BUCKEYE TRUST,KARNATAKA V. PRINCIPAL COMMISSIONER OF INCOME TAX - 2, BENGALURU, BANGALORE

ITA 1051/BANG/2024

AI Insights

The case involves Buckeye Trust, which appealed against the revision order passed by the PCIT under section 263 of the Income Tax Act, 1961. The PCIT had revised the assessment order for the assessment year 2018-19, which initially declared a nil income, to re-examine the taxability of a large receipt attributed to the trust. The trust argued that the revision was without jurisdiction and that the assessment was not erroneous or prejudicial to the revenue. However, the tribunal found that the PCIT was justified in revising the order as the AO had not made necessary inquiries regarding the receipt, which was crucial for determining its taxability under the Act.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 836388 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 8 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2026
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2018-2019
• Appeal Filed On: 24-05-2024
• Other Referred Cases: Malabar Industrial Co. Ltd. v. CIT, Commissioner of Income Tax v. Chandrika Educational Trust, Save a Family Plan (India) v. The Deputy Commissioner of Income Tax (Exemptions), Dawjee Dadabhoy & Co. v. S.P. Jain, Rampyari Devi Saraogi v. CIT, Smt. Tara Devi Aggarwal v. CIT, Commissioner of Income-tax-XIII v. Ashish Rajpal
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SHIVANAND KALAKERI
• Assessee Lawyers: SRIRAM SESHADRI
• Keywords: Set aside; Difference of opinion; Opportunity of being heard; Additional evidence; Transfer pricing; Fair market value; Gift; Period of limitation; Principle of natural justice; Earning of tax free income; Assessment record; Revision of order
• Section: 143(3); 142(1); 263; 56

Judgement Text

"ITA No.1051/Bang/2024 Buckeye Trust, Bangalore IN THE INCOME TAX APPELLATE TRIBUNAL “A’’BENCH: BANGALORE BEFORE SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER AND SHRI KESHAV DUBEY, JUDICIAL MEMBER ITA No.1051/Bang/2024 Assessment Year : 2018-19 Buckeye Trust No.23, Nadathur Place 8th Main Jayanagar 3rd Block Bangalore Karnataka 560 011 PAN NO : AADTB3305J Vs. PCIT-2 Bangalore APPELLANT RESPONDENT Appellant by : Sri Sriram Seshadri, A.R. Respondent by : Sri Shivanand Kalakeri, D.R. Date of Hearing : 18.11.2025 Date of Pronouncement : 12.02.2026 O R D E R PER KESHAV DUBEY, JUDICIAL MEMBER: This appeal at the instance of the assessee is directed against the order of ld. PCIT, Bengaluru-2 dated 29/03/2024 vide DIN & Order No. ITBA/REV/F/REV5/2023-24/1063614851(1) passed u/s. 263 of the Income Tax Act, 1961 (in short “the Act”) for the AY 2018-19. 2. The assessee has raised the following grounds of appeal:- The grounds mentioned herein by the Appellant are independent and without prejudice to one another: Grounds of appeal Printed from counselvise.com ITA No.1051/Bang/2024 Buckeye Trust, Bangalore Page 2 of 46 A. General Ground 1. The Learned Principal Commissioner of Income Tax, Bengaluru - 2 ('Ld. PCIT') has erred in passing an order of revision under section 263 of the Income-tax Act, 1961 (the Act') which suffers from legal defects such as being passed in violation of the provisions of the Act and is devoid of merits and is contrary to the facts on record and applicable law and as such liable to be quashed. 2. The Ld. PCIT has finalized the impugned order with improper conclusion without considering the information, arguments and evidence provided by the Appellant. B. Validity of revisionary proceedings under section 263 of the Act 1. The Impugned order passed by the Ld. PCIT is without jurisdiction as the twin conditions prescribed under section 263 of the Act i.e., the order of the Ld. AO shall be 'erroneous' and 'prejudicial to the interest of revenue', are not satisfied. 2. The Ld. PCIT erred in concluding that the assessment order passed under section 143(3) r.w.s 143(3A) and 143(3B) of the Act for impugned AY is erroneous and prejudicial to the interest of revenue, without appreciating the material on record and submissions made by the Appellant. 3. The Ld. PCIT erred in passing the impugned order, on the allegation that the Ld. AO has completed the assessment without making necessary enquiries or verifying the taxability of receipt of INR 669,27,63,437, without appreciating that the Ld. AO had duly conducted enquiries and verification on the issue. C. Taxability of receipt of INR 669,27,63,437 1. The Ld. PCIT has, in the facts and circumstances of the case and in law, erred in disregarding the fact that the receipts of INR 667,47,38,930 out of INR 669,27,63,437 is in form of interest in partnership firms and does not qualify as property as per section 56 of the Act. 2. The Ld. PCIT has, in the facts and circumstances of the case and in law, erred in disregarding the fact that (a) the receipts of INR 669,27,63,437 is not without consideration (b) trust is not a person under section 2(31) of the Act and (c) receipt of money is from individual by a trust created or Printed from counselvise.com ITA No.1051/Bang/2024 Buckeye Trust, Bangalore Page 3 of 46 established solely for the benefit of relative of individual, hence outside the purview of section 56(2)(x) of the Act. That the Appellant craves leave to add to and/or to alter, amend, rescind, modify the grounds herein above or produce further documents before or at the time of hearing of this Appeal. 3. The brief facts of the case are that the assessee is a Private discretionary trust under the provisions of the Indian Trusts Act, 1882 created by virtue of a trust deed executed on 23.01.2018 between Mr. Anand Nadathur, being the Settlor, and Vervain Management Private Limited, being the Trustee. On 31.03.2018, the settlor, out of natural love and affection for the beneficiaries, settled assets amounting to Rs.669,27,63,437/- into the assessee trust pursuant to a duly executed settlement deed. The assessee trust filed its return of income for the assessment year 2018-19 on 30.08.2018 declaring total income of Rs. NIL. Thereafter, the case of the assessee trust was selected for complete scrutiny through CASS on the following issues: - i) Investments/Advances/Loans ii) Expenses incurred for earning exempt income iii) Share Capital/Other Capital Subsequently, the notices u/s 143(2) and 142(1) of the Act were issued calling upon to furnish the details/clarification in respect of the assessment proceedings. The AO after considering the written explanation/clarification along with the submission in support of the return of income, concluded the assessment proceedings u/s 143(3) r.w.s. 143(3A) & 143(3B) of the Act on 07.04.2021 without making any modification to the returned income. 3.1 The ld. Principal Commissioner upon calling for the assessment records and verification, observed that the trust has received an amount of Rs.669,27,63,437/- in the form of interest in partnership firms/shares settled by the Settlor in favour of the Printed from counselvise.com ITA No.1051/Bang/2024 Buckeye Trust, Bangalore Page 4 of 46 trust. The said interest in partnership firms/investment in unlisted shares is accounted under the head “Trust Fund” and under the head of Investment in the Financial statement. The beneficiaries of the Trust are mentioned in clause 1.6 of the operative provision of the trust deed. As per clause 1.6, beneficiaries means (a) the Settlor (b) the spouse of the Settlor (c) the children and remoter issue of the Settlor (d) such other objects or persons as are added under clause 6 and beneficiaries shall be construed accordingly. The assessee in its submission dated 8.2.2021 stated that the beneficiaries fall within the ambit of the provisions of section 56(2)(X) of the Act as per exclusion provided in 4th proviso to the section. The assessee’s claim is not in order as the trust has not only been created or established solely for the benefit of the relative of the individual but also other persons can be added as per clause 6. However, such other class of persons covered in proviso XI which is applicable from assessment year 2020-21. Therefore, the assessee is not falling within the ambit of the provisions of section 56(2)(X) of the Act for the assessment year 2018-19 and the amount of Rs.669,27,63,437/- received in the form of interest has to be brought to tax under the head “Income from other sources” as provided in section 56(2)(X) of the Act. Since the AO has completed the assessment without making necessary inquiries or verifying the issues required as per law in the order u/s 143(3) of the Act for the assessment year 2018-19 dated 7.4.2021, the order is erroneous and prejudicial to the interest of revenue as per the provisions of section 263 of the Act and accordingly, a show cause notice for the hearing was issued on 13.3.2024 as to why the assessment order dated 7.4.2021should not be set aside and reframed. The ld. A.R. of the assessee filed detailed reply on 18.3.2024 which is reproduced hereunder for the sake of convenience: Printed from counselvise.com ITA No.1051/Bang/2024 Buckeye Trust, Bangalore Page 5 of 46 Printed from counselvise.com ITA No.1051/Bang/2024 Buckeye Trust, Bangalore Page 6 of 46 Printed from counselvise.com ITA No.1051/Bang/2024 Buckeye Trust, Bangalore Page 7 of 46 Printed from counselvise.com ITA No.1051/Bang/2024 Buckeye Trust, Bangalore Page 8 of 46 Printed from counselvise.com ITA No.1051/Bang/2024 Buckeye Trust, Bangalore Page 9 of 46 Printed from counselvise.com ITA No.1051/Bang/2024 Buckeye Trust, Bangalore Page 10 of 46 Printed from counselvise.com ITA No.1051/Bang/2024 Buckeye Trust, Bangalore Page 11 of 46 Printed from counselvise.com ITA No.1051/Bang/2024 Buckeye Trust, Bangalore Page 12 of 46 Printed from counselvise.com ITA No.1051/Bang/2024 Buckeye Trust, Bangalore Page 13 of 46 Printed from counselvise.com ITA No.1051/Bang/2024 Buckeye Trust, Bangalore Page 14 of 46 3.2 Thus, in a nutshell, the main contentions of the assessee are that the revisionary proceedings u/s 263 of the Act :- i. Can be initiated only if the order passed by the AO is both erroneous and prejudicial to the interest of the revenue. ii. Cannot be initiated on difference of opinion iii. Is not permissible if issue examined by the AO even if the order is silent. iv. Can be initiated only if the order passed by the AO is both erroneous and prejudicial to the interest of the revenue. Further, on merits, the contentions of the assessee trust arewithout prejudice to each other as follows:- i. Receipt is not without consideration ii. Trust is not a person u/s 2(31) of the Act. iii. Receipt of money is from an individual by a trust created/solely established for the benefit of the individual. 3.3 The ld. PCIT however, was of the opinion that the assessment was concluded without making any modification to the return of income, however, it is seen from the trust deed that the trust has not only been created or established solely for the benefit of relative Printed from counselvise.com ITA No.1051/Bang/2024 Buckeye Trust, Bangalore Page 15 of 46 of the individual but also other persons can be added as per clause 6. The relevant clauses of 1.6 and 6 are reproduced as under: “Clause 1.6, beneficiaries means. a. The Settlor b. The spouse of the settlor c. The children and remoter issue of the settlor d. Such other objects or persons as are added under clause 6 and beneficiaries shall be construed accordingly. 6. Power to add beneficiaries 6.1 The Trustee may, at any time during the Trust Period, declare that any person or class of persons (whether or not in existence or ascertained) or Charity shall be added to the class of Beneficiaries provided that no such person or class ofr persons or Charity may be or include any Excluded Person. 6.1 In view of the above clause, it is clear that other than relatives also can be included in the beneficiaries. Hence, trust is not created or established solely for the benefit of the relatives of the individual. 6.2 As per the IT Act, relatives means- i In case of an individual- A. Spouse of the individual; B. Brother or sister of the individual; C. Brother or sister of the spouse of the individual; D. Brother of sister of either of the parents of the individual; E. Any lineal ascendant or descendant of the individual; F. Any lineal ascendant or descendant of the spouse of the individual; G. Spouse of the person referred to in item (B) to (F).” Hence, any person or class of persons (whether or not in existence or ascertained) or charity, mentioned in the clause 6.1 does not fall under the meaning of relatives. The ld. PCIT observed that the assessee in its reply explained that the trust deed is entered for the benefit of the family and clause 6.1 was added with an intention to include any other beneficiary which is a family member thus would fall under the definition of relative under the Act. The ld. PCIT however was of the view that the clause 6.1 does Printed from counselvise.com ITA No.1051/Bang/2024 Buckeye Trust, Bangalore Page 16 of 46 not represent the same intention. The clause empowers the trustee to add any person or class of persons (whether or not in existence or ascertained) or charity to the class of beneficiaries. Thus, the benefits are not restricted to the relatives only. As per section 56(2)(X)(a) of the Act, wherein any person receives in any previous year, from any person or persons on or after the 1st day of April, 2017 – any sum of money without consideration, the aggregate value of which exceeds the Rs.50,000/-, chargeable to income tax under the head of “Income from other sources” provided that any sum of money received from an individual by a trust created or established solely for the benefit of relative of the individual (X of proviso four of 56(2)(X)). 3.4 Thus, the ld. PCIT was of the opinion that the Trust has not been created or established solely for the benefit of the relative of the individual and hence an amount of Rs.669,27,63,437/- received by the Trust should be brought to tax under the head “Income from other sources” as provided in section 56(2)(X)(a) of the Act. 3.5 In view of the above discussion, the ld. PCIT concluded by observing that that the assessment order passed u/s 143(3) r.w.s. 143(3A) & 143(3B) of the Act dated 7.4.2021 is erroneous in so far as prejudicial to the interest of revenue in terms of section 263 of the Act and accordingly set aside the order of the AO and directed u/s 263 of the Act to make a fresh assessment in accordance with law after considering the above facts. The ld. PCIT also directed the AO to conduct necessary enquiries and verification in accordance with law and CBDT instructions on this subject. 4. Aggrieved by the order of ld. PCIT passed u/s 263 of the Act dated 29.3.2024 the assessee has filed the present appeal before this Tribunal. The assessee trust has also filed a paper book, case Printed from counselvise.com ITA No.1051/Bang/2024 Buckeye Trust, Bangalore Page 17 of 46 law compendium, written submission along with an application requesting for admission of additional evidence. 5. Before us, the ld. A.R. of the assessee Sri Sriram Seshadri, FCAvehemently submitted that the order passed by the ld. PCIT is illegal and without jurisdiction as neither the order passed by the AO is erroneous either of the fact or of law nor prejudicial to the interest of revenue to the income tax administration as a whole. Further, ld. A.R. of the assessee vehemently submitted that ld. PCIT failed to appreciate that revisionary proceeding u/s 263 of the Act cannot be initiated on difference of opinion and if the issue is already examined by the AO even if the assessment order is silent, the ld. PCIT has no jurisdiction to invoke the provisions of section 263 of the Act. Further, on merit of the case, the ld. A.R. of the assessee submitted that trust is not a person u/s 2(31) of the Act and receipt of money is from an individual by a trust created/solely established for the benefit of relative of an individual and therefore, the provisions of section 56(2)(X) of the Act is not applicable to the assessee. Further, ld. A.R. of the assessee drew our attention on an application for admission of the additional evidence filed by the assessee and vehemently submitted that the intention of the assessee was never to include non-relatives into the deed of trust which is also evident from the fact that since the date of creation of the trust in 2018 till date, the power of the trustee to add beneficiary has not even been invoked to add any relative, much less a non-relative and therefore, to remove any ambiguity on the power of the trustee, the assessee trust has executed and registered a supplementary deed dated 13.5.2025 to restrict the list of beneficiaries explicitly only to the relatives of the settlor. 6. The ld. CIT(D.R.) Shri Shivanand Kalakeri on the other hand, heavily relied on the order of ld. PCIT Bengaluru-2 and vehemently Printed from counselvise.com ITA No.1051/Bang/2024 Buckeye Trust, Bangalore Page 18 of 46 submitted that order of the AO is brief and cryptic and no opinion is given and therefore, the question of two opinions as argued by the assessee does not arise. Further, the ld. PCIT (DR) submitted that the assessee having realized their mistake which is also not examined by the AO during the course of the assessment proceedings has now amended the trust deed which is produced before this Bench with an application for acceptance of the additional evidence. Lastly, the ld. CIT(DR) vehemently submitted that it is not a case of lack of enquiry but in fact the aspect of taxability under the provisions of section 56(2)(X) of the Act was never been examined by the AO at all and hence the ld. PCIT, Bengaluru-2 had rightly held the order of the AO to be erroneous so far as prejudicial to the interest of the revenue as the twin conditions are satisfied. 7. Before us, the assessee has filed an application under Rule 29 of the Income-Tax (Appellate Tribunal) Rules, 1963 praying for admission of additional evidence by enclosing the copy of the supplementary deed dated 13.05.2025. The copy of the supplementary deed dated 13.5.2025 are reproduced below for ease of reference and convenience- Printed from counselvise.com ITA No.1051/Bang/2024 Buckeye Trust, Bangalore Page 19 of 46 Printed from counselvise.com ITA No.1051/Bang/2024 Buckeye Trust, Bangalore Page 20 of 46 Printed from counselvise.com ITA No.1051/Bang/2024 Buckeye Trust, Bangalore Page 21 of 46 Printed from counselvise.com ITA No.1051/Bang/2024 Buckeye Trust, Bangalore Page 22 of 46 Printed from counselvise.com ITA No.1051/Bang/2024 Buckeye Trust, Bangalore Page 23 of 46 Printed from counselvise.com ITA No.1051/Bang/2024 Buckeye Trust, Bangalore Page 24 of 46 Printed from counselvise.com ITA No.1051/Bang/2024 Buckeye Trust, Bangalore Page 25 of 46 7.1 According to Rule 29 of the I.T. Rules, 1963¸generally the parties to the appeal shall not be entitled to produce additional evidence either oral or documentary before the Tribunal but if the Tribunal requires any document to be produced to enable it to pass orders or for any other substantial cause, or, if the income tax authorities have decided the case without giving sufficient opportunity to the assessee to adduce evidence either on points specified by them or not specified by them, the Tribunal for reasons to be recorded, may allow such document to be produced or may allow such evidence to be adduced. In the present case, the supplementary deed was executed by the assessee only on 13.5.2025 which obviously could not be produced before the lower authorities. Before us, the ld. A.R. of the assessee vehemently submitted that this additional evidence is crucial for deciding the Printed from counselvise.com ITA No.1051/Bang/2024 Buckeye Trust, Bangalore Page 26 of 46 issue on merits i.e. whether the trust is created or established solely for the benefit of the relative of the settlor or not? This being so, we find good and sufficient reason in not submitting the additional evidence before the lower authorities. Accordingly, we admit these additional evidences as in our opinion these are essential for adjudication of the issue in the present appeal. 8. We have heard the rival submission, perused material available on record. We are of the considered opinion that in an appeal against an assessment order, the Tribunal exercises regular appellate jurisdiction over the assessment, examining the correctness of additions, disallowances, and other determinations made by the AO on facts and Law, however, for an appeal against a revision order u/s 263 of the Act, the Tribunal is essentially confine itself to examine (1) Whether the very assumption of 263 jurisdiction is valid (2) whether the PCIT’s conclusion on “erroneous and prejudicial” are sustainable in law and (3) Whether due process (opportunity of hearing, inquiry) was followed or not. While doing so equal importance must also be given to the AO’s recorded enquiries and reasoning, the PCIT’s satisfaction & reasons keeping in mind that section 263 of the Act is a revision, not theAppellate power. Further, when the PCIT has chosen to set asidethe order of the AO, the Tribunal is not entitled to go beyond and sustain the Order of PCIT on grounds different from that relied by the ld. PCIT. 8.1 The division Bench of the Hon’ble High Court of Kerala in the case of Commissioner of Income Tax v. Chandrika Educational Trust reported in (1994) 207 ITR 108 had held as under:- Printed from counselvise.com ITA No.1051/Bang/2024 Buckeye Trust, Bangalore Page 27 of 46 “In entertaining an appeal from the Commissioner's order what the Tribunal does is to examine whether the said order is sustainable in law and whether it is within the powers conferred by section 263. Therefore, when the Commissioner has chosen to set aside the order of the Income-tax Officer only on a particular ground, the Tribunal is not entitled to go beyond and sustain the order of the Commissioner on grounds different from that relied on by the Commissioner himself.” 8.2 The Hon’ble High Court of Kerala at Ernakulam in the case of Save a Family Plan (India) v. The Deputy Commissioner of Income Tax (Exemptions) in ITA No.81 of 2025 dated 05/11/2025 had again reiterated the same. 8.3 In view of the above, it is pertinent here to first go through the show cause notice for hearing dated 13/03/2024 issued by the ld. PCIT stating the reasons for invoking the Revision Proceedings u/s 263 of the Act which are reproduced below for ease of reference & convenience- Printed from counselvise.com ITA No.1051/Bang/2024 Buckeye Trust, Bangalore Page 28 of 46 Printed from counselvise.com ITA No.1051/Bang/2024 Buckeye Trust, Bangalore Page 29 of 46 Printed from counselvise.com ITA No.1051/Bang/2024 Buckeye Trust, Bangalore Page 30 of 46 8.4 On going through the above show cause notice for hearing in respect of revision proceedings u/s. 263 of the Act, the reasons cited by the ld. PCIT primarily is that the assessee trust has received an amount of Rs.669,27,63,437/- in the form of interest in partnership firms/shares settled by the Settlor in favour of the trust. The said interest in partnership firms/investment in unlisted shares is accounted under the head “Trust Fund” and under the head of Investment in the Financial statement. The beneficiaries of the Trust are mentioned in clause 1.6 of the operative provision of the trust deed. As per clause 1.6, beneficiaries means (a) the Settlor (b) the spouse of the Settlor (c) the children and remoter issue of the Settlor (d) such other objects or persons as are added under clause 6 and beneficiaries shall be construed accordingly. The assessee in its submission dated 8.2.2021 stated that the beneficiaries fall within the ambit of the provisions of section 56(2)(X) of the Act as per exclusion provided in 4th proviso to the section. The assessee’s claim is not in order as the trust has not only been created or established solely for the benefit of the relative of the individual but also other persons can be added as per clause 6. However, such other class of persons covered in proviso XI which is applicable from assessment year 2020-21. Therefore, the assessee is not falling within the ambit of the provisions of section 56(2)(X) of the Act for the assessment year 2018-19 and the amount of Rs.669,27,63,437/- received in the form of interest has to be brought to tax under the head “Income from other sources” as provided in section 56(2)(X) of the Act. In the circumstances, it is proposed to set aside the assessment order dated 07.04.2021 for being reframed accordingly by virtue of the power conferred upon under the provisions of section 263 of the Act. Printed from counselvise.com ITA No.1051/Bang/2024 Buckeye Trust, Bangalore Page 31 of 46 8.5 Now before proceedings further, it is apposite here to mention the relevant provision of Income Tax Act which is reproduced below:- Revision of orders prejudicial to revenue. 263. (1) The [ [Principal Chief Commissioner or Chief Commissioner or Principal Commissioner] or] Commissioner may call for and examine the record of any proceedings under this Act, and if he considers that any order passed therein by the [Assessing] Officer [or the Transfer Pricing Officer, as the case may be,] is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, [including, (i) an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment; or (ii) an order modifying the order under section 92CA; or (iii) an order cancelling the order under section 92CA and directing a fresh order under the said section]. [[Explanation 1.]- For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,- (a) An order passed [on or before or after the 1st day of June, 1988] by the Assessing Officer [or the Transfer Pricing Officer, as the case may be,]shall include— (i)an order of assessment made by the Assistant Commissioner [or Deputy Commissioner] or the Income Tax Officer on the basis of the directions issued by the [Joint] Commissioner under section 144A; (ii)an order made by the [Joint] Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer [or the Transfer Pricing Officer, as the case may be,] conferred on, or assigned to, him under the orders or directionsissued by the Board or by the [Principal Chief Commissioner or] Chief Commissioner or [Principal Director General or] Director General or ]Principal Commissioner or] Commissioner authorized by the Board in this behalf under section 120; Printed from counselvise.com ITA No.1051/Bang/2024 Buckeye Trust, Bangalore Page 32 of 46 [(iii) an order under section 92CA by the Transfer Pricing Officer;] (b) ”record” [shall include and shall be deemed always to have included] all records relating to any preceding under this Act available at the time of examination by the [Principal [Chief Commissioner or Chief Commissioner or Principal] Commissioner or] Commissioner; (c) Where any order referred to in this sub-section and passed by the Assessing Officer [or the Transfer Pricing Officer, as the case may be,]had been the subject matter of any appeal [filed on or before or after the 1st day of June, 1988], the powers of the * [Principal Commissioner or]Commissioner under this sub-section shall extend [and shall be deemed always to have extended]to such matters as had not been considered and decided in such appeal.] [Explanation 2. – For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer [or the Transfer Pricing Officer, as the case may be,] shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal [Chief Commissioner or Chief Commissioner or Principal] Commissioner or Commissioner,- (a)the order is passed without making inquiries or verification which should have been made; (b)the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d)the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. [Explanation 3.—For the purposes of this section, “Transfer Pricing Officer” shall have the same meaning as assigned to in the Explanation to section 92CA.] [(2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed.] Printed from counselvise.com ITA No.1051/Bang/2024 Buckeye Trust, Bangalore Page 33 of 46 (3) Not withstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, the High Court or the Supreme Court. Explanation. -In Computing the period of limitation for the purposes of sub- section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded. 8.6 On plain reading of the aforesaid provisions of the Act, it is very apparent that the ld. PCIT may call for and examine the record of any proceeding under the Act and if he considers that any order passed therein by the AO is erroneous in so far as it is prejudicial to the interests of the revenue, the ld. PCIT may after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment. This provision was the subject matter of interpretation by the Apex Court in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83/109 Taxman 66 (SC), where the Supreme Court has held as under:- \"A bare reading of this provision makes it clear that the prerequisite to the exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the Income-Tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent - if the order of the Income Tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue recourse cannot be had to section 263(1) of the Act. The phrase \"prejudicial to the interests of the Revenue\" is not an expression of art and is not defined in the act. Understood in its Printed from counselvise.com ITA No.1051/Bang/2024 Buckeye Trust, Bangalore Page 34 of 46 ordinary meaning it is of wide import and is not confined to loss of tax''..\" \"'..The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the Income-tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. The phrase \"prejudicial to the interest of the Revenue\" has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income Tax Officer adopted one of the courses permissible in law and it has resulted in loss of Revenue; or where two views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the Revenue, unless the view taken by the Income Tax Officer is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the Revenue.\" 8.7 In the case of Dawjee Dadabhoy & Co. v. S.P. Jain [1957] 31 ITR 872 (Cal.) explaining the meaning of the words prejudicial to the interest of the revenue it was held as under: \"The words, \"prejudicial to the interests of the revenue\", have not been defined, but it must mean that the orders or assessment challenged are such as are not in accordance with law, in consequence whereof the lawful revenue due to the State has not been realised or cannot be realised. It can mean nothing else.\" 8.8 Thus, we are of the considered opinion that the ld. Commissioner gets the jurisdiction to revise any proceedings under this Act if he considers that any order passed therein by the Assessing Officer is erroneous insofar as it is prejudicial to the interest of the Revenue. Therefore, it is clear that the ld. PCIT cannot exercise the power of revision solely on the ground that the order passed is erroneous. The ld. PCIT gets jurisdiction only if Printed from counselvise.com ITA No.1051/Bang/2024 Buckeye Trust, Bangalore Page 35 of 46 such erroneous order is prejudicial to the interest of the Revenue. Prejudicial to the Revenue means, lawful revenue due to the State has not been realized or cannot be realized. In other words, by the order of the Assessing Authority if the lawful revenue to the Government has not been realized or cannot be realized, as the said order is prejudicial to the interest, of the Revenue and also erroneous, the ld. PCIT gets jurisdiction to interfere with the said order under section 263. Therefore, for attracting section 263, the condition precedent is (a) the order of Assessing Officer sought to be revised is erroneous and (b) it is prejudicial to the interest of the Revenue. If one of them is absent, i.e., if the order of the Income tax officer is erroneous but is not prejudicial to the Revenue, recourse cannot be had to section 263(1) of the Act. The satisfaction of both the conditions stipulated in the section is sine qua non for the Commissioner to exercise his jurisdiction under section 263. 8.9 Further, the term ‘erroneous’ has not been defined under the Act. The Apex Court in the above case also held that an incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. Further, the phrase 'prejudicial to the interests of the revenue' is not an expression of art and is also not defined in the Act. The various High Courts have treated loss of tax as prejudicial to the interests of the revenue.If due to an erroneous order of the AO, the revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the revenue.The phrase 'prejudicial to the interests of the revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue.There must be some grievous error in the Printed from counselvise.com ITA No.1051/Bang/2024 Buckeye Trust, Bangalore Page 36 of 46 Order passed by the AO, which might set a bad trend or pattern for similar assessments, which on abroad reckoning, the Commissioner might think to be prejudicial to the interests of Revenue Administration. Further, what is erroneous and prejudicial to the interest of the revenue is judicially tested by plethora of decisions however, the scope was further extended by introduction of explanation 2 to section 263 which is inserted by the Finance Act, 2015 with effect from 01/06/2015. This explanation empowers the PCIT from 01.06.2015 to invoke the provision of section 263 to the assessment order to be erroneous in so far as it is prejudicial to the interest of the revenue, if, in the opinion of the Principal CIT,- (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into theclaim; (c) the order has not been in accordance with any order, direction or instruction issued by the Board under section 119;or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.” 8.10 The Hon’ble High Court of Delhi in the case of Commissioner of Income-tax-XIII v. Ashish Rajpal reported in (Del-HC) (2010) 320 ITR 674 had remarkably extracted the parameters and principles laid down by the Courts which govern the exercise of power by the Commissioner under the provisions of section 263 of the Act:- Printed from counselvise.com ITA No.1051/Bang/2024 Buckeye Trust, Bangalore Page 37 of 46 (i) The power is supervisory in nature, whereby the Commissioner can call for and examine the assessment records. (ii) The Commissioner can revise the assessment order if the twin conditions provided in the Act are fulfilled, that is, that the assessment order is not only erroneous but is also prejudicial to the interest of the revenue. The fulfilment of both the conditions is an essential prerequisite. [See Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 (SC)]. (iii) An order is erroneous when it is contrary to law or proceeds on an incorrect assumption of facts or is in breach of principles of natural justice or is passed without application of mind, that is, is stereo-typed, inasmuch as, the Assessing Officer, accepts what is stated in the return of the assessee without making any enquiry called for in the circumstances of the case, that is, proceeds with 'undue haste'. [See Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375 (Delhi)]. (iv) The expression \"prejudicial to the interest of the revenue\" while not to be confused with the loss of tax will certainly include an erroneous order which results in a person not paying tax which is lawfully payable to the revenue. [See Malabar Industrial Co. Ltd.'s case (supra)]. (v) Every loss of tax to the revenue cannot be treated as being \"prejudicial to the interest of the revenue\". For example, when the Assessing Officer takes recourse to one of the two courses possible in law or where there are two views possible and the Commissioner does not agree with the view taken by the Assessing Officer which has resulted in a loss. [See CIT v. Max India Ltd. [2007] 295 ITR 282 (SC)]. (vi) There is no requirement of issuance of a notice before commencing proceedings under section 263 of the Act. What is required is adherence to the principles of natural justice by granting to the assessee an opportunity of being heard before passing an order under section 263. [See Electro House's case (supra)]. (vii) If the Assessing Officer acts in accordance with law his order cannot be termed as erroneous by the Commissioner, simply because according to him, the order should have been written 'more elaborately'. Recourse cannot be taken to section 263 to substitute the view of the Assessing Officer with that of the Commissioner. [See CITv. Gabriel India Ltd. [1993] 203 ITR 108 (Bom.)]. (viii) The exercise of statutory power under section 263 of the Act is dependent on existence of objective facts ascertained from prima faciematerial on record. The evaluation of such material should show that tax which was lawfully exigible was not imposed. [See Gabriel India Ltd.'s case (supra)]. Printed from counselvise.com ITA No.1051/Bang/2024 Buckeye Trust, Bangalore Page 38 of 46 8.11 Now, in the light of the above principles laid down by the Hon’ble Apex Court & Hon’ble Delhi High Court, it is apposite here to first examine whether the AO passed an assessment order without making necessary enquiries or verifying the issues required as per lawas alleged by the ld. PCIT in the revision Order. It is apposite here to reproduce the assessment order passed by the AO- Printed from counselvise.com ITA No.1051/Bang/2024 Buckeye Trust, Bangalore Page 39 of 46 On going through the above one paragraph assessment order dated 07.04.2021, undoubtedly the order passed by the AO is cryptic, Printed from counselvise.com ITA No.1051/Bang/2024 Buckeye Trust, Bangalore Page 40 of 46 unreasoned and in fact as rightly contended by the ld. DR, without forming any opinion by the AO except by asserting that “after taking into account all relevant materials available on record, an assessment is hereby made without making any modification to the returned income. We are of the considered opinion that reasoning is the heart of an order, without which the Order is lifeless. Therefore, it is very much relevant here for us to go through the notices issued during the course of the assessment proceedings in order to find out whether the AO had actually made necessary enquiries or verified the issues required as per law as alleged by the ld. PCIT. Undisputedly, one of the reason for the selection of the complete scrutiny was Share capital/other capital & investments. On going through the notices issued during the course of the assessment proceedings, we find that the AO had never enquired & examine these issues as rightly alleged by the ld. PCIT. The contention of the ld. PCIT is that the trust had received an amount of Rs.669,27,63,437/- in the form of interest in partnership firms/shares settled by the Settlor in favour of the trust. The said interest in partnership firms/investment in unlisted shares is accounted under the head “Trust Fund” and under the head of Investment in the financial statement. The beneficiaries of the Trust are mentioned in clause 1.6 of the operative provision of the trust deed. As per clause 1.6, “Beneficiaries” means (a) the Settlor (b) the spouse of the Settlor (c) the children and remoter issue of the Settlor (d) such other objects or persons as are added under clause 6 and beneficiary shall be construed accordingly. Further, as the trust has not only been created or established solely for the benefit of the relative of the individual but also other persons can also be added as per clause 6 and therefore, the assessee is not falling within the ambit of the provisions of section 56(2)(X) of the Act for the assessment year 2018-19 and the amount of Rs.669,27,63,437/- received in the form of interest has to be Printed from counselvise.com ITA No.1051/Bang/2024 Buckeye Trust, Bangalore Page 41 of 46 brought to tax under the head “Income from other sources” as provided in section 56(2)(X) of the Act. We are of the considered opinion that the AO had not even whispered a single word relating to the above issues during the assessment proceedings & therefore the ld. PCIT had rightly held the order of the AO to be erroneous and prejudicial to the interest of the revenue as the AO had completed the assessment without making necessary inquiries or verifying the issues. 8.12 Before us, the ld. AR of the assessee vehemently submitted that the intention of the assessee was never to include non-relatives into the deed of trust and therefore, to remove any ambiguity on the power of the trustee, the assessee has already executed and registered a supplementary deed dated 13.05.2025 to restrict the list of beneficiaries explicitly only to the relatives of the settlor. This action of the assessee in executing the supplement deed on 13.05.2025 post revision order of the ld. PCIT clearly shows the importance of the issues not enquired by the AO during the course of assessment proceedings. Even if the assessee have executed the supplement deed on 13.05.2025 & produced the same before us as an additional evidence, the moot question remain the same i.e. whether the AO had made necessary enquiries or verification which should have been made during the course of assessment proceedings or not. The answer is No. 8.13 On going through the trust deed dated 23.01.2018, we also observed that the trust has not only been created or established solely for the benefit of relative of the individual but also other objects or persons can be added under clause 6 of the deed. The relevant clauses of 1.6 and 6 are reproduced as under: “1.6 “Beneficiaries” means the beneficiaries of this Trust, which constitutes: Printed from counselvise.com ITA No.1051/Bang/2024 Buckeye Trust, Bangalore Page 42 of 46 (a) The Settlor; (b) The spouse of the settlor; (c) The children and remoter issue of the settlor; and (d) such other objects or persons as are added under clause 6 and \"Beneficiary” shall be construed accordingly. 6. Power to add beneficiaries 6.1 The Trustee may, at any time during the Trust Period, declare that any person or class of persons (whether or not in existence or ascertained) or Charity shall be added to the class of Beneficiaries provided that no such person or class of persons or Charity may be or include any Excluded Person. Section 56(2)(x) of the Act states that when any sum of money or property (whether movable or immovable) is received by any person from any person on or after 01/04/2017 without consideration, or for inadequate consideration, if the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property shall be chargeable to income-tax under the head “Income from other sources”, if it is not chargeable to income-tax under any of the heads as specified in section 14 of the Act. The provision is widely applicable to gifts, property transfers, and other transactions aimed at avoiding legitimate taxation. Further, there is a exclusion clause under section 56(2)(x) vide proviso 5 (X) that this clause shall not apply to “any sum of money or property received from an individual by a trust created or established solely for the benefit of relative of the individual”. Further as per explanation (a) to section 56(2)(x) r/w explanation (e) to section 56(2)(vii) of the Act – Printed from counselvise.com ITA No.1051/Bang/2024 Buckeye Trust, Bangalore Page 43 of 46 [(e) “relative” means- (i) In case of an individual- (A) Spouse of the individual; (B) Brother or sister of the individual; (C) Brother or sister of the spouse of the individual; (D) Brother of sister of either of the parents of the individual; (E) Any lineal ascendant or descendant of the individual; (F) Any lineal ascendant or descendant of the spouse of the individual; (G) Spouse of the person referred to in item (B) to (F).; and (ii) In case of a Hindu undivided family, any member thereof;] Therefore, we are also of the considered opinion that the trust was not created or established solely for the benefit of relative of the individual in view of the fact that as per clause 1.6 of the deed the beneficiaries means such other persons as are added under clause 6 and clause 6 states that the Trustee may, at any time during the Trust Period, declare that any person or class of persons (whether or not in existence or ascertained) or Charity shall be added to the class of Beneficiaries. Therefore, the ld. PCIT is of the view that any person or class of persons (whether or not in existence or ascertained) or charity, mentioned in the clause 6.1 does not fall under the meaning of relatives. The clause empowers the trustee to add any person or class of persons (whether or not in existence or ascertained) or charity to the class of beneficiaries. Thus, the benefits are not restricted to the relatives only. In the aforesaid circumstances, the Principal Commissioner of Income-tax held the view that the matter was not enquired or verified by the Assessing Officer. We are also of the considered opinion that these crucial aspects were neither enquired by the AO nor examined in accordance with law which renders the order of the AO to be erroneous & prejudicial to the income tax administration as a whole. Printed from counselvise.com ITA No.1051/Bang/2024 Buckeye Trust, Bangalore Page 44 of 46 8.14 We are also of the considered opinion that the Assessing Officer is not expected to put blinkers on his eyes and mechanically accept what the assessee claims before him. It is his duty to ascertain the truth of the facts stated and the genuineness of the claims made in the return when the circumstances of the case are such as to provoke inquiry. The assessment order sought to be revised under Section 263 would be erroneous and fall in the aforesaid category of \"errors\" if it is, inter alia, based on an incorrect assumption of facts or an incorrect application of law or non- application of mind to something which was obvious and required application of mind or based on no or insufficient materials so as to affect the merits of the case and thereby cause prejudice to the interest of the revenue. The Commissioner may consider an order of the Assessing Officer to be erroneous not only when it contains some apparent error of reasoning or of law or of fact on the face of it but also when it is a stereo-typed order which simply accepts what the assessee has stated in his return and fails to make enquiries or examine the genuineness of the claim which are called for in the circumstances of the case. In taking the aforesaid view, we are supported by the decisions of the Hon'ble Supreme Court in Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84, Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC). 8.15 Section 263 of the Income-tax Act seeks to remove the prejudice caused to the revenue by the erroneous order passed by the Assessing Officer. It empowers the Commissioner to initiate suo moto proceedings either where the Assessing Officer takes a wrong decision without considering the materials available on record or he takes a decision without making an enquiry into the matters, where such inquiry was prima facie warranted. The Commissioner will be well within his powers to regard an order as erroneous on the Printed from counselvise.com ITA No.1051/Bang/2024 Buckeye Trust, Bangalore Page 45 of 46 ground that in the circumstances of the case, the Assessing Officer should have made further inquiries before accepting the claim made by the assessee in his return. The reason is obvious. Unlike the Civil Court which is neutral in giving a decision on the basis of evidence produced before it, the role of an Assessing Officer under the Income-tax Act is not only that of an adjudicator but also of an investigator. He cannot remain passive in the face of a claim, which is apparently in order but calls for further enquiry. He must discharge both the roles effectively. 9. We are also of the considered opinion that as rightly contended by the ld. CIT DR, there is no express view/opinion of the Assessing Officer, surely it also cannot be said that the same is a plausible view. Thus under the facts & circumstances discussed above, it was a reasonably fit case for exercising revisionary jurisdiction under section 263 of the Act. After all, the Principal Commissioner of Income-tax gave another chance to the assessee to furnish the necessary supportive evidence of its claim and explain why the proposed addition should not be made to income. 10. Before parting, we make it clear that we have not made any comments on the merits of the case and the assessee trust is at liberty to explain the same during the assessment proceedings. Printed from counselvise.com ITA No.1051/Bang/2024 Buckeye Trust, Bangalore Page 46 of 46 11. In the result the appeal filed by the assessee trust is dismissed. Order pronounced in the open court on 12th Feb, 2026 Sd/- (Laxmi Prasad Sahu) Accountant Member Sd/- (Keshav Dubey) Judicial Member Bangalore, Dated 12th Feb,2026. VG/SPS Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The DR, ITAT, Bangalore. 5 Guard file By order Asst. Registrar, ITAT, Bangalore. Printed from counselvise.com "