FAIVELEY TRANSPORT TECHNOLOGIES INDIA PVT. LTD.,HOSUR V. ACIT, CORPORATE CIRCLE-1(1), CHENNAI

ITA 1598/CHNY/2024

AI Insights

The case involves Faiveley Transport Rail Technologies India Private Limited, which appealed against the order of the Principal Commissioner of Income Tax, Chennai, revising the assessment for the year 2018-2019. The revision was based on the claim that the original assessment order was erroneous and prejudicial to the interests of the revenue, particularly concerning the deduction claimed under Section 80-IC for their manufacturing unit in Baddi, Himachal Pradesh. The Tribunal examined whether the Assessing Officer had adequately inquired into the deduction claim during the original assessment proceedings. After reviewing the submissions and evidence, the Tribunal concluded that the Assessing Officer had indeed conducted a thorough inquiry, and thus, the revision under Section 263 was not justified.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 298942 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-10-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 26-09-2024
• Assessment Year: 2018-2019
• Appeal Filed On: 27-05-2024
• Other Referred Cases: Pr. Commissioner of Income Tax -2, Delhi Vs M/s Clix Finance India Pvt. Ltd., CIT vs. M.Chandra Sekhar, CIT vs. Kelvinator of India Ltd, Commissioner of Income Tax Vs. Kelvinator Of India Ltd, CIT vs. Sunbeam Auto Ltd., CIT vs. Anil Kumar Sharma, CIT vs. Malabar Industrial Co. Ltd., CIT vs. Paville Projects (P) Ltd., CIT vs. Shivshahi Punarvasan Prakalp Ltd., Marico Ltd. vs. ACIT, GKN Sinter Metals Ltd. vs. ACIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NILAY BARAN SOM; IRS
• Assessee Lawyers: ASHIK SHAH
• Keywords: Set aside; Capital asset; Opportunity of being heard; Revenue expenditure; Transfer pricing; Reassessment proceedings; Question of law; Capital expenditure; Principle of natural justice; TDS; Revision of order
• Section: 143(3); 142(1); 263; 139(1); 22; 13; 139; 2(A); 80C; 10B; 10AA; 92E; 80IC; 80IC; 20

Judgement Text

"आयकर अपीलीय अिधकरण, ए, , Ɋायपीठ,चेɄई IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH, CHENNAI माननीय ŵी मनु क ुमार िगįर, Ɋाियक सद˟ एवं माननीय ŵी एस.आर. रघुनाथा, लेखा सद˟ क े समƗ BEFORE HON’BLE SHRI MANU KUMAR GIRI, JUDICIAL MEMBER AND HON’BLE SHRI S.R. RAGHUNATHA, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.1598/CHNY/2024 िनधाᭅरण वषᭅ/Assessment Year: 2018-2019 Faiveley Transport Rail Technologies India Private Limited, Post Box No.39, Harita, Hosur 631 509. PAN: AAGCS 8525B Vs. The Principal Commissioner of Income Tax-1, Chennai. (अपीलाथᱮ/Appellant) (ᮧ᭜यथᱮ/Respondent) अपीलाथᱮ कᳱ ओर से/Appellant by : Shri. Ashik Shah, C.A., ᮧ᭜यथᱮ कᳱ ओर से/Respondent by : Shri Nilay Baran Som, IRS, CIT. सुनवाई कᳱ तारीख/Date of Hearing : 26.09.2024 घोषणा कᳱ तारीख/Date of Pronouncement : 18.10.2024 आदेश /O R D E R PER MANU KUMAR GIRI (Judicial Member) This appeal by the assessee is arising out of the order of the Principal Commissioner of Income Tax, Chennai (‘PCIT’ in short) in order No.ITBA/REV/F/REV5/2023-24/1063773503 (1), dated 31.03.2024 for assessment year 2018-2019. The assessment was framed by the Additional/Joint/Deputy/Assistant Commissioner of - 2 - ITA No.1598 /Chny/2024 Income Tax/ Income-tax Officer, National e-Assessment Centre, Delhi u/s.143(3) r.w.s. 143(3A) & 143(3B) of the Income Tax Act, 1961 (hereinafter the ‘Act’) vide order dated 13.04.2021. 2. The assessee has raised the following grounds of appeal:- ‘’1.1. The Learned Principal Commissioner of Income Tax-1, Chennai (hereinafter referred to as 'Ld. PCTT) has erred in passing an order of revision under Section 263 of the Income Tax Act, 1961 ('the Act') for AY 2018-19 ('impugned order'), which suffers from legal defects such as being passed in violation of principles of natural justice and the provisions of the Act and is devoid of merits and are contrary to facts on record and applicable law and the proceeding has been completed without adequate inquiries and as such is liable to be quashed. II. Validity of revisionary order passed under section 263 of the Act 2.1. On the facts and circumstances of the case and in law, the impugned order dated March 31, 2024. passed by the Ld. PCIT is without jurisdiction and void-ab-initio, as the twin conditions prescribed under Section 263 of the Act, i.e., the order of the Learned Assessing Officer ('Ld. AO') shall be 'erroneous' and 'prejudicial to the interests of the Revenue' are not satisfied. 2.2. On the facts and circumstances of the case and in law, the Ld. PCIT erred in concluding that the order of the Ld. AO was passed without necessary verification and examination without appreciating that the Ld. AO had duly verified the claim for deduction under Section 80-IC of the Act. 2.3. On the facts and in the circumstances of the case and in law, the Ld. PCIT had failed to appreciate that the powers of revision under section 263 of the Act cannot be exercised to substitute his view with that of the view taken by the Ld. AO after detailed inquiry and verification. III. Computation of the eligible business profits for deduction under section 80-IC of the Act - 3 - ITA No.1598 /Chny/2024 3.1. The Ld. PCIT, in the facts and circumstances of the case and in law, erred in concluding that the common expenditure has not been properly apportioned to the eligible unit (Baddi unit) resulting in higher amount of profits without appreciating that the same has been duly verified and certified by the statutory auditor as required under the provisions of Section 80-IC of the Act. 3.2. The Ld. PCIT has erred in considering 43.87% of the gross total income as profit of the eligible unit without appreciating the detailed workings and apportionment of expenses made by the Appellant and duly verified by the Ld. ld. Assessing Officer’’. 3. Brief facts of the case are that the assessee ‘Faiveley Transport Rail Technologies India Private Limited’ is a company incorporated in India and is engaged in the business of manufacture and sale of brake systems, couplers, heating ventilation and air conditioning systems, pantographs, spares and other parts for railway stock as well as metro car builders. The Assessee has manufacturing plants in Hosur, Tamil Nadu and Baddi, Himachal Pradesh. The Baddi unit commenced its operations in the Financial Year 2008-09 and is eligible for claiming deduction under Section 80-IC of the Act. For the impugned Assessment Year (\"AY\") 2018-19, being the 10th year of claiming the said deduction, the Appellant had claimed deduction amounting to Rs. 43,89,60,086, being the 30% of the profits and gains derived from business carried on at the Baddi unit. The Assessee's case was selected for complete scrutiny assessment under CASS wherein one of the issues which needed further clarification and detailed verification was the deduction claimed for industrial undertaking under section 80-IC of the Act. During the course of assessment proceedings, the Revenue vide notice dated 22.09.2019 u/s. - 4 - ITA No.1598 /Chny/2024 143(2) of the Act directed the assessee to submit clarification on the following issues:- 1. Claim of any other amount allowable as deduction in Schedule BP. 2. Deduction claimed for industrial undertaking u/s.80IA/80IAB/80IAC/ IB/IC/IBA/80ID/80E/10A/10AA. The assessee vide letter dated 7th May, 2020 submitted reply (Pg.22 of paper book) for the above notice as under:- Annexure-2 Deduction Claimed for Industrial Undertaking u/s 80IC Faiveley Transport Rail Technologies India Limited (FTRTIL) is engaged in the business of manufacture and sale of Brake Systems, Couplers, Heating Ventilation and Air Conditioning Systems, Pantographs, Spares and other parts for Railway rolling stock as well as metro car builders. The Principal Customer of the company is Indian Railways through its Production Units, Zonal Railways and Workshops. The Company also provides services to its railway and metro car builders which include annual maintenance contracts, retrofits, repairs etc. In the year 2008, the company commenced manufacturing unit in Industrial Zone at Baddi, Himachal Pradesh, mainly to cater to the requirements of Rail Coach Builders and Zonal Railways in Northern India for Rail Coach Factory, Kapurthala and Modern Coach Factory, Rae Bareli. This Baddi unit is fully equipped and consists of all the necessary Departments with functions of Manufacturing, Methods, Sourcing, Supply Chain, Finance, IT, HR, Marketing under the supervision of a Plant in-charge at Baddi. All costs related to Baddi Unit is recorded in a separate books of accounts which is maintained in M3. 2. Section 80IC: All undertakings or enterprises which are set up, manufacture or begin to manufacture any article or things or undertake substantial expansion, in Industrial Zones. 3. Applicability: - 5 - ITA No.1598 /Chny/2024 Baddi Unit is located in the state of Himachal Pradesh and is also engaged in the activity of manufacturing, Sale and Supply of rail products to the Indian Railways. Since this unit is in the special category state (ie Himachal Pradesh), the company is eligible to claim deduction under Section 80IC Under Section 80 IC company can claim 100% deduction of taxable profit for first 5 years and 30% deduction of taxable profit for next 5 years. AY 2018-19 is last year for claiming deduction under section 80 IC so it claimed 30% deduction of taxable profit of Baddi unit. 4. Details of Baddi Unit: Baddi unit is located in special category state (i.e. Himachal Pradesh), which is clase proximity to Rail Coach Factory (RCF), Kapurthala and Modern Coach Factory (MCF), Rae Bareli and other northern Zonal Railways. This unit is manufacturing Air assisted and full actuation systems, Disc Brakes, Brake discs, couplers and Spares for these railways. Further, the Revenue vide notice u/s.142 (1) of the Act dated 21.12.2020 required the assessee to submit the details as per annexure on or before 05.01.2021. The said annexure (Pg 24 & 27 of paper book) with regard to deduction claimed u/s.80I/80IA/ 80IB/80IC of the Act during the year is as under:- Annexure 4. Please provide details of deduction and exemptions claimed, if any and explain allowability thereof with respect to various provisions of the Income-tax Act along with documentary evidence. …………………………… 17. With respect to the deduction claimed u/s 801/801A/801B/80IC during the year under consideration, kindly submit the below specified details: 1) Nature of business undertaken by you during the year under consideration. 2) Provide a flow chart of all the activities undertaken by you. 3) Provide separate books of accounts for the specified business for which the deduction has been claimed by you. 4) Provide list of all the business premises and godowns. - 6 - ITA No.1598 /Chny/2024 5) Provide copy of agreement with central/ state government/ Local authority/ corporation or any other body established under central or state Act. 6) Details of commencement of business along with supporting documentary evidence. 7) Kindly provide details whether the business is new or has been formed of splitting up or reconstruction of already existing business. 8) In case of first year of deduction you are requested to provide details of all the capital asset purchased by you along with supporting documentary evidence. 9) With respect to the purchases made by you, kindly provide details as under: a) Name, address, PAN and GST registration number of the parties from which the purchases have been made. b) Date of purchase. c) Copy of agreement if any. d) Product details- i. Item no. ii. Quantity iii Amount e) Details of transportation: i. Date of transportation. ii Name and address of the transporter. iii Vehicle number. iv. Weight. V. Amount paid. vi. TDS deducted. f) Details of payment: i) Date of payment ii. Amount iii Mode of payment with supporting documentary evidence. iv. Amount payable at the end of the financial year. - 7 - ITA No.1598 /Chny/2024 10) With respect to the sales made by you, kindly provide details as under: a) Name, address, PAN and GST registration number of the parties to whom sales have been made. b) Date of sales. c) Copy of agreement if any d) Product details- i. Item no. ii Quantity. iii Amount i) Details of transportation: i Date of transportation. ii. Name and address of the transporter. iiiVehicle number. iv. Weight. V. Amount paid. vi. TDS deducted. j) Details of payment: i. Date of payment. ii. Amount. iii. Mode of payment with supporting documentary evidence. iv. Amount payable at the end of the financial year. k) Details of closing stock as below i. Quantity. ii. Amount. 11) Provide following details of other expenses as claimed by you: a) Nature and quantum of expenses. b) Name, PAN, address and GST registration of the parties to whom the payments have been made. c) Mode of payment with supporting documentary evidence. d) Details of TDS deducted. e) Amount payable at the end of the financial year. The assessee vide letter dated 21/22.01.2021 (Pg 32 of paper book) has submitted following details with required annexure:- a Nature of business and activities undertaken Annexure 5.1 - 8 - ITA No.1598 /Chny/2024 b Separate books of accounts Annexure 5.2 c List of business premises and godowns Submission made on 5th January, 2021 d Supporting dou7cments for commencement of business Annexure 5.3 e Details of sales Annexure 4 The assessee on 04.02.2021 also filed details relating to deduction claimed u/s 80IC-Details of Purchases-Annexure-1 in scrutiny proceedings u/s 143(3) (Pg 45 of paper book). Further, the Department vide notice dated 01.03.2021 stated that assessee has not filed return of income before the due date of filing return and therefore, assessee is not eligible to claim deduction u/s.80IC/80IE of Rs.43,89,60,086/- as per the provisions of the Act. Hence, assessee was asked to show cause why an amount of Rs.43,89,60,086/- should not be disallowed and added to the total income. The assessee vide letter dated 04.03.2021 submitted the following details alongwith annexures as under:- ‘’Please find below the response with regard to the abovementioned Show Cause Notice: 1. As per sub-clause (aa) of Explanation 2 of sub-section (1) of Section 139 of the Income Tax Act, 1961, due date for filing Income Tax Return as referred to in Section 139(1) in case of an assessee who is required to furnish report u/s 92E is the 30th Day of November of the Assessment Year. 2. Accordingly, since the Company was required to furnish u/s 92E for the AY 2018-19, the due date for filing the return is 30th November, 2018. - 9 - ITA No.1598 /Chny/2024 3. Subsection 5 of Section 80A, which is applicable for deductions to be claimed u/s 80C to 80U in computing total income, states the following: \"Where the assessee fails to make a claim in his return of income for any deduction under section 104 or section 10AA or section 10B or section 10BA or under any provision of this Chapter under the heading \"C.-Deductions in respect of certain incomes\", no deduction shall be allowed to him thereunder\" 4. The Company furnished the Income Tax Return within the applicable due date of 30th November, 2018. Please find attached the ITR acknowledgement in this regard. (Annexure 1) 5. Further, the Company has filed the following reports within the applicable due dates. Please find below the details of forms filed and the acknowledgements attached: Sl.No Particulars form date of Filing Annexure Reference 1 Audit Report u/s 44AB 3CA-3CD 30-11-2018 2 2 Audit Report u/s 80-IC 10CCB 29.11.2018 3 3 Report to be furnished u/s 92E 3CEB 30.11.2018 4 6. The Company filed the ITR and all the applicable audit reports before the due date and the same was correctly disclosed in the ITR. Please find attached the relevant pages of the ITR -6 form for your reference. (Annexure 5) 7. Therefore, it is eligible to claim the deduction of Rs.43,89,60,086 u/s 80-IC since the claim was made at the time of filing the ITR as stipulated in the Act. 8. Hence, the proposed disallowance is not warranted. The assessee vide letters dated 5th, 21st January and 4th March, 2021 submitted details sought by the Department. Based on the enquiry and after - 10 - ITA No.1598 /Chny/2024 considering the responses filed by the Appellant, the scrutiny assessment was concluded by passing an order section 143(3) read with section 143(3A) and 143(3B) of the Act on April 13, 2021 by the Assessing Officer ('AO') accepting the returned income of the Appellant, thereby accepting the claim under Section 80-IC under the Act and without making any addition/disallowance. 4. Subsequently, proceedings under section 263 of the Act were initiated by the Principal Commissioner of Income tax-1, Chennai (ld. PCIT) initiated proceedings u/s.263 of the Act by issuing a show cause notice dated 16.01.2024 alleging that the ld. Assessing Officer had failed to examine the deduction claimed for industrial undertaking u/s.80IC of the Act. The ld. PCIT set aside the original assessment order passed under section 143(3) of the Act by passing an order under section 263 of the Act dated March 31, 2024 and held that the original assessment order is erroneous and prejudicial to the interest of the revenue and directed the Ld. AO to examine the said issue in detail and pass a consequential order as per law. Aggrieved, assessee preferred an appeal before the Tribunal. 5. Before us, the ld. Authorized Representative submitted that during the course of assessment proceedings, the AO had made detailed inquiries with respect to the deduction claimed under Section 80-IC of the Act. Notices dated 22nd September, 2019, 22nd December, 2020 and 1st March, 2021 under section 142(1) of the Act were issued and assessee has explained in detail - 11 - ITA No.1598 /Chny/2024 vide letters dated 5th, 21st January, 2021 and 4tth March, 2021. Further, it is relevant to note that the Assessing Officer has conducted further inquiry more specifically in connection with the eligibility for claiming deduction under Section 80-IC of the Act vide notice under dated March 1, 2021 and assessee vide letter dated 4th March, 2021 had submitted submissions. The ld. Assessing Officer thereafter, upon consideration of the submissions of the Appellant and the relevant facts and materials and after applying his mind upon the relevant documents completed the assessment vide order dated April 13, 2021. The ld. AR illustrated the relevant extracts of the assessment order is reproduced below: \"2. The reply of the assessee received in response to proceedings initiated under relevant statutory notices of of the IT Act, 1961 is examined vis-a-vis the complete scrutiny parameter for which the case is selected under CASS. After examination, on the basis of material available on record the explanation of the assessee on the issue is accepted and no addition has been made to the total income. 3. The assessment of income is done as per computation sheet and the sum payable is determined as per the demand notice. Returned Income: Rs.1.37,29,19,610/- Assessed Income: Rs.1,37,29,19,610/-\" 6. Ld. AR further contented that it would be evident that the Ld. AO had duly conducted enquiries regarding the claim for deduction under section 80- IC of the Act and hence submitted that the assessment order cannot be held to be erroneous and prejudicial to the interests of the Revenue and it is also pertinent to note from the above submissions that all the relevant enquiries in connection with the claim for deduction under Section 80-IC of the Act was - 12 - ITA No.1598 /Chny/2024 done by the Ld. AO during the course of assessment proceedings and assessment has been completed by the ld. AO only after being satisfied with the documents and explanation submitted by the assessee. Ld. AR submitted that the relevant documents have already been examined in detail by the ld. AO during the original assessment proceedings and thus, this cannot fall under the situations contemplated in explanation 2 to Section 263(1) of the Act. Without prejudice to the fact that detailed enquiry and examination with respect to the issue under consideration was undertaken by the Ld. AO in the course of assessment as well as reassessment proceedings, 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 course of action under section 263 would be open. In this regard, assessee relied on 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 - 13 - ITA No.1598 /Chny/2024 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. ITATAhmedabad 97 taxmann.com 671 The ld. AR further argued 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. Ld. Authorized Representative further added 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. Ld. AR stated that in the instant case, the Ld. AO has passed an order after enquiry and verification of details on the deduction - 14 - ITA No.1598 /Chny/2024 under Section 80-IC of the Act and has taken a view that the same is allowable. The assessee clearly demonstrates the fact that the Ld. AO has applied their mind in passing the order and has taken a plausible view based on the facts and law. Thus, without establishing that the view of the Ld. AO is unsustainable in law, the Ld. PCIT ought not to have invoked revision under Section 263 of the Act. It was also submitted that the Ld. PCIT had invoked the revision under Section 263 of the Act merely on the basis that the common expenditure have not been properly apportioned without appreciating that the AO had duly verified the separate books of accounts and financials of the eligible unit during the original assessment proceedings. The PCIT had arbitrarily concluded that the Gross Total Income must be apportioned based on the turnover of the units without appreciating that each of the units maintain separate books of accounts. Hence, it is submitted that the assessment order cannot be said to be erroneous and prejudicial to the interests of the revenue without pointing out any legal or factual infirmity or without carrying out own enquiry. Therefore, ld. AR prayed that the proceedings under section 263 of the Act is invalid and are liable to be quashed. 7. Per contra, the ld. CIT- DR relied upon the order of CIT and contended that in assessment proceedings enquiry was not done properly. He relied upon the impugned order of the ld.PCIT. - 15 - ITA No.1598 /Chny/2024 8. We have heard the rival submissions and gone through the record, paper books and impugned order. 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] 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 - 16 - ITA No.1598 /Chny/2024 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 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 - 17 - ITA No.1598 /Chny/2024 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 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 - 18 - ITA No.1598 /Chny/2024 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 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 as such will be erroneous and - 19 - ITA No.1598 /Chny/2024 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 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 - 20 - ITA No.1598 /Chny/2024 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 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 alongwith the pending application(s), if any’’. 9. 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 - 21 - ITA No.1598 /Chny/2024 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). 10. 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. 11. The Hon’ble High Court of Bombay considering another decision of the same High Court in the case of GKN Sinter Metals Ltd., vs. ACIT reported in 371 ITR 225 has categorically pointed out that an assessment order passed u/s.143(3) of the Act does not reflect any consideration of the issue, it must follow that no opinion was formed by the AO in the regular assessment proceedings. This submission was negatived by the Hon’ble Bombay High Court and the relevant paras 10 & 11 reads as under:- ‘’Another aspect argued by ld.counsel that in term of clause (a) to Explanation 2 to section 263 of the Act, reassessment order is deemed to be erroneous insofar as prejudicial to the interest of revenue. The ld.counsel for the assessee drew our attention to the decision of Hon’ble High Court of Delhi in the case of PCIT vs. Clix Finance India Pvt. Ltd., ITA No.1428/2018, order dated 01.03.2024 and drew our attention to paras 19 & 20 explaining the provisions and particularly Explanation 2(a) as under:- 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 - 22 - ITA No.1598 /Chny/2024 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’’. 12. 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:- “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.” 13. Hence 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 for the following reasons:- I. During the course of assessment proceedings, the AO had made detailed inquiries with respect to the deduction claimed under Section 80-IC of the Act. Notices dated 22nd September, 2019, 22nd December, - 23 - ITA No.1598 /Chny/2024 2020 and 1st March, 2021 under section 142(1) of the Act were issued and assessee has explained in detail vide letters dated 5th, 21st January, 2021 and 4th March, 2021; II. In this case, as seen from the particulars, contents, replies and various dates referred supra, the Assessing Officer has rigorously conducted further inquiries more specifically in connection with the eligibility for claiming deduction under Section 80-IC of the Act vide notice under dated March 1, 2021 and assessee vide letter dated 4th March, 2021 had submitted submissions as mentioned supra. The ld.Assessing Officer thereafter, upon consideration of the submissions of the Appellant and the relevant facts and materials and after applying his mind upon the relevant documents completed the assessment vide order dated April 13, 2021; III. The ld. PCIT could not invoke jurisdiction under Section 263 as the view taken by the Assessing Officer was a possible/plausible view; IV. The 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 considered various judgments of the Hon’ble Supreme Court and other Hon’ble High Court, is aptly apply in this case. V. The judgment referred by the ld.AR in the case of CIT vs. M.Chandra Sekhar [151 ITR 433 (SC)] wherein the Hon'ble Supreme Court has held - 24 - ITA No.1598 /Chny/2024 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. VI. Hence, we find no reason to hold that the original assessment order dated 13.04.2021 u/s 143(3) r.w. section 143(3A) & 143(B) of the Act is erroneous insofar as prejudicial to the interest of revenue. Hence, we quash the revision order passed by PCIT dated 31.03.2024 and allow this appeal of assessee. 14. In the result, appeal filed by the assessee is allowed. Order pronounced in the open court on 18th day of October, 2024 at Chennai. Sd/- Sd/- एस.आर. रघुनाथा (S.R. RAGHUNATHA) लेखा सदèय/ ACCOUNTANT MEMBER (मनु क ुमार ͬगǐर) (MANU KUMAR GIRI) ÛयाǓयक सदèय / JUDICIAL MEMBER चे᳖ई/Chennai, ᳰदनांक/Dated, the 18th October, 2024 KV आदेश कᳱ ᮧितिलिप अᮕेिषत/Copy to: 1. अपीलाथᱮ/Appellant 2. ᮧ᭜यथᱮ/Respondent 3. आयकर आयुᲦ /CIT, Chennai/Coimbatore/Madurai/Salem. 4. िवभागीय ᮧितिनिध/DR 5. गाडᭅ फाईल/GF. "