Income Tax Appellate Tribunal - Delhi
Beam Global Spirits And Wine (India) ... vs The Principal Commissioner Of Income ... on 9 January, 2025
1
ITA no. 2267/Del/2024
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'A' NEW DELHI
BEFORE SHRISHAMIM YAHYA, ACCOUNTANT MEMBER
AND
SHRI SUDHIR PAREEK, JUDICIAL MEMBER
ITA No. 2267/Del/2024
Assessment Year: 2018-19
Beam Global Spirits and Wine Vs Principal Commissioner of
(India) Private Limited, Income-tax (PCIT)-1, Delhi.
th
12 Floor, Building no. 10C,
DLF Cyber City, DLF Phase-2,
Sector-24, sGurugram-`22022.
PAN: ANAAACA 1614 R
APPELLANT RESPONDENT
Assessee represented by Sh. Ajay Vohra, sr. Adv.;
Sh. Deepanshu Grover, CA; &
Sh. Akash Uppal, CA; &
Ms. Anjali Pareek, CA
Department represented by Ms. Nidhi Singh, CIT(DR); &
Sh. Satya Prakash Sharma Sr. DR
Date of hearing 11.10.2024.
Date of pronouncement 09.01.2025
ORDER
PER SUDHIR PAREEK ,J.M:
This appeal, preferred by the assessee, for assessment year 2018-19, is directed against the Principal Commissioner of Income Tax (PCIT), Delhi-1's DIN & order no. ITBA/REV/REV5/2023-24/1063713094(1), dated 30.03.2024 in revision no. PCIT, Delhi-1/Revision-263/100000617494/2023 u/s 263 of the 2 ITA no. 2267/Del/2024 Income-tax Act, 1961, hereinafter referred to as the "Act". The assessee has raised following grounds of appeal:
"1. On the facts and circumstances of the case, the order passed by Principal Commissioner of Income Tax 1, New Delhi ('PCIT') is without jurisdiction, bad in law and void-ab-initio.
2. On the facts and circumstances of the case and in law, the PCIT erred in setting aside the assessment on the following issues:
(a) verification for loans taken (INR130 crores) qua requirement of section 68 of the Act;
(b) examination of TDS compliances with respect to foreign remittances of INR 64,61,882;
(c) verification of higher claim of depreciation under sections 32 and 32AC of the Act;
(d) examination of allowability of custom duty paid under protest and claimed as expenditure;
(e) examination of deductibility of the following claims:
(i) stock obsolesce claim,
(ii) debtors written off against the provision for doubtful debts, and
(iii) provision for doubtful debts recovered back;
(f) examination of disallowance. under section 14A, which had been duly examined and verified by the assessing officer in the course of assessment, without pointing out satisfaction of the jurisdictional conditions, namely, that the assessment order passed is erroneous and prejudicial to the interest of the Revenue to the extent of acceptance/ allowance of the claims.
3. On the facts and circumstances of the case and in law, the PCIT erred in law in setting aside the assessment on the issues mentioned therein alleging that the assessing officer had not adequately verified and enquired 3 ITA no. 2267/Del/2024 into the details asked for by the assessing officer and filed by the Appellant in response thereto.
3.1 On the facts and circumstances of the case and in law, the PCIT has erred in passing the impugned order under 263 of the Act, without appreciating that the assessing officer had made sufficient enquiries, verification of the facts and submissions made by the Appellant.
4. On the facts and circumstances of the case and in law, the PCIT erred in setting aside the assessment on the aforesaid issues without appreciating that in accepting the claims / allowing deductions claimed, the assessing officer had, in any case, taken up a plausible view in the matter, thereby ousting jurisdiction under section 263 of the Act.
5. On the facts and circumstances of the case and in law, the PCIT erred in setting aside the issues to the file of the assessing officer for fresh examination without undertaking any examination of the allowability of the claims having regard to the detailed submissions and evidences filed before the PCIT and without recording any finding on the merits of the claims made, thereby ousting jurisdiction under section 263 of the Act."
2. Facts, in brief, are that for A.Y. 2018-19 the assessee filed its return of income electronically on 30.11.2018 disclosing loss of (-) Rs. 40,10,37,756/-. Subsequently the return of income was revised on 28.03.2019 disclosing loss of (-) Rs. 40,29,85,156/-. The case was selected for scrutiny under CASS and statutory notices u/s 143(2) and 142(1) of the Act were issued. In response, the assessee filed requisite details. The Assessing Officer noticed that during A.Y. 2018-19, the assessee had undertaken international transactions with its associated enterprises. Accordingly, the case was referred to the Transfer Pricing Officer (TPO) for determining the Arm's Length Price u/s 92CA of the I.T. Act. The TPO vide his 4 ITA no. 2267/Del/2024 order dated 31.07.2021 u/s 92CA(3) made adjustment of Rs. 35,24,63,309/- to the value of international transactions entered into by the assessee company on substantive basis and Rs. 1,27,78,40,734/- on protective basis u/s 92CA(3) of the Act. Subsequently, a Draft Order under section 144C(1) r.w.s. 143(3) of the Act was passed on 18.09.2021 [vide DIN & Order No: ITBA/AST/F/144C/2021- 22/1035697113(1)] as per provisions of section 92CA(4) of the Act addition of Rs. 35,24,63,309/- on substantive basis and addition of Rs. 1,277,840,734/-" on protective basis has been proposed to be made to the assessee's total income.
3. Aggrieved, against the draft assessment order the assessee filed Objections before the learned Dispute Resolution Panel(DRP)- 1, Delhi. The learned DRP vide their directions dated 15.02.2022 under section 144C(5) of the Act upheld the adjustments made by the TPO. Pursuant to the directions of learned DRP the Assessing Officer vide impugned assessment order dated 30.03.2022 made addition of Rs. 35,24,63,309/- on account of upward adjustments of ALP u/s 92CA to the income returned by the assessee.
4. According to the learned PCIT the order of Assessing Officer was erroneous in so far as it was prejudicial to the interests of revenue. He, therefore, initiated proceedings u/s 263 of the Act by issuing show cause notice u/s 263 of the Act on 24.11.2023.
5
ITA no. 2267/Del/2024
5. After considering the submissions advanced on behalf of the assessee, the learned PCIT vide impugned order dated 30.03.2024 u/s 263 of the Act set aside the following matters to the file of AO, inter alia, by observing as under:
Conclusion The reply filed by the assessee is examined and it is seen that the issues identified in the show cause dated 23.03.2024 have not got verified. The order of the AO is held erroneous in so far as prejudicial to the interest of the revenue as the issues identified above were not verified and inquired by the Assessing Officer. The claims and the taxability issues related to these transactions of the assessee have been allowed by the AO without the verifications which should have been done. In view of this, the following matters are set aside to AO and the AO is directed to examine and verify these issues on the following lines: -
1. For the loans taken of Rs. 130 crores, AO is directed to make complete verification as per requirements of section 68 of the IT Act, 1961 regarding nature and source of the credit by obtaining proofs for credit worthiness of the creditor, genuineness of the loan and transaction. The AO is also directed to obtain compliance as per first and second proviso to sec 68. Disallowance as per section 94B may also be verified in this regard.
2. For the foreign remittance of Rs. 6461882/-, the AO is directed to examine the compliance to the TDS provision for this amount and bring to Tax the amount for which there is non-compliance as per relevant sections of IT Act, 1961.
3. Issue of claim of depreciation at higher rate was not examined and verified as was required in this case. The AO is directed to call for and verify full details of all the assets and the proof of putting such assets to use by the prescribed timelines. The specific requirements for claim of higher depreciation as per sec 32 and 32AC may be examined for the rate of depreciation claimed and allow such claim 6 ITA no. 2267/Del/2024 only after full verification of genuineness and admissibility of the claim.
4. Custom duty paid and claimed as expenditure amounting to Rs. 30.02 crores have not been examined by the AO. The AO is directed to call for complete breakup and details of this expenditure along with documentary proofs of the same and examine their nature and allowability of the same as per sec 37 and its explanation.
5. Various claims consisting of Stock obsolesce claim of Rs.
24830660/-, debtors written off against the provision for doubtful debts of Rs. 14234651/- and provision for doubtful debts recovered back of Rs. 35633929/- remain unverified and unexamined by the AO despite being part of the issues on the basis of which the case was taken up in scrutiny. The AO is directed to call for complete details of these items and verify and examine their genuineness and examine the fairness and genuineness of criteria of their quantification in the light of necessary documents including entries in the books of accounts. The claims may/may not be allowed accordingly.
6. The computation of income, AO has erroneously taken the loss as per the revised ITR at Rs. 40,29,85, 156/-. However, it is seen that the loss is computed at Rs. 10,12,47,402/- crores after making some prima-facie adjustments in order passed u/s 143(1) of the Act. The AO ought to have taken the loss as per the intimation dated 09.07.2019. The AO is directed to adopt the computed income u/s 143(1) at (-)Rs. 10,12,47,402/-
7. Issue of applicability of section 14A disallowance may be inquired and verified by the assessing officer.
8. The deduction of Rs47,57,07,831/- consisting of Rs. 1,42,34,651/- towards Debtors written off against Provision for doubtful debts, Rs 3,56,33,929/- towards Provision for doubtful debt amounts recovered back, Rs. 2,48,30,660/- towards provision for stock obsolesce written back, Rs. 30,02,63,120/- towards custom duty paid under protest and Rs. 2,95,13,056/- towards depreciation as per the I.T. Act 1961, have not been duly verified and the correctness of these claim has not been inquired by the assessing officer in the assessment proceedings. The 7 ITA no. 2267/Del/2024 issue is set aside for verification and the allowability of these claims to the assessing officer."
Aggrieved against the order of learned PCIT the assessee is in appeal before this Tribunal.
6. Heard rival submissions and carefully scanned the material available on the record.
7. During the course of hearing the learned AR submitted that the learned PCIT while passing the impugned order did not cared to point out that the assessment order is either erroneous or prejudicial to the interests of revenue. He submitted that as per established law to assume jurisdiction u/s 263 of the Act, he was required to conduct full inquiry and record the finding that the order of the learned AO is erroneous and prejudicial to revenue and in the absence of the same he has no any power to remand back the matter to the file of the learned AO for further verification/ inquiry. As per his submissions Explanation 2(a) of section 263 of the Act does not authorize or give unfettered powers to learned PCIT to revise each and every assessment order, if in his opinion, such order was passed without making enquiries or verification which should have been made. 7.1 Learned AR further submitted that assessee has obtained loan from its foreign AE-Jim Beam Brands Co. for working capital purposes and to repay its existing loans and in this regard RBI has approved the loan provided by Jim Beam 8 ITA no. 2267/Del/2024 Brands Co. to assessee and for which loan registration number issued by RBI is well placed at page 57 of paper book. Jim Beam Brands Co. is a tax paying entity in India and is filing tax returns in India disclosing interest income earned on such loan from the assessee and TDS duly deducted by the assessee on interest paid to Jim Beam Brands Co., which is well placed at pages 52 to 56 and 58 of the paper book. Jim Beam Brands Co. provided a written confirmation that it has utilized its own internal funds/ retained earnings for the purpose of providing loan to the assessee, for which he referred to loan confirmation available at page 45 of the paper book. As per his submissions Jim Beam Brands Co. is an operating entity having sales of INR 14,300 crores approx during the calendar year 2017 and retained earnings as on January 01, 2017 is INR 2,383 crores approx while the bank balance was INR 79 crores approx. as on December 31, 2017. In this regard he referred the order passed by the Hon'ble Delhi High Court in the case of PCIT v. Azure Retreat (P) Ltd. (158 taxmann.com 169) in which it has been held that where documents had been furnished to establish identity and creditworthiness of lender and genuineness of transaction, addition cannot be made under section 68 of the Act and in this regard learned PCIT has failed to point out how the provisions of section 68 of the Act are applicable.
He further submitted that since the disallowance under section 94B of the Act was surrendered suo motu by the assessee and which has been added in the taxable 9 ITA no. 2267/Del/2024 income of the assessee in the completed assessment, there is no error causing prejudice to the interest of the Revenue in the assessment order requiring revision thereof. Referring to page 94 of the paper book, he submitted that this fact was explicitly submitted before the Ld. PCIT in response to a question during the course of proceedings under section 263 of the Act.
7.3 On the issue of Foreign remittance of INR 64,61,882 without deduction of TDS, learned AR referring to Page 60 of supplementary Paper Book submitted that no disallowance was made for INR 64,61,882 in the Tax Audit Report by Tax Auditors. He submitted that entire transaction was duly verified by Learned AO, vide re-assessment proceedings under section 148 of the Act and no disallowance was made by him. In this context he Referred Page 117 of Paper Book-Para 3.1 and Para 3.3 of re-assessment order, dated March 26, 2023). Referring to Page 124 and 126-127 of. Paper Book, learned AR further submitted that details of submissions made before learned AO during re-assessment proceedings along with details of remittance of INR 64,61,882 were duly provided to Learned PCIT. Learned PCIT has not examined the submissions and evidences placed on record and failed to take note of the fact that the issue has been examined in the reassessment proceedings specifically undertaken for the said purpose. The Chair has not been correctly assumed by the Ld. PCIT.
10
ITA no. 2267/Del/2024 7.4 On the issue of higher depreciation claim learned AR referring pages 139 to 143 of Paper Book submitted that depreciation chart duly audited and verified by learned AO during the course of assessment proceedings u/s 143(3) of the Act (Page 136-138 of Paper Book), no deduction was claimed under section 32AC of the Act. He submitted that learned PCIT has failed to point out any error in the assessment order allowing claim of depreciation, much less causing prejudice to the interest of the Revenue. Since no deduction under section 32AC of the Act has been allowed in the completed assessment, the direction of the Ld. PCIT to examine deduction claimed under section 32AC of the Act is clearly erroneous. 7.5 On the issue of disallowance of custom duty paid under protest of INR 30,02,63,120 made under section 143(1) of the Act, learned AR referred Pages 144-146 of Paper Book and submitted that on this issue appeal is pending before Learned CIT(A). He further submitted that it is an admitted position that the goods had landed in India and were appraised by the Custom authority, bill of entry property and goods released against payment of custom duty (which is disputed in appeal). He submitted that custom duty paid under protest / advance is allowable under section 43B of the Act on payment basis. To buttress his contention learned AR relied on the ratio of decisions of Hon'ble Supreme Court in CIT v. United Glass MGF Co. Ltd. (SLP no. 30146 of 2008); and Hon'ble Delhi High Court in 11 ITA no. 2267/Del/2024 the case of CIT v. Samtel Color Ltd. [2009] 184 Taxman 120 (Delhi). Accordingly, he submitted that there is no error in the order of learned Assessing Officer, much less causing prejudice to the interest of the revenue in allowing custom duty paid under protest under section 43B of the Act. He further submitted that since the claim of payment of custom duty under protest is clearly allowable under section 43B of the Act, the Learned Assessing Officer was correct in law in computing the assessed loss starting with returned loss of INR 40,29,85,156 as against loss of INR 10,12,47,402 determined in the intimation u/s 143(1) of the Act. 7.6 On the issue of assessee's claim on reversal / utilization of various provisions learned AR submitted that details of all claims disallowed in previous year and reversed / utilized during the year under consideration were duly furnished to learned AO during assessment proceedings. In this context he referred to pages 153-155 & 156 of Paper Book. He submitted that said provisions were duly disallowed in the year in which such provisions were created and accordingly, the same have been claimed as deduction in the current year on reversal/utilization. If such deduction is not claimed, it would amount to double taxation in the hands of the assessee. He further submitted that INR 1,42,34,651; INR 3,56,33,929; and INR 2,48,30,660 had been claimed as deduction in terms of section 36(1)(vii) read with section 36(2) of the Act. Learned AR also referred to a summary of provisions 12 ITA no. 2267/Del/2024 for doubtful debts and provisions for stock obsolescence made in the last 5 financial years / disallowed in such tax years computations along with the details of provisions claimed on reversal/write back/utilized (mentioned at Page 20 & 21 of the Paper Book).
7.7 On the issue of claim u/s 14A of the Act, learned AR submitted that assessee has not incurred any expenditure in earning exempt income, therefore, direction of learned PCIT to exempt disallowance u/s 14A of the Act is contrary to the record and cannot be upheld.
8. Per contra, learned CIT(DR) submitted that following issues were not considered by the Assessing Officer in assessment order u/s 143(3) of the Act:
1. Commission expenses;
2. Selling and Trade Promotion expenses;
3. Discount/Rebates given to vendors;
4. Marketing and Business Promotion expenses;
5. Traditional issues for assessment year 2006-07, 2008-09, 2009-10, 2011-12, 2015-13 & 2013-14;
6. Observations and Qualification made by the statutory auditors;
7. Cost of material consumed and valuation of inventory;
8. Increase in Trade Payables;
9 PF and TDS;
10. Bad Debts;
11. Foreign exchange loss;
12. Claim u/s 14A of the Act;
13. Adjustments u/s 143(1) of the Act;
8.1 He submitted, as the Assessing Officer failed to conduct enquiries on above mentioned points even where the case had been selected for complete scrutiny 13 ITA no. 2267/Del/2024 under CASS parameters, the PCIT was right in invoking Provisions of Section 263 of the Act.
9. In rebuttal, learned AR pointed out that it is pertinent to point out that insofar as items 1 to 9 and 11 are concerned, the same are not part of the final show cause notice under section 263 of the Act issued by the successor Ld. PCIT. The impugned order has proceeded solely on the points mentioned in the said notice, dated March 23, 2024 and has taken no cognizance of earlier notice issued by the predecessor Ld. PCIT. It is not open to the revenue to seek to sustain the impugned order on any issue other than that specifically pointed out therein (Refer: page 38 of the impugned Ld. PCIT's order). In that view of the matter reference to point Nos. 1 to 9 and 11 is not justified. Insofar as the issues raised at point Nos.10, 12 and 13 respectively are concerned, the Assessee has filed detailed submissions with respect to each of the items before PCIT.
10. In the course of hearing, in support of submissions advanced on behalf of the assessee/ appellant, the learned AR relied upon judgment passed by the Hon'ble Supreme Court of India in the case of Malabar Industrial Co. Ltd. v. CIT [2002] 243 ITR 83 (SC) in which Hon'ble Apex Court held as under :-
"6. A bare reading of this provision makes it clear that the pre-requisite to exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the ITO is erroneous insofar as it is prejudicial to the interests of the revenue. The Commissioner has to be satisfied with twin conditions, 14 ITA no. 2267/Del/2024 namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (if) it is prejudicial to the interests of the revenue. If one of them is absent if the order of the ITO is erroneous but is not prejudicial to the revenue or if it is not erroneous but is prejudicial to the revenue recourse cannot be had to section 263(1).
7. There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind.
The phrase 'prejudicial to the interests of the revenue' is not an expression of art and is not defined in the Act. Understood in its ordinary meaning, it is of wide import and is not confined to loss of tax. The High Court of Calcutta in Dawjee Dadabhov & Co. v. S.P. Jain [1957] 31 ITR 872, the High Court of Karnataka in CIT v. T. Narayana Pai [1975] 98 ITR 422, the High Court of Bombay in CIT v. Gabriel India Ltd. [1993] 203 ITR 208 and the High Court of Gujarat in CIT v. Smt. Minalben S. Parikh [1995] 215 ITR 81/79 Taxman 184 treated loss of tax as prejudicial to the interests of the revenue.
8. Mr. Abraham relied on the judgment of the Division Bench of the High Court of Madras in Venkatakrishna Rice Co. v. CIT [1987] 163 ITR 129 interpreting 'prejudicial to the interests of the revenue'. The High Court held, "In this context, it must be regarded as involving a conception of acts or orders which are subversive of the administration of revenue. There must be some grievous error in the Order passed by the ITO, which might set a bad trend or pattern for similar assessments, which on abroad reckoning, the Commissioner might think to be prejudicial to the interests of Revenue Administration". In our view, this interpretation is too narrow to merit acceptance. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the revenue. If due to an erroneous order of the ITO the revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the revenue.
9. 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 15 ITA no. 2267/Del/2024 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 adopted 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. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the revenue - Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 (SC) and in Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC).
11. In the course of hearing, referred CIT v. Max India Ltd. [2007] 295 ITR 282 (SC) Chowdhury, Addl. CIT (19771 109 ITR 229 at 243) in which Hon'ble Apex Court held as under :
"2. At this stage we may clarify that under para 10 of the judgment in the case of Malabar Industrial Co. Ltd. (supra) this Court has taken the view that the phrase "prejudicial to the interest of the revenue" under section 263 has to be read in conjunction with the expression "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 the Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue, unless the view taken by the Income-tax Officer is unsustainable in law. According to the learned Additional Solicitor General on interpretation of the provision of section 80HHC(3) as it then stood the view taken by the Assessing Officer was unsustainable in law and therefore the Commissioner was right in invoking section 263 of the Income-tax Act. In this connection he has further submitted that in fact 2005 amendment which is clarificatory and retrospective in nature itself indicates that the view taken by the Assessing Officer at the relevant time was unsustainable in law. We find no merit in the said contentions. Firstly, it is not in dispute when the Order of the 16 ITA no. 2267/Del/2024 Commissioner was passed there were two views on the word 'profit' in that section. The problem with section 80HHC is that it has been amended eleven times. Different views existed on the day when the Commissioner passed the above order. Moreover the mechanics of the section have become so complicated over the years that two views were inherently possible. Therefore, subsequent amendment in 2005 even though retrospective will not attract the provision of section 263 particularly when as stated above we have to take into account the position of law as it stood on the date when the Commissioner passed the order dated 5-3-1997 in purported exercise of his powers under section 263 of the Income-tax Act."
12. In the course of hearing, referred J.P. Srivastava & Sons (Kanpur) Ltd. v. CIT [1978] 111 ITR 362 (All.), the Hon'ble Allahabad High Court held as under :-
"It is now well settled that a question which, even though not raised by the assessee, is dealt with by the Tribunal is a question which arises out of the appellate order of the Tribunal; See Commissioner of Income-tax v. Scindia Steam Navigation Co. Ltd. [1961] 42 ITR 589 (SC). Moreover, we find that the argument advanced before us does not raise, a new question. It is merely one of the aspects of the question mooted before the Tribunal The question which has been referred to us is not restricted to the argument raised before the Tribunal, but is widely worded and relates to the validity of the action under section 33B on the facts and circumstances of the case. We can thus examine this question from all the aspects including the one raised by the learned counsel for the assessee. We, therefore, reject the preliminary objection of the learned counsel for the department that the question sought to be argued by the assessee does not arise out, of the order of the Tribunal.
Now, reverting to the merits of the case, we find that the only ground upon which the action was taken by the Commissioner under section 33B was that the Income-tax Officer did not apply his mind to the claim of the assessee as contained in Part D of the return. The Commissioner himself did not apply his mind to the merits of the claim. In fact, the Commissioner has specifically refrained from going into the merits. In paragraph 7 of his order, he has observed:17
ITA no. 2267/Del/2024 "I consider that it will be in the fitness of things if the Income-tax Officer's order dated March 7, 1964, is cancelled because no attention was paid to the item mentioned in Section D of the return dated September 23,1960. The question of considering the merits does not arise at this stage, since the Income-tax Officer has not applied his mind and come to any conclusion, one way or the other."
We are of opinion that the approach of the Commissioner is erroneous. The failure of the Income-tax Officer to deal with the claim of the assessee in the assessment order may be an error, but an erroneous order by itself is not enough to give jurisdiction to the Commissioner to revise it under section 33B. It must further be shown that the order was prejudicial to the interests of the revenue. It is not each and every order passed by the Income-tax Officer which can be revised under section 338.
Section 338 contemplates a notice to the assessee. In response to the notice the assessee may show to the Commissioner that the order sought to be revised is not prejudicial to the interests of the revenue. In that event, the Commissioner would have no jurisdiction to take any further action. He would be competent to take action only if he rejects the plea of the assessee. It thus becomes necessary for the Commissioner to examine the merits of the objection raised by the assessee. He cannot delegate that power to the Income-tax Officer by setting aside the assessment order and directing him to make a fresh assessment after taking into consideration the objection of the assessee.
Now, in the instant case, the assessee claimed that a sum of rupees one lakh was not taxable. The Commissioner should have examined that plea on merits. He could take the action that he did only if he rejected the plea of the assessee. It must not be forgotten that under section 33B the Commissioner can himself modify or enhance the assessment and that he can only do if he considers and decides on merits the objection raised by the assessee. We are, therefore, of opinion that without going into the merits of the claim of the assessee it was not possible for the Commissioner to say that the order of the Income-tax Officer had caused any prejudice to the interests of the revenue and, as such, he was not competent to set aside the assessment order and remand the matter to the Income-tax Officer."
18
ITA no. 2267/Del/2024
13. In course of hearing, referred Income-tax Officer v. D.G. Housing Projects Ltd. [2012] 20 taxmann.com 587 (Delhi) Hon'ble Delhi High Court held as under :-
17. This distinction must be kept in mind by the CIT while exercising jurisdiction under Section 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interest of Revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged "inadequate investigation", it will be difficult to hold that the order of the Assessing Officer, who had conducted enquiries and had acted as an investigator, is erroneous, without CIT conducting verification/inquiry. The order of the Assessing Officer may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the CIT to ask the Assessing Officer to decide whether the order was erroneous. This is not permissible. An order is not erroneous, unless the CIT hold and records reasons why it is erroneous. An order will not become erroneous because on remit, the Assessing Officer may decide that the order is erroneous.
Therefore CIT must after recording reasons hold that the order is erroneous. The jurisdictional precondition stipulated is that the CIT must come to the conclusion that the order is erroneous and is unsustainable in law. We may notice that the material which the CIT can rely includes not only the record as it stands at the time when the order in question was passed by the Assessing Officer but also the record as it stands at the time of examination by the CIT [see CIT v. Shree Manjunathesware Packing & Products Camphor Works [1998] 231 ITR 53/98 Taxman 1 (SC)). Nothing bars/prohibits the CIT from collecting and relying upon new/additional material/evidence to show and state that the order of the Assessing Officer is erroneous.
14. In course of hearing, referred Director of Income-tax v. Jyoti Foundation [2013] 357 ITR 388 (Delhi), Hon'ble Delhi High Court held as under :-
4. Revisionary power under Section 263 of the Act is conferred by the Act on the Commissioner/Director of Income-tax when an order passed by the lower authority is erroneous and prejudicial to the interest of the Revenue.
Orders which are passed without inquiry or investigation are treated as 19 ITA no. 2267/Del/2024 erroneous and prejudicial to the interest of the Revenue, but orders which are passed after inquiry/investigation on the question/issue are not per se or normally treated as erroneous and prejudicial to the interest of the Revenue because the revisionary authority feels and opines that further inquiry/investigation was required or deeper or further scrutiny should be undertaken. In ITO v. D.G. Housing Projects Ltd. (20121 343 ITR 329/20 taxmann.com 587/120131212 Taxman 132 (Mag.,) it has been observed:
'11. The Assessing Officer is both an investigator and an adjudicator. If the Assessing Officer as an adjudicator decides a question or aspect and makes a wrong assessment which is unsustainable in law, it can be corrected by the Commissioner in exercise of revisionary power. As an investigator, it is incumbent upon the Assessing Officer to investigate the facts required to be examined and verified to compute the taxable income. If the Assessing Officer fails to conduct the said investigation, he commits an error and the word 'erroneous' includes failure to make the enquiry. In such cases, the order becomes erroneous because enquiry or verification has not been made and not because a wrong order has been passed on merits.
16. Thus, in cases of wrong opinion or finding on merits, the CIT 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 passed is not sustainable in law and the said finding must be recorded. CIT 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 CIT 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 CIT and he is able to establish and show the error or mistake made by the Assessing Officer, making the order unsustainable in Law. In some cases possibly though rarely, the CIT 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 20 ITA no. 2267/Del/2024 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 CIT has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question.
17. This distinction must be kept in mind by the CIT while exercising jurisdiction under Section 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interest of Revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged "inadequate investigation", it will be difficult to hold that the order of the Assessing Officer, who had conducted enquiries and had acted as an investigator, is erroneous, without CIT conducting verification/inquiry. The order of the Assessing Officer may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the CIT to ask the Assessing Officer to decide whether the order was erroneous. This is not permissible. An order is not erroneous, unless the CIT hold and records reasons why it is erroneous. An order will not become erroneous because on remit, the Assessing Officer may decide that the order is erroneous.
Therefore CIT must after recording reasons hold that the order is erroneous. The jurisdictional precondition stipulated is that the CIT must come to the conclusion that the order is erroneous and is unsustainable in law. We may notice that the material which the CIT can rely includes not only the record as it stands at the time when the order in question was passed by the Assessing Officer but also the record as it stands at the time of examination by the CIT [see CIT v. Shree Manjunathesware Packing Products, [1998] 231 ITR 53 (SC)]. Nothing bars/prohibits the CIT from collecting and relying upon new/additional material/evidence to show and state that the order of the Assessing Officer is erroneous.'
15. In course of hearing, referred PCIT v. Mohak Real Estate (P) Ltd. [2024] 16 taxmann.com 388 (Delhi), Hon'ble Delhi High Court held as under :
"7. In the order under section 263 of the Act, the PCIT also did not record the reasons for arriving at the conclusion that the Assessment Order was erroneous and prejudicial to the interest of revenue, what to say of basing the said discussion on some minimal enquiry.21
ITA no. 2267/Del/2024
8. Therefore, we have no hesitation to hold that the order under section 263 of the Act was not sustainable in the eyes of law. Consequently, we find no infirmity in the impugned order of the Tribunal."
16. On the basis of and governed by the established principles of law provided in judicial pronouncements mentioned hereinbefore, from bare perusal of the matter in hand, it appears that all relevant issues in question were properly examined by the Learned AO and decided accordingly.
17. The learned PCIT nowhere doubting any documents submitted and had not even undertaken any minimum enquiry. It is also relevant to mention that the learned PCIT not cited cogent reasons for reaching to conclusion that the assessment order was erroneous and prejudicial to the interest of the revenue. Explanation 2 of Section 263 of the Act nowhere authorized to give unfettered power to the learned PCIT to each and every re-examination or re-verify the issue which is already properly examined by the learned AO during the assessment proceedings. Therefore, we are of the considered view that impugned order is bad in law void abintio and deserves to be set aside.
18. In the result, the appeal of the assessee is allowed.
Order pronounced in open court on _09______.01.2025.
Sd/- Sd/- (SHAMIM YAHYA) (SUDHIR PAREEK) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated :09 .01.2025 *MP*