BHANDARI ASSOCIATES,PUNE V. PR. COMMISSIONER OF INCOME TAX 2, PUNE, PUNE

ITA 1227/PUN/2024

AI Insights

The case involves Bhandari Associates, a partnership firm engaged in the business of builders and promoters, which filed an appeal against the order of the PCIT, Pune-2. The PCIT had set aside the original assessment order passed by the Assessing Officer, which accepted the returned income of the firm, due to alleged inadequacies in the inquiry regarding unsecured loans taken by the firm. The Tribunal examined whether the PCIT was justified in revising the assessment order under section 263, considering the detailed inquiries and responses exchanged during the assessment proceedings.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 717498 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2018-2019
• Appeal Filed On: 28-05-2024
• Other Referred Cases: Amrik Singh V. ITO [2003] 127 Taxman 87 (Chd.)(Mag.), Baljees V. Asstt. CIT [2003] 127 Taxman 150 (Chd.)(Mag.), Hariyana State Co-operative Supply & Marketing Federation Ltd. v. DCIT 90 ITD 551(Chd.), Ashok Kumar Parasramka v. ACIT 65 ITD 1(Cal.), Micromatic Grinding Technologies Ltd. Formerly known as (Parishudh Saadhan Yantra) v. Addl. CIT 172 Taxation 35 (Del-Trib), CIT v. Giridharilal 258 ITR 331, CIT vs Hastings Properties 253 ITR 124, National Plastic and Allied Industries vs DCIT 67 TTJ 824, Mool Raj Singh and others vs ITO 63 TTJ 211, CIT vs Smt. Nirmal Anand 245 ITR 836, Jay Commercial Ltd vs CIT 66 TTJ 731, Hycron India vs ACIT 82 TTJ 450, CIT vs. Fine Jewellery (India) Ltd. (2015) 372 ITR 303 (Bom), CIT vs. Vikas Polymers reported in 341 ITR 537 (Del), CIT vs. Sohana Wollen Mills (2008) 296 ITR 238 (P&H), Ganga Acrowools Limited vs. PCIT vide ITA No.196/CHD/2021 order dated 31.03.2022 for assessment year 2015-16, CIT vs. Sunbeam Auto Ltd. [2011] 332 ITR 167 (Delhi)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMOL KHAIRNAR
• Assessee Lawyers: SUHAS P BORA
• Keywords: Set aside; Difference of opinion; Revenue expenditure; Question of law; Depreciation; Sale consideration of property below Jantri Value; Capital expenditure; TDS; Audit objection; Assessment record; Revision of order; Prejudicial to interest
• Section: 143(3); 142(1); 263; 133(6); 50C

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “A”, PUNE BEFORE SHRI R. K. PANDA, VICE PRESIDENT AND MS. ASTHA CHANDRA, JUDICIAL MEMBER ITA No.1227/PUN/2024 Assessment year : 2018-19 Bhandari Associates 1620 B A Gateway, Baner Road, Near Sakal Nagar, Pune – 411007 Vs. PCIT, Pune – 2 PAN: AABFB5812G (Appellant) (Respondent) Assessee by : Shri Suhas P Bora and Ms. Sampada S Ingale Department by : Shri Amol Khairnar, CIT-DR Date of hearing : 15-07-2025 Date of pronouncement : 14-08-2025 O R D E R PER R.K. PANDA, V.P: This appeal filed by the assessee is directed against the order dated 30.03.2024 passed u/s 263 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) by the Ld. PCIT, Pune-2, relating to assessment year 2018-19. 2. Facts of the case, in brief, are that the assesse is a partnership firm carrying out business of builders and promoters. It filed its return of income on 27.10.2018 declaring current year’s loss of Rs.1,05,12,523/- and total income at Nil. The case was selected for complete scrutiny assessment under the E-assessment Scheme, 2019 on the following issues: Printed from counselvise.com 2 ITA No.1227/PUN/2024 S. No. Issues i. Investments/Advances/Loans ii. Contract Receipts or Fees iii. Unsecured Loans 3. Accordingly statutory notices u/s 143(2) and 142(1) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) were issued and served on the assessee in response to which the assessee filed the requisite details. The Assessing Officer completed the assessment u/s 143(3) r.w.s. 143(3A) & 143(3B) of the Act on 07.04.2021 accepting the returned income. 4. Subsequently, the Ld. PCIT called for the record and on examination of the same, noticed certain errors. According to the Ld. PCIT, the assessee has taken unsecured loans amounting to Rs.36,44,08,934/- which is reflected in the Balance Sheet. However, incomplete information was supplied in respect of unsecured loans by the assessee during the course of assessment proceedings despite sufficient opportunity. No evidence to prove the creditworthiness of such persons / entities were filed. Despite a specific query by the Assessing Officer on 08.12.2020 ITRs of none of the lenders were brought on record. The addresses of some of the lenders are incomplete and in most of the cases confirmations from the lenders were not available and no reply was filed on the Assessing Officer’s query regarding the purpose / utilization of the loan amount. He, therefore, issued a show cause notice asking the assessee to explain as to why the order passed by the Assessing Officer should not be revised under the provisions of section 263 of the Act. Printed from counselvise.com 3 ITA No.1227/PUN/2024 5. The assessee in response to the same submitted that it has filed all the requisite details during the course of assessment proceedings by giving the name, PAN, amount and addresses of all the parties. The assessee has also provided ledger extract of parties from whom loan is taken and outstanding at the year end along with bank statement. Confirmation from majority of the parties were also field. Further, the assessee had also given the details of loan repayment during the year such as name, PAN, amount and addresses. It was further submitted that after completion of the assessment on the basis of objections raised by the internal audit party the assessee has filed the requisite details. Thereafter, in response to notice u/s 133(6) of the Act, the assessee has also filed all the details before the Assessing Officer. Therefore, when the assessee has supplied full details regarding the unsecured loans, the revisionary proceedings should be dropped. 6. However, the Ld. PCIT was not satisfied with the arguments advanced by the assessee. According to him, despite receipt of incomplete information relating to unsecured loans, the Assessing Officer accepted the return of income without any adverse inference. He did not mention any details of queries or the assessee’s response on this issue. The documents provided on record by the Assessing Officer are grossly insufficient to draw a positive inference about the issue under consideration. He noted that the assessment order also reveals that no third party inquiry in connection with this issue was made by the Assessing Officer. The Assessing Officer passed the order u/s 143(3) without due application of mind. He noted that even though the case was selected for complete scrutiny on the issue of Printed from counselvise.com 4 ITA No.1227/PUN/2024 unsecured loans, however, the Assessing Officer has not properly addressed the issue of creditworthiness of lenders and genuineness of the transactions. He noted that the essential documents such as bank statements, ledger accounts or ITRs of the lenders are not available. The additional documents submitted by the assessee during the revisionary proceedings convinced about the erroneous nature of the decision of the Assessing Officer. In view of the above and relying on various decisions, the Ld. PCIT held the order passed by the Assessing Officer erroneous and prejudicial to the interest of Revenue for which he set aside the order of the Assessing Officer to his file for framing fresh assessment in respect of the issue of unsecured loans. 7. Aggrieved with such order of the Ld. PCIT, the assessee is in appeal before the Tribunal by raising the following grounds: 1. On the facts and circumstances of the case, the learned Pr. CIT 2, Pune has erred in passing order u/s 263 for framing fresh assessment. 2. On the facts and circumstances of the case, the learned Pr. CIT - 2, Pune has erred in treating the assessment order as erroneous as well as prejudicial to interest of revenue. 3. On the facts and circumstances of the case, the learned Pr. CIT 2, Pune erred in drawing inference that genuineness and creditworthiness of the unsecured loan availed by the Appellant are allowed without verification inspite of the fact that:- a. The Appellant has duly submitted all the details along with confirmation and documents proving the creditworthiness of the unsecured loan during the course of assessment proceedings u/s 143(3) which was duly verified by the FAO. b. The Appellant once again on perusal of audit objection and further on receipt of notice u/s 133(6) has submitted all the documents regarding unsecured loan which were once again duly verified by the Learned Assessing Officer. Printed from counselvise.com 5 ITA No.1227/PUN/2024 4. On the facts and circumstances of the case, the learned Pr. CIT - 2, Pune has erred in drawing the inference that the assessing officer has not done proper inquiry for determining the genuineness and creditworthiness of the unsecured loan availed by the Appellant. 5. On the facts and circumstances of the case, the learned Pr. CIT 2, Pune has erred in appreciating the fact that the Appellant once again in response to the notice u/s 263 has submitted all the relevant documents determining the genuineness and creditworthiness of the unsecured loan availed by the Appellant. 6. The appellant prays that - a. Appellant seeks permission to add, alter, amend, modify, rectify, delete, withdraw the grounds of appeal and/or to take additional ground as occasion may demand. b. Personal hearing may be granted. c. Any other relief Your Honour may deemed fit. 8. The Ld. Counsel for the assessee strongly challenged the order of the Ld. PCIT setting aside the order u/s 263. He submitted that the Ld. PCIT failed to appreciate that the assessee has duly submitted the complete details in respect of unsecured loans of Rs.34,44,08,934/- along with confirmations and documents which are crucial in proving the creditworthiness and genuineness of unsecured loans during the course of assessment proceedings. 9. Referring to pages from 201 to 279 of the paper book-I, he submitted that the bank statements of the parties were submitted during the course of assessment proceedings. Referring to pages 280 to 371 of the paper book-I, he drew the attention of the Bench to the confirmations from the loan creditors and submitted that the same were given during the course of assessment proceedings. Referring Printed from counselvise.com 6 ITA No.1227/PUN/2024 to pages 687 to 704 of the paper book-II, he drew the attention of the Bench to the copies of income tax returns and submitted that the same were given at the time of assessment proceedings. He submitted that the Assessing Officer after duly verifying the details filed by the assessee passed the order u/s 143(3) of the Act. He submitted that on perusal of audit objections and further on receipt of notice u/s 133(6) of the Act the assessee submitted all the documents regarding unsecured loans and the same were once again verified by the Assessing Officer. He submitted that perusal of the order sheet of the Assessing Officer clearly demonstrates that the Assessing Officer has conducted various hearings from time to time and the assessee has participated in the proceedings and submitted all the required details, evidences and explanations required by the Assessing Officer. Further, the assessee has also submitted all the relevant documents in response to notice u/s 263 which proves the genuineness and creditworthiness of unsecured loans. 10. The Ld. Counsel for the assessee submitted that when the case was selected for complete scrutiny to verify the claim of unsecured loans and the assessee has submitted all the documents that were called for to justify the genuineness of the transaction and creditworthiness of the parties who have extended the unsecured loans and the Assessing Officer after making necessary enquiries had passed the order u/s 143(3) by accepting the returned income, therefore, under these circumstances, it cannot be said that the Assessing Officer has passed the order in a Printed from counselvise.com 7 ITA No.1227/PUN/2024 haste and without application of mind. For the above proposition, he relied on the following decisions: a. Amrik Singh V. ITO [2003] 127 Taxman 87 (Chd.)(Mag.) b. Baljees V. Asstt. CIT [2003] 127 Taxman 150 (Chd.)(Mag.) c. Hariyana State Co-operative Supply & Marketing Federation Ltd. v. DCIT 90 ITD 551(Chd.) d. Ashok Kumar Parasramka v. ACIT 65 ITD 1(Cal.) e. Micromatic Grinding Technologies Ltd. Formerly known as (Parishudh Saadhan Yantra) v. Addl. CIT 172 Taxation 35 (Del-Trib) f. CIT v. Giridharilal 258 ITR 331 11. The Ld. Counsel for the assessee referring to pages 445 to 704 of the paper book-II submitted that the assessee has duly submitted the complete details in respect of unsecured loans of Rs.36,44,08,934/- such as detailed chart of unsecured loans along with confirmations and the bank statements which are crucial in proving the genuineness and creditworthiness of the unsecured loans during the course of assessment proceedings and the Assessing Officer has verified the same at the time of assessment proceedings. Further, after completion of scrutiny assessment, objections by the internal audit party were raised, to which the assessee has also replied and thereafter in response to notice u/s 133(6) of the Act the assessee has again substantiated the unsecured loan creditors. 12. Referring to pages from 391 and 384 of the paper book, the Ld. Cousnel for the assessee submitted that both the communications were made to the assessee after obtaining the approval from the PCIT-2. Therefore, the revision based upon Printed from counselvise.com 8 ITA No.1227/PUN/2024 same set of facts after making extensive enquiry and verification of documentary evidences and explanations furnished by the assessee is bad in law. For the above proposition, he relied on the following decisions: a. CIT vs Hastings Properties 253 ITR 124 b. National Plastic and Allied Industries vs DCIT 67 TTJ 824 c. Mool Raj Singh and others vs ITO 63 TTJ 211 d. CIT vs Smt. Nirmal Anand 245 ITR 836 e. Jay Commercial Ltd vs CIT 66 TTJ 731 f. Hycron India vs ACIT 82 TTJ 450 13. Referring to the decision of Hon’ble Bombay High Court in the case of CIT vs. Fine Jewellery (India) Ltd. (2015) 372 ITR 303 (Bom) and the decision of Hon’ble Delhi High Court in the case of CIT vs. Vikas Polymers reported in 341 ITR 537 (Del), he submitted that if a query is raised during the assessment proceedings which was answered and responded by the assessee, then mere fact that it is not dealt with in the assessment order would not lead to a conclusion that no mind had been applied to it and that would not by itself lead to the conclusion that the order of the Assessing Officer called for interference and revision. 14. The Ld. Counsel for the assessee in his another plank of argument submitted that the revision by the Ld. PCIT is based on the internal audit objections for which a reply was also submitted by the assessee. He submitted that the reply filed to the audit objections has to be considered as part and parcel of record as per clause (b) of Explanation 1 to section 263 and merely on basis of audit objection, proceedings Printed from counselvise.com 9 ITA No.1227/PUN/2024 u/s 263 could not have been initiated. For the above proposition, he relied on the following decisions: i) CIT vs. Sohana Wollen Mills (2008) 296 ITR 238 (P&H) ii) Ganga Acrowools Limited vs. PCIT vide ITA No.196/CHD/2021 order dated 31.03.2022 for assessment year 2015-16 15. The Ld. Counsel for the assessee submitted that the Ld. PCIT has completely ignored the fact that the Assessing Officer has made proper and adequate enquiries and the assessee had given proper responses which were duly supported by evidence and it was only after considering these evidences and responses that the Assessing Officer had completed the assessment. Mere stating by the Ld. PCIT that inadequate enquiry was made by the Assessing Officer would not by itself give occasion to the Ld. PCIT to pass order u/s 263 merely based on difference of opinion. He submitted that there is a distinction between \"lack of inquiry\" and “inadequate inquiry”. If there was any inquiry, even inadequate, that would not by itself give occasion to the Ld. PCIT to pass order u/s 263 of the Act. For the above proposition, he relied on the decision of Hon'ble Delhi High Court in case of CIT vs. Sunbeam Auto Ltd. [2011] 332 ITR 167 (Delhi). 16. So far as the allegation of the Ld. PCIT that no evidence exists on record to prove the creditworthiness of the persons / entities and the ITRs of none of the lenders brought on record is concerned, the Ld. Counsel for the assessee referring to pages 687 to 704 of the paper book-II submitted that the assessee has submitted Printed from counselvise.com 10 ITA No.1227/PUN/2024 all the documents before the Assessing Officer to substantiate the genuineness and creditworthiness of unsecured loans. 17. So far as the allegation of the Ld. PCIT that the documents brought on record are grossly insufficient to draw a positive inference about the issue under consideration is concerned, he submitted that the documents as requested were duly submitted before the Assessing Officer during assessment proceedings to the internal audit department and also in response to notice u/s 133(6) which was issued after prior approval of the Ld. PCIT. He accordingly submitted that if these documents were considered to be grossly insufficient then the same would have been called by issuing notice u/s 133(6). 18. So far as the allegation of the Ld. PCIT that the Assessing Officer did not mention any details of inquiry or the assessee’s response on the issue in the assessment order is concerned, he submitted that mere fact that the issue is not dealt with in the assessment order would not lead to a conclusion that no mind had been applied by the Assessing Officer. He submitted that the Assessing Officer had multiple opportunities to examine the issue. 19. So far as various decisions relied on by the Ld. PCIT are concerned, he submitted that the same are distinguishable and are not applicable to the facts of the present case. The Ld. Counsel for the assessee referring to the decision of Hon’ble Madras High Court in the case of CIT vs. K. Ramachandran reported in Printed from counselvise.com 11 ITA No.1227/PUN/2024 139 Taxmann 320 (Mad) submitted that the record does not mean only the record available with the ITO at the time of passing the assessment order. It would include records available with the Commissioner at the time of passing of the order by him. He accordingly submitted that since the Assessing Officer in the instant case has passed the order after due verification of various details filed by the assessee, therefore, merely the Ld. PCIT does not agree with the view taken by the Assessing Officer, the same cannot be a ground for invoking jurisdiction u/s 263. 20. The Ld. DR on the other hand heavily relied on the order of the Ld. PCIT. He submitted that the Ld. PCIT in the instant case has given justifiable reasons while invoking jurisdiction u/s 263. The Assessing Officer in the instant case in a summary manner has accepted the scanty details and accepted the huge unsecured loans of Rs.36,44,08,934/-. Therefore, the Ld. PCIT was fully justified in invoking jurisdiction u/s 263 of the Act. 21. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. PCIT and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Assessing Officer in the instant case passed the order u/s 143(3) of the Act on 07.04.2021 accepting the returned income. We find the Ld. PCIT on examination of the record noticed that the case was selected for complete scrutiny on three issues. The third issue was the unsecured loans and the assessee has taken unsecured loan of Rs.36,44,08,934/- during the year which appeared in Printed from counselvise.com 12 ITA No.1227/PUN/2024 the Balance Sheet. However, the Assessing Officer, without obtaining complete information, accepted the unsecured loans. Therefore, the order has become erroneous and prejudicial to the interest of Revenue for which he set aside the order to the file of the Assessing Officer with a direction to frame the order afresh in respect of unsecured loans. It is the submission of the Ld. Counsel for the assessee that the assessee has filed the requisite details as asked by the Assessing Officer from time to time and the Assessing Officer on the basis of such documents completed the assessment accepting the returned income. Further the assessee has also replied to the queries raised on the basis of internal audit objections. Further the assessee also filed various details in respect of unsecured loans in response to notice u/s 133(6) of the Act which was issued on the basis of audit objections and such letter was issued after obtaining the approval of the PCIT-2. It is his submission that since the Assessing Officer has raised the queries during assessment proceedings which were answered and responded by the assessee, therefore, it cannot be said that no mind has been applied by the Assessing Officer. It is his submission that record includes all the documents available in the record of the department when the PCIT examined the same. It is also his submission that if there was any enquiry, even inadequate, that would not by itself give occasion to the PCIT to pass order u/s 263 of the Act. 22. We find some force in the arguments of the Ld. Counsel for the assessee. We find the Assessing Officer during the course of assessment proceedings has issued the following queries to the assessee: Printed from counselvise.com 13 ITA No.1227/PUN/2024 “1. Furnish details of Name, PAN and address of the persons from whom unsecured loans were received. (Rs.25 lakh and above cases) 2. Furnish purchase deed and agreement made with builders for the building for which you have claimed depreciation for Rs.1,76,06,470/- Purchase invoice for Sokar Power Generation system - Rs.9,63,909/-, Computer copier - Rs.32,473/- & Rs.23,400/-, Mobile-Rs.57,946/- and Furniture- Rs.3,03,726/-. 3. Furnish EB receipt and Property tax receipt. 4. RBL Bank Account statement (No.1037521) for the period from 01.02017 to 31.03.2018. 5. You have received dividend from Mahesh to the tune of Rs.12,185/- but not disclosed in Balance sheet. You have shown Rs.5,000/- towards investments made in Anand Co-op. bank in Balance sheet. Please clarify. 6. As per form 3CD, Column 34(a), TDS other than salary is Rs.57,70,151/- whereas as per Form 26Q you have deposited Rs.57,59,489/- Please clarify. 7. As per form 3CD, Col.17, Sale of TDR is less than value adopted by State Govt. authority referred to in Section 50C or 43CA. Please explain with evidence. 8. You have claimed Advance for land to the tune of Rs.5.16 crores. Mode of payment made through Cash or cheque. Furnish supporting documents. 9. You have given advances to the tune of Rs.3.89 crores and Rs.1.41 crores to other entities, individuals. Furnish supporting documents. Whether you have offered Interest income for the above advances as you have claimed interest expenses for unsecured loans received from others. 10. You have made immovable property transactions to the tune of Rs.1,80,20,241/-. Furnish details of transaction along with capital gain calculation and copy of deed.” 23. We find the assessee in response to the said notice has submitted various details, copy of which is placed at page 374 of the paper book. We find as per para 1 of the said letter the assessee has enclosed the following details: “1. Details of person from whom unsecured loan taken during year above Rs.25 lakh and outstanding as on 31/03/2018 along with Name, PAN and Address is enclosed as (Annexure-1).” Printed from counselvise.com 14 ITA No.1227/PUN/2024 24. A perusal of the paper book shows that the assessee has filed the bank statements of the loan creditors, copies of which are placed at pages 201 to 279 of the paper book. The confirmations obtained from the various unsecured loan creditors are placed at pages 280 to 371 of the paper book. Similarly, the copies of income tax returns of the loan creditors are placed at pages 687 to 704 of the paper book. 25. On a pointed query by the Bench at the time of hearing as to what has happened in the proceedings subsequent to the order was set aside by the Ld. PCIT, the Ld. Counsel for the assessee filed a copy of the assessment order dated 24.03.2025 passed u/s 143(3) r.w.s. 263 r.w.s. 144B of the Act wherein out of an amount of Rs.36,44,08,934/-, the Assessing Officer has restricted the addition to Rs.1,81,50,000/- and the balance amount was deleted by the Assessing Officer. 26. We find after completion of the original assessment u/s 143(3) notice u/s 133(6) of the Act was issued to the assessee on the basis of internal audit party objections, copy of which is placed at pages 391 and 392 of the paper book. A perusal of the same shows that it was issued with prior approval of the PCIT. We find the assessee in response to the same filed the requisite details. Again the Assessing Officer has issued a notice to the assessee on 01.02.2023 asking to furnish certain details in respect of unsecured loans on the basis of objections raised by the internal audit party which read as under: Printed from counselvise.com 15 ITA No.1227/PUN/2024 “The scrutiny assessment, in your case for the A.Y. 2018-19 was completed by the FAO, NeFC, Delhi on 07.04.2021 vide passing order u/s 143(3) of the Act, assessing total income at Rs.NIL. Further the Internal audit has raised objection in your case that your firm has taken loan amounting to Rs.45,00,000/- in cash from Fortune Developers. Therefore, you are hereby requested to submit your response in this regard along with documentary evidences if any to this office on or before 07.02.2023.” 27. We find the assessee responded to the said notice and filed the requisite details and no query was raised thereafter. A perusal of the above chronology of events shows that the assessee not only filed the requisite details during the course of assessment proceedings but also has filed various other details subsequent to the assessment proceedings in response to notice issued by the Assessing Officer on the basis of internal audit party’s objections in respect of unsecured loans. Under these circumstances we have to see as to whether the revisionary proceedings can be initiated by the Ld. PCIT when the Assessing Officer has applied his mind and considering the various submissions made by the assessee from time to time has completed the assessment. In our opinion, the Ld. PCIT who initiated 263 proceedings on the basis of examination of the assessment record has to consider all the record available. 28. We find the word ‘record’ as per section 263 of the Act is defined as \"record\" shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the [Principal [Chief Commissioner or Chief Commissioner or Principal] Commissioner or] Commissioner. Printed from counselvise.com 16 ITA No.1227/PUN/2024 29. We find Hon’ble Madras High Court in the case of CIT vs. K. Ramachandran (supra) has observed as under: “6. By the Finance Act, 1988, an Explanation was substituted w.e.f. 1st June, 1988, to Section 263 of the Act. The Explanation was further amended by the Finance Act, 1989, and the definition of the term \"record\" was explained. It has been provided in the Explanation that \"record\" shall include and shall deemed always to have included all records relating to any proceeding under the Act available at the time of the examination by the CIT. The apex Court further made it clear that it could not be said that the correct and settled legal position, with respect to the meaning of the word \"record\" would mean the record which was available to the ITO at the time of passing of the assessment order, but would include the records available with the CIT at the time of passing of the order by the CIT.” 30. We find Hon’ble Punjab & Haryana High Court in the case of CIT vs. Unique Autofelts (P.) Ltd. (2009) 30 DTR 231 (P&H) has observed as under: “From the finding of the Tribunal, it is clear that the assessee had given proper explanation by filing the necessary confirmations. In view of such a finding, the Tribunal rightly held that power under s. 263 of the Act could be exercised where view taken by an AO was erroneous. While exercising such power, the CIT was bound to take into account all relevant facts. If order invoking the said power proceeds on an erroneous assumption, the same could be set aside by the Tribunal. Finding of the Tribunal is not shown to be perverse. No substantial question of law arises.” 31. We find Hon’ble Bombay High Court in the case of CIT vs. Fine Jewellery (India) Ltd. (supra) has held that if a query is raised during the course of assessment proceedings which was answered and responded to by the assessee, then the mere fact that it is not dealt with in the assessment order would not lead to a conclusion that no mind had been applied to it and that would not by itself lead to the conclusion that the order of the Assessing Officer called for interference and revision. The relevant observations of Hon’ble High Court read as under: Printed from counselvise.com 17 ITA No.1227/PUN/2024 “4. The respondent - assessee is in the business of manufacturing and export of jewellery. During the course of assessment proceedings, the respondent - assessee had claimed deduction under head “miscellaneous expenses” an aggregate sum of Rs.2.94 crores. This was essentially to create brand “Nirvana”. The Assessee submitted the details and nature of the expenditure and pointed out that expenses are revenue in nature, being in the nature of advertisement expenses, training fees, legal and professional fees, exhibition expenses, product supply expenditure etc. Besides, it was pointed out that an amount of Rs.1.96 crores was treated as deferred revenue expenditure and was written off over a period of three years i.e. Assessment Years 2006- 07, 2007-08 and 2008-09. During the assessment proceedings specific queries were raised with regard to this expenditure and same was responded to by the respondent assessee. The Assessing Officer in the assessment order dated 24.12.2008 held that an amount of Rs.17.98 lakhs out of the above miscellaneous expenses of Rs.2.94 crores is of a capital nature and disallowed the same by an order passed under Section 143(3) of the Act. 5. The Commissioner of Income Tax issued a show cause notice under Section 263 of the Act to the respondent seeking to revise the assessment order dated 24.12.2008. This is on the ground that the entire miscellaneous expenditure of Rs.2.94 crores for creation of brand “Nirvana” was a capital expenditure. The respondentassessee pointed out to above facts as transpired before the Assessing Officer. However, the Commissioner of Income Tax rejected the petitioner's submissions and held that the Assessing Officer had erred in allowing the expenditure incurred as miscellaneous expenses for creation of brand “Nirvana” as revenue expenditure. 6. In the appeal before the Tribunal, the respondent - assessee pointed out that letters dated 8.8.2008 and 24.11.2008 were issued by the Assessing Officer during the assessment proceedings seeking details in respect of the expenditure incurred for building brand Nirvana. The same was responded to by the respondent- assessee submitting the entire details. On examining the details submitted, the Assessing Officer held that an amount of Rs.17.98 lakhs out of Rs.2.94 crores alone was on account of capital expenditure. The Tribunal in the impugned order while allowing the assessee's appeal held that an inquiry with regard to the expenditure incurred on brand building exercise was carried by the Assessing Officer during assessment proceedings. On being satisfied that major portion of it was not a capital expenditure, only disallowed sum of Rs.17.98 lakhs as capital expenditure. The Tribunal while relying on the judgment of the Supreme Court in “CIT Vs. Max India Ltd., (295 ITR 282)” held that it is settled principle of law that if after examining the details the Assessing Officer has taken a view, which is a possible view then it cannot be treated that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the revenue. 7. The grievance of the Revenue is that the Assessment Order dated 24.12.2008 does not reflect the due consideration of the respondent's claim that an amount of Rs.2.94 crores (less Rs.17.98 lakhs which has been considered) was not to be treated as capital in nature. In view of the above it is submitted that the impugned order is unsustainable. Printed from counselvise.com 18 ITA No.1227/PUN/2024 8. We find that the impugned order of the Tribunal does record the fact that specific queries were made during the Assessment proceedings with regard to details of expenditure claimed under the head “miscellaneous expenses” aggregating to Rs.2.94 crores. The respondent-assessee had responded to the same and on consideration of response of the respondent-assessee, the Assessing Officer held that of an amount of Rs.17.98 lakhs incurred on account of repairs and maintenance out of Rs.2.94 cores is capital expenditure. This itself would be indication of application of mind by the Assessing Officer while passing the impugned order. The fact that the assessment order itself does not contain any discussion with regard to the balance amount of expenditure of Rs.1.76 crores i.e. Rs.2.94 crores less Rs.17.98 lakhs claimed as revenue expenditure would not by itself indicate non application of mind to this issue by the Assessing Officer in view of specific queries made during the assessment proceedings and the Respondent- assessee's response to it. In fact this Court in the case of “Idea Cellular Ltd. Vs. Deputy Commissioner of Income Tax & Ors., [(2008) 301 ITR 407 (Bom.)]” has held that if a query is raised during assessment proceedings and responded to by the Assessee, the mere fact that it is not dealt with in the Assessment Order would not lead to a conclusion that no mind had been applied to it. 9. Moreover, from the nature of expenditure as explained by the petitioner to the Assessing Officer during the assessment proceedings itself indicates that the view that the same were in the realm of revenue expenditure, is a possible view. Therefore, we find no fault in the impugned order having followed the binding decision of the Supreme Court in the case of Max India Ltd.”(supra), while allowing the appeal before it. 10. Accordingly, no substantial question of law arise for consideration. Thus, appeal is dismissed. No order as to costs.” 32. Similar view has been taken by Hon’ble Delhi High Court in the case of CIT vs. Vikas Polymers (supra). 33. We find Hon’ble Punjab & Haryana High Court in the case of CIT vs. Sohana Woollen Mills (2008) 296 ITR 238 (P&H) has held that reply filed to audit objections has to be considered as part and parcel of record as per clause (b) of explanation 1 to section 263 and merely on the basis of audit objections, proceedings u/s 263 could not have been initiated. The relevant observations of Hon’ble High Court read as under: Printed from counselvise.com 19 ITA No.1227/PUN/2024 “7. A reference to the provisions of Section 263 of the Act shows that jurisdiction thereunder can be exercised if the CIT finds that the order of the AO was erroneous and prejudicial to the interest of Revenue. Mere audit objection and merely because a different view could be taken, were not enough to say that the order of the AO was erroneous or prejudicial to the interest of the Revenue. The jurisdiction could be exercised if the CIT was satisfied that the basis for exercise of jurisdiction existed. No rigid rule could be laid down about the situation when the jurisdiction can be exercised. Whether satisfaction of the CIT for exercising jurisdiction was called for or not, has to be decided having regard to a given fact situation.” 34. We find Hon’ble Delhi High Court in the case of CIT vs. Sunbeam Auto Ltd. (2011) 332 ITR 167 (Del) has held that there has to be distinction between “lack of inquiry” and inadequate inquiry and further if there was any inquiry, even inadequate, that would not by itself give occasion to Commissioner to pass orders u/s 263 of the Act. The relevant observations of Hon’ble High Court read as under: “12. We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the Commissioner of Income Tax under Section 263 of the Income Tax Act. As noted above, the submission of learned counsel for the Revenue was mat while passing the assessment order, the AO did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order, which apparently does not give any reasons while allowing the entire expenditure as Revenue expenditure. However, that by itself would not be indicative of the fact that the AO had not applied his mind on the issue. There are judgments galore laying down the principle that the AO in the assessing order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between \"lack of inquiry\" and \"inadequate inquiry\". If there was any inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under Section 263 of the Act, merely because he has different opinion in the matter. It is only in cases of \"lack of inquiry\" that such a course of action would be open. In Gabriel India Ltd. (Supra), law on this aspect was discussed in the following manner: \"xxx... From a rending of sub-section (1) of section, it is clear that the power of suo motu revision can be exercised by the Commissioner only if, on examination of the records of any proceedings under this Act, he Printed from counselvise.com 20 ITA No.1227/PUN/2024 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 under chartered 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 proceedings by him will be illegal and without jurisdiction. The roving enquiries in matters or orders which are already concluded. Such action Commissioner cannot initiate proceedings with a view to starting fishing and will be against the well-accepted policy of law that there must he a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity. (See Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITB 1(SC) at page 10). From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order unless the decision is held to be erroneous. Cases may be visualised where the Income-tax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to re-examine the accounts and determine the Income himself at higher figure. It is because the Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at conclusion and such a conclusion cannot be formed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed. We may now examine the facts of the present case in the light of the powers of the Commissioner set out above. The Income-tax Officer in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given detailed explanation in that regard by a letter in writing. All these are part of the record of the case. Evidently, the claim was allowed by the Printed from counselvise.com 21 ITA No.1227/PUN/2024 Income-tax Officer on being satisfied with the explanation of the assessee. Such decision of the Income-tax Officer cannot be held to be \"erroneous\" simply because in his order he did not make an elaborate discussion in that regard..... 13. When we examine the matter in the light of the aforesaid principle, we find that the AO had called for explanation on this very item, from the assessee and the assessee had furnished his explanation vide letter dated 26.09.2002. This fact is even taken note of by the Commissioner himself in Para 3 of his order dated 03.11.2004. This order also reproduces the reply of the respondent in Para 3 of the order in the following manner: \"The tools and dies have a very short life and can produce upto maximum 1 lakh permissible shorts and have to be replaced thereafter to retain the accuracy. Most of the parts manufactured are for the automobile industries which have to work on complete accuracy at high speed for a longer period. Since it is an ongoing procedure, a company had produced 10,75,000 sets whose selling rates is inclusive of the reimbursement of the dies cost. The purchase orders indicating the costing includes the reimbursement of dies cost are being produced before your honour. Since the sale rate includes the reimbursement of die cost and to have the matching effect, the cost of the dies has been claimed as a Revenue Expenditure.\" 14. This clearly shows that the AO had undertaken the exercise of examining as to whether the expenditure incurred by the assessee in the replacement of dyes and tools is to be treated as revenue expenditure or not. It appears that since the AO was satisfied with the aforesaid explanation, he accepted the same. The CIT in his impugned order even accepts this in the following word: “AO accepted the explanation without raising any further questions and as stated earlier, completed the assessment at the returned income.\" 15. This, even the Commissioner conceded the position that the AO mode the Inquiries, elicited replies and thereafter passed the AO should, have made further inquiries rather than accepting the explanation. Therefore, it cannot he said that it is a case of 'lack of inquiry. 16. Having put the records straight on this aspect, let us proceed further. Is it a case where the Commissioner has concluded that the opinion of the AO was clearly erroneous and not warranted on the facts before him and, viz., the expenditure incurred was not the revenue expenditure but should have been treated as capital expenditure? Obviously not. Even the Commissioner in his order, passed under Section 263 of the Act, is not clear as to whether the expenditure can be treated as capital expenditure or it is revenue in nature. No doubt, in certain cases, it may not be possible to come to a definite finding and therefore, it is not necessary that in all cases the Commissioner is bound to express final view, as held by this Court in Geevcc Enterprise [supra]. But, the least that was expected was to record a finding that order sought to be revised was erroneous and prejudicial to the interest of the revenue. [see Sashayee Printed from counselvise.com 22 ITA No.1227/PUN/2024 Paper(supra)]. No basis for this is disclosed. In sum and substance, accounting practice of the assessee is questioned. However, that basis of the order vanishes in thin air when we find that this very accounting practice, followed for number of years, had the approval of the income tax authorities. Interestingly, even for future assessment years, the same very accounting practice is accepted. 17. It is in this context the question that assumes importance is as to whether powers could be exercised under Section 263 of the Act when two views are possible and following observations of the Tribunal, in this backdrop, become relevant: \"38. Still further, the Hon'ble Supreme Court in Malabar Industrial Co Ltd (supra) has held that when two views are possible and the AO has taken one of the possible view, then the order cannot be held to be prejudicial to the interest of the Revenue. Since the CIT could not come to a definite finding that the expenditure in question was a capital expenditure in the proceedings under Section 263, in our opinion, the order of the AD could not be held to be erroneous.\" 18. Let us look into the matter from another angel. What was the material/information available with the AO on the basis of which he allowed the expenditure as revenue? It was disclosed to him that the assessee is a manufacturer of car parts. In the manufacturing process, dyes are fitted in machines by which the car parts are manufactured. These dyes are thus the components of the machines. These dyes need constant replacement, as their life is not more than a year. The assessee had also explained that since these parts are manufactured for the automobile industry, which have to work on complete accuracy at high speed for a longer period, replacement of these parts at short intervals becomes imperative to retain accuracy. Because of these reasons, these tools and dyes have a very short span of life and it could produce maximum one lakh permissible shorts. Thereafter, they have to be replaced. With the replacement of such tools and dyes, which are the components of a machine, no new assets comes into existence, nor is their benefit of enduring nature. It does not even enhance the life of existing machine of which these tools and dyes are only parts. No production capacity of the existing machines is increased either. The Tribunal, in these circumstances, relied upon the judgment of Mysore Spun Concrete Pipe Pvt Ltd. (supra), wherein Karnataka High Court held that the replacement of moulds was not in the nature of replacement of a capital machinery, but in the nature of replacement a part of the machinery which in him was in the nature of maintenance of machinery installed in the factory. Such an expenditure was treated as revenue expenditure. With this position in law, it is clear that view taken by the AO was one of the possible views and therefore, the assessment order passed by the AO could not be held to be prejudicial to the revenue. Such an order thus has rightly been set aside by the Tribunal. 19. When we consider the matter in the aforesaid perspective, it also becomes clear that the judgments under which Mr. Sanjeev Sabharwal, learned counsel for the Revenue, had taken umbrage would not be applicable in the instant case and, therefore, would not come to his rescue. In Saravana Spinning Mills Pvt. Ltd. Printed from counselvise.com 23 ITA No.1227/PUN/2024 (supra) where the Supreme Court expounded the principle of \"current repairs\", clear finding recorded was that ring frames would constitute independent and separate machine capable of independent and specific functions, as is clear from the following observations: \"In our view, the A.O. was right in holding that each machine including the Ring Frame was an independent and separate machine capable; of independent and specific function and, therefore, the expenditure incurred for replacement of the new machine would not come within the meaning of the words \"current repairs\". In the present case, it is not the case of the assessee that a part of the machine (out of 25 machines) needed repairs. The entire machine had been replaced. Therefore, the expenditure incurred by the assessee did not fall within the meaning of \"current repairs\" in Section.\" In the present case, finding is just the opposite, viz., dyes and tools are part of the machines. Replacing these dyes the purpose is to maintain the existing assets, viz machine and not to bring a new asset. Moreover, case at hand is not a case of \"repairs of machinery\" which was the situation is Sarvana Prinning (supra). The present case proceeded on the controversy right from the order of A.O. till ITAT as to whether this expenditure was revenue or capital in nature. Even before us, arguments rested on this aspect. 20. Likewise, whether the Commissioner should have recorded definite finding or not, may not be very relevant factor in the present case where on the facts of this case we have found that the opinion of the AO in treating the expenditure as revenue expenditure was plausible and thus there was no material before the CIT to vary that opinion and ask for fresh Inquiry. 21. Thus, from whatever the matter is to be looked into, the conclusion would be that the order of the Tribunal does not call for any interference as the question of law has rightly been decided. We, thus, answer this question in favour of the assessee and against the Revenue, consequence whereof this appeal is dismissed with cost.” 35. Since in the instant case the Assessing Officer during the course of assessment proceedings has raised queries in respect of unsecured loans to which the assessee has filed its replies and based on the replies the Assessing Officer has completed the assessment and thereafter on the basis of internal audit objections the assessee has also replied which were available before the Ld. PCIT at the time of initiating revisionary proceedings, therefore, in view of the above and in the Printed from counselvise.com 24 ITA No.1227/PUN/2024 light of various decisions cited (supra), we are of the considered opinion that the Ld. PCIT was not justified in invoking jurisdiction u/s 263 of the Act. We, therefore, set aside the order passed by the Ld. PCIT and allow the grounds raised by the assessee. 36. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open Court on 14th August, 2025. Sd/- Sd/- (ASTHA CHANDRA) (R. K. PANDA) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; दिन ांक Dated : 14th August, 2025 GCVSR आदेश की प्रतितिति अग्रेतिि/Copy of the Order is forwarded to: 1. अपीलार्थी / The Appellant; 2. प्रत्यर्थी / The Respondent 3. 4. The concerned Pr.CIT, Pune DR, ITAT, ‘A’ Bench, Pune 5. गार्ड फाईल / Guard file. आदेशानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अधिकरण ,पुणे / ITAT, Pune Printed from counselvise.com 25 ITA No.1227/PUN/2024 S.No. Details Date Initials Designation 1 Draft dictated on 01.08.2025 Sr. PS/PS 2 Draft placed before author 06.08.2025 Sr. PS/PS 3 Draft proposed & placed before the Second Member JM/AM 4 Draft discussed/approved by Second Member AM/AM 5 Approved Draft comes to the Sr. PS/PS Sr. PS/PS 6 Kept for pronouncement on Sr. PS/PS 7 Date of uploading of Order Sr. PS/PS 8 File sent to Bench Clerk Sr. PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R. 11 Date of Dispatch of order Printed from counselvise.com "