AQUA TECH SOLUTIONS PRIVATE LIMITED,PUNE V. PCIT (CENTRAL)-3, MUMBAI, MUMBAI

ITA 3855/MUM/2025

AI Insights

The case involves Aqua Tech Solutions Private Limited, which appealed against the order of the Principal Commissioner of Income Tax (PCIT) under section 263 of the Income Tax Act, 1961. The PCIT had set aside a reassessment order passed by the Assessing Officer (AO) and directed a de-novo assessment, citing errors prejudicial to the interest of the revenue concerning the deduction claimed under section 80IA(4). The Tribunal found that the PCIT's revision was based on a proposal from the AO without independent verification, and the issue had been previously examined and allowed, making the PCIT's order unsustainable.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 792069 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2018-2019
• Appeal Filed On: 30-05-2025
• Other Referred Cases: Malabar Industrial Co. Ltd. v. Commissioner of Income-tax [2000] 243 ITR 83 (SC), CIT vs Jawahar Bhattacharjee [2012] 341 ITR 434 (Gauhati), CIT Vs. Bhagwan Das [2005] 272 ITR 367, Pratop Footwear Vs ACIT (2003) SOT 638, New Jagat Textile Mills (P.) Ltd. Vs CIT (2006) 282 ITR 399, CIT v. Jet Airways (I) Ltd., (2011) 331 ITR 236 (Bom)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR YADAV
• Assessee Lawyers: SIMRAN DHAWAN; RAVI GANATRA
• Keywords: Set aside; Difference of opinion; Change of opinion; Reassessment proceedings; Cost of acquisition; Principle of natural justice; Assessment record; Competent authority; Revision of order; Bogus
• Section: 143(3); 263

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, VICE PRESIDENT & MS PADMAVATHY S, ACCCOUNTANT MEMBER I.T.A. No. 3855/Mum/2025 (Assessment Year: 2018-19) Aqua Tech Solutions Private Limited Vinayak Shramik Co-op. Society, Sr. No. 128/1B Paud Road, Kothrud, Pune PAN: AAGCA3182L Vs. PCIT (Central)-3, Mumbai 441, 4th Floor, Kautilya Bhavan, C-41 to C-43, G Block, Bandra Kurla Complex, Bandra (East), Mumbai- Mumbai- 400051 Appellant) : Respondent) Assessee by : Ms. Simran Dhawan & Shri. Ravi Ganatra Revenue by : Shri. Rajesh Kumar Yadav, CIT. DR Date of Hearing : 19.11.2025 Date of Pronouncement : 09.12.2025 O R D E R Per Padmavathy S, AM: This appeal by the assessee is against the order of the Principal Commissioner of Income Tax Appeals/National Faceless Appeal Centre (NFAC), Mumbai-3 passed u/s. 263 of the Income Tax Act, 1961 (the 'Act') dated 31.03.2025 for AY 2018-19. The grounds raised by the assessee are as under – “1. On the facts and in the circumstances of the appellant's case and in law, the Ld. Principal Commissioner of Income Tax, erred on facts and in law in invoking provisions of section 263 of the Income Tax Act, 1961 which is illegal, bad-in-law, barred by limitation and void for want of jurisdiction. Printed from counselvise.com 2 ITA N0. 3855/Mum/2025 Aqua Tech Solutions Private Limited 2. On the facts and in the circumstances of the appellant's case and in law, the Ld. Principal Commissioner of Income Tax, erred on facts and in law in passing order u/s 263 of the Act, directing the Assessing Officer to pass a fresh assessment order to disallow the impugned deduction claimed by the appellant u/s 801A(4) of Rs 8,29,50,836/- calling reassessment order passed on 31.03.2023 u/s 143(3) r.w.s 147 as order sought to be revised', whereas the impugned deduction u/s 801A(4) was already examined and allowed in the previous assessment order passed u/s 143(3) of the Act on 17.05.2021 after complete scrutiny under CASS, with reference to which, the limitation for revision u/s 263 already expired on 31.03.2024. 3. On the facts and in the circumstances of the appellant's case and in law, the revision u/s 263 of the Act for disallowing the deduction u/s 801A(4) of the Act claimed by the appellant, if any, would have been made for the original assessment order u/s 143(3) of the Act dated 17.05.2021 that became time barred on 31.03.2024 for any possible action u/s 263 and therefore the Ld. Principal Commissioner of Income Tax, unlawfully, resorted to using his powers by initiating revision proceedings for the reassessment order u/s 143(3) r.w.s. 147 of the Act dated 31.03.2023, which was re-opened for a specific limited issue unrelated to the claim of said deduction u/s 801A(4) already examined by the Assessing Officer in previous order dated 17.05.2021. 4. On the facts and in the circumstances of the appellant's case and in law, the Ld. Principal Commissioner of Income Tax, erred on facts and in law by passing order u/s 263 of the Act directing the Assessing Officer to reframe the reassessment order dated 31.03.2023 after conducting 'necessary enquiries' ignoring the fact that the impugned reassessment order was consciously passed by the Assessing officer after in-depth examination, scrutiny and meticulous analysis of the material. information and details placed on record, which cannot be treated as improper enquiries by the Assessing Officer in absence of identification of any material/evidence by the Ld. Principal Commissioner of Income Tax on the assessment record that could be said to have been ignored by the Assessing Officer and therefore, Ld. Principal Commissioner of Income Tax, failed to appreciate that Explanation 2(a) u/s 263(1) does not justify revision of any order under the guise of endless and irrelevant enquiries without recording abject failure and lapse on part of Assessing Officer to establish both error and prejudice caused to revenue as the Assessing Officer had made adequate inquiries in this case and passed a speaking order. Printed from counselvise.com 3 ITA N0. 3855/Mum/2025 Aqua Tech Solutions Private Limited 5. On the facts and in the circumstances of the appellant's case and in law, the Ld. Principal Commissioner of Income Tax erred on facts and in law in passing order u/s 263 of the Act without appreciating that once the genuineness of receipts, that were limited subject matter of examination in the reassessment proceedings, was established with concrete evidence and already offered to tax by the appellant, then how could the same be treated as prejudicial to revenue by linking them to the deduction u/s 801A(4) of the Act, which was already allowed not only in previous order dated 17.05.2021, but also consistently allowed over the years and in any case, was not subject matter of \"order sought to be revised. 6. On the facts and in the circumstances of the appellant's case and in law, the Ld. Principal Commissioner of Income Tax erred on facts and in law by invoking Section 263 of the Act solely due to mere change of opinion without any new material on record or without first demonstrating as to how such opinion of Ld. Assessing Officer is irrational or unsustainable in law, such an instance does not empower the Ld. PCIT u/s 263 to supersede his opinion in lieu of the lawful opinion formed by the Ld. Assessing Officer on the basis of all relevant enquiries conducted by the Assessing Officer, in view of law settled by Hon'ble Supreme Court in case of Malabar Industrial Co. Ltd. v. Commissioner of Income-tax [2000] 243 ITR 83 (SC) and followed by Jurisdictional Bombay High Court in many cases. 7. The appellant craves leave to add to, alter, amend, modify and/or delete all or any of the foregoing grounds of appeal. view of law settled by Hon'ble Supreme Court in case of Malabar Industrial Co. Ltd. v. Commissioner of Income-tax [2000] 243 ITR 83 (SC) and followed by Jurisdictional Bombay High Court in many cases.” 2. The assessee is a company and filed the return of income for A.Y. 2018-19 on 27.10.2018 declaring total income of Rs. 1,00,91,730/-. The case was selected for scrutiny and the order u/s 143(3) was passed on 17.05.2021 accepting the income returned by the assessee. Subsequently, the assessing officer received information from DGIT (Inv.), Mumbai that the assessee is one of the companies allegedly engaged in issuing bogus invoices to M/s. Larsen & Toubro Limited. Accordingly, the assessing officer reopened the assessment by issuing of notice u/s Printed from counselvise.com 4 ITA N0. 3855/Mum/2025 Aqua Tech Solutions Private Limited 148. The assessing officer called on the assessee to furnish various details during the re-assessment proceedings. After perusal the details submitted by the assessee the Ld.AO passed the order u/s. 147 dated 31.03.2023 without making any additions and accepting the income return by the assessee in response to notice u/s 148. Subsequently, the PCIT issued a show-caused notice u/s 263 stating that the assessee has incorrectly claimed deduction u/s 80IA(4) of the Act and to this extend there is error which is prejudicial to the interest of the revenue. The assessee made detailed submission before the PCIT stating that during the original assessment proceedings u/s 143(3) the claimed of the assessee u/s. 80IA(4) has been verified and found to be correct. The assessee further submitted that the reasons for reopening are completely different for which no addition is made and therefore, the assessing officer would not have denied the deduction u/s 80IA(4) of the act during the re-assessment proceedings. However, the PCIT did not accept the submission of the assessee and proceeded to set aside the order u/s 147 with a direction to redo the assessment order de-novo. The relevant observations of the PCIT in this regard are reproduced below: “9.1 This interpretation by the assessee is grossly misplaced. The proceedings under Section 263 of the Act are not in the nature of change of opinion. The powers vested under this Section are much wider and wherever the competent Authority is of the opinion that the order under question is erroneous is so far as it is prejudicial to the interest of the revenue, powers vested in this Section can be invoked to set right such error and the consequent prejudice caused to revenue. 9.2 In view of the above, reliance placed by the assessee on the two (2) judicial pronouncements referred to above, are clearly distinguishable on facts and are hence of little use or consequence. 9.3 The contention of the assessee is found not tenable since the purpose of reopening was the specific information regarding non-genuine transactions with Larsen & Toubro Ltd., which was not verified by the A.O. leading to order being erroneous and the assessee had indicated profit in respect of such bogus transactions also and in respect of the entire profit, the assessee had claimed deduction u/s 801A(4) to the extent of 100% of the profits. The above has resulted Printed from counselvise.com 5 ITA N0. 3855/Mum/2025 Aqua Tech Solutions Private Limited in error leading to prejudice to the interest of revenue and both these conditions have been cumulatively satisfied in the instant case and therefore the conditions precedent for invoking the powers vested u/s 263 of the Act are fulfilled. 9.4 The bogus transactions, receipts from such transactions and the profit element on such contract receipts from L&T directly affects the genuineness of the corresponding purchase costs and claim of deduction u/s 801A(4) of the Act which remained unverified during the course of reassessment proceedings Hence, element of loss of revenue is present in reassessment order passed by the A.O. exhibiting non-application of mind to relevant material available on records including the information received in respect of transactions with L&T 10.1 Section 263 requires fulfillment of twin conditions namely error in an order and the consequent prejudice to the interest of revenue. In the instant case, both these conditions are fulfilled in as much as that the non seeking of details regarding transactions pertaining to L&T is evident, indicating that the order is erroneous. The fact that on such bogus transactions the assessee has availed the benefit of deduction u/s 801A(4) clearly exhibits loss of revenue which is the cause of prejudice to the revenue. 10.2 Reliance is placed on the decision of Hon'ble Gauhati High Court rendered in the case of CITVS Jawahar Bhattacharjee [2012] 341 ITR 434 (Gauhati) wherein it is held that non-application of mind to relevant material or an incorrect assumption of facts or an incorrect application of law will satisfy the requirement of order being erroneous. 10.3 Further, Hon ble Allahabad High Court in the case of CIT Vs. Bhagwan Das [2005] 272 ITR 367, held that non-application of mind by the A.O. was prejudicial to the interest of the revenue. Similar views were given by Hon'ble Jabalpur ITAT in the case of Pratop Footwear Vs ACIT (2003) SOT 638. 11. In the present case, assessment order passed u/s 143(3) r.w.s. 147 dated 31.03.2023 Is an order passed by the A.O. and therefore, the aforesaid issues, which have not been considered by the A.O in the said reassessment order, can be brought to life in exercise of powers under Section 263 of the Act. Reliance is placed in this regard the decision of Hon'ble Gujarat High Court given in the case of New Jagat Textile Mills (P.) Ltd. Vs CIT (2006) 282 ITR 399. 12. In my considered opinion the assessment order dated 31/03/2023 passed Uis 147 of the IT. Act, 1961 is erroneous in so far as it is prejudicial to the interest of Revenue, as evident from the above discussion. Therefore, exercising the powers vested in me u/s 263 of the Act. I hereby set-aside the assessment order dated 31/03/2023 with a direction to the Assessing Officer to frame the assessment order, de-novo, after making necessary enquiries /Investigation necessary for framing the assessment order after following the principles of natural justice.” Printed from counselvise.com 6 ITA N0. 3855/Mum/2025 Aqua Tech Solutions Private Limited 3. Ld.AR submitted that the PCIT cannot invoke the provision of section 263 against the order of AO u/s 147 since, the issue of deduction u/s 80IA is already been verified during the regular assessment proceeding. The Ld.AR further submitted that the reasons for reopening was with respect to alleged bogus transaction with L&T which was concluded by AO without making any addition based on the details submitted by the assessee. The Ld.AR also submitted that when no addition has been made for the reasons for which the assessment was reopened then AO during the re-assessment proceedings would not have made any other addition even assuming that the assessee was not entitled to claim deduction u/s 80IA for year under consideration. Accordingly, Ld.AR argued that order u/s.263 passed by the PCIT is without jurisdiction and liable to be quashed. 4. The Ld. DR on the other hand, submitted that from the perusal of records the PCIT has found a factual error in the claim of deduction u/s 80IA by the assessee, since, the year under consideration is 11th year and the assessee is not eligible to claim the deduction beyond 10 years. The Ld.DR further submitted that when the assessment is reopened as per the provision of section 147 the assessing officer comes across any other issue which has escaped assessment he is at liberty to assess the said income also. Accordingly, Ld. DR argued that the assessing officer during the re-assessment proceeding should have considered the error in the deduction claimed by the assessee u/s 80IA(4) which he failed to do so. Therefore the ld DR argued that there is an error in the order of the AO which is prejudicial to the interest of the revenue. 5. We have heard parties and perused the material on record. The PCIT has initiated the revision proceedings u/s.263 setting aside the reassessment order passed by the AO u/s.147. The reason for the PCIT to exercise the powers of Printed from counselvise.com 7 ITA N0. 3855/Mum/2025 Aqua Tech Solutions Private Limited revision is that the AO failed to consider the error in the deduction claimed by the assessee u/s.80IA of the Act. In this regard it is relevant to notice that the reassessment proceedings are initiated for the reason that the assessee allegedly has issued bogus bills to L&T and the AO while concluding the assessment did not make any additions towards the reason for which the assessment is reopened. Therefore there is merit in the argument of the ld AR that even if there is any mistake in the claim u/s.80IA(4) by the assessee, the AO would not have made the disallowance. Reliance in this regard is placed in the case of the decision of the Hon'ble Bombay High Court in the case of CIT v. Jet Airways (I) Ltd., (2011) 331 ITR 236 (Bom). Further, as per the submissions of the assessee the issue of allowability of deduction u/s.80IA has already been subject to scruitiny during regular assessment and the AO while completing the assessment u/s.143(3) has allowed the claim of the assessee. In the present case, the PCIT has passed the revision order against the order passed u/s.147 whereas the error which is prejudicial to the interest of the revenue could not have arisen in the said order since the AO could not have disallowed the deduction u/s.80IA as held by the judicial precedence. We further notice that the PCIT has stated in Para 4 of his order that a proposal is received from the AO that the deduction u/s.80IA(4) ought to have been disallowed for the year under consideration since the assessee has been making the claim since AY 2008-09 and to this extent the order u/s.147 is erroneous. We also notice that the PCIT has initiated the revision proceedings based on the said proposal from the AO. It is a settled legal position that revision proceedings initiated solely based on a proposal or report from the AO, without the PCIT conducting an independent examination and forming his own satisfaction is not sustainable. In view of these discussions we are of the considered view that the PCIT is not correct in exercising the powers of revision under the facts and Printed from counselvise.com 8 ITA N0. 3855/Mum/2025 Aqua Tech Solutions Private Limited circumstances which is unique in the present case. Accordingly we hold that the order passed u/s.263 is without jurisdiction and is quashed accordingly. 6. Before parting, we would like mention that our decision to quash the order u/s.263 cannot be construed as allowing the impugned issue of claim deduction u/s.80IA(4) on merits. 7. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 09 -12-2025. Sd/- Sd/- (SAKTIJIT DEY) (PADMAVATHY S) VICE PRESIDENT ACCOUNTANT MEMBER Disha Raut Stenographer Copy of the Order forwarded to: 1. The Appellant 2. The Respondent 3. DR, ITAT, Mumbai 4. 5. Guard File CIT BY ORDER, (Dy./Asstt. Registrar) ITAT, Mumbai Printed from counselvise.com "