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Income Tax Act, 1961 – Section 263 - The assessee, engaged in the manufacturing of vegetable oil and related products, filed its return of income for AY 2017-18 declaring a taxable income of Rs. 9,56,12,530. The case was reopened under Section 147 based on information regarding alleged bogus transactions and accommodation entries involving another entity. The reassessment resulted in the addition of Rs. 6,93,32,499 under Section 68 as unexplained cash credit, and the total income was assessed at Rs. 16,49,44,849. Subsequently, the Principal Commissioner of Income Tax (PCIT), exercising jurisdiction under Section 263, held that the assessment order was erroneous and prejudicial to the interests of revenue due to lack of proper inquiry into issues related to: (a) late payment of PF/ESI contributions, (b) disallowance of interest payable on bank loans under Section 43B(e), (c) disallowance of interest on delayed TDS payment under Section 36(1)(iii), and (d) unverified new loans amounting to Rs. 6.35 crores. The PCIT set aside the assessment order partially and directed fresh assessment - Whether the PCIT was justified in invoking Section 263 when the Assessing Officer (AO) had already examined and taken a view on the issues during reassessment - Whether the issues raised by the PCIT fell within the permissible scope of Section 263, given that the reassessment was conducted under Section 147 for specific reasons – HELD - For an order to be revised under Section 263, the PCIT must establish that it is both erroneous and prejudicial to the interests of revenue. The AO had specifically reopened the assessment for examining alleged bogus transactions and had made necessary inquiries into the matter. The Tribunal found that the issues raised by the PCIT, such as late PF/ESI payments, bank interest disallowance, and new loans verification, were not part of the original reasons recorded for reopening under Section 147. It was held that the PCIT exceeded jurisdiction by considering issues beyond the scope of reassessment, as established by Supreme Court precedents in CIT v. Alagendran Finance Ltd. and CIT v. Max India Ltd. Moreover, regarding PF/ESI contributions, the Tribunal observed that payments were made before the due date of filing the return, in line with the decisions of the Rajasthan High Court in CIT v. SBBJ and CIT v. Jaipur Vidyut Vitran Nigam Ltd. Similarly, interest on delayed TDS payment was compensatory and not penal, making it allowable under Section 37 as per jurisprudence - The Tribunal quashed the Section 263 order, holding that the reassessment was conducted within the permissible scope of Section 147, and the PCIT lacked jurisdiction to expand the reassessment beyond its original purpose. The additions proposed by the PCIT were held to be beyond the scope of reassessment proceedings, rendering the Section 263 order unsustainable

2025-VIL-223-ITAT-JAI

IN THE INCOME TAX APPELLATE TRIBUNAL

JAIPUR BENCHES, “B” JAIPUR

ITA No. 1014/JPR/2024

Assessment Year: 2017-18

Date of Hearing: 19.12.2024

Date of Pronouncement: 28.01.2025

SHIV VEGPRO PVT LTD

THE PCIT

Assessee by: Shri Mahendra Gargieya, (Adv.) & Shri Hemang Gargieya (Adv.)

Revenue by: Mrs. Alka Gautam, (CIT-DR)

BEFORE

DR. S. SEETHALAKSHMI, JM

SHRI RATHOD KAMLESH JAYANTBHAI, AM

ORDER

PER: RATHOD KAMLESH JAYANTBHAI, AM

This appeal is filed by the assessee aggrieved from the order of the Learned Principal Commissioner of Income Tax, Udaipur dated 29.02.2024 [for short “PCIT”] for the assessment year 2017-18. Ld. PCIT passed that order while exercising the power vested upon her u/s. 263 of Income Tax Act, 1961 [for short Act] while examining the assessment records of the assessee which was passed by the National Faceless Assessment Centre on 15.04.2021.

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

“1. The Ld. PCIT, Udaipur seriously erred in law as well as on the facts of the case in invoking the provisions of S.263 of the Act and therefore, the impugned order dated 29.02.2024 u/s 263 kindly be quashed.

2. The Id. PCIT, Udaipur seriously erred in law as well as on the facts of the case in assuming jurisdiction u/s 263 by wrongly and incorrectly holding that the subjected assessment order passed u/s 147 dated 15.04.2021 is prejudicial to the interests of the revenue. The assumption of jurisdiction u/s 263 being contrary to the provisions of law and facts on record, hence, the proceedings- initiated u/s 263 hence, the impugned order dated 29.02.2024 deserves to be quashed.

3. Rs.24,14,531/ The Id. PCIT, Udaipur in the impugned order passed u/s 263 of the Act, raised an altogether new issue of the alleged disallowance on account of late payment of PF/ESI contributions of Rs.24,14,531/- u/s 36(1)(va) of the Act. The impugned order thus, to this extent is a nullity being without jurisdiction and therefore deserves to be quashed.

4. Rs. 63,97,664/-1 The Id. PCIT, Udaipur in the impugned order passed u/s 263, raised an altogether new issue of the alleged disallowance u/s 43B(e) of the Act on account of interest payable to scheduled banks on bank loan of Rs.63,97,664/-. The impugned order thus, to this extent is nullity being without jurisdiction and therefore deserves to be quashed.

5. Rs. 21,732/-: The Id. PCIT, Udaipur in the impugned order passed u/s 263, raised an altogether new issue of the alleged disallowance u/s 36(1)(iii) of the Act on account of 5. interest payable for delayed payment of TDS of Rs.21,732/-. The impugned order thus, to this extent in nullity being without jurisdiction and therefore deserves to be quashed.

6. Rs.6,35,00,000/-: The Id. PCIT, Udaipur in the impugned order passed u/s 263, raised an issue for obtaining new loans during the impugned previous year of Rs.6,35,00,000/-. The impugned order thus, to this extent is a nullity being without jurisdiction and therefore deserves to be quashed.

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

3. At the outset of the hearing the bench noted that there was delay of 96 days in filling the present appeal by the assessee. In support, the assessee filed an application for condonation of delay praying therein as under:-

“The Humble - Assessee most respectfully begs to submit as under:

1. That in the aforesaid matter, the Id. PCIT, Udaipur passed the Order u/s 263 on dated 29.02.2024 (hereinafter referred as "impugned order"), Accordingly, the appeal was to be filed on/before dt. 28.04.2024 however, the same has been filed on dated 29.07.2024. Thus, the appeal was filed with a delay of 92 days.

2.1 Reasonable Cause Existed: With regard to the delay, it is humbly submitted that there did exist a reasonable cause and the delay so caused was completely unintended and bonafide in as much as Shri Sushil Mittal, employed in the office of the Company and permanent employee of the appellant company namely, M/s SHIV VEGPRO PRIVATE LIMITED, Kota, was assigned the task to collect the appeal prepared from the counsel at Jaipur, to get it signed and to ensure filing of the same in time. Shri Sushil Mittal was fully conversant with the affairs of the above assessee in the office of M/s SHIV VEGPRO PRIVATE LIMITED, Kota. Shri Sushil Mittal collected the documents prepared from the counsel at Jaipur, which were received only a week before the last date of filing of the appeal.

In the meanwhile, because of the marriage of his daughter in the month of April, he proceeded on leave. Therefore, he could neither hand over his responsibilities to his colleague nor could inform Shri Sandeep Kumar Saboo, Director of the company about the documents, including the appeal papers.

2.2 Although subsequently, Shri Sushil Mittal resumed his duties in the office sometime in the first week of May, 2024, yet however, it did not occur to his mind that some appeal papers were to be signed, which were still lying pending with him.

2.3 It is only thereafter, in the second week of July, 2024 when CA Dharm Chand Jain, FCA contacted the counsel engaged at Jaipur w.r.t. the status of the appeal (which he believed had already been filed), but then he was informed that the same is yet to be filed and that the appeal papers were received by Shri Sushil Mittal for getting them signed. In absence of any persuasion from the side of the Assessee and M/s DHARM CHAND JAIN & ASSOCIATES, Chartered Accountant, the counsel at Jaipur, already handling a heavy workload, informed the factual position to Shri Dharm Chand Jain. It is only thereafter, the Director, Shri Sandeep Kumar Saboo immediately enquired Shri Sushil Mittal and asked him to hand over him the subjected documents the appeal set, who thereafter, recollected and after making an extensive search could lay his hand on the appeal papers. Upon getting hold of the documents, Shri Sandeep Kumar Saboo, promptly signed the papers and thereafter, forwarded the same to the counsel at Jaipur without any further delay.

2.4 Thus, the delay in filing of the instant appeal was not at all deliberate or intentional but arose due to circumstances beyond the assessee's control, primarily stemming from the unintended and bonafide mistake committed by the Employee working at the Assessee- Company. The Assessee has acted diligently and in good faith throughout this process, taking all necessary steps to rectify the situation and ensure compliance.

2.5 That the applicant was a layman & not very conversant with the complex tax laws and due to the circumstances stated above, the delay so caused was beyond their control but was bonafide and unintended. The assessee was not going to gain any benefit because of the delayed finding and their conduct was not contumacious.

3. In support, affidavits of Shri Sandeep Kumar Saboo and Shri Sushil Mittal are enclosed herewith and marked as Annexure-1 and Annexure- 2.

4. Supporting Case Laws: It is submitted that the Hon'ble Supreme Court in the case of Collector, Land & Acquisition v. Mst. Katiji & Others (1987) 167 ITR 471 (SC) has advocated for a very liberal approach while considering a case for condonation of delay. The following observations of the Hon'ble Court are notable:

"The legislature has conferred the power to condone delay by enacting section 5 of the Limitation Act 1963 in order to enable the Courts to do substantial justice to parties by disposing of matters on 'merits. The expression 'sufficient cause employed by the legislature is adequately elastic to enable the Courts to apply the law in a meaningful manner which sub serves the ends of justice that being the life-purpose of the existence of the institution of Courts. It is common knowledge that this Court has been making a justifiably liberal approach in matters instituted in this Court, But the message does not appear to have percolated down to all the other Courts in the hierarchy."

The said judgment is a leading case on the subject and has a binding force on all the officers subordinate thereto.

Prayer

It is, therefore, humbly prayed that:

a. This application may kindly be allowed by condoning the delay, taking a sympathetic view, in the interest of justice.

b. Any other order, which this Hon'ble ITAT deems fit and proper, be also passed in favour of applicant assessee.”

The assessee also supported the contention so raised in the application with an affidavit so executed by Shri Sandeep Saboo director of the company. Based on that contention the ld. AR of the assessee prayed to condone the delay.

3.1 On the other hand, ld. DR objected that the reasons advanced are not sufficient to condone the delay.

3.2 We have heard both the parties and perused the materials available on record. The Bench noted that the reasons advanced by the assessee for condonation of delay of 96 days that the person was engaged in the marriage of daughter and thereafter on being aware the appeal was filed. Looking to the facts stated in the application they are sufficient to condone the delay and it has merit based on the prayer advanced by the assessee. Thus, we concur with the submission of the assessee and condone the delay of 96 days in filing the appeals by the assessee in view of the decision of Hon’ble Supreme Court in the case of Collector, land Acquisition vs. Mst. Katiji and Others, 167 ITR 471 (SC) as the assessee was prevented by sufficient cause.

4. The fact as culled out from the records is that M/s Shiv Vegpro Pvt. Ltd. is a Company engaged in the manufacturing of vegetable oil, DOC, High Pro-DOC etc. Assessee filed its Return of Income dated 06/11/2017 with acknowledgement number 291801621061117 declaring taxable income at Rs. 9,56,12,530/-. The case of the assessee was re-opened for the A.Y. 2017-18 consequent to information received from the Office of the Income Tax Officer, Ward-4(5)(1), Delhi regarding bogus transactions entered into by the assessee during the financial year 2016-17. The scrutiny proceedings were initiated by serving the notice u/s 148 of the Act dated 17/03/2020.

4.1 Thereafter, notice u/s 143(2) of the Act was issued to the assessee through ITBA on 30.09.2020. Vide letter dated 4/11/2020 assessee objected to the reopening proceedings-initiated u/s 147 of the Act. The objections raised by the assessee was disposed of by the assessing officer vide Order dated 08.01.2021.

4.2 The reasons recorded for reopening of the case; to verify the genuineness of the Sales made by the assessee to M/s Kangana Agro Products Ltd, was required to be verified about the genuineness of the manufacturing activities of the assessee. Notice u/s 142(1) of the Act was issued and served to the assessee on 05.02.2021.

4.3 In response to the above notice the assessee submitted part reply only and did not submit any details of Purchases, Sales and Valuation of Stock etc., which could establish the claim of the assessee that its sale is genuine. Although the assessee has submitted the sale invoices amounting to Rs. 6,93,32,499/- made to the party named M/s Kangana Agro Product, no supporting evidence of goods actually transported has been submitted. On perusal of the sales invoices submitted by the assessee, it is seen that the details of the transporters, GR/LR no, date and time of entry, date and time of dispatch are left blank. Hence, it appears that these invoices/documents are self-generated and do not prove the actual movement of the goods allegedly sold to the party M/s Kangna Agro Products for Rs. 6,93,32,499/-.

4.4 Shri Sanjay, Proprietor of M/s Kangna Agro Products (PAN: EFKPS5346C) in his statement recorded on 11/11/2019 u/s 131(1) of the Act mentioned that he was only a helper/cleaner in the Office of Shri Om Prakash and Shri Om Prakash established a proprietorship concern called M/s Kangna Agro Products in the name of Shri Sanjay. He further stated in his statement that he never did any business from this proprietorship concern, and he did not have any knowledge about the business activities of the said concern or about the funds credited/debited in the said bank accounts of the concern, M/s Kangna Agro Products.

4.5 Therefore, in Order to verify the actual production of goods and the subsequent sale of the same, assessee was asked to provide the complete set of evidentiary document with respect to its purchase of raw materials and sale of produced goods. In response to question no. 3 & 4 raised to the assessee vide notice u/s 142(1) of the Act dated 05.02.021 assessee responded as below:-

“3. The purchases of raw material are made both from traders and APMC's agents.

4. The purchases are made in cash mainly from the farmers as well as through cheques."

4.6 The assessee was also asked to submit the purchase register, sales register and item wise valuation of Opening Stock and Closing Stock along with the quantity of stock and rates. Assessee was also requested to provide necessary proof for rate taken for valuation or calculation done for valuation. However, assessee failed to provide the documents called for. Since assessee has not given any vital information to prove that the sales of Rs. 6,93,32,499/- made to the party M/s Kangana Agro Product are genuine, the ld. AO said that he left with no other option than to treat the cash generated of Rs. 6,93,32,499/- out of this bogus sale as unexplained cash credit u/s 68 r.w.s. 115BBE of the Act. The draft assessment order was issued to the assessee on 24.03.2021. The assessee did not submit any relevant details in support of its claim in response to the show cause notice issued. Therefore, the assessment was completed on 15.04.2021 assessing the income at Rs. 16,49,44,849/- as against the returned income of Rs. 9,56,12,350/-.

5. On culmination of the assessment proceeding ld. PCIT, while exercising the power vested upon her as per provision of section 263 of the Act, called for the records for her examination. While doing so she observed that the AO FAU did not properly the issue of ;

[A] Late Payment of PF/ESI Contribution

[B] (a) New Loans during the year not examined

(b) Disallowance u/s 43B of the Act

(d) Disallowance u/s 36(1)(iii) or u/s. 37 of the Act

(e) Disallowance u/s. 35AC(2) of the Act

Therefore, she noted that due to lack of enquiry and also due to incorrect and incomplete appreciation of facts and also the incorrect application of law, the assessment order passed u/s 147 r.w.s. 144B of the Act was found to be erroneous in so far as it was prejudicial to the interest of revenue. Therefore, she proposed that the impugned order be suitably be modified / enhanced / cancelled by invoking the provisions of section 263 of the Act. Before doing so she a notice u/s. 263 of the Act was duly issued on 14.02.2023 to the assessee for giving opportunity of being heard as well as requiring the assessee to furnish its submission on the issues, as categorically mentioned by her. In compliance to that notice assessee filed written submission on 16.06.2023. Ld. PCIT considered the reply of the assessee and she deal with the each issue so as to observed a detailed holding holds that the order of the assessing officer is therefore, liable for revision under clause (a) & (b) of the Explanation of (2) of section of 263 of the Act. The relevant finding of the ld. PCIT is reiterated herein below:-

“8. Considering the above facts, it is held that the order passed by the Assessing Officer (FAU) u/s 147 r.w.s. 144B of the IT Act dated 15.04.2021 is suffering from specific defects, hence, order so passed by the AO is erroneous and also prejudicial to the interest of the revenue. The order of the assessing officer is therefore, liable to revision under clause (a) &(b) of the Explanation (2) of section 263 of the Income Tax Act, 1961.

9. In the light of above discussion, assessment order passed by the AO in the case of the assessee is Set-aside (Partly) for fresh assessment by the AO on the issues of –

(A) Disallowance on account of late payment of ESI/PF (Rs.24,14,531/- ).

(B) Disallowance u/s 43B(e) of the Act (Rs.63,97,664/-).

(D) New Loans accepted during the year (Rs. 6.35 Crores)

The AO is directed to complete the assessment afresh on the above mentioned issues/points, keeping in view the observations marked herein above.

9.2 Further, it is also made clear that as the assessment order dated 15.04.2021 is PARTLY SET-ASIDE, as categorically mentioned above, the Assessing Officer, while framing the Order u/s 263/142(1)/143(3) of the Act, shall take care of the following: -

(a) While completing the Scrutiny Assessment u/s 147 r.w.s. 144B of the Act, the AO/NaFAC made an addition of Rs.6,93,32,499 u/s 68 of the Act and assessed at Total Income at Rs. 16,49,44,849/-.

(c) Therefore, the addition on account of Bogus Sales as Unexplained Cash Credit u/s 68 (Rs.6,93,32,499/-), made vide the Assessment Order Dated 15.04.2021, SHALL NOT BE DISTURBED, and would be free from fresh assessment proceedings.

(c) The tax shall have to be charged as per Section 115BBE of the Act for the addition already made u/s 68 of the Act, supra.

10. Thereafter, based on outcome of such enquiries and verification, necessary additions, wherever required, may be made to the total income of the assessee as per law by modifying the assessment order u/s 147/144B of the Act dated 15.04.2021. However, the AO is directed to ensure that reasonable opportunities of being heard are provided to the assessee before passing such order.”

6. Feeling dissatisfied with the above finding of the ld. PCIT, the assessee preferred the present appeal on the grounds as reiterated herein above. Ld. AR, of the assessee vehemently argued that the issue which the ld. PCIT raised in her order that too in 147 proceeds were time barred and cannot be taken at this stage and thus out of the scope the subjected scrutiny before the National Faceless Assessment Unit while passing the order and for that specific notice was issued by the ld. AO applied mind and after due process of law that order was passed making addition thereupon. Thus, he relied upon the assessment order and submitted that there is no flaw in the assessment order and the impugned order u/s 263 of the Act passed by the ld. PCIT needs to be quashed for which he submitted the following written submission to counter the order of the ld. PCIT;

BRIEF FACTS: The appellant is a private limited company engaged in manufacturing of vegetable oil, DOC, High Pro-DOC etc. The appellant filed its ROI u/s 139 of the Act on dated 06.11.2017 declaring total income at Rs. 9,56,12,530/-. The same was processed on date 16.10.2018 u/s 143(1) of the Act. Thereafter, the case was reopened u/s 147 by issuing notice u/s 148 dated 17.03.2020, in response to which the appellant filed ROI declaring the same total income.

The reassessment was completed after making additions of Rs. 6,93,32,499/- making additions u/s 68 of the Act on account of unexplained credits in the grab of bogus sales and thus, the total income was finally assessed at Rs. 16,49,44,849/- (PB 62-69) vide the order u/s 143/147 at 15.04.21.

Later on, the ld. CIT acting u/s 263 issued SCN u/s 263 14.02.2023 (PB 122-127). In response thereto the appellant filed submissions time to time on dated 21.02.2023 (PB 128), 16.06.2023 and finally on 13.10.2023 (PB 129-146). The ld. CIT initially raised the following issues: -

1. Late payment of PF/ESI contributions u/s 43B (Rs. 24,14,531)

2. New Loans taken during the year, not examined (6.35 Crore)

3. Disallowance of unpaid sale tax u/s 43B of the Act (Rs, 5,02,000)

4. Disallowance of unpaid interest payable to banks u/s 43B (e) of the Act (Rs. 63,97,664)

5. Disallowance u/s 36(1)(iii) or u/s 37 of the Act (Rs 21,732)

6. Disallowance u/s 35AC (2) of the Act (Rs. 25,00,000) The ld. CIT after considering the submissions of the assessee started her discussion from page 22 para 6 however, not feeling satisfied held the subjected assessment order erroneous and prejudicial to the interest of the revenue on in the following words:

“6. Considering the facts and circumstances of the case and the material available on record, my observations [issue-wise] are as under”. The details of payment are as such below:-

XXX

8. Considering the above facts, it is held that the order passed by the Assessing Officer (FAU) u/s 147 r.w.s. 144B of the I T Act dated 15.04.2021 is suffering from specific defects, hence, order so passed by the AO is erroneous and also prejudicial to the interest of the revenue. The order of the assessing officer is therefore, liable to revision under clause (a) &(b) of the Explanation (2) of section 263 of the Income Tax Act, 1961.

9. In the light of above discussion, assessment order passed by the AO in the case of the assessee is Set-aside (Partly) for fresh assessment by the AO on the issues of-

(A) Disallowance on account of late payment of ESI/PF (Rs.24,14,531/-).

(B) Disallowance u/s 43B(e) of the Act (Rs.63,97,664/-).,

(D) New Loans accepted during the year (Rs. 6.35 Crores).

The AO is directed to complete the assessment afresh on the above mentioned issues/points, keeping in view the observations marked herein above.

(a) While completing the Scrutiny Assessment u/s 147 r.w.s.144B of the Act, the AO/NaFAC made an addition of Rs.6,93,32,499 u/s 68 of the Act and assessed at Total Income at Rs.16,49,44,849/-.

(c) The tax shall have to be charged as per Section 115BBE of the Act for the addition already made u/s 68 of the Act,supra.

Hence this appeal

Submissions:

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.

1. Legal Position on Sec.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, Sec.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.Beyond the scope of enquiry contemplated u/s 263 on facts and in law: The law is well settled that the reopening of reassessment as contemplated u/s 147 of the Act is for a specific purpose of assessing the escaped income and therefore, the AO, in the reassessment proceedings can assess only those item of income which have escaped assessment and find place in the reasons to believe but the income not being a part of the reasons recorded cannot be considered in the reassessment proceedings and also therefore, cannot be subject matter of revisionary proceedings u/s 263 of the Act. The facts are not disputed that in this case, the Assessment Order passed u/s 147 dt. 15.04.2021 has been subjected to revision u/s 263 by the Ld. CIT. A Notice u/s 148 was issued on 17.03.2020 for A.Y. 2017-18 under consideration, and reasons to believe are recorded as communicated to the appellant by the AO vide his letter dt. 01.10.2020. For a ready reference the same are being reproduced hereunder:

“The information was received from the office of Income Tax officer, Ward 45(1), Delhi vide his letter no. ITBA/AST/F/17/2019- 20/1021883746(1) dated 07/12/2019 that during the assessment proceedings Sh. Sanjay Prop. Kangna agro Products stated in his statement which was recorded on oath u/s 131 of the IT Act 1961 that he was working as helper / cleaner in the office of Shri Om Prakash and Shri Om Prakash established prop. Concern namely M/s Kangna Agro Products in his name and also opened various banks accounts of this proprietorship concern. It was also informed that Sh. Sanjay stated in his statement that he never did any business from this proprietorship concern and he did not having any knowledge about the business activities of the said concern or about the funds credited / debited in the said bank accounts of the firm. During the enquiry it was also observed that (i) the fund credited through cash deposit / cheque /transfer / RTGS and followed by immediate transfer to other accounts (ii) numerous round figures transactions occurred; (iii) No physical existence of the concers as verified through filed enquiry;(iv) no ITR, audit report filed in spite of having substantial sales and purchase transactions (e) the bank account holder did not have any knowledge about the bank . Apart from this, it is seen that all the credits and transfers in the bank statements were found in the round figures of lakhs of rupees, this shows Sh. Sanjay is not doing any actual business except to transfer in and transfer out the funds for others. On the basis of above facts the ITO, Ward- 45(1), Delhi concluded that M/s Kangna Agro Products is bogus concern and was not doing any genuine business activities during the relevant year.

It was also informed by the office of ITO, Ward-45(1), Delhi that M/s Shiv Vegpro Pvt. Ltd. has taken accommodation entry of Rs. 6,93,32,499/- in the FY 2016-17 from M/s Kangna Agro Products which is the bogus concern and was not doing any genuine business activities during the relevant year."

A bare perusal of the reasons shows that the AO reopened the assessment u/s 147 for specific reasons being M/s Shiv Vegpro Pvt. Ltd. has taken accommodation entry of Rs. 6,93,32,499/- in the FY 2016-17 from M/s Kangna Agro Products which is the bogus concern and was not doing any genuine business activities during the relevant year. The AO thus, having recorded specific reasons, could not have enquired into and examined any issue other than those already recorded in the reasons to believe, as above. A specific amount was categorically mentioned of the escaped income being Rs.6,93,32,499/- based on certain items beyond which, the AO was not supposed to have gone in as much as the entire assessment was not thrown open before him. Hence, consequently AO was supposed to complete the assessment u/s 147/148 of the Act as per reason to believe only. Also when no other escaped income came to his notice during re-assessment proceedings.

The issues raised now by the Ld. CIT in the captioned SCN u/s 263 being failure of the AO in making various disallowances/additions were not part of the reasons to believe. In other words, the captioned SCN does not touch/not even whisper anything stated in the reasons to believe based on which only, the proceedings u/s 147 was initiated hence, such issues are beyond the scope of 263 and therefore, the proceedings may kindly be dropped.

3. Supporting Case Laws:

3.1In case of CIT vs. Alagendran Finance Ltd, (2007) 211 CTR (SC) 69, the Hon’ble Supreme Court, while dealing with more or less an identical issue of revisionary power exercised under s. 263 of the Act in respect of an assessment order passed under s. 143(3) r/w s. 147 of the Act, has held in the following manner:

“15. We, therefore, are clearly of the opinion that keeping in view the facts and circumstances of this case and, in particular, having regard to the fact that the CIT exercising its revisional jurisdiction reopened the order of assessment only in relation to lease equalization fund which being not the subject of the reassessment proceedings, the period of limitation provided for under sub-s. (2) of s. 263 of the Act would begin to run from the date of the order of assessment and not from the order of reassessment. The revisional jurisdiction having, thus, been invoked by the CIT beyond the period of limitation, it was wholly without jurisdiction rendering the entire proceeding a nullity."

3.2CIT v. Bharti Airtel Ltd. [2013] 37 taxmann.com 218/218 Taxman 112 (Mag.) (Delhi), wherein:

“33. This decision in Alagendran Finance Ltd. (supra) has been followed by the Delhi High Court in Bharti Airtel Ltd. (supra) wherein also reassessment order dealt with the issue of non-deduction of tax at source on payment of interest to ABN Amro Bank, Stockholm Branch. Second addition was made on account of ESOP expenses. Subsequently Commissioner of Income-tax issued order under section 263 for failure to deduct tax at source under section 194H on three air time provided to distributors and under section 194J on roaming charges paid to other network operators. These issues were different from the subject matter of reassessment order. The Delhi High Court held that the subject matter is different since the Commissioner has found error in regular assessment order, hence limitation shall commence for regular assessment order.”

3.3 In Ashok Buildcon Ltd. Vs. ACIT (2010) 325 ITR 574 (Bom.) (DC), held that:

“Section 263, read with section 147, of the Income-tax Act, 1961 - Revision - Of orders prejudicial to interest of revenue - Assessment year 2004-05 - Whether where an assessment has been reopened under section 147 in relation to a particular ground or in relation to certain specified grounds and subsequent to passing of order of reassessment, jurisdiction under section 263 is sought to be exercised with reference to issues which did not form subject of reopening of assessment or order of reassessment, period of limitation provided for in section 263(2) would commence from date of order of assessment and not from date on which order of reassessment has been passed - Held, yes

Section 147 of the Income-tax Act, 1961 - Income escaping assessment - General - Whether where assessment is sought to be reopened only on one or more specific grounds and reassessment is confined to one or more of those grounds, original order of assessment would continue to hold field, save and except for those grounds on which a reassessment has been made under section 143(3) read with section 147 - Held, yes Fact: For the relevant assessment year, the assessee's original order of assessment under section 143(3) dated 27-12-2006 was sought to be reopened on 6-3-2007 solely on the basis that the benefit of section 72A had been wrongly allowed to the assessee. In the order of reassessment, that was passed on 27-12-2007, the claim made by the assessee with reference to the provisions of section 72A was disallowed. On 30-4-2009, the Commissioner issued the impugned notice under section 263 on the ground that the assessment order passed on 27-12-2007 was erroneous and prejudicial to the interests of the revenue. The assessee challenged said notice contending that though, in form, the Commissioner had sought to revise the order dated 27-12-2007 which was passed on a reassessment made under section 143(3) read with section 147, in substance and in essence, what was sought to be revised was the original order of assessment dated 27-12-2006 and since in respect of that order, the period of limitation for exercising the revisional powers had expired on 31-3-2009 having regard to the provisions of section 263(2), the notice issued on 30-4-2009 was barred by limitation.”

3.4 Chhabra Syncotex (P) Ltd. Vs. Assistant Commissioner 0f Income Tax ITA No. 239/Jp/2018 (DC)

“If the exercise of revision jurisdiction under s. 263 in respect of issues which formed subject-matter of reassessment after the original assessment was reopened, the commencement of the limitation would be with reference to the order of reassessment, but if the CIT has exercised the jurisdiction under s. 263 on an issue which was not subject-matter of reassessment, then the limitation would reckon from the original assessment order passed under s. 143(3) and not from the reassessment order. Even if an order of assessment is reopened, the whole proceedings would start afresh but it would not disturb the issues which were not subject-matter of reopening of the assessment and even not falling under the purview of Expln. 3 to s. 147. Therefore, for the purpose of limitation under s. 263(2), if the jurisdiction under s. 263 is invoked on an issue which was not subject-matter of reassessment, then the limitation would reckon from the original assessment order and not from the reassessment order.”

Accordingly, the proceedings-initiated u/s 263 deserves to be quashed.

4. Alternatively, and without prejudice to above our submissions on merits are as under:

On the issues raised by the Ld. CIT in the SCN, u/s 263 of the Act, on the remaining four issues narrated at page 29 of the impugned order, the following submissions were made before her and being reproduced herein for a ready reference: -

4.1.1 (A) Disallowance on account of late payment of ESI/PF (Rs.24,14,531/-).

“4.1 At the outset it is submitted that it is not disputed fact though the assessee could not deposit the amount of PF and ESI on the due date specified in the related Act, but all the contributions were duly deposited before the due date (as evident from the table given hereunder) of filing of return u/s 139(1). Hence, the same are fully allowable. The original due date for filing of ROI was 31.09.2017 which was extended to 31.10.2017.

Payment of Employees State Insurance (ESI)

S. No.	Month of Deduction	Amount Paid	Due Date of Payment	The actual date of payment
1.	August, 2016	Rs.38,263/-	21-Sep-16	26-Sep- 16
2.	October, 2016	Rs.38,263/-	21-Nov-16	22-Nov- 16
3.	November, 2016	Rs.37,272/-	21-Dec-18	30-Jan-17
4.	December, 2016	Rs.45,810/-	21-Jan-19	31-Jan-17
5.	January, 2017	Rs.52,449/-	21-Feb-19	06-Mar- 17
6.	February,2017	Rs.51,546/-	21-Mar-19	24-Mar- 17

Payment of Employees Provident Fund (PF)

S. No.	Month of Deduction	Amount Paid	Due Date of Payment	The actual date of payment
1.	April, 2016	Rs.2,74,365/-	15-May-16	16-May- 16
2.	August, 2016	Rs.26,028/-	15-Sep-18	16-Sep- 16
3.	September, 2016	Rs.2,98,842/-	15-Oct-18	19-Oct-16
4.	October, 2016	Rs.2,98,842/-	15-Nov-18	21-Nov- 16
5.	November, 2016	Rs.2,95,941/-	15-Dec-18	06-Feb- 17
6.	December, 2016	Rs.3,21,421/-	15-Jan-19	03-Feb- 17
7.	January, 2017	Rs.3,22,118/-	15-Feb-19	21-Feb- 17
8.	February, 2017	Rs.3,13,371/-	15-Mar-19	24-Mar- 17

4.2 Settled legal position in favor of the assessee - covered issue: It is pertinent to note that at the relevant point of time that is on 15.04.2021, when the re-assessment order (subjected to revision) was passed, the law was well settled by the various decisions of Hon’ble Rajasthan High Court, Hon’ble Supreme Court and various other tribunals including the Hon’ble Jaipur bench jurisdictional ITAT as under:

4.2.1 In CIT vs. Manglam Arts (2017) 398 ITR 594 (Raj HC) it was held that

“Mr. Mathur has also contended that regarding second issue with regard to ESI and PF, however, the same is covered by the decision of this Court in the case of CIT vs. State Bank of Bikaner & Jaipur D.B. IT Appeal No. 177 of 2011 decided on 6th Jan., 2014, wherein it has been held as under

"Thus, we are of the view that where the PF and-or EPF, CPF, GPF etc., if paid after the due date under respective Act but before filing of the return of income under s. 139(1), cannot be disallowed under s. 43B or under s. 36(1)(va) of the IT Act.”

4.2.2 It is submitted that the issue is now no more res-Integra in as much as the Hon`ble Rajasthan High Court has already taken a view that employer and employees contributions both, if paid before the due date u-s 139 no disallowance can be made u-s 36(1)(v)(a) r-w s. 2(24)(x) and s. 43B. In the case of CIT vs. SBBJ (2014) 363 ITR 70 (Raj), it was held that:

“Where PF and-or EPF, CPF, GPF etc., if paid after due date under respective Act but before filing of return of income u-s. 139(1), could not be disallowed u-s. 43B or u-s. 36(1)(va). Substantial question of law answered against revenue and in favour of assessee. Revenue’s appeal dismissed.”

4.2.3 Similarly in the case of CIT vs. Jaipur Vidyut Vitran Nigam Ltd. (2014) 363 ITR 307 (Raj) it was held that:

“If the amount has been deposited on or before the due date of filing the return u-s 139 then the amount cannot be disallowed u-s 43B or u-s 36(1)(va) of the Act. In instant case the entire amount was deposited by the respondent-assessee at least on or before the due date of filing of the returns under Section 139 thus no disallowance could be made u-s 43B or section 36(1)(va). No substantial question of law arises out of the impugned orders of the ITAT. Commissioner of Income Tax vs. M-s State Bank of Bikaner & Jaipur (D.B. Income Tax Appeal No.177-2011); Commissioner of Income Tax vs. Jaipur Vidyut Vitaran Nigam Ltd. (D.B. Income Tax Appeal No.189-2011), followed.”

4.2.4The Hon’ble ITAT, Jaipur Bench has also followed the same view in the case of ACIT v-s M-s Anil Special Steel Industries Ltd., Jaipur (2014) 52 TW 189 (JP) Para 4 & 7 of its order. Similarly, in M/s K.S. Automobiles Pvt. Ltd. vs ITO in ITA No. 1184 (JP), Zuberi Engineering Company vs. DCIT (2019) 197 TTJ (Jp) 659 and Hon’ble Apex court in the case of CIT vs. Alom Extrusions Ltd. (2009) 227 CTR 417 (SC) also held so.

5. The above decisions were binding upon the AO even if the department might have filed SLP in absence of any stay granted over the operation of the said judgments. Thus, the AO was bound to have followed the law of the land. Hence he took a possible view and committed no error.

6. Alternatively, it is well settled law that if decisions of non-Jurisdictional High Courts are in conflict with each other than decision favorable to assessee must be followed. Kindly refer CIT v. Vegetable Products Ltd. [1972] 88 ITR 192 (SC) Hon’ble Supreme Court has laid down a principle that “if two reasonable constructions of a taxing provision are possible, that construction which favour the assessee must be adopted. This principle has been consistently followed by the various authorities as also by the Hon’ble Supreme Court itself. Accordingly, therefore, the AO committed no error in following on of the possible views.

7.1 Further, there is no mistake apparent in the subjected Order u/s 147 dated 15.04.2021 in as much as the Hon’ble Supreme Court had passed the subjected Order on 12.10.2022 in the case of Checkmate (2022) 329 CTR (SC) 1 i.e. much later to the subjected order u/s 147. Thus, the aforesaid decision was not available on the day when Ld. AO passed the subjected Order on 15.04.2021. Therefore, the Ld. AO has committed no mistake because the Apex Court decision was not available before him. It is not the case that the adjudication of the assessment is still open, before Ld.AO after the availability of the Apex Court decision.

7.2 Moreover, it is also well settled that retrospective amendment cannot be invoked to make addition by way of adjustment and intimation u/s 143(1) of Income Tax Act. This view was taken by the Hon’ble Supreme Court in the case of CIT vs. Hindustan Electro Graphites Ltd.[2000] 243 ITR 0048 (SC), wherein the view of Hon’ble Kolkata High Court in of Modern Fibotex India Ltd. & Anr. Vs. DCIT & Ors.[1995] 212 ITR 0496 (Calcutta) was approved. Same view was taken by the Hon’ble Madhya Pradesh High Court in the case of CIT vs. Satish Traders [2001] 247 ITR 0119 (Madhya Pradesh).

Alternatively, if the deduction claimed is not found allowable u/s 36(1)(va) r/w 2(24) (10), the same has be considered u/s 37(1) of the Act in as much as intention of the legislature is not to completely disallow the entire amount forever or for never ever time to come, which is against the very concept of real income. The gross receipt cannot be taxed unless the expenditure incurred by assessee businessmen to earn the same, are not allowed merely on technicalities. The default, if any, made by the assesse (if assumed so) in deposit of the PF/ESI therefore the due dates as prescribed under the laws, has already been made punishable under relevant Act, where under there are suitable provisions for imposition of penalty and compensating the government by the levy of interest. Therefore, in addition thereto, making disallowance under Income Tax Act and creating demand cannot be the legislative intent. The above provisions of 36(1)(va) nowhere prohibits the allowability u/s 37(1), which is a residuary category. Even in the case of Checkmate (Supra) there is no prohibition if the assessee is allowed u/s 37(1) of the Act. This contention is duly supported by the case of Trupti Enterprises (P) Ltd. Vs. DCIT (2022) 36 NYPTTJ 1280 (Cuttack).”

4.1.2 The Ld. CIT dealt with this issue at page 22 onwards, as under: -

“(A) Disallowance on account of Late Payment of PF/ESI Contributions (Rs.24,14,531)

(i) The assessee failed to make the payments of certain amounts collected from the employees as provident fund/ESI contribution within the prescribe time. The statutory auditors have reported in from 3CD that following amounts of PF/ESI contributions of employees were not paid/deposited by the assesse within the prescribed time of relevant statues of PF/ESI.

X X X

(ii) This amount of Rs.24,14,531/- was legally disallowable in terms of section 36(1)(va) r.w.s 2(24)(x) of the Income Tax Act, 1961.

(iii) However, while finalizing the assessment on 15/04/2021, no such disallowance is made by the FAO. In this regard, the recent judgement of Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd [2022] 143 Taxman.com178 is important to be referred to and relied upon, according to which the above is disallowable.

(iv) It has resulted into under assessment/computation of income by Rs.24,14,531/-, which is found to be erroneous in so far as it is prejudicial to the interest of revenue.”

4.1.3 Our Submissions before CIT:

A bare reading of the relevant part of the impugned order shows that the Ld. CIT very purportedly ignored our legal objections raised in the Para 7.1 and 7.2 hereinabove, wherein, it was specifically pointed out that the subject reassessment order subjected to revision passed on 15.04.2021 whereas the Checkmate (Supra) decision came one and a half year later thereto i.e. 12.10.2022. Therefore, the CIT could not have found any fault in the assessment order or could neither held as the subject reassessment as erroneous nor prejudicial to the revenue interest. On this is aspect the law is well settled that if the AO has followed the binding decisions of the jurisdictional High Courts and the jurisdictional Tribunals on the relevant date i.e. 15.04.2021 even though such binding decision has been reversed by the apex court at a later point of time (as happened in this case) then too, the Ld. CIT cannot held the assessment orders as erroneous as held in the following cases:

(I)CIT vs. G.M. Mittal Stainless Steel (P.) Ltd. [2003] 130 Taxman 67/263 ITR 255 (SC) (DPB 53-56)wherein it was held:

“In the instant case, the Commissioner had not recorded any reason whatsoever for coming to the conclusion that the Assessing Officer was erroneous in deciding that the power subsidy was capital receipt. Given the fact that the decision of the jurisdictional High Court was operative at the material time, the Assessing Officer could not be said to have erred in law. The fact that the instant Court had subsequently reversed the decision of the High Court would not justify the action of the Commissioner in treating the Assessing Officer's decision as erroneous. The power of the Commissioner under section 263 must be exercised on the basis of the material that was available to him when he exercised the power. At that time, there was no dispute that the issue whether the power subsidy should be treated as capital receipt had been concluded against the revenue. The satisfaction of the Commissioner, therefore, was based on no material, either legal or factual, which would have given him the jurisdiction to take action under section 263. [Para 5]”

(II) Also relied CIT, LTU, Bangalore vs. Canara Bank [2021] 123 taxmann.com 207 (Karnataka).

Since the AO acted in accordance with the law as interpreted by the jurisdictional HC, ITAT which prevailed on the date of the passing assessment order and continued even when Sec.263 order was passed hence, no fault can be found in his action and in particular, proceeding u/s 263 cannot be invoked in such a case.

(III) Further, it was held in the case of PCIT vs. SPPL Property Management (P.) Ltd. [2023] 151 taxmann.com 103 (Calcutta) that where Assessing Officer had followed decision of jurisdictional High Court which held field in relevant assessment year relating to PF contribution received from employees but not deposited to concerned account within due date and completed assessment on said basis, assessment could not be held to be prejudicial to interest of revenue.

(IV) In Shri Keshoraipatan Sahkari Sugar Mills Ltd. Vs. Principal Commissioner Of Income Tax (2023) 223 TTJ (Jp) 922

“Revision—Erroneous and prejudicial order—Lack of proper enquiry— AO allowed deduction under s. 80P(2)(d) on the interest income received by the assessee from co-operative bank—He has examined the issue which is evident from the finding recorded in the assessment order—AO has taken a plausible view—There is no lack of enquiry on the part of the AO and he has applied his mind and allowed the claim to the assessee—Principal CIT did not place on record any apparent error on the part of the AO to substantiate that the order passed by the AO is prejudicial to the interest of Revenue—She has not pinpointed any enquiry which was required to be made but not made by the AO—When the AO has conducted the required enquiry, the order passed by the AO could not be said to be erroneous and prejudicial to the interests of the Revenue—So long as the action of the AO cannot be said to be lacking bona fides, his action in accepting the explanation of the assessee cannot be faulted merely because it could have been lawful to make more detailed inquiries or because he did not write specific reasons for accepting the explanation—Non-mentioning of these reasons did not render the assessment order "erroneous and prejudicial to the interest of the Revenue"—Hence, the impugned revision order is vacated”

4.2 B)Disallowance of unpaid interest payable to banks u/s 43B (e) of the Act (Rs. 63,97,664):

4.2.1 “11.1 In Para 4(d) of the SCN it is alleged that the interest expenditure of Rs.63,97,664/- was incurred by the assessee but was not paid before the due date mentioned u/s 139(1) and hence was disallowable u/s 43B under clause (e) and also there was no mention of the amount of interest in the tax audit report under clause 26(i)(B)(a) of form 3CD.

11.2 However, the bare perusal of the related papers shows that such allegation is completely factually incorrect in as much as from the perusal of the ledger account of the interest (PB 95) together with the bank statement of CC A/c no. 61171287200 (PB 96-119), it is very clear that every month bank itself makes the deduction of interest from the CC A/c which is debited in the Books of accounts. Therefore, it is completely incorrect to say that the interest expenditure though claimed but was not paid. Reference to note 23 to financial statements (PB 17-28) is also relevant. Since the assessee has been making payments in this manner that the bank itself making the deduction of interest from the CC account, it was not a case of any amount remaining outstanding as on 31.03.2017. Hence, it is not a case of making payment after the end of the previous year and before the due date of filing ITR u/s 139(1). Moreover, clause 26(i)(B)(a) (PB 37) speaks of the payment of the statutory dues only and apparently does not include outstanding interest payment to the bank relating to clause (e) of section 43B of the Act.”

4.2.2 The Ld. CIT dealt with this issue at page 24 onwards, as under: -

“C) Disallowance u/s 43B(e) of the Act (Rs.63,97,664/-)

(i)As per Note 23 to Balance-sheet, the assessee has incurred an expenditure of Rs.63,97,664/- as interest payable to scheduled banks on bank loans. As per clause (e) of section 43B of the Act, any sum payable by the assessee as interest on any loan or advance from Scheduled Bank, if not paid before the due date of filing of ITR u/s 139(1) of the Act, was disallowable.

(ii) Further, In clause 26(i)(B)(a) of audit form 3CD, there was no mention of the amount of Interest of Rs.63,97,664/- incurred and payable during the year and which has been paid before the due date of filing of ITR u/s 139(1).

(iii) In absence of any details of payment of this amount, it could only be inferred that it was not paid before the due date u/s 139(1) of the Act and the same should have been disallowed u/s 43B(e) of the Act.

(iv) In this regard, the assessee replied that the ledger account of the interest together with the bank statement of CC A/c no. 61171287200, clearly reveals that every month bank itself makes the deduction of interest from the CC A/c which is debited in the Books of accounts. Therefore, it is completely incorrect to say that the interest expenditure though claimed but was not paid. Reference to note 23 to financial statements are also relevant. Since the assessee has been making payments in this manner that the bank itself making the deduction of interest from the CC account, it was not a case of any amount remaining outstanding as on 31.03.2017. Hence, it was not a case of making payment after the end of the previous year and before the due date of filing ITR u/s 139(1). Moreover, clause 26(i)(B)(a) speaks of the payment of the statutory dues only and apparently does not include outstanding interest payment to the bank relating to clause (e) of section 43B of the Act.

(v) The reply of the assessee is not fully acceptable and requires further verification. The AO, while finalizing the fresh assessment shall take note to this point/issue as per direction marked at Para No. 9 below.”

4.2.3 Our Submissions:

As evident from the bare reading of the order of Ld. CIT that she did not revert the factual contention raised before her and nothing remained payable so Section 43 B (e) could not be invoked. Further, Section 263 was invoked merely stating that the issue requires further evidence. Once the relevant details were before the Ld. CIT she should have decided the issue on merit instead it sending back to AO. Section 263 can only be invoked only if thereis a fault and there is an error and it was for the CIT to have demonstrated some error.

Otherwise also he has not suggested what further inquiries could and should have been made in the admitted facts and circumstances of the present case.

4.3 C) Disallowance u/s 36(1)(iii) or u/s 37 of the Act (Rs.21,732):

4.3.1“12. In Para 4(e) of the SCN it is alleged that as per clause 34(c) of form 3CD (PB 40-41), the auditors have reported payment of interest of Rs. 21,732/- on account of the delayed payment of TDS. It is alleged that the same is not allowable expenditure u/s 36(1)(iii) or u/s 37 of the Act which otherwise should have been disallowed. It is submitted that firstly, such an interest is not of penal natureand it is merely of compensatory nature. There is no allegation nor any finding with evidence that such interest was of penal nature. Even a reference to the relevant provision of Sec.201 of the Act doesn’t speak of any such interest of penal nature. Such contention is also supported by various case laws.”

4.3.2 The Ld. CIT dealt with this issue at page 25 onwards, as under: -

“(D) Disallowance u/s 36(1)(iii) or u/s 37 of the Act (Rs.21,732/-)

(i) As per clause 34 (c) of form 3CD, the auditors have reported that the assessee have incurred an interest amount of Rs.21,732/- for delayed payment of TDS. This interest was not an allowable expenditure u/s 36(1)(iii) or u/s 37 of the Act. Hence, the same should have been disallowed but during the assessment proceedings FAO has not been disallowed.

(ii) The reply of the assessee is not acceptable as the Interest on account of late payment of TDS was not an allowable expenditure u/s 36(1)(iii) of the Act.

(iii) Since no such addition on account of disallowance u/s 36(1)(iii) of the Act had been made by the AO, while completing the assessment on 15/04/2021, the income has been found to be under computed/assessed by this amount of Rs.21,732/-, which was erroneous and prejudicial to the interest of Revenue.”

4.3.3 Our Submissions:

As evident from the impugned part of the Ld. CIT that that did not have applied the mind that the interest was not of the penal nature nor she attempted to counter such filing. Therefore, it was a mere suspicion and/or non-application of mind and thus Section 263 was wrongly invoked.

4.4 D) New Loans taken during the year (Rs. 6.35 Crores):

4.4.1 “8. No enquiries w.r.t. fresh loan of Rs. 6.35 Crores: It is alleged in para 4(a) that the AO did not examine the issue of fresh loan of Rs.6.35 crores which remained unexplained and in particular the account received from M/s Advani Pvt. Ltd. having the maximum of Rs. 1.05 crores for not having PAN and therefore, identity was doubtful.

In this connection it is submitted that the Ld. AO did make enquiries by issuing a letter dated 01.03.2021, which was duly replied by the assessee vide its letter dated 12.03.2021 para 22 (PB 55) that confirmations can be submitted later on. At the same time the tax audit report clause 31(a) (PB 38) contains the details of loan or deposit amount exceeding the limit specified in sec.269SS taken or accepted during the previous year. It was only a slip of pen that the PAN in case of Advani Pvt. Ltd. could not be mentioned. The apparent and admitted facts are the receipt of the amount as also repayment, were made through banking channels. Even interest of Rs. 78,860/- was also paid through Cheque and TDS of Rs. 7,886/- was also deducted. Thus, all the requisite details which prove the identity of the creditor, capacity of the creditor as also the genuineness of the transactions were already available on record, when he passed the subjected Assessment Order. Confirmation of ledger account duly signed by the said creditor bearing complete name, address and PAN is enclosed (PB 77). Similar confirmation in case of all the creditors are also enclosed (PB 70-80). However, there is nothing on record to show anything contrary thereto. Some of the other creditors are old and are coming from preceding years as their opening balances are available in their ledger accounts. In most of the cases closing balances are there which means the account was carried forward in next AY 2018-19. Nothing wrong was found hence the assessment was rightly completed.”

4.4.2 The Ld. CIT dealt with this issue at page 26 onwards as under: -

“(F) Inadequate Examination/Verification of ‘New Loan During the Year (Rs.6.35 Crore):-

(a) The clause 31(a) of Tax Audit report contains the details of loan or deposit amount exceeding the limit specified in sec. 269SS taken or accepted during the previous year.

(b) The a/c confirmations of respective parties have been filed during the revisional proceedings u/s 263 of the Act. Further, the PAN of M/s Advani Pvt. Ltd., having the maximum outstanding/closing balance of Rs.1.05 Crores has been furnished (PAN-AACCA1895Q).

(c) Perusal of respective confirmation-ledger reveals that the receipt of amount and also the repayment, were made through banking channels. Interests were also paid through Cheque and TDS, applicable was also deducted. Confirmations of ledger account duly signed by the said creditor bearing complete name, address and PAN. Further, it was noticed that some of the other creditors are old and are coming from preceding years as their opening balances are available in their respective ledger accounts. In most of the cases, closing balances are there which means that the account was carried forward in next AY (i.e. AY 2018-19). (c) The reply of the assessee is not fully acceptable and requires further verification, particularly the third part verification etc. so as to examine the Identity, Genuineness of transaction and also the Creditworthiness of respective Creditors. The AO, while finalizing the fresh assessment shall take note to this point/issue as per direction marked at Para No.9 below.

4.4.3 Our Submissions: Here also the Ld. CIT was completely failed to point out any mistake or error except that the issue needs verification and all the relevant details were made available to her.

5. Suspicion is not a good basis for revision: The CIT cannot invoke section 263 merely based on suspicion and exploring the possibility of some income, merely making reference to the impounded document, alleging not considered, unless demonstrated showing some income, cannot be a good basis. This so-called appraisal report is not evidence by itself and a merely internal document making a prima facie opinion on the impounded documents by someone other than the AO and therefore, can't be said to be binding upon AO. The CIT even did not mention the amount of income escaping Kindly refer the case of CIT vs. Trustees of Anupam Charitable Trust [1987] 31 Taxman 335 /167 ITR 129 (Raj.) wherein it was held as under:

“The error envisaged by section 263 was not one which depended on possibility or the guess work but it should be actually an error either of fact or law. Unless the Commissioner categorically says that there was some income from speculative business which could not qualify for deduction much less exemption under section 11, it cannot be said that there was any error in the order of the ITO relating to the assessment year 1971-72. This error was not relevant to the assessment year 1975- 76”.

In the case of Abdul Hamid v. Income-tax Officer [2020] 117 taxmann.com 986 (Gauhati - Trib.)it was held that only probability and likelihood to find error in assessment order is not permitted u/s 263.

4.5 E) Tax charged u/s 115 BBE of the Act

4.5.1 Where the show cause dated 03.10.2023 (PB 143-144), the Ld. CIT also raised the issue of application u/s 115 BBE as under-:

“However, in connection with the queries raised vide Notice dated 14.02.2023 vis-à-vis your reply filed on 16.06.2023, on further examination of assessment records, it was found that the FAO/AO, while finalizing the assessment proceeding u/s 147 of the Act, in your case for the impugned A.Y on 15.04.2021, made an addition of Rs.6,93,32,499/- u/s 68 r.w.s 115BBE of the Act. This addition of Rs.6,93,32,499/- was made by the FAO by way of treating the sales made to M/s Kangna Agro Products as non-genuine and bogus and hence, held that the same was only an accommodation entry. In para 7 of the assessment order, the FAO has held that since the assessee has not given any vital information to prove that the impugned sales of Rs.6,93,32,499/- made to the party M/s Kangna Agro Product were genuine, hence, added the same by treating this sales as bogus u/s 68 of the I.T. Act, 1961. However, in computation sheet of assessed income and tax payable, issued by the FAO, with the assessment order, the tax had been charged by the FAO at normal rates in place of charging the same at special rates of tax as per Section 115BBE of the Act. As such the computation of total income as well as charging of tax on this issue is observed to be incorrect and erroneous and require to be suitably modified/rectified.”

However, the fact of aforementioned SCN is not mentioned in the Section 263 order.

Thereafter, in the Impugned Order, the Ld. CIT also directed the AO to apply special tax rate as under:

“(c) The tax shall have to be charged as per Section 115BBE of the Act for the addition already made u/s 68 of the Act, supra.”

At the outset, it is submitted that the Ld. CIT was not justified in directing AO to apply S. 115BBE for more than one reasons, submitted hereunder, which shows that the CIT acted beyond jurisdiction hence, this part of the Order deserves to be quashed.

5. Submissions w.r.t Application of S. 115BBE:

5.1 At the outset, it is submitted that S.115BBE specifically refers to the income which are of the nature as referred in S. 68 ,69 ,69A of the Act being the income from other sources. Therefore, subjected income has essentially to be classified u/s 14 of the Act as income from other sources and that is possible only when the income is not capable of being classified under any other head being income from salary, house property, capital gain, business or profession. The relevant provision is reproduced hereinbelow :

S. 115BBE“(1) Where the total income of an assessee, — 1. includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D and reflected in the return of income furnished under section 139; or 2. determined by the Assessing Officer includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, if such income is not covered under clause (a), the income-tax payable shall be the aggregate of— 1. the amount of income-tax calculated on the income referred to in clause (a) and clause (b), at the rate of sixty per cent; and 2. the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (i).] (2) Notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance [or set off of any loss] shall be allowed to the assessee under any provision of this Act in computing his income referred to in clause (a) [and clause (b)] of subsection (1).]”

5.2 A combined reading of S. 14 with S. 56 of the Act makes is evidently clear that for the assessment of an income it must have to be classified under four heads of income as enumerated u/s 14 and if it doesn’t fall under any specific head of income as per item A to E of S. 14, such income has to be assessed under the residuary head of income i.e. item F of S. 14. Therefore, income added u/s 68 or 69 etc. has to be given a specific head in terms of S. 14.

5.3 The Hon’ble Supreme Court in case of Karanpura Development Co Ltd vs. CIT [1962] 44 ITR 362 (SC) held that these heads are in a sense exclusive to one another and income which falls within one head cannot be brought to tax under another head. Further, the Hon’ble Supreme Court in case of Nalinikant Ambalal Mody v CIT [1966] 61 ITR 428, has held that whether an income falls under one head or another is to be decided according to the common notions of practical man because the Act does not provide any guidance in the matter. Of course, lot of judicial precedents are available to a taxpayer to arrive at a conclusion about determination of appropriate head of income.

5.4 The scheme of sections 68, 69, 69A, 69B and 69C provides that in cases where the nature and source of investments or acquisition of money, bullion or expenditure incurred are not explained at all, or not satisfactorily explained, then, the value of such investments and money, or value of articles not recorded in the books of accounts or the unexplained expenditure may be deemed to be the income. In view of the above, it can be said that for triggering section 115BBE what is relevant is whether income remains disclosed or undisclosed or explained or unexplained. If the income is disclosed or explained as mandated by the law, then same would be taxable in the ordinary manner. On the other hand, if the income is undisclosed or unexplained then the provisions of section 115BBE may be triggered depending upon the facts involved in each of the cases. The moment a satisfactory explanation is provided about nature and source then the source would stand explained and therefore, the income would be computed under the appropriate head of income as per the provisions of the Act.

5.5 On perusal of the Finance Minister’s speech and Explanatory Memorandum (2), it is clear that the legislative intent behind introduction of section 115BBE was to curb the generation and use of unaccounted money and tax the same at the highest rate.

However, in this case, the only regular source of income of the assessee in A.Y. 2019- 20 was the real estate business (and the connected ancillary activities/services thereto). The assessee was in receipt of the profit on the purchase and sale of properties and also commission/brokerage income and consultancy income relating to the real estate business. There is no other known or unknown source of income, neither stated by the assessee nor by the department.

5.6 In the present case, the Ld. CIT herself narrated and admitted that the fact that the subjected amount of Rs 6.93 crores, was the sales made to M/s Kangna Agro Products but was treated as Bonus, etc, which is treated as an accommodation entry. The Ld. CIT also referred to Para 7 of the subjected assessment order and finally addition u/s 68 of the Act. These admittedly facts that the amount of sales declared by the assessee in the accounts. Thus, the amount subjected to emanated from the regular business activity of the assessee of manufacturing and extracting of vegetable oil, doc, etc. The net profit arising from this transaction was also undisputedly included in the audited P&L account and the ROI. Thus, this subjected amount, pertained to the declared business activity/ source only. Therefore, such amount could not be considered as income from other sources and was to be classified. Even the Ld. CIT in the impugned order did not direct the AO that such income should be assessed under the income from other sources. There is no other known or unknown source of income, neither stated by the assessee nor so found by the department.

5.7 In these circumstances, the only inescapable conclusion is that the subjected income was nothing but business income from the disclosed business activity of the assessee. Therefore, “merely to levy more tax, is an illegal and unjustified attempt to invoke 115BBE” which is not clearly applicable on the facts of the present case.

5.8 Interestingly, in the impugned order at Page 7, the AO himself has made the additions u/s 68 r.w.s 115 BBE of the Act. Therefore, the allegation and finding of the Ld. CIT is factually incorrect that the FAO has charged the tax at normal rates only. The AO has invoked the Section 115BBE of the Act but committed a clerical error in not computing the special tax in accordance therewith. At the best it could be a case of rectification but not at all a case of revision. Therefore, the proper course should have been a rectification u/s 154 of the Act (though not conceding) instead of invoking Section 263. In this regard kindly refer to the case of CIT vs. Amitabh Bachchan [2016] 286 CTR (SC) 113, wherein it is held that:

“9. Under the Act different shades of power have been conferred on different authorities to deal with orders of assessment passed by the primary authority. While Section 147 confers power on the Assessing Authority itself to proceed against income escaping assessment, Section 154 of the Act empowers such authority to correct a mistake apparent on the face of the record. The power of appeal and revision is contained in Chapter XX of the Act which includes Section 263 that confer suo motu power of revision in the learned C.I.T. The different shades of power conferred on different authorities under the Act has to be exercised within the areas specifically delineated by the Act and the exercise of power under one provision cannot trench upon the powers available under another provision of the Act. In this regard, it must be specifically noticed that against an order of assessment, so far as the Revenue is concerned, the power conferred under the Act is to reopen the concluded assessment under Section 147 and/or to revise the assessment order under Section 263 of the Act. The scope of the power/jurisdiction under the different provisions of the Act would naturally be different. The power and jurisdiction of the Revenue to deal with a concluded assessment, therefore, must be understood in the context of the provisions of the relevant Sections noticed above. While doing so it must also be borne in mind that the legislature had not vested in the Revenue any specific power to question an order of assessment by means of an appeal.”

6. Judicial Guideline: The Hon’ble Rajasthan High Court, ITAT Jaipur and various other courts have held that where the additional income/ undisclosed income declared during the course of survey is relatable to some business activity then it cannot be considered to be income from other sources and consequently S. 115BBE cannot be invoked.

6.1 The Hon’ble Ahmedabad Tribunal in case of Chokshi Hiralal Maganlal vs DCIT (ITA No. 3281/Ahd/2009 AY 2004-05 dated 5 August 2011) held that for invoking deeming provisions under sections 69, 69A, 69B & 69C there should be clearly identifiable investment or asset or expenditure (i.e. in our understanding not connected with business so as to make convenient to invoke aforesaid sections). In case source of investment or asset or expenditure is clearly identifiable and has no independent existence of its own where a case arises to claim that it cannot be separated from business then first ‘what is to be taxed is the undisclosed business receipt. Only on failure of such exercise, it would be regarded as taxable under section 69 on the premises that such excess investment or asset or expenditure is unexplained and unidentified, satisfying the mandate of the law.

6.2 The Hon’ble Rajasthan High Court in case of CIT vs Bajargan Traders [ITA No. 258/2017 dated 12/09/2017] has held that when the assessee is dealing in sale of food grains, rice and oil seeds and the excess stock which is found during survey is stock of rice then, it can be said that investment in procurement of such stock of rice is clearly identifiable and related to the regular business stock of the assessee. Therefore, the investment in the excess stock is to be brought to tax under head “business income” and not under the head income from other sources.

6.3 In case of Shri Lovish Singhal vs ITO (ITA No 142 to 146/Jodh/2018 for AY 2014- 15 dated 25 May 2018), the Jodhpur Tribunal applying the proposition of law laid down by the Hon’ble Rajasthan High Court in the Bajargan Traders (supra), held that the “lower authorities were not justified in taxing the surrender made on account of excess stock and excess cash found U/s 69 of the Act and accordingly held that there is no justification for taxing such income U/s 115BBE of the Act. In view of the facts & circumstances, judicial guidelines and the statutory provisions, the additional income declared during survey of Rs. 76,00,000/- cannot be subjected to S. 115BBE of the Act”.

7.1 In the ROI itself, as stated in the SCN u/s 263, the subjected additional income of Rs 76 Lakh was declared as income from business and profession. With regard to the source of such additional income, the aforesaid detailed submission on its own clarified the source/ nexus with the real estate business WHICH the assessee was carrying on at that point of time. Thus, AO made full enquiries and applied his mind which, he was supposed to do as contemplated by law. Based thereon, he took his own decision which cannot be interfered with.

7.2 In fact, the AO was not even entitled to change the head of income on his own. Kindly refer the Hon’ble Supreme Court in case of Karanpura Development Co Ltd vs. CIT [1962] 44 ITR 362 (SC) held that these heads are in a sense exclusive to one another and income which falls within one head cannot be brought to tax under another head. Further, the Hon’ble Supreme Court in case of Nalinikant Ambalal Mody v CIT [1966] 61 ITR 428, has held that whether an income falls under one head or another is to be decided according to the common notions of practical man because the Act does not provide any guidance in the matter. Of course, lot of judicial precedents are available to a taxpayer to arrive at a conclusion about determination of appropriate head of income.

8. No error when AO acted in accordance with binding decisions:

In addition, the legal position and the judicial guideline through the various decisions of Hon’ble Rajasthan High Court and ITAT Jaipur, is well settled. The AO acted in accordance with the judicial guideline and the ratio laid in the cases of:

a. CIT vs Bajargan Traders [2024] 466 ITR 397

b. Chokshi Hiralal Maganlal vs DCIT (ITA No. 3281/Ahd/2009 dated 05.08.2011/ (2011) 45 SOT 349).

c. Shri Lovish Singhal vs ITO (ITA No 142 to 146/Jodh/2018 for AY 2014- 15 dated 25 May 2018).

and applying the same on the facts of the case in hand, decided that the provisions of S.115BBE were not applicable and hence did not therefore apply high rate of tax.

9. (F) Clause (a) of Explanation 2 of S. 263 wrongly invoked:

9.1 The ld. CIT stated that

“7. As per the amended provision i.e., clause (a) of Explanation 2 of Section 263, an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of revenue, if in the opinion of Principal Commissioner or Commissioner, the order is passed without making inquiries or verification which should have been made; Further, as per clause (b) to Explanation 2 of Section 263 says about “if the order is passed allowing anyrelief without inquiring into the claim”. It reads as under:-

(Amendment of section 263 w.e.f 01.06.2015).

X X X

7.2 In reaching such conclusion, I rely on the following judicial rulings:

X X X”

9.2 Submissions:

9.3.1Even the amendment (Expl. 2(a)) does not confer blind powers: It is held that despite there being an amendment, enlarging the scope of the revisionary power of the ld. PCIT u/s 263 to some extent, it cannot justify the invoking of the Expl. 2(a) in the facts of the present case. Before referring to that Explanation, one has to understand what was the true meaning of the Explanation in the context of application of mind by a quasi-judicial authority.

In the case of PCIT vs. Shreeji Prints (P.) Ltd.[2021] 130 taxmann.com 294 (SC), decision ofGujarat High Court is affirmed the ITAT Order as under:

"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."

9.3.2 In Narayan Tatu Rane v. ITO, (2013) 7 NYPTTJ 1493 (Mum) , it was held that newly inserted. Explanation 2(a) to S. 263 does not authorize or give unfettered powers to Commissioner to revise each and every order, if in his (subjective) opinion, same has been passed without making enquiries or verification which should have been made. As submitted above here also the AO having already applied its mind (directly or indirectly), the assessment order was not erroneous.

9.4Other Supporting Case Laws on S. 263:

9.4.1 Kindly refer to CIT v/s Rajasthan Financial Corporation (1996) 134 CTR 145 (Raj). held that:

“Once AO 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 AO cannot be held to be erroneous simply because in his order not make an elaborate discussion in that regard.”

9.4.2 In CIT v/s Ganpat Ram Bishnoi (2005) 198 CTR (Raj) 546 held that from the record of the proceedings, in the present case, no presumption can be drawn that the AO 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 AO was required to make an enquiry, cannot be held to satisfy the test of existing necessary condition for invoking jurisdiction u/s 263. Jurisdiction u/s 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.

9.4.3 In Gabriel India Ltd. [1993] 203 ITR 108 (Bom), law on this aspect was discussed in the following manner (page 113): “ . . . From a rending of sub-section (1) of section 263, it is clear that the power of suomotu 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 in so far 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 in so far 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.

9.4.4 In Elder IT Solutions (P.) Ltd. vs CIT [2015] 59 taxmann.com 232 (Mumbai - Trib.), it was held that:

“18. In the case in hand, there is no dispute that the AO called for financial details of these companies and also examine the parties in order to satisfy himself about the genuineness of the transaction. Therefore, on the basis of the record available before him, the AO accepted the claim of the assessee. The Commissioner has not found any fault with the details and records filed by the assessee in support of the claim but has cited the reasons that the AO has not conducted the proper enquiry. When the entire record was available with the Commissioner then he ought to have given a concluding finding that the view taken by the AO is contrary to the law as well as facts emerging from the records. However, the Commissioner has not given any such finding and restored the matter to the record of the AO which is not permissible as per the provisions of section 263 when the AO has conducted the enquiry and allowed the claim of the assessee on the basis of the examination of the record as well as the parties in person. We further note that the assessee has also filed the bank statements of these companies showing the transaction of payment of share premium as well as loans to the assessee. The transactions were also reflected in the return of income filed by these companies, therefore, in any case if the Department has any doubt about the genuineness of arranging the funds by these share applicant companies, the enquiry and investigation should have been conducted in those cases as held by the hon'ble Delhi High Court in the case of Lovely Exports (P.) Ltd. (supra) which has been confirmed by the hon'ble Supreme Court by dismissing the special leave petition filed by the Department.”

9.4.5 In case of Rajmal Kanwar v. CIT-I [2017] 82 taxmann.com 119 (Jaipur - Trib.)it was held that orders prejudicial to interest of revenue - Assessment year 2011-12 - Where AO had made sufficient enquiries, considered survey records and surrender made by assessee and after considering submissions of assessee completed assessment proceedings under section 143(3), assessment order could not be held to be an erroneous order which was prejudicial to interest of revenue.

In view of the above submissions and the Judicial Guideline, the impugned order passed u/s 263 deserves to be quashed.

10. Notice u/s 263 barred by limitation:

10.1 At the outset, it is submitted that S. 263(2) of the Act provides that no order would be made in exercise of the powers conferred u/s 263(1) of the Act after the expiry of two years from the end of the financial year in which the order is sought to be revised was passed.

10.2 It can’t be denied that the matter relating to the examination of the (1) Late payment of PF/ESI contributions u/s 43B, (2) New Loans during the year, (3) Disallowance of unpaid sale tax u/s 43B of the Act, (4) Disallowance of unpaid interest payable to banks u/s 43B (e) of the Act, (5) Disallowance u/s 36(1)(iii) or u/s 37 of the Act and (6) Disallowance u/s 35AC (2) of the Act (hereinafter referred as the “new issues / aspects”), have the subject matter of the re-assessment order dated 15.04.2021(PB 62-69) passed u/s 143(3)/148 of the Act [which is presently being sought to be revised by the ld. CIT u/s 263] in as much as the AO before making that assessment order, proceeded to form his reason to believe as to escapement on the basis of the specific information w.r.t the appellant company.

10.3 In fact and in law, this particular issue stood concluded long back, when the first assessment order / Intimation Order was passed u/s 143(1) on dated 16.10.2018 when the assessment was completed by making additions/disallowances of Rs. 15,21,810/- on account of property rent, unexplained cash credit (Rs. 1,00,000/- by Sh. Maha Chand Jain) and disallowance of legal & professional, office, consultancy, garden development expenses.

Since these new issue/aspects arose in the very first assessment / intimation order u/s 143(1) dated 16.10.2018 only, wherein no such addition was made, thus any error, assuming if any (though not conceding but alternatively only), could have been found in that assessment order itself and limitation has to be reckoned only with reference to the such first assessment / intimation order dated 16.10.2018 and not w.r.t the re-assessment order dated 15.04.2021 passed u/s 143(3)/148 of the Act wrongly subjected to revisionary proceedings. The very first assessment / intimation order dated 16.10.2018, still hold water and could not be said to have merged with the re-assessment order dated 15.01.2024.

Accordingly, reckoning the limitation from the end of the financial year i.e. on 30.03.2019, the period of two years has already expired on 31.03.2021, hence the impugned order u/s 263 clearly stands barred by limitation.

10.4. Otherwise also, the AO/CPC was supposed to have passed the intimation within 9 months from the end of the financial year in which ROI as filed. In this case ROI was filed on 06.11.2017. Therefore, reckoning the period of 9 month from the end of the financial year (i.e. 30.03.2018), had already expired on 31.12.2018 and assuming that the intimation was passed on the last date that is on 31.12.2018 and thereafter reckoning the permissible period for initiating proceeding u/s 263 which is again two year end from the relevant financial year, (i.e. 31.03.2019), the following period of two years thereafter had already expired on 31.03.2021. Thus, the limitation had already expired on 31.03.2021 whereas the impugned order has been passed on 14.02.2023i.e. much later to the limitation.

10.5. Supporting Case Laws: For this proposition kindly refer the following:

10.5.1. In Chhabra Syncotex (P) Ltd. Vs. ACIT [ITA No. 239/Jp/2018]; (Supra – Re. Para 3.4) (DC )

10.5.2. CIT vs. Larc Chemical Limited [2014] 368 ITR 655 (Bombay) is the direct decision on the present context, wherein, it was held that (DC ):

“12. We have considered the rival submissions. It is not disputed that save and except the issue of non-genuine purchases all other issues dealt with by the Commissioner of Income-tax in the order dated March 30, 2009, were not a subject matter of the assessment order passed on June 28, 2006, under section 143(3)/147 of the Act. All the other issues on which the Commissioner of Income-tax is seeking to exercise the jurisdiction under section 263 of the Act were concluded by virtue of an intimation under section 143(1) of the Act which admittedly was done beyond a period of two years prior to the notice dated March 17, 2009, issued under section 263 of the Act. Section 263(2) of the Act provides that no order would be made in exercise of the jurisdiction under section 263(1) of the Act after the expiry of two years from the end of the financial year in which the order sought to be revised was passed. It is an admitted position that the Commissioner of Income tax has not exercised the revisional jurisdiction in respect of the order/intimation passed section 143(1) of the Act within two years of it being passed. Therefore, exercise of jurisdiction on those issues under section 263 of the Act is time barred as held by this court in CIT v. Anderson Marine & Sons (P.) Ltd. [2004] 266 ITR 694/139 Taxman 16. Moreover, in view of the decision of the apex court in the matter of Alagendran Finance Ltd.'s case (supra) as well as our court in the matter of Ashoka Buildcon Ltd.'s case (supra) the jurisdiction under section 263 of the Act cannot be exercised on issues which were not subject matter of consideration while passing the order of reassessment under section 143(3)/147 of the Act but a part of an assessment done earlier under the Act.”

10.5.3 In CIT vs Anderson Marine & Sons (P.) Ltd. 266 [ITR 694] 139 Taxman 16 (Bombay) (DC) :

“Section 263, read with section 143, of the Income-tax Act, 1961 - Revision - Of orders prejudicial to interests of revenue -Assessment year 1999-2000 - Whether acceptance or acknowledgement of return filed by assessee and intimation sent forpurpose of section 143(1) is an assessment and, therefore, in nature of an order - Held, yes - Whether sending intimation beinga decision of acceptance of self-assessment is in nature of order passed by Assessing Officer for purpose of section 263 - Held,yes - Whether, therefore, Commissioner can exercise jurisdiction under section 263 in respect of assessment under section143(1) as applicable after 1-4-1989 - Held, yes”

10.5.4 In CIT vs. Rajkumar Deepchand Phade [249 ITR 520] 116 Taxman 783 (Bombay) : (DC )

“4. In the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 831, the Apex Court has laid down twopre-requisites for exercise of jurisdiction by the Commissioner suo motu, viz., that the order of the AssessingOfficer was erroneous and, secondly, that the order of the Assessing Officer was prejudicial to the interest of the revenue. In the light of the said judgment, it is clear that merely because an order is passed under section143(1) by the Assessing Officer, is no bar for the Commissioner to invoke section 263. In the present matter, the above facts clearly show that the assessee claimed deduction in respect of the interest amount paid to the trust on the goodwill during the assessment years 1986-87 to 1988-89 whereas under the partnership deed, the goodwill amount was payable by incoming partners and, therefore, no amount was payable by the firm as and by way of interest for the liability of the goodwill and, therefore, the firm was not entitled to claim any deduction in respect of the interest paid to the trust. Under the order of the Assessing Officer, the relevant facts have not been examined. The order of the Assessing Officer was erroneous. The order of the Assessing Officer was prejudicial to the interest of the revenue.”

10.5.5. Further in the case of L.G. Electronics India (P.) Ltd. Vs PCIT (2016) 388 ITR 135/ 290 CTR 283 (Allahabad) (PB 23 to 29)(DC ), the original assessment was passed at total income of Rs. 5,83,91,17,790/- on dated 21.10.2011 wherein an addition on account of sales tax subsidy of Rs. 61,00,79,579/- was made. Thereafter, the case was reopened and reassessment was completed vide order dated 26.03.2015 by making a further disallowance of Rs. 1,38,95,995/- u/s 40(a)(ia) of the Act (and the total reassessed income of Rs. 5,97,80,77,790/-). However, this was followed by a notice u/s 263 with reference to the reassessment order passed u/s 143(3) r.w. 147 of the Act dated 26.03.2015 on the ground that a further amount of sales tax subsidy of Rs. 20,58,34,234/- accrued due to scheme of Maharashtra Government was not taxed as revenue receipt (this subsidy was in addition to the sales tax incentive received by the assessee of Rs. 61,00,79,579/- from UP Government). In this factual context, the contention of the assessee (in Para 14) was that in the original assessment, the sales tax subsidy accrued to assessee from Maharashtra Government was treated as capital receipt and no addition was made therefore, the limitation u/s 263(2) of the Act was to be reckoned with reference to the original assessment order passed on 31.10.2011 and not w.r.t. the reassessment order passed dated 26.03.2015, relying upon certain decisions.

10.5.6CIT v. Bharti Airtel Ltd (Supra Para 3.3) (DC )

10.5.7 In Ashok Buildcon Ltd. Vs. ACIT (Supra Para 3.4) (DC )

10.5.8 In CIT vs. ICICI Bank Ltd. (2012) 343 ITR 74/252 CTR 85 (Mum), held that (DC):

“Section 263 of the Income-tax Act, 1961 - Revision - Of orders prejudicial to interest of revenue - Assessment year 1996-97 - Whether where jurisdiction under section 263 is sought to be exercised with reference to an issue which is covered by original order of assessment under section 143(3) and which does not form subject-matter of reassessment, period of limitation of two years under section 263(2) must necessarily begin to run from order under section 143(3) - Held, yes [In favour of assessee]”

10.5.9 In CIT vs. Alagendran Finance Ltd. (Supra Para 3.1) (DC 1-7)

10.5.10 In Indira Industries Vs. Pr. CIT. 305 CTR (Mad) 314: 169 DTR (Mad) 171 (2018) (DC), held that:

“3(xviii) We therefore have no hesitation in holding that the reckoning date qua the impugned notice for the purpose of s. 263(2) of IT Act is not the date of reassessment being 30th Dec., 2016, but the date of scrutinizing the assessment i.e., 25th Feb., 2015. 3(xix) As would be evident from the narration of facts and discussion supra, the impugned notice is dt. 16th Aug.,2017 and is therefore, clearly beyond two years when reckoned from 25th Feb., 2015.

3(xx) Therefore, the assessee before us was clearly entitled to succeed on the second point raised before the learned Single Judge.”

11. It is further submitted that, any contrary interpretation/view, shall render the limitation provisions u/s 263(2) of the Act as completely nugatory or purposeless and shall confer blind and unfettered power upon the revenue and the ld. CIT may disturbed the finality of the orders, one way or the other, which can never be the intention of the legislature. The Hon’ble courts have always held that the provisions relating to limitations must be construed very strictly in as much as permitting the reopening of a concluded matter has the effect of unsettling the rights and obligations of the parties at any moment of time.

12. Even Otherwise (alternatively, and without prejudice to the other contentions and arguments), assuming, the AO had passed an assessment order u/s 143(3), prior to the subjected reassessment order, even then this revision u/s 263 would have been barred by limitation since as per Section 153(1) [prevailing at that time], the said order was to be passed within 21 months from the from the end of the assessment year in which the income was first assessable. The time chart is as follows:

S. No.	Particulars(A.Y.2017-18)	Date
A.	Last date of relevant A.Y.	31.03.2018
B.	Limitation u/s153(1)–21months	31.12.2019
C.	(+)LimitationasperSection263(2)	2years
D.	Last date of passing Revision Order u/s263	31.12.2021

Hence, the impugned SCN u/s 263 and the resultant order kindly be declared as barred by limitation.

6.1 In support of the grounds so raised the ld. AR appearing on behalf of the assessee has also placed reliance on the written submission on 05.11.2024 which is extracted herein below:-

“1. That in the aforesaid matter, the ld. PCIT, Udaipur passed the Order u/s 263 on dated 29.02.2024 (hereinafter referred as “impugned order”), Accordingly, the appeal was to be filed on/before dt. 28.04.2024 however, the same has been filed on dated 29.07.2024. Thus, the appeal was filed with a delay of 92days.

In the meanwhile, because of the marriage of his daughter in the month of April, he proceeded on leave. Therefore, he could neither handover his responsibilities to his colleague nor could inform Shri Sandeep Kumar Saboo, Director of the company about the documents, including the appeal papers.

2.2Although subsequently, Shri Sushil Mittal resumed his duties in the office sometime in the first week of May, 2024, yet however, it did not occur to his mind that some appeal papers were to be signed, which were still lying pending with him.

2.3It is only thereafter, in the second week of July, 2024 when CA Dharm Chand Jain, FCA contacted the counsel engaged at Jaipur w.r.t. the status of the appeal (which he believed had already been filed), but then he was informed that the same is yet to be filed and that the appeal papers were received by Shri Sushil Mittal for getting them signed. In absence of any persuasion from the side of the Assessee and M/s DHARM CHAND JAIN & ASSOCIATES, Chartered Accountant, the counsel at Jaipur, already handling a heavy workload, informed the factual position to Shri Dharm Chand Jain. It is only thereafter, the Director, Shri Sandeep Kumar Saboo immediately enquired Shri Sushil Mittal and asked him to hand over him the subjected documents – the appeal set, who thereafter, recollected and after making an extensive search could lay his hand on the appeal papers. Upon getting hold of the documents, Shri Sandeep Kumar Saboo, promptly signed the papers and thereafter, forwarded the same to the counsel at Jaipur without any further delay.

2.4Thus, the delay in filing of the instant appeal was not at all deliberate or intentional but arose due to circumstances beyond the assessee’s control, primarily stemming from the unintended and bonafide mistake committed by the Employee working at the Assessee-Company. The Assessee has acted diligently and in good faith throughout this process, taking all necessary steps to rectify the situation and ensure compliance.

3. In support, affidavits of Shri Sandeep Kumar Saboo and Shri Sushil Mittal are enclosed herewith and marked as Annexure-1 and Annexure- 2.

"The legislature has conferred the power to condone delay by enacting section 5 of the Limitation Act 1963 in order to enable the Courts to do substantial justice to parties by disposing of matters on 'merits'. The expression 'sufficient cause' employed by the legislature is adequately elastic to enable the Courts to apply the law in a meaningful manner which sub serves the ends of justice-that being the life-purpose of the existence of the institution of Courts. It is common knowledge that this Court has been making a justifiably liberal approach in matters instituted in this Court. But the message does not appear to have percolated down to all the other Courts in the hierarchy."

The said judgment is a leading case on the subject and has a binding force on all the officers subordinate thereto.”

6.2 The ld. AR of the assessee also filed a detailed paper book in support of the contention so raised in the written submission on 14.10.2024 and the index of the document submitted are as under: -

S. No.	Particulars	Page No.
1.	Copy of acknowledgement of ITR filed along with its computation for AY 2017-18.	1-5
2.	Copy of audited financial statements for AY 2017-18.	6-30
3.	Copy of Tax Audit form 3CA-3CD for AY 2017-18.	31-43
4.	Copy of notice u/s 142(1) dated 16.02.2021 along with its reply filed on dated on 23.02.2021 before AO	44-50
5.	Copy of notice u/s 142(1) dated 01.03.2021 along with its reply filed on dated 12.03.2021 before AO	51-61
6.	Copy of Assessment Order dated 15.04.2021 passed u/s 147	62-69
7.	Copies of Confirmations of accounts from the Loan Creditors.	70-80
8.	Copies of Receipts of service tax payments for AY 17-18.	81-94
9.	Copy of Ledger statement of Interest paid to the schedule bank.	95
10.	Copy of relevant extracts of Bank Statement of CC A/c	96-119
11.	Copy of form 58 A filed in support of the deduction claimed u/s 35AC.	120-121
12.	Copy of notice u/s 263 of PCIT dated 14.02.2023	122-127
13.	Copy of reply of filed in response to notice dated 14.02.2023 alongwith Acknowledgement (same was filed for notice dated 03.10.2023)	128-142
14.	Copy of notice u/s 263 of PCIT dated 03.10.2023	143-145
15.	Copy of acknowledgement of response filed for notice dated 03.10.2023	146

6.3 The ld. AR of the assessee also filed an another paper book on 11.11.2024 on the decision referred in support of the contention so raised in the written submission and the index of the judicial decision relied upon are as under: -

S. No.	PARTICULARS	Pg. No.
1.	CIT vs. Alagendran Finance Ltd, (2007) 211 CTR (SC) 69	1-7
2.	CIT v. Bharti Airtel Ltd. [2013] 37 taxmann.com 218/218 Taxman 112(Mag.) (Delhi)	8-9
3.	Ashok Buildcon Ltd. Vs. ACIT (2010) 325 ITR 574(Bom.)	10-15
4.	Chhabra Syncotex (P)Ltd. Vs AO (2019) TTJ (Jp) 77	16-37
5.	PCIT vs. SPPL Property Management (P.) Ltd. 151 taxmann.com 103 (Calcutta)	37A-40
6.	CIT vs Bajargan Traders 86 taxmann.com 295 (Rajasthan)	41-43
7.	CIT vs. Larc Chemical Limited [214] 368 ITR 655 (Mum)	44-47
8.	CIT vs Anderson Marine & Sons (P.) Ltd.266 [ITR 694] 139 Taxman 16 (Bombay)	48-52
9.	CIT vs. Rajkumar Deepchand Phade [249 ITR 520] 116 Taxman 783 (Bombay)	53-55
10.	L. G. Electronics India (P.) Ltd. Vs PCIT(2016)388 ITR 135/ 290 CTR 283	56-64
11.	CIT vs. ICICI Bank Ltd. (2012) 343 ITR 74/252 CTR 85	65-68
12.	Indira Industries Vs. Pr. CIT 305 CTR 314(Mad)	69-74

7. The ld. AR of the assessee in addition to what has been stated in the written submission vehemently argued that the action of the ld. PCIT exercising the jurisdiction beyond two year is not permitted, as the ITR was filed 06.09.2017, intimation u/s. 143(1) was issued on 16.10.2018 and notice us/. 148 was issued on 17.03.2020 and that assessment order was passed on 15.04.2021. The issues on which the PCIT is seeking to exercise the jurisdiction u/s. 263 of the Act were concluded by virtue of an intimation dated 16.10.2018 issued u/s. 143(1) of the Act which admittedly was done beyond a period of two years prior to the notice dated 14.02.2023 issued u/s. 263 of the Act. To drive home to this contention the ld. AR of the assessee relied upon the decision of the CIT vs. Larc Chemical Limited [ 368 ITR 655 (Bombay) ]. The ld. PCIT raising the issue which was not part of the notice u/s. 148 and the reasons recorded there under. The ld. AO has already applied the mind on the issue that was raised and the assessment to that has already been completed. In the notice issued u/s. 148 the reason to believe was alleged bogus sales and the ld. AO examined that aspect and finalized the assessment. Thus, the PCIT exercising its revisional jurisdiction reopened the order of assessment only in relation to the subject of reassessment proceedings, the period of limitation provided for under sub.s.(2) of section 263 of the Act would begin to run from the date of order of assessment and not from the order of the re-assessment. Thus, action of the ld. CIT(A) is illegal and PCIT’s order was silent on that issue even though the assessee raised that aspect of the matter before her. Even the reason advanced by the ld PCIT partly was also not forming part of the show cause notice.

8. Per contra, the ld. DR supported the order of the ld. PCIT and submitted that the assessee while passing the order u/s. 263 of the Act PCIT has dealt with all the submission and objections raised by the assessee. The contention that the order u/s. 148 cannot be revised is incorrect appreciation of the fact and the ld. PCIT can revise all the orders and therefore, she supported the order of the ld. PCIT.

9. In the rejoinder to the arguments of the ld. DR, ld. AR of the assessee submitted that the ld. PCIT has invoked the clause (a) & (b) of the Explanation (2) of section 263 of the Income Tax Act, 1961 whereas the same was not part of the show cause notice issued to the assessee and on that aspect of the matter he relied upon the written submission so filed.

10. We have heard both the parties and perused the materials available on record. Vide ground no. 1 & 2 the assessee challenges the order of the ld. PCIT on the technical ground stating that the PCIT has erred in law as well as on facts in invoking the provision of section 263 of the based on the set of the facts of the case of the assessee and therefore, he prayed that the same being illegal and bad in law required to be quashed. The brief facts related to the issue are that in this case the assessee filed the original return of income on 06.09.2017 the said return was processed and an intimation u/s. 143(1) was issued on 16.10.2018. Thereafter, notice u/s. 148 was issued on 17.03.2020 and that re-opened assessment order was passed on 15.04.2021. The issues on which PCIT is seeking to exercise the jurisdiction u/s. 263 of the Act were concluded by virtue of an intimation dated 16.10.2018 issued u/s. 143(1) of the Act which admittedly was done beyond a period of two years prior to the notice dated 14.02.2023 issued u/s. 263 of the Act. The bench noted that the issue raised by the assessee in this appeal has already been decided by the our own Hon’ble Jurisdiction High Court in the case of Chambal Fertilisers and Chemicals Ltd. Vs. PCIT [ 170 taxmann.com 543 (Rajasthan) wherein the Hon’ble Court held as under;

2. The question which arise for consideration in the present case is whether the period of limitation for passing under Section 263 of the Income Tax Act, 1961 has to be reckoned from the date of original assessment order or from the date of reassessment order.

3. The Supreme Court in the aforesaid decision in the case of Commissioner of Income Tax(supra) has held as follows:-

"3. At the outset, it is required to be noted and it is not in dispute that, as such, the Commissioner exercised powers under Section 263 of the Act with respect to the issues which were not covered in the re-assessment proceedings. Therefore, the issues before the Commissioner while exercising the powers under Section 263 of the Act relate back to the original Assessment Order and, therefore, the limitation would start from the original Assessment Order and not from the Reassessment Order. We are fortified with our view by the decision of this Court in the case of Commissioner of Income Tax, Chennai v. Alagendran Finance Ltd. (2007) 7 SCC 215. As observed and held by this Court in the aforesaid decision, once an Order of Assessment is re-opened, the previous order of assessment will be held to be set aside and the whole proceedings would start afresh but the same would not mean that even when the subject matter of re-assessment is distinct and different, the entire proceedings of assessment would be deemed to have been re-opened. Meaning thereby, only in a case where the issues before the Commissioner at the time of exercising powers under Section 263 of the Act relate to the subject matter of reassessment, the limitation would start from the date of Reassessment Order. However, if the subject matter of the reassessment is distinct and different, in that case the relevant date for the purpose of determination of period of limitation for exercising powers under Section 263 of the Act would be the date of the original Assessment Order."

4. In view of the aforesaid authoritative pronouncement, it is clear that for the purposes of exercising powers under Section 263 of Income Tax Act, 1961, the period of limitation for passing the order has to be reckoned from the date of original assessment order and not from the date of reassessment order.

5. The aforesaid legal position is not disputed by learned counsel for the respondents.

6. In view of the above, the notice impugned cannot be sustained in law and, therefore, the same is set aside being without jurisdiction and barred by limitation.

7. The petition is accordingly allowed.

The issue decided by our High Court has also been confirmed by the apex court vide order dated 03.01.2025 wherein the SLP filed by the revenue was dismissed. Thus, the issue goes in favour of the assessee and the revenue did not brought any contrary decision we respectfully following the ration decided held that the order of the PCIT was barred by limitation as prescribed under the Act and thereby we considered the ground no. 1 and 2 raised by the assessee. Ground no. 3 to 6 are on the merits of the disputes, since we have considered the appeal of the assessee on technical grounds the grounds on merits becomes educative in nature. Ground no. 7 being general does not require our finding.

In the result, the appeal filed by the assessee is allowed.

Order pronounced in the open Court on 28/01/2025.

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