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Income Tax Appellate Tribunal, DELHI “G” BENCH: NEW DELHI
Before: SHRI ANUBHAV SHARMA & SHRI MANISH AGARWAL
ORDER
PER MANISH AGARWAL, AM :
The captioned appeals are filed by the assessee against two separate orders, both dated 26.03.2024 passed by Ld. Pr. Commissioner of Income Tax, Delhi [“Ld. Pr. CIT”] passed u/s 263 of the Income Tax Act, 1961 [“the Act”] arising from the different assessment orders dated 14.03.2022 and 11.03.2022 passed u/s 147 r.w.s. 143(3) of the Act for Assessment Years 2014-15 & 2015- 16 respectively.
2. At the time of hearing, it was stated that the issues involved for Assessment Years 2014-15 to 2015-16 are common, interlinked and identical. Hence, both appeals have been heard together and accordingly, adjudicated by this common order.
[Assessment Year 2014-15]
Brief facts of the case are that the assessee is a public limited company and filed its return of income on 29.11.2014, declaring total income of NIL after claiming set off of brought forward losses/ unabsorbed depreciation. The assessee is engaged in the business of manufacturing of steel tubes, pipes, cold rolled strips, different variety of lamps and allied items and the assessment was completed u/s 143(3) vide order dated 09.12.2016 on return of income. During the year under appeal, in terms of the order of National Law Tribunal, Chandigarh dated 11.12.2017, the company Surya Global Steel Tubes Ltd. was merged with Surya Roshni Ltd. In the case of Surya Global Steel Tubes Ltd., the return was filed on 29.11.2014, declaring NIL income and same was assessed u/s 143(3) of the Act by making addition of INR 20,26,63,720/-. As a result of the merger with the assessee company, the proceedings u/s 147 of the Act in the case of assessee company were initiated on the basis of the information that M/s. Surya Global Steel Tubes Ltd. had received share capital and unsecured loans from various companies which includes Diwakar Marketing Pvt. Ltd. from whom the share capital was received and Rackson Motors Pvt. Ltd. from whom loan was received which as per the public domain, it is found that these are shell companies and therefore, the amount received from this company was held as concealed income. Accordingly, the case of the assessee was re-opened by issue of notice u/s 148 of the Act. The re-assessment order was passed u/s 147/143(3) of the Act on 11.03.2022 wherein income declared and assessed u/s 143(3) was accepted and no addition was made. Thereafter, Ld. Pr. CIT, Delhi-7 in terms of its order dated 26.03.2024 had passed the order u/s 263 of the Act wherein re-assessment order passed u/s 147/143(3) is held as erroneous and pre-judicial to the interest of the Revenue and is set aside by Ld. Pr. CIT who direct the AO to pass a fresh order in accordance with law after making proper inquiry and verification and after providing due opportunity to the assessee.
Against the order of Ld.CIT(A), the assessee has raised following grounds of appeal:-
1. “That on the facts and circumstances of the case, the order passed by the learned Pr. Commissioner of Income Tax (CIT), Delhi - 7 under Section 263 of the Act is bad, both in the eye of law and on facts.
That on the facts and circumstances of the case, the order passed by the learned Pr. CIT assuming jurisdiction under section 263 is bad in law in the absence of twin conditions of the order passed by the A.O. being erroneous as well as prejudicial to the interest of the Revenue, not satisfied.
3. That on the facts and circumstances of the case, the learned Pr. CIT has erred both on facts and in law in ignoring the fact that the issue raised by her in notice under Section 263 were before the A.O. and as such the jurisdiction on this issue under Section 263 cannot be assumed by her. 4. That on the facts and circumstances of the case, the learned Pr. CIT has erred both on facts and in law in ignoring the contention of the appellant that the proceeding under Section 263 cannot be used for substituting opinion of the A.O. by that of the learned Pr. CIT.
That on the facts and circumstances of the case, the learned Pr. CIT has erred both on facts and in law in invoking the provisions of Explanation 2(a) to section 263(1) of the Act, despite the fact that the conditions prescribed therein are not satisfied in the present case.
That on the facts and circumstances of the case, the learned Pr. CIT has erred both on facts and in Jay in getting aside the order of the A.O. without herself giving a finding as to the error and prejudice caused to the revenue by the assessment order.
7. That on the facts and circumstances of the case, the issue under revision i.e. share capital / share application money received by the assessee company from the companies alleged to be shell companies as per list of Task Force have been duly inquired and verified by the A.O. thrice during original assessment u/s 143(3), rectification proceedings u/s 154/155 and re-assessment proceedings u/s 147.
8. That on the facts and circumstances of the case, the action taken against the assessee company again and again under different proceedings under the Act on the basis of audit objection, which were completed after due verification of said investor companies, so again initiation of revisionary proceedings u/s 263 on the basis of same audit objection, is bad in law and is liable to be quashed.
9. That the appellant craves leave to add, amend or alter any of the grounds of appeal.”
5. Before us, Ld. AR submits that in the instant case, assessment was originally completed u/s 143(3) in the hands of erstwhile company, Surya Global Steel Tubes Ltd. wherein vide order dated 16.12.2016, the total income was assessed at NIL and addition made of INR 5,12,027/- was set off against the brought forward losses. The copy of the said order is placed at pages 122 of the Paper Book filed by the assessee. Ld.AR further drew our attention to the query/letter issued u/s 142(1) dated 01.08.2016 issued during the course of assessment proceedings wherein in Point No.(xii), the AO made detailed inquiry with respect to the share allotted on premium during the year. In response to which, the reply filed by the assessee wherein complete details of the share applicants was submitted before the AO. The relevant query and replies were placed at page No. 4 to 12 of the Paper Book. It is the submission of the assessee that after considering the details filed by assessee regarding share applicants concluded that they have creditworthiness and their identity is also proved thus, no adverse interference was taken on the same. It is further submitted by Ld. AR that thereafter, in terms of notice dated 12.04.2018 issued u/s 154/155 of the Act, AO proposed to rectify the above said order passed u/s 143(3) on 16.12.2016 wherein it is proposed to rectify the said order by making addition of INR 11,01,50,000/- being the amount received from five share applicant companies from time to time as the unexplained money of the assessee. Ld.AR submits that assessee had filed detailed reply on 09.05.2018, copy of the notice issued u/s 154/155 of the Act alongwith the reply thereof, are placed at page Nos. 204 to 211 of the Paper Book. As per Ld. AR, no action u/s 154 of the Act was taken after receiving the reply of the assessee and thereafter, the AO issued notice u/s 148 of the Act on 15.01.2021 by recording the reasons wherein it is alleged that the share capital including the premium received from five companies totaling to INR 11,01,50,000/- has escaped assessment as these applicant companies are shell companies. Ld. AR submitted that during the re-assessment proceedings also, vide letter filed on e- filing portal on 09.11.2021 once again assessee filed all the relevant details to in establish the identity and creditworthiness and genuineness of the transaction. It is further submitted that the companies data are available at MCA portal and they are existing companies and not the shell companies. Ld. AR further submits that necessary copy of confirmations, bank statement of the relevant party, financial statement of the subscriber companies and above all, copies of the assessment orders passed u/s 143(3) in the case of all five share applicant companies for the AY 2014-15 were filed wherein the Department has not only accepted the existence of these share applicant companies but also accepted the activities carried out by these companies. It was thus submitted by Ld. AR that these companies are not shell companies. Ld.AR further stated that based on the information filed by the assessee, AO in the re- assessment order passed u/s 147/143(3) dt. 11.03.2022 accepted the share capital alongwith the premium thereof, totaling to INR 11,01,50,000/- as genuine and no addition is made on this account. The relevant replies filed alongwith the copy of the reasons and objections filed by the assessee are available at pages Nos 242 to 582 of the Paper Book filed by the assessee. Thereafter, Ld. Pr. CIT in terms of notice dated 03.01.2024 issued for initiation of the revisional proceedings, it is alleged that the AO has not examined the genuineness of the transaction with respect to the share application received from these companies therefore, the order is erroneous and pre-judicial to the interest of the Revenue. In response to the said notice of ld Pr. CIT, reply was filed by the assessee alongwith relevant enclosures on 07.02.2024 which is placed at page 587 to 747 of the Paper Book. Ld.AR submits that despite of all these details filed, Ld. Pr. CIT held that re-assessment order as erroneous and pre-judicial to the interest of the Revenue without appreciating the fact that assessee has filed all the relevant details necessary to establish the genuineness of the share capital and premium received and creditworthiness of the applicant companies. He further submits that once the Revenue had passed the order u/s 143(3) for the same AYs in the case of investing companies therefore, it could not be held that these are shell companies and accordingly, he submits that when the AO had made proper enquiries and thereafter, on two occasions, this issue was examined, first by way of issue of notice u/s 154/155 proposed for rectification and thereafter, in re-assessment proceedings u/s 148 of the Act it could not be said that the order passed is erroneous and prejudicial to the interest of revenue. It is therefore, prayed that when on three occasions, the AO had found no error after making proper and sufficient enquiries. There is no question to hold the re-assessment order as erroneous and pre-judicial to the interest of Revenue. It is further submitted by ld. AR that in the case of Surya Roshni Limited and Surya Global Steel Tubes Ltd. for AY 2009-10 & 2013-14, the share application money received was held as genuine which includes the amount received from M/s. Diwakar Marketing Pvt. Ltd. Ld. AR, therefore, prayed for quashing the order of Ld. Pr. CIT.
6. On the other hand, Ld.CIT DR for the Revenue vehemently supported the orders of the ld. PCIT and submits that from the perusal of the assessment order passed u/s 143(3) and also from the reassessment order passed u/s 147/143(3), it is not transpired that the AO had made detailed enquiries with respect to the share applicant company independently and merely on the basis of details filed by the assessee accepted the amount subscribed by them as genuine. Therefore, action of Ld. Pr.CIT in holding the order as erroneous and pre-judicial to the interest of the Revenue is justified and rhus, the same deserves to be uphold. He prayed accordingly.
6.1. Ld.CIT DR placed reliance on the following judgments:- (i) Rajmandir Estates (P.) Ltd. [2017] 77 taxmann.com 285 (SC); (ii) Paramount Propbuild (P.) Ltd. [2024] 161 taxmann.com 85 (Delhi); (iii) Rajmandir Estates (P.) Ltd. [2016] 70 taxmann.com 124 (Calcutta).
Heard the contentions of both the parties and perused the material available on record. It is observed by us that in the instant case, there were three occasions when the Revenue has examined the identity and genuineness of the share capital and share premium received by the assessee during the year under appeal.
Firstly, in the proceedings u/s 143(3), AO has made specific query with respect to the identity, genuineness and creditworthiness of the applicant companies which is evident from the perusal of the notice issued u/s 142(1) dated 01.08.2016 wherein the AO has asked the assessee to file as many as 23 details of the share applicant companies comprising of their names, PAN, addresses, date of applications, nos. of shares applied, amount of application, amount of share premium, total amount invested, how is investor known, brokerage, complete details of the broker, date of allotment etc. It is further seen that all the details were duly replied by the assessee in terms of the reply filed before the AO vide letter dated 25.11.2016 wherein the assessee had filed the company master data from the portal of Ministry of Corporate Affairs, the income tax return acknowledgement of new shareholders for AY 2014-15, bank statement of the shareholders, copy of Form 2 & 5 filed with the ROC with respect to the allotment of shares, copy of their audited financial statement, bank statement of the assessee company evidencing the receipt of the banking channel and the financial statement of the assessee. The AO after considering these details, was of the view that assessee has been successfully discharged the burden casted upon it to establish the identity and creditworthiness of the investor companies and also the genuineness of the transaction is established and therefore, no adverse interference was taken by the AO and assessment was completed u/s 143(3) of the Act.
Secondly, it is further seen that AO issued notice u/s 154/155 of the Act on 12.04.2018 wherein AO had observed as under:-
From the perusal of the above notice, it could be seen that the AO had tried to re-assess the income of the assessee in the garb of the rectification proceedings which is not permissible under any of the provision of the Act. However, the assessee had filed a detailed reply on 09.05.2018 wherein all these facts and information of the investor companies were submitted before AO thereafter, no action was taken by the AO.
Thirdly, in terms of the reasons recorded before issue of notice u/s 148 of the Act, the AO again alleged that the share capital received from the investor companies is not the genuine transaction as assessee has failed to establish the creditworthiness and genuineness and thereafter, notice u/s 148 of the Act was issued on 15.01.2021. It is relevant to state that the assessee during the re-assessment proceedings in terms of the reply submitted on 09.11.2021, had e-filed all the details as were submitted before the AO during the course of assessment proceedings u/s 143(3) of the Act. The AO after examining these details passed a speaking order wherein in para 7 of the re-assessment order, he made following observations:- 7. “After examining the details filed by the assessee in which the assessee has filed the documentary evidence in respect of receipt of share capital of Rs.12,01,50,000/- and share premium of Rs.69,65,000/- aggregating to Rs. 12,71,15,000/-(in the hands of M/s Surya Global Steels Tubes Ltd.) against shares issued to M/s Jits Courier & Finance Pvt Ltd, Ms/ Raxon Motor Finance Pvt Ltd, Ms/ Sadabahar Tradecomm Pvt Ltd, Diwakar Marketing Pvt Ltd and M/s Shreyansh Mercantile Pvt Ltd during the financial year under consideration. Further, the assessee company has filed company master data from the portal of ministry of corporate affairs in respect of these investor companies along with copies of acknowledgements of their ITRs for the A.Y. 2014-15, copies of their Page | 12
audited balance sheet profit and loss account with annexures, copies of their bank statements showing date wişe payments made and copies of their ledger accounts as also the copies of their assessment orders passed u/s 143(3) of the Income tax Act, 1961 which has been perused and placed on record.”
As is evident from the observations of the AO that he has not only made detailed enquiries and investigation in the matter however, after verifying all the details, had reached to the conclusion that the documentary evidences filed are sufficient to prove the genuineness of the transaction and creditworthiness of the investor companies. Such conclusion was duly reached after considering the assessment order passed by the Department u/s 143(3) in the case of the investor companies for AY 2014-15.
Now, Ld. Pr. CIT in its order passed u/s 263 of the Act, had observed that in Para 6 of the order, the AO has passed the order without making enquiry or verification. Such observations of Ld. Pr. CIT are devoid of the facts of the case and as in the present case, the assessee had explained and established identity, creditworthiness and genuineness of the transaction with respect to the share application money received on three occasions and are on each occasion after verifying the said details, AO was of the opinion that these details are sufficient and the assessee has been able to burden casted upon it.
13.1 The Hon’ble Supreme Court in the case of Pr. CIT vs Shreeji Prints (P.) Ltd. reported in [2021] 130 taxmann.com 294 (SC) has held as under:- “Section 69, read with section 263, of the Income-tax Act, 1961 - Unexplained investments (Unsecured loans) - Assessment year 2013- 14 - Assessee-company had received unsecured loans from two different companies - Commissioner noting that said loans were shown as investment in assessee's name in balance sheet of respective companies exercised revisionary powers and passed an order without giving an opportunity to assessee of being heard, invoking Explanation 2 to section 263 - High court by impugned order held that since Assessing Officer has made inquires in details and accepted genuineness of loans receive by assessee, such view of Assessing Officer was a plausible view and same cannot to be considered erroneous or prejudicial to interest of revenue - Whether SLP against said impugned order was to be dismissed – Held, Yes”
13.2. Further recently Hon’ble Supreme Court in the case of PCIT vs NYA International, while dismissing the SLP filed by the Revenue in Special Leave Petition (civil) Diary No.1845/2025 the Hon’ble Court vide order dated 17.02.2025 has observed as under:- “Delay condoned. This special leave petition is misconceived and is completely contrary to the law pertaining to Section 263 of the Income Tax Act, 1961. The notice under Section 148 of the 1961 Act referred to two reasons. The first reason was with regard to non-declaration of the account in ING Vysya Bank with a credit of Rs.70,13,43,319/- (Rupees seventy crores thirteen lakhs forty three thousand three hundred and nineteen only). The second reason was with regard to the claim of deduction under Section 10AA of the 1961 Act. It is accepted that a reassessment order under Section 148 read with Section 143(3) of the 1961 Act was passed. Addition was not made for the first reason. In the given facts, the assertion by the Revenue that inquiry and verification in re the bank account was not made is ex-facie incorrect. This being the position, this is not a case of failure to investigate, but Page | 14 as no addition was made, the Revenue can argue that it is a case of wrong conclusion and decision in the re-assessment proceedings. Therefore, to exercise jurisdiction under Section 263 of the 1961 Act, the Commissioner of Income Tax should have examined the merits and only on reaching a finding that the re-assessment order was erroneous and prejudicial to the interest of the Revenue made an addition. This is not a case of 'no inquiry and verification', but as made out by the Revenue, a case of wrong conclusion. The difference between the two situations is clear and has different consequences. This being the position, the High Court was right in dismissing the appeal preferred by the Revenue. The special leave petition is dismissed in the above terms. Pending application(s), if any, shall stand disposed of.” 13.3 The Hon’ble Delhi High Court in the case of PCIT vs. Clix Finance India Ltd. while concurring to the findings of the Tribunal has observed as under:
“27. Considering the aforesaid judicial pronouncements, it can be safely concluded that inadequacy of enquiry by the AO with respect to certain claims would not in itself be a reason to invoke the powers enshrined in Section 263 of the Act. The Revenue in the instant case has not been able to make out a sufficient case that the CIT has exercised the power in accordance with law. Rather, in our considered opinion, the facts of the case do not indicate that the twin conditions contained in Section 263 of the Act are fulfilled in its letter and spirit.
Notably, the ITAT, while making a categorical finding that the CIT had failed to point out any definite or specific error in the assessment order, has satisfactorily explained both the claims in question in Paragraph 8.2 of its order, which reads as under:- "8.2 In the Impugned Order, the Ld. Commissioner of Income Tax- IV, Delhi held that the AO had not examined the aforesaid two issues properly and, therefore, set aside the issues for further inquiries to be conducted by the AO. As regards the first issue is concerned, we note that out of total provision of Rs. 1114.68 lacs, a sum of Rs. 7,60,76,105/- was suo moto added back in the computation of income and a further sum of Rs. 73,46,160- was Page | 15 disallowed by the AO in the original assessment order dated 30.3.2005. Therefore, out of Rs. 1114.68 lacs, Rs. 834.22 lacs already stood disallowed in the original assessment order. The balance amount represented actual write off which was palpably clear from page 2 of the impugned order itself. No deduction on account of any such provision was, therefore, allowed to the assessee. Hence, there is no error or prejudice to the interest of revenue. As regards second issue it was noted that interest rate swap was an actual loss and only the net loss of Rs. 114.05 lacs after setting of gain of interest rate swap was claimed as deduction. However, we find that both these issues were duly examined by the AO vide Questionnaire dated 2.11.2004 (Page 1- 2 of the Paper Book) to which replies dated 9.12.2004, 20.12.2004 and 6.1.2005 (Page No. 3-39 of Paper Book-1) were furnished and, therefore, the finding of the Ld. CIT that the issues were not examined properly was not correct. Even the Ld. CIT has not pointed out the definite and specific error in the original assessment order and observed that the inquiry made by the AO was inadequate or improper without first pointing out the error in the original assessment order passed by the AO, particularly because both the aforesaid issues were duly examined at the stage of the original assessment proceedings, hence, the impugned order is beyond jurisdiction, bad in law and void-ab- initio."
It is discernible from the aforenoted findings of the ITAT that both the claims were duly examined during the original assessment proceedings itself and neither there was any error nor the same was prejudicial to the interests of the Revenue. Thus, the findings of fact arrived at by the ITAT do not warrant any interference of this Court.
So far as the reliance placed by the CIT on Umashankar Rice Mill is concerned, the same is misplaced, particularly in light of the insertion of Explanation 2 to Section 263 of the Act, brought in place by the Finance Act, 2015. The said amendment markedly specifies various conditions to exercise the authority vested in the Commissioner under Section 263 of the Act, leaving no ambiguity in the interpretation of the said provision.
In view of the aforesaid, the appeal preferred by the Revenue is dismissed alongwith the pending application(s), if any.”
13.4 Further the Hon’ble Supreme Court in the case of PCIT vs. V. Con Integrated Solutions Private Ltd. (supra) while dismissing the SLP of the assessee observed 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 assessee officer to conduct any investigation. Instead, according to the Revenue, it is 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 Office 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 wrong decision/conclusion. A wrong decision/conclusion can be 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 rust 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.”
In the instant case, ld. CIT(A) invoked the provisions of Explanation-2 of section 263 which conferred power to the PCIT/CIT to give directions to the AO for making fresh examination and verification, which is inserted by Finance Act, 2015 in Section 263 with effect from 01.06.2015. As per this Explanation, to declare an order to be erroneous in so far as it is prejudicial to the interest of the revenue, if in the opinion of appropriate authority- (i) the order was passed without making inquiries or verifications which should have been made; (ii) the order is passed allowing any relief Page | 17 without inquiring into the claim; (iii) the order is not in accordance with any direction or instructions etc. issued by the Board u/s 119; or (iv) the order was not in accordance with binding judicial precedent.
In the instant case, the ld. PCIT has given direction to the AO for making further examination and verification on the issue of share capital and loans received from two parties error in the re- assessment order by ld. PCIT. As per the provisions of Section 263 of Income Tax Act, 1961, the PCIT/CIT is vested with the supervisory powers of suo-motto revision of any order passed by the Assessing Officer [AO]. For the said purpose, the appropriate authority may call for and examine the record of any proceedings under the Act and may proceed to revise the same provided two conditions are satisfied- (i) the order of the assessing officer erroneous; and (ii) it is prejudicial to the interest of the revenue. If one of the condition is absent i.e. if the order of the Income-tax Officer is erroneous but is not prejudicial to the revenue or if it is not erroneous but it is prejudicial to the revenue, action cannot be taken u/s 263 of the Act as has been held by Hon’ble Supreme Court in Malabar Industrial Co. Ltd. (supra) and followed by Hon’ble Delhi High Court in the case of CIT vs Vikas Polymers reported in 194 Taxman 57(Delhi).
The Hon’ble Supreme Court in Malabar Industrial Co. Ltd. (supra) has held that the phrase 'prejudicial to the interests of the revenue' must 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 interest of the revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be held as an erroneous order which is prejudicial to the interest of the revenue, unless the view taken by the Income-tax Officer is unsustainable in law. This principal has been again reiterated by Hon’ble Court in its subsequent judgment in the case of CIT vs Max India Ltd. reported in 295 ITR 282 (SC).
The Hon’ble Delhi High Court in CIT V/s Vikas Polymers (supra), further observed that as regards the scope and ambit of the expression "erroneous", Hon’ble Bombay High Court in CIT vs. Gabriel India Ltd. (supra) held with reference to Black's Law Dictionary that an "erroneous judgment" means "one rendered according to course and practice of Court, but contrary to law, upon mistaken view of law; or upon erroneous application of legal principles" and thus it is clear that an order cannot be termed as "erroneous" unless it is not in accordance with law. If an Income-tax 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 differently or more elaborately. The Section does not visualize the substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order unless the decision is not in accordance with law. Further, each and every erroneous order cannot be the subject matter of revision because the second requirement also must be fulfilled. There must be material on record to show that tax which was lawfully leviable has not been imposed as held in Gabriel India Ltd.(supra). However, the expression "prejudicial to the interest of the revenue", as held by the Supreme Court in the Malabar Industrial Co. Ltd. (supra), is not an expression of art and is not defined in the Act and, therefore, must be understood in its ordinary meaning. The Commissioner's exercise of revisional jurisdiction under the provisions of Section 263 cannot be based on whims or caprice. It is trite law that it is a quasi-judicial power hedged in with limitation and not an unbridled and unchartered arbitrary power. The exercise of the power is limited to cases where the Commissioner on examining the records comes to the conclusion that the earlier finding of the Income-tax Officer was erroneous and prejudicial to the interest of the revenue and that fresh determination of the case is warranted. There must be material to justify the Commissioner's finding that the order of the assessment was erroneous insofar as it was prejudicial to the interest of the revenue.
The Hon’ble Delhi High Court, in the case of Vikas Ploymers (supra) further observed that there is a fine though subtle distinction between "lack of inquiry" and "inadequate inquiry". It is only in cases of "lack of inquiry" that the Commissioner is empowered to exercise his revisional powers by calling for and examining the records of any proceedings under the Act and passing orders thereon. In Gabriel India Ltd. (supra), it was expressly observed: - "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 [Parashuram Pottery Works Co. Ltd. vs. ITO, (1977) 106 ITR 1 (SC)]. It was further observed as under: - "From the aforesaid definitions as it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax 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. This section does not visualize a case of substitution of the judgment of the Commissioner for that of the Income tax Officer, who passed the order unless the decision is held to be erroneous. Cases may be visualized where the Income-tax Officer 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 Income-tax Officer. 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 Income-tax Officer has exercised the quasijudicial power vested in him in accordance with law and arrived at conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. x x x x 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.
The Hon’ble Supreme Court in the case of CIT vs Amitabh Bachchan reported in the case of 69 Taxmann.com 170 held that the power of appeal and revision is contained in Chapter XX of the Act which includes section 263 that confers suo-motto power of revision in the Commissioner. The different shades of power conferred on different authorities under the Act has to be exercised within the areas specifically delineated by the Act and the exercise of power under one provision cannot trench upon the powers available under another provision of the Act. In this regard, it must be specifically noticed that against an order of assessment, so far as the revenue is concerned, the power conferred under the Act is to reopen the concluded assessment under section 147 and/or to revise the assessment order under section 263. The scope of the power/jurisdiction under the different provisions of the Act would naturally be different. The power and jurisdiction of the revenue to deal with a concluded assessment, therefore, must be understood in the context of the provisions of the relevant sections. While doing so, it must also be borne in mind that the legislature had not vested in the revenue any specific power to question an order of assessment by means of an appeal. Regarding applicability of Section 263, what has to be seen is that a satisfaction that an order passed by the Authority under the Act is erroneous and prejudicial to the interest of the revenue is the basic precondition for exercise of jurisdiction under section 263. Both are twin conditions that have to be conjointly present. Once such satisfaction is reached, jurisdiction to exercise the power would be available subject to observance of the principles of natural justice which is implicit in the requirement cast by the section to give the assessee an opportunity of being heard. Further, there could be no doubt that so long as the view taken by the Assessing Officer is a possible view, the same ought not to be interfered with by the Commissioner under Section 263 merely on the ground that there is another possible view of the matter. Permitting exercise of revisional power in a situation where two views are possible would really amount to conferring some kind of an appellate power in the revisional authority. This is a course of action that must be desisted from.
The Hon’ble Bombay High Court in Moil Ltd. Vs. CIT reported in 81 Taxmann.com 420 has observed that if a query is raised during the assessment proceedings which was responded to by the assessee, the mere fact that the query was not dealt with in the assessment order then it would not lead to a conclusion that no mind has been applied to it and the Assessing Officer is not expected to raise more queries, if he was satisfied about the admissibility of claim on the basis of the material and the details supplied.
The judgements cited by the revenue are on the issue where no enquiry was made by the AO or lack of enquiry on the part of the assessee or where AO has raised the issue but was not replied by the assessee to the satisfaction of the appropriate authorities. In the instant case, Ld. Pr. CIT invoked the Explanation 2 section 263 of the Act to hold the order passed is without making enquiries and verification. However, as observed above in the present case, detailed enquiries and verifications were made on three occasions and after considering the submissions of the assessee on every occasion, AO was of the opinion that the assessee has been able to discharge the burden casted upon it of proving the genuineness of the share capital received during the year under appeal.
In view of these facts and detailed discussion made herein above, in our considered opinion, Ld. Pr. CIT has failed to appreciate the facts that proper enquiry and examination was made in the instant case and therefore, there is no error in the order of the AO thus, it is not pre-judicial to the interest of the Revenue. Accordingly, we quash the order passed by Ld. Pr. CIT u/s 263 of the Act wherein the re-assessment order was held as erroneous and pre-judicial to the interest of the Revenue. Hence, Grounds of appeal raised by the assessee are allowed.
In the result, appeal of the assessee is allowed.
Before us, both the parties consented that in this case, facts are identical with the facts in [Assessment Year 2014-15]. Since while deciding the appeal of the assessee in [Assessment Year 2014-15], we have already quashed the order passed u/s 263 of the Act made for making fresh verification of share capital/share application money received during the year after considering the arguments of the assessee and Revenue. The respective sides have canvassed similar plea. In view of the similarity of facts, our decision in [Assessment Year 2014-15] would apply Mutatis Mutandis in the appeal also, filed by the assessee.
In the result, appeal filed by the assessee is allowed.
In the final result, appeals of the assessee in & 1444/Del/2024 [Assessment Years 2014-15 & 2015-16] are allowed. Order pronounced in the open Court on 28.08.2025.