DABUR INDIA LTD.,NEW DELHI V. PCIT - 1, NEW DELHI

ITA 2075/DEL/2024

AI Insights

The case involves M/s. Dabur India Limited appealing against the order of the Principal Commissioner of Income-tax, Delhi-1, which directed a fresh assessment under section 263 of the Income-tax Act, 1961 for the Assessment Year 2018-19. The Principal Commissioner had found the original assessment order to be erroneous and prejudicial to the interest of the revenue, primarily due to alleged inadequate enquiries by the Assessing Officer regarding deductions claimed under sections 35(1), 35(2AB), 80IA, and 80IC. The Tribunal, after reviewing the submissions and the legal provisions, concluded that the Principal Commissioner's order did not meet the twin conditions required for invoking section 263, as it was neither erroneous nor prejudicial to the revenue's interests.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 784569 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-11-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2018-2019
• Appeal Filed On: 30-04-2024
• Other Referred Cases: Malabar Industrial Co. Ltd. vs. CIT, Honda Siel Power Products Ltd. vs. CIT, Shreeji Prints Pvt. Ltd. vs. PCIT, Dharam Singh vs. PCIT, DG Housing Projects Ltd. vs. ITO
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJEEV KAUSHAL; CITDR
• Assessee Lawyers: M.P. RASTOGI
• Keywords: Set aside; Opportunity of being heard; Revenue expenditure; Transfer pricing; Depreciation; Capital expenditure; Principle of natural justice; Earning of tax free income; Assessment record; Revision of order
• Section: 143(3); 263; 32; 37; 14A; 80IB; 80G

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES ‘B’: NEW DELHI. BEFORE SHRIS.RIFAUR RAHMAN, ACCOUNTANT MEMBER and SHRI VIMAL KUMAR, JUDICIAL MEMBER ITA No.2075/Del/2024 (Assessment Year: 2018-19) M/s. Dabur India Limited, vs. Pr.CIT, Delhi – 1, 8/3, Asaf Ali Road, Delhi. New Delhi – 110 002. (PAN :AAACD0474C) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri M.P. Rastogi, Advocate REVENUE BY : Shri Sanjeev Kaushal, CITDR Date of Hearing : 18.08.2025 Date of Order : 14.11.2025 ORDER PER S. RIFAUR RAHMAN, ACCOUNTANT MEMBER : 1. The assessee has filed appeal against the order of the ld. Principal Commissioner of Income-tax, Delhi-1[“Ld. PCIT”, for short] dated 29.03.2024for the Assessment Year 2018-19. 2. Brief facts of the case are, the case of the assessee was picked up for scrutiny for AY 2018-19 and the assessment under section 143(3) of the Income-tax Act, 1961 (for short ‘the Act’) was completed on 29.10.2021. Ld. PCIT, Delhi–1 on verification of the abovesaid assessment record observed that the order passed by the AO is erroneous insofar as it is prejudicial to the interest of Revenue for the Printed from counselvise.com reasons that historically issues on which addition was made in earlier years but no such disallowance/addition was made in this year u/s 35(2AB) of the Act. He observed that assessee had claimed deduction u/s 35(2AB) and AO has allowed the above said deduction claimed by the assessee. However, in AY 2017-18, the erstwhile AO had made the addition on this issue. The AO should have made proper enquiries to verify whether the assessee is entitled for deduction under this section in this year as well. He observed that several other issues were also not verified by the AO as discussed at page 2 of the impugned order and accordingly notice u/s 263 Of the Act was issued to the assessee. Assessee filed its objections. After considering the above objections, ld. PCIT observed that the assessee has submitted basic details, submitted copies of statutory forms and approval etc. and a larger number of section 80G donation receipts. It also submitted various circulars and explanation notes to the provision of Finance Act, 2009. It also filed Form 10DA and audited report as per Rule 18BBB for deduction u/s 80IA was filed. For deduction claimed u/s 35(1) only Form 3CL was filed before the AO. No computation of income or audited financial statement was filed before the AO. Apart from this, for the Transfer Pricing Officer’s proposal, a brief note for making necessary corrections was submitted. After considering the information contained in the assessment records, he was of the view that AO has made identical enquiry and verification of the claim based Printed from counselvise.com on the information submissions and queries raised by ld. under :- 3. After considering the above submissions, ld. PCIT rejected the same and held that assessment order is erroneous insofar as prejudic interest of Revenue. Further he directed the AO to verify and examine information submitted by the assessee. In response to the above submissions and queries raised by ld.PCIT, assessee submitted as After considering the above submissions, ld. PCIT rejected the same and held that assessment order is erroneous insofar as prejudic interest of Revenue. Further he directed the AO to verify and examine itted by the assessee. In response to the above CIT, assessee submitted as After considering the above submissions, ld. PCIT rejected the same and held that assessment order is erroneous insofar as prejudicial to the interest of Revenue. Further he directed the AO to verify and examine Printed from counselvise.com the correctness and admissibility of claim of deduction u/s 80I/80IC. He directed the AO as under ;- “1. Verify and examine the correctness and admissibility of claim of deduction 80IA/80IC. AO may conduct following inquiries: a. The AO may call for books of accounts and accompanying bills and vouchers and also transportation evidences to verify the transfer of each and every items of Plant and Machinery mentioned in column 26(d) of Form 10CCB. b. AO may verify the correctness of the value of plant and machinery received on transfer and fulfillment of all the conditions including conditions mentioned in section 32 and conditions mentioned in section 80IA(3)(ii) read with Proviso and Explanation 1 and Explanation 2 and other relevant conditions as per Rule 18BBB. c. AO may call for and examine separate balance sheet and P&L A/c for each of the undertakings as per the requirement of section 80IA/80IC. The claim may be disallowed if all the conditions as per the Income Tax Act and Rules are not fulfilled or verified to be true. 2. AO may do the verifications regarding duty drawback received, which was one of the CASS reasons was not seen by AO in the assessment proceedings. In case the figures do not get reconciled, necessary additions on this account may be made. 3. AO may examine the issue regarding reduction in profit because of application of income computation & Disclosure standards has not been examined by the AO at all. After obtaining clarifications and details with reference to impact of accounting standards in the light of auditor's notes regarding financial statements, necessary addition or disallowance may be made. 4. The disallowance u/s 14A may be verified and examined. 5. The AO may examine the allowability of deduction u/s 80JJAA as the conditions of the section need to be verified for its full compliance as per various sub sections of this section. 6. The claim of the assessee for deductions u/s 35(1) and u/s 35(2AB) is disallowed in view of detailed facts brought out above in this order wherein all the conditions are found to be not fulfilled. The form cannot be more important than the substance, as is the basis Printed from counselvise.com principle of the jurisprudence. AO is directed that the income computed in the assessment order dated 29.10.2021 may be accordingly revised withdrawing these two deductions. The income as per assessment order is enhanced to this extent. Further, the income may get further enhanced and shall be computed as such on the basis of any further disallowance/addition made by the AO as per the directions contained in 1 to 5 above.” 4. After verification of the above, he directed that the income as per assessment order is enhanced to that extent and accordingly AO is directed to recompute the income may be revised withdrawing the deductions u/s 35(1) and 35(2AB) and redo the assessment as per the above directions. 5. Aggrieved with the above order, assessee is in appeal before us raising following grounds of appeal :- “1. That the order of the Assessing Officer passed u/s 143(3) of the Income-tax Act, 1961 (the Act) dated 29th October 2021 was neither erroneous nor prejudicial to the interest of Revenue as contemplated u/s 263 of the Act and consequently the order passed by Pr. CIT u/s 263 is arbitrary and bad in law. 2. That the Pr. CIT has erred on facts and under the law while holding that the order of the Assessing Officer is erroneous and prejudicial to the interest of Revenue as the same was passed without computation of income and audited financial statements and accordingly the order of the Pr. CIT is arbitrary, unjust and not in accordance with law and based on suspicion. 3. That the Pr. CIT has erred on facts and under the law in holding that the order of the Assessing Officer is erroneous and prejudicial to the interest of Revenue merely on the basis of alleged inadequate enquiries/verification about eligibility of deduction u/s 80- IC/80-IA of the Act and the various observations so made are based on surmises and conjectures without any finding about the non- eligibility of the deductions which were also allowed in earlier years and in subsequent years and accordingly the order of the Pr. CIT u/s 263 of the Act is arbitrary, unjust and bad in law and not based on evidences. Printed from counselvise.com 4. That in the absence of any finding about the incorrectness of the claim made by the assessee and allowed by the Assessing Officer, after examining the details, in order u /s 263 of the Act, the Pr. CIT has no jurisdiction u/s 263 to direct the Assessing Officer to re- examine and re-verify the claim of deduction u/s 80-IA and 80-IC of the Act. 5. That in the absence of any finding about the incorrectness of the claim u/s 80-IA /80-IC of the Act made by the assessee and allowed by the Assessing Officer, after examining the details, in order u/s 263 of the Act, the Pr. CIT has no jurisdiction u/s 263 to direct the Assessing Officer to re-examine and re-verify the claim of deduction u/s 80-IA and 80-IC of the Act. 6. That the Pr. CIT has erred on facts and under the law while holding that the Assessing Officer has not verified duty drawbacks and CASS reasons while framing the assessment u/s 143(3) of the Act and consequently the order of the Pr. CIT u/s 263 holding the order of the Assessing Officer as erroneous and prejudicial to the interest of Revenue is arbitrary and bad in law. 7. That in the absence of any finding about the incorrectness of duty draw back received by the assessee and considered by the Assessing Officer, after examining the details, in order u/s 263 of the Act, the Pr. CIT has no jurisdiction u/s 263 to direct the Assessing Officer to re-verify the duty drawback received by the assessee. 8. That the Pr. CIT has erred on facts and under the law that without giving any finding about the effect of application of income computation and disclosure standards adopted by the company under the Income-tax Act and accordingly in the absence thereof the order as passed by the Pr. CIT holding that the order of the Assessing Officer is erroneous and prejudicial to the interest of Revenue is arbitrary and bad in law. 9. That in the absence of any finding about the incorrectness of the claim u/s 80JJAA of the Act made by the assessee and allowed by the Assessing Officer, after examining the details, in order u/s 263 of the Act, the Pr. CIT has no jurisdiction u/s 263 to direct the Assessing Officer to re-examine and re-verify the claim of deduction u/s 80- JJAA of the Act. 10. That the Pr. CIT has erred on facts and under the law that the details of claim and admissible deduction under Chapter VIA remained in fully established, though examined by the Assessing Officer while framing the assessment and accordingly the order passed by the Pr. CIT u/s 263 of the Act holding that the order of the Printed from counselvise.com Assessing Officer is erroneous and prejudicial to the interest of Revenue, is arbitrary, unjust and bad in law. 11. That in the absence of any finding about the incorrectness of the claim u/s 14A of the Act made by the assessee and allowed by the Assessing Officer, after examining the details, in order u/s 263 of the Act, the Pr. CIT has no jurisdiction u/s 263 to direct the Assessing Officer to re-examine and re-verify the claim of deduction u/s 14A of the Act. 12. That the Pr. CIT has erred on facts and under the law to disallow the deduction u/s 35(1) and u/s 35(2AB) of the Act, the eligible condition thereof was fully examined by the Assessing Officer in the course of original assessment proceedings, in order u/s 263 of the Act. 13. That the Pr. CIT has erred on facts and under the law in holding that the order passed by the Assessing Officer is without making enquiries and verification or the order has been passed allowing any relief without enquiring into the claim, is erroneous and prejudicial to the interest of Revenue. 14. That the assumption of jurisdiction u/s 263 of the Act by Pr. CIT to make roving and fresh enquiries or verification in respect of various items, duly examined by the Assessing Officer in assessment proceedings u/s 143(3) of the Act and then giving direction to the Assessing Officer for further examination, is arbitrary, unjust and bad in law.” 6. At the time of hearing, ld. AR of the assessee submitted as under :- 1. The Pr. CIT has set aside the assessment order dated 9thFebruary 2016 passed by AO u/s 263 of the Act. The provision of Section 263 reads as under: “Revision of orders prejudicial to revenue. 263. (1) The Principal Chief Commission or Chief Commissioner or Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the revenue, 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 Printed from counselvise.com 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) ……. (ii) ……. (iii) ……. Printed from counselvise.com (b) “record” shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner; (c) ........... 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. ……….. ………. ………… 6.1 The provision of Section 263 of the Act was under consideration from time to time before the Hon’ble Supreme Court and various High Courts including the Jurisdictional Delhi High Court. The Hon’ble Supreme Court in the case of Malabar Industrial Court Co. Ltd. vs. CIT in 243 ITR 83 held that the prerequisite for the exercise of jurisdiction by the Commissioner suo moto u/s 263 of the Act is that the ITO's order is erroneous in so far as it is prejudicial to the interest of the Revenue. The Commissioner has to be satisfied of twin conditions namely (i) the AO’s order sought to be revised is erroneous, and (ii) it is prejudicial to the interest of the Revenue. If one of them is absence, then the recourse cannot be had to Section 263 of the Act. The provision cannot be invoked to correct each and every' type of mistake or error committed by AO. The Hon’ble Supreme Court at pages 87-88 of the Report observed as under: “A bare reading of this provision makes it clear that the prerequisite to exercise of jurisdiction by the Commissioner suo moto under it, is that Printed from counselvise.com 10 ITA No.2075/Del/2024 the order of the Income-tax Officer is erroneous insofar 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. There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. 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. 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 ordinary meaning it is of wide import and is not confined to loss of tax. The High Court of Calcutta in Dawjee Dadabhoy & Co. vs. S.P. Jain and Another [31 ITR 872), the High Court of Karnataka in Commissioner of Income-tax, Mysore vs. T. Narayana Pai [98 ITR 422), the High Court of Bombay in Commissioner of Income-tax vs. Gabriel India Ltd. [203 ITR 108] and High Court of Gujarat in Commissioner of Income-tax vs. Smt. Minalben S. Parikh [215 ITR 81) treated loss of tax as prejudicial to the interests of the Revenue. Mr. Abaraham relied on the judgment of the Division Bench of the High Court of Madras in Venkatakrishna Rice Company vs. Commissioner of Income-tax [163 ITR 129] 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. The phrase “prejudicial to the interests of the Revenue” has to be read in Printed from counselvise.com 11 ITA No.2075/Del/2024 conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of 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 as such will be erroneous and prejudicial to the interests of the Revenue, Rampyari Devi Sarangi vs. CIT [1968] 67 ITR 82 (SC) and in Smt. Tara Devi Aggarwal vs. CIT [1973] 88 ITR 323 (SC).” The same principle has also been reiterated in the following cases: • 259 ITR 502 (Guj), CIT vs. Arvind Jewellers • 354 ITR 489 (Kar), CIT vs. Digital Global Soft Ltd. • 295 ITR 282 (SC), CIT vs. Max India Ltd. • 395 ITR 1 (SC), CIT vs. Quality Steel Suppliers Complex 6.2 Keeping into consideration the principle as propounded by the Hon’ble Supreme Court in the case of Malabar Industrial (supra), it has been further held by the Hon’ble Jurisdictional High Court in the case of CIT vs. Honda Siel Power Products Ltd. in 333 ITR 547 that where the AO adopts one of the courses permissible in law or where two views are possible and the AO has adopted one of the views, the Commissioner cannot exercise his power u/s 263 of the Act. Similar principle has also been reiterated in the following cases: • 259 ITR 502 (Guj), CIT vs. Arvind Jewellers • 395 ITR 1 (SC), CIT vs. Quality Steel Suppliers Complex • 407 ITR 681 (Guj), Micro Inks Ltd. vs. Pr. CIT Application of Explanation 2 to Section 263 of the Act. 7. At page 8 of order passed u/s 263 of the Act, the Pr. CIT has justified his action on account of powers available to the Pr. CIT in terms of Explanation 2 to Section 263 of the Act and stated that after insertion of Explanation 2, the statute has given wide powers to Pr. CIT Printed from counselvise.com 12 ITA No.2075/Del/2024 and he has to draw a fair and prudent conclusion holding an order as erroneous and prejudicial after making and causing such enquiries as he deems necessary. 7.1 From such observation of the Pr. CIT about the interpretation of Explanation 2 to Section 263 of the Act, it appears that he was of the view that Explanation 2 has given him unbridled and arbitrary power to make enquiries in whatever way he likes even on whimsical grounds also. 7.2 The power available under Explanation 2 to Section 263 is being considered by various Benches of the Tribunals, High Courts and the Hon Tale Supreme Court. The courts held that if an AO makes enquiries and takes a reasonable and one of the possible views, then the Pr. CIT cannot impose his views in substitution of the AO. 7.3 In the case of Pr. CIT vs. Shreeji Prints Pvt. Ltd. in 282 Taxman465 (Guj), the Surat Bench of ITAT in ITA No. 406/SRT/2018 dated 31s' May 2019, after considering the CBDT Circular No. 19/2015 dated 27th November 2015 explaining the amendments made by the Finance Act, 2015, commented on the powers available under Explanation 2 of Section 263 in following words: “17. We thus find merit in the plea of the assessee that the Revisional Commissioner is expected show that the view taken by the AO is wholly unsustainable in law before embarking upon exercise of revisionary powers. The revisional powers cannot be exercised for directing a fuller inquiry to merely find out if the earlier view taken is erroneous particularly when a view was already taken after inquiry. If such course of action as interpreted by the Revisional Commissioner in the light of the Explanation 2 is permitted, Revisional Commissioner can possibly find fault with each and every assessment order without himself making any inquiry or verification and without establishing that assessment order is not sustainable in law. This would inevitably mean that every order of the lower authority would thus become susceptible to section 263 of the Act and, in turn, will cause serious unintended hardship to R1TESH the tax payer concerned for no fault on his part. Apparently, this is not intended by the Explanation. Howsoever wide the scope of Explanation 2(a) may be, its limits are implicit in it. It is only in a very gross case of inadequacy in inquiry or where inquiry is per se mandated on the basis of record available before the AO and such inquiry was not conducted, the revisional power so conferred can be exercised to Printed from counselvise.com 13 ITA No.2075/Del/2024 invalidate the action of AO. 7.3.1 The order of Surat Bench of ITAT has been reproduced by the Gujarat High Court while affirming the judgment of the Surat Bench of ITAT reported in 282 Taxman 465 = [2021] 130 taxmann.com 293. 7.3.2 Later on, the SLP filed by the Revenue against the judgment of Gujarat High Court has also been dismissed by the Hon’ble Supreme Court reported in 282 Taxman 464 = 130 taxmann.com 294 in the case of Pr. CIT vs. Shreeji Prints Pvt. Ltd. 7.4 In the case of Pr. CIT vs. Dharam Singh in 342 CTR 653, the Allahabad High Court has also approved the finding of the Delhi Bench of ITAT in ITA No. 821/Del/2022 dated 18th June 2024, which has been reproduced by the Allahabad High Court in paragraph 6 of its judgment. The Delhi Bench of ITAT has commented upon the availability of power under Explanation 2 to Section 263 of the Act in following words: “17. The primary conditions for invoking s. 263 are, the order sought to be revised must be erroneous and at the same time prejudicial to the interest of Revenue. Unless, these twin conditions are satisfied, s. 263 of the Act cannot be invoked. In the facts of the present case, learned Principal CIT has put much emphasis on Expln. 2 to s. 263 of the Act. In our view, Expln. 2 to s. 263 of the Act does not invest unbridled power with the revisionary authority so as to empower him to invoke revisional jurisdiction arbitrarily. The words appearing in Expln. 2(a) to the effect that ‘the order is passed without making inquiries or verification which could have been made’, certainly do not mean that on mere allegation that in the opinion of the revisional authority the AO has not made inquiries or verifications which should have been made, revisionary power can be invoked. Allegation of lack of enquiry by the AO has to be substantiated based on record and cannot be conjured out of thin air.” 7.5 In the case of LOIL Continental Foods Ltd. vs. Pr. CIT in ITA No. 577/CHD/2017, the Coordinate Bench of Chandigarh ITAT, while considering the Explanation 2 to Section 263 of the Act observed that Explanation 2 can be invoked when no enquiry was conducted by AO. The Hon’ble Bench further observed that if enquiry was conducted by AO before finalizing the assessment order, the assessment order cannot be considered as erroneous even if assessment order does not have Printed from counselvise.com 14 ITA No.2075/Del/2024 elaborate discussion on the issues because the assessee has no control over the AO to persuade him to pass the assessment order in a particular manner (See Para 17 of ITAT order placed at page 158 of case laws paper book). 7.6 In the case of Bhupinder Singh vs. Pr. CIT in 233 TTJ 675, in one another matter the Chandigarh Bench of ITAT, while considering the provision of Section 263 of the Act, observed that the assessee is a quasi-judicial process and in quasi-judicial process, one has to go by degree of preponderance of probability, whereas in judicial process, degree of proof required is beyond reasonable doubt. Revenue is required to take a call whether in such cases, enquiries are to be done as a matter or rule or not or to leave it to the wisdom and good sense of the AO. If the AO has knowledge of the background of the assessee, then there is no need that elaborate enquiries are required. 7.7 In the instant case, the AO, not only examined the tax reports available in Form No. 10CCJ in respect of all the units and was also aware about the fact that all the industrial units claiming deduction u/s 80-IB and 80-IC are old units to whom the deduction has always been allowed. Similarly for claiming deduction, the assessee has not only filed the related documents and complied all the formalities and procedural requirements (as detailed expenditure in the chart annexed) has also explained before the AO vide letter dated 7th January 2021 and apart from that even before the Pr. CIT the assessee has explained not only the formalities as complied but also even the work done in research. 8. So in such circumstances, the order of the AO dated 29,h October 2021 cannot be termed as erroneous because the AO has taken the view and allowed the deduction after considering all the details available with him and he was also aware about the background of the assessee wherein the deduction claimed has also been allowed. No final finding in the order of Pr. CIT 9. In the following cases, it has been consistently held by the courts that once the Pr. CIT in proceeding u/s 263 of the Act has obtained all the information and details and discussed the matter with the assessee on various occasions, the Pr. CIT cannot set aside the issues directing the AO to make further enquiries unless and until in the order the Pr. CIT has found any erroneous fact. Printed from counselvise.com 15 ITA No.2075/Del/2024 • 343 1TR 329-338/339 (Del), ITO vs. DG Housing Projects Ltd. Issue-wise comments on order of Pr. CIT - attached separately 10. That the detailed notes in respect of availability of deductions claimed under Chapter VIA relation to deduction u/s 80-IB, 80-IC and 80JJAA of the Act are attached along with the legality of the issues. However, for the sake of convenience, as already submitted, all the industrial units claiming deduction 80-IA and 80-IC arc old ones. The courts always held that the eligible conditions have to be examined in initial years and not in subsequent years. The year under consideration is not the initial year. 10.1 As far as deduction u/s 35 which includes Sections 35(1) and 35(2AB), separate notes attached which evidence that all the formalities and forms were filed by the assessee in time. The DSIR, though passed the order at a later date on 29th October 2024, but the same cannot be made the basis for 263 because the passing of the order by DSIR in Form No. 3CL is not under control of the assessee. 10.2 As far as deduction u/s 14A of the Act is concerned, for which the Pr. CIT has directed the AO to verify and examine, as already submitted before the Pr. CIT that the assessee need not exempt income and in such circumstances no disallowance u/s 14A of the Act can be made as held by various High Courts and the Hon’ble Supreme Court from time to time (See separate note attached) and on this basis the order of AO cannot be termed as erroneous. 10.3 The difference in ICD debited in Profit & Loss Account already add- back while computing the income, hence cannot be a case of prejudicial to the interest of Revenue. 11. The CIT cannot initiate proceedings with a view to make fishing enquiry. • 203 ITR 108 (Bom), CIT vs. Gabriel India Ltd. Alternative Plea 12. The Pr. CIT has disallowed the deductions claimed u/s 35 of the Act totally. The expenses include the revenue and capital expenditure. As per the provision of sub-section (2) of Section 35 of the Act, if deduction is allowed u/s 35, then no deduction will be allowed in respect Printed from counselvise.com 16 ITA No.2075/Del/2024 of the expenditure incurred in any other section and accordingly the assessee did not claim the deduction as far as revenue expenditure is concerned u/s 37 of the Act and in respect of the capital expenditure, no depreciation was claimed u/s 32 of the Act. Therefore, if the deduction so disallowed by the Pr. CIT u/s 35 of the Act is upheld by the Hon’ble ITAT, then the deductions u/s 37 for revenue expenditure and depreciation on the capital expenditure should be allowed u/s 32 of the Act.” 7. On the other hand, ld. DR of the Revenue submitted asunder :- “In this regard, it is humbly submitted that Explanation 2 has been inserted in Section 263 of IT Act by Finance Act 2015, w.e.f. 01.06.2015, which is reproduced below :- \"Explanation 2. - For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer 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 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.” Ld. DR further relied on the following decisions in support of his submissions :- (i) Hon’ble Delhi High Court in PCIT vs. paramount Propbuild (P.) Ltd. 161 taxmann.com 85 (Delhi (2024); Printed from counselvise.com 17 ITA No.2075/Del/2024 (ii) Hon’ble Supreme Court in the case of Deniel Merchants Pvt. Ltd. vs. ITO (Appeal No.2396/2017) dated 29.11.2017; (iii) Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT (2000) 243 ITR 83 (SC); (iv) Hon’ble Supreme Court in the case of Tara Devi Aggarwal vs. CIT (1973) 88 ITR 323 (SC); (v) Rajmandir Estates (P.) Ltd. Vs. PCIT (2016) 386 ITR 162 (Cal); (vi) Rajmandir Estates (P.) Ltd. vs. PCIT (2017) 245 taxman 127 (SC); (vii) ITAT, Delhi in PTC Impex (India) Pvt. Ltd. vs. CIT – ITA No.2860/Del/2010 dated 03.04.2018; (viii) Hon’ble High Court of Karnataka in CIT vs. Infosys Technologies Ltd. 341 ITR 293 dated 04.01.2012; (ix) ITAT, Delhi in CIT vs. Apollo Tyres Ltd. 65 ITD 263; (x) Hon’ble Delhi High Court in Gee Vee Enterprises vs. Addl.CIT 99 ITR 375; (xi) ITAT, Delhi in Perfetti Van Melle India Pvt. Ltd. – ITA No.3046/Del/2016 for AY 2009-10 order dated 11.01.2019; (xii) ITAT, Delhi in Ramesh Kumar – ITA No.1982/Del/2018 for AY 2014- 15 order dated 25.01.2019; (xiii) ITAT, Delhi in Shanker Tradex Pvt. Ltd. vs. PCIT – ITA No.2999/Del/2017 for AY 2007-08 order dated 16.04.2018; (xiv) ITAT, Delhi in Surya Financial Services Ltd. vs. PCIT 2018-TIOL-74- ITAT-DEL order dated 08.01.2018; (xv) Hon’ble Delhi High Court in CIT vs. Ashok Logani (2011) 347 ITR 22 (Delhi); (xvi) ITAT, Delhi in Pooja Gupta in ITA No.4057/Del/2018 31.01.2019; (xvii) Hon’ble Delhi High Court in BSES Rajdhani Power Ltd. vs. PCIT 88 taxman.com 25 (Delhi) (2017); and (xviii) Hon’ble Supreme Court in CIT vs. Paville Projects (P.) Ltd. 149 taxmann.com 115 (SC) (2023). Printed from counselvise.com 18 ITA No.2075/Del/2024 8. Considered the rival submissions and material placed on record. We observe that Ld PCIT gets the power the verify the assessment records and in case he found that the assessment order passed by the AO is erroneous in so far as prejudicial to the interest of revenue. To determine the order passed is erroneous as well as prejudicial to the interest of revenue, he has to first determine twin conditions as indicated above together. Even if the order passed is erroneous but not prejudicial to the interest of the revenue or it is not erroneous but prejudicial to the interest of revenue, in that case, the provisions of section 263 cannot be invoked because twin conditions have to satisfied. Therefore, the Ld PCIT has to first determine above aspect before invoking the Explanation 2(a), as held in the case of Malabar Industrial Co Ltd (supra) and the coordinate bench decision in the case of Dharam Singh (supra) held that Ld PCIT has put much emphasis on Explanation 2 to section 263, in their view, Expln 2 to section 263 does not invest unbridled power with the revisionary authority so as to empower him to invoke revisional jurisdiction arbitrarily. The words used in the explanation 2(a) certainly do not mean that on mere allegation that in the opinion of the revisional authority the AO has not made inquiries or verification which should have been made. Printed from counselvise.com 19 ITA No.2075/Del/2024 The above allegation of lack of enquiry by the AO has to be substantiated based on record and cannot be conjured out of thin air. 9. From the above reading, we observed from the record submitted before us and the findings in order passed u/s 263 is that Ld PCIT had verified the relevant papers/documents on the record and basically verified the claim of the assessee u/s 35(2AB) of the Act and found from the record that the Form 3CL was not available on record. This is the final form approving the quantum of the eligible claim from the DSIR. Merely because the above said documents were missing on the record, he formed an opinion that the order is bad. It is fact on record that the assessee has filed all the relevant documents which is available with it and it does not have authority to get the above said form before completion of the assessment. 10. Further Ld PCIT found that the assessee also claimed the other deduction like 80IB and 80IC, since the AO accepted the documents as submitted in the previous year, in the present year, he has accepted without verification of the claim. He formed a negative impression on the assessment order. In our view, the assessee is old entity and units claiming the deductions are not new units or claiming the benefits first time. These are existing units and claimed the deductions year on year basis. Further we observed that in whole of the impugned order, Ld PCIT had only discussed about the issues of claim u/s 35(2AB) of the Act and Printed from counselvise.com 20 ITA No.2075/Del/2024 also did not give clear finding that how the claims of the assessee are prejudicial to the interest of the revenue. The scheme is approved by the DSIR and the assessee had filed the complete details which are filed for claim. He has not brought on record the claim is against the interest of revenue. He merely observed that the claim of the assessee is wrong and erroneous, without properly quantifying how the claim of the assessee is against the interest of revenue. 11. Further, he proceeded to give directions to the AO to make fresh assessment on the various issues as under: “1. Verify and examine the correctness and admissibility of claim of deduction 80IA/80IC. AO may conduct following inquiries: a. The AO may call for books of accounts and accompanying bills and vouchers and also transportation evidences to verify the transfer of each and every items of Plant and Machinery mentioned in column 26(d) of Form 10CCB. b. AO may verify the correctness of the value of plant and machinery received on transfer and fulfillment of all the conditions including conditions mentioned in section 32 and conditions mentioned in section 80IA(3)(ii) read with Proviso and Explanation 1 and Explanation 2 and other relevant conditions as per Rule 18BBB. c. AO may call for and examine separate balance sheet and P&L A/c for each of the undertakings as per the requirement of section 80IA/80IC. The claim may be disallowed if all the conditions as per the Income Tax Act and Rules are not fulfilled or verified to be true. 2. AO may do the verifications regarding duty drawback received, which was one of the CASS reasons was not seen by AO in the assessment proceedings. In case the figures do not get reconciled, necessary additions on this account may be made. Printed from counselvise.com 21 ITA No.2075/Del/2024 3. AO may examine the issue regarding reduction in profit because of application of income computation & Disclosure standards has not been examined by the AO at all. After obtaining clarifications and details with reference to impact of accounting standards in the light of auditor's notes regarding financial statements, necessary addition or disallowance may be made. 4. The disallowance u/s 14A may be verified and examined. 5. The AO may examine the allowability of deduction u/s 80JJAA as the conditions of the section need to be verified for its full compliance as per various sub sections of this section. 6. The claim of the assessee for deductions u/s 35(1) and u/s 35(2AB) is disallowed in view of detailed facts brought out above in this order wherein all the conditions are found to be not fulfilled. The form cannot be more important than the substance, as is the basis principle of the jurisprudence. AO is directed that the income computed in the assessment order dated 29.10.2021 may be accordingly revised withdrawing these two deductions. The income as per assessment order is enhanced to this extent. Further, the income may get further enhanced and shall be computed as such on the basis of any further disallowance/addition made by the AO as per the directions contained in 1 to 5 above.” 12. The above directions clearly indicate that he had made only enquiries without any findings or substance in the verification or reasoning for treating the order as erroneous. There are no clear findings on the aspect of erroneous as well as on the prejudicial to the interest of revenue before invoking the explanation 2(a). Further we observed that it is not the case of Ld PCIT that the AO had not made any enquiry rather he has not made proper enquiry as well as AO should have made the enquiry as per his perception. We observed that the AO had taken a possible view based on the various materials/documents like audited financial statements, auditor Printed from counselvise.com 22 ITA No.2075/Del/2024 reports on the various claims made by the assessee, it is also relevant to note that this is an existing unit and regularly claimed the deductions, also not the first year of claim. Since ld. PCIT had formed an opinion based on his impression, he merely made certain enquiries and directed the AO to make complete enquiries and verification and also redo the fresh assessment without properly bringing on record how it is prejudicial to the interest of revenue. Without there being any final findings in the order, he cannot set aside the issues directing the AO to make further enquiries, as held in the case of DG Housing Projects Ltd (supra). We observed that the assessee had filed detailed submissions issue wise before the PCIT as well as before us in the form of separate submissions. Considering the facts on record, we are inclined to set aside the order passed u/s 263 of the Act as it is only for the purpose of rowing enquiries and there are no specific findings on the issue of prejudicial to the interest of revenue. Therefore, we are inclined to allow the grounds raised by the assessee. 13. In the result, appeal filed by the assessee is allowed. Order pronounced in the open court on this 14th day of November, 2025. Sd/- sd/- (VIMAL KUMAR) (S.RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 14.11.2025/TS Printed from counselvise.com 23 ITA No.2075/Del/2024 Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals). 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI Printed from counselvise.com "