CT. RAMANATHAN (HUF),PUDUKKOTTAI V. PCIT 1, MADURAI

ITA 761/CHNY/2025

AI Insights

The case revolves around an appeal by C.T. Ramanathan (HUF) against the order of the Principal Commissioner of Income Tax, Madurai-1, which invoked section 263 of the Income Tax Act, 1961, claiming the original assessment was erroneous and prejudicial to the interests of the revenue. The assessee had declared substantial agricultural income from the sale of pepper and coffee, which was accepted in the original assessment after detailed inquiries. The PCIT, however, later questioned the applicability of Rule 7B of the Income Tax Rules, 1962, concerning the processing of coffee, leading to the revisionary order under section 263. The Tribunal examined the detailed inquiries made during the original assessment and found no grounds for the revisionary order, leading to the setting aside of the PCIT's order.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 668842 (ITAT-CHENNAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2020-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M. K. BIJU; CIR BY VIRTUAL
• Assessee Lawyers: V.SUBBARAYAN; DCIT RETD
• Keywords: Set aside; Business income; Opportunity of being heard; Revenue expenditure; Transfer pricing; Question of law; Depreciation; Capital expenditure; Revision of order
• Section: 143(3); 142(1); 263

Judgement Text

"आयकर अपीलीय अधिकरण, ‘बी’ न्यायपीठ, चेन्नई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH: CHENNAI माननीय श्री मनु क ुमार धिरर ,न्याधयक सदस्य एवं माननीय श्री एस.आर.रघुनाथा, लेखा सदस्य क े समक्ष BEFORE HON’BLE SHRI MANU KUMAR GIRI, JUDICIAL MEMBER AND HON’BLE SHRI S.R. RAGHUNATHA, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.761/Chny/2025 Assessment Years: 2020-21 C.T.Ramanathan(HUF), No.7/45, CT.RM.S.House, M.ST.S. Street Kulipirai, Pudukottai Dist, Tamil Nadu-622 402. [PAN: AAAHC0701L] Income Tax Officer, Ward-1, Pudukottai. (अपीलार्थी/Appellant) (प्रत्यर्थी/Respondent) अपीलार्थी की ओर से/ Assessee by : Mr.V.Subbarayan, DCIT(Retd.) प्रत्यर्थी की ओर से /Revenue by : Mr.M.K.Biju, CIR DR by virtual. सुनवाई की तारीख/Date of Hearing : 03.06.2025 घोषणा की तारीख /Date of Pronouncement : 25.06.2025 आदेश / O R D E R PER MANU KUMAR GIRI, JM: This appeal filed by the assessee is directed against the order of the Ld. Principal Commissioner of Income Tax, Madurai-1 [PCIT] dated 14.02.2025 for Assessment Year 2020-21. 2. The assessee has raised the following grounds of appeal: I. The Ld. Pr CIT was incorrect in placing reliance on the decision of the P & H High Court in CIT v. Raja Industries 340 IR 344 (P&H) inasmuch as the facts are clearly distinguishable in that the A.O. in the reported case failed (i) to verify the GP rate; (ii) to verify the admissibility of electricity charges; (iii) to examine the ITA No.761 /Chny/2025 Page - 2 - of 26 value of closing stock; (iv) to verify the claim of deduction for theft etc. whereas in the appellant’s case, all queries relating to agricultural income were raised by the Assessment Unit and answered by the appellant. II. The order of the Ld.Principal Commissioner of Income tax, Madurai-1 is opposed to the facts of the appellant’s case and the law applicable to such facts. III. The Ld.Pr.CIT failed to note that the coffee beans after harvesting were not subjected to processes like curing roasting and grinding and accordingly sub-rule (1) or (1A) of Rule 7B of the Income tax Rules, 1962 does not apply to the appellant’s case. IV. The Ld.Pr CIT failed to note that letters from the buyers evidencing sale of uncured coffee beans were provided and accordingly Rule 7B of the IT Rules, 1962 has not application. V. The Pr CIT erred in not taking into account the Explanation below Rule 7B of the IT Rules, 1962 and the definition of the term ‘curing’ as assigned in sec. 3(d) of the Coffee Act, 1942 (7 of 1942). VI. The Ld.Pr CIT failed to note that the assessment Unit, NFAC, Delhi issued a long questionnaire with as many as 15 queries all relating to ‘agricultural income’, considered the appellant’s reply to all the points and thereafter passed the scrutiny assessment ITA No.761 /Chny/2025 Page - 3 - of 26 order under section 143(3) accepting the income retuned including agricultural income and thereafre, the Ld. Pr CIT as the revisional authority cannot arrive at conclusions merely on the basis of a subjective exercise and thus not justified in invoking powers under section 263 – please see 390 ITR 292(Bom) (Dept.’s SLP dismissed by SC 389 ITR(st) 42]; 396 ITR 217 (Bom); 462 ITR 44 (Guj)’ and 455 ITR 679(Jhar). VII. The Ld. Pr CIT has relied on the decision of the Supreme Court in Malabar Industrial Co. Ltd. V. CIT 243 ITR 83(SC) wherein a resolution passed by the board of the company was not placed before the Assessing officer and it was held that there is no material support the claim of the assesse and that the Assessing Officer had accepted the claim without making any enquiry whereas in the appellant’s case, the claim of agricultural income was accepted after due verification by the Assessing Officer. VIII. It is prayed that the L.ITAT may pass an order cancelling the order u/s 263 dated 14 FEB 2025 of the Pr CIT and restoring the order u/s. 143(3) dated 18 JUL 2022 of the Assessment Unit, Delhi. 3. Brief facts of the case are that the assessee filed return of income for AY 2020-21 on 10.01.2021 admitting total income of and agriculture income of from the sale of people and coffee the case was selected for limited scrutiny under CASS to verify the substantial increase Rs.5,17,720/- and in agriculture income of Rs.44,45,784/- from the sale of pepper and coffee. The assessment was completed under section 143(3) r.w.s. 144B of the Income Tax Act, 1961 [‘Act’ in ITA No.761 /Chny/2025 Page - 4 - of 26 short] on 18.07.2022 accepting the total income of Rs.5,17,720/- admitted by the assessee in the return of income for AY 2020-21. Thereafter, the PCIT issued show cause notice u/s 263 of the Act dated 09.01.2025 which is produced as under: “….The examination of records for Assessment Year(A.Y.) 2020- 21 revealed that you filed return of income for A.Y.2020-21 on 10.01.2021 admitting total income of Rs.5,17,720/- and agricultural income of Rs.44,45,784/- from the sale of pepper and coffee. The case was selected for limited scrutiny under CASS to verify the substantial increase in agricultural income. The assessment was completed under section 143(3) r.w.s. 144B of the I.T.Act, 1961 on 18.07.2022 accepting the total income of Rs.5,17,720/- admitted by you in return of income for A.Y.2020-21. ii. You claimed that it derived agricultural income from sale of pepper and coffee picked dried and sold as raw coffee. Even though part of the agricultural income is from sale of coffee, you have not admitted any Business Income. It may be pointed out that it is not possible for the estates to sell raw coffee without curing / processing. As per the TNAU”,. OF Tamil Nadu As per the TNAU AGRITECH PORTAL University Agricultural (https://agritech.tnau.ac.in/postharvest/pht_plantationcrop_coffee.html) the curing process prepares the coffee beans for market. Most of the bills produced for sale of agricultural produce show sale of coffee. The descriptions found in some of the bills such as ‘robusta parchment, robusta cherry. As per rule 7B of IncomeTax Rules, 1962, 25% of the income derived from the sale of coffee grown and cured, has to be deemed as business income and in the case of sale of coffee grown, cured and roasted and grounded, 40% of the income has to be deemed as business income. iii. During the scrutiny proceeding, the above aspects were not examined by the Assessing Officer. Without proper enquiry and non- application of mind, the Assessing Officer completed the assessment u/s 143(3) r.w.s. 144B of the Act, 1961 without considering the facts mentioned in foregoing paras. In view of above, the assessment order u/s 143(3) r.w.s. 144B of the Act, 1961 passed by assessing officer on 18.07.2022 for the assessment year 2020-21 is held to be erroneous insofar as it is prejudicial to the interests of revenue. Hence, it is ITA No.761 /Chny/2025 Page - 5 - of 26 proposed to initiate proceedings u/s 263 of the Income tax Act 1961 for the reasons cited supra. iv. You are therefore given an opportunity on 16.01.2025 at 12:50 p.m. to show cause why the assessment order should not be subject to proceeding under section 263 of the Income tax Act, 1961 for the reasons discussed in the foregoing paras. You are requested to appeal personally or through your Authorized Representative along with your written submissions and supporting documents, failing which, the case will be decided on merits without any further reference to you. If you do not wish to appeal personally, you may also submit your written submission along with supporting documents on or before 16.01.2025 either through email or speed post….” 3. Assessee filed submissions dated 14.01.2025 to the notice issued by the PCIT u/s 263 and contended that the PCIT has wrongly invoked the jurisdiction under section 263 of the Act. Assessee has referred various case law citations and contended that while passing the original order section 143(3) r.w.s. 144B of the Income Tax Act, 1961, the assessing officer has raised long questionnaire/queries relating to agricultural income. The chorological events written submissions of the assessee are find mentioned from Pages 4-10 of the CIT order. However, the ld. CIT rejected the contentions of the assessee and held as under: “….But it is seen from questionnaire issued along with notice u/s 142(1) dated 05.11.2024, the Faceless Assessing Officer (FAO) has not called for any details with respect to application of Rule 7B in respect of income from sale of coffee rather he has called for general details regarding agricultural income clamed. During the assessment proceedings, the assessee might have furnished the bills for sale of coffee along with his reply dated 20.11.2021 to the above notice, along with other details, stating, inter alia, that he has sold raw coffee beans without curing and therefore, the provision of Rule 7B would not apply. Such reply was made by the assessee on his own but not with reference to any specific query with respect to Rule 7B raised by the AO. Thus, during the assessment proceedings, the AO has not ITA No.761 /Chny/2025 Page - 6 - of 26 enquired into applicability of Rule 7B, i.e. whether before selling coffee beans, the assessee has done only pulping/drying and has not done any processes involved in 'curing' (other than pulping) mechanically and without such enquiry, he has accepted the claim of agricultural income which include income from coffee. Thus, the Assessing Officer has not conducted proper inquiry and verification with regard to the issue whether the assessee has done any mechanical processes other than pulping or the assessee has done pulping alone. 5.6 In para 3 and para 5 of his reply dated 14.01.2025, the assessee has stated ver subjected to the process of curing by him before being sold and that the coffee beans after pulping and drying were sold as such to the curer. In support of this claim, he has enclosed a letter dated Nil issued by Namazco International Trades and Exports in which it is stated that raw and uncured coffee was purchased by it from C.T.Ramanathan(assesse) for Rs.5,49,375/- vide invoice no 276 dated 23.05.2019. On 04.02.2025, the AR also filed such confirmation letter issued by M/s.Jeelani Coffee Curers. Correctness of these confirmation letters is required to be verified. Also, such confirmation letters from other buyers also need to be obtained and its correctness also is to be verified…..” “…..6.3 In view of the above, I am satisfied that the order u/s. 143(3) r.w.s. 144B of the Income Tax Act dt. 18.07.2022 is erroneous insofar as it is prejudicial to the interests of the revenue. Accordingly, in exercise of the powers conferred u/s 263 of Income Tax Act, 1961, I set aside the aforesaid order with the direction to the Assessing Officer to pass a fresh assessment order as per law after making necessary inquiries and verification and also by considering the issues discussed in the preceding paras. The Assessing Officer is also directed to afford opportunity of being heard to the assesse before passing the order and pass fresh assessment order accordingly….” Now assessee is in appeal before us. ITA No.761 /Chny/2025 Page - 7 - of 26 4. The ld. AR for the assessee has contended as under: “….3. The appellant owns about 60.61 acres of coffee estate lands at Suntikoppa village -571 237, Kodagu District, Karnataka. The sale of coffee beans and green pepper constitutes agricultural income of the appellant. The one and only issue for consideration in this appeal is the application of Rule 7B of the IT Rules, 1962. According to sub-rule (1) of rule 7B, 25% of the income derived from sale of coffee gown and cured by the seller shall be deemed to be business income. According to sub-rule (1A) of rule 7B, 40% of income derived from the sale of coffee grown, cured, roasted and grounded shall be deemed to be business income. As per the Explanation to Rule 7B, \"for the purposes of sub-rule (1) and (1A) \"curing\" shall have the same meaning as assigned to it in clause (d) of sec. 3 of the Coffee Act, 1942. Sec. 3(d) of the Coffee Act, 1942 reads thus: \"Curing\" means the application to raw coffee of mechanical processes other than pulping for the purpose of preparing it for marketing\". The appellant wishes to emphasize that he sold raw coffee beans as such before the mechanical process of curing and, therefore, sub-rule (1) or (1A) of Rule 7B does not apply to the facts of his case….” 5. Per contra, the ld.DR Mr. M. K. Biju, CIT relied upon the impugned order of the PCIT and vehemently supported the reasoning of the order. 6. We have heard the rival submissions and perused the record of the order of the PCIT and submissions of the assessee. 7. The questionnaire/ Annexure to notice u/s 142(1) dated 05.11.2021 vide DIN ITBA/AST/F/142(1)/2021-22/1036740938(1) is as under: ITA No.761 /Chny/2025 Page - 8 - of 26 ANNEXURE “…..Kindly provide the following details: 1. Provide the details of Nature and type of Agricultural income along with details of processes undertaken. 2. Provide the details of Measurement of Agricultural land in acre. 3. Details of Whether Agricultural land is owned or held on lease. 4. Details of whether Agricultural land is irrigated or rain fed. 5. Provide the details of Name of district along with PIN code in which Agricultural land is situated 6. Copy of Khatauni (crop record maintained by State Govt) 7. Doumentary evidences with regard mode of sale of Agricultural proceeds along with copy of contracts, if any. 8. Documentary evidences with regard to following Expenses :- - Seed - Fertilizer -Pesticides Koshmaali Daan INCOME TAX DEPARTMENT - Labour Charges - Water Bill - Electricity Bill - Processing cost Depreciation on fixed assets - Land cess - Other Taxes - Interest on working capital 9. Provide the details of In case of land held on lease, the amount and documentary evidence of lease rent paid, if any. 10. Details of In case Agricultural income is declared first time then Date & source of investment in land, if any 11. Details of sale of immovable property during the year, if any. 12. Copy of Nature & details of Total Income, if any. 13. Details of Kisaan Credit card, if any 14. Copy of Cash flow statement, if any 15. Copy of all bank statements along with annexures….” 8. The assessee filed reply dated 20.11.2021 to questionnaire/Annexure to notice u/s 142(1) dated 05.11.2021 by filing all details as under: ITA No.761 /Chny/2025 Page - 9 - of 26 ITA No.761 /Chny/2025 Page - 10 - of 26 ITA No.761 /Chny/2025 Page - 11 - of 26 ITA No.761 /Chny/2025 Page - 12 - of 26 ITA No.761 /Chny/2025 Page - 13 - of 26 ITA No.761 /Chny/2025 Page - 14 - of 26 9. We find that the AO vide notice u/s 142(1) dated 05.11.2021 specifically asked for the following details: 1. Provide the details of Nature and type of Agricultural income along with details of process undertaken. …………………………. 7. Documentary evidences with regard mode of sale of Agricultural proceeds along with copy of contracts, if any. 10. The assessee specifically replied query Nos.1 & 7 as under: (1) Provide the details of Nature and type of Agricultural income along with details of process undertaken:- Agricultural Income is from Sale of Coffee and Peper. Coffee Picked, dried and sold as raw coffee. (7) Documentary evidences with regard mode of sale of Agricultural proceeds along with copy of contracts, if any. ANNEXURE Kindly provide the following details: 1. Provide the details of Nature and type of Agricultural income along with details of processes undertaken. 2. Provide the details of Measurement of Agricultural land in acre. 3. Details of Whether Agricultural land is owned or held on lease. 4. Details of whether Agricultural land is irrigated or rain fed. 5. Provide the details of Name of district along with PIN code in which Agricultural land is situated 6. Copy of Khatauni (crop record maintained by State Govt) 7. Doumentary evidences with regard mode of sale of Agricultural proceeds along with copy of contracts, if any. 8. Documentary evidences with regard to following Expenses :- - Seed - Fertilizer -Pesticides Koshmaali Daan INCOME TAX DEPARTMENT ITA No.761 /Chny/2025 Page - 15 - of 26 - Labour Charges - Water Bill - Electricity Bill - Processing cost Depreciation on fixed assets - Land cess - Other Taxes - Interest on working capital 9. Provide the details of In case of land held on lease, the amount and documentary evidence of lease rent paid, if any. 10. Details of In case Agricultural income is declared first time then Date & source of investment in land, if any 11. Details of sale of immovable property during the year, if any. 12. Copy of Nature & details of Total Income, if any. 13. Details of Kisaan Credit card, if any 14. Copy of Cash flow statement, if any 15. Copy of all bank statements along with annexures Further, we also find that assessee categorically explained the controversy in the light of the Rule 7B(1) as under: “It would be appropriate to state that, as already mentioned in the answers to query Nos.1 and 7 above, the raw coffee beans, after drying, are sold as such i.e; without “curing” and, therefore, the provisions of sub-Rules (1) and (1A) of Rule 7B(1) of the Income Tax Rules, 1962 are not applicable. Accordingly, the entire sale proceeds of raw coffee beans as reduced by expenses is admitted as ‘agricultural income’. 11. We find that during the assessment proceedings a detailed enquiry and examination with respect to the issue under consideration was undertaken by the Ld. AO in the course of assessment, even if one were to say that such enquiry was inadequate, the same cannot be a ground for proceedings under Section 263 of the Act. It is a settled principle that there is a distinction between \"lack of enquiry' and 'inadequate enquiry. It is only in cases of lack of inquiry that such a ITA No.761 /Chny/2025 Page - 16 - of 26 course of action under section 263 would be open. In this regard, we may refer the following judicial precedents: - Kwality Steel Suppliers Complex SC 395 ITR 1 Virtusa Consulting Services (P.) Ltd. HC-Madras 442 ITR 385 Globus Infocom Ltd. HC-Delhi 369 ITR 14 Sunbeam Auto Ltd. HC-Delhi 332 ITR 167 Mohak Real Estate (P.) Ltd HC-Delhi 161 taxmann.com 388 Clix Finance India (P.) Ltd HC-Delhi 298 Taxman 217 Spectra Shares & Scrips (P) Ltd. HC-Andra Pradesh 354 ITR 35 Chemsworth (P.) Ltd. HC-Karnataka 119 taxmann.com 358 Shriram Properties Limited ITAT-Chennai 2023 (4) TMI 375 Cavinkare (P.) Ltd. ITAT-Chennai 149 taxmann.com 296 Rajkumar Impex Pvt. Limited ITAT-Chennai 2023 (6) TMI 812 FCA Engineering India Pvt. Ltd. ITAT-Chennai ITΑ 684/CHNY/2023 Keller (M) SDN BHD ITAT-Chennai ITA 1319/CHNY/2023 International Seaport Dredging Pvt. Limited ITAT-Chennai ΙΤΑ1597/CHNY/2024 Sindya Securities & Investments (P.) Ltd. ITAT-Chennai 157 taxmann.com 591 Torrent Pharmaceuticals Ltd. ITAT Ahmedabad 97 taxmann.com 671 ITA No.761 /Chny/2025 Page - 17 - of 26 12. We are of the considered view that if a query was raised during original assessment which was responded by the Appellant and issue was allowed in the assessment, even if such enquiry is inadequate, the PCIT was not justified in invoking the provisions of section 263 of the Act. We further add that the PCIT can invoke revisionary jurisdiction under section 263 of the Act only if the order subject to revision, passed by the Ld. AO is both erroneous as well as prejudicial to the interest of the revenue and further, if the Ld. AO had taken one of the plausible views which the Ld. PCTT does not agree with, it cannot be treated as erroneous order prejudicial to the interest of revenue, unless the view taken by the Ld. AO is unsustainable in law. 13. We may refer recent judgment of the Hon’ble Delhi High Court dated 01.03.2024 passed in ITA No.1428/2018 in the case of Pr. Commissioner of Income Tax -2, Delhi Vs M/s Clix Finance India Pvt. Ltd. which after considering section 263 of the Act and various settled judgments of the Hon’ble Supreme Court and Hon’ble High Courts held as under: ‘’15. We have heard the learned counsel appearing on behalf of the parties and perused the record. 16. Vide order dated 06.11.2019, this Court framed the following question of law:- A. Whether, in the facts and circumstances of the case, the Hon'ble ITAT was justified in quashing the order under Section 263 of the Income Tax Act? 17. The brief controversy involved in the present appeal pertains to the invocation of revisional jurisdiction under Section 263 of the Act by the CIT to set aside the original assessment order dated 30.03.2005. 18. Before adverting to the merits of the case, it is apposite to refer to the power of the revisional authority of the CIT envisaged as per Section 263 of the Act. For the sake of clarity, the relevant extract of Section 263 of the Act is reproduced as under: ‘’263. Revision of orders prejudicial to revenue (1) The [Principal Chief Commissioner or Chief Commissioner or Principal Commissioner] or Commissioner] ITA No.761 /Chny/2025 Page - 18 - of 26 may call for and examine the record of any proceeding 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 interest 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 92- CA; or (iii) an order cancelling the order under Section 92-CA and directing a fresh order under the said section.] *** [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.] ***’ 19. A bare reading of sub-Section (1) of Section 263 of the Act makes it abundantly clear that the said provision lays down a two-pronged test to exercise the revisional authority i.e., firstly, the assessment order must be erroneous and secondly, it must be prejudicial to the interests of the Revenue. Further, Explanation 2 to Section 263 of the Act delineates certain conditions and circumstances when the order passed by the AO can be said to be erroneous and prejudicial to the Revenue. 20. Clause (a) of Explanation 2 to Section 263 of the Act further stipulates that if an order is passed without making an enquiry or verification which should have been made, the same would bestow a revisional power upon the Commissioner. However, the said Clause or any other condition laid down in Explanation 2 does not warrant recording of the said enquiry or verification in its entirety in the assessment order. 21. Admittedly, in the instant case, the questionnaire dated 02.11.2004, which has been annexed and brought on record in the ITA No.761 /Chny/2025 Page - 19 - of 26 present appeal, would manifest that the AO had asked for the allowability of the claims with respect to the issues in question. Consequently, the respondent-assessee duly furnished explanations thereof vide replies dated 09.12.2004, 20.12.2004 and 06.01.2005. Thus, it is not a case where no enquiry whatsoever has been conducted by the AO with respect to the claims under consideration. However, this leads us to an ancillary question? whether the mandate of law for invoking the powers under Section 263 of the Act includes the cases where either an adequate enquiry has not been made and the same has not been recorded in the order of assessment or the said authority is circumscribed to only consider the cases where no enquiry has been conducted at all. 22. Reliance can be placed on the decision of this Court in the case of CIT v. Sunbeam Auto Ltd. [2009 SCC OnLine Del 4237], wherein, it was held that if the AO has not provided detailed reasons with respect to each and every item of deduction etc. in the assessment order, that by itself would not reflect a non-application of mind by the AO. It was further held that merely inadequacy of enquiry would not confer the power of revision under Section 263 of the Act on the Commissioner. The relevant paragraph of the said decision reads as under:- 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 that while passing the assessment order, the Assessing Officer 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 Assessing Officer had not applied his mind on the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment 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 ITA No.761 /Chny/2025 Page - 20 - of 26 inadequate that would not by itself give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has a different opinion in the matter. It is only in cases of \"lack of inquiry\" that such a course of action would be open. In Gabriel India Ltd. (1993) 203 ITR 108 (Bom), law on this aspect was discussed in the following manner (page 113) ** 23. A similar view was taken by this Court in the case of CIT v. Anil Kumar Sharma [2010 SCC OnLine Del 838], wherein, it was held that once it is inferred from the record of assessment that AO has applied its mind, the proceedings under Section 263 of the Act would fall in the category of Commissioner having a different opinion. Paragraph 8 of the said decision reads as under:- 8. In view of the above discussion, it is apparent that the Tribunal arrived at a conclusive finding that, though the assessment order does not patently indicate that the issue in question had been considered by the Assessing Officer, the record showed that the Assessing Officer had applied his mind. Once such application of mind is discernible from the record, the proceedings under section 263 would fall into the area of the Commissioner having a different opinion. We are of the view that the findings of facts arrived at by the Tribunal do not warrant interference of this court. That being the position, the present case would not be one of \"lack of inquiry\" and, even if the inquiry was termed inadequate, following the decision in Sunbeam Auto Ltd. (2011) 332 ITR 167 (Delhi) (page 180) : \"that would not by itself give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has a different opinion in the matter.\" No substantial question of law arises for our consideration. 24. In Ashish Rajpal as well, this Court was of the view that the fact that a query was raised during the course of scrutiny which was satisfactorily answered by the assessee but did not get reflected in the assessment order, would not by itself lead to a conclusion that there was no enquiry with respect to transactions carried out by the assessee. 25. Further, the decision of the Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd., enunciates the meaning and intent of the phrase ’prejudicial to the interests of the Revenue’, in the following words:- ’8.The phrase ‘prejudicial to the interests of ITA No.761 /Chny/2025 Page - 21 - of 26 the Revenue’ is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The High Court of Calcutta in ‘Dawjee Dadabhoy & Co.v.S.P. Jain[(1957) 31 ITR 872(Cal)], the High Court of Karnataka in CITv.T. Narayana Pai[(1975) 98 ITR 422(Kant)], the High Court of Bombay in CITv.Gabriel India Ltd.[(1993) 203 ITR 108(Bom)] and the High Court of Gujarat in CITv.Minalben S. Parikh[(1995) 215 ITR 81(Guj)] treated loss of tax as prejudicial to the interests of the Revenue. 9. Mr. Abraham relied on the judgment of the Division Bench of the High Court of Madras in Venkatakrishna Rice Co.v.CIT[(1987) 163 ITR 129(Mad)] interpreting ‘prejudicial to the interests of the Revenue’. The High Court held: “In this context, (it must) be regarded as involving a conception of acts or orders which are subversive of the administration of revenue. There must be some grievous error in the order passed by the Income Tax Officer, which might set a bad trend or pattern for similar assessments, which on a broad reckoning, the Commissioner might think to be prejudicial to the interests of Revenue Administration’’. In our view this interpretation is too narrow to merit acceptance. 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. 10. 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, 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 interests 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 ITA No.761 /Chny/2025 Page - 22 - of 26 as such will be erroneous and prejudicial to the interests of the Revenue. (See ‘Rampyari Devi Saraogiv CIT[(1968) 67 ITR 84(SC)] and in ‘’Tara Devi Aggarwalv.CIT[(1973) 3 SCC 482:1973 SCC (Tax) 318:(1973) 88 ITR 323].) [Emphasis supplied] 26. Recently, the Hon’ble Supreme Court in the case of CIT v. Paville Projects (P) Ltd. [2023 SCC OnLine SC 371], while relying upon Malabar Industrial Co. Ltd., has discussed the sanctity of two-fold conditions for the purpose of invoking jurisdiction under Section 263 of the Act. The relevant paragraph of the said decision reads as under:- Learned counsel appearing on behalf of the assessee has heavily relied upon the decision of this Court in the case of Malabar Industrial Co. Ltd.(supra). It is true that in the said decision and on interpretation of Section 263of the Income Tax Act, it is observed and held that in order to exercise the jurisdiction under Section 263(1)of theIncome tax Act, 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. It is further observed that if one of them is absent, recourse cannot be had to Section 263(1) of the Act. ***’. 27. Considering the aforesaid judicial pronouncements, it can be safely concluded that inadequacy of enquiry by the AO with respect to certain claims would not in itself be a reason to invoke the powers enshrined in Section 263 of the Act. The Revenue in the instant case has not been able to make out a sufficient case that the CIT has exercised the power in accordance with law. Rather, in our considered opinion, the facts of the case do not indicate that the twin conditions contained in Section 263 of the Act are fulfilled in its letter and spirit. 28. Notably, the ITAT, while making a categorical finding that the CIT had failed to point out any definite or specific error in the assessment order, has satisfactorily explained both the claims in question in Paragraph 8.2 of its order, which reads as under:- “8.2 In the Impugned Order, the Ld. Commissioner of Income Tax-IV, Delhi held that the AO had not examined the aforesaid two issues properly and, therefore, set aside the issues for ITA No.761 /Chny/2025 Page - 23 - of 26 further inquiries to be conducted by the AO. As regards the first issue is concerned, we note that out of total provision of Rs. 1114.68 lacs, a sum of Rs. 7,60,76,105/- was suo moto added back in the computation of income and a further sum of Rs. 73,46,160- was disallowed by the AO in the original assessment order dated 30.3.2005. Therefore, out of Rs. 1114.68 lacs, Rs. 834.22 lacs already stood disallowed in the original assessment order. The balance amount represented actual write off which was palpably clear from page 2 of the impugned order itself. No deduction on account of any such provision was, therefore, allowed to the assessee. Hence, there is no error or prejudice to the interest of revenue. As regards second issue it was noted that interest rate swap was an actual loss and only the net loss of Rs. 114.05 lacs after setting of gain of interest rate swap was claimed as deduction. However, we find that both these issues were duly examined by the AO vide Questionnaire dated 2.11.2004 (Page 1-2 of the Paper Book) to which replies dated 9.12.2004, 20.12.2004 and 6.1.2005 (Page No. 3-39 of Paper Book-1) were furnished and, therefore, the finding of the Ld. CIT that the issues were not examined properly was not correct. Even the Ld. CIT has not pointed out the definite and specific error in the original assessment order and observed that the inquiry made by the AO was inadequate or improper without first pointing out the error in the original assessment order passed by the AO, particularly because both the aforesaid issues were duly examined at the stage of the original assessment proceedings, hence, the impugned order is beyond jurisdiction, bad in law and void-ab-initio’’. 29. It is discernible from the aforenoted findings of the ITAT that both the claims were duly examined during the original assessment proceedings itself and neither there was any error nor the same was prejudicial to the interests of the Revenue. Thus, the findings of fact arrived at by the ITAT do not warrant any interference of this Court. 30. So far as the reliance placed by the CIT on Umashankar Rice Mill is concerned, the same is misplaced, particularly in light of the insertion of Explanation 2 to Section 263 of the Act, brought in place by the Finance Act, 2015. The said amendment markedly specifies various conditions to exercise the authority vested in the ITA No.761 /Chny/2025 Page - 24 - of 26 Commissioner under Section 263 of the Act, leaving no ambiguity in the interpretation of the said provision. 31. In view of the aforesaid, the appeal preferred by the Revenue is dismissed along with the pending application(s), if any’’. 14. The Hon'ble Supreme Court in the case of CIT vs. M.Chandra Sekhar [151 ITR 433 (SC)] has held that the presumption that A.O. has considered the details filed by the assessee was \"founded\" on the principle that an officer entrusted with a judicial or quasi- judicial duty must be presumed to have discharged his duties in a proper and bonafide manner. This view is confirmed by the full bench decision of the Delhi high court in CIT Vs. Kelvinator of India Ltd (256 ITR 1) (Delhi FB), was upheld by the Supreme court in Commissioner of Income Tax Vs. Kelvinator Of India Ltd ( 320 ITR 561)(SC). 15. The Hon’ble High Court of Bombay in the case of Marico Ltd., vs. ACIT in writ petition No.1917 of 2019 dated 21.08.2019, wherein the Hon’ble High Court has clearly pointed out once a query has been raised by the AO during the assessment proceedings and the assessee has responded to that query, it would necessarily follow that the AO has accepted the assessee’s submission, so as to not deal with that issue in the assessment order. 16. Even the Hon’ble High Court of Bombay in the case of PCIT vs. Shivshahi Punarvasan Prakalp Ltd., in ITA No.397 of 2018, order dated 05.08.2022 has considered the issue of no enquiry case or inadequate enquiry even after the insertion of Explanation 2 in para 32 as under:- ITA No.761 /Chny/2025 Page - 25 - of 26 “32. In this appeal, we are concerned with the assessment year 2006-07. Prior to the insertion of Explanation 2, it was the prerogative of the Assessing Officer to determine what enquiry he wants to make while completing the assessment. We have already observed that an enquiry was made by the Assessing Officer and the assessment order passed. Therefore, the CIT could not invoke jurisdiction under Section 263 as the view taken by the Assessing Officer was a possible/plausible view. It was only if the Assessing Officer had not made any enquiry then it could be said that the order passed was erroneous. This is not a case of lack of enquiry though it may be a case of inadequate enquiry. Inadequacy of enquiry as elucidated above does not give jurisdiction to the CIT to invoke provisions of Section 263 prior to the insertion of Explanation 2. In our view, the Explanation 2 does not help the revenue in as much as the same is prospective and applicable with effect from 1st June, 2015.” 17. Hence, in the factual matrix of the present case and in the light of above judgment and cases cited at bar, we are of the considered view that the impugned order is liable to be set aside. In this case every query has been replied by the assessee during assessment proceedings including Rule 7B. A second view cannot be taken in the garb of section 263 on same set of facts which were already categorically discussed earlier and assessment order has been passed. Accordingly, we set aside the impugned order dated 14.02.2025 passed u/s 263 of the Act. 18. In result, appeal of the assessee is allowed. Order pronounced in the open court on 25th day of June, 2025 at Chennai. Sd/- Sd/- (एस.आर.रघुनाथा) ( मनु क ुमार गिरर) (S.R. RAGHUNATHA) ( MANU KUMAR GIRI) लेखा सदस्य / Accountant Member न्याययक सदस्य/ Judicial Member ITA No.761 /Chny/2025 Page - 26 - of 26 चेन्नई/Chennai, धदनांक/Dated: 25th , June-2025. KB/- आदेश की प्रतितिति अग्रेतिि/Copy to: 1. अिीिार्थी/Appellant 2. प्रत्यर्थी/Respondent 3. आयकर आयुक्त/CIT - 4. तिभागीय प्रतितिति/DR 5. गार्ड फाईि/GF "