumulating for one reason or the other but when during the relevant period, it became inevitable, the assessee incurred the said expenses. It is also stated that the expenses incurred in the preceding year were Rs 1,85,74,338/- and not Rs 18,74,338/- and can be verified from the Note 25 in the annual audited accounts. It is submitted with utmost respects that Repairs and Maintenance Expenses are not comparable on year to year basis as these expenses, not only include routine recurring expenses but also incurred due to some contingencies/ break down/ modern technology and host of other factors. For example, if a motor car suffer accident or a boiler bursts, extra expenses would be required in that year only.

17. In respect of expenses of Rs 1,91,80,031/- incurred as Repairs Others during the period under consideration as compared to Rs 80,74,446/- in the preceding year, it is stated that those are normal business expenses branch wise details and copies of ledger accounts are attached at PB page no. 68118 and cannot be considered as not authentic for the business necessities.

18. In respect of the GST input credit not available, it is stated that GST became applicable w.e.f. 01/07/2017 and as per the said Act input credits are available on each purchase against GST payable on each sale by the assessee for which necessary forms have to be filed on the GST portal by the purchaser and the seller both. In case the seller failed to file the requisite returns of GST in time or fail to deposit the GST in time then the required GST input credit of the same is not available to the assessee, purchaser. Thus, the said amount was determined by the assessee at the yearend finding that the sellers had not deposited the GST on their sales / services and which was not reflectingon the GST portal of the assessee. This is equivalent to the Form no. 26.AS where if the TDS is not reflected then the assessee is not given any credit for the said TDS made on his behalf. The details of the GST input credit not available for the relevant period on the issue are attached at PB page nos.

20. In respect of the commission paid to the directors of the company, it is stated that the same was paid to the then CMD, late MahashiaDharam Pal Gulati who died on 03/12/2020 during Covid and the Executive Director, Mr Rajeev Gulati, presently CMD as per the preceding years. This was part of their remuneration package as they were the pillars of the business of the assessee which was being carried for the last 100 years. Copies of their income-tax returns showing the said amounts as part of their salaries are attached at PB page nos. 119-129. The TDS was also made on such commissions as per rates of salaries and not commissions. Purchases made from the related parties, is a regular phenomenon for the last many decades and has been accepted by the Revenue year on year basis as which are at arms-length always rather lower than the prevalent market price. Thus, the same is not at all erroneous much less prejudicial to the interest of the Revenue.

21. In respect of expenses of Rs 13.22 crores incurred during the relevant period on centenary celebration of the company, it is not understood as to how this has been alleged that it is not justified as an admissible business expenses. The Revenue must spell out as to how this allegation has been levelled. It is well known that any business house achieving a milestone of a centenary existence, celebrates the same where all suppliers, distributors, staff and other business associates assemble when they not only pay tribute to the founders of the company but also to the persons at the helm of affairs of the company as all of them earning from and contributing to the existence of the company. The invited all of them and met their boarding, lodging, assembly and other expenses incurred for continuous 3 days. On such occasions, group discussions areheld, business strategies are decided to maintain continuous growth of the business by looking ahead for another centenary. It needs to be appreciated that a generation gap is normally considered ax 25 years and in a centenary 4 generations are involved to keep the business intact with substantial growth which is in itself is a Herculean task for the business in which contributions of all the sectors connected with the business participate planning for future growth by considering past experiences and setbacks/losses/deficiencies etc. Thus, the expenses incurred the business necessity as a business- brought on record as to how the allowance of said claim was erroneous much less expenses cannot be considered for any disallowance on surmises. The Revenue has not prejudicial to the interest of the Revenue

22. Thus, it is stated that the impugned SCN issued u/s 263 of the Act must be dropped. In case, some more clarification is desired the same shall be submitted on before disposing off the proceedings." receipt of necessary instructions. A personal hearing must be granted to the assessee (ii) 12/02/2024 "In respect of the above proceedings, under instructions of the above assessee and in continuation to the submissions made earlier vide letter dated 05/02/2024, the assessee encloses a chart showing the purchases made from the related parties as mentioned in the impugned SCN page 2, in the period relevant to the four AYs including the 3 preceding AYs is attached at PB page no.

(iii) 27/02/2024 "In respect of the above proceedings and as desired by the learned authority during the course of personal hearing on 15/02/2024, in addition to the submissions filed earlier, under instructions of the above assessee, the following is submitted:

1. Copies of the ledger accounts for the advances given for properties till date and copies of purchase agreements, conveyance deeds etc. for the said 2 properties are attached at PB page no. 211-457.

2 Copies of the ledger accounts of the trade suppliers for the period from 01/04/2019 το 31/03/2021 showing regular payments to them for raw material, services and facilities purchase/ availed from them are attached at PB page no. 458-715.

3 Details of raw material purchased item wise in the two periods relevant to the AYs 2019-20 and 2020-21 are given in an attached chart in the desired format at PB page no. 716.

4. Details of finished goods sold in the two periods relevant to the AYs 2019-20 and 2020-21 are attached in the above format at PB page no. 717-722.

5 It needs to be appreciated that no raw material is sold in the same form as purchased after purchases. Each item of the raw material is dried, cleaned, processed and besides kept for processing at later period in bags in the cold storages. It is because every raw material is an agricultural produce which is purchased in crop season from the farmers as it is.

7. Barring few ground spices like Haldi, Mirch, Amchur, Dhaniaetc all mix masalas have many compositions of different raw spices including salt, etc. Further, such mixture is sometimes altered considering the season and local requirement of the particular area.

However, in today's global economy, international factors like failure of crop in some other country, ban on exports and host of other factors also influence the same sometimes in a very short period. By way of an illustration, your kind attention is drawn to the data available on https://www.statista.com/statistics/1069770/average- price-of-turmeric-india/showing average price of turmeric in Chennai, India from the financial year 2015 to 2022, showing variation between Rs. 101 to Rs 120.87 per kg almost 20%.

9 MahashiaDhramapal Gulati, the then CMD of the company was not only a great saint but also one of the top most philanthropist for charitable activities ever since. The amount of donations given by the company on his instructions for social causes and nation building was eligible u/s 80G of the Act. Donations given in the latest four AYs including this AY are given in the letter dated 05/02/2024. Your kind attention is drawn to CIT VS MAHASHIAN DI HATTI LTD 2015-TIOL-2850-HC-DEL-IT (copy attached at PB page no. 723-728) holding that "MDH deals primarily in household products. The contention of MDH that Mr. Dharam Pal Gulati is a pioneer of packaged spices in India and has built the business by his vision and hard work for over six decades has been unable to be contradicted by the Revenue. It is entirely up to the assessee as to how it promotes its products. The Court finds no basis for the AO to have concluded that the expenses on advertisement was not for business purposes and for disallowing 20% of it. The ITAT rightly upheld the order of the CIT (A) deleting the said disallowance."

10. Details of the Centenary Year celebration of the company are given alongwith the evidences in the following broader heads:

(1) Payment to hotels for 2-3 days stay of distributors, dealers, suppliers, business associates etc. from the globe are attached at PB page nos. 729-1017.

(ii) Centenary Event Celebration at Indira Gandhi Indoor Stadium, copy of bills of event manager are attached at PB page nos. 1018-1023, describing the artists who performed and payments made to each of them.

(iii) List of other facilities availed. (PB page nos. 1024-1156) (iv) Taxies, Cars hired for them including airfare paid. (v) Business promotions souvenirs etc.

11. It must also be appreciated that existence of any entity for 100 years is not a small occasion and which needs to be celebrated in a grand manner with global coverage as it enhances not only the image / consumer confidence of the consumes in the products but also goodwill of the company globally. Expenditure on the celebration of the 10th anniversary was allowed in Aditya Mills Ltd 209 ITR 933, 938 (Raj) (attached at PB page no. 1168-1179) and the annual day celebration expenses were allowed in Mehsana District Co-operative Milk 207 ITR 140 (Guj) (attached at PB page no. 1180-1189).

On perusal of the chart attached of the turnover and advertising expenses, it is seen that the percentage increase of the expenses in the relevant period was much lessor than the growth.13. As submitted earlier, issues flagged for verification by the AO were Stock valuation, loss from currency fluctuations and the refund claim and the AO required the assessee to submit details/ material for verification of the same and the AO who after examining the material on record and the other issues as per his wisdom on the facts and the CBDT directions in the SOP, passed the assessment order u/s 143(3) of the Act on 25/08/2022. Thus, it cannot at all be alleged in present case that the said assessment was finalised in haste as proceedings commenced with a notice issued u/s 143(2) of the Act on 29/06/2021 and completed on 25/08/2022 after collection of material/ information through three notices issued u/s 142(1) of the Act on 16/11/2021, 27/12/2021 and 25/02/2022. This assessment order may fall under the ambit of section 263 of the Act either when the available material/ information as discussed in the SOP dated 03/08/2022 issued by the CBDT (placed at PB page nos. 1 to 34 vide letter dated 05/02/2024) required selection of more issues; or when proper investigation was not conducted in respect of the selected issues: or conclusions drawn were erroneous. Thus, the review powers cannot be invoked for stepping into the shoes of an AO and for making fresh assessment by way of roving enquiries which the PCIT thinks should have been done by the AO. It was held in Shankar Construction Co. v. Addl. CCT [2001] 124 STC 265 (Kar.) that" While we have no hesitation in accepting the greater part of the submissions canvassed by the learned Government Advocate that the revisional authority does have wide powers exercisable in cases where the decision has been prejudicial to the interest of the revenue and in exercise of those powers modifications are permissible, and furthermore that if the authority is of the view that the assessment is required to be redone that such a direction can still be issued to the assessing officer, we need to at the same time uphold the argument canvassed by the appellant's learned counsel Sri S Narayana that it is wholly impermissible for the revisional authority to step into the shoes of the assessing officer and to redo the assessment or pass a fresh assessment order.." Same has been reiterated in Solidus Hi Tech Products (P.) Ltd. vs. State of Karnataka [2015] 57 taxmann.com 203 (Karnataka).

Theconsideration of the Commissioner as to whether an order is erroneous insofar as it is prejudicial to the interests of the revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity- See Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 (SC), at page 10

F.3 AU will decide, generally within 10 days of receipt of reply.

F.3.1 Whether reference to VU/TU is required; F.3.2 Where the assessee contests or gives information at variance with that available with the AU, such information/ data may be re-verified through:

F.3.2.1 Insight in case of SFT data, Financial Institutions and Government Agencies, F.3.2.2 ITBA- in other cases:

F.3.3 Whether additional questionnaire u/s 142(1) is required to be issued to obtain further information/clarification."

15.1 Thus, it is submitted with utmost respects that the AO was not expected to violate the SOP or must have expanded scrutiny even though the AO was fully satisfied with the information supplied by the assessee. Kindly refer to the Dev Milk Foods Pvt Ltd. (DoD 12/06/2020) for the legal proposition that the scrutiny be expanded on bonafide reasons and not for making fishing and roving enquires.

16. The assessee also submits that merely because the AO did not verify any item per se does not mean that the powers of the PCIT are unfettered to cover any issue. The PCIT is under an obligation not only to specify why any non- verification was erroneous on the overall facts of the assessee as well as it caused prejudice to the interest of the revenue. The PCIT has not only to quantify the amount of loss of revenue but also as to what was the material on record which could support the opinion of the PCIT that the AO erred in not verifying the same as it was relevant for the assessment proceedings, particularly in the faceless assessment scheme where the AO conducts the assessment proceedings as per the prescribed SOP and the PCIT cannot substitute his opinion on the SOP. It is a settled law that even each loss cannot result into an error or prejudice to the interest of the revenue. The assessee relies on the following legal propositions: i) Malabar Industrial Co. Ltd. [2000] 243 ITR 83 (SC)

The phrase 'prejudicial to the interests of the revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an ITO adopts one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the ITO is unsustainable in law.ii) Daffodills Pharmaceuticals Ltd. [2023] 157 taxmann.com 195 (Delhi - Trib.) As seen from the above, the Ld. PCIT wants to do enquire on the issues, which are not subject matter of reopening of assessment u/s 147 r.w.s. 148 of the Act. In our humble opinion, when the assessment is reopened usually, it is not open to him to go beyond the issues raised in the reasons recorded for reopening of the assessment. In other words, the AO's jurisdiction is limited to the issues, which are subject matter of reopening.

(iii) CIT v. Gabriel India Ltd. [1993] 71 Тахтап 585/203 ITR 108 (Bom) From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an ITO 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. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the ITO, who passed the order, unless the decision is held to be erroneous. Cases may be visualised where the ITO while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the ITO. That would not vest the Commissioner with power to re-exmine the accounts and determine the income himself at a higher figure. It is because the ITO has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interests of the revenue.

(iv ) Globus Infocom Ltd. [2014] 50 taxmann.com 100 (Delhi)

Where Assessing Officer had specifically examined issue relating to apportionment of common expenditure and was fully satisfied with apportionment made, Commissioner could not have invoked provision under section 263 merely on assumption that order passed by Assessing Officer could possibly have been erroneous.

It is further submitted that the Explanation 2 to the section 263 of the Act has been reproduced in the impugned SCN without specifying the applicable limb. It was held by the Hon'ble Supreme Court in ORYX Fisheries Private Limited arising out of Special Leave Petition (C) No.27615/08)- on 29 October, 2010 (copy attached at PB page no. 1157-1167) that "It is of course true that the show cause notice cannot be read hyper-technically and it is well settled that it is to be read reasonably. But one thing is clear that while reading a show-cause notice the person who is subject to it must get an impression that he will get an effectiveopportunity to rebut the allegations contained in the show cause notice and prove his innocence. If on a reasonable reading of a show- cause notice a person of ordinary prudence gets the feeling that his reply to the show cause notice will be an empty ceremony and he will merely knock his head against the impenetrable wall of prejudged opinion, such a show cause notice does not commence a fair procedure expecially when it is issued in a quasi- judicial proceeding under a statutory regulation which promises to give the person proceeded against a reasonable opportunity of defence 32. Therefore, while issuing a show-cause notice, the authorities must take care to manifestly keep an open mind as they are to act fairly in adjudging the guilt or otherwise of the person proceeded against and especially when he has the power to take a punitive step against the person after giving him a show cause notice.

(iv) 25/03/2025 "In respect of the above proceedings, in continuation of our letter dated 2/03/2025 filed in response to your above notice and personal hearing attended in your office, under instructions of the above assessee, the following information/documents as desired are further submitted:

A photocopy of the board resolution dated 01/04/2019 passed by the board of director approving director's remuneration for the FY 2019-20 is attached for your early appreciation at PB page no. 1190-1191.

Details of addition made in fixed assets for the FY 2019-20 is attached along with few sample invoices at PB page no. 1192-1215.

Further, even if any other information is desired, please let us know."

16. On going though the above proceedingsbefore the A.O. and also before the PCIT and also the reply filed by the Assessee to the show cause notice dated 25/01/2024, we find that the Ld. PCIT has not pointed out any error in the assessment order dated 25/08/2022 to conclude that the assessment order is both erroneous and prejudicial to the interest of the Revenue, which is a pre-requisite for invoking revisional Jurisdiction u/s 263 of the Act. The Ld. PCIT has asked the Assessee to show cause on the issues which are not examined in the assessment proceedings and nowhere in the noticeit is mentioned that the proceedings have been initiated u/s 263 of the Act, which gives an inference that the Ld. PCIT was only trying to enable the A.O. to make fishing and roving enquiry. The Ld. PCIT by way of issuing the show cause notice, tried to make enquiries regarding the very same information taken by the NFAC during the assessment proceedings. After gathering the information from the Assessee, the PCIT could not also point out any adverse inferences or deficiencies in the explanation of the Assessee bringing on record any error committed by the A.O. which in turn had caused prejudice to the interest of the Revenue. The Ld. PCIT was of the opinion that A.O. should have made more enquiries and for which no reasons have been assigned as to why those enquiries necessitated particularly based on chequered history and fast information on record.

17. The Hon'ble Supreme Court in the case of Pr. Commissioner of Income Tax-1, Chandigarh Vs. M/s V-con Integrated Solutions Pvt. Ltd. vide order dated 04/04/2025 held as under:-

“In our opinion, the order passed by the High Court, which upheld the decision of the Tribunal, is correct on facts and in law. This case does not involve a failure by the assessing officer to conduct an investigation. Instead, according to the Revenue, it a case where the assessing officer having made inquiries erred by not making additions. The assessee does not have control over the pen of the Assessing Officer. Once the Assessing Officer carries out the investigation but does not make any addition, it can be taken that he accepts the plea and stand of the assessee.

In such cases, it would be wrong to say that the Revenue is remediless. The power under Section 263 of the Income Tax Act, 1961, can be exercised by the Commissioner of Income Tax, but by going into the merits and making an addition, and not by way of a remand, recording that there was failure to investigate. There is a distinction between the failure or absence of investigation and a can be wrong decision/conclusion. A wrong decision/conclusion corrected by the Commissioner of Income Tax with a decision on merits and by making an addition or disallowance.

There may be cases where the Assessing Officer undertakes a superficial and random investigation that may justify a remit, albeit the Commissioner of Income Tax must record the abject failure and lapse on the part of the Assessing Officer to establish both the error and the prejudice caused to the Revenue.

Recording the aforesaid, the special leave petition is dismissed.”

18. Further the Hon'ble High Court of Punjab and Haryana in the case of Pr. Commissioner of Chandigarh Vs. M/s BCO solution Pvt. Ltd. vide order dated 12/09/2024 held as under:-

“5. We find that the ITAT has examined the entire record. The FIAT has noticed that the Assessing Officer had raised several queries and had also demanded documents, the details of which have been mentioned in the ITAT order, which is quoted as under:-

"12. So far as the issue relating to the issue of shares to the two companies namely M/s Takecare India Pvt. Ltd. And Videocon Realty infrastructure Ltd. Was concerned, the assessee explained that the AO had made adequate enquiries on this issue and various replies and details were furnished to the AO, considering which the AO has accepted the claim of the assessee. The Id. Counsel, in this respect has submitted that the AO had issued questionnaire dated 28.12.2020 wherein, the following details were asked for from the assessee, on this issue: a) Name and address of the shareholders. b) PAN of the shareholders. c) Face Value of each share d) Number of shares allotted to each shareholder. e) Total value of the shares allotted to each shareholder. f) Payment received from each shareholder during the financial year.

2) Provide documentary evidence to substantiate the identity and ITR of the shareholders to substantiate creditworthiness the shareholders as well as the proof of genuineness of transaction in respect of fresh credit of the share capital account.

3) EPS The valuation report with respect to the working of 4) The comparison of the working of EPS with the immediately prior instance, wherein the shares were allotted.

5) The year wise details of dividend declared during the year and three earlier years."

6. Therefore, it is noted that the Assessing Officer had issued a questionnaire on 28.12.2020 and had also asked for documents, which were answered and furnished to the Assessing Officer by the assessee and the same were also informed to the PCIT, who ensued proceedings under Section 263 of the IT Act. However, PCIT have not pointed out any further enquires, which were required to be made by the Assessing Officer in this case, which have not been so made. The scope of Section 263 of the IT Act, is apparently to see whether the concerned Assessing Officer has failed to conduct a proper inquiry, and therefore, committed an error resulting in causing loss to the revenue. Simply by holding that the Assessing Officer was required to make more enquiries, would not be a valid ground for treating the order of the Assessing Officer, as erroneous and prejudicial to the interests of the revenue. The power under Section 263 of the Act cannot be invokved in such circumstances by the PCIT. The order, therefore, passed by the PCIT is not sustainable in the eyes of law and the same has been quashed by the ITAT, which does not warrant any interference by this Court in appeal.

7. In view thereof, we do not find any substantial question of law has arisen in this appeal for consideration, as the factual aspects have completely and thoroughly been examined by the ITAT. Appeal stands dismissed accordingly.”

19. The Co-ordinate Bench of the Mumbai Tribunal in the case of Metach Engineering and Construction Company JV Vs. Commissioner of Income Tax, Mumbai in 2014 vide order dated 11/09/2017 held as under:-

“15. We further find that the CIT had in the course of the revisional proceedings taken recourse to certain fishing and roving enquiries, which neither did form the basis on which the order passed by the A.O was sought to be revised, nor were relevant to the issues under consideration. We find that the CIT while deliberating on the issue as regards the „labour charges‟ of Rs. 1,30,22,495/- paid by the assessee to the sib-contractor, viz. Urja Infrastructure, had therein observed that no documentary evidence such as bills pertaining to expenditure incurred on sand, cement, brick, steel and other things required/essential for constructing pipeline by M/s Urja Infrastructure Ltd., were submitted by M/s Metakaps Engineering &Mahendra Construction Co, J.V, i.e the assessee. We are of the considered view that seeking of the aforesaid information in respect of the expenses incurred by the sub-contractor, viz. M/s Urja Infrastructure can safely be characterized as a fishing and roving enquiry on the part of the CIT, which had never formed the basis on which the order of A.O was sought to be revised by the CIT. We are further of the considered view that from a perusal of the order of the CIT it can safely be gathered that the CIT had as a matter of fact, not being in agreement with the mode and manner of verifications done by the A.O, had thus tried to impose the manner in which the same were required to be done. We would not hesitate to observe that unless the CIT is able to show as to how the manner in which the verifications in respect of the issues under consideration were carried out by the A.O, had rendered the assessment as erroneous and prejudicial to the interest of the revenue, he cannot in the garb of the revisional proceedings be permitted to substitute and impose his choice of mode and manner of carrying out the verifications on the A.O. We are constrained to record the aforesaid observations in order to make it clear beyond any doubt that the scope of revision under Sc. 263 is restricted only for the purpose of revising an order passed by the A.O, which is found to be both erroneous and prejudicial to the interest of the revenue, and failing the said fundamental requirements, the same cannot in guise of the said powers be exercised by the CIT to impose his view as against that of the A.O. We find that our aforesaid view that now when the A.O in the present case had after examining the accounts, making enquires and applying his mind to the facts and circumstances of the case in accordance with law had framed assessment in the hands of the assessee, then merely for the reason that the CIT is not satisfied with the manner of the verifications and investigations carried out or conclusion arrived at by the A.O cannot form the basis for branding the assessment as erroneous, stands fortified by the judgment of the Hon’ble High Court of Bombay in the case of CIT Vs. Gabrial India Ltd. (1993) 203 ITR 108 (Bom), held as under:

“12. From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an ITO acting in accordance with law makes 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. This section does not visualise a case of substitution of judgment of the Commissioner for that of the ITO, who passed the order, unless the decision is held to be erroneous. Cases may be visualised where ITO, while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimates himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and, left to the Commissioner, he would have estimated the income at a higher figure than the one determined by the ITO. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the ITO has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. It may be said in such a case that, in the opinion of the Commissioner, the order in question is prejudicial to the interest of the Revenue. But that by itself will not be enough to vest the Commissioner with the power of suomotu revision because the first requirement, namely, the order is erroneous, is absent. Similarly if an order is erroneous but not prejudicial to the interest of the Revenue, then also the power of suomotu revision cannot be exercised. Any and every erroneous order cannot be subject-matter of revision because the second requirement also must be fulfilled. There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed”.

(i). A.V Industries Vs. ACIT (ITA No. 3469/Mum/2010; dated, 06.11.2015)(Mum) (ii). Jayanth Murthy (supra)

Thus in the backdrop of our aforesaid observations, we are not persuaded to accept the contention of the ld. D.R that as the A.O had passed the assessment order without making inquiries and verifications which he should have made in the opinion of the CIT, therefore, the same rendered the order passed by him amenable for revision under Sec.

263. We thus decline to accept the aforesaid contentions raised by the ld. D.R before us.

21. In view of the above facts and circumstances and by relying on the ratio laid down by the Hon'ble Supreme Court, Hon'ble High Court and the Co-ordinate Bench of the Tribunal (supra), we are of the opinion that action of the PCIT in invoking provision of Section 263 of the Act is against the settled principles of law and nothing but enabling the A.O. to make fishing and roving enquiries. Accordingly, the order impugned dated 27/03/2025 for Assessment Year 2020-21 passed by the NFAC/PCIT u/s 263 of the Act is hereby quashed.