Inadequate Enquiry Cannot Justify Section 263 Revision Without Proven Error: ITAT Raipur

Burgess English Senior Secondary School Vs PCIT (ITAT Raipur)

Summary: The Raipur Bench of the Income Tax Appellate Tribunal allowed the appeal of Burgess English Senior Secondary School for AY 2015–16 and set aside the PCIT, Raipur-1’s revisionary order dated 13 March 2025. The Tribunal found that the Assessing Officer had examined the school’s relationship with the Chhattisgarh Diocese Board of Education, Raipur, obtained information from the parent institution and accepted a plausible view. The assessment could therefore not be treated as erroneous and prejudicial to the interests of the Revenue merely because the PCIT preferred further enquiry. The order was pronounced on 21 September 2026.

The appeal was delayed by 54 days. The assessee filed a condonation application and an affidavit dated 3 November 2025. The Tribunal found no material produced by the Revenue suggesting mala fide or deliberate delay, and the application and affidavit did not disclose deliberate conduct. Referring to Collector, Land Acquisition v. Mst. Katiji, Vidya Shankar Jaiswal v. ITO, Jagdish Prasad Singhania v. Additional CIT (TDS) and Inder Singh v. State of Madhya Pradesh, it condoned the delay and examined the revision on merits.

The PCIT’s action under Section 263 arose from information conveyed by the Senior Departmental Representative during proceedings concerning the school’s AY 2017–18 appeal. That information questioned whether the school, which had a separate PAN, had established that it formed part of the Diocese Board and whether its income was included in the Board’s income. The Revenue contended that the AO had accepted the school’s position for AY 2015–16 without sufficient enquiry. Before the Tribunal, the CIT-DR clarified that the AY 2017–18 order had not been pronounced when the PCIT passed the revisionary order; the information then concerned submissions made during the hearing.

The assessee relied on its own AY 2017–18 order in ITA No.486/RPR/2024, dated 29 June 2026. That separate proceeding concerned an addition of ₹64,31,628 representing the school’s surplus. The school maintained that students had directly deposited fees into its bank account and that its income was already included in the Diocese Board’s accounts and return. The Board operated 12 schools. In that earlier order, the Tribunal applied the principle of consistency, referring to Radhasoami Satsang, Bharat Sanchar Nigam Ltd., Berger Paints India Ltd. and Samsung India Electronics. It found no demonstrated factual change justifying departure from the acceptance of the school’s status for AY 2015–16. The ₹64,31,628 addition belonged to that earlier AY 2017–18 dispute, rather than being a quantified demand adjudicated in the present appeal.

Examining the AY 2015–16 assessment record, the Tribunal noted that the AO had issued a notice under Section 142(1) on 6 December 2022. The school explained that it was governed by the Diocese Board and assessed through its consolidated books. The AO then issued a notice under Section 133(6) directly to the Board. The Board furnished its society registration particulars, registration certificate, bylaws and a list of the schools or institutions under its governance. After considering the material, the AO recorded that the school operated under the Board’s umbrella, maintained no separate account and had satisfactorily explained its position. Income was assessed at nil under Section 147 read with Section 143(3).

The CIT-DR argued that the AO had obtained only basic particulars and had not sufficiently examined the financial statements. The Tribunal, however, found that the details had been placed before the Revenue and that any further verification should have been undertaken in the hands of the parent institution. No evidence of such enquiry into the Board was produced. The Tribunal relied on its decision in Ganesh Prasad Khetan v. PCIT, dated 6 August 2026, which discussed the distinction between lack of enquiry and inadequate enquiry, the twin conditions for revision, and the need for the PCIT to establish error rather than order a roving investigation. Those reproduced discussions included Arul Industries, Malabar Industrial Co. Ltd., Sunbeam Auto Ltd., Gabriel India Ltd., Delhi Airport Metro Express and D.G. Housing Projects. Applying those principles to the school’s assessment, the Tribunal held that requisite enquiry had been made and a plausible view adopted. It set aside the Section 263 order and allowed the appeal.

Cases Discussed

• Ganesh Prasad Khetan v. PCIT — ITA No.430/RPR/2026, AY 2022–23, 6 August 2026 (ITAT Raipur). Followed on the limits of revision after enquiry and on the prohibition against roving enquiries.
• Burgess English Senior Secondary School v. ITO — ITA No.486/RPR/2024, AY 2017–18, 29 June 2026 (ITAT Raipur). Relied upon concerning the school’s inclusion in the Diocese Board and consistency across assessment years.
• Arul Industries v. ACIT, Central Circle-II, Madurai — 2025 (8) TMI 1737 (Madras High Court). Discussed through the reproduced Ganesh Prasad Khetan order on inadequate enquiry and substitution of the Commissioner’s opinion.
• Inder Singh v. State of Madhya Pradesh — SLP (Civil) No.6145/2024, 21 March 2025 (Supreme Court). Cited for condonation of delay.
• Jagdish Prasad Singhania v. Additional CIT (TDS) — Tax Case No.17/2025, 24 February 2025 (Chhattisgarh High Court). Cited for condonation of delay.
• Vidya Shankar Jaiswal v. ITO — appeals arising from SLP (Civil) Nos.26310–26311/2024, 31 January 2025 (Supreme Court). Cited for a liberal approach to condonation of delay.
• Samsung India Electronics Private Limited v. State of U.P. & Others — Writ Tax No.660/2023, 12 March 2024 (Allahabad High Court). Discussed in the earlier school appeal concerning consistency in taxation matters.
• PCIT v. Delhi Airport Metro Express Pvt. Ltd. — ITA No.705/2017, 5 September 2017 (Delhi High Court). Discussed in the reproduced precedent for the Commissioner’s obligation to undertake enquiry before concluding that the assessment is erroneous.
• ITO v. D.G. Housing Projects Ltd. — [2012] 343 ITR 329 (Delhi High Court). Discussed in the reproduced precedent on specific findings of error before remanding an assessment.
• CIT v. Sunbeam Auto Ltd. — (2011) 332 ITR 167 (Delhi High Court). Extensively quoted through Ganesh Prasad Khetan on application of mind, inadequate enquiry and a plausible assessment view.
• CIT v. Saravana Spinning Mills (P.) Ltd. — (2007) 293 ITR 201 (Supreme Court). Distinguished within the quoted Sunbeam Auto discussion concerning replacement expenditure and current repairs.
• Bharat Sanchar Nigam Ltd. v. Union of India — (2006) 3 SCC 1 (Supreme Court). Discussed in the earlier school appeal on following an earlier legal or factual conclusion absent a new ground or material change.
• Berger Paints India Ltd. v. CIT — (2004) 266 ITR 99 (Supreme Court). Discussed in the earlier school appeal concerning consistent acceptance of a legal position.
• Malabar Industrial Co. Ltd. v. CIT — (2000) 243 ITR 83 (Supreme Court). Quoted through Ganesh Prasad Khetan on the twin conditions of error and prejudice and legally permissible assessment views.
• CIT v. Seshasayee Paper and Boards Ltd. — (2000) 242 ITR 490, 30 April 1998 (Madras High Court). Referred to in the reproduced Sunbeam Auto discussion on recording a finding that an assessment is erroneous and prejudicial.
• CIT v. Gabriel India Ltd. — (1993) 203 ITR 108 (Bombay High Court). Discussed in the reproduced authorities on material establishing error and the limits of revisional power.
• Radhasoami Satsang v. CIT — (1992) 193 ITR 321 (Supreme Court). Relied upon in the earlier school appeal for consistency where material facts remain unchanged.
• Collector, Land Acquisition, Anantnag v. Mst. Katiji & Others — [1987] 167 ITR 471; (1987) 2 SCC 107, 19 February 1987 (Supreme Court). Cited in condoning the 54-day delay.
• Parashuram Pottery Works Co. Ltd. v. ITO — (1977) 106 ITR 1 (Supreme Court). Referred to within the quoted authorities on finality of concluded proceedings.
• Gee Vee Enterprises v. Additional CIT — [1975] 99 ITR 375 (Delhi High Court). Mentioned in the reproduced Sunbeam Auto passage concerning the Commissioner’s obligation to establish an erroneous assessment.

FULL TEXT OF THE ORIGINAL JUDGMENT/ORDER OF ITAT RAIPUR

The present appeal preferred by the assessee emanates from the order of the Ld. Pr. CIT, Raipur-1, dated 13.03.2025 for the assessment year 2015-16 as per the grounds of appeal on record.

2. At the very outset, it is noted that the appeal is time barred by 54 days. Explaining the reasons for such delay and praying for condonation, the assessee had filed an “affidavit”, dated 03.11.2025 as well as condonation application.

3. We have carefully considered the contents of the condonation application a/w. affidavit and it is observed that there is no material/evidence on record filed by the Revenue to suggest malafide or deliberate conduct of the assessee for causing such delay. Further, contents of the condonation application and affidavit also do not spell out any deliberate conduct of the assessee for causing the said delay. Respectfully considering the various judicial pronouncements viz. (i) Collector, Land Acquisition v. Mst. Katiji 1072/167 ITR 471 (SC); (ii)Vidya Shankar Jaiswal v. ITO (SC)/Civil Appeal No…/2025 [Special Leave Petition (Civil) Nos. 26310- 26311/2024, dated 31.01.2025; (iii)Jagdish Prasad Singhania v. Addll. CIT (TDS) [Tax Case No.17 of 2025, dated 24-2-2025] and(iv)Inder Singh v. State of Madhya Pradesh [SLP (Civil) No. 6145 of 2024, dated 21-3-2025], the delay of 54 days involved in the appeal is condoned.

4. The assessee is aggrieved by passing of revisionary order u/s. 263 of the Income Tax Act, 1961 (for short ‘the Act’) by the Ld. Pr. CIT. The observation of the Ld. Pr. CIT holding the assessment order to be erroneous and prejudicial to the interest of the Revenue is solely on the basis of the information of the Ld. Sr. DR, ITAT wherein the Ld. Sr. DR attending hearing for A.Y.2017-18 in the case of the assessee, it was informed by the Ld. Sr. DR to the Ld. Pr. CIT that for A.Y.2017-18 before the ITAT, it was observed during the hearing that the assessee had a separate PAN, but had claimed to be a part of the Chhattisgarh Diocese Board. He also informed that the assessee could not produce evidence of its inclusion in the Chhattisgarh Diocese Board at the time of hearing and whether the assessee’s income is being included in the income of the Chhattisgarh Diocese Board’s own income or not. The information of the Ld. Sr. DR further stated that for A.Y.2015-16, the A.O had erred in accepting assessee’s claim without enquiring further on this issue and had accepted that the assessee is a part of Chhattisgarh Diocese Board. The Ld. CIT-DR before us elaborating on these facts submitted that when the order of the Ld. Pr. CIT u/s.263 of the Act was passed, the order of the Tribunal for A.Y.2017-18 had not been pronounced and that whatever observations has been referred in the revisionary order, reveals that it is based on the submissions of the parties during hearing before the Tribunal for A.Y.2017-18.

5. The Ld. Counsel submitted that the order passed by the Tribunal in assessee’s own case for A.Y.2017-18 in Burgess English Senior Secondary School v. ITO (Raipur – Trib.)/ITA No.486/RPR/2024, order dated 29.06.2026 wherein it was held and observed as follows:

“3. In this case, the assessee, i.e. Burgess English Senior Secondary School, Raipur, had not filed Income Tax Return (TTR) for AY 2017-18. The ITO, Ward-1(2), Bilaspur received an information that during the demonetization period, the assessee had made cash deposits. Therefore, the ITO had issued notice under section 142(1) of the Act on 11.12.2017 asking assessee to file ITR. Subsequently, the ITO issued various notices which are mentioned in the assessment order. During the assessment proceedings, the assessee had submitted that the assessee runs a school the amount mentioned in the notice pertains to the fees which was directly paid by the students in the bank account mentioned in the notice. Thus, the assessee i.e. Burgess English Senior Secondary School, Raipur claimed that they had not deposited any cash but it is students who had deposited the same. The assessee has also submitted that the assesse is a part of Chhattisgarh Diocese Board of Education, Raipur. The Chhattisgarh Diocese Board of Education, Raipur, runs 12 schools and the assessee, Burgess English Senior Secondary School is part of the same. This claim was made by the assessee before the Ld. Assessing Officer (‘AO’), however, the Ld. AO rejected the claim on the ground that no evidence has been filed and accordingly, made an addition of Rs.64,31,628/- Expenditure Account submitted by the assessee. The assessee , which was the surplus emanating from the Income and filed appeal before the Ld. CIT(A). The assessee repeated the submission, however, the Ld. CIT(A) confirmed the addition as the assessee has PAN No.AAABB0788Q whereas the Chhattisgarh Diocese Board of Education, Raipur, has PAN No.AACAC1876F, therefore, the Ld. CIT(A) has treated the assessee as independent entity and confirmed the addition. It was pleaded before the Ld. AO as well as, the Ld. CIT(A) that the income of the assessee has been reflected in the income shown by the Chhattisgarh Diocese Board of Education, Raipur in the ITR. Ld. AR claimed that the Audited Balance Sheet, Receipt and Payment and Income and Expenditure account of Chhattisgarh Diocese Board of Education, Raipur was filed before the Ld. AO and Ld. CIT(A), which is at page 69 and 70 of the paper book. Ld. AR submitted that the entire income has been shown by the Chhattisgarh Diocese Board of Education, Raipur, therefore, there was no requirement for taxing the same in the hands of the assessee.

4. Ld. AR further submitted that in the assessment order for AY 2015-16, the Ld. AO has accepted the assessee’s claim that it is a part of Chhattisgarh Diocese Board of Education, Raipur. Ld. AR submitted that the department cannot change its stand for AY 2017-18.

5. Ld. DR accepted the fact that for AY 2015-16 in the assessment order passed under section 147 of the Act, the Ld. AO had accepted the assessee’s claim that it is a part of Chhattisgarh Diocese Board of Education, Raipur. Ld.DR further submitted that the assessment order for AY 2015-16 is bad in law and therefore, Ld. Pr. CIT has initiated the proceedings under section 263 of the Act. However, he could not furnish any evidences to that effect.

6. In this case, the assessee has repeatedly submitted that it is part of Chhattisgarh Diocese Board of Education, Raipur. The assessee also filed a copy of the Income and Expenditure and Balance Sheet of the Chhattisgarh Diocese Board of Education, Raipur. However, neither Ld. AO nor Ld. CIT(A) had bothered to verify the claim of the assessee that assessee’s income has been shown in the Income and Expenditure account of Chhattisgarh Diocese Board of Education, Raipur. It is also observed that for AY 2015-16, the Ld. AO has accepted the assessee’s claim that the assessee is a part of Chhattisgarh Diocese Board of Education, Raipur. The Ld. Sr. DR failed to furnish any distinguishable evidence to that as had appeared for A.Y.2015-16. The Ld. Sr. DR was unable to bring out what were the different factual position for present assessment year which was not there for A.Y.2015-16. That in absence of any contradicting evidence, the Revenue authorities are bound by the principle of consistency as held by the Hon’ble Apex Court in the case of Radhasoami Satsang Vs. CIT(1992) 193 ITR 321 (SC). That in absence of any distinguishable facts and evidence in the case of the assessee for the present year and also for the fact that there is no findings by the Revenue authorities verifying the claim of the assessee that the assessee’s income had already shown in the income expenditure account of Chhattisgarh Diocese Board of Education, Raipur and also for the fact that for A.Y.2015-16, the A.O had accepted the assessee’s claim that the assessee is a part of Chhattisgarh Diocese Board of Education, Raipur, hence, following the dictate of the Hon’ble Apex Court (supra), the claim of the assessee stands allowed.

7. The principle of consistency dictates that Indian Revenue authorities must maintain the legal stand on identical factual situations across different tax periods to prevent arbitrary decision making while each assessment year represents separate legal proceedings and the rule of “Res- judicata” does not apply to taxation, the Revenue authorities cannot shift their stance wildly without material change in facts or law. The Hon’ble Apex Court in the case of Bharat Sanchar Nigam Ltd. (BSNL) vs. Union of India (2006) 3 SCC 1 has held that the Courts will generally adopt an earlier pronouncement of the law or a conclusion of fact unless there is a new ground urged or a material change in the factual position.

8. In the facts of the present case before us, no new fact or material change has been proved to justify any change of stand between the assessment year 2015-16 and A.Y.2017-18 i.e. the year under consideration. Further, in the case of Berger Paints India Ltd. v. Commissioner of Income Tax (2004) 266 ITR 99 (SC), the Hon’ble Apex Court established that if the Revenue accepts a specific legal position or interpretation in the case of one taxpayer, it cannot challenge the very same proposition in the case of another taxpayer without just cause. The Hon’ble Allahabad High Court in the case of Samsung India Electronics Private Limited v. State of U.P. And Ors,[Writ Tax No.660 Of 2023] decided on March 12, 2024 explicitly held that “consistency is sacrosanct in taxation matters”. When the Department accepts a refund or deduction stand for multiple periods, suddenly cannot deny the same for a specific period if the underlying transactions are identical.

9. The legal rationale as emanating from these aforesaid decisions are that when the Revenue on certain factual matrix on the basis of which, it had decided in a particular manner for a particular assessment year, the onus to prove is on the Revenue itself to demonstrate distinguish shift in the facts for new assessment year so to take a different view. In the present case before us the Revenue had failed to bring out any difference in facts between A.Y.2015-16 and the relevant assessment year i.e. A.Y.2017-18.

10. That as per above terms, the appeal of the assessee is allowed.”

In the aforesaid decision, this Bench had referred to following decisions:

(a) Radhasoami Satsang v. CIT 193 ITR 321 (SC).

(b) Bharat Sanchar Nigam Ltd. v. Union of India (2006) 3 SCC 1.

(c) Berger Paints India Ltd. v. CIT 266 ITR 99 (SC).

(d) Samsung India Electronics (P.) Ltd. v. State of U.P (All)/Writ Tax No.660 of 2023 decided on March 12, 2024.

6. Referring to all the aforesaid decision, this Bench had held (supra) that consistency is sacrosanct in taxation matters. The legal rationale is that when the Revenue on certain factual matrix on the basis of which, it had decided in a particular manner for a particular assessment year, the onus to prove is on the Revenue itself to demonstrate distinguishing shift in the facts for new assessment year so to take a different view. That since in A.Y.2015-16 itself, it has been accepted by the Department that the assessee is a part of Chhattisgarh Diocese Board of Education, Raipur and in absence of any distinguishable facts for A.Y.2017-18 also, it was held that the assessee is a part of Chhattisgarh Diocese Board of Education, Raipur. That further, the A.O in the assessment order itself had, in detail, enquired about all these aspects and in reply, the assessee had submitted before the A.O as follows:

“Accordingly notice u/s.142(1) was issued on 06.12.2022 asking the assessee to submit the details and comply with the notice, in response of which the replied

1. The Noticee under consideration is a school being run in the name of Burgess English Medium Higher Secondary school since long.

2. That the noticee is one of the institutions being run under the umbrella of Chhattisgarh diocese board of Education C.N.I (AACAC1876F). The governing body of the notice under consideration is Chhattisgarh Diocese board of Education C.N.I., further the noticee is assessed under the consolidated books of accounts prepared by Chhattisgarh Diocese Board of Education C.N.I.

Hence in light of the above your honour is kindly requested to serve this notice on the governing body of the assessee.

“After receiving the reply from the assessee the notice under section 133(6) was issued to the Chhattisgarh Diocese Board of Education C.N.I Raipur for getting the necessary information, in response of which the Chhattisgarh Diocese Board of Education has replied to the notice which is being reproduced as under:-

“That the, The Chhattisgarh Diocese Board of Education CNI is a charitable institution (Society) registered vide Reg. No.2937 under Chhattisgarh Society registration Act, 1973 since 05.06.2010. The copy of society registration certificate and bylaws of the society is attached for your kind reference and records. During the year under consideration multiple schools/institutions were governed under Chhattisgarh Diocese Board of education CNI, the detailed list of schools/institutions in this regard is attached for your kind reference and records”.

Submission of the assessee has been gone through and considering the submission made by the assessee, it is found that the assessee Burgess English Sr. Sec. School is being run under the umbrella of Chhattisgarh Diocese Board of Education, and no separate account is maintained by the school. Hence, submission of the assessee is found satisfactory, accordingly income is assessed as under:-

Return income =

Assessed income= Nil u/s. 147 r.w.s. 143(3) of the IT Act, 1961. Issue demand notice and challan.”

7. The Ld. CIT-DR submitted that the A.O had only enquired basic details and not enquired about financials of the assessee and Chhattisgarh Diocese Board of Education, Raipur. The fact of the matter is that all the details had been placed before the Revenue. If the Revenue still required further details, necessary verifications should have been done in the hands of Chhattisgarh Diocese Board of Education, Raipur itself. The Ld. CIT-DR failed to bring on record any evidence regarding any enquiry conducted by the Department on the said body. In absence of any enquiry on the parent institution, the order of assessment passed in respect of the assessee cannot be held as erroneous so as to be prejudicial to the interest of the Revenue on two counts viz. (i) that for both the assessment years i.e. A.Ys.2015-16 and 2017-18, it has been held that the assessee is part of Chhattisgarh Diocese Board of Education, Raipur vide order of this Bench (supra); and (ii) requisite enquiry has been done by the A.O and he has taken a plausible view, against which, it is beyond jurisdiction for the Ld. Pr. CIT to invoke revisionary jurisdiction and pass order u/s.263 of the Act.

8. We further find that this Bench in the case of Ganesh Prasad Khetan v. Pr. CIT (Raipur – Trib.)/ITA No.430/RPR/2026, A.Y.2022-23, dated 06.08.2026 on the similar issue has held and observed as follows:

“3. At the time of hearing, the Ld. Counsel for the assessee demonstrated that the issue of unsecured loan had been in detailed verified and examined by the A.O during assessment proceedings and having examined the same he has taken plausible view in the matter, after which, the Pr. CIT does not get jurisdiction to impose his view on the issue when plausible view has already been taken by the A.O after due verification. The Ld. Counsel further submitted that as per Page 26 to 107 of the paper book, details of unsecured loan were filed before the A.O. In this regard, he also demonstrates that specific question has been asked by the A.O for furnishing details of unsecured loan through notice u/s. 142(1) of the Act, dated 11.10.2023 a/w. questionnaire and at point No.3, the said specific query on unsecured loan had been enquired by the A.O. The relevant Point No.3 of the annexure of notice u/s. 142(1) of the Act is extracted as follows:

3. On verification of the records, it is noticed that the assessee has shown substantial Unsecured loans of Rs.23,26,11,543/- as on 31/03/2022. Please furnish the details of Unsecured loans in the following format and below given points.

(i) Rate of interest, total interest paid during the year and TDS Deducted on interest.

(ii) Please submit confirmation of the lenders in respect of large parties along with their copy of relevant Bank account Statement, Balance sheet.

(iii) Please furnish the documentary evidences to substantiate the identity of the lenders and ITR of last 3 years of the lenders to substantiate the creditworthiness of the lenders.

4. That once due verification has been conducted by the A.O and he had applied his mind while arriving at a particular satisfaction and accepting the said response, in such a case, thereafter, it is not open for the Ld. Pr. CIT to pass order u/s.263 of the Act again on the same issue just for conducting any roving enquiry. The very premises of satisfaction emanated in the order u/s.263 of the Act by the Pr. CIT is arbitrary, bad in law since exhaustively the said issue has been examined by the A.O in the assessment order. Therefore, on facts, it cannot be said to be a case where opinion was formed without any inquiry and without any material. Consequently, it could not be classified as a case of “lack of inquiry” but at the most even if the case of the Revenue is accepted on the basis of the order passed by the Commissioner, this was a case of “inadequate inquiry”. Once there is an inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to pass order under Section 263 of the Act merely because he has a different opinion in the matter. It cannot, therefore, be said to be a case of erroneous order and prejudicial to the interest of the Revenue. Same view has been upheld by the Hon’ble High Court of Madras in the case of M/s.Arul Industries Vs. ACIT, Central Circle-II, Madurai 2025(8) TMI 1737 (Madras) wherein it has been held and observed as follows:

“16. Therefore, on facts, it cannot be said to be a case where opinion was formed without any inquiry and without any material. Consequently, it could not be classified as a case of “lack of inquiry” but at the most even if the case of the Revenue is accepted on the basis of the order passed by the Commissioner, this was a case of “inadequate inquiry”. Once there is an inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to pass order under Section 263 of the Act merely because he has a different opinion in the matter. It cannot, therefore, be said to be a case of erroneous order and prejudicial to the interest of the Revenue.

17. A Division Bench of Delhi High Court in the case of Sunbeam Auto Ltd. (cited supra) examined the aforesaid legal position as regards the scope and ambit of power under Section 263 of the Act. It was held to be a settled principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction etc. One has to see from the records as to whether there was any application of mind. Distinction between “lack of inquiry” and “inadequate inquiry” was also highlighted in the said decision. It was held that if there was any inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to pass orders under Section 263 of the Act, merely because he has different opinion in the matter and it is only in cases of “lack of inquiry” that such a course of action would be open.

18. Similar view was taken by the Bombay High Court in the case of Gabriel India Ltd. [supra]. Based on logical and rational reading of the provisions contained in Sub-section (1) of Section 263 of the Act, it was observed that suo motu revision can be exercised by the Commissioner only if, on examination of the records of any proceedings under the Act, it is found that any order passed therein by the Income Tax Officer is ‘erroneous insofar as it is prejudicial to the interests of the Revenue’. It is not an arbitrary or unchartered power, and can be exercised only on fulfilment of the requirements laid down in Sub-section (1) of Section 263 of the Act. The consideration 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 the 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 the 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.

19. Therefore, an order cannot be termed as erroneous unless it is not in accordance with law. If the Income Tax Officer, acting in accordance with law, makes certain assessment, the same cannot be branded as erroneous by the Commissioner, simply because, according to the Commissioner, the order should have been written more elaborately. The Section does not visualize a case of substitution of the judgment of the Commissioner or that of the Income Tax Officer, who passed the order, unless the decision is held to be erroneous. There must be some prima facie material on record to show that the tax which was lawfully eligible has not been imposed or that by wrong application of the relevant statute on an incorrect or incomplete interpretation, a lesser tax than what was just has been imposed.”

5. Further, the Hon’ble Apex Court in the case of Malabar Industrial Co. Ltd. Vs. Commissioner of Income Tax (2000) 243 ITR 83 (SC) had held and observed as follows:

“A bare reading of section 263 of the Income-tax Act, 1961, makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous ; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent—if the order of the Income— tax Officer 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) of the Act. The provision cannot be invoked to correct each and every type of ‘mis-take 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 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 Income-tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. 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 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 interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law.”

6. That on the same parameters of law and facts, the Hon’ble High Court of Delhi in the case of Commissioner of Income Tax Vs. Sunbeam Auto Ltd. (2011) 322 ITR 167 (Del.) has held and observed as follows:

“12. We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the Commissioner of Income-tax under section 263 of the Income-tax Act. As noted above, the submission of learned counsel for the revenue was that while passing the assessment order, the Assessing Officer did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the Assessing Officer had not applied his mind on the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between “lack of inquiry” and “inadequate inquiry”. If there was any inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has different opinion in the matter. It is only in cases of “lack of inquiry”, that such a course of action would be open. In Gabriel India Ltd.’s case (supra), law on this aspect was discussed in the following manner : …

” ……..From a reading of sub-section (1) of section, it is clear that the power of suo motu revision can be exercised by the Commissioner only if, on examination of the records of any proceedings under this Act, he considers that any order passed therein by the Income-tax Officer is ‘erroneous insofar as it is prejudicial to the interests of the revenue’. It is not an arbitrary or unchartered power. It can be exercised only on fulfilment of the requirements laid down in sub-section (1). The consideration 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].

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 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 visualise 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 visualised 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 quasi-judicial 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 . . . . There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed . . . .

We may now examine the facts of the present case in the light of the powers of the Commissioner set out above. The Income-tax Officer in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given detailed explanation on that regard by a letter in writing. All these are part of the record of the case. Evidently, the claim was allowed by the Income-tax Officer on being satisfied with the explanation of the assessee. Such decision of the Income-tax Officer cannot be held to be “erroneous” simply because in his order he did not make an elaborate discussion in that regard ” (pp. 113-117)

13. When we examine the matter in the light of the aforesaid principle, we find that the Assessing Officer had called for explanation on this very items, from the assessee and the assessee had furnished his explanation vide letter dated 26- 9-2002. This fact is even taken note of by the Commissioner himself in Para 3 of his order dated 3-11-2004. This order also reproduces the reply of the respondent in Para 3 of the order in the following manner :

“The tools and dies have a very short life and can produce up to maximum 1 lakh permissible shorts and have to be replaced thereafter to retain the accuracy. Most of the parts manufactured are for the automobile industries which have to work on complete accuracy at high speed for a longer period. Since it is an ongoing procedure, a company had produced 10,75,000 sets whose selling rates is inclusive of the reimbursement of the dies cost. The purchase orders indicating the costing includes the reimbursement of dies cost are being produced before your honour. Since the sale rate includes the reimbursement of dies cost and to have the matching effect the cost of the dies has been claimed as a revenue expenditure.”

14. This clearly shows that the Assessing Officer had undertaken the exercise of examining as to whether the expenditure incurred by the assessee in the replacement of dyes and tools is to be treated as revenue expenditure or not. It appears that since the Assessing Officer was satisfied with the aforesaid explanation, he accepted the same. The CIT in his impugned order even accepts this in the following words :

“Assessing Officer accepted the explanation without raising any further questions, and as stated earlier, completed the assessment at the returned income.”

15. Thus, even the Commissioner conceded the position that the Assessing Officer made the inquiries, elicited replies and thereafter passed the assessment order. The grievance of the Commissioner was that the Assessing Officer should have made further inquires rather than accepting the explanation. Therefore, it cannot be said that it is a case of ‘lack of inquiry’.

16. Having put the records straight on this aspect, let us proceed further. Is it a case where the Commissioner has concluded that the opinion of the Assessing Officer was clearly erroneous and not warranted on the facts before him and, viz., the expenditure incurred was not the revenue expenditure but should have been treated as capital expenditure ? Obvi-ously not. Even the Commissioner in his order, passed under section 263 of the Act, is not clear as to whether the expenditure can be treated as capital expenditure or it is revenue in nature. No doubt, in certain cases, it may not be possible to come to a definite finding and therefore, it is not necessary that in all cases the Commissioner is bound to express final view, as held by this Court in Gee Vee Enterprises’ case (supra). But, the least that was expected was to record a finding that order sought to be revised was erroneous and prejudicial to the interest of the revenue. [see : Seshasayee Paper & Board Ltd.’s case (supra)]. No basis for this is disclosed. In sum and substance, accounting practice of the assessee is questioned. However, that basis of the order vanishes in thin air when we find that this very accounting practice, followed for number of years, had the approval of the income-tax authorities. Interestingly, even for future assessment years, the same very accounting practice is accepted.

17. It is in this context the question that assumes importance is as to whether powers could be exercised under section 263 of the Act when two views are possible and following observations of the Tribunal, in this backdrop, become relevant : “38. Still further, the Hon’ble Supreme Court in Malabar Industrial Co. Ltd.’s case (supra) has held that when two views are possible and the Assessing Officer has taken one of the possible view, then the order cannot be held to be prejudicial to the interest of the Revenue. Since the CIT could not come to a definite finding that the expenditure in question was a capital expenditure in the proceedings under section 263, in our opinion, the order of the Assessing Officer could not be held to be erroneous.”

18. Let us look into the matter from another angel. What was the material/information available with the Assessing Officer on the basis of which he allowed the expenditure as revenue? It was disclosed to him that the assessee is a manufacturer of car parts. In the manufacturing process, dyes are fitted in machines by which the car parts are manufactured. These dyes are thus the components of the machines. These dyes need constant replacement, as their life is not more than a year. The assessee had also explained that since these parts are manufactured for the automobile industry, which have to work on complete accuracy at high speed for a longer period, replacement of these parts at short intervals becomes imperative to retain accuracy. Because of these reasons, these tools and dyes have a very short span of life and it could produce maximum one lakh permissible shorts. Thereafter, they have to be replaced. With the replacement of such tools and dyes, which are the components of a machine, no new assets comes into existence, nor is their benefit of enduring nature. It does not even enhance the life of existing machine of which these tools and dyes are only parts. No production capacity of the existing machines is increased either. The Tribunal, in these circumstances, relied upon the judgment of Mysore Spun Concrete Pipe (P.) Ltd.’s case (supra) wherein Karnataka High Court held that the replacement of moulds was not in the nature of replacement of a capital machinery, but in the nature of replacement a part of the machinery which in turn was in the nature of maintenance of machinery installed in the factory. Such an expenditure was treated as revenue expenditure. With this position in law, it is clear that view taken by the Assessing Officer was one of the possible views and, therefore, the assessment order passed by the Assessing Officer could not be held to be prejudicial to the revenue. Such an order thus has rightly been set aside by the Tribunal.

19. When we consider the matter in the aforesaid perspective, it also becomes clear that the judgments under which Mr. Sanjeev Sabharwal, learned counsel for the revenue, had taken umbrage would not be applicable in the instant case and, therefore, would not come to his rescue. InSaravana Spg. Mills (P.) Ltd.’s case (supra) where the Supreme Court expounded the principle of “current repairs”, clear finding recorded was that ring frames would constitute independent and separate machine capable of independent and specific functions, as is clear from the following observations : “In our view, the Assessing Officer was right in holding that each machine including the Ring Frame was an independent and separate machine capable of independent and specific function and, therefore, the expenditure incurred for replacement of the new machine would not come within the meaning of the words “current repairs”. In the present case it is not the case of the assessee that a part of the machine (out of 25 machines) needed repairs. The entire machine had been replaced. Therefore, the expenditure incurred by the assessee did not fall within the meaning of “current repairs” in section.” In the present case, finding is just the opposite, viz., dyes and tools are part of the machines. Replacing these dyes the purpose is to maintain the existing assets, viz., machine and not to bring a new asset. Moreover, case at hand is not a case of “repairs of machinery” which was the situation is inSaravana Spg. Mills (P.) Ltd.’s case (supra). The present case proceeded on the controversy right from the order of Assessing Officer till ITAT as to whether this expenditure was revenue or capital in nature. Even before us, arguments rested on this aspect.

20. Likewise, whether the Commissioner should have recorded definite finding or not, may not be very relevant factor in the present case where on the facts of this case we have found that the opinion of the Assessing Officer in treating the expenditure as revenue expenditure was plausible and thus there was no material before the CIT to vary that opinion and ask for fresh inquiry.

21. Thus, from whatever the matter is to be looked into, the conclusion would be that the order of the Tribunal does not call for any interference as the question of law has rightly been decided. We, thus, answer this question in favour of the assessee and against the Revenue, consequence whereof this appeal is dismissed with cost.”

7. Second aspect with regard to the suppression of business receipts, it was contended by the Ld. Counsel for the assessee that this issue was not enquired by the A.O. However, the same was placed before the Pr. CIT through written submission as annexed at Page 108 to 112 of the paper book. It was further submitted by the Ld. Counsel that entire reconciliation statement was filed before the Ld. Pr. CIT, however, the said authority had not pointed out any defect. It is not open for the Ld. Pr. CIT u/s. 263 of the Act to simply restore the matter to the file of the A.O. He must arrive at satisfaction and conclusively record his findings regarding the assessment order being erroneous in so far as it is prejudicial to the interest of the Revenue. In absence of such satisfaction by the Pr. CIT, remanding the matter to the A.O becomes mechanical and is therefore, not in terms with the settled legal principles on the issue. Revisionary order must explicitly demonstrates that Ld. Pr. CIT examined the case records himself and found distinct lapse in the assessment. Therefore, if the Ld. Pr. CIT holds that there is error in the order of the A.O, he should give categorical findings in this regard and for this purpose, he himself has to make enquiry and investigation whatever he deems fit in the circumstances. The Hon’ble High Court of Delhi in the case of Pr. CIT v. Delhi Airport Metro Express Pvt. Ltd. (ITA No.705/2017), dated 05.09.2017 has held that purpose of exercising jurisdiction u/s.263 of the Act, the conclusion that the order of the A.O is erroneous so as to be prejudicial to the interest of the Revenue has to be preceded by him on a minimal enquiry. If the Pr. CIT is of the view that the A.O did not undertake any enquiry, it becomes incumbent on the Pr. CIT to conduct such enquiry.

8. Further, the Hon’ble High Court of Delhi in the case of Income Tax Officer v. D.G. Housing Projects Ltd. (Del HC) has held that the Pr. CIT has to come to the conclusion and himself decide that the order is erroneous by conducting necessary enquiry before passing order u/s.263 of the Act. That why the order of the A.O is erroneous and prejudicial to the interest of the Revenue has to be recorded through specific findings by the Ld. Pr. CIT. The Ld. Pr. CIT therefore cannot summarily remand the matter to the file of A.O to decide whether the findings recorded are erroneous. Findings of the Ld. Pr. CIT must be clear and unambiguous and undebatable. The matter cannot be remanded for fresh decision of the A.O after conducting further enquiry without finding that the order is erroneous.

9. Reverting to the facts of the present case on this issue, entire reconciliation statement regarding issue of suppression of business receipts had been placed before the Ld. Pr. CIT but he has not brought out any failure or any wrong in such reconciliation. In absence of any such findings by the Ld. Pr. CIT, the order passed u/s. 263 of the Act is nothing but directing the A.O to conduct roving enquiry which is not permitted as per the dictate of the binding decisions (supra). Therefore, we do not find any merit in the order passed by the Ld. Pr. CIT u/s. 263 of the Act which is, therefore, set aside.

10. In the result, appeal of the assessee is allowed.”

9. That upon examination of facts and circumstances and various judicial pronouncements referred above, we do not find any merit in the order passed by the Ld. Pr. CIT u/s. 263 of the Act which is, therefore, set aside.

10. In the result, appeal of the assessee is allowed.

Order pronounced in the open court on 21st September, 2026.