Section 263 Jurisdiction cannot be exercised for additional inquiries

Sourabh Sharma Vs PCIT (ITAT Jaipur)

In a significant ruling by the ITAT Jaipur in the case of Sourabh Sharma Vs PCIT, the tribunal examined the jurisdiction of Section 263, particularly in scenarios where the Principal Commissioner of Income Tax (PCIT) sought additional inquiries post-assessment. The case pivoted on whether the PCIT could revise an already completed assessment based on the belief that the Assessing Officer (AO) might not have fully grasped the assessee’s claim, leading to potential revenue loss.

Background and Tribunal’s Order: The case stemmed from the PCIT’s dissatisfaction with the AO’s handling of sales promotion expenses claimed by the assessee, Sourabh Sharma. Despite the AO raising nine specific questions regarding these expenses and ultimately allowing them based on the assessee’s responses, the PCIT issued notices under the assumption of inadequate inquiry.

However, the ITAT Jaipur highlighted a critical aspect of the ‘faceless assessment’ process, emphasizing the collaborative effort involving multiple units under the Income Tax Department. This process ensures a thorough review and consideration of the cases, negating the notion of inadequate inquiry by a single officer.

Legal Interpretation of Section 263: The tribunal delved into Explanation 2 of Section 263, inserted by the Finance Act 2015, which broadens the PCIT’s powers to revise assessments deemed prejudicial to the interest of the revenue. Despite this provision, the ITAT Jaipur reasoned that the mere desire for more detailed inquiries by the PCIT does not inherently render the AO’s order erroneous or prejudicial.

Tribunal’s Rationale and Precedents: Drawing on precedents and the principle of judicial examination, the tribunal underscored that the AO’s decision, arrived at after detailed inquiries and review of the assessee’s submissions, stands firm unless proven otherwise by substantial evidence. The tribunal cited the case of CIT V. K. Ramachandran and the Rajasthan High Court’s ruling in CIT Vs. Ganpat Ram Bishnoi to support its decision, emphasizing that the assessment order’s correctness is evident from the detailed inquiries conducted by the AO.

Conclusion: The ITAT Jaipur’s ruling in Sourabh Sharma Vs PCIT underscores a significant legal standpoint: the PCIT’s authority under Section 263 cannot be exercised merely for additional inquiries if the AO’s order is based on comprehensive examinations and reasoned decisions. This verdict reaffirms the importance of procedural correctness and the limitations of Section 263, ensuring that reassessments are grounded in concrete evidence rather than speculative dissatisfaction. The decision is a crucial reminder of the checks and balances within the income tax assessment process, ensuring fairness and thoroughness in the evaluation of claims and deductions. 

FULL TEXT OF THE ORDER OF ITAT JAIPUR

This appeal is filed by assessee and is arising out of the order of the Principal Commissioner of Income Tax dated 29/03/2023 [here in after (PCIT)] for assessment year 2018-19, which in turn arise from the order of the AO dated 23.11.2020 passed under 143(3) r.w.s 143(3A) & 143(3B) of the Income Tax Act, [ here in after referred to as Act ].

2. The assessee has marched this appeal on the following grounds:-

“1. The Id. PCIT-2, Jaipur erred in law as well as on the fact of the case in taking the action u/s 263, which is bad in law without jurisdiction on various grounds hence, the same may kindly be quashed.

2. The assumption of jurisdiction u/s 263 and the impugned direction, being contrary to the provisions of law and facts on record hence, the proceedings initiated u/s 263 of the Act and the impugned order dated 29.03.2023 deserves to be quashed.

3. The ld. Pr. CIT seriously erred in law as well as on the facts of the case in assuming jurisdiction u/s 263 of the Act by wrongly and incorrectly invoking Explanation 2 to S. 263 as if the same conferred unbridled power upon the CIT even though the facts and circumstances of the case did not justify the application of the said Explanation.

4. The Id. Pr. CIT erred in law as well as on the facts of the case in wrongly setting aside the assessment order dated 23.11.2020 despite there being complete application of mind by the AO on the subjected issues and it was nothing but a case of change of opinion and/or suspicion, based on which, assumption of jurisdiction u/s 263 is not permissible. The impugned order dt. 29.03.2023 therefore, lacks valid jurisdiction u/s 263 of the Act and hence, the same kindly be quashed.

5.1 The ld. Pr. CIT seriously erred in law and on facts of the case in holding that the source of incentive on sales of Rs. 80,46,456/- could not be explained by the appellant which being completely contrary to the provisions of law and facts available on record, such findings and the decision of the CIT(A) deserves to be quashed and set aside.

5.2 That alternately and without prejudice to above, in case the impugned action and other passed by the ld. Pr. CIT is upheld, a clear direction may kindly be given to the AO not be to influenced by the unjustified and invalid finding recorded by the ld. Pr. CIT in Para 5 of the impugned order.

6. The appellant prays your honour to add, amend or alter any of the grounds of the appeal on or before the date of hearing.”

3. The fact as culled out from the records is that the case of the assessee was selected for Limited Scrutiny under E assessment Scheme 2019 on the issue of claim of Business Expenses. Based on that criteria notice u/s 143(2) was issued to the assessee on 28.09.2019 and the assessee had not responded to the same. Further, notice u/s 142(1) was issued to the assessee on 22.11.2019 and 31.01.2020 with specific questionnaire. In response to the notices, the assessee has attached all the relevant documents along with the assessee reply dated 09.12.2020. The submissions made by the assessee were examined, no addition was made on the selection criteria and accordingly the assessment was completed at returned income of Rs. 38,63,240/-.

4. On culmination of the assessment the ld. PCIT, Jaipur 2 called for the records and upon examination of the record the ld. PCIT noted the sales promotion expense to the tune of Rs. 80,46,456/- were not verified during the assessment proceeding. As the assessee in the expenses debited in the profit & loss account in column 20 noted that the assessee claimed Sales Promotion including publicity (other than advertisement) for an amount of Rs. 80,46,456/- but as per column 38(12) sale promotion expenses under the head “other expenses” it is only Rs. 3,90,158/-. The ld. AO raised query about the expenses of Rs. 76,56,298/-being the difference amount of the figure at column 38(12) and column 20. The ld. PCIT noted that no details were submitted by the assessee during assessment proceedings and the assessment order has been passed without verifying these expenses. Based on these observations a show cause notice u/s. 263 of the Act was issued to the assessee on 09.02.2023. In response the assessee filed a detailed reply on 15.02.2023 contending that there was no case of unexplained expenses of such amount as alleged and assessee submitted the credit and debit note of the sales promotion expenses. The ld. PCIT considered the submission of the assessee but do not found tenable. He noted that the case was selected for limited scrutiny under the E assessment scheme 2019 on the issue of business expenses. The issued two notices u/s 142(1) calling for information on this specific issue, first on 22.01.2019 and the other on 31.01.2020. In the notice on 22.11.2019 specific information in relation to sales promotion have been called for. In response to the same the assessee provided details of sales promotion expenses of Rs 3,90,158. Subsequently, on 31.01.2020 specific details after referring to Profit and Loss account it was queried that sales promotion and other expenses including publicity and was shown as Rs 80,46,456 and sales promotion was of Rs 3,90,158 and the assessee was asked to explain the difference amount of Rs 76,56,298. However, the assessee did not file any details and the assessment order was passed on 23/11/2020. Thus, it is clear that the main issue of expenditure of Rs 80,46,456 relating to incentive on sales remained unverified and only an expenditure of Rs 3,90,158 relating to sales promotion were examined for which the assessee had furnished details. Since, no details were submitted and verified relating to the expenditure of Rs 80,46,456/ relating to sales incentive and business expenses being the reason for limited scrutiny, the assessment order is found to be erroneous in as much as it is prejudicial to the interest of revenue. The order of the assessing officer is therefore, held to be liable for revision under the clause (a), (b) & (c) of Explanation (2) to section 263 of the Act. The relevant finding of the ld. PCIT is reiterated here in below :

5.2 In the present proceedings, it has been submitted that the expenses in the nature of incentives on sales given to clients incurred at Rs 80,46,456 however, since there is no column in ITR form so these were mentioned under Sales promotion in column 20 of P&L account. The assessee has further submitted that the notice u/s 263 is based on an amount of Rs. 76,56,298/- and AO had impliedly accepted its contention and hence the order could not be held as erroneous.

5.3 As regards the amount it was found that due to the representation of the expenditure in the columns by the assessee as the expenditure of Rs 80,46,456 relating to sales incentive was shown under column 20 of the ITR Sales Promotion including publicity (other than advertisement) while Rs 3,90,158 relating to Sales promotion was shown at sub column 12 of column 38 of the ITR RELATING TO OTHER EXPENSES. Thus, a presumption was drawn that out Of Rs 80,46,456 of sales promotion as per column 20, the amount of Rs 3,90,158 is again shown under the Sales promotion in column 38 were to be excluded. Subsequently, it was clarified that Rs 80,46.456 related to sales incentive and Rs 3,90,158 related to Sales promotion vide letter dated 25.3.2023. and this was clarified to the assessee.

5.4 The AO vide notice u/s 142(1) dated 31.01.2020 has clearly questioned the assessee for verification of the amounts of Rs 80,46,456 relating to Sales incentive, however no details had been furnished by the assessee and the AO had completed the assessment without obtaining these details and as a result the impugned expenses were not examined. Since, the main issue for selection of the case for scrutiny was business expenditure and the expenditure debited under this head was substantial, the same needed to be examined and verified as to its genuineness, purpose and justification of the amounts paid. As per the details filed the amounts have been paid to Rs. 80,46,456/- and Rs. 3,90,158/- and thus needed to be verified and examined in depth.

6. From the above facts and circumstances of the case and having regard to the material available on record, the Assessing Officer failed to consider/apply his mind to the information available on record with regard to the unexplained sales promotion expenses relating to sales incentive to the tune of Rs.80,46,456/-. This in turn has resulted in passing of an erroneous order by the Assessing Officer in the case due to non-application of mind to relevant material, reflecting in non-appreciation of facts and incorrect application of mind to law which is prejudicial to the interest of the revenue. Thus, the order passed U/s 143(3) on 23.08.2018 is held to be erroneous and prejudicial to the interest of the revenue terms of the judgement of the Hon’ble Supreme Court in the case of Malabar Industrial Limited V/S CIT 243 ITR wherein it has been held as under-

“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”.

• Assessment without proper enquiry – Unlike the Civil Court which is neutral to give a decision on the basis of evidence produced before it, an Assessing Officer is not only an adjudicator but is also an investigator. He cannot remain passive on the face of a return which is apparently in order but calls for further enquiry-It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke inquiry-If there is failure to make such enquiry, order is erroneous and prejudicial to revenue-CIT need not prove that it is erroneous and he can revise it u/s 263.

Rampyari Devi Saraogi v/s CIT (SC) 67 ITR 84

Swarup Vegetable Products Industries v. CIT (All) 187 ITR 412 Gee Vee Enterprises v/s. Addl. CIT &Ors. (Del.) 99 ITR 375.

Malabar Industrial Co. Ltd., v. CIT (SC) 243 ITR 83 Rajalakshmi Mills Ltd., v. ITO (ITAT, SB-Chennai), 121 ITD 343: 313 ITR (AT) 182 SRM Systems & Software Pvt. Ltd., vs. ACIT 2010-TIOL-646-HC-MAD-IT

Madras High Court in the case of Seshasayee Paper & Boards Ltd. [2000] 242 ITR 490 (Mad.) wherein it is held that the powers of the Commissioner are very wide in exercising the powers of revision u/s 263. It is no doubt true that for making a valid order u/s 263, it is essential for the Commissioner to record an express finding that the order sought to be revised was erroneous as well as prejudicial to the interest of the revenue. However, there is nothing in section 263 to show that the Commissioner should in all cases record his final conclusion on the points in controversy before him. The legislative intent to bring the amendment was to make clear the provisions of Explanation to section 263 and to reduce the litigations in this regard which is well supported in view of the clear words used in clause (a) of the Explanation 2 to section 263(1) wherein it is mentioned that the order passed by the AO shall be deemed to be erroneous in so far as it is prejudicial to the interest of revenue, if in the opinion of the PCIT the order is passed without making inquiries or verification which should have been made. If the order is passed without application of mind, such order will fall under the category of erroneous order”.

7. Accordingly, by virtue of the powers conferred on the undersigned under the provisions of section 263 of the Income Tax Act 1961, I hold that the order under Section 143 (3) of the IT Act dated 23.11.2020 for AY 2018-19 passed by the Assessing Officer is erroneous in so far as it prejudicial to the interest of revenue as the said order has been passed in a routine and perfunctory manner without examining the issue of incentive on Sales of an amount of Rs.80,46,456/-. The order of the Assessing Officer is therefore liable to revision under the clause (a), (b) & (c)of Explanation (2) to section 263 of the Income Tax Act. Hence, the assessment order is set aside on this issue and the AO is directed to examine the issue and pass suitable order after according opportunity of being heard to the assessee.”

5. Feeling dissatisfied, the assessee filed the present on the various grounds as reproduced here in above. To support grounds so raised by the assessee the ld. AR of the assessee relied upon the following written submissions:

“Brief General Facts: The assessee has E-filed his return of income for A.Y. 2018-19 on 26.10.2018 showing taxable income of Rs. 38,63,240/-. Thereafter, the case was selected for scrutiny by CASS under Limited Scrutiny admittedly for the reasons, as told to the appellant in the notice u/s 143(2) dated 28.09.2019 that

“2. While acknowledging the care and diligence you may have taken in preparing the return, there are certain issues which need further clarification, for which your return of Income has been selected for limited scrutiny and such issues are as under:

S. No. Issues

i. Business Expenses.”

Accordingly, the ld. AO completed the subjected assessment order dated 23.11.2020 stating that:

“In response to the notices, the assessee has attached all the relevant documents along with the assessee reply dated 09.12.2020. The submissions made by the assessee were examined, no addition is made on the above-mentioned issue and assessment is completed as under:

Returned Income: Rs.38,63,240/.”

Later on, through the captioned show cause notices (herein after referred to as the “SCN”) dated 09.02.2023 & 25.03.2023, wherein it was proposed to invoke revisional proceedings u/s 263 of the Act on the ground that assessment order dated 23.11.2020 is erroneous in so far as prejudicial to the interest of Revenue because the AO did not verify/examine the sales promotion expenses to the tune of Rs.80,46,456/- during assessment proceeding. The assessee in response, filed detailed written submission as dated 15.02.2023 (PB 24-32) & 27.3.2023 (PB 35-45). The ld. CIT, however feeling dissatisfied, rejected the contentions and held the assessment order was erroneous and prejudicial to the interest of revenue and set aside the same to be made afresh.

The only issue raised is w.r.t. the alleged non verification of business expenditure to the tune of Rs. 80,46,456 /-. However, the impugned order passed u/s 263 is completely beyond the scope of S. 263 of the Act on various grounds, as discussed herein below.

Hence this appeal.

Submissions:

1. Legal Position on S. 263 Judicial Guideline: Before proceeding, we may submit as regards the judicial guideline, in the light of which, the facts of this case are to be appreciated.

1.1 The pre-requisites to the exercise of jurisdiction by the Commissioner u/s 263, is that the order of the Assessing Officer is established to be erroneous in so far as it is prejudicial to the interest 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 any one of them is absent i.e. if the assessment order is not erroneous but it is prejudicial to the Revenue, S. 263 cannot be invoked. This 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 as also prejudicial to revenue’s interest, that the provision will be attracted. An incorrect assumption of the fact or an incorrect application of law will satisfy the requirement of the order being erroneous. The phrase ‘prejudicial to the interest of the revenue’ has to be read in conjunction with an erroneous order passed by the AO. Every loss of Revenue as a consequence of the order of the AO cannot be treated as prejudicial to the interest of the Revenue. For example, if the AO has adopted one of the two or more courses permissible in law and it has resulted in loss of revenue, or where two views are possible and AO 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 AO is totally unsustainable in law. Kindly refer Malabar Industrial Co. Ltd. v/s CIT (2000) 243 ITR 83 (SC).

1.2 Also kindly refer CIT v/s Max India Ltd. (2007) 295 ITR 282 (SC) wherein it is held that:

“The phrase “prejudicial to the interests of the Revenue” in S. 263 of the Income Tax Act, 1961, 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 interests of the Revenue. For example, when the Assessing Officer adopts one of two courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Assessing Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the Revenue, unless the view taken by the Assessing Officer is unsustainable in law.”

Ratio of these cases fully apply on the facts of the present case in principle.

2. Due verification and examination made: I It is submitted that the AO acting as a quasi-jurisdictional authority, after making a detailed enquiry and examination of the relevant facts and material available on record to the extent he was supposed to make in law and has taken a possible view.

2.1 In the present case jurisdiction u/s 263 of the Act is on the ground that when asked, the assessee failed to submit supporting evidences w.r.t. business expenditure of Rs. 80,46,456/-. Such observation and allegation made in the show cause notice and in the impugned notices u/s 263 are not correct in as much as the AO raised specific query through various notices and detailed replies along with documents were produced before the AO.

2.2 The AO vide notice dated 22.11.2019 u/s 142(1) of the IT Act (PB 15–17) w.r.t. the issue, asked as under:

“With respect to sales promotion expense claimed during the year under consideration, kindly submit the below specified details:

1. Submit the detailed note on nature of business activity

2. Submit the break-up of Gross receipts during the AY under consideration

3. Submit the Quantum and nature of the sales promotion expense

4. Whether the sales promotion was Out-sourced to any event management? If yes, please provide the agreement with respect to it.

5. If the sales promotion was done in-house, mention the details with respect to it.

6. Name and address, payment details of the parties to whom payments have been made.

7. Specify the details of any transaction with related parties if any in context of sales promotion expense.

8. Break up of sales promotion expenses month wise- cash/kind component in tabular format.

9. Details of TDS deducted and the % of TDS deducted on payments made for sales promotion expenses.

10. Submit the ledger for sales promotion expenses in excel format for the AY under consideration and Profit and Loss statement to ascertain the total Gross receipts

11. Please submit the details in the following manner

Thus, evidently and admittedly the ld. AO asked the assessee to supply all the necessary details w.r.t. each and every possible aspect and the assessee in response to the above notice filed a detailed written submission dated 09.12.2019 (PB 18-21) submitting required details and documents.

2.3 Although the AO issued another letter also but keeping in mind the totality of facts and circumstances and in view of the following submissions, he didn’t feel further necessity to wait, using his discretion.

4. Accounts duly audited without any qualification:

3.1 It is pertinent to note that the accounts of the assessee were subjected to tax audit and admittedly neither in the main report in Form 3CB nor in the detailed particulars provided in Form 3CD, there is any qualification or dissatisfaction or any adverse remark made by the ld. Tax Auditor. The Tax Audit Report is prepared and uploaded by the Tax Auditor who is a qualified Chartered Accountant, not as a mere formality but this has got definite objective and purpose and therefore the statutory recognition has been given under the S. 44AB of the Act, so as to provide an ease and assistance to the Assessing Officer who is overburdened. The ld. Tax Auditor records finding of fact when specific and pointed queries are asked in the Tax Audit Report in Form 3CB/Form 3CD. The ld. Tax Auditor has examined all the expenses with reference to the vouchers and other records maintained in support thereon.

3.2 S. 44AB of the Act has been inserted by the Finance Act, 1984 (21 of 1984), with effect from 1-4-1985, i.e., for and from assessment year 1985-86. The object behind this is explained in circular no. 387, dated 06.07.1984.

“17.2 A proper audit for tax purposes would ensure that the books of account and other records are properly maintained, that they faithfully reflect the income of the taxpayer and claims for deduction are correctly made by him. Such audit would also help in checking fraudulent practices. It can also facilitate the administration of tax laws by a proper presentation of the accounts before the tax authorities and considerably saving the time of assessing officers in carrying out routine verifications, like checking correctness of totals and verifying whether purchases and sales are properly vouched or not. The time of the assessing officers thus saved could be utilized for attending to more important investigational aspects of a case.”

4. Issue raised, never made a ground in the SCN:

4.1 It is submitted that in the concluding part of the impugned order in Para 6, the ld. PCIT concluded that “X X X the Assessing Officer failed to consider/apply his mind to the information available on record with regard to the unexplained sales promotion expenses X X X”. However, a perusal of the Show Cause Notice u/s 263 of then Act dated 09.02.2023 (PB 22-23) nor in the Show Cause Notice u/s 263 of the Act dated 25.03.2023 (PB 33-34), shows that there is no mention of unexplained sales promotion expenses. What is referred is only the sales promotion expenses of Rs.76,56,298/- in the earlier notice and business expenses of Rs.80,46,456/- in the later one. None of these expenses thus, refers to unexplained sales promotion expenses. Thus, the issue now concluded for holding the assessment order erroneous was never made a ground in the show cause notices issued u/s 263 of the Act and therefore, the Ld. PCIT could not have adopted such reasoning in the impugned order for the first time which was not earlier confronted to the assessee. Reliance is placed on PCIT vs. ShreejiPrints (P.) Ltd. [2021] 130 taxmann.com 294 (SC) Surat-2 (DPB 16-20) held:

“SLP dismissed against impugned order passed by High Court holding that where assessee-company had received unsecured loans from two different companies and Assessing Officer had made inquires in detail and accepted genuineness of same, such view of Assessing Officer being a plausible view could not be considered erroneous or prejudicial to interest of revenue” The Gujarat High Court affirmed the ITAT Order as under:

15 The Pr.CIT had observed that Explanation 2 of section 263 of the Act is clearly applicable and it is clear that the Assessing Officer has passed the assessment order after making enquiries for verification which ought to have been made in this case. However, we find that the Pr. CIT has not mentioned in the show-cause notice issued under section 263 that he is going to invoke the Explanation 2 to 263 hence, invocation of Explanation in the order without confronting the assessee is not appropriate and sustainable in law in support of this contention, the ld. Counsel has placed reliance on the following decision:

CIT v. Amir Corporation 81 CCH 0069 (Guj.), CIT Mehrotra Brothem – 270 ITR 0157 (MP,CIT v. Ganpet Ram Bishnoi – 296 ITR 0292 (Raj.), Cadila healthcare Ltd. v. Cl 7, Ahmedabadh-1 [ITA no. 1096/Ahd/2013 & 910/Ahd/2014], Sri Saí Contractors v. ITO [ITO no. 109Nizag/2002] and Pyare lal Jaiswal v. CIT, Vamnesi [(2014) 41 taxmann.com 27 & (AII Trib.)].

It was contended by the Learned Counsel that clause -(a) & (b) of Explanation 2 of Section 263 are not applicable as the Assessing Officer has made enquiry and verification which should have been made. Further, in the show cause notice, the Explanation-2 of section 263 was not invoked by the PCIT and it was referred in the order u/s.263 of the Act. Therefore, in the light of decision of the Co-ordinate Bench of Mumbai ga in the case of Narayan Tatu Rane – 70 taxmann.com 227 (Mum. Trt.) [PB 153-1561 wherein held that explanation cannot laid to have over ridden the law as interpreted/the various High Courts where the High Courts have held that before reaching the conclusion that the order of the Assessing Officer is erroneous prejudicial to the interest of Revenue. The CIT himself has to undertake some enquiry to establish that the assessment order is erroneous and prejudicial to the interest of Revenue. The ld. Counsel relied on the decision of M/s. Amira Pure Foods Pvt. Ltd., v. PCIT in ITA No.3205/Del/2017 and Ahmedabad Tribunal in the case of Torrent Pharmaceuticals Ltd. v. DCIT [2018] 97 taxmann.com 671 (Ahd. – Trib.). it is clear from the enquiries made by the Assessing Officer and submissions made by the assessee that the Assessing Officer has taken the plausible view which is valid in the eyes of law. The Assessing Officer was satisfied consequent to making enquiry and after examining the evidences produced by the assessee, he accepted the assessee’s claim of loan similar view were also expressed by the Hon’ble Delhi High Court in the case of CIT v. Vodafone Essar South Ltd. [2013] 212 taxman 0184. We observe the Pr.CIT has drawn support from newly inserted Explanation 2 below section 263(1) of the Act introduced by Finance Act, 2015 w.e.f. 1-6-2015 for his action. The Explanation 2 inter alia provides that the order passed without making inquiries or verification ‘which should have been made’ will be deemed to be erroneous insofar as it is prejudicial to the interest of the Revenue. It is on this basis, the assessment order passed by the AO under section 143(3) of the Act has been set aside with a direction to the AO to pass a fresh assessment order. It will be therefore imperative to dwell upon the impact of Explanation 2 for the purposes of section 263 of the Act. XXX.

“17 We thus find merit in the plea of the assessee that the Revisional Commissioner is expected show that the view taken by the AO is wholly unsustainable in law before embarking upon exercise of revisionary powers. The revisional powers cannot be exercised for directing a fuller inquiry to merely find out if the earlier view taken is erroneous particularly when a view was already taken after inquiry. If such course of action as interpreted by the Revisional Commissioner in the light of the Explanation 2 is permitted, Revisional Commissioner can possibly find fault with each and every assessment order without himself making any inquiry or verification and without establishing that assessment order is not sustainable in law. This would inevitably mean that every order of the lower authority would thus become susceptible to section 263 of the Act and, in turn, will cause serious unintended hardship to the tax payer concerned for no fault on his part. Apparently, this is not intended by the Explanation. Howsoever wide the scope of Explanation 2(a) may be, its limits are implicit in it. It is only in a very gross case of inadequacy in inquiry or where inquiry is per se mandated on the basis of record available before the AO and such inquiry was not conducted, the revisional power so conferred can be exercised to invalidate the action of AO. The AO in the present case has not accepted the submissions of the assessee on various issues summarily but has shown appetite for inquiry and verifications. The AO has passed after making due enquiries issues involved impliedly after due application of mind. Therefore, the Explanation 2 to section 263 of the Act do not, in our view, thwart the assessment process in the facts and the context of the case. Consequently, we find that the foundation for exercise of revisional jurisdiction is sorely missing in the present case.

18 In the light of above facts and legal position, we are of the considered view that the AO had made detailed enquiries and after applying his mind and accepted the genuineness of loans received from GTPL and PAFPL, which is also plausible view. Therefore, we find that twin conditions were not satisfied for invoking the jurisdiction under section 263 of the Act. The case laws relied by the ld. CIT(D.R.) are distinguishable on facts and in law hence, by the ld. Counsel as well and we concur the same hence not applicable to present facts of the case. Therefore, in absence of the same, the ld. CIT ought to have not exercised his jurisdiction under section 263 of the Act. Therefore, we cancel the impugned order under section 263 of the Act, allowing all grounds of appeal of the Assessee.”

4.2 Recently in the case of Tata Teleservices (Maharashtra) Ltd. vs. PCIT (2023) 225 TTJ (Mumbai) 137 (DPB 21-25), following Shree Ji Prints (Supra) has held as under:

“11. As regards the finding of the learned Principal CIT that the AO has not verified whether MTM losses are speculative in nature under s. 43(5)(d) of the Act, we find that this allegation does not form part of the notice issued under s. 263 of the Act by the learned Principal CIT and therefore the opportunity was not granted to the assessee to rebut the same. Thus, it is contrary to the provisions of s. 263 of the Act, which specifically requires the grant of opportunity of being heard to the assessee. We find that the Hon’ble Supreme Court in CIT vs. Amitabh Bachchan (2016) 286 CTR (SC) 113: (2016) 135 DTR (SC) 73: (2016) 384 ITR 200 (SC) observed as under:

“10………… What is contemplated by Section 263, is an opportunity of hearing to be afforded to the assessee. Failure to give such an opportunity would render the revisional order legally fragile not on the ground of lack of jurisdiction but on the ground of violation of principles of natural justice”.

5.1 Beyond the scope of enquiry contemplated u/s 263: The scope of enquiry in the present case was limited to the extent of the issues made a basis for selection of the case. The admitted fact was that the case was selected for limited scrutiny so as to examine the business expenses as noted at pg.1 pr.1 of the subjected assessment order. It is also a fact available on record that limited scrutiny was not converted to full scrutiny nor the higher authorities did so. Thus, the scope of examination by the AO in this limited scrutiny was confined only to the examination of the business expenses without any further detailing or specification thereof. There is no further guideline or hint given for e.g. whether such expenses was for business purposes and so on or against the business purposes and so on. Pertinently , there are two proprietary of the assessee as stated earlier therefore, the amount of Rs. 80.46 lakhs appears only in Prop. Health Plus. Various expenses debited in P&L a/c of Health Plus and Kymera are all business expenditure. There is no special mention in the guideline of selecting sales promotion expenses only and the AO in its wisdom raised the query on account of Sales Promotion.

Further, undisputedly there is no reference or even no whisper of any unexplained sales promotion expenses in relating to sales incentive of Rs. 80,46,456. Therefore, the need of examination of unexplained sales promotion expenses could not have been presumed by the Ld. PCIT and consequently, he could not have expected the AO to go beyond the scope of limited scrutiny notified to him.

It is also very apparent on the face of the record that unexplained expenditure which is a subject matter of Sec.69C of the act pre supposes that some expenditures has been incurred without any source and out of the books of account therefore, an addition is required to be made on that account. But where the expenditure is admittedly recorded in the books of account that too audited and with reference to such recorded expenditure only the AO is required to make examination by way of limited scrutiny assessment hence, it is difficult to expect him to examine unexplained expenditure incurred by assessee, if any, which is not at all case made out for limited scrutiny.

5.2. Supporting Case Laws: The law is well settled that in the limited scrutiny assessment, the AO can be expected to make enquiry only to the extent of the reason/ basis of selection of the case for the limited scrutiny and the CIT cannot invoke S. 263 on the issues which were not made basis for selection of the case.

5.2.1 Kindly refer Mahendra Singh Dhankar (HUF) vs. ACIT, (2021) 35 NYPTTJ 458 (Jp) (DPB 34-43) held that:

“Revision—Erroneous and prejudicial order—Limited scrutiny assessment—Case of the assessee was selected for limited scrutiny under CASS on account of mismatch of sales turnover as reported in audit report, ITR, AIR and CIB data—AO issued notice under s. 143(2) and enquired about the issues under consideration—Being satisfied, the AO completed the assessment under s. 143(3) without any adverse finding regarding the issues for which the matter was selected for limited scrutiny—Scope of enquiry in case of limited scrutiny is limited to the extent of the issues for which case is selected for scrutiny under CASS—However, in case during the assessment proceedings the AO is of the view that substantial verification of other issue is also required, then the case may be taken up for comprehensive scrutiny with the approval of the Principal CIT/Director of IT concerned—Without following said procedure and necessary approval of the competent authority, conducting an enquiry on the issue which is outside the limited scrutiny would be beyond the jurisdiction of the AO—Therefore, where the matter is selected for limited scrutiny, revisional jurisdiction cannot be exercised for broadening the scope of jurisdiction that was originally vested with the AO while framing the assessment—For the purposes of converting limited scrutiny to complete scrutiny, what is relevant is that there must be some credible material or information on face of the record indicating that there is possibility of underassessment of income if the case is not examined under ‘complete scrutiny’—In the instant case, there was no tangible material or information available during the course of assessment proceedings basis which reasonable belief can be formed of escapement or underassessment of income which could have led the AO to seek permission to convert limited scrutiny into complete scrutiny—Issue of valuation of closing work-in-progress as well as matter relating to agriculture income, which are held by the Principal CIT as matters not examined by the AO, are matters which are not part of the reasons for which the case was selected for limited scrutiny—As far as matters for which case was selected for limited scrutiny in terms of mismatch of sales turnover is concerned the Principal CIT has not recorded any adverse findings in terms of lack of enquiry or inadequate enquiry on part of the AO—Therefore, the order passed by the Principal CIT under s. 263 is set aside and the order of the AO is sustained.”

5.2.2 In CIT v/s Smt. Padmavathi (2020) 4 NYPCTR 682 (Mad), it was held that:

“Revision—Erroneous and prejudicial order lack of proper enquiry—AO in his limited scrutiny, has verified the source of funds, noted the sale consideration paid, the expenses incurred for stamp duty and other charges—Source of funds was verified and the AO was satisfied with the same—Principal CIT while invoking his power under s. 263, faults the AO on the ground that he did not make proper enquiry—It is not clear as to what in the opinion of the Principal CIT is ‘proper enquiry’— Further, merely because the guideline was higher than the sale consideration shown in the deed of conveyance, cannot be the sole reason for holding that the assessment is erroneous and prejudicial to the interest of revenue”

5.3.3 In Su-Raj Diamond Dealers (P) Ltd. v/s PCIT (2020) 203 TTJ (Mumbai) 137 it was held that:

“Revision—Erroneous and prejudicial order—Lack of proper enquiry vis-a-vis case selected for limited scruting under CASS—As per CBDT Instruction No. 20 of 2015, dt. 29th Dec., 2015, scrutiny in cases selected through CASS is to be confined only to the specific reasons/issues for which the case has been picked up for scrutiny— However, the case may thereafter be taken up for complete scrutiny with the approval of the administrative Principal CIT/CIT, where it is felt that apart from the CASS information there is potential escapement of income of more than Rs.10,00,000—In this case, it is neither a fact nor the case of the Revenue that the case was taken up for complete scrutiny with the approval of the administrative CIT—Since the scope of the assessment framed by the AO under s.143(3) was circumscribed by the limited reasons for which the case of the assessee was selected for scrutiny assessment, he was absolutely divested of his powers from traversing on issues which did not fall within the realm of the said limited purpose—Thus, no infirmity could be attributed to the assessment framed by the AO on the ground that he has failed to deal with other issues which did not fall within the realm of the limited reasons for which the case was selected for scrutiny assessment— Thus, the order passed by the AO under s. 143(3) cannot be said to be erroneous—Therefore, order passed by the Principal CIT under s. 263 is quashed.”

5.3.4 In Nayek Paper Converters vs. ACIT (2005) 93 TTJ (Cal) 574, it was held that:

“Revision—Erroneous order and/or order prejudicial to Revenue— Limited scrutiny assessment by AO under s. 143(2)(1)—Exercise of revisional jurisdiction by CIT directing AO to make comprehensive scrutiny assessment under s. 143(2)(ii)—Invalid—It is the exclusive discretion of the AO to proceed under s. 143(2)(i) or 143(2)(ii) in a given case—AO having chosen to make assessment under s. 143(2)(i) after obtaining approval of Addl. CIT and making proper enquiries, order of AO could not be said to be erroneous and prejudicial to the interest of Revenue—Further, time limit for issue of notice under s. 143(2)(ii) had also expired—Still further, only miniscule cases were to be taken up for comprehensive scrutiny under s. 143(2)(i) as per guidelines issued by CBDT”.

6. Not a case of complete/total lack of inquiry: The ld. CIT himself admits in the impugned order that the AO did make enquiry on the issue in hand. The law is well settled that the Assessment order cannot be held to be erroneous simply on the allegation of inadequate enquiry unless there is an established case of total lack of enquiry. Kindly refer CIT vs. Sunbeam Auto Ltd. (2011) 332 ITR 167 (Del) (wherein Delhi High Court was considering the aspect, when there is no proper or full verification, and it was held that:

“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 CIT to pass orders under section 263 of the Act, merely because he has a different opinion in the matter. It is only in cases of “lack of inquiry” that such a course of action would be open.”

In another case of Narain Singla v. PCIT [2015] 62 taxmann.com 255 (Chandigarh – Trib.) it was held that when AO was fully aware of matter, he had appraised evidences filed by assessee and then had formed a view to accept same, Commissioner was unjustified in invoking jurisdiction u/s 263 of the Act. Whether if there was an enquiry, even inadequate, that would not, by itself, give occasion to Commissioner to pass order u/s 263 of the Act, merely because he has a different opinion in matter; it is only in case of ‘lack of inquiry’ that such a cause of action can be open. However, the ld. CIT is completely silent on this aspect.

Supporting Case laws:

6.1 In CIT v/s Rajasthan Financial Corporation (1996) 134 CTR 145 (Raj) held that:

“Once Assessing Officer has made enquiries during the course of assessment proceedings on the relevant issues and the assessee has given detailed explanation by a letter in writing and the Assessing Offer allowed the claim being satisfied with the explanation of assessee, the decision of the Assessing Officer cannot be held to be erroneous simply because in his order not make an elaborate discussion in that regard.”

6.2 In ANNU AGROTECH (P) LTD. Vs PCIT, (2021) 214 TTJ (JP) 1118 (DPB 1-15) held that:

“Revision—Erroneous and prejudicial order—Lack of proper enquiry— Case of the assessee was selected for scrutiny under limited scrutiny for enquiry as to whether the funds received in the form of share premium are from disclosed sources—Assessee’s Authorized Representative produced books of account including cash book, ledger, subsidiary records and various other details as required, which were duly examined—AO made all the inquiries, sought clarifications on all the relevant aspects to the extent he was supposed looking to the nature of the issue involved, the past accepted history of the case and the evidences and material already available together with the material provided during the assessment proceedings—Entire details of each shareholder i.e., balance sheet, income declared, transactions done with the assessee-company has also his creditworthiness/financial capacity was duly verified by the AO—CIT has not doubted the ownership of the respective shareholdings by the three shareholders—Thus, the level of the proof required in a normal case of cash credit under s. 68 could not have been applied though the AO did whatever he was supposed in the law to satisfy the requirement of s. 68—There was no evidence, information or anything else indicating that more enquiries were warranted—It was not the case of the CIT that there was a complete/total lack of inquiry—Law is well settled that the assessment order cannot be held to be erroneous simply on the allegation of inadequate enquiry—Reason for selection of the case for scrutiny does not speak of s. 56(2)(viib)—Therefore, the AO could not have made enquiries on this aspect—Even otherwise, the assessee also submitted a report of the expert under r. 11UA which fully justified charging premium @ Rs. 50 per share—Hence, the AO was justified in not applying s. 56(2)(viib)—Moreover, once all the details were made available before the CIT, he should have decided the issues instead of setting aside to the AO—Therefore, the order passed by the Principal CIT under s. 263 is quashed.”

7. Similar claim made in past also: It is not that the assessee claimed sales promotion expenses or sales incentive for the first time but in the past also, similar expenses were claimed atleast in the immediately preceding year as evident from the table given to the AO in reply dt. 09.12.2019 (PB 18-19 Pr.11) where the comparative figures of the sales promotion expenses and their percentage to the turnover etc. have been given. Even prior to A.Y.2017-18 also, the assessee has been claiming similar type of expenditure and was allowed .Such information is already available online on the ITD Portal where from the AO was able to have a looked upon the comparative figures.

8. No unexplained expenditure: In Para 6 of the Impugned Order the ld. CIT alleged that the AO failed to consider/apply his mind with regard to unexplained sales promotion expenses of 80,46,456/-, which is legally and factually incorrect in as much as all these expenses are duly recorded in the books of accounts and claimed in the P&L a/c and which is the starting point of proceedings u/s 263. The use of the word “unexplained” is legally improper as it gives an impression of some unrecorded expenditure were incurred out of the books requiring separate addition u/s 69 C and u/s 69. Not giving details towards sales promotion expenses is a different issue. It cannot be said that the expenditure was unexplained or which in other words is unrecorded. Therefore, the use of the word “may” kindly be removed.

9. Only clerical issue and not substantive error, if any : The ld. CIT with reference to the issue raised in the SCN , after receiving replies from the assessee, has been dealt as under –

“5.2 In the present proceedings, it has been submitted that the expenses in the nature of incentives on sales given to clients incurred at Rs 80,46,456 however, since there is no column in ITR form so these were mentioned under Sales promotion in column 20 of P&L account. The assessee has further submitted that the notice u/s 263 is based on an amount of Rs. 76,56,298/- and AO had impliedly accepted its contention and hence the order could not be held as erroneous.

5.3 As regards the amount it was found that due to the representation of the expenditure in the columns by the assessee as the expenditure of Rs 80,46,456 relating to sales incentive was shown under column 20 of the ITR ‘Sales Promotion including publicity (other than advertisement) while Rs 3,90,158 relating to Sales promotion was shown at sub column 12 of column 38 of the ITR RELATING TO OTHER EXPENSES. Thus, a presumption was drawn that out Of Rs 80,46,456 of sales promotion as per column 20, the amount of Rs 3,90,158 is again shown under the Sales promotion in column 38 were to be excluded. Subsequently, it was clarified that Rs 80,46,456 related to sales incentive and Rs 3,90,158 related to Sales promotion vide letter dated 25.3.2023. and this was clarified to the assessee.”

A bare perusal of the above finding recorded by the ld. CIT shows that it was sort of a clerical mistake or at the best a confusion, which croped up in the mind of the Ld. CIT based on which alone, he initiated proceedings u/s 263 but undeniably it was not a case of substantive incorrectness so far as the AO is concerned in the context of S.263 of the Act as wrongly alleged in as much as it was the ld. CIT himself felt satisfied Firstly on the aspect that there was nothing as un explained expenses of Rs.76,56,298/- as contended by the appellant also before him in the Written Submission reproduced at Pg.2 Para 4 of the Revisionary Order and thereafter with reference to the figures of Rs. 80,46,456 /- and Rs. 3,90,158/-, he felt satisfied hence, there was no point still sending the matter back to the AO holding it to be erroneous.

10. Substitution of opinion, not Permissible-Possible view taken by the AO: Thus, the AO certainly did form an opinion by taking a conscious possible decision in view of the facts available on record, investigated by him and the available judicial guideline particularly those binding upon him. It is only after considering all the relevant aspects, facts and the binding decisions, the AO passed the subjected assessment order. However, in the impugned order, the ld. PCIT imposed his own opinion, which shows that it is a case of substitution of opinion and that too without any convincing, reason. Merely because the CIT didn’t agree S 263 can’t be invoked as held in Elder I.T. Solutions P. Ltd. vs. CIT (2015) 59 Taxmann.com.232(Mum). The revisionary power can be exercised only when there is an error of law or of facts in the subjected order, which must be “prejudicial to the revenue. However, in this case neither there was an error nor any prejudice caused to the revenue, hence, the CIT cannot invoke jurisdiction under S. 263 of the Act. Thus, the AO evidently acted completely in accordance with law, duly and fully applying his mind by calling for all the relevant details and the has taken a possible view particularly in absence of any contrary material or anything raising his suspicion.

In view of the above legal and factual position, the proposed action is completely beyond the scope of S.263 of the Act and therefore, deserves to be dropped.

Alternatively, and without prejudice to other contention, if the impugned order passed u/s 263 is upheld, the directions given by the ld. CIT are required to be modified to the extent that the assessee must be given full opportunity to raise all legal and factual contentions and arguments.”

Written Submission II

11.Faceless Assessment / Transparency maintained: It is also relevant to mention here that in the past, the undeclared reason being the lack of transparency was one of the major criteria which made the Central Government to introduce Faceless Assessment Scheme and hence the same has been also the undeclared reason then of invoking S 263 in the deserving cases. However, undisputedly this being the Faceless Assessment the issue of transparency is not at all involved therefore such undeclared reason of invoking S. 263 could not be a consideration and certainly not made a basis but then this aspect must weigh heavily in favor of the assessee.

12. No TDS required: It is clarified that the subjected amount of Rs. 80.46 lakhs was, as a matter of fact is, Purchase Discount paid to two parties namely Kymera Life Tech Corp. Rs. 36,32,750/- and M/s Cardiac Konnect (PAN DBNPS7692H of Proprietors Shri Hari Shankar Sharma)Rs. 44,13,706/­. The appellant in fact, sold goods being the medical equipments (stunt and wires ) to these two parties and as per their understanding , were provided Purchase Discounts (or Sales Discount) for assessee .Though the word “Incentive” has been used although it has been debited as Sales Incentive (PB 41) in the Books of Accounts of Heath Plus (Proprietory of Appellant ) however, its true nature was the discount given to the customerS .The recipient have also accounted for similarly in their books by reducing the cost of goods purchased at their end. It means there was no requirement of TDS in such cases.

Moreover, Kymera was nothing but another proprietory of the Assessee hence it was a sort of transaction between two proprietaries or payment to self and not with a third party. Therefore, also, no TDS was required. The ld. Tax Auditor also did not recorded disqualification in TAR column 34 (PB 11 ) . Pertinently the AO also raised a specific query on this aspect vide Para 9 of its letter dated 22.12.2019 (PB15) which was duly replied by the assessee vide Para 9 of its letter dated 09.12.2019 (PB 19) stating that no TDS was required in these transactions.

13. No loss to Revenue: In view of the above facts, alternatively atleast to the extent of Rs. 36,32,750/- there was no loss to the revenue because virtually the appellant did not raise any claim to that extent in as much as in one hand it has claimed the outgoing in one prop. but at the same time it has credited the receipt in the other Prop. owned by the appellant in the same heads that is the appellant.

5.1. This Para in earlier Written Submission dated 02.10.2023 may please be treated as replaced by the following Para:

Beyond the scope of enquiry contemplated u/s 263: The scope of enquiry in the present case was limited to the extent of the issues made a basis for selection of the case. The admitted fact was that the case was selected for limited scrutiny so as to examine the business expenses as noted at pg.1 pr.1 of the subjected assessment order. It is also a fact available on record that limited scrutiny was not converted to full scrutiny nor the higher authorities did so. Thus, the scope of examination by the AO in this limited scrutiny was confined only to the examination of the business expenses without any further detailing or specification thereof. There is no further guideline or hint given e.g. whether such expenses was for business purposes and so on. Pertinently, there are two proprietory of the assessee as stated earlier therefore, but the amount of Rs. 80.46 lakhs appear only in Prop. Health Plus. Various expenses debited in P&L a/c of Health Plus and Kymera are all business expenditure. There is no special mention in the guideline of selecting sales promotion expenses only and the AO in its wisdom raised the query on account of Sales Promotion only and did not press the issue further for the reasons detailed in our earlier Written submission.

Further, undisputedly there is no reference or even no whisper of any unexplained sales promotion expenses in relating to sales incentive of Rs. 80,46,456. Therefore, the need of examination of unexplained sales promotion expenses could not have been presumed by the Ld. PCIT and consequently, he could not have expected the AO to go beyond the scope of limited scrutiny notified to him.

It is also very apparent on the face of the record that unexplained expenditure which is a subject matter of Sec.69C of the Act pre supposes that some expenditures has been incurred without any source and out of the books of account therefore, an addition is required to be made on that account. But where the expenditure is admittedly recorded in the books of account that too audited and with reference to such recorded expenditure only the AO is required to make examination by way of limited scrutiny assessment hence, it is difficult to expect him to examine unexplained expenditure incurred by assessee, if any, which is not at all case made out for limited scrutiny.”

5.1. To support the contentions so raised and in addition to the written submission the ld. AR of the assessee also submitted a paper book containing following documents which reads as under:-

6. In addition, the ld. AR of the assessee vehemently argued that the assessee runs two proprietary concerns. The assessment for intended to verify the “Business Expenses”. The first notice for 263 was issued on 09.02.2023 which was replied on 15.02.2023 and second notice was issued on 25.03.2023 which was replied on 27.03.2023 as he could not pinpoint on the enquiry conducted by the ld. AO. He has drawn our attention to questionnaire issued by the ld. AO dated 22.11.2019 (APB 16 & 17 ) wherein he has raised as many 9 various questions relating to sales promotions only. What else the ld. AO in limited scrutiny is suppose to ask and that too in Face less regime. Considering the reply of the assessee dated 09.12.2019 (APB18-19) on all the points ld. AO completed the assessment accepting the return of income of the assessee. As regards the issues raised by the PCIT for TDS the assessee explained that since the same is on account of the credit / debit issued on the purchased items the liability to TDS is applicable. Even this issue is replied by the assessee in the assessment proceeding also. The ld. PCIT even based on the complete details could not establish that the order of the ld. AO is erroneous or prejudicial to the interest of the revenue. Based on these arguments the ld. AR of the assessee submitted that the assessment has passed under the various unit of the faceless area and that order has been passed after the extensive guideline of the board required to be sustained.

7. The ld. DR is heard who relied on the findings of the ld. PCIT. The order of the ld. AO is nonspeaking half page order. The ld. AO has not discussed the allowability of the deduction of sales promotion claimed by the assessee. The ld. DR showing the finding recording in the order of the PCIT that even the ld. AO did not have clarity about the exact amount claimed by the assessee under the two different heads in the return of income. The ld. DR drawing attention to the questionnaire issued by the ld. AO showed that the ld. AO has not mentioned that how much expenses is claimed by the assessee in the notice. The assessee in the paper book filed he tax audit report and profit and loss account has not relevant in the present issue on hand. In the reply dated 09.12.2019 the assessee has not mentioned the breakup of the 80 lacs and merely in the cryptic way diplomatically replied to the letter. The issue pointed out by the ld. PCIT has not apparently have been examined by the ld. AO and thus he supported the detailed order of the ld. PCIT.

8. Heard the parties, perused the material and judicial decision cited before us to drive home to the respective contentions so raised by the parties. In the instance case the assessee has challenged the initiation of the proceeding by the Principle Commissioner of Income Tax, Jaipur-2 in assuming the jurisdiction under section 263 of the Act. The brief fact of the case is that the case of the assessee was selected for limited scrutiny to verify the Business Expenses claimed by the assessee. Accordingly, the ld. AO vide notice dated 22.11.2019 has raised as many as 9 specific questions to the assessee in relation to the sales promotion expenses which is disputed by the ld. PCIT that the same has not been verified by the ld. AO. The bench noted that the assessment of the assessee completed in the faceless regime. On the specific issue the bench noted that the ld. AO has raised specific questions on the various facets of the case asking the assessee to submit the reply. The questions raised (Paper book page 16-17) such as to 3. Submit the Quantum and nature of the sales promotion expense, 4. Whether the sales promotion was out-sourced to any event management? If yes, please provide the agreement with respect to it., 5. If the sales promotion was done in-house, mention the details with respect to it., 6. Name and address, payment details of the parties to whom payments have been made. 7. Specify the details of any transaction with related parties if any in context of sales promotion expense. 8. Break up of sales promotion expenses month wise- cash/kind component in tabular format. 9. Details of TDS deducted and the % of TDS deducted on payments made for sales promotion expenses. 10. Submit the ledger for sales promotion expenses in excel format for the AY under consideration and Profit and Loss statement to ascertain the total Gross receipts. 11. Please submit the details in the following manner:

9. In reply to the notice the assessee submitted all the required details. Thus, evidently, and admittedly the ld. AO asked the assessee to supply all the necessary details w.r.t. each and every possible facet of the expenditure incurred regarding the sales promotion expenses in the written submission dated 09.12.2019 (PB 18-21). Although the ld.AO issued another letter also but keeping in mind the totality of facts and considering the reply of the assessee on all the facets the ld. AO didn’t feel further necessity to wait, using his discretion and that discretion cannot be challenged or revied by invoking the provision of section 263 of the Act. Here undisputedly the assessee replied all the aspect of the expenses in a series of questions. The claim made by the assessee as clerely explained even before the PCIT that the subjected amount of Rs. 80.46 lacs is as a matter of fact is purchase Discount paid to two parties namely Kymera Life Tech Corp. Rs. 36,32,750/- and M/s Cardiac Konnect (PAN DBNPS7692H of Proprietors Shri Hari Shankar Sharma)Rs. 44,13,706/-. The appellant in fact, sold goods being the medical equipment’s (stunt and wires ) to these two parties and as per their understanding, were provided Purchase Discounts (or Sales Discount) for assessee .Though the word “Incentive” has been used although it has been debited as Sales Incentive (PB 41) in the Books of Accounts of Heath Plus (Proprietory of Appellant ) however, its true nature was the discount given to the customer. The recipient have also accounted for similarly effect in their books by reducing the cost of goods purchased at their end. It means there was no requirement of TDS considering the nature of transactions. The assessee also clariid that Kymera was nothing but another proprietary of the Assessee hence it was a sort of transaction between two proprietaries or payment to self and not with a third party. Pertinently the ld. AO also raised a specific query on this aspect vide Para 9 of its letter dated 22.12.2019 (PB15) which was duly replied by the assessee vide Para 9 of its letter dated 09.12.2019 (PB 19) stating that no TDS was required in these transactions. Thus, when all the transactions are duly recorded in the books of account there is no need by the PCIT to consider the same as unexplained sales promotion expenses. Considering the overall facts of the case bench noted that the scope of revisionary jurisdiction u/s 263 is very specific, limited and different from appellate jurisdiction. The provision contained in section 263 does not allow PCIT to impose his view over judicious view adopted by the AO unless the view adopted by the ld. AO is established to be not at all sustainable in law.

10. In the present case the bench noted that the ld. AO has raised as many as 9 questions only on the sales promotion expenses and the ld. AO in the present case on appreciation of the facts and using his judicial wisdom allowed sales promotion expenses claimed by the assessee. On the view taken by the ld. AO the PCIT tried to impose his view that the ld. AO could not understand the exact claim of the assessee and in that process even the PCIT even issued two notices to the assessee under the confusion. Thus, confusion while issuing the notice does not lead that the assessment is made without making any query in fact we note that the ld. AO has raised as many as 9 questions to the assessee and after careful consideration of the facts and considering the reply of the assessee ld. FAO taken a considered view. The ld. PCIT is merely based on the reason that the ld. AO has raised a doubt on the figure computed by the ld. AO and not clarified in the assessment order does not lead the assessment order as erroneous and prejudicial to the interest of the revenue. Further the bench also noted that the assessment in this case is completed in the ‘’faceless manner” by NFAC. It is a fact that any faceless assessment is carried out through a teamwork of assessment unit, technical unit, review unit, verification unit. Since all these four units are headed by Principal Commissioner of Income Tax and the order is to be tested in this regime normally there cannot be a case of prejudice of lack of enquiry because there is application of mind by multiple officers of Department and not by a single officer is involved. Here as it is clear that since the assessee was confronted on all the facets of the claim and he has furnished the requisite information and the NFAC/FAO has completed the assessment after considering over all aspect of the case. Therefore, the order passed by the FAO cannot be termed as erroneous or prejudicial to the interest of the revenue. Even the assessee has placed on record and clarified the confusion of the figure noted and based on that details the ld. PCIT did not established that the order is prejudicial. As held in the case of CIT V. K. Ramachandran (Dr.) (2004) 139 Taxman 320 (Mad.), it was held that ‘Record’ does not mean only ‘record’ available with ITO at time of passing of assessment order. It would include the records available with the Commissioner at the time of passing of the order by the Commissioner.

11. Thus, now discussing what has been examined by the ld. FAO we are examining the Explanation 2 inserted in section 263 by Finance Act, 2015, w.e.f. 01.06.2015, which has widened the powers of CIT to revise the already completed assessment and in the present case ld. PCIT has taken shelter of clause (a) (b) and (c) of the same, which reads as under:

Explanation 2.—For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner,—

(a) the order is passed without making inquiries or verification which should have been made;

(b) the order is passed allowing any relief without inquiring into the claim;

(c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or

(d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.]

12. Thus, on careful perusal of above provision of the law it is very well clear that the order passed by assessing officer shall be “deemed to be erroneous and prejudicial to the interest of the revenue if (a) AO has passed such order without making inquiries or verification which should have been made and (b) AO has passed the order allowing any relief without inquiring into the claim. Thus, it is worthwhile to note here that the phrase “which should have been made” here in no way means that enquiries should have been made in manner as desired by PCIT, rather it means that before holding an order to be erroneous, PCIT should have conducted necessary enquiries or verification which brings on record certain material in order to show that the finding given by the assessing officer is erroneous. Thus, looking to these aspect of the case here in this case the ld. FAO has called for the details on the various facets as many as 9 areas and has examined the issue and thereafter the claim of the assessee was allowed. Thus, once the ld. FAO based on the details placed on record takes a plausible view of the matter the same cannot be subjected to revision u/s. 263 even after the addition of explanation 2 in the Act. This view is further supported by the view already taken in the case of the Rajasthan High Court in the case of CIT Vs. Ganpat Ram Bishnoi [ 296 ITR 292 (Raj)] wherein the jurisdiction high court { after considering the decision of the apex court in the case of Malabar Industrial Co. Ltd. Vs CIT [243 ITR 83(SC)]} held that :

10. From the record of the proceedings, in the present case, no presumption can be drawn that the Assessing Officer had not applied its mind to the various aspects of the matter. In such circumstances, without even prima facie laying foundation for holding that assessment order is erroneous and prejudicial to interest in any matter merely on spacious ground that the Assessing Officer was required to make an enquiry, cannot be held to satisfy the test of existing necessary condition for invoking jurisdiction under section 263 of the Income-tax Act.

11. Undoubtedly, the jurisdiction under section 263 is wide and is meant to ensure that due revenue ought to reach the public treasury and if it does not reach on account of some mistake of law or fact committed by the Assessing Officer, the CIT can cancel that order and require the concerned Assessing Officer to pass a fresh order in accordance with law after holding a detailed enquiry. But when enquiry in fact has been conducted and the Assessing Officer has reached a particular conclusion, though reference to such enquiries has not been made in the order of the assessment, but the same is apparent from the record of the proceedings, in the present case, without anything to say how and why the enquiry conducted by the Assessing Officer was not in accordance with law, the invocation of jurisdiction by the CIT was unsustainable. As the exercise of jurisdiction by the CIT is founded on no material, it was liable to be set aside. Jurisdiction under section 263 cannot be invoked for making short enquiries or to go into the process of assessment again and again merely on the basis that more enquiry ought to have been conducted to find something.

12. The finding of the Tribunal that the ITO had passed assessment order after relevant enquiries and considering the aspects of the matter required by the CIT to be considered by him is a finding of fact and on the basis of which, the jurisdiction assumed by the CIT being non­existent must be held to be not sustainable.

Consequently, the appeal fails and is hereby dismissed.

On being consistent to the finding so recorded here in above and respectfully following the decision of the jurisdictional High Court we are of the considered view that the ld. FAO has passed the assessment order after relevant enquiries and considering the aspects of the matter the order passed by the PCIT is not accordance with the provisions of the law and thus, the same is quashed based on the findings so recorded here in above.

In the result, appeal of the assessee is allowed.

Order pronounced in the open Court on 22/11/2023