EATON TECHNOLOGIES PRIVATE LIMITED,PUNE V. PRINCIPAL COMMISSIONER OF INCOME TAX, PUNE

ITA 1160/PUN/2024

AI Insights

Eaton Technologies Private Limited appealed against the order of the PCIT, which had set aside the AO's assessment order for the Assessment Year 2017-18 under section 263 of the Income Tax Act, 1961. The PCIT's order was based on the grounds that the AO had not properly verified the claims under section 10AA and had not considered disallowances under section 14A adequately, leading to an underassessment of income. The Tribunal examined whether the AO's order was erroneous and prejudicial to the Revenue's interest, considering previous ITAT decisions and the ongoing High Court appeal on similar issues. The Tribunal concluded that the AO's order, being in line with ITAT's earlier decisions and not having been shown to be erroneous in its application, could not be set aside under section 263.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 25092 (ITAT-PUNE)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-03-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2017-2018
• Other Referred Cases: Malabar Industrial Company Ltd. vs. CIT, BSES Rajdhani Power Ltd. vs. CIT, Jeevan Investment & Finance (P) Ltd. vs. CIT, Ambika Agro Suppliers vs. ITO, CIT vs. Gem Plus Jewellery India Ltd., CIT vs. HCL Technologies Ltd.
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMOL KHAIRNAR
• Assessee Lawyers: VISHAL KALRA
• Keywords: Set aside; Difference of opinion; Change of opinion; Revised return; Transfer pricing; International transaction; Corroborative evidences; Depreciation; TDS; Earning of tax free income; Assessment record; Rule 8D; Revision of order
• Section: 143(3); 263; 14A; 10AA

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, PUNE BEFORE SHRI R.K. PANDA, VICE PRESIDENT AND MS. ASTHA CHANDRA, JUDICIAL MEMBER आयकर अपील सं. / ITA No.1160/PUN/2024 Assessment Year : 2017-18 Eaton Technologies Private Limited, Cluster C, Wing 1, EON Free Zone, MIDC, Kharadi Knowledge Park, Plot No.1, Survey No.77, Kharadi, Pune 411 014, Maharashtra PAN : AABCE4323Q बनाम / V/s. Principal Commissioner of Income Tax, Pune .......अपीलाथ\u0007 / Appellant ……\b\tयथ\u0007 / Respondent Assessee by : Smt. Vishal Kalra Revenue by : Shri Amol Khairnar सुनवाई क\u0011 तार\u0014ख / Date of Hearing : 27.02.2025 घोषणा क\u0011 तार\u0014ख / Date of Pronouncement: 03.03.2025 आदेश / ORDER PER R.K. PANDA, VICE PRESIDENT : This appeal filed by the assesseee is directed against the order dated 23.03.2024 passed u/s.263 of the Income- tax Act, 1961 by the Principal Commissioner of Income Tax, Pune -1 (in short ‘PCIT) for the Assessment Year 2017-18. 2. Facts of the case, in brief, are that the assessee is a Private Limited company engaged in the business of providing engineering design development, software development, back office support and business development services. The assessee filed its return of income for the A.Y. 2017-18 on 30.11.2017 declaring total income of 2 ITA No.1160/PUN/2024 Eaton Technologies Private Limited Rs.3,64,37,67,020/- which was lateron revised on 08.03.2019 declaring total income of Rs.4,19,43,91,420/-. The case of the assessee was selected for Complete Scrutiny through CASS for verification of the following issues : i. Claim of “Any other amount allowable as deduction” in Schedule BP. ii. Depreciation Claim iii. Deduction and deposit of TDS iv. Deduction under Chapter VIA v. Expenses incurred for earning exempt income vi. Tax deduction, TDS deposit and TDS statement filing vii. Deduction/Exemption u/s.10A/10AA viii. Income from house property ix. Reduction in profit due to ICDS x. International Transaction(s) xi. Loss from currency fluctuations 3. Statutory notices u/s.143(2)/142(1) were duly served upon the assessee along with detailed questionnaire and the assessee made compliance to such notices. Since the assessee had entered into certain international transactions, the Assessing Officer (AO) referred the matter to the Transfer Pricing Officer (TPO) who proposed upward adjustment of Rs.9,41,77,133/-. The AO thereafter completed the assessment u/s.143(3) r.w.s.144C(13) r.w.s.144B of the Act at Rs.455,25,53,250/- wherein apart from the Transfer Pricing adjustment of Rs.9,41,77,133/- he made disallowance u/s.40(a)(i) at Rs.26,39,84,698/-. 3.1 Subsequently, the PCIT examined the record and noted that the AO has allowed deduction u/s.10AA of the Act at Rs.263,46,37,168/-. He noted that in the earlier years, i.e. for A.Y. 2013-14 to A.Y. 2016-17 such claim of deduction u/s.10AA was disallowed by the AO which was allowed by the ITAT. However, the Department has not accepted the decision and filed an appeal before the Hon’ble Bombay High 3 ITA No.1160/PUN/2024 Eaton Technologies Private Limited Court which is currently sub-judice before the Hon’ble High Court. He further noted that the AO has made disallowance u/s.14A at Rs.1,23,15,523/- but while computing final total income in the assessment order has not considered the said disallowance. Since there was failure on the part of the AO in taking into consideration the above facts and in making necessary disallowance/addition, the assessment order has become erroneous and prejudicial to the interest of the Revenue. He therefore issued a show cause notice asking the assessee to explain as to why the order passed by the AO should not be set aside within the meaning of Explanation 2 of sub-section (1) of section 263 of the Act. The notice so issued by the PCIT reads as under : “NOTICE FOR THE HEARING M/s/Mr/Ms Subject: Notice for Hearing in respect of Revision proceedings u/s 263 of the THE INCOME TAX ACT, 1961-Assessment Year 2017- 18. In this regard, a hearing in the matter is fixed on 20/02/2024 at 11:00 AM. You are requested to attend in person or through an authorized representative to submit your representation, if any alongwith supporting documents/information in support of the issues involved (as mentioned below). If you wish that the Revision proceeding be concluded on the basis of your written submissions/representations filed in this office, on or before the said due date, then your personal attendance is not required. You also have the option to file your submission from the e-filing portal using the link: incometaxindiaefiling.gov.in. Please refer to the order dated 26/02/2022 u/s 143(3) r.w.s. 144C(13) r.w.s.144B of the Income Tax Act, 1961. 02. It is seen that the original return of income for A.Y. 2017-18 was filed by you on 30/11/2017 declaring total income of Rs.364,37,67,020/- and the revised return was filed on 08/03/2019 declaring total income of Rs.4,19,43,91,420/-. The case was selected for scrutiny under CASS (complete scrutiny) for the reasons to verify the following issues: 4 ITA No.1160/PUN/2024 Eaton Technologies Private Limited 1. Claim of \"Any other amount allowable as deduction\" in Schedule BP 2. Depreciation claim 3. Deduction and deposit of TDS 4. Deduction under Chapter VIA 5. Expenses incurred for earning exempt income 6. Tax deduction, TDS deposit and TDS statement filing 7. Deduction/Exemption u/s 10A/10AA 8. Income from house property 9. Reduction in profit due to ICDS 10. International transaction(s) 11. Loss from currency fluctuations 03. The assessment was completed u/s 143(3) r.w.s. 144C(13) r.w.s 144B of the Income Tax Act, 1961 on 26/02/2022 determining total income of Rs.455,25,53,250/- (Rs.722,11,90,423/- as per computation sheet). 04. On subsequent review of the assessment and the case records, the following facts are observed: 05. Deduction u/s 10AA of the Act On perusal of the assessment records, it is noticed that the Faceless Assessing Officer (FAO) has allowed deduction u/s 10AA of the Act at Rs.263,46,37,168/-. It is also observed from the record that disallowance u/s. 10AA of the Act was made in the earlier years for AY 2013-14 to 2016-17 which was allowed by the ITAT. however, the Department has not accepted the decision and filed appeal before the Hon'ble Bombay High Court which is currently sub-judice before Hon'ble Court. 06. Disallowance u/s 14A Further, it is noticed that the FAO has made disallowance u/s 14A at Rs.1,23,15,523/-but while computing the final total income in the assessment order, has not considered the said disallowance. 07. Failure on the part of the FAO in taking into consideration the above facts and in making necessary disallowance/addition (as discussed in preceding Paras) has rendered the assessment order dated 26/02/2022 erroneous in so far as it is prejudicial to the interest of the revenue. This has resulted in under assessment of income to the tune of Rs. 264,69,52,691/- and consequent short levy of tax. 08. In view of the above, the order dt. 26/02/2022 passed by the Faceless Assessing Officer, NeAC, Delhi under section 143(3) r.w.s. 144C(13) r.w.s. 144B of the Income-tax Act, 1961 for the A.Y 2017-18 is erroneous and prejudicial to the interest of revenue within the meaning of Explanation 2 of sub-section 1 of section 263 of the Income-tax Act, 1961 and is proposed to be revised. 5 ITA No.1160/PUN/2024 Eaton Technologies Private Limited 09. You are hereby given an opportunity to file your submission, if any, through e-filing portal or email (pune.pcit1@ incometax.gov.in) on or before 20/02/2024 which will be taken into account while finalizing the proceedings. Necessary documentary evidences, wherever required, may also be submitted. Please note that in case your reply is not received by the given date, it shall be presumed that you have nothing to say in this regard and the proceedings shall be completed on the basis of information available on record. 10. The attendance as mentioned in Para 1 is not insisted. You may furnish the reply through e-portal on or before 20/02/2024.” 4. Rejecting the various explanations given by the assessee and relying on various decisions the ld. PCIT partly set-aside the order to the file of AO for the limited issue of claim of deduction u/s.10AA of the Act including the additional deduction allowed by the Faceless Assessing Officer (FAO) by observing as under : “4.2.4 It is seen from the detailed discussion and findings of the CIT(A)-1, Pune that there is a clear arrangement between the assessee and its AE for producing more than ordinary profits and there is close connection between the persons transacting business and also that the arrangement is to earn more than ordinary profits to the eligible unit so that the profits can be routed back to the parent AE. Although the FAO as well as the assessee has not brought on record any details of buyback of shares during the year and that it is not possible to verify the same since the assessee has not furnished the relevant notes to the audited financial statements, the findings are squarely applicable to the assessment year under consideration since the basis of transactions is still remain the same i.e. the agreement between the assessee and the AE dated 19/04/2007 and as noted by the CIT(A), the buyback of shares was involved in earlier years as well. The FAO has not verified this aspect of the case and allowed the deduction under section 10AA of the Act in toto. 4.3 The provisions of Section 263 are very clear that Commissioner of Income-tax can exercise power under the said section when he forms an opinion on the basis of records that an order passed by the Assessing Officer is both erroneous and prejudicial to the interests of the revenue. Further, Explanation 2 to section 263, which was inserted vide Finance Act 2015 with effect from 1 June 2015, provides that an order passed without making inquiries or verification which should have been made, should be deemed to be erroneous insofar as it is prejudicial to 6 ITA No.1160/PUN/2024 Eaton Technologies Private Limited the interests of the Revenue. This has also been validated by various judicial pronouncements including Apex Court decision in the case of Malabar Industrial Company Ltd. vs. CIT [243 ITR 83 (Sc)] wherein it has been held that, whether, where assessing officer had accepted entry in statement of account filed by assessee, in absence of any supporting material without making any enquiry, exercise of jurisdiction by Commissioner u/s 263(1) was justified-held yes In the present case the FAO has accepted claim of deduction under section 10AAof the Act without making proper enquiry. The FAO accepted the submission of the assessee which was lacking of supporting evidence and has not made any further investigation of the aspects discussed above. Thus, the scenario of this case equates with the scenario in the case of Malabar Industrial Company Ltd, and as in that case Hon'ble Supreme Court held that exercise of jurisdiction by CIT under section 263(1) of the Act was justified, so it should be in this case. 4.3.1 Similarly the Hon'ble Apex Court in the case of BSES Rajdhani Power Ltd. [152 taxmann.com 139 (SC)] have upheld the findings of High Court that Commissioner has power to consider all aspects which were subject matter of Assessing Officer's order, if in his opinion, they were erroneous, despite assessee's appeal on that or some other aspect. 4.3.2 The Hon'ble Bombay High Court in the case of Jeevan Investment & Finance (P) Ltd. Vs Commissioner of Income Tax, City- 1. Mumbai [(2017) 88 taxmann.com 552 (Bombay)], has held that as under: \"Merely asking a question which goes to the root of the matter and not carrying it further is a case of non-enquiry, if the query is not otherwise satisfied while responding to another query. In the instant case, the Assessing Officer raised query regarding valuation of shares in question to which response was only that the unquoted shares were valued at costs. No method of valuation of the shares was submitted to the Assessing Officer during the proceedings, leading to the assessment order. It, therefore, appeared that the Assessing Officer after having asked a pertinent question of the method of valuing unlisted shares did not pursue that line of enquiry. Thus, this was a case of non- enquiry and not inadequate enquiry. Therefore, the order of the Assessing Officer was certainly erroneous and prejudicial to the revenue.\" 4.3.3 In the case of Ambika Agro Suppliers vs. ITO, Jalgaon [(2005) 95 ITD 326 (Pune)], the Hon'ble ITAT held as under: \"Mere filing of an explanation was not sufficient and at the same time, it could not be inferred that the Assessing Officer had applied his mind. There was also no proper verification in respect of creditors from whom the assessee 7 ITA No.1160/PUN/2024 Eaton Technologies Private Limited had accepted unsecured loans. No specific enquiries to prove the genuineness of these loans had been conducted by the Assessing Officer. The Assessing Officer had simply obtained account extracts of these parties as appearing in the books of the assessee and accepted the loan as genuine. No confirmation letters were filed from these parties.\" 4.3.4 Considering the facts discussed in the foregoing paragraphs, the above decisions are equally applicable to the present case. 4.4 It is seen from records that in the present case the claim of the assessee of deduction under section 10AA of the Act at Rs.263,46,37,168/-has been allowed by the FAO. The FAO did raise queries in this regard to the assessee but it is seen that the claim has been accepted on the basis of a summary submission of the assessee which was not supported by any evidence. The assessee did not furnish the relevant necessary documents such as relevant notes to the audited financial statements based on which the total turnover was computed for such deduction, copies of agreements between the parties on the basis of which the rates were fixed, the terms and conditions of the transactions etc. were not filed. The assessee's contention before the FAO was not supported by evidence. Even the difference between deduction certified by the Chartered Accountant and claimed by the assessee, has not been questioned and verified by the FAO. Further, the close connection between the transacting parties and their arrangement for producing more than ordinary profits and also that the arrangement is to earn more than ordinary profits to the eligible unit so that the profits can be routed back to the parent AE was proved in the earlier years. The assessee did not furnish any other facts contrary to the facts involved in those years, before the FAO. Therefore, the FAO has not verified / examined of the facts of the case in its proper perspective. Even the correctness of the claim has not been verified by the FAO. 4.5 In addition to the claim of deduction under section 10AA made by the assessee in the revised return of income at Rs 263,46,37,168/-, the FAO has allowed further deduction under the said section at Rs. 1,23,15,523/- in respect of the disallowance made by him under section 14A of the Act. The assessee contended that the FAO has allowed such additional deduction after considering the binding judgement of Hon'ble Bombay High Court in the case of CIT vs. Gem Plus Jewellery India Ltd. (330 ITR 175). However, it is pertinent to note here that the FAO failed to carry out proper verification / examination of the original claim itself, the facts discussed in respect of the original claim are equally applicable to the additional deduction under section 10AA also. Therefore, the assessee's contention is not acceptable. 8 ITA No.1160/PUN/2024 Eaton Technologies Private Limited 5. In view of the above facts, it is seen from records that the FAO has allowed deduction under section 10AA of the Act to the tune of Rs.263,46,37,168/- and Rs.1,23,15,523/- without making proper inquiries, without making proper verification and without examining the actual facts of the case which were required to be verified for allowing such a deduction. Failure on the part of the FAO rendered the assessment order dated 26/02/2022 under section 143(3) read with section 144C(13) read with section 144B of the Act as erroneous in so far as it is prejudicial to the interests of the revenue. 5.1 Since proper enquiries with regard to correctness of the claim and verification of all the aspects involved have not been made, the order under section 143(3) read with section 144C(13) read with section 1448 of the Act, dated 26/02/2022 is prejudicial to the interests of revenue. Thus both the conditions specified under section 263 of the Act are satisfied in this case and it is a fit case to invoke provisions of the said section. Hence, the assessment order dated 26/02/2022 for the A.Y. 2017-18 is hereby partly set aside to the file of the Assessing Officer on the issue of allowance of deduction under section 10AA of the Act, including the additional deduction allowed by the FAO in respect of the disallowance under section 14A of the Act. The Assessing Officer shall examine the issue in the above stated aspects and decide the issue afresh after giving sufficient opportunity to the assessee to present its case. 6. The assessment order dated 26/02/2022 is partly set aside only viz. the issue of assessee's claim of deduction under section 10AA of the Act including the additional deduction allowed by the FAO. Needless to say, the disallowance under section 14A of the Act is not subjected to re-verification but only the deduction under section 10AA of the Act allowed on the said disallowance is included here. Since, the order is being partly set aside, the jurisdictional Assessing Officer may take up this matter.” 5. Aggrieved with such order of the ld. PCIT, the assessee is in appeal before the Tribunal by raising the following grounds : “1 That on the facts and circumstances of the case and in law, the assumption of jurisdiction by the PCIT under section 263 of the Act, based on conjecture and surmises and without recording an objective finding or a conclusive evidence as to how the assessment order passed by the Assessing Officer (\"AO\") under section 143(3) of the Act is erroneous and prejudicial to the interest of Revenue, was bad in law and liable to be quashed. 2 That on the facts and circumstances of the case and in law, the PCIT has erred in invoking jurisdiction under section 263 of the Act and setting aside the order passed by the AO qua the 9 ITA No.1160/PUN/2024 Eaton Technologies Private Limited deduction under section 10AA of the Act without appreciating that the assessment order passed was neither erroneous nor prejudicial to the interest of the revenue. 3. That on the facts and circumstances of the case and in law, the revisionary jurisdiction assumed by the PCIT under section 263 of the Act is bad in law and liable to be quashed as the Pune Bench of the Income Tax Appellate Tribunal (\"ITAT\") has allowed the deduction under section 10AA for the consecutively years 2012-13 to 2016-17 and the AO has taken a stand in conformity with the orders of the ITAT being binding on the AO. 4. That on the facts and circumstances of the case and in law, the PCIT has erred in initiating the proceedings under section 263 of the Act based on mere change of opinion, and by substituting his own views against the plausible views already taken by the AO, as due enquiry was made by the AO during assessment proceedings. 5. That on the facts and circumstances of the case and in law, the PCIT has erred in setting-aside the order of the AO on the ground that due verification/examination of expenditure under section 14A has not been made, not appreciating that the AO has already applied Rule 8D and made disallowance under section 14A of the Act. 6. That on the facts and circumstances of the case and in law, the PCIT has erred in not appreciating that the AO has allowed the enhanced deduction under section 10AA on increased income due to disallowance made under section 14A of the Act by virtue of the judgement passed by the Jurisdictional High Court of Bombay in the case of CIT vs Gem Plus Jewellery India Ltd. [2010] 330 ITR 174 and duly confirmed by the Hon'ble Supreme Court of India in the case of CIT vs HCL Technologies Ltd. [2018] 404 ITR 719 (SC). Disallowance under section 10AA of the Act: 7. That on the facts and circumstances of the case and in law, the PCIT erred in denying the deduction claimed under section 10AA of the Act by INR 263,46,37,168 by invoking the provisions of section 10AA(9) read with section 80IA(10) of the Act, alleging that the Appellant earned more than 'ordinary profits' from its associated enterprise ('AE'). 8. That on the facts and circumstances of the case and in law, the PCIT failed to appreciate that once the arm's length price in respect of the international transactions has been determined, and the prices charged by the Appellant have been held to be at arm's length, the provisions of section 10AA(9) read with section 80IA(10) of the Act could not be invoked on the premise that Appellant earned more than ordinary profits from such international transactions. 10 ITA No.1160/PUN/2024 Eaton Technologies Private Limited 9. That on facts and circumstances of the case and in law, the PCIT erred in disregarding the Transfer Pricing Study Report and the scientific methodology adopted by the Appellant to determine hourly rates and their benchmarking with third parties using Comparable Uncontrolled Price method (\"CUP\") 10. That on the facts and circumstances of the case and in law, the PCIT ought to have appreciated that the provisions of section 10AA(9) read with section 80IA(10) of the Act, could not have been invoked as there was no erosion of Indian Tax base. 11. That on facts and circumstances of the case and in law, the PCIT erred in applying the provisions of section 10AA(9) read with section 80IA(10) of the Act, without establishing the existence of any 'arrangement' to manipulate profits of the eligible unit between Appellant and its AE Each of the above grounds are independent and without prejudice to the other grounds of appeal preferred by the Appellant. The Appellant prays for leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before, or at, the time of hearing of the appeal. 6. Ld. Counsel for the assessee submitted that the assessee during the course of assessment proceedings has given details of deduction u/s.10AA of the Act which was verified by the AO. He submitted that the AO has allowed the deduction made u/s.10AA of the Act on the disallowance made u/s.14A after considering the binding decision of the Hon’ble Bombay High Court in the case of CIT vs. Gem Plus Jewellery India Ltd. [2010] 330 ITR 174. Since the AO during the course of assessment proceedings has made enquiry, considered the submissions of the assessee and then exercised his powers to assess the income of the assessee, the order passed by the AO is neither erroneous nor prejudicial to the interest of the Revenue. Therefore, the ld. PCIT was not justified in exercising revisionary proceedings u/s.263 of the I.T. Act. 11 ITA No.1160/PUN/2024 Eaton Technologies Private Limited 6.1 He submitted that the ld. PCIT himself has admitted that the Tribunal has consistently decided the issue of deduction u/s.10AA in favour of the assessee and the Revenue is in appeal before the Hon’ble High Court. Under these circumstances, the order of the AO may be prejudicial to the interest of the Revenue but certainly not erroneous. Referring to various decisions, he submitted that for assuming jurisdiction u/s.263 of the Act, the twin conditions namely, (i) the order is erroneous and (ii) the order is prejudicial to the interest of the Revenue must be satisfied. Since in the instant case the order may be prejudicial to the interest of the Revenue since the Revenue has not accepted the decision of the Tribunal and is in appeal before the Hon’ble High Court, however, it cannot be said that the order is erroneous especially when the ld. PCIT himself has given the finding that disallowance u/s.10AA of the Act was made in the earlier years for A.Y. 2013-14 to A.Y. 2016-17 which was allowed by the ITAT. Therefore, when the ITAT in assessee’s own case has allowed the deduction u/s.10AA for A.Y. 2013-14 to A.Y. 2016-17 allowance of such deduction by the AO for the impugned assessment year cannot make the order erroneous. Therefore, in absence of satisfaction of the twin conditions, the ld. PCIT was not justified in assuming jurisdiction u/s.263 of the I.T. Act. 7. Ld. Departmental Representative on the other hand heavily relied on the order of the ld. PCIT assuming jurisdiction u/s.263 of the I.T. Act. He submitted that since the AO in the instant case while passing the order did not raise queries regarding the claim of deduction u/s.10AA and 12 ITA No.1160/PUN/2024 Eaton Technologies Private Limited has merely accepted on the basis of summary submission of the assessee which was not supported by any evidence, therefore, the order passed by the AO has become erroneous as well as prejudicial to the interest of the Revenue. Further, the claim of deduction u/s.10AA on the disallowance made u/s.14A amounting to Rs.1,23,15,523/- was without proper verification/examination. He accordingly submitted that the order has become erroneous as well as prejudicial to the interest of the Revenue for which the ld. PCIT was fully justified in assuming jurisdiction u/s.263 of the I.T. Act. 8. We have heard the rival arguments made by both the sides, perused the orders of the AO and the PCIT and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the AO in the instant case completed the assessment us/.143(3) r.w.s.144C(13) r.w.s.144B of the Act on 26.02.2022 determining total income of the assessee at Rs.455,25,53,250/- wherein he made Transfer Pricing adjustment of Rs.9,41,77,133/- and made disallowance u/s.40(a)(i) at Rs.26,39,84,698/-. We find in the said order the AO although determined the disallowance u/s.14A at Rs.1,23,15,523/-, however, following the decision of Hon’ble Bombay High Court in the case of CIT vs. Gem Plus Jewellery India Ltd. (supra) held that such disallowance will enhance the income which is otherwise eligible for deduction u/s.10AA for which he did not make any addition on this count. We find the PCIT holding that the AO has not carried out proper verification of the deduction claimed u/s.10AA and without making any disallowance u/s.14A passed the 13 ITA No.1160/PUN/2024 Eaton Technologies Private Limited order for which the order has become erroneous and prejudicial to the interest of the Revenue. The relevant notice issued by the PCIT for assuming jurisdiction u/s.263 of the I.T. Act has already been reproduced in the preceding paragraphs. According to the PCIT, such deduction claimed u/s.10AA was disallowed by the AO from A.Y. 2013-14 to A.Y. 2016-17 but the Tribunal has allowed such claim of deduction. Since the matter is pending before the Hon’ble High Court as the Revenue has not accepted the decision of the Tribunal, therefore, the AO should have made the disallowance after calling for necessary details from the assessee. It is also the case of the PCIT that the AO has allowed the disallowance made by him u/s.14A without carrying out proper verification/examination of the original claim itself. 8.1 It is the submission of the Ld. Counsel for the assessee that when the assessee has made submission before the AO regarding the claim of deduction u/s.10AA and the AO after due application of mind and on the basis of order of the Tribunal in assessee’s own case for the earlier years has allowed the claim of deduction u/s.10AA of the Act, therefore, the same cannot be held to be erroneous. Further allowing the claim of deduction u/s.10AA on the disallowance made by him u/s.14A in light of the decision of the jurisdictional High Court in the case of CIT vs. Gem Plus Jewellery India Ltd. (supra) also cannot be held to be erroneous. It is his submission that since the twin conditions, i.e., the order is erroneous and the order is prejudicial to the interest of the Revenue are not satisfied 14 ITA No.1160/PUN/2024 Eaton Technologies Private Limited the PCIT was not justified in invoking the jurisdiction u/s.263 of the I.T. Act. 9. We find merit in the above arguments of the Ld. Counsel for the assessee. We find on perusal of Para 5 of the said notice that the PCIT himself has given a finding in the notice that disallowance u/s.10AA of the Act was made in the earlier years for A.Y. 2013-14 to A.Y. 2016-17 which was allowed by the ITAT, however, the Department has not accepted the decision and filed appeal before the Hon’ble Bombay High Court which is currently sub-judice before the Hon’ble Court. Therefore, once the Tribunal has taken a view in favour of the assessee on the issue of deduction u/s.10AA, merely because the Revenue has filed an appeal before the Hon’ble Bombay High Court against the order of the Tribunal which is pending for decision, the order of the AO cannot be held to be erroneous although it may be prejudicial to the interest of the Revenue. Further, the disallowance made by the AO u/s.14A was allowed by him as deduction u/s.10AA in light of the decision of Hon’ble Bombay High Court in the case CIT vs. Gem Plus Jewellery India Ltd. (supra). Therefore, once the AO has allowed the claim of deduction u/s.10AA on the enhanced disallowance u/s.14A which is in consonance with the decision of the Hon’ble Jurisdictional High Court, the order cannot be held to be erroneous although it may be prejudicial to the interest of the Revenue. 9.1 It is the settled proposition of law that for assuming jurisdiction u/s.263 of the I.T. Act, the twin conditions namely, the order is erroneous and the order is prejudicial to the interest of the Revenue must be cumulatively satisfied. 15 ITA No.1160/PUN/2024 Eaton Technologies Private Limited As held in the preceding paragraphs, the order is certainly not erroneous since the Tribunal in assessee’s own case has consistently allowed the deduction u/s.10AA from A.Y. 2013-14 to A.Y. 2016-17. Similarly, the issue of deduction u/s.10AA on account of disallowance u/s.14A is in consonance with the decision of the Hon’ble Jurisdictional High Court in the case of CIT vs. Gem Plus Jewellery India Ltd. (supra) and therefore said issue also is not erroneous although it may be prejudicial to the interest of the Revenue. Since the twin conditions are not satisfied in the instant case, therefore, the PCIT in our opinion is not justified in assuming jurisdiction u/s.263 of the I.T. Act. We therefore set aside the order of ld. PCIT and the grounds raised by the assessee are allowed. 10. In the result, the appeal filed by the assessee is allowed. Pronounced in the open court on 03.03.2025. Sd/- Sd/- ASTHA CHANDRA R.K. PANDA JUDICIAL MEMBER VICE PRESIDENT पुणे / Pune; \u001bदनांक / Dated : 03rd March, 2025 Satish 16 ITA No.1160/PUN/2024 Eaton Technologies Private Limited आदेश क\u0012 \u0013\u0014त\u0016ल\u0017प अ\u0018े\u0017षत/Copy of the Order is forwarded to : 1. अपीलाथ\u0007 / The Appellant; 2. \b\tयथ\u0007 / The Respondent; 3. 4. The concerned Pr.CIT \u001eवभागीय \b!त!न\"ध, आयकर अपील\u0014य अ\"धकरण, पुणे “A” / DR ‘A’, ITAT, Pune; 5. गाड& फाईल / Guard file. आदेशानुसार / BY ORDER, //स\tया\u001eपत \b!त// True Copy// व)र*ठ !नजी स\"चव / Sr. Private Secretary आयकर अपील\u0014य अ\"धकरण, पुणे / ITAT, Pune "